GLOSSARY
Branch Kowloon West Branch of the Democratic Party of Hong Kong
Central Committee Central Committee of The Democratic Party of Hong Kong
Company Target Link Limited, limited liability company incorporated under the Hong Kong Companies Ordinance
Chan Ka Wai Member of the Central Committee (2000-2004) Member of the Executive Committee (2000-2004) Chairman of the Branch (1996-2000) Committee member of the Branch (2000 onwards) Director of the Company
District Councillor District Board Member/District Councillor
Executive Committee Executive Committee of the Central Committee
LegCo Legislative Council of Hong Kong
Stanley Ng Stanley Ng Wing Fai, Former Urban Councillor (1995-1999) 1 Former elected District Councillor ( 1994-1999) Chairman of the Branch (2000-2004) Director and shareholder of the Company
James To James To Kun Sun, Legislative Councillor and Candidate in 2004 Legislative Council Election for Kowloon West Constituency District Councillor (YTM _ 1999 to date ) Member of the Central Committee (1997 and 2000- 2004 ) Director and shareholder of the Company
Panel Selwyn Mar ( Convener ) Gladys Li Szeto Wah
Party The Democratic Party of Hong Kong
Premises/Property Flat C, 1/F, 134-134A Lai Chi Kok Road, Kowloon
YTM Yau Tsim Mong
2
ACKNOWLEDGMENTS
The Panel would like to express its gratitude to Dr. Law Chi-Kwong,
Mr. Lee Chik-yuet and Mr. Lai Hok-lim, all of whom provided the
Panel with background information and documentary material gathered in anticipation of the setting-up of the Panel and prior to its establishment and to Ms. Peggy Ha, Ms. Chan Wai Yin Ms.
Genevieve Ku and Ms. Chiley Wan for their unfailing assistance.
Had it not been for their contributions, it would have been impossible to complete this task in the time estimated.
The Panel also wishes to express its appreciation to those who have attended the interviews.
3 REPORT
OF
THE PANEL
Background leading to the establishment of the Panel
1. The Panel was set up by the Party after press reports appeared during the campaign for the LegCo Elections in August 2004 alleging that James To, a LegCo member, a member of the Party and a candidate for the Kowloon West Constituency, had on his election to LegCo in 1998 failed to declare his interest in the Company to the LegCo Secretariat and had abused his position during the period June 1998 to July 2001 as a member of LegCo by claiming as reimbursable expenses rentals paid for use of the Premises owned by the Company which in turn was owned by him and Stanley Ng.
2. It was also alleged that the rental reimbursed to him was above the market rental and that the rentals received by the Company were used towards paying the mortgage on the Premises. At a press conference held in response to such allegations, it was reported that James To had claimed that he did not declare the interest in the Company because he held the interest in trust for the Party.
4 3. A document was reported to have been produced by James To purporting to be a declaration of trust of one share in the Company signed by him and a similar document signed by Stanley Ng. Essentially, the allegations were that James To was benefiting himself or the Party by using public funds to pay off the mortgage when the rentals reimbursed were above market rent. Initially, the Central Committee requested the Panel to look into these allegations and report on the facts.
The Panel
4. The majority of Panel members are non-Party members. Its members are: Ms Gladys Li, S.C. (Non-Party member) Past Chairman of the Bar Association Mr. Selwyn Mar (Non-Party member) Past President of the Hong Kong Institute of Certified Public Accountants Mr. Szeto Wah A senior member of the Party and former Legislative Councillor
Terms of Reference of the Panel
5. At its 1 st meeting held on October 18, 2004, Selwyn Mar was duly elected as the Convener. The terms of
5 reference accepted by the Panel with the approval of representatives from the Party are:
(1) To examine the James To/Target Link Limited incident including the acquisition and rental issues of the property in issue and to identify the lessons to learn.
(2) To identify and recommend policies and procedures in dealing with the renting of premises using public resources that would promote best practice in this area.
The Panel has been asked to submit a report to the Central Committee of the Party which it now does.
Proceedings of the Panel
6. The Panel has been provided with much documentary
material. A list of the more relevant material is at
Appendix 1.
7. The Panel has held 8 sessions and has interviewed 13
persons whom the Panel considered could give relevant
information to enable the Panel to ascertain the facts
and also to reach its conclusions. All such persons
attended on a voluntary basis as the Panel has no
6 coercive powers and the Party while encouraging its
members to cooperate likewise had no rule which could
be invoked to require cooperation. All interviews were
recorded on mini-disc. A full list of those interviewed is
at Appendix 2.
8. James To, Stanley Ng and Chan Ka Wai were invited to
attend for interviews but declined to attend. In the case
of James To and Stanley Ng, the Panel wrote
specifically giving them the opportunity of being
accompanied by a lawyer so that each could be advised
whether or not he should answer any particular question
posed by the Panel. Stanley Ng and Chan Ka Wai both
wrote to the Panel declining to attend on legal advice.
While the Panel was preparing the report, James To
then indicated that as it appeared the Panel desired to
meet him, he could attend at a date mutually convenient
but might decline to answer a question on legal advice.
Given the stage that the investigation had reached, the
Panel decided not to take up this offer but to make
available the draft report to him for his comment which
7 the Panel has done. The Panel has also extended this courtesy to Stanley Ng.
The Panel had intended to ask these gentlemen to explain certain transactions and certain events as reported in the media and as revealed by the material before the Panel. Their failure to submit to interview has made it impossible for the Panel to carry out in full its terms of reference or to investigate fully matters which have been the subject of media interest. The Panel's findings and conclusions in this report must be read bearing in mind that the Panel has not had the benefit of hearing full explanations from them.
It is however right to acknowledge that some documents were provided to the Panel by or on behalf of the
Company and that the provision or release of these documents must have been with the consent of its directors and shareholders.
8 The Panel subsequently received short statements from
James To and Stanley Ng. In his statement, James To
states that he at no time benefited from the Company's
rental income, the Company did not provide directors
with any remuneration nor did the Company distribute
any of its profit to shareholders at any time. Stanley Ng
similarly states that he never received any money/profit
/dividend from the Company directly or indirectly.
The Panel has received comments from Stanley Ng and
James To on the draft Report and the Panel has noted
their comments. The Panel does not consider it
necessary to make any changes to the Report arising
out of their comments.
9. The Panel, those present to provide administrative
support and those present to give evidence were
requested to treat all matters discussed and documents
submitted with confidentiality.
9 The Panel wishes to draw to the attention of the Central
Committee and the Party that those who provided
evidence to the Panel voluntarily may reasonably object
to their evidence and material provided by them being
published without their consent. There may be other
legal issues surrounding the publication of this report.
This is a matter for the Party to address. The Panel
otherwise has no objection to publication of this report.
10. The Panel was authorised by the Party to engage a
surveyor or surveyors to provide a valuation or
valuations of market rental of the Premises at the Party's
expense. The Panel therefore commissioned
Sallmanns and Chesterton Petty to provide a report
giving their opinion of the market rent for the Premises
as at January 1, 2000. The date was selected by the
Panel as being the date at which the total
reimbursement claimed by those renting the Premises
as District and Legislative Councillors was at its highest.
The Panel considered it to be unnecessary to obtain
valuations of the market rent as at various dates. The
10 reports of Sallmanns and Chesterton Petty respectively
dated March 9, 2005 and March 14, 2005 are attached
herewith as Appendices 3 and 4.
FINDINGS RELATING TO TARGET LINK LIMITED AND THE
PURCHASE OF THE PROPERTY
11. The Company was incorporated on 19 March 1997. Its
authorised share capital was $10,000.00 divided into
10,000 shares of $1.00 each. 2 subscriber shares were
issued; one to Victon Secretary Limited and one to
Victon Management Limited. According to its Register of
Directors, James To, Stanley Ng and Chan Ka Wai were
appointed as directors on 2 May 1997.
12. On 12 May 1997, the Company entered into a Sale and
Purchase Agreement for the purchase of the Property
for a total consideration of $1,048,000.00 ( the
Agreement ). The Agreement refers to an earlier
unwritten agreement for sale made between the
Company and the vendor of the Property on 3 May 1997.
11 It also refers to a deposit and part payment of
$50,000.00 as having been paid prior to the signing of
the Agreement and a further deposit and part payment
of $54,800.00 being payable upon the signing of the
Agreement. The Agreement was signed on behalf of
the Company by Stanley Ng.
13. According to stamped Forms of transfer and bought and
sold notes, the subscriber shares in the Company were
transferred to James To and Stanley Ng on 29 May
1997. According to a Return of Allotment filed with the
Companies Registry on 16 May 1997, the Company
allotted 98 shares payable in cash on 15 May 1997; 49
shares were allotted to James To and 49 shares were
allotted to Stanley Ng. The Return of Allotment was
signed by Stanley Ng.
14. A copy of a written resolution of the Company's Board of
Directors has been provided to us resolving that
applications for allotment of these shares by James To
and Stanley Ng be approved and that the return of
12 allotments be filed with the Companies Registry. The
resolution has been signed by all three directors.
However the signatures of Stanley Ng and Chan Ka Wai
have the dates "2004 Sep 14" and "Sept 22, O4"
respectively handwritten underneath. The copy also
bears the words "Certified True Copy", the certificate
being given by the auditor of Target Link Ltd. , CPA
date-chopped "22 Sep 2004". The Panel has also been
provided with a copy of a written resolution of the
Company’s Board of Directors to the same effect dated
15 May 1997 signed only by James To and Stanley Ng
which purports to be signed by “all the Directors of the
Company for the time being” and in which the name of
Stanley Ng is given as Stanley Ng Chi Fai. This
document was provided to the Panel by the auditor of
Target Link Ltd. after his interview with the Panel.
15. The Company Secretary of the Company has been as
follows:
19.3.97 to 2.5.97 Victon Secretary Ltd.
2.5.97 to 18.3.98 James To
13 18.3.98 to 20.3.02 Fosbery Corporate Services Ltd.
20.3.02 to date Stanley Ng
The Company's auditors were Messrs. X for the
Company's financial year ending 31 December 1997
and 1998. From 1999 onwards, Messrs. Y have been
the Company's auditors.
16. By notice dated 2 May 1997, received by the
Companies Registry on 16 May 1997, the Company
gave notice that its registered office was situated at 4C,
Hung Luen Building, 689-693 Shanghai Street, Mongkok,
Kowloon. By notice dated 11 July 1997, received by the
Companies Registry on 25 July 1997, the registered
office was changed to the address of the Property.
These notices were signed by Stanley Ng as director.
17. Completion of the purchase of the Property took place
on 3 June 1997. The Company Seal was affixed in the
presence of Stanley Ng who signed the Assignment on
behalf of the Company.
14
18. On 31 May 1997, the Hongkong and Shanghai Banking
Corporation Limited ( the Bank ) extended a loan of
$620,000.00 to the Company for the purchase of the
Property, with repayment to be by way of 204 monthly
installments of $5,945.00 upon terms that the Bank
would be given a first legal charge over the Property and
that the loan would be supported by a joint and several
unlimited guarantee from Stanley Ng and James To.
Incomplete details of the charge which was executed on
3 June 1997 are entered in the Company's Register of
Charges. The Panel has not been provided with a copy
of the entry relating to the charge made at the
Companies' Registry nor have we been provided with a
copy of the guarantee signed by Stanley Ng and James
To. However, we have no reason to doubt that it was
duly signed.
19. The balance of the purchase price including the sums
paid by way of deposit and part payment was provided
by a number of individuals. From the documents, it
15 would appear that Stanley Ng and James To did
contribute towards the balance of the purchase price.
Further, it would also appear that James To paid for
some or all of the expenses associated with the
purchase of the Property. We are however unable to
confirm this as neither has appeared to be interviewed
by the Panel and the documentation which would
normally exist to support such payments has not been
produced to us.
20. On the basis of the evidence given by the following
individuals, the Panel has concluded that they each
contributed $50,000.00 towards the deposit and part
payment of the purchase price of the Property:
Mr. A
Mr. B
Mr. C Mr. D
Mr.E
However, none of them was provided with any receipt or
acknowledgment of donation nor was any document
16 issued by the Company to them recording that they had
each made a loan to the Company nor were they issued
any shares in the Company. Nor has there ever been
any suggestion that James To or Stanley Ng held all or
part of the issued shares in the Company on trust for
any of them.
The Proposal to purchase the Property for use as an office by the Branch
21. Although it appears from the Panel's interviews of the
persons referred to above that at the end of 1996 or
early 1997, there was discussion within the Branch of
purchasing a property for use as an office, none of the
contributors could recall events exactly. There is no
written record of any discussion or decision by the
Branch of such a proposal.
22. What can be ascertained is that on 15 May 1997, the
Central Committee considered a written proposal put up
by James To for the purchase of the Property by the
17 Company on the basis that the Property would be held
by the Company which would allot 40%-50% of its
shares to investors in the Company with the share
capital raised being used as a down-payment and the
balance of the purchase price being paid by mortgaging
the Property. The written proposal is attached as
Appendix 5. The Panel notes that the proposal explicitly
sets out that the mortgage payments would be settled
by rental income when councillors rented the Property
so that the shareholders would not need to make any
further monthly payments.
23. As part of this proposal, it was stated that Branch
Committee members, Councillors and others associated
with the Branch would have priority in renting the
Property at market rates. The rent would be used to pay
off the mortgage. If the amount of the rental income
exceeded that of the mortgage payments, the
shareholders could share in the audited profits at the
Annual General Meeting.
18 24. Also, as part of this proposal, it was proposed that of the
100 shares to be issued by the Company, 30 shares
would be allotted to a trustee for the Party for a nominal
value of $1 subject to the condition that the Party must
have a member or councillor renting the Property for a
period of 3.5 years or longer. If the rental period were
less than 3.5 years, the Party would not have any
shareholding and would have to sell back its shares to
the then existing shareholders in the 4th year. The
remaining 70 shares would be divided into 10 equal lots
of 7 shares each and would be issued to shareholders
for raising of capital. The price for each lot was $50,000.
Each such shareholder was to be entitled to 7% of the
shareholding and would indirectly hold a 7% interest in
the Property. Share subscribers were asked to settle
their payments by cheque payable to Stanley Ng before
24 May 1997. This is how the Panel has read the
written proposal.
19 However, it has to be emphasised that the Panel has
not had the benefit of hearing any explanation of the
proposal from either James To or from Stanley Ng.
25. According to the minutes of the Central Committee
meeting, the Central Committee perused the proposal
and James To explained the content of the proposal. A
motion was proposed and seconded for the approval of
the purchase of the Property by the Branch and the
purchase of shares by the Party from the Company and
for the Party Treasurer, Andrew Fung Wai Kwong to be
appointed to handle the related matters on behalf of the
Party. This motion was passed without any objection.
Relevant portions of the minutes are attached as
Appendix 6.
26. If this proposal had been carried through, the
"contributors" were to be shareholders of the Company
and the Party was to have a maximum of 30 out of the
100 shares on certain conditions. Although the Party's
shares were to be held in trust, it was not proposed that
20 the Party should be the beneficiary of 100% of the
shareholdings.
No steps taken to implement the Proposal after the Meeting of 15 May 1997
27. As noted above, shares were allotted to James To and
Stanley Ng; the proposal was not carried out. None of
the other contributors were allotted or issued shares at
any time.
28. Andrew Fung, the then Treasurer of the Party was
interviewed by the Panel. He informed the Panel that he
did not attend the meeting on 15 May 1997. He did
however read the minutes of the meeting. Although he
did not know the exact percentage of shares to be given
to the Party, his understanding was that he was to hold
something by way of a gift on behalf of the Party. The
Panel perceives that the gift referred to by Mr. Fung was
shares to be given to the Party. As Treasurer, his focus
would have been on whether the Party had to pay
21 anything for its holding or interest and if so, whether what the Party was acquiring was worth the amount which it had to pay. If it were a gift to the Party, he could wait for arrangements to be made for the gift. As he was busy, he did not call a Finance Committee meeting of the Party to handle the matter. He recalled being asked to attend a meeting of the Branch some time after May 1997 but before July 1997 which he did not attend because he was too busy. He did not get in touch with the Branch to follow up on the matter and he was later told that everything was fixed. At no time has he seen any declarations of trust of any shares in the
Company in favour of the Party nor had he heard of any such before the matter came to the attention of the press in August 2004. In the course of his interview, Mr.
Fung also mentioned that 1997 was a particularly sensitive time for the Party and many things were dealt with orally and not recorded in writing.
22 It is evident that there was no proper follow-up of the
proposal approved at the Central Committee meeting on
15 May 1997.
The financial contributions towards the deposit/part payment of the Property purchase
29. The 5 contributors mentioned above were individually
interviewed by the Panel on 24 January 2005 and the
substance of their evidence is as follows ( save for the
Panel's comments ).
1) Mr. A
Mr. A told the Panel that he made the contribution by
way of a donation to enable the Branch to purchase a
flat for use as an office and had no intention of being
repaid at any time. He could not remember whether he
had paid in cash or by cheque but the money was paid
to Stanley Ng. He was not given any receipt. He knew
that "they" meaning Chan Ka Wai and Stanley Ng were
23 setting up a company to borrow and to arrange a
mortgage but he was not aware that he had any interest
in any shares in the Company.
2) B
B's understanding and position was somewhat different
from that of Mr. A. He told the Panel that he had
contributed the money on the understanding that he was
being asked to contribute to a purchase of an office for
the Branch and would become a shareholder in the
Company. His understanding was that the contributors
were raising 30% of the purchase price and 70% would
be raised by way of Bank mortgage and that after the
mortgage was repaid, the contributors would receive
back their 30% and the Party would get 70%. He was
given no receipt for his contribution nor was he issued
any share certificates. However, at some stage, he was
given a document; by whom, Mr. B could not recollect.
Panel comment - This document was produced by Mr. B
in the course of his interview and is attached as
24 Appendix 7. No other contributor mentioned having received such a document. The Panel notes that it must have been given to him after 3 June 1997 at the earliest as it contains references to payments made on 2 June
1997 and 3 June 1997. However, the Panel is unable to reconcile this document with the proposal approved by the Central Committee on 15 May 1997 save to note that according to this document also, the Party was only to have a 30% share. Further, the structure proposed in this document is unclear.
Mr. B was not sure whether this document was some sort of a receipt. He said that although he thought he was a shareholder, his concern was simply to assist the
Party to purchase an office for the Branch; he had given the money voluntarily and had not thought of getting any money back. He also mentioned difficulties the Party was facing in renting office premises. Some time in
2004, he had received a telephone call from the secretary for the Branch to inform him that the Property was no longer rented out and asked whether he had any
25 views on how the Property should be handled. His reply
was 'no'.
3) C
Mr. C recalled that it was Stanley Ng who asked him for
the contribution of $50,000 in 1997. At the time there
was no company but his understanding was that the
money would go towards the purchase of the property
and he would become a shareholder. He paid the
money to Stanley Ng. Soon after contributing, he asked
Stanley Ng for something in writing. At the time, he was
not told the name of the company or any details of the
purchase. He continued to press for something in
writing and eventually, he received something written in
Chinese referring to some sort of partnership and the
contributors as partners, he being one of them. He
could not recall the exact content of the document and
he had since lost it. He was very disappointed that he
was not given any financial statements or share
certificate with respect to his contribution despite asking
for them on more than one occasion. He did not regard
26 his contribution as a donation and believed that he had
the right to get back the money if he wanted. (…..) He
did not receive any information about the Company or
the Property and only received the auditor's report on
the Company for the year 2002-2003. The Company's
finances were nothing to do with the Branch. He was
aware that Mr. D had been repaid his contribution but he
did not know how or who had repaid him. He did
consider asking for the same because of the lack of
transparency in the whole transaction. But later, he
thought as the funds were for financing the purchase of
an office for the Branch, it was unlikely that anyone had
misappropriated the funds, so he did not ask for a
refund. As for the rentals, he knew that rentals received
from Councillors would be used to repay the mortgage.
He did not know how the rent was fixed.
4) D
Mr. D contributed $50,000 and his understanding was
that he would become a shareholder of a company to be
27 incorporated. He was given to understand by Stanley
Ng that ultimately the Democratic Party would own 50%
interest in the Property. There were only oral
discussions and he did not sign any written agreement.
According to his understanding, there were to be 10
investors, each contributing $50,000 making a total of
$500,000 towards roughly 50% of the purchase price of
the Property and his share would be one-tenth of 50%.
The Property was to be owned by a company. The
mortgage on the property was to be repaid out of the
rentals received from councillors. The purpose was to
use rentals to claim from the public purse to cover the
mortgage. No details of the arrangement for raising the
capital or purchasing the Property was ever set out. The
10 contributors never sat down for a meeting and he did
not know whether there were really 10 persons involved
in the purchase in the end.
About a year after he had made his contribution, he
asked Stanley Ng about progress and was told that he
28 would be given some bought and sold notes. However,
he never got any such notes reflecting his contribution.
At that point, he said he was disappointed.
In 1998 because he was experiencing some financial
difficulty, he applied to have his contribution set off
against his mandatory monthly dues to the Party to which
Stanley Ng, then Chairman of the Branch, agreed.
Ultimately, his contribution of $50,000 was then deemed
to have been eliminated. In that way, he thought that he
had transferred his share to the Party. This has, in fact,
given the others an impression that he had obtained a
refund.
5) E
Stanley Ng told him that the Party wished to set up an
office for James To and he was asked to contribute
whatever amount he felt comfortable with. He gave
$50,000 to Stanley Ng but thereafter he did not know
anything about the purchase. He was not aware that
29 Stanley Ng was an owner of the Property. (……) After
2004, no-one discussed with him what should be done
with the Property until it went into negative equity. Then,
someone consulted him on what should be done with
the Property.
30. Based on the evidence of those interviewed, it is not
possible to establish what beneficial interest if any, the
Party was to have either in the shares of the Company
or the Property. If the approved proposal had been
carried out, the Party would have nominated a person to
hold 30 shares in the Company on trust for the Party but
that was conditional on the Property being rented by
councillors or members of the Party for at least 3.5
years. As no steps were taken to implement this
proposal, it cannot ultimately have determined what
interest, if any, the Party had in the Company or the
Property. None of those interviewed expressly said that
they were making a donation to the Party and clearly
30 some of the contributors were expecting to have some
kind of a share either in the Company or in the Property
albeit after the mortgage had been repaid. So far as the
Company's accounts were concerned, no mention was
made of the contributions by any of the individuals
concerned. Further, there is no evidence that the
provision of these sums were reflected as donations to
the Party in the accounts of the Party for the relevant
year ended 31 March 1998. ( ….…………)
31. James To having been expressly invited to attend for
interview before the Panel on 16 February 2005 and
having declined to do so gave the Panel an indication
that he would be providing a statement to the Panel.
Such statement was not supplied until 15 March 2005,
shortly before the last substantive meeting of the Panel
on 21 March 2005. In his statement, James To says
that it is his understanding that all donors of the
purchase money intended to contribute as a gift to the
Party; therefore, shares in the Company were allotted
equally to Stanley Ng and himself. The Panel would
have wanted to ask James To how this could be
31 reconciled with the proposal which he himself put to the
Central Committee on 15 May 1997 and which was
approved. The Panel would also have wished to put to
him for his comment the evidence of the other
contributors and the document given to Mr. B.
On the basis of the material and evidence before the
Panel, the Panel is unable to accept that the Party was
to be the beneficial owner of all of the shares in the
Company.
32. In the Trial Balance as at 31 December 1997 of the
Company, submitted by Cindy Wong, a member of
James To's staff, to the Panel, an amount of $58,000.00
was shown as owed to James To as Director.
According to the breakdown shown in the General
Ledger, $8,000.00 was for Agent Fee and $50,000.00
was for the purchase of investment property. In the
same Trial Balance, the amount shown as owed to
Stanley Ng as Director was $415,350. The breakdown
in the General Ledger showed various fees and
32 advances but the most substantial sum was
$378,000.00 as purchase of investment property. Given
the lapse of time, not surprisingly no supporting
documents were available but it is possible that included
in the figure of $378,000.00 were the contributions made
by the individuals referred to above.
33. As part of their audit procedures of the Company, the
auditor of Target Link Ltd . sought confirmation from James
To and Stanley Ng of the amounts due to them by the
Company as at 31 December 1997. Instead of the figures
shown in the Trial Balance and the General Ledger, the
amounts due to each were reversed with $57,950.00 owed
to Stanley Ng and $415,300.00 owed to James To. Indeed,
the form which was ultimately signed by Stanley Ng
confirming that the balance due was correctly stated was
originally prepared for James To's signature and the form
ultimately signed by James To was originally prepared for
Stanley Ng's signature which would have accorded with
what was shown in the Trial Balance and General Ledger.
These confirmations are attached as Appendices 8 and 9.
33 One of the confirmations was not signed on behalf of the
Company and the Company chop did not appear; the other
was signed but without the Company chop.
(………………………..)
34. In the Company's accounts, the Property is shown as
the fixed asset of the Company and no loans are shown as
owed except to the Bank and to James To and Stanley Ng
as directors.
The Declarations of Trust
34. 4 documents have been put before the Panel. All are
undated. They are respectively a declaration signed by
James To that one share held by him in the Company
"stand trust " for the Party ( attached as Appendix 10 ), a
similar declaration signed by Stanley Ng ( attached as
Appendix 11 ), a declaration signed by James To that
the 50 shares ( that is 50% of all the issued and paid up
shares ) held by him in the Company “ stand trust for the
Democratic Party “ and which is signed by Dr. Law Chi
Kwong as a witness ( attached as Appendix 12 ) and a
34 similar declaration signed by Stanley Ng and similarly
signed by Dr. Law Chi Kwong as witness ( attached as
Appendix 13 ).
35. Dr. Law's statement concerning these documents is
attached as Appendix 14. The Panel notes that
according to Dr. Law, the documents at Appendix 12
and 13 were signed by James To and Stanley Ng in his
presence on 26 August 2004. The Panel further notes
according to Dr. Law, he personally had never seen the
documents at Appendix 10 and 11 prior to the afternoon
of 23 August 2004. Further, he has clarified with all
members of the Party who had been Chairmen, Vice-
Chairmen, Secretary-Generals and Honorary Treasurers
of the Central Committee during the period from May
1997 to August 2004 that they had no knowledge of the
existence of any declaration of trust document in respect
of the shares of the Company nor any knowledge, report
or allegation that the Party was the beneficial owner of
the Property.
35 36. Although the Panel has not had the opportunity of
putting these matters to James To and Stanley Ng, the
Panel accepts that the documents at Appendices 12 and
13 were not signed until 26 August 2004. The Panel
cannot think of any reason why James To would not
have produced them at the press conference on 23
August 2004 if they were in existence then instead of the
documents which are at Appendices 10 and 11. The
documents are undeniably witnessed by Dr. Law. The
documents must therefore have come into being at
some date between 23 August 2004 as unsigned
documents and then been signed on 26 August 2004.
37. So far as the documents at Appendices 10 and 11 are
concerned, on the material available to the Panel, the
Panel is not able to make any finding as to when these
documents first came into existence. James To has
invited the Panel to refer to the Report of the LegCo
Committee on Members' Interests on its consideration of
the cases of his failure to register his interests in the
Company with the Clerk to the Legislative Council.
36 While the Panel has not considered the Report in detail,
we note that in the Chronology of events, there is
mention that the date of signature of the document at
Appendix 10 could not be confirmed but James To
appears to have told the Committee that the date should
immediately follow 2 May 1997. However, according to
the stamped 'bought and sold' notes and the allotments
filed in the Companies Registry ( see above ), James To
held no shares in the Company until 15 May 1997 at the
earliest. It is more likely that James To was referring to
the subscriber share transferred to him on 29 May 1997.
38. However, the much more substantial inconsistencies
between the case which James To puts forward and the
material before the Panel are as follows:
1) The Panel has already referred to the proposal put
forward by James To which was approved by the
Central Committee on 15 May 1997 under which
the Party would have held 30 shares in the
Company through a nominee. Although this was
37 not implemented, it is inconsistent with the Party
being the beneficial owner of all the shares in the
Company or even of the 50 shares held by James
To.
2) James To cannot speak for all of the contributors.
Some regarded their contribution as a donation
albeit not properly receipted and with the Party
apparently unaware that it was the recipient of
such donation. Others regarded their contribution
as repayable.
3) The document produced by Mr. B ( Appendix 7 )
is inconsistent with the Party being the beneficial
owner of all the shares in the Company or of the
Property. It shows the Party owning 30%; whether
this refers to the Property or the Company is
unclear.
4) On 4 March 2004, the Executive Committee of the
Central Committee of the Party considered a
proposal put forward by Stanley Ng which the
Executive Committee transferred to the Party’s
Finance Committee for its consideration. At the
38 time, Stanley Ng was himself a member of the
Executive Committee. The relevant extract of the
Minute is attached as Appendix 15. The proposal
is attached as Appendix 16. Essentially, the
proposal was that the Party should purchase the
Property. The contents of the proposal are
inconsistent with the Party holding the beneficial
interest in the shares or the Property particularly
as there is no mention whatsoever that either of
the registered shareholders held their shares on
trust for the Party. The document accompanying
the proposal is similar to part of the document
which Mr. B produced to the Panel. The Finance
Committee suggested that the owner of the
Property should sell it as soon as possible and
decided that the Party should not purchase it.
5) The audited accounts of the Party for the year
ended 31 March 1998 did not reflect any
shareholding in the Company nor any interest in
the Property. The accounts were prepared by the
39 Central Committee of the Party. James To was a
member of the Central Committee at the relevant
time and we would have expected that if indeed he
and Stanley Ng held their respective shares in the
Company on trust for the Party at that time,
beneficial ownership by the Party would or should
have been reflected in these accounts.
39. The Panel would have wished to put these matters to
James To and Stanley Ng. In the absence of their
comments, it would be wrong for the Panel to do
anything other than to express doubt that the Party has
been the beneficial owner of all the shares and of the
Property since May 1997. The legal position is highly
complex and it is not the task of the Panel to sort out for
the Party what the answer is. The Party has already
been supplied with its own legal advice as to the validity
of the Declarations of Trust.
FINDINGS RELATING TO THE LETTING OF THE
PROPERTY AND MARKET RENTAL
40
The Property
40. The Property is described in the valuation reports of
Sallmanns ( Appendix 3 ) and Chesterton Petty
( Appendix 4 ) at respectively paragraphs 4 to 11 and 2
to 4 of the reports. The Panel notes that although under
the approved building plans and Deed of Mutual
Covenant governing the Property, the Property was
confined to residential use, the Property was in fact used
as commercial premises. Also, although ownership of
the Property did not carry with it the right to use the
external wall, nonetheless, advertisements for the Party
were put up on the external wall. In addition, the
Property, when purchased by the Company had an
illegal structure whereby additional space was enclosed
thus enlarging the physical area available for letting.
The illegal structure was demolished prior to the
valuations by the surveyors.
41 41. With effect from 1 July 1997 until 30 June 1998, Stanley
Ng rented the Property paying a monthly rent of $6000.
From 1 July 1998 onwards, Stanley Ng rented Room 1
at the Property at a monthly rent of $3200 until 31
December 1999. At the relevant time, Stanley Ng was
both an Urban Councillor and a District Councillor.
Among the documentary material shown to the Panel is
a copy of a document which purports to be a tenancy
agreement between the Company, Stanley Ng and
James To dated 4 August 1998. This provides for the
usage of the Property by Stanley Ng commencing 1 July
1998 until further notice at a monthly rent of $3200 as an
office including provision of signboard, water, electricity,
rates and telephone services. The same document
provides that James To will be entitled to use the
Property for 2 nights per week at any time to meet with
members of the public for which he is to pay $2800
monthly inclusive of services.
However, it appears that James To commenced renting
the Living Room at the Property as his Legislative
42 Council Office at a monthly rent of $6,800 with effect
from 1 June 1998 on a monthly basis. Between 1
October 2000 and 30 September 2002, James To
entered into a tenancy agreement to rent the Living
Room at the Property at the same monthly rent of
$6,800. However, it appears that the Company did not
receive any rent from James To after 1 August 2001.
42. Although the Panel has not seen most of the primary
documents, the Panel is given to understand that both
Stanley Ng and James To claimed the full amount of
rentals paid to the Company as part of their expenses
as respectively District Councillor and Legislative
Councillor. The Panel has received no evidence as to
how these rents came to be fixed. Receipts were
generally signed by Chan Ka Wai. He also signed the
Tenancy Agreement with James To on behalf of the
Company. Mr. Chan also declined to be interviewed by
the Panel.
43 43. The audited Accounts of the Company for each year
carry notes of principal accounting policies which include
a statement referring to rental income from the Property
having been negotiated at arms length. Further, in the
notes to the Accounts for the year ended 31 December
1999 detailing 'Related Party transactions' and for
subsequent years, reference was made to the renting of
the Property by James To and Stanley Ng with a
statement that the rental income was determined "based
on the market value method". The auditor of Target Link
Ltd. admitted that as the Company's auditor, he had
never seen any document which showed or supported
the assertions that the rental income was negotiated at
arms' length or that the rentals charged were market
rents; he accepted the directors' statements to that effect.
44. Mr. Lai Chi Lap also rented one of the rooms at the
Property, designated Room A, as a District Council
Office at a monthly rental of $3,500 from 1 January 2000
to 31 December 2004 under two successive tenancy
agreements for 2 years each and the last for, one year.
44 In each case, the tenancy agreement was signed by
Chan Ka Wai on behalf of the Company. Mr. Ip Shu On
also rented one of the rooms at the Property, designated
Room B, as a District Council Office at a monthly rental
of $3,500 from 1 January 2000 until 31 December 2003
under two successive tenancy agreements likewise
signed by Chan Ka Wai on behalf of the Company.
45. Mr. Ip Shu On's evidence was that he was requested by
Stanley Ng to share the tenancy of the Property with
James To and Lai Chi Lap and that this was under a
pooling arrangement whereby the Councillors would pool
their allowances and their expenses. The rental was not
determined by him as such; the figure was fixed by
others for the sake of the pooling arrangement when a
claim for reimbursement of expenses as a District
Councillor was made which was handled by others. He
had not expected James To to use the Property because
the letting to him, Mr. Ip, included use of the living room.
In fact, James To seldom came to the Property.
However, other members of the Branch would often
45 come to the Property and some would even sleep there.
After more than a year of the pooling arrangement under which he paid a monthly amount of approximately
$10,000, he became dissatisfied with it as he could not really follow how the joint expenses were charged and wanted to move out. He was urged for the sake of his colleagues not to do so. Reluctantly, he agreed to remain but considered the rental was expensive; he accepted the arrangement for the sake of the relationship between himself and the others.
Nonetheless, he ceased to pool allowances and expenses and became responsible for making his own claims for reimbursement. After the office was set up, he shared miscellaneous expenses of the office with Lai
Chi Lap and James To under which each of them paid a monthly amount of approximately $10,000. He also stated that he had no knowledge that the Property was owned by the Company and that Stanley Ng and James
To owned the Company.
46 46. Mr. Lai's evidence was that he had no recollection of
how the rental was fixed. He also believed that there
was no pooling arrangement save that the assistant of
James To would from time to time produce a number of
bills for the purposes of his claiming reimbursement and
he would sign the claim. He did not have any complaint
about the amount of rent payable. His recollection was
that he would have paid the rent by cheque and would
be given receipts for the rental paid.
47. Without the benefit of hearing from Chan Ka Wai,
Stanley Ng and James To, the Panel has no evidence as
to how the rental was fixed save for the indirect evidence
of the auditor that there was no document to support the
statement that the rental was fixed at market rent or was
negotiated at arms' length. There is no evidence that
the rent was negotiated at all. Rather, the rental
appears to have been determined for the purposes of
making claims for reimbursement of expenses as District
and Legislative Councillors. Nor is there any evidence
that the rent fixed was the market rent at the time. The
47 Panel notes that immediately prior to 1 January 2000,
there were no fixed term tenancies as James To was
renting on a monthly basis. Rentals received by the
Company from the tenants from the date of purchase to
date are as set out in Appendix 17 ( subject to the
discrepancies noted in the Table ).
Having regard to the opinions of Sallmanns and
Chesterton Petty as to the market rental as at 1 January
2000, the Panel finds that the monthly rental actually
received by the Company for the Property, namely,
$13,800 was substantially in excess of the market rental
at the relevant date.
Whether Stanley Ng and James To benefited from the rentals
48. The Panel accepts that none of the directors of the
Company received any remuneration and that no
dividends were declared. However, it is not possible to
accept that neither benefited from the lettings. Rentals
received clearly went to repaying the mortgage on the
48 Property, Stanley Ng and James To being the guarantors of the loan. They therefore assumed a personal liability which rentals received by the Company went towards discharging. As these rentals were reimbursed from public funds, both benefited from these arrangements. ( A table compiled from the relevant claims for reimbursement by all the tenants of the
Property is attached as Appendix 18. The Panel has seen samples of the claims submitted by the tenants ).
Further, the Company did make a profit on the rentals
earned and at least, on paper, James To and Stanley
Ng were the sole legal and beneficial shareholders.
Without hearing from the individuals concerned and in
particular, their answers as to why the scheme approved
by the Party at the meeting on 15 May 1997 was not
followed, it is not possible for the Panel to conclude
either way whether the subsequent arrangements for
setting of the rentals were intended by James To and
Stanley Ng to be for their own personal benefit.
49 Propriety of the arrangements for the purchase and funding of the purchase of the Property
49. Members of the Panel are agreed that the matter of the
purchase of the Property was not satisfactorily handled
by the Party or the Branch. Purely from an
organisational perspective, a decision approved by the
Central Committee on 15 May 1997 was not followed up.
Had it been, it is likely that some of the problems and
uncertainties which surround the purchase and the
ownership of the shares in the Company would have
been avoided. Contributions which were made as
donations should have been explicitly recognised as
such. Receipts should have been given to donors. As it
is, it appears that some of the contributors made the
contributions by way of gift to the Branch not explicitly to
the Party, yet their contributions were not recorded in
any way. The accounts of the Company merely showed
amounts owing to directors of the Company . The
Branch decision, if that is what it was, to purchase a
property for use by District Councillors and Legislative
50 Councillors was not recorded or minuted and how it was
to be funded was not recorded or minuted either. Each
contributor should have been asked to make clear on
what basis his contribution was made; whether it was a
donation, an interest-free loan or as an investment. If
the contribution was made by way of loan or investment,
the terms and conditions should have been agreed and
recorded in writing with the obligations of all parties
clearly defined.
50. Mr. Martin Lee was Chairman of the Party at the material
time when the Property was purchased. He was
interviewed by the Panel about the Central Committee
Meeting on 15 May 1997. When shown the proposal
presented by James To, he said that he had no
recollection of the meeting or of the document being
shown to him and had no recollection of any discussion.
He of course accepted the accuracy of the minute. He
also said that he was a very poor administrator and it
was well known and accepted by all within the Party that
he did not concern himself with matters of administration
51 within the Party. Such matters would be left to the
Secretary-General and others within the Party. At the time, the Party was experiencing a lot of difficulties in finding premises to rent and he recalled an occasion when the Party was looking to expand its office premises and a prospective landlord refused to let premises when he learned the tenant was to be the Party. As the handover approached, any way of resolving this problem would have met with approval. At the time of the meeting, he had no knowledge or recollection of any guidelines within the Party relating to the purchasing of property as this was a matter of administration with which he would not concern himself. He personally would be against making use of public funds to purchase a property for the Party and would not dream of claiming reimbursement of rentals where he used his own property for the purposes of his Legislative Council work or office. However, he understood that others within the
Party who were not so financially well off as himself would do so. He was not aware of the existence of the
52 declarations of trust until the issue surfaced in the press
in August 2004.
51. Members of the Panel are divided in their view as to the
propriety of the purchase of a property, whether for the
Party, Branch or individual party members through the
use of reimbursement of rental expenses claimed by
District Councillors and Legislative Councillors. The
majority of the Panel consider that so long as the rental
paid and claimed for reimbursement is by way of market
rental, independently ascertained on professional advice
or opinion, there is nothing objectionable about a District
Councillor or Legislative Councillor renting a property
which is wholly or partly owned by himself provided that
his interest in the property is declared. The minority view
is that public money is not for the purpose of enabling
District or Legislative Councillors to make investments or
to purchase properties; the purpose of the system of
reimbursements is to recompense Councillors for
expenses incurred solely for the perfomance of their
office. Even if the rental is set at market rental, there
53 would still be a collateral benefit to the individual where a
mortgage is being paid off wholly or partly out of rentals
as the individual is able to acquire a property which he
would not otherwise own and the purchase would have
been partly funded by the public purse.
JAMES TO AND STANLEY NG
52. Neither James To nor Stanley Ng has taken advantage
of the opportunity offered by the Panel to clear up the
doubts which surround the issue of whether any of the
shares in the Company were or are held on trust for the
Party. In particular, the suspicion that the undated
documents produced to the press on 23 August 2004
(Appendices 10 and 11) were only prepared shortly
beforehand in response to the press revelations of and
as a cover for James To's failure to declare his interest
in the Company remains.
CONCLUSIONS AND RECOMMENDATIONS
54 53. The Party should review its guidelines for the handling of
donations and contributions and for the keeping of
accurate and full records of them. The same guidelines
should apply to the Party's Branches. The Party should
also establish guidelines on the handling of claims made
by District and Legislative Councillors for reimbursement
of expenses from the public purse. If there is pooling of
expenses, a clear system of accounting should be
maintained so that all involved including the claimants
are satisfied that the claims are properly made and
supportable. The Panel considers that the Chairman
cannot but be responsible for the proper administration
of the Party. At the very least, the Chairman should be
involved in the establishment of principles and guidelines
in the matter of the handling of donations and of public
money and of claims on the public purse to the extent of
satisfying himself that such principles and guidelines
meet with his approval. How the Party is run as an
organisation and in particular, whether it is run on the
same principles of transparency, efficiency and
accountability as the Party expects from government
55 inevitably reflects on the Party's public image and
credibility. The fact that the Party has had to obtain legal
advice as to whether it has any beneficial interest in the
Property or the Company is testament to the failure of
the organisation in handling such matters correctly.
54. The Panel recommends that where premises are rented
from individuals who are Party members or from
companies who are controlled by or connected with the
Party and a claim will be made for reimbursement of
rental expenses from the public purse, an independent
surveyors' report as to market rental be obtained before
signing of the lease or entry into the tenancy and the
appropriate declaration of interest be made. One
member of the Panel additionally recommends that in no
circumstances should District or Legislative Councillors
rent properties owned wholly or partly by themselves or
family members or by companies in their control or the
control of family members if a claim is to be made on the
public purse for reimbursement of rental expenses.
56 55. The Panel has not set out all of the failures on the part of
the Party and the Branch in connection with this matter
as many are so obvious as not to require to be stated.
Basic good management and administration requires
establishment and implementation of systems including
record-keeping, the keeping of proper accounts, the
engagement of independent professionals whose value
is precisely that they are independent and can be relied
upon to point out weaknesses and failures. While the
Panel recognises that the Party faced difficulties
particularly in 1997 which led individuals to be wary of
keeping records and also met with a reluctance on the
part of landlords to let properties to them for the
purposes of the Party's activities or from professionals to
provide services to them, the Panel does not consider
that these difficulties justify poor management and
administration and bad record-keeping.
***
57