FACC No.

2 of 2015
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
FINAL APPEAL NO. 2 OF 2015 (CRIMINAL)
(ON APPEAL FROM CACC NO. 309 OF 2013)
_______________________
Between
HKSAR

Respondent

and
MAK Chai-kwong ()

1st Appellant

TSANG King-man ()

2nd Appellant

_______________________
Before :

Chief Justice Ma, Mr Justice Ribeiro PJ, Mr Justice Tang PJ,

Mr Justice Fok PJ and Mr Justice Gummow NPJ

Date of Hearing
and Judgment:

6 January 2016

Date of Reasons
for Judgment:

29 January 2016

REASONS FOR JUDGMENT

Chief Justice Ma:

1.

I agree with the Reasons given by Mr Justice Ribeiro PJ.

-2-

Mr Justice Ribeiro PJ:

2.

At the hearing, for reasons to be provided, the Court allowed the appeals,

quashed the appellants convictions and ordered that they should have their
costs here and below, including costs certified fit for three counsel in the Court
of Appeal. The following are my reasons.
3.

At the time of their arrest on 12 July 2012, the 1 st appellant (Mak) was

Secretary for Development and the 2nd appellant (Tsang) was an Assistant
Director of the Highways Department. They were convicted in the District
Court1 of the common law offence of having conspired to defraud the HKSAR
Government as well as having committed statutory offences 2 involving the use
of documents as agents with intent to deceive their principal, being offences
arising out of property transactions entered into between 1985 and 1988/1990
when they were both engineers in the civil service. They were sentenced to
concurrent sentences of imprisonment for 8 months on the conspiracy charge
and 6 months on the other charges, suspended for a period of two years.
4.

On appeal, the Court of Appeal3 found that the Judge had made findings

of fact which were materially erroneous but nevertheless upheld their

convictions, applying the proviso. Leave to appeal to this Court was granted by
the Appeal Committee.4

1 HH Judge Johnny Chan, DCCC 956/2012 (8 August 2013).

2 Under sections 9(3) and 12(1) of the Prevention of Bribery Ordinance
(Cap 201).
3 Lunn VP, McWalters JA and D Pang J, CACC 309/2013 (14 November 2014).
4 Ribeiro Ag CJ, Tang and Fok PJJ, FAMC 75/2014 (14 May 2015).

-3A.

The initial acquisitions and tenancies

5.

On 8 June 1985, Mak and his wife Wong Lai King (Wong) signed an

agreement to purchase Flat 21E in a new property development known as City

Garden in Electric Road, North Point (Flat 21E) for $925,800.00. On the
same day, Tsang and his wife Pau Wai Ming (Pau) acquired Flat 22E in the
same block of that development (Flat 22E) for $928,000.00. They each
obtained mortgage finance from Wayfoong Credit Limited and duly completed
the purchases, so that Mak and Wong became the registered owners of Flat 21E
and Tsang and Pau, the registered owners of Flat 22E.
6.

On 4 August 1986, Wong entered into a tenancy agreement with Tsang,

letting Flat 21E to him at the monthly rental of $8,000 for a two-year term
starting on 1 August 1986. On the strength of that tenancy, Tsang applied for
and received from the Government, a Private Tenancy Allowance (PTA) in
accordance with specified entitlements.
7.

By a tenancy agreement dated 29 August 1986, Pau let Flat 22E to Mak

for $8,000 per month for two years beginning on 1 September 1986. Mak
applied for and received PTA in respect of that tenancy.
B.

Termination of tenancies and sale of the flats

8.

Tsang resided in Flat 21E, receiving PTA payments as Wongs tenant until

31 December 1990 (with an interval when the flat was tenanted by his sister
Tsang Wai-wah, another government engineer, while Tsang was abroad on study
leave). After he was allocated government quarters on 28 November 1990, he
moved out and stopped paying rent and receiving PTA payments. Soon after he
left, Flat 21E was sold with vacant possession, with Tsang executing the
assignment dated 22 December 1990 on behalf of Mak and Wong under a power

-4of attorney they had given to him dated 1 December 1990. The sale proceeds
were kept by Tsang, a fact given prominence by the prosecution.
9.

On 8 December 1990, Tsang and Pau gave a power of attorney to Mak

authorising him to sell Flat 22E. It was, however, not sold until July 1992.
Meanwhile, on 26 October 1988, Mak had been allocated government quarters
and no longer needed to rent the flat and PTA payments ceased. After he left,
Flat 22E was let by Tsang and Pau to Dennis Leung (Leung) who became its
tenant as from 19 November 1988.
10.

Pursuant to a fresh power of attorney dated 11 May 1992 given to Mak by

Tsang and Pau, Flat 22E was sold on 20 July 1992 with Mak executing the
assignment on their behalf. Mak kept the sale proceeds, a fact also highlighted
by the prosecution.
C.
1.

The Regulations and the charges

The Judge referred to two versions of the provision in the Civil Service

Regulations (CSR 825(5)) dealing with eligibility for PTA.

The first was

effective as at 24th July 1985, stating:

(5) An officer will not be eligible for a private tenancy allowance if he resides in
accommodation owned by himself, his spouse and/or a relation of either himself or his
spouse. 'Relations' here include (a) parents, (b) brothers, sisters, and their spouses,
and (c) children and their spouses.

2.

As at 13th March 1989, CSR 825(5) relevantly provided:

(a)

An officer shall not claim private tenancy allowance in respect of (i)

accommodation owned by the officer himself and/or any relative of the

officer; or

(ii)

accommodation in which the officer himself and/or any relative of the

officer have/has a financial interest; or

(iii)

...

(iv)

accommodation owned by a trust of which the officer and/or any

relative of the officer is/are a beneficiary.

For the purpose of this regulation, relative includes - the officers spouse;...

-511.

The differences between these two versions have not been treated as

material. The regulations have throughout these proceedings been interpreted as

excluding officers from receiving PTA if they or their relatives had a financial
interest in the property they were renting. That interpretation is not in issue.
12.

The prosecution case was that Mak and Tsang conspired to defraud the

government by obtaining PTA which they knew they were not entitled to
because they each had a financial interest in the respective flats which they were
purportedly leasing from each other, concealing such interest by pretending
merely to be tenants of each others wives.
13.

The particulars of Charge 1 stated that between 8 June 1985 and 31

December 1990 the appellants conspired together to defraud the Hong Kong
Government by dishonestly :
(a)

(i)

falsely representing that they did not have a financial or proprietary

interest in the flats that they leased (MAK leased [Flat 22E] ... and
TSANG leased [Flat 21E]... ) and that the lease in relation to each of the
said properties was a genuine lease;

(ii)

concealing and not disclosing that they each had a financial or

proprietary interest in the flat that they leased by stating the landlord to
be their respective wives; and

(iii) claiming and receiving

Government; or
(b)

14.

Private

Tenancy Allowance

from the

causing a public officer or officers to act contrary to their public duty by

paragraphs (a)(i), (ii) and (iii) above.

The other charges5 alleged that the appellants had used documents, in

particular their PTA applications, with intent to deceive their principal, namely
the Hong Kong Government. Like the conspiracy to defraud charge, those
charges are premised on the appellants having had a financial interest in the
leased premises. Charge 2 against Mak is illustrative, specifying that on 29
August 1986, with intent to deceive his principal, Mak :
5 Charges 2 and 3 against Mak and Charges 4 to 6 against Tsang.

-6... used a document, namely, the Application for Private Tenancy Allowance in
relation to the leased property at [Flat 22E] ... in respect of which the Hong Kong
Government was interested and which contained a statement which was false or
erroneous or defective in a material particular, namely that the leased property was
not owned by himself, his spouse and/or a relation of either his or his spouse and
neither he, his spouse nor any of his or his spouses relations had a financial interest in
it and which to his knowledge was intended to mislead the Hong Kong Government.

D.

The defence case and the Judges decision

15.

The appellants case appeared mainly from their cautioned statements to

the ICAC, they having elected not to testify. It was that each had bought a flat
which they had then leased to the other, quite properly claiming PTA in respect
of the rental paid under such leases, having had no financial interest in the
property which they were leasing. It was common ground, as the Judge noted, 6
that the practice they claimed to have engaged in a practice known as crossleasing was not unlawful.
16.

The Judge, however, convicted the appellants on all charges.

He

identified as the important question the issue whether the prosecution was
able to prove that when Mak and Tsang each applied for and obtained PTA (i)
Mak and Wong were holding Flat 21E on trust for Tsang and Pau; and (ii)
Tsang and Pau were holding Flat 22E on trust for Mak and Wong. 7 If so, the
prosecution would have established that they each had a beneficial and thus a
financial interest in the respective flats.8
17.

His Honour referred to the fact that the two sale and purchase agreements

had been signed on the same day to acquire flats in the same block, similar in
size, view and price; that Tsang had retained a high degree of control over the
flat in being able to arrange for his sisters residence in it during his absence
6 Judges Reasons for Verdict (RFV) 36.
7 RFV100.
8 RFV117-119.

-7although he was ostensibly only its tenant; and that each had kept the proceeds
of sale when the respective flats were eventually sold. 9 On this basis, the Judge
stated that the only compelling inference he could draw was that it was Mak
or Mak and Wong who provided the purchase money for Flat 22E in
1985/1986 and that [it] was Tsang or Tsang and Pau who provided for the
purchase money for Flat 21E in 1985/1986.10
18.

The Judge thus decided (although he did not say so in terms) that since

they had provided the purchase monies to acquire the flats which they were
ostensibly leasing, a resulting trust had come into being giving each appellant a
beneficial and financial interest in the property concerned.
E.

The Judges erroneous findings

19.

Lunn VP (writing for the Court) held that His Honours finding that Mak

or Mak and Wong had provided the purchase money for Flat 22E was not only
unsupported by the available evidence but also contrary to it. 11 His Lordship
listed12 documents including correspondence with the conveyancing solicitors
and loan and mortgage payment receipts and statements which demonstrated
that Tsang and Pau had provided the purchase monies in question. While the
evidence was not as extensive in relation to Flat 21E, Lunn VP held likewise
that the Judges determination that Tsang and Pau had provided the purchase
money for its acquisition was against the weight of the available direct
evidence13 which showed that the money had come from Mak and Wong.
9 RFV124-129.
10 RFV130.
11 Court of Appeal at 63.
12 At 55-63.
13 At 66.

-820.

The erroneous findings were plainly material since ...the issue of

whether or not the respective appellants had a financial interest in the premises
in respect of which they claimed a Private Tenancy Allowance went to the heart
of the charges brought against them.14
F.

The application of the proviso

21.

The Court of Appeal nevertheless applied the proviso, holding that the

Judge had found that the appellants had agreed to a cross-holding of the flats,
meaning that the appellants had agreed that [Mak] [would] have a beneficial
interest in Flat 22E, notwithstanding that it would be and was registered in the
name of [Tsang and Pau] and that, in similar circumstances, [Tsang] [would]
have a beneficial interest in Flat 21E.15
22.

As the prosecution had put it, such purchases were made on behalf of

each other,16 with the appellants agreeing to register them in the Land
Registry, not in their own names, but in the names of each other and then
pretend that they were renting from each other flats in which they did not have a
proprietary or financial interest.17
23.

The Court of Appeal was therefore distinguishing between a cross-

leasing arrangement which was permissible; and a cross-holding agreement

which it held the Judge had found to exist, constituting the alleged conspiracy to
defraud. The proviso was therefore applied on the basis that the Judge had
found that each appellant (and his wife) had expressly agreed to hold the
property of which they were the legal and registered owners on trust for the
14 At 67.
15 At 76 and 81.
16 At 50.
17 At 51.

-9other appellant (and his wife), so that each appellant thereby acquired a
beneficial interest and therefore a financial interest in the property he was
leasing.
24.

There was no documentary or any other direct evidence of such an

agreement. The Court of Appeal, however, inferred its existence pointing to the
fact that the Judge had adverted on various occasions to the coincidence of the
similarity of the conduct of the two applicants 18 involving the sale and
purchase agreements and mortgages being signed on the same day, and the
purchase of flats in the same block, similar in size, view and price. Their
Lordships also noted that the Judge had found that naming their respective
wives (rather than themselves) as landlords and using addresses other than the
addresses of the newly-acquired flats was misleading conduct and concluded
that these matters made it proper to infer that the parties were acting pursuant to
an unlawful cross-holding agreement:
[On] that evidence, the judge found:19
The provision of misleading addresses could not be a coincidence and it shows
that Mak and Tsang were acting in pursuance to an agreement.
The conduct of Mak and Tsang between 1 st June 1985, ie the day they signed
the sale and purchase agreements for Flat 21E and 22E and 31st December
1990, ie the day that the tenancy agreement for Flat 21E was terminated, in
particular the provisions of misleading addresses, the use of their wives as the
landlords in the leases and the fact that both Mak and Tsang falsely stated in
their PTA applications/memorandum for renewal that they and their wives did
not have a financial interest in the property they leased, when considered
together, point to the only compelling inference, ie Mak and Tsang had agreed
to apply for and obtain PTA from the government by cross-holding and bogus
cross-leasing between themselves Flat 21E and Flat 22E.

25.

The proviso was thus applied because the inevitable consequence of the

judges findings as to their agreement to cross-hold the flats was that each
18 At 69.
19 RFV 161-162.

-10enjoyed a beneficial interest, and therefore a financial interest, in the flat

registered in the name of the other applicant and his wife.20
G.

The present appeal

26.

The central issue on this appeal is whether, notwithstanding the

unsustainable basis of the appellants conviction by the Judge, the Court of

Appeal was justified in applying the proviso on the footing that it was properly
to be inferred that the appellants had, from the time of acquisition of the flats,
entered into an express cross-holding agreement (that is, an agreement to hold
their respective units on trust for each other) and not merely a cross-leasing
agreement (where they had let out flats which they owned to each other).
27.

The test for application of the proviso is demanding. As this Court stated

in Kissel v HKSAR:21
The test for the application of the proviso is well established: Whether a hypothetical
reasonable jury, properly instructed, would on the evidence without doubt convict or
would inevitably come to the same conclusion.

H.

Inferring an agreement between the appellants

28.

It is well-established that the requirement of proof beyond reasonable

doubt in criminal cases can be satisfied by drawing an inference of fact, but that
such an inference must be compelling one (and the only one) that no
reasonable man could fail to draw from the direct facts proved. 22 As was stated
in this Court in Winnie Lo v HKSAR:
There are three requirements for drawing such an inference. First, it must be
grounded on clear findings of primary fact. Secondly, the inference must be a logical
consequence of those facts. Thirdly, beyond being logical (since more than one
inference might logically be drawn), in a criminal case the inference must be

20 At 82.
21 (2010) 13 HKCFAR 27 at 170.
22 R v Kwan Ping-Bong [1979] HKLR 1 (PC) at 5.

-11irresistible, that is, it must be the only inference that can reasonably be drawn on the
basis of those facts. 23

29.

It is not in dispute that each appellant was renting a flat of which the

other was the registered owner.

The crucial question was whether the

prosecution had proved beyond reasonable doubt that, pursuant to an agreement

to hold their respective units on trust for each other, they each had a beneficial
interest, and thus a financial interest in the flat being leased, disqualifying them
from PTA. Put another way, the central issue is whether the evidence compels
the court to infer as the only reasonable inference that the appellants had entered
into a cross-holding and not simply a cross-leasing agreement when
purchasing the flats.
H.1 The prima facie position
30.

The Court of Appeal set aside the Judges findings regarding provision of

the purchase monies because their Lordships accepted that the evidence showed
that each appellant had paid for the flat of which he and his wife were the
registered owners. It follows that when considering the appellants criminal
liability, the starting-point must be that each appellant (and his wife) had duly
acquired and was the legal owner of the flat which was rented out to the other
appellant, so that the arrangement was on its face a permissible cross-leasing
arrangement.
31.

There was certainly no direct evidence that the parties had expressly

agreed to a cross-holding arrangement constituting themselves trustees of the

flats they owned in favour of each other. Indeed, the suggestion that the
appellants might have chosen to enter into such an agreement is inherently
implausible. Since it was common ground that a cross-leasing arrangement
23 (2012) 15 HKCFAR 16 at 115; citing Nina Kung v Wong Din Shin (2005) 8
HKCFAR 387 at 185.

-12with a view to claiming PTA was permissible, it is difficult to detect any

possible motive for the appellants to choose instead to enter into an unlawful
cross-holding arrangement with the identical objective of claiming PTA. It is
inherently improbable that the appellants should have (as the Judge thought it
proper to infer24) agreed to apply for and obtain PTA from the government by
cross-holding and bogus cross-leasing between themselves... If PTA could
legitimately be obtained by a cross-leasing arrangement which they were going
to set up in any event, why should they make that a bogus arrangement and
engage in unlawful behaviour by entering into a surreptitious cross-holding
agreement?
32.

Mr Peter Duncan SC25 was unable to suggest any benefit that they might

gain by entering into an illicit instead of a lawful arrangement as the basis for
claiming PTA. Reference was made to the Judges suggestion26 that a possible
motive for a cross-holding arrangement was that this would enable each couple
securely to spend money decorating and improving their own flats. That was
purely speculative since, as Mr Duncan accepted, there was no evidence of
what, if any, money each appellant had spent or intended to spend on improving
their respective units. Moreover, the evidence showed that they each had real
prospects of obtaining government quarters on promotion and that, upon such
prospects being realised, they had sold off the flats, indicating they had not held
them as long-term investments on which significant sums were likely to have
been invested on improvement.
33.

The inference that the appellants had entered into a cross-holding

agreement is not a natural inference for another reason. The appellants had
24 RFV162.
25 Appearing with Mr Beney Wong, SPP, for the prosecution.
26 RFV177.

-13access to legal advice and, as we shall see, sought legal advice in relation to a
proposed declaration of trust in connection with the disposal of the flats. If
similar legal advice had been sought as to the legal consequences of an informal
agreement to hold the respective flats as trustees for each other, they would have
discovered that in the absence of a written and signed document, such an
arrangement had little to recommend itself since it would have been invalid for
want of formality by virtue of section 5(1) of the Conveyancing and Property
Ordinance.27

The Judges speculative suggestion that a cross-holding

arrangement would have secured to each appellant the ability to spend freely on
improving a beneficially owned apartment also lacks substance for this reason.
H.2 The evidence relied on in support of the inference
34.

The broad considerations mentioned above weigh substantially against

inferring the existence of a cross-holding agreement. What then is the evidence

relied on by the prosecution for upholding the Court of Appeals application of
the proviso? It must be evidence which compels the inference that the parties
entered into a cross-holding agreement as the only reasonable inference to be
drawn. It must justify application of the proviso on the footing that conviction
of the appellants based on such an irresistible inference was inevitable.
35.

The evidence relied on by Mr Duncan is set out in the respondents

printed case as follows :28

27 Cap 219. Section 5(1): Subject to section 6 [which is not presently
relevant] - (a) no equitable interest in land can be created or disposed of except
by writing signed by the person creating or disposing of the same, or by his
agent thereunto lawfully authorized in writing, or by will, or by operation of
law; (b) a declaration of trust respecting land or any interest therein shall be
manifested and proved in writing signed by the person who is able to declare
such trust or by his will.
28 At 28 (with references to the Reasons for Verdict and Court of Appeal
judgment omitted).

-14... the following factors (found by the Judge and referred to by the Court of Appeal)
led irresistibly to such an inference being drawn :
(a)

The odds against A1 [Mak] meeting A2 [Tsang] when they queued up to buy
the flats.

(b)

The two flats were in the same block, one directly above the other and were
very similar in size, view and price.

(c)

The sale and purchase agreements and the equitable mortgages for both flats
were signed by the two couples on the same day.

(d)

The similarities in the manner in which the lease agreements were effected:
i. The leases of the two flats stated the landlords to be the Appellants wives
only and left out the Appellants names.
ii. The PTA applications of the two flats provided misleading addresses of the
landlords which were not the addresses of the two couples.

(e)

A2 retained a very high degree of control over Flat 21E when he departed HK
on study leave. A2 and PW5 were able to break their lease of Flat 21E without
a break clause.

(f)

A2 retained the proceeds from the sale of Flat 21E; A1 retained the proceeds
from the sale of Flat 22E.

H.3 Matters listed in sub-paragraphs (a) to (e)

36.

It is readily apparent that the matters referred to in sub-paragraphs (a) to

(e) are at least as consistent with the existence of a permissible cross-leasing

agreement as with that of a cross-holding agreement, making the inference
urged by the prosecution far from irresistible. Sub-paragraph (f), concerning the
sale proceeds, is separately dealt with below.
37.

Sub-paragraph (a) records that the Judge rejected the suggestion that the

appellants had met by coincidence in the queue formed by would-be purchasers

of units in the development. At its highest, this means that His Honour found
that they had met by design and not by chance a finding equally consistent
with a permissible cross-leasing arrangement.
38.

The same applies to the finding that the two flats were in the same block,

similar in size, view and price ((b)); that the sale and mortgage documentation

-15were signed on the same day ((c)); that the tenancy agreements named the
wives as landlords and gave addresses other than the addresses of the newlyacquired flats ((d)); and the ability of Tsang to arrange for his sister to step in
as tenant while he was away on study leave ((e)).
39.

Mr Duncan laid particular emphasis on sub-paragraph (d), criticising the

appellants for acting in a misleading way by naming their wives rather than
themselves as landlords when leasing to each other, and giving other addresses
for the respective landlords even though they had, by the time PTA was applied
for, moved into the newly-acquired flats.
40.

It is fair to say that this conduct suggests a desire not to draw attention to

the existence of a cross-leasing scheme. However, it does not compel inference

of a cross-holding agreement. Contrary to Mr Duncans submission, the facts
do not indicate an attempt at concealment of the cross-leasing arrangement
(therefore suggesting, so Mr Duncan submitted, the existence of an underlying
cross-holding arrangement). Each appellant and his wife were the registered
owners of each flat. Anyone who did a land search to ascertain who owned the
flat in respect of which PTA was claimed would see that they were named as
owners and that one of them (the wife) was the landlord from whom the person
claiming PTA was renting the flat. A cross-leasing arrangement was therefore
readily discoverable from public records. None of this logically suggests that
there must have been a cross-holding arrangement.
H.4 Sub-paragraph (f): retention of the sale proceeds
41.

The point sought to be made at sub-paragraph (f) is that Tsang, while

purportedly merely a tenant, had kept the proceeds after Flat 21E was sold; and
similarly, Mak had kept the proceeds after Flat 22E was sold, indicating that
Tsang and Mak had all along been the beneficial owners of each of the flats in
question.

-1642.

The appellants case was that in 1990, after they had been allocated

quarters and stopped being each others tenants (and stopped claiming PTA),
they each agreed effectively to swap flats (or, more precisely, as the evidence
indicates, to grant each other the right to receive the sale proceeds of each
others flats), resulting in each appellant retaining such sale proceeds.
43.

The admitted facts included the fact that government quarters were

allocated to Mak in October 1988 and to Tsang in November 1990; 29 and that
Flat 21E was sold in December 1990 and Flat 22E in 1992.30
44.

In cautioned interviews, Mak told the ICAC that in November 1990,

Tsang had wanted to sell Flat 22E, but since there was an existing tenant
(Leung) in it, a sale would be difficult, so he had asked Mak to swap flats and
Mak agreed. He said that he believed that ownership in the respective flats was
exchanged with the help of a solicitors firm Lawrence Ong and Co (LOC)
and that he thought there ought to have been a trust document or IOU prepared
by LOC.31 The arrangement had led to Tsang selling Flat 21E and keeping the
proceeds in 1990, and to Mak doing the same with Flat 22E in 1992.32
45.

In his cautioned interviews, Tsang likewise explained to the ICAC that he

had wanted to sell Flat 22E but was hampered by a sitting tenant and persuaded
Mak to agree to a swap of the flats to enable him to effect a sale. 33 He said that
he believed that a trust document had been prepared to facilitate the swap,

29 RFV26(vi).
30 RFV26(viii) and (ix).
31 RFV29(xii).
32 RFV29(viii) and (ix).
33 RFV30(iii) and (iv).

-17which accounted for the mutual retention of the sale proceeds, but that after the
lapse of over 20 years, the relevant document could not be found.34
46.

The Judge, who was upheld by the Court of Appeal on this point, rejected

the appellants explanation essentially because that they had stated that the flats
had been swapped pursuant to some trust document prepared by LOC;
whereas the Judge accepted the testimony of Andus Lai Sai-on (Lai) of LOC
that he had declined to prepare such a trust document because, among other
things, he did not think it a viable option because of anticipated problems with
the mortgagee. It was accordingly found that there had been no swap of the
properties to explain retention of the sale proceeds.
47.

With respect, this was not an adequate approach to the evidence. It is true

that, asked to account for the cross-retention of the sale proceeds at a remove in
time of over 20 years and without the benefit of contemporaneous documents,
both appellants (laymen, not lawyers) stated their belief that there had been a
swap of the flats effected by some trust document. In the light of Lais evidence
the Judge was clearly entitled to find that no trust document had in fact been
executed.

However, that finding did not diminish the importance of the

available evidence regarding an intended swap as the explanation for the way
the sale proceeds were dealt with.

The significance of that evidence was

evidently overlooked.
48.

The undisputed evidence was that (i) by a fax dated 27 November 1990

(whose faded and illegible contents were only recovered by forensic scientists
after the ICAC interviews) the appellants had given clear instructions ... to
create a document of trust;35 (ii) on their instructions, Lai drew up a power of
attorney dated 1 December 1990, whereby Mak and Wong authorised Tsang to
34 RFV30(i) and (ii).
35 Court of Appeal 40; RFV113(e).

-18sell Flat 21E on their behalf; and a power of attorney dated 8 December 1990
whereby Tsang and Pau authorised Mak to sell Flat 22E on their behalf; (iii)
after Lai declined to draw up the trust document, he refunded $1,000 which had
been paid to his firm as costs on account; 36 (iv) a fresh power of attorney dated
11 May 1992 was prepared by Lai whereby Tsang and Pau authorised Mak to
sell Flat 22E on their behalf; (v) the sales which took place on 22 December
1990 (of Flat 21E) and on 20 July 1992 (of Flat 22E) were effected pursuant to
those powers of attorney; and (vi) Tsang and Mak retained the sale proceeds
respectively of Flat 21E and Flat 22E.
49.

The faded fax dated 27 November 1990 conveys instructions to Lai in

two parts. First, it asks him to prepare an Authorization Document in relation

to Flat 21E owned by Mak and Wong in favour of Tsang. As noted above, a
power of attorney dated 1 December 1990 authorizing Tsang to deal with Flat
21E was duly prepared and was in fact operated by Tsang on 22 December
1990. Secondly, the fax instructs Lai to prepare an Authorization Document
and a Declaration of Trust to authorize Mak and Wong to sell Flat 22E and to
make the Existing Owners Tsang and Pau the trustees of the same in favour of
Mak and Wong. It also records that Flat 22E was then rented to Leung at
$15,000 and mortgaged to the Wayfoong Finance Group for $788,000.
50.

The fax provides clear contemporaneous support for the appellants case

that they had sought to grant each other the right to sell their respective flats in
1990. It shows that it was intended that Tsang should be authorized to sell Flat
21E on behalf of Mak and Wong and, as the evidence establishes, to keep the
proceeds. Since Flat 22E, owned by Tsang, would not be sold until later, Lai
was asked to prepare a power of attorney authorizing Mak and Wong to sell it in
due course and, in the meantime, to prepare a declaration of trust so that Tsang
36 RFV69 and 113(b).

-19(who would have availed himself of Flat 21Es sale proceeds) would become
trustee of Flat 22E in favour of Mak and Wong.
51.

Lai complied with the instructions regarding the powers of attorney and

they were in fact utilised in implementing the swap arrangement. The fact
that Lai advised against and did not draft the declaration of trust is not to the
point. The evidence clearly shows that in 1990 there had in fact been an agreed
swap not, as the appellants had erroneously recollected, by exchanging legal
title in the two flats, but by agreeing to give each other the right to sell and to
receive the sale proceeds of each flat. The fax shows that the plan was for the
registered owners to remain unchanged and for the flats to be dealt with using
powers of attorney. Mak and Wong were intended to be given a measure of
security by means of a declaration of trust in respect of Flat 22E while it
remained in the registered ownership of Tsang and Pau.
52.

The fact that the sale of Flat 21E went ahead without drawing up such a

declaration of trust and without Mak and Wong obtaining such security does not
detract from the significance of this evidence. It shows that there was a swap
arrangement in the aforesaid sense and therefore a plausible explanation for the
retention by Tsang and Mak of the relevant sale proceeds, consistent with them
having previously entered into a cross-leasing arrangement. It indicates that the
appellants were (as the Land Registry showed) the owners of their respective
flats and that it was only in 1990 that any attempt was made to create an
equitable interest in Flat 22E in favour of Mak and Wong as part of the swap
arrangement. This evidence makes inference of the existence since 1985 of a
cross-holding agreement on the basis of the appellants retention of the
respective sale proceeds far from irresistible.

-20H.5 Continued payment of rent

53.

In his oral argument, Mr Duncan submitted that there ought to be added

as a fact which militates against accepting that there was a swap arrangement
in 1990, the fact that Leung, the tenant of Flat 22E, testified that he had
continued to pay his rent after 1990 by delivering cheques to Tsang. The Judge
commented:
If there was a swap of properties in 1990, one would expect [Leung] be informed
that Mak and Wong had become the new owners of Flat 22E and henceforth [Leung]
should pay his rents to Mak, not Tsang. ... The fact that Tsang continued to receive
rent from [Leung] after 1990 is wholly incompatible with Maks and Tsangs claim
that they had exchanged the properties in 1990.37

54.

Since Leung was Tsangs tenant, it is unsurprising that the rent continued

to be paid to Tsang in accordance with the tenancy agreement. There was no

evidence as to what Tsang did with the rent received.

However, as the

prosecution accepted and the Judge noted:

... it is perfectly possible that Tsang had been accounting to Mak for the rent received
from [Leung] albeit there is no banking evidence available after the long lapse.38

55.

Oddly, acceptance of this possibility did not lead the Judge to question

the cogency of the evidence as to rental payments for undermining the case that
there had been a swap. Instead, the Judge reasoned tangentially that:
Such arrangement [ie, Tsang handing over the rent to Mak] is compatible with the
Prosecutions case that all along Mak and Tsang did not want others to know about
their true arrangements.39

56.

But the premise of this approach is that their true arrangements did

involve a swap. Retention of the sale proceeds therefore remained consistent

37 RFV49 and 50.

38 RFV51.
39 Ibid.

-21with a permissible cross-leasing arrangement and did not provide any basis for
inferring a cross-holding agreement.
57.

Later in his Verdict, the point became merely a criticism for failing to

inform Leung of a change of ownership, while accepting that Tsang might have
been receiving rent on Maks behalf.40 That criticism suffers from the erroneous
assumption which the faded fax dispels that the intended swap involved a
change in the ownership of the properties rather than granting each other the
right to receive the respective sale proceeds. There was no change of ownership
to inform Leung about and it was no concern of Leungs whether upon sale of
Flat 22E, the sale proceeds would go to Mak and Wong or to Tsang and Pau.
I.

Conclusion

58.

The Court of Appeal rightly held that the appellants convictions based on

the Judges finding that they had provided the purchase monies for the leased
flats could not stand. However, the Court of Appeal erred in applying the
proviso. In the absence of any direct evidence, it felt able to draw the inference
that when acquiring the flats, the appellants had expressly agreed to hold them
on trust for each other, thereby giving each of them a beneficial and thus a
financial interest in the cross-leased flats, and making their claims for PTA
dishonest.
59.

Such an inference was inherently implausible and none of the matters

relied on by the prosecution and by the Court of Appeal were capable of

40 RFV113(g): If there was a swap, one would expect [Leung], the tenant of
Flat 22E be informed about the change of ownership and that he should
henceforth pay his rents to the new owner, Mak and Wong. Even if it was the
arrangement of Mak and Tsang that Tsang should continue to receive rent on
Maks behalf from the tenant, one would still expect Tsang and/or Mak should
inform the tenant about their agreement. It is clear from [Leungs] evidence that
he had never been informed that Mak had become the owner of Flat 22E; all
along he took Tsang as his landlord.

-22sustaining it. The contemporaneous evidence showed that each appellant (and
his wife) had duly paid for and become the legal owners of their respective flats
and that they had then entered into cross-leasing tenancy agreements. There
was no cogent reason to infer that there was any illicit underlying crossholding agreement. As the faded fax dated 27 November 1990 indicated, it
was not until the end of 1990, after the appellants had stopped claiming PTA,
that any steps were taken to create a beneficial interest in Flat 22E in favour of
Mak and Wong as part of an agreement to swap the right to receive the sale
proceeds of each unit. There was accordingly no basis for applying the proviso
and the appellants were entitled to have their convictions quashed.
Mr Justice Tang PJ:
60.

I agree with the Reasons given by Mr Justice Ribeiro PJ.

Mr Justice Fok PJ:

61.

I agree with the Reasons given by Mr Justice Ribeiro PJ.

Mr Justice Gummow NPJ:

62.

I agree with the Reasons given by Mr Justice Ribeiro PJ.

(Geoffrey Ma)
Chief Justice

(Joseph Fok)
Permanent Judge

(R.A.V. Ribeiro)
Permanent Judge

(Robert Tang)
Permanent Judge

(William Gummow)
Non-Permanent Judge

-23Mr John Reading SC and Mr Kevin Li, instructed by David Hui & Co. for the
Appellants
Mr Peter Duncan SC, Counsel on fiat, and Mr Beney Wong, SPP of the
Department of Justice for the Respondent