HKSAR v. CHAU KAR HO BERNARD

DCCC1166/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1166 OF 2013

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Reasons for Sentence

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1.  The defendant was convicted after trial of 5 charges of fraud, contrary to section 16A of the Theft Ordinance, Chapter 210, Laws of Hong Kong.

Facts

2.  These 5 offences of fraud took place between 5 June 2012 and 8 October 2012.  During this period of time, Tsun Ling Limited (“Tsun Ling”) had three directors and 5 shareholders.  The 3 directors were the defendant, PW1 and PW2.  They are cousins to one another.  They are members of the Chau family.  They have the same grandparents but they come from 3 different units within the Chau family. The 5 shareholders were PW1, PW1’s brother, PW2, PW3 (who is a sister of PW2) and a company incorporated in British Virgin Island in which the defendant was the only director and the only shareholder.  This company held 20% of Tsun Ling shares.  In other words, the defendant had the complete control of these 20% Tsun Ling shares.

3.  At the material times, Tsun Ling had no business operation, but had been used to hold two properties, i.e. Suite V on 25/F (“Suite V”) and Suite W on 26/F (“Suite W”) of No. 1 Robinson Road which was originally the address of the Chau family residence that had been pulled down and redeveloped into the present building.

4.  In these 5 offences, the defendant obtained 5 mortgage loans (“Mortgages 1 to 5”) by mortgaging the two properties of Tsun Ling for the total sum of $17 million from two finance companies by means of fraud. 

5.  Mortgage 1 was dated 5 June 2012 against Suite V to secure a loan of $6 million (Charge 1).  Mortgage 2 was dated 28 June 2012 against Suite W to secure a loan of $4 million (Charge 2).  Mortgage 3 was dated 24 July 2012 against Suite V to secure a loan of $2 million (Charge 3).  These 3 mortgages were executed in favour of Golden Fields Finance Limited which was a licensed moneylender.

6.  Mortgage 4 was dated 8 August 2012 against Suite V to secure a loan of $2 million (Charge 4).  Mortgage 5 was dated 8 October 2012 against Suite W to secure a loan of $3 million (Charge 5).  They were executed in favour of Kingsway Finance Limited which was also a licensed moneylender. 

7.  In respect of each mortgage loan, Tsun Ling was named as the mortgagor and the first borrower of the loan while the defendant was named as the second borrower.  All the mortgage loan applications were made and all relevant documents including the application form for each mortgage loan, the related mortgage contract and all the ancillary documents were signed by the defendant firstly in the capacity as the person authorized by Tsun Ling and secondly in his own personal capacity.  When he signed as the authorized person of Tsun Ling acting on its behalf, he signed his name within what purported to be the company chop of Tsun Ling, and he also signed his name by the side of what purported to be the common seal of Tsun Ling whenever the relevant documents required the company chop and the common seal of Tsun Ling to be stamped and/or affixed.  Furthermore, before signing any document, in respect of each of the 4 mortgage loans that formed the subject matter of Charges 1, 3, 4 and 5, a document purported to be the minutes of the meeting of the board of directors of Tsun Ling, during which Tsun Ling had resolved to mortgage one of its properties in favour of the relevant lender to secure repayment of the mortgage loan and to authorize the defendant to act on its behalf to sign and seal the relevant mortgage contract and loan documents, was produced to support the loan application and was provided to the solicitors instructed by the two finance companies for preparation of the related mortgage contracts.  The defendant had therefore represented to the two finance companies that he had been duly authorized by Tsun Ling to borrow money and to mortgage its properties on its behalf.

8.  Believing that the defendant was duly authorized by Tsun Ling, the two finance companies approved these 5 mortgage loan applications and paid to the defendant the total sum of $17 million which had been distributed to the defendant and other companies or persons according to the defendant’s instructions.

9.  The defendant had however never been authorized by Tsun Ling to apply for any of these mortgage loans or mortgage any of its properties.  PW1, PW2 and PW3 in their capacities either as the director, or the chairman, or the secretary or the shareholder of Tsun Ling did not know and had never agreed that Tsun Ling would apply for any of the mortgage loans or mortgage any of its properties.  The 4 minutes of meetings that had been produced as proofs of defendant’s authority were false and forged in that the board of directors of Tsun Ling had never made any of the resolutions stated in the minutes, and that all signatures appearing on these minutes purported to have been made by PW1 and PW2 as the director and/or the chairman of the board of directors of Tsun Ling were forged signatures of PW1 and PW2.  In addition, the common seal and the company chop affixed and stamped on all the loan documents and mortgage contracts were in fact not from the genuine seal or chop of Tsun Ling.

10.  At the trial, the defendant did not dispute the falsities of these mortgage loan applications and the relating documents.  He denied he had committed any of the offences on the ground that he had no knowledge of these falsities, and that he was acting under the honest belief that he had been authorized by Tsun Ling to mortgage its properties to obtain these 5 mortgage loans.  His evidence if true implied that he was in fact the victim of a fraud practised upon him by his financial consultants who arranged these mortgage loans for him, with or without the help of PW4 to PW7.   PW4 and PW5 were the persons acting on behalf of the respective finance companies in respect of these mortgage loan applications.  PW6 was the intermediary engaged by the defendant’s financial consultants to approach the finance companies for the loans.  PW7 was the conveyancing clerk of the solicitors firm responsible for preparing the mortgage contracts.  The defence case was that these people had good reasons to deceive the defendant because of the considerable financial benefits that they would gain if the defendant succeeded in obtaining the mortgage loans.  For the reasons stated in the Reasons for Verdict, this Court rejected the defendant’s evidence, and found that the only reasonable and irresistible inference to be drawn from the evidence as a whole was that the defendant was a knowing and participating party in the commission of each of these offences of fraud against the related finance company resulting in benefit to himself and others, and resulting in prejudice to the finance companies and prejudice or substantial risk of prejudice to Tsun Ling.

Criminal record

11.  The defendant had until now a clear criminal record.

Personal and family background

12.  The defendant is 49 years old.  He was born in Hong Kong.  He was born to a renowned local family.  His paternal grandfather was a leader of the Chinese community since the 1910s and was appointed an unofficial member of the Legislative Council in the 1930s and after the War. His father, now aged 74, had served the Hong Kong police force for 38 years and retired as a Senior Superintendent of the Police and an Assistant Commissioner of Auxiliary Police Force.  He has been awarded the Bronze Bauhinia Star in recognition of his outstanding service.  His mother, now aged 75, is a housewife.  The defendant has one elder sister who has migrated to the United States, and two younger sisters (who are twins) in Hong Kong, both gainfully employed.

13.  The defendant is a well educated man.  According to the background report prepared by probation officer on the defendant, after completing his Form Two education in Hong Kong, the defendant continued his education in England and eventually obtained various university degrees including Bachelor of Science in 1987 and Master of Science in 1988.  He had also completed a diploma course in marketing in 1989.  He then worked in England as a merchandising trainee and later as an executive in a supermarket group between 1989 and 1992, and as a trade marketing manager in a retail group between 1992 and 1993 when he was deployed to work in the Mainland.  Since then, he spent most of his time working in the Mainland.  After working for several companies between 1993 and 1997 including the company of his 7^th paternal uncle as trade marketing manager and general manager, he started his own business.  In 1997, he set up his own company TNJ International Ltd. and engaged in the export trade of building materials.  Since 2003, he started developing his market in the Middle East. Since 2008, he also engaged in management and re-structuring of mining businesses in the Mainland.

14.  The defendant first married in 1993 but divorced his first wife in 1995.  In 2008, he married his present wife.  They have a son aged 6 and a daughter aged 3.  He now lives with his wife and children in a rented flat.

Mitigation

15.  Learned counsel for the defendant pointed out that while these 5 offences involved considerable amount of money, all of them had already been repaid within half a year of the defendant’s arrest, and that none of the finance companies and Tsun Ling had suffered any losses.  He also submitted that there had never been any substantial risk that the loans could not be repaid.  He stressed that the defendant had never intended to deprive the finance companies of the loan money permanently, or cause any loss to anybody because the defendant had every intention to repay the loans, and the defendant had just obtained a pecuniary advantage.  He disagreed with the prosecution submission that this was a breach of trust case. 

16.  On the personal aspect of the defendant, learned counsel pointed out that, according to the background report, the defendant was a hardworking and productive man even though he was born to a privileged family.  He has been a good father to his children.  As a result of this case, not only the defendant but also his family members have suffered tremendously both financially and emotionally.

17.  Learned counsel for the defendant has also submitted 4 letters written by PW1 on behalf of Tsun Ling, the defendant’s father, his business partner and his friend.  All of them plead for leniency for the defendant.

Reasons for sentence

18.  According to section 16A(1) of the Theft Ordinance, the maximum sentence for each offence of fraud is imprisonment for 14 years.

19.  Since the offence of fraud can be committed in vastly different circumstances, the Court of Appeal has not laid down any sentencing tariff.  The sentence to be imposed in each case must be determined according to the facts of that case.

20.  In the present case, there is no doubt that the offences committed by the defendant were very serious.  First, the amount of each mortgage loan obtained by the defendant by means of fraud was large, and the total amount was the very considerable sum of $17 million.  Second, false and forged documents, false common seal and false company chop had been used in the commission of the offences.  Third, although I do not consider the modus operandi employed in the fraud particularly sophisticated, these offences were premeditated and executed systematically.  Fourth, each of the finance companies had been exposed to substantial risk that it might not be able to obtain repayment of the loans and payment of interest because its loans to the defendant were in fact not secured by mortgage of any real property.  There is no doubt whatsoever that finance companies could not enforce any of the 5 mortgage contracts against Tsun Ling because Tsun Ling would not be bound by any acts done by the defendant without its authority.  Furthermore, although the defendant had fully repaid the loans within 6 months after his arrest, he could only do so through the help of his father and his friend, both of them had to raise money by mortgaging their own properties according to the evidence at trial.  The background report also reveals, and it is agreed by the defendant, that after his father had mortgaged his property, the defendant was unable to settle repayment of the loan (which required a payment of $700,000 a month), and as a result, the mortgagee of the father’s property had now foreclosed the father’s property for auction, and the defendant’s parents have to vacate from the property and stay at the residence of the defendant’s younger sister since February 2014.  All these facts showed that the defendant did not have the financial ability to repay the 5 mortgage loans that form the subject matter of these charges.  Since the defendant did not have the financial abilities to repay the loans, and he could not have compelled his father or his friend to assist him to repay, it must follow that when he obtained the 5 mortgage loans from the two finance companies in question, he was exposing these finance companies to substantial risk that they could not obtain repayment of the loans in the considerable sum of $17 million.

21.  In light of the seriousness of the offences, notwithstanding the fact that the defendant had fully repaid the loans and interest to the two finance companies and that Tsun Ling had suffered no loss other than perhaps the expenses or inconvenience to vacate the registration of the 5 mortgages in the Land Office, and despite the fact that the defendant had a clear criminal record, the only viable sentencing option is imprisonment.

22.  Before I move on to consider the quantum of the prison term, there are two points that I wish to make clear.  First, I do not consider the offences committed by the defendant involved breach of trust reposed in him by Tsun Ling.  This is not a case where the defendant had been entrusted by Tsun Ling with the properties for him to deal with them in a particular way but the defendant abused that opportunity and used the property for his own purpose.  In fact, there was no evidence to show that the defendant had been entrusted with the management or the operation of Tsun Ling even though he was one of the directors.  On the contrary, the admitted facts showed that Tsun Ling at the material times had no business operation but was only used to hold its two properties.  For this reason, it is difficult to think of what management work the defendant was entrusted by his fellow directors or shareholders to perform, especially when PW1 was the chairman of the board of directors of Tsun Ling, and the only set of Tsun Ling common seal and company chop was in the possession of PW1.  Furthermore, even if what the defendant had done was detrimental to the interest of Tsun Ling, he was acting in his personal capacity and not as a director of Tsun Ling.  In my view, it is quite clear that the purpose of his offences was to deceive the two finance companies into believing that the loans to be advanced by them were secured by mortgage of the Tsun Ling properties, and that he did not intend to cause any harm to Tsun Ling, though what he had done did result in at least substantial risk of prejudice to Tsun Ling and he must have foreseen that.  The case of HKSAR v Cheung Ying Kit, Vicky (CACC202/2004) cited by the prosecution was in my view not an authority to support the submissions that the defendant was acting in breach of trust even though he was a director of Tsun Ling.  In Cheung Ying Kit, Vicky, the appellant was entrusted by his business partner to run the business but he stole money from the business, but in the present case, as I have said, the defendant had not been entrusted with any of the properties of Tsun Ling or with the handling of them.

23.  Second, it is clear that while the defendant was not formally a shareholder of Tsun Ling, he had the complete control of 20% Tsun Ling shares that were held by his company since he was the sole director and the sole shareholder of that company.  However, I do not consider this fact has any relevancy to sentencing.  It is because unless Tsun Ling was wounded up and its assets were distributed to its shareholders, none of the shareholders had any right to any of the properties of Tsun Ling which belonged wholly and squarely to Tsun Ling.  On the authority of Cheung Ying Kit, Vicky, his culpability in the offence would not be reduced by 20%.

24.  As to the quantum of prison term, learned counsel for the defendant and for the prosecution had referred me to a number of cases.  It is however obvious that none of them had facts identical or similar to the present case.

25.  Learned counsel for the defendant referred to some sentences imposed in the District Court.  In HKSAR v Chee Hoi-suen, Henry & Another (DCCC263/2009), the offenders there were convicted after trial of 14 charges, 13 of them were for the offence of conspiracy to defraud.  The offenders conspired to defraud banks to extend a larger loan by way of letter of credit for the purchase of textile machinery than it would otherwise have done.  The modus operandi employed was to inflate the invoice price of these machineries.  The aggregated amounts of financing obtained were very substantial.  They amounted up to some 27 million Euros but they had been fully repaid.  Learned counsel pointed out that despite the substantial sums, the learned trial judge only adopted 30 months’ imprisonment as the starting point.  In my view, this case is not helpful to the present case.  The learned trial judge in that case made it clear that it was not a typical case (see paragraph 4 of the judgment).  In that case, all transactions in all the charges involved genuine transactions of textile machineries.  The fraud involved was that the offenders inflated the invoice price, but the bank had already built in a measure to protect itself by lending only 70% of the invoice sum, and the offenders had to make some down payment which meant that the banks had not over-lent to them by 30%.  The present case involved a completely different scenario.

26.  Learned counsel for the defendant also referred to HKSAR v Lian Jining (DCCC617/2011), which was a case of letter of credit fraud where letters of credit were applied from the banks when there were no genuine sale of goods transactions, and to HKSAR v Fan Yung Cheong (DCCC261/2012) and HKSAR v Yuen Kai Tak (DCCC981/2010), both of which were cases for the offence of agent using document with intent to deceive his principal where the offenders deceived the government for housing allowances.  I do not find them helpful.

27.  The only case involving mortgage fraud referred to by learned counsel for the defendant was HKSAR v Lam Yuet (林悅) (DCCC741/2013).  In this case, the offender used false income proof to apply for 2 mortgage loans by mortgaging two properties, both of which were held in the joint names of him and his father.  The first mortgage loan was for the sum of $3,348,800, and the second loan was for the sum of $3,344,740.   He pleaded guilty to two charges of obtaining pecuniary advantage by deception.  He had fully repaid the loans.  The learned sentencing judge adopted a starting point of 21 months imprisonment for each charge.  After reducing the sentence to 14 months’ imprisonment upon the offender’s guilty plea, the learned sentencing judge suspended the prison term for 2 years due to the special circumstances in that case.  Such special circumstances included the fact that the offender was the real owner of the properties, and that he could still have obtained the mortgage loans in the same amount even if he had not used the false income proof.  These factors were completely absent in the present case.

28.  Learned counsel for the prosecution drew my attention to the case of HKSAR v Kong Hon Yui, Kevin (江漢銳) (CACC473/2009).  In that case, the offender was a practicing solicitor.  He was convicted after trial of one charge of conspiracy to launder money, and one charge of conspiracy to defraud.  He was sentenced to 5 years 6 months on the first charge, and 5 years on the second charge, with 6 months to run consecutively.  The overall sentence was 6 years imprisonment.  The facts revealed that he was involved in the fraudulent mortgages of three properties within a period of 5 months but the rightful owners of these properties did not know and did not authorize the mortgage applications, and the lending bank was the victim.  The first and the second mortgage loan applications were each for the sum of $5.5 million (i.e. totalling $11 million) and these applications were successful.  The third mortgage loan application was for the sum of $9 million and the bank was prepared to grant $6 million, but this application was not successful as the owner of the mortgage property found suspicious documents and alerted the lending bank.  I do not intend to set out in full the fraud practised in this case.  Suffice to say that it involved a very elaborated scheme with persons impersonating the real property owners, use of forged identity card, setting up of company for the sake of opening bank account to receive money fraudulently obtained, appointment of accomplice to be the company director to facilitate withdrawal of money, and the defendant being a solicitor was involved in the setting up of the fraudulent company and in the handling of some the mortgage transactions.  The offender’s appeal against the overall sentence of 6 years’ imprisonment was dismissed.  The Court of Appeal commented that the sentences imposed by the sentencing judge lenient.

29.  I have also looked into another case involving mortgage fraud.

30.  In HKSAR v Ling Veronica (CAAR1/1998), the offender pleaded guilty to 4 charges of forgery, 4 charges of procuring the making of an entry in a record of the bank by deception, one charge of possession of a forged identity card, and one charge of possession of a forged entry permit.  In very brief terms, the offender committed these offences with the assistance of others to mortgage the property of her parents on two occasions without their knowledge or consent. The offender and her accomplices approached solicitors’ firm on two occasions. She passed off her accomplices as her mother and her father respectively in the course of which false identity cards were produced.  She instructed the solicitors to prepare two general powers of attorney granted by her purported parents in her favour, and she used these fraudulently obtained powers of attorney to obtain two mortgage loans from two finance companies by re-mortgaging the property of her parents without their knowledge or consent. She obtained $3 million from the first finance company.  She sought to obtain $5.2 million from the second finance company, and she eventually got a little bit less than $4.3 million.  She was also found in possession of a forged identity card that bore her photograph but with a different name, and a forged China Entry Permit in the name of another person.  The Court of Appeal considered that the proper sentence for each set of mortgage offences should be 3 years’ imprisonment, and the proper sentences on the two forged documents charges should have been 15 months for each.  The total sentence of 8½ years should be reduced to 6 years upon the totality principle, and the appellant’s sentence was reduced by one-third to reflect her guilty plea.

31.  The facts in Ling Veronica were similar to the present case in that both offenders had no authority from the rightful owner of the property to mortgage its property and to obtain the mortgage loan.  In Ling Veronica, the offender caused solicitors’ firm to prepare false powers of attorney from the rightful owner to enable her to mortgage the property so as to obtain mortgage loans, whereas the defendant here used false minutes of the meetings of the board of directors of Tsun Ling to clothe him with the necessary authority from Tsun Ling.  There were of course differences between the two cases.  The modus operandi employed by the offender in Ling Veronica were more elaborated and sophisticated in that persons pretending to be the rightful owners of the property with false identity cards took part in the commission of the offence to deceive solicitors into preparing legal documents, i.e. the two general powers of attorney, to enable the mortgage fraud to be executed smoothly subsequently.  On the other hand, the present case is more serious in that the total amount of mortgage loans unlawfully obtained was $17 million, whereas in Ling Veronica, the total sum involved was at most $8.2 million.

32.  I am conscious of the fact that the facts of these previous cases were not identical to the present case.  On the one hand, the modus operandi employed by the defendant in the present case was less sophisticated than those employed in Kong Hon Yui, Kevin and Ling Veronica.  On the other hand, the amount of money involved in the present case exceeded those in Kong Hon Yui, Kevin by $6 million, and those in Ling Veronica by $8.8 million or more.  Yet, the sentences in these cases do provide some reference points.

33.  With the facts of this case in mind, I am of the view that the proper starting point of the prison term for each charge is as follows:

Charge 1 imprisonment for 3½ years (42 months)

Charge 2 imprisonment for 2 years 9 months (33 months);

Charge 3 imprisonment for 2 years (24 months);

Charge 4 imprisonment for 2 years (24 months);

Charge 5 imprisonment for 2½ years (30 months).

34.  Bearing in mind the question of totality, I am also of the view that the proper starting point of the overall prison term should be 4½ years (54 months).

35.  As to mitigating factors, the defendant was convicted after trial.  He is of course entitled to ask the prosecution to prove his guilt and he will not be penalized for that.  I merely wish to point out that this Court will not be able to give him any discount that will follow from a guilty plea.

36.  It is clear that the defendant had repaid all the mortgage loans coupled with the required interest to the two finance companies within 6 months of his arrest and before he was formally charged.  PW1 had written to this Court on behalf of Tsun Ling and confirmed that Tsun Ling had not suffered any financial loss.  It was quite clear that the defendant should be given a discount to acknowledge the effort he had made, albeit with the assistance of his father and his friend, to make good the harm caused by his crimes. 

37.  In HKSAR v Leung Shuk man [2002] 3 HKC 424, the offender pleaded guilty to 9 charges of theft of $430,000 and one charge of attempting to steal $2 million.  With the help of her family, she eventually repaid all the money she had stolen from her employer.  The Court of Appeal considered that she should be entitled to an overall 50% discount of the sentence due to her guilty plea and making full restitution to the victim.

38.  It appears from Leung Shuk-man, and strictly on a mathematical approach, since the offender normally got one-third discount (i.e. 33%) of her sentence upon her guilty plea, the fact that she had made full restitution to the victim enabled her to obtain an extra 17% discount.

39.  I bear in mind that $17 million plus interest was a very considerable amount of money to be raised, but the defendant managed to make full compensation within relatively short period of time.   For this reason, I shall discount his sentence by 20%.

40.  I note that the defendant had until now a clear criminal record.  I am prepared to reduce his sentence for each charge and for the overall term by another 3%.

41.  The defendant has also admitted a lot of facts that had the effect of shortening the trial.  In particular, he did not put the prosecution to strict proof that the signatures appearing on the false minutes of the meeting of the board of directors of Tsun Ling to be forged, or that the common seal and company chop affixed or stamped onto the documents were from false Tsun Ling common seal and company chop, a step that was open to him to take.  For this reason, I reduce his sentence for each charge and for the overall term by another 2%.

42.  I note that the fact that the defendant has to spend time in prison may result in closure or collapse of his businesses. I note his health condition.  I also note the financial pressure and the emotional trauma suffered by the defendant, his wife, his children, his father and other close relatives as detailed in the background report and in the mitigation letter written by his father.  However, none of these factors is a valid ground upon which the defendant’s sentence could be reduced further.  In the course of submissions, I am glad to hear that although the defendant’s parents have to stay with their daughter now since the property of his father has been foreclosed for auction in order to discharge the mortgage loan obtained by the father on the strength of his property to pay off the mortgage loans obtained by the defendant in these 5 offences, the balance of proceeds of sale would be returned to him, and the anticipated amount should be more than sufficient for him and his wife to obtain another home. 

43.  All in all, I will reduce the defendant’s sentences by 25% for reasons explained. There is no further ground for reduction.

44.  For these reasons, I sentence the defendant as follows:

Charge 1 imprisonment for 31.5 months (31 months and 15 days);

Charge 2 imprisonment for 24.75 months (24 months and 22 days);

Charge 3 imprisonment for 18 months;

Charge 4 imprisonment for 18 months;

Charge 5 imprisonment for 22.5 months (22 months and 15 days).

45.  As I have mentioned before, the starting point of the overall prison term should be 54 months’ imprisonment, after reducing it by 25%, the defendant should serve a term of 40.5 months (40 months and 15 days).  To bring about this result, I shall order the sentences for Charges 2 to 5 to run concurrently, but 9 months of this concurrent term should run consecutively to the sentence imposed in Charge 1.