HKSAR v. DAI CHI WAI

[English Translation – 英譯本]

CACC 84/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 84 OF 2010

(ON APPEAL FROM DCCC No. 67 OF 2009)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung JA (giving the reasons for judgment of the Court):

Application for leave to appeal against sentence

1.  The applicant was the 1^st defendant at trial.  He and the other two defendants were jointly charged with 11 counts of “conspiracy to defraud”, contrary to Common Law.  The case was tried in the District Court before Her Honour Judge Yuen.  Of the 11 counts, the applicant was convicted of 9 counts (namely, the 3^rd charge to the 11^th charge).  Judge Yuen adopted a starting point of 3 years and 6 months’ imprisonment for each count and deducted it by two months to reflect the applicant’s good family background.  The applicant was sentenced to a term of 3 years and 4 months’ imprisonment on each count to be served concurrently.  The applicant sought leave to appeal against sentence.  After hearing, we dismissed the application.  The following are the reasons for judgment.

Facts of the case

2.  The applicant was one of the directors and shareholders of a subcontractor company, that subcontracted from a main contractor that was a building maintenance and refurbishment work company.  The applicant held 20% of the shares of the subcontractor company.  The subcontractor company subcontracted works to other sub-subcontractors which collected fees inclusive of both labour and materials.  Initially, the subcontractor paid the sub-subcontractors work fees by way of cheques.  Later on, letters of credit issued by banks were used for payment of the relevant fees instead.  The applicant was charged with using false documents to apply for letters of credit from banks.  The beneficiaries of the letters of credit were the 9 sub-subcontractors.  The applicants and the other defendants falsely represented to the banks that the letters of credits were applied for the purpose of making payment for the purchase of building materials.  However, the genuine purpose was, indeed, to pay for the work fees of the sub-subcontractors (the 3^rd to the 10^th charge) or to compensate a worker of a sub-subcontractor for his wages during his leave due to work injury (the 11^th charge).  The 9 counts of which the applicant was convicted involved 3 banks and a total of 27 local letters of credit.  The amount involved in these letters of credit exceeded HK$9,000,000.

Legal principles

3.  The Court of Appeal has stated clearly in a number of authorities that the use of false document to obtain a letter of credit from a bank is a serious offence. First, it undermines the reputation of Hong Kong as an international financial and banking centre.  Modern commercial activities generally rely on a documentary system for loan and credit facilities.  Under normal circumstances, a bank relies on the truthful documents from both sides as the basis for approving loans, issuing letters of credit and making payment.  Hence, the Court has to ensure that this type of commercial activity will not be made use of by criminals.  Second, a bank relies upon the goods stated in the letter of credit as the security for the loan, so as to safeguard the bank from loss.  If the commercial transaction so stated is in fact non-existent, the bank does not have sufficient security and has to bear an extremely high risk.  Even if the bank is, ultimately, able to recover the loan and suffers no real loss, it does not in any way mean that the bank needs not face the economic risk arising from an applicant’s use of fraudulent documents to apply for the bank’s letter of credit.  (See: The Queen v Chan Kam-chuen [1995] 2 HKCLR 259; HKSAR v Kwong Shing-cheong, Stephen (CACC 555/2002); HKSAR v Leo Yee Sang Patrick (CACC 494/2004); HKSAR v Chu Wai San and Others (CACC 311/2006); HKSAR v Law Chi Man Kenneth (CACC 356/2006); Secretary for Justice v Grossmann Rainer Horst and Another (CAAR 13/2006) and HKSAR v Leung Wan Keung (CACC 275/2009).

4.  Although the Court of Appeal has not laid down any sentencing guidelines for “fraud” by using false documents to apply for a letter of credit, it has stated clearly that the Court has to take into account factors including the amount of money involved, the number of banks deceived, the period over which the fraudulent act was committed, whether the banks had suffered any loss and the roles played by each of the defendants.

5.  In the case of Law Chi Man Kenneth, in order to defraud the banks, the defendant specially established a company, altered monthly bank statements and provided fictitious information in relation to buyers, suppliers and factories.  As a result, the banks suffered losses that amounted to HK$9,800,000.  The Court of Appeal adopted a starting point of 4 years’ imprisonment for each of the offences of the defendant, making a total of 6 years’ imprisonment for the three offences.

6.  In the case of Kwong Shing-cheong, Stephen, the defendant obtained 3 letters of credit using false documents and the amount involved was HK$7,800,000.  The Court of Appeal considered a starting point of 3 years’ imprisonment too low.

The applicant’s grounds of reduction of sentence

7.  Mr. Alex Ng, counsel for the applicant, points out that Judge Yuen neglected that there were in fact genuine transactions underlying eight of the letters of credit involved in this case, namely, the building materials provided by the sub-subcontractors.  This situation differentiates this case from the other cases with no real transactions.  In the applicant’s view, part of the work fees paid to the sub-subcontractors included material fees.  Thus the risks borne by the banks were relatively low.

8.  Besides, Mr. Ng points out that the culpability of the applicant should be the least amongst the three defendants.  The 2^nd defendant was the majority shareholder of the subcontractor group of companies whereas the 3^rd defendant was the financial controller.

Views of this Court

9.  We do not agree with the arguments of the applicant.  Obviously, the relevant work fees covered both labour and materials of the subcontracted works.  The sub-subcontractors had never classified the amount into different fee items like fees for the purchase of materials, wages for workers or profits etc.  In fact, Judge Yuen had already dealt with the relevant topic in the judgment.  In respect of the 4^th charge, Judge Yuen said:

‘166. PW9 pointed out that “Kei Yip” did not sell furniture to “Bolton Construction Company Limited”. He provided furniture and renovation work inclusive of both labour and materials.

… …

168.  The sub-subcontractors were not business operators with sophisticated minds.  It was not surprising that they did not know how letters of credit (L/C) issued by banks operated and did not understand the legal principles or requirements therein.  In respect of D1’s allegation that he had obtained the consent of the sub-subcontractors to use letters of credit (L/C) issued by banks for payment of their purchase of materials, I am unable to accept.  The sub-subcontractors had no idea how letters of credit (L/C) issued by banks operated, not to mention understanding that letters of credit (L/C) should only be used for purchase of goods.  What they were concerned was whether they could collect the subcontracted work fees that they were entitled to be paid.  As D1 did not enquire any of the sub-subcontractors about the acquisition price of their materials, how could it be alleged that the sub-subcontractors consented to D1 using letters of credit (L/C) issued by banks to pay for the price of the materials in the subcontracted work fees.  Furthermore, the sub-subcontractors themselves surely had the right to purchase materials with lower prices.  As they were the sub-subcontractors, unless the materials they provided were unmerchantable, the main contractor and the subcontractor should have no say in the acquisition price of the materials of the sub-subcontractors.  How come “Bolton Construction Company Limited” paid for the materials separately.’ 

10.  In so far as the 7^th charge is concerned, although there is evidence in the case to show that 30% of the overall contract price was the price of the material, Judge Yuen, when dealing with the evidence of the sub-subcontractors, said:

“44. The sub-subcontractors had never classified the payments into different fee items like material fees, wages for workers or subcontracted profits. As far as the sub-subcontractors understood, the aforesaid payments were the subcontracted fees which they were entitled to be paid.”

11.  Besides, regarding the applicant’s allegation that 20% to 30% of the contract price referred to in the 9^th charge was the price of the material, Judge Yuen said:

“115.    PW15 pointed out that since what he put forth to “Bolton Construction Company Limited” was subcontracted work inclusive of both labour and materials, there should not be a situation where labour and materials were separated.  If it were insisted that he should estimate how much the cost of the material price should be within a subcontracted fee of HK$591,928.91, PW15 believed that materials should occupy 20% to 30% of the subcontracted fee.”

12.  We agree with what Ms. Alice Chan, Senior Public Prosecutor for the respondent, has submitted, which is that the so-called protection of the bank exists in name only.

13.  In so far as culpability is concerned, Judge Yuen adopted a starting point of 3 years and 6 months’ imprisonment for the applicant and the 2^nd defendant; and a starting point of 2 years and 6 months’ imprisonment for the 3^rd defendant.  Obviously, Judge Yuen arrived at the respective starting points of each of the defendants after hearing the evidence and on the basis of the culpability of each defendant.  The period over which the applicant committed these crimes was as long as 4 years and 9 months.  He actively participated in these fraudulent activities and directly instructed his subordinates to make false representations in the letter of credit application forms.  He even signed the relevant documents in confirmation.  We do not think the culpability of the applicant is less than that of the other defendants.  In any event, the illegal acts committed by the applicant would undermine the reputation of Hong Kong as an international financial centre.    

Conclusion

14.  In our view, both the starting point of 3 ½ years adopted by Judge Yuen and the ultimate sentence imposed by her are appropriate.  We therefore dismissed the application.

Translated by the Judgment Translation Unit of the Judiciary and approved by Mr. P. Y. Lo, Barrister-at-law.