26 October 2016
Leung Chun-ying has threatened legal action against a newspaper over allegations of impropriety in relation to a deal with an Australian firm. Photo: HKEJ
Leung Chun-ying has threatened legal action against a newspaper over allegations of impropriety in relation to a deal with an Australian firm. Photo: HKEJ

The HK$50 million question

So, C.Y. Leung is off on another legal threat against the press. The basis for his complaint against Apple Daily is that the allegations against him are aimed at undermining his bid for a second term as Chief Executive. As he has not announced his candidacy as yet, it is rather premature to base his defamation claim on an issue that is still not yet crystallized.

As a trained surveyor, one would not expect him to appreciate the significance of this but it is a little surprising that his highly reputable solicitors have advanced the claim on this inchoate premise.

The issue raised by an Apple Daily editorial, which provoked the Leung complaint, relates to a contract that Leung entered into with Australian firm UGL on behalf of DTZ, the insolvent company of which he had been a director and shareholder. Leung also entered into what he described as a “post service arrangement” under which he received some HK$50 million in return for agreeing (a) not to set up a rival company and (b) to advise on an ad hoc basis and promote UGL’s companies.

Timing is critical.

Leung entered into the agreement very shortly before becoming a candidate for election as chief executive of Hong Kong.

As we are uncomfortably aware, he was duly elected in the 2012 contest.

Apple Daily focused on the investigation which, apparently, is or was being conducted by the ICAC, Hong Kong’s anti-graft agency, into any possible corrupt practice related to the agreement with UGL.

The investigation itself has become mired in political intrigue and speculation, with the ICAC’s Rebecca Li having been removed from her job as Acting Head of Operations.

The rumor mill suggested that her removal was because she was performing her investigative duties too assiduously.

There is little doubt that the transaction between UGL and DTZ was, to put it neutrally, a little out of the ordinary.

DTZ was insolvent so why would anyone buy it – other than perhaps as a tax loss – and why at such a high price?

Another curiosity was that DTZ was sold to UGL allegedly for a lower price than the best one on offer.

But price does not necessarily represent the true value of the transaction; there may be other genuine factors not in the public domain which would have made UGL’s offer more attractive to the shareholders.

However, on the face of it, there is no corrupt practice.

The truth of the matter may never be revealed and ordinarily the public would not be interested in a deal struck between two private commercial operations, even where the Chief Executive was a counterparty.

Yet again, there is nothing out of the ordinary about company executives negotiating deals for themselves in such situations.

Consequently, there is no compelling evidence of there having been any untoward conduct which would justify the ICAC’s investigation.

However, the personal arrangement is worthy of closer analysis.

By its very nature, CY’s performance of the terms of the arrangement were contingent upon the outcome of the election for Chief Executive. If Leung had lost to Henry Tang, he would have been free to pursue his commercial interests unhindered and could have offered advice to UGL and promoted its companies.

Once elected however, his circumstances changed dramatically. His election made it impossible for him to satisfy the terms for which he had contracted and been paid. In legal terms, consideration became impossible of performance.

In such circumstances, what does it say of the business ethics of someone who retains the cash when he is no longer in a position to perform his side of the bargain? 

We have to assume that UGL’s lawyers were as fully aware of this distinct possibility as CY himself and yet if the contract made no provision against such an eventuality, one possible interpretation would be that the payment was made regardless of whether Leung could fulfill its terms. In which case, what was the consideration for the money?

One wonders what view UGL’s shareholders would take of such an “arrangement”.

There must be many a businessman who would regard with envy a post-service arrangement for such a bonanza.

As the not-inconsiderable sum was apparently not subject to tax, it suggests that CY’s tax advisors are in the same league as those of Donald Trump.

Given Xi Jinping’s attitude towards those in office, some may wonder whether CY meets Beijing’s ethical qualification criteria. Does the chief executive have any “information” on that?

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