By Alex Liu

Hong Kong, 5 May 2023: In a significant judgment, the Court of Appeal has overturned a lower court’s ruling that the long-established use of “letters of no consent” from the police to effectively freeze suspicious bank accounts was unlawful. In considering the matter of Tam Sze Leung & Others v Commissioner of Police CACV 152/2022; [2023] HKCA 537, the appeal judges decided the police were not exceeding their powers by issuing such letters and this practice was neither unlawful nor disproportionate.

Background

The “letters of no consent” regime stems from the Organized and Serious Crimes Ordinance (Cap 455) (“OSCO”), in which section 25 makes it an offence to deal with the proceeds of crime and section 25A creates the offence of failing to disclose a suspicious transaction. When a bank or financial institution reports such a transaction, the police may issue a letter of consent allowing it to deal with the funds or a letter of no consent (“LNC”) withholding approval.

An LNC is not binding but the bank or financial institution invariably freezes the account in question. LNCs are supposed to be reviewed monthly and usually should not last more than six months, during which time the police are expected to attempt to obtain a restraint or confiscation order as soon as practicable.

The case was brought before the Court of First Instance (“CFI”) by four family members who sought to challenge, by way of judicial review, the Commissioner of Police’s decision to issue and maintain four LNCs in respect of their bank accounts, which contained some HK$30-40 million. The police had acted on advice from the Securities and Futures Commission which was investigating suspected stock market manipulation.

The Secretary for Justice subsequently obtained restraint orders – more than 10 months after the first LNC was issued – against the applicants’ accounts, as a result of which the LNCs were lifted. This effectively rendered the application for judicial review academic. Nevertheless, the CFI decided to proceed for the reason that issues of real public importance had been raised.

Court of First Instance judgment

The applicants advanced six grounds for judicial review, three of which were upheld by the CFI:

• LNCs were ultra vires – beyond one’s legal power or authority – under the OSCO, which did not give the police power to operate a de facto property freezing regime (“Ultra Vires Ground”), with an associated alternative argument that the LNCs were issued for an improper purpose (“Improper Purpose Ground”).
• LNCs interfered with the applicants’ constitutional rights under the Basic Law and Hong Kong Bill of Rights and such interference was not prescribed by law (“Prescribed By Law Ground”).
• The so-called No Consent Regime and the LNCs disproportionately interfered with the applicants’ above fundamental rights (“Proportionality Ground”).

The Commissioner of Police appealed, contending the declaration should be set aside and the application for judicial review be dismissed. The family filed a Respondents’ Notice contending that the three grounds of review dismissed by the CFI should be upheld.

Court of Appeal judgment

The Court of Appeal overturned the CFI on the three grounds for judicial review that had been upheld, explaining its reasoning as follows:

Ultra Vires Ground/Improper Purpose Ground: An account is “frozen” not because there is any enforceable order made by the police that blocks the account, but because the bank has chosen not to comply with its customer’s instruction, no doubt due to concern about criminal liability under section 25(1) of the OSCO. The Court of Appeal stated: “The withholding of consent no more ‘freezes’ an account than the giving of consent compels the bank to release money. The police have no power to require the bank to do anything.”

Prescribed by Law Ground: The statutory scheme does not fall foul of the prescribed by law requirement. There is no relevant uncertainty or vagueness in section 25(1) of the OSCO. There are remedies in private law for any infringement of property or contractual rights.

Proportionality Ground: The Court of Appeal noted the constitutionality of sections 25 and 25A of the OSCO was unsuccessfully challenged in the case of Interush Ltd v Commissioner of Police [2019] HKCA 70, [2019] 1 HKLRD 892. The appeal judges stated: “Under the fundamental doctrine of precedent, Interush is binding on the judge and also on this court unless we take the exceptional course of departing from it on the ground that it is plainly wrong.”

The remaining three grounds which had been rejected by the CFI were also dismissed by the Court of Appeal, which concluded “we find ourselves in respectful disagreement with the judge in relation to the grounds he upheld”.

Summary

The Court of Appeal’s judgment will be welcomed by fraud victims who are often required to take urgent legal action to prevent their monies being dissipated. As well, it provides much needed clarity for banks which faced uncertainty over whether to allow an account to remain active. Here at BC&C, we have an experienced team handling matters concerning financial regulation and compliance. If you have any queries, we are happy to assist.

Alex Liu is Managing Partner of BC&C. His key areas of practice include commercial and corporate litigation, investigations by governmental bodies such as the SFC, ICAC and Commercial Crime Bureau, insolvency and debt restructuring, intellectual property and employment matters. He can be contacted at alex@boasecohencollins.com.