In October 2014, it was reported that Leung Chun-ying, then-Chief Executive of Hong Kong, had signed an agreement in 2011 with UGL, an Australian engineering firm, in relation to its takeover of DTZ, a UK-listed real estate services company in which Leung was the director of the company. In agreement, UGL undertook to pay Leung £4 million (HK$50 million) in two instalments in 2012 and 2013 respectively, subject to specific conditions. As these payments concurred with the term of office of Leung Chun-ying as Chief Executive between 2012 and 2017, it has aroused concerns of the public in respect of the nature of payment, potential conflict of interests, relevant systems of declaration of interests and taxation implications.
The UGL case was under investigation of the Independent Commission Against Corruption (ICAC) for an unusual four-year long period from 2014 to 2018. In July 2016, Rebecca Li Bo-lan, the acting head of the Operations Department of ICAC resigned after the cessation of the acting appointment in which such unusual change raised public concern. It was speculated it might be related to the UGL case as Li was reportedly its principal investigator. In November 2016, a select committee to inquire into the UGL incident was set up in the Legislative Council of Hong Kong (LegCo). In May 2017, it was revealed that Holden Chow, vice-chairman of the select committee, had privately discussed with the Chief Executive about the UGL case in which Leung "made suggestions about the scope" of the investigation. It raised public concern over Leung's interference into the investigation.
Background DTZ was a real estate services company listed in the United Kingdom with a history of more than 200 years before its closure. It had ventured into Asia since 1999, partnering with Asian firms including CY Leung & Co, a surveying company set up by Leung Chun-ying in Hong Kong. Leung was appointed as a board member of DTZ in December 2006 and chairman of DTZ Asia Pacific in February 2007.
DTZ was severely affected by the Great Recession which resulted in a cumulative loss of £106.7 million (HK$1.3 billion) before tax during 2009–2011. As the major shareholder, Saint George Participations (SGP) refused to inject more liquidity into the company. As DTZ found it difficult to service the total secured debt of £110 million (HK$1.4 billion) owed to the Royal Bank of Scotland (RBS), its lead creditor, the latter engaged Ernst and Young (EY) to provide strategic advice on the options available to RBS in regard to DTZ's debt on 17 October 2011. As a result, DTZ commenced a fast-track sale two days later to minimise its debt loss. ON 8 November 2011, UGL, an Australian engineering firm was chosen as the "preferred bidder" in the rescue takeover of DTZ as voted by the DTZ directors.
Shortly after that, Leung stepped down from the board of DTZ on 24 November before he declared his candidacy for the 2012 Hong Kong Chief Executive election on 27 November 2011. Prior to that, Leung resigned from the Executive Council of Hong Kong (ExCo) on 3 October 2011.
Agreement On 2 November 2011, UGL issued an agreement letter to Leung, setting out the following terms of agreement in relation to UGL's takeover of DTZ: Cash bonus earlier committed by DTZ: UGL undertook to pay Leung Chun-ying the outstanding bonus of £1.5 million (HK$18.7 million) which DTZ agreed to pay for the period from 1 May 2010 through to the completion of the sale of DTZ; Formal terms of payment of £4 million: UGL would pay Leung Chun-ying a total of £4 million (HK$50 million) over a two-year period in 2012 and 2013, provided that Leung provides assistance in promoting UGL and DTZ as reasonably required by UGL, including but not limited to acting as a referee and adviser from time to time; supports the acquisition of DTZ by UGL; retains the senior management team of DTZ until end-2013; does not make any statements criticising the takeover; and undertakes non-compete, non-poach arrangements in the following 24 months after the acquisition of DTZ by UGL; and Sale options of DTZ Japan Ltd: For the stake of DTZ Japan Ltd still held by Leung Chun-ying, UGL offered an immediate sale option to buy his shares at £200,000 (HK$2.5 million) plus 30% of the net profit of DTZ Japan Ltd after taxation for the three financial years during 2012-2013 if Leung chose to sell at a later date, UGL offered a put option to buy his stake within seven years from the completion of UGL's acquisition of DTZ, at a price equivalent to 30% times seven of the earnings before interest, taxes, depreciation and amortisation (EBITDA) of DTZ Japan Ltd, where EBITDA is the average of three financial years before he activates the put option, subject to a minimum payment of £200,000 (HK$2.5 million).
On the same day, Leung Chun-ying signed the agreement, but inserted a handwritten note "provided that such assistance does not create a conflict of interest" next to the clause (2)(1). At the same time, DTZ received a rival bid from another company, China's state-owned Tianjin Innovation Financial Investment Company which had made a bid that valued DTZ at £100 million more than the bid by UGL, but that this more valuable bid was rejected by the DTZ board, which included Leung, and not released to shareholders. It was reported that EY and RBS thought the execution time was too long to address the imminent liquidity crisis, the directors decided to choose UGL as "it provided the most likely opportunity of delivering the best outcome for creditors". On 4 December 2011, UGL completed its acquisition of DTZ through the pre-pack sale mechanism, at a cost of £77.5 million (HK$967.2 million).
On 25 March 2012, Leung Chun-ying was elected as the Chief Executive of Hong Kong. He was sworn in on 1 July for a five-year period up to 30 June 2017. According to the terms of the agreement between Leung and UGL, Leung should have received £2 million (HK$25 million) each in 2012 and 2013 respectively from UGL, but there has not been any publicly available information on the details of these payments to date.
Disclosure and reporting On 8 October 2014, Fairfax Media, an Australian media agency, published for the first time a detailed report on the above agreement between Leung Chun-ying and UGL in the Sydney Morning Herald and The Age. This had aroused intense public discussion in Hong Kong during the city-wide pro-democracy protests often dubbed as the "Umbrella Revolution". The members of the public raised question over the UGL agreement on the nature of payment, potential conflict of interests, relevant systems of declaration of interests; and taxation implications.
The clause of Leung agreeing to "[act] as a referee and adviser from time to time" raised to concerns on whether Leung agreed to provide future services to UGL, as for the Chief Executive, it was illegal to accept any paid advisory for a commercial entity. Even though Leung had a handwritten clause in the contract stating that he would perform the required duty "provided that it does not create any conflict of interest", legislator Albert Ho of the Democratic Party said it was not enough for Leung as the Chief Executive was already paid for such duty. Ho questioned whether Leung had declared such interest to the Chief Justice of the Court of Final Appeal as required by Article 47(2) of the Basic Law.
Leung Chun-ying issued a statement on the same day, highlighting that the £4 million (HK$50 million) payments arose from his "resignation from DTZ, not any future service to be provided by him". Moreover, as he had already resigned from the ExCo well before his conclusion of agreement with UGL on the one hand, and the agreement took place before his election as the Chief Executive on the other, "there is no requirement under our current systems of declaration" to declare the payments. While the Neo Democrats, a pro-democracy party, lodged a complaint about the issue with the Independent Commission Against Corruption (ICAC) on 9 October 2014, the Secretary for Justice had delegated responsibility to Director of Public Prosecutions to handle the case.
The Chief Executive's Office responded to the inquiries about Leung's tax implications by claiming that he "was not required to pay salaries tax for the related payments" on the advice of his accountant. John Garnaut, an Australian journalist who was one of the writers of the original report said that his team received the original documents on 5 October from an anonymous source. He also said that they had been "threatened" with legal action by Leung's lawyers before they published the report. In response to such accusation, the Chief Executive's Office said Leung decided to pursue a potential case as the allegations of a "bribe" provided by the report were "very serious".
Both EY and the chairman of the then DTZ Tim Melville-Ross were reportedly not aware of the agreement between Leung and UGL in 2011. In reply to a press enquiry, EY commented that "it was natural" for UGL to enter into a non-poaching arrangement to secure key personnel, and added that "any such arrangements made were between UGL and the employees". Likewise, RBS was reportedly unaware of the agreement. That said, there was a conflicting press report claiming the otherwise afterwards. UGL issued a press release on 9 October 2014 to counter the allegation of "secret payment" to Leung. It said that the agreements were "common confidential commercial arrangements when a business is being acquired" and they were "standard businesses practice for non-compete and non-poach agreements".
David Webb, who was the deputy chairman of the Takeovers and Mergers Panel of the Securities and Futures Commission and editor of Webb-Site.com, commented on the matter, saying that EY should have been informed about the agreement between Leung and UGL so it could "consider whether an excessive amount of the value of the business was being shifted from the company to its director and management". As Leung failed to disclose the side-deal, Webb said Leung might have "obtained an advantage without his principal’s consent, against Section 9 of the Prevention of Bribery Ordinance ()."
Legislative Council inquires On 17 October 2014 at the House Committee meeting of the Legislative Council (LegCo), three members put forward a proposal for the House Committee Chairman to move a motion under the Legislative Council (Powers and Privileges) Ordinance () in Council to seek the council's authorisation for the appointment of a select committee to inquire into the alleged receipt of secret payments of Leung from UGL and related issues. After deliberations, the proposal was voted down by the pro-Beijing camp as 22 members voted for and 38 members voted against the proposal. Similar proposals were tabled on several occasions on 31 October, 5 November and 20 November but all motions were defeated by the pro-Beijing camp.