Application of the Proviso

In HKSAR v Mak Chai Kwong & Tsang King Man, the Appellants were convicted by a District Court Judge of conspiring to defraud the Government under common law, and using documents as agents with intent to deceive their principal under s. 9(3) of the Prevention of Bribery Ordinance. The offences arose out of property transactions entered into between 1985 and 1990 when they were both engineers in the Highways Department. The two Appellants had during this time owned flats with their wives in North Point and had entered into tenancy agreements with each other in respect of the other’s flat whilst at the same time claiming a Private Tenancy Allowance (“PTA”). The Prosecution’s case was that the Appellants had obtained PTA when they knew they were not entitled to it because they had a financial interest in the respective flats, which they purportedly leased from each other. They allegedly concealed this interest by pretending to be tenants of each other’s wives.

The central issue on appeal was whether the only reasonable inference that could be drawn from the evidence was that the Appellants had entered into an express “cross-holding” of the properties (which was not permissible and involved an agreement to hold their respective properties on trust for each other) or a “cross-leasing” agreement (which was permissible and involved letting out flats which they owned to each other). The Court of Appeal found the District Court Judge had made findings of fact which were materially erroneous but upheld the convictions, applying the proviso because “the inevitable consequence of the judge’s findings as to their agreement to cross-hold the flats was that each enjoyed a beneficial interest … in the flat registered in the name of the other [Appellant] and his wife.”

On review by the Court of Final Appeal, it was noted that the test for the application of the proviso is demanding – “whether a hypothetical reasonable jury, properly instructed, would on the evidence without doubt convict or would inevitably come to the same conclusion” – as was stated in Kissel v HKSAR (2010) 13 HKCFAR 27 at para. 270. The requirement of proof beyond reasonable doubt can be satisfied by drawing an inference of fact, but such an inference must be a compelling one (and the only one) that no reasonable man could fail to draw from the direct facts proved. To draw such an inference, three requirements must be met. First, it must be grounded on clear findings of primary fact. Second, the inference must be a logical consequence of those facts. Third, beyond being logical (since more than one inference might logically be drawn) in a criminal case the inference must be ‘irresistible’, which means it must be the only inference that can reasonably be drawn on the basis of those facts (Winnie Lo v HKSAR (2012) 15 HKCFAR 16 at 115).

Holding

The Court of Final Appeal found that in the absence of direct evidence, it was inherently implausible for the Appellants to have gone to the effort to enter into an illegitimate cross-holding agreement and enter a bogus cross-leasing agreement when they could have just set up a legitimate cross-leasing agreement which achieved the same objective.

While the Court of Appeal had rightly held that the appellants’ convictions based on the Judge’s findings that they had provided the purchase monies for the leased flats could not stand, it erred in applying the proviso. That is, in the absence of any direct evidence, the Court of Appeal drew the inference that the Appellants had expressly agreed to hold the properties on trust for each other, thereby giving each of them a beneficial interest in the flats, making their claims for PTA dishonest.

The CFA found this inference to be inherently implausible, as none of the matters in evidence were capable of sustaining it. There was therefore no basis for applying the proviso and the convictions of the appellants were quashed.

Take-Aways

This is an important decision that highlights what is required for the proviso to apply. Namely, to satisfy the test when drawing an inference of fact, the inference must be: (i) a compelling one and the only one that a reasonable man would draw; (ii) grounded on clear findings of primary facts; (iii) a logical consequence of those facts; and (iv) irresistible, meaning the only one that can be drawn from those facts.

Jurisdictions