HKSAR v. LEUNG WAN KEUNG

CACC 275/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 275 OF 2009

(ON APPEAL FROM DCCC NO.169 OF 2009)

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BETWEEN

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REASONS FOR JUDGMENT

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

1.  The applicant was charged with 8 counts of Procuring the Making Of an Entry in a Record of a Bank by Deception, contrary to section 18D of the Theft Ordinance, Cap. 210, Laws of Hong Kong. He pleaded not guilty. The case was tried by Deputy District Judge Johnny Chan, who convicted the applicant and sentenced him to 44 months’ imprisonment. The applicant applied for leave to appeal against conviction and sentence. After hearing, we dismissed his application. Our reasons are set out below.

8 counts of the offence

2.  Except the times, the amounts of money and the quantities of the goods, the particulars of offence of the 8 counts are identical in other aspects. The particulars of offence of the 1^st count are as follows:

“ LEUNG Wan-keung, on or about the 4^th day of November 2005, in Hong Kong, dishonestly with a view to gain for himself or another or with intent to cause loss to another, procured the making of an entry in a record of a bank, namely a credit entry in the sum of $800,714.60 Hong Kong currency to a bank account numbered 094-842309-838 in the name of Mailland Limited held with the Hongkong and Shanghai Banking Corporation Limited, by deception, namely, by falsely representing to the DBS Bank (Hong Kong) Limited that 102,392 yards of cotton grey twill and 11,920 yards of cotton grey poplin had been sold and delivered in Hong Kong by Mailland Limited to Greenford Industries Limited.”

3.  The total amount of money involved in the 8 letters of credit was HK$5,684,457.  This offence refers to a person who dishonestly, with a view to gain or with intent to cause loss, by any deception procures the making of an entry in a record of a bank. The focus is whether the applicant intended to cause, by deception, the DBS Bank to agree to pay out the money stated in the letters of credit, see HKSAR v. Cheung Kwun Yin (2009) 12 HKCFAR 568, paragraph 23. 

Prosecution case

4.  The prosecution case was quite straightforward.  The applicant and his wife were the directors and shareholders of a company called Greenford Industries Limited (Greenford). Greenford opened on account with the DBS Bank (Hong Kong).  Between 4 November 2005 and 15 June 2006, Greenford applied to the DBS Bank for issuing 8 letters of credit to a company called Mailland Limited (Mailland) for Greenford to make payments to Mailland for purchasing goods.

5.  The information on the application forms for the letters of credit was filled in according to the instructions given by the applicant.  In the ‘Price Basis’ columns on the application forms, he put down ‘Local Delivery’ as the applicable method, while other methods available for an applicant for documentary credit to choose included ‘FOB’, ‘CFR’, ‘CIF’, and ‘Others’.  In the columns ‘Loading in charge / shipment from’ and ‘For transport to / shipment to’, he put down ‘Hong Kong’.

6.  On the basis of these application forms, the DBS Bank opened the letters of credit in question.  Mailland furnished the stipulated documents and obtained from the bank the amounts of money stated in the letters of credit.  The money was deposited in Mailland’s account with the Hongkong and Shanghai Banking Corporation.  Subsequently, the money was transferred to the applicant’s bank account with the Bank of China (Hong Kong) and his wife’s accounts with the Hongkong and Shanghai Banking Corporation and the Citic Ka Wah Bank.  Finally, the money was transferred to Greenford’s bank account.

7.  The company registration documents of Mailland showed that Wei Guo Min [transliteration of 魏國民] was its sole shareholder and director.  Mailland had [an] account with the Hongkong and Shanghai Banking Corporation.  Only the applicant and his wife were the authorized signatories of this account.  Wei Guo Min was not an authorized signatory of this account.

8.  The prosecution’s allegation against the applicant was that according to the information supplied by the applicant and contained in the letter of credit application forms, the goods should be delivered in Hong Kong, but the applicant, knowing that no delivery had ever taken place in Hong Kong, still allowed Mailland to ask the bank on the strength of the letters of credit to pay out the money, resulting in Mailland obtaining the money.

Applicant’s defence

9.  The applicant admitted that Mailland had never delivered the goods to Greenford in Hong Kong.  His explanation was that Greenford purchased grey cloths from Mailland and then sold the grey cloths to [a] bleaching and dying factory in the Mainland.  Mailland was not a manufacturer of the grey cloths.  After Greenford contracted to buy the goods from Mailland, Mailland would place orders with [a] weaving factory in the Mainland for the goods.  After the weaving factory manufactured the cloths, it would send the cloths to [a] bleaching and dyeing factory in the Mainland according to instructions.  After that, the bleaching and dyeing factory would follow the applicant’s instructions to pay Mailland the monies for the goods.  After Mailland received the payments, the applicant and Mr. Wei would then check their accounts to work out the balances between them.  The applicant said he did not know that it was improper to have the delivery done in the Mainland without transporting the goods to Hong Kong.  He thought that it was a waste of time and money to transport the goods to Hong Kong and then back to the Mainland.  He stated that he put down ‘Shipment to Hong Kong’（貨物運往香港）and ‘Shipment from Hong Kong’（貨物由香港運到）in the letter of credit application forms because both Greenford and Mailland were Hong Kong companies.  As to why he chose to use the term ‘Local Delivery’ (本地支付) in the ‘Price Basis’（價錢方式）columns, his reason was that he had no other choice; he thought that ‘Local Delivery’ meant land transport.  The staff members of Greenford were responsible for preparing supporting documents, including invoices, receipts for the goods and ‘Collection Order’, so that Mailland could collect the payments stated in the letters of credit from the bank.  The applicant said that he did not know who signed in the column of seal [and/or] signatory of Mailland in the ‘Collection Order’, but he confirmed that there were only two authorized signatories of Mailland, and they were he and his wife.

Deputy Judge Chan’s findings

10.  Deputy Judge Chan did not accept the story that genuine transactions were carried out between Greenford and Mailland.  He found that the transactions were fictitious and that the applicant applied to the DBS Bank for letter of credit facilities by inventing such fictitious transactions.  The applicant knowingly represented to the DBS Bank that an arrangement, as stated in the information put down in the application forms, was in existence by which Mailland sold some cloths to Greenford and the goods were bought, sold and delivered in Hong Kong.  Deputy Judge Chan found that what the applicant did was to obtain credit facilities from the bank by deception, and that the applicant was dishonest because he knew very well that the transactions did not exist at all and that the goods in question were never delivered in Hong Kong.

11.  Deputy Judge Chan pointed out that even the applicant’s own version of the facts, i.e. he put down ‘Shipment from Hong Kong’ and ‘Shipment to Hong Kong’ in the letter of credit application forms, and put down ‘Local Delivery’ in the ‘Price Basis’ columns showed that he was aware of the falsity of the contents of the documents and knew that if the bank learnt of the fact that the goods were delivered in the Mainland and had never been transported to Hong Kong, it would make enquiries and the result of the enquiries would affect its decision as to whether it would grant the letter of credit facilities.

12.  Deputy Judge Chan found that the criterion laid down in Ghosh was met, namely an honest and decent person and even the applicant himself would be aware that the way in which he handle these matters was dishonest.

Prosecution’s position at trial

13.  Mr. Tony Ko, counsel for the applicant, pressed the point that at the trial the prosecution repeatedly made it clear to the court that the prosecution’s allegation against the applicant was not that no genuine transaction was carried out in accordance with the contracts of sale and purchase of goods referred to in the letters of credit; the allegation was that the goods were never shipped to or from Hong Kong, nor were they delivered in Hong Kong and that was contrary to the information put down in the letters of credit application forms.  The reason for the applicant’s doing so was that he wanted the bank to issue the letters of credit.  Mr. Ko argued that Deputy Judge Chan should not act counter to the prosecution’s position, and should not make the finding that in this case no genuine transaction was carried out without giving the applicant an opportunity to offer an explanation on this issue.

Our views

14.  We agree that at the trial the position adopted by the prosecution was not that “no such transactions had taken place”.  If Deputy Judge Chan used “no such transactions had taken place” as the basis of the conviction, he should have first allowed the applicant to given further explanation in relation to this basis, but he did not do that.  We therefore find that the finding made by Deputy Judge Chan that “no such transactions had taken place” was wrong.  However, we do not think that such finding will render the conviction of the applicant unsafe or unsatisfactory. Our view is that even if Deputy Judge Chan had not made such finding, there was still an abundance of evidence in this case to support his finding that the applicant by deception dishonestly caused the DBS Bank to pay the monies to Mailland. The reasons are as follows:

(1) The applicant had been running the cloth business for 20 years and had experience in using letters of credit to buy and sell goods. He ought to know that when the bank was considering whether it should approve an application for document credit, it would make its decision on the basis of the information supplied by him. If the bank had learned that what really was going on was different from the information contained in the application forms, it would surely have approached with great caution the question of whether the applications should be approved. It was clearly stated in the application forms that the goods were to be shipped from and to Hong Kong. This obviously meant that the goods were to be delivered here, and did not mean that both the buying party and the selling party were Hong Kong companies. Furthermore, “Local Delivery” could not possibly be interpreted as land transport. The term “Local Delivery” (本地交付) was consistent with the information provided in the previous column, i.e. the place of delivery and receipt of the goods was Hong Kong. If the actual place of delivery was the Mainland, this could result in the bank suffering loss. In this case, when Greenford applied for the letters of credit, it at the same time submitted a trust receipt to offer the goods involved in this case to the DBS Bank as security. If the bank finds it necessary to exercise its right as a creditor to dispose of the security, but then finds that the goods are not in Hong Kong at all, that situation will be highly detrimental to its interests. This shows that the contents of the application forms contained misrepresentation and could directly infringe upon the interests of the bank, see HKSAR v. Chan Kar Leung & Others (CACC 287/2004), paragraphs 35 and 36; HKSAR v. Lee Wing Kan [2007] 3 HKC 368, paragraph 60 and HKSAR v. Chan Wai San [2008] 4 HKLRD 18, paragraph 153. It is out of the question that the applicant, being a person well experienced in doing business, could regard that this way of doing things was not improper.

(2) The applicant admitted that he was responsible for looking for a place in Hong Kong to be the registered address of Mailland, but he did not use the registered address of Greenford as the registered address of Mailland. The reason for his not doing so was that he did not find it necessary to do so. However, he said he would send his staff members to the registered address of Mailland to collect letters posted to Mailland. We consider it to be unnecessary and superfluous conduct. The applicant admitted that his concern was that if the DBS Bank noticed that the applicant and the beneficiary of the letters of credit used the same address, they would make enquiries.

(3) Mr. Wei Guo Min was the sole director and shareholder of Mailland, but strangely, he could not operate Mailland’s bank account because he was not an authorized signatory of that account. On the contrary, the applicant and his wife, even though they were neither the directors nor the shareholders of Mailland, were the authorized signatories of the account. Such arrangement was illogical. The applicant on the one hand tried hard to distance himself from Mailland, but on the other hand the financial transactions of Mailland were actually under his control. This leads to the question: why was the applicant doing this? These arrangements could properly be the basis on which the court made the finding that the applicant had the dishonest intention to gain benefits from the DBS Bank.

(4) The monies which Mailland obtained from the letters of credit, after passing through the accounts of the applicant and his wife in a roundabout way, ended up in the account of Greenford. As far as the appearances go, Greenford did not pay Mailland any money for buying the goods, because eventually Greenford obtained from Mailland’s bank account the payments relating to the sale of the goods from Mailland to Greenford. Deputy Judge Chan rejected the evidence that the applicant and Mr. Wei had checked their accounts to work out the balances between them after transactions were done between Mailland and Greenford.

15.  Although Deputy Judge Chan erroneously found that there were no underlying transactions, the evidence set out above could support his finding that the applicant acted dishonestly and as a result the bank was deceived.  Accordingly, we dismiss the application for leave to appeal against conviction.

Sentence

16.  For charges 1, 3, 4, 5, 6, 7 and 8, Deputy Judge Chan used two years as the starting point.  Two months were deducted on account of the applicant’s clear record, so the sentence for each count was 22 months.  As for charge 2, Deputy Judge Chan used 18 months as the starting point.  Likewise, two months were discounted for the applicant’s clear record, and the sentence was 16 months.  The sentences for charges 1 to 4 were ordered to run concurrently (i.e. 22 months), and so were the sentences for charges 5 to 8 (i.e. 22 months); but the sentences for charges 5 to 8 were to run consecutively to those for charges 1 to 4, thus making a total of 44 months (i.e. 3 years and 8 months) imprisonment.

17.  It was not proven that genuine transactions did not exist in this case and the evidence showed that ultimately the bank did not suffer any loss, but we do not think that these facts can affect Deputy Judge Chan’s sentencing in any way.  It is clear that the applicant obtained from the bank funds of the amount of HK$5,684,457 by deception and the period over which he committed these crimes was as long as 6 months.  What he did would adversely affect Hong Kong’s reputation as a financial and banking centre and the bank’s interests.  In our judgment, the sentence of 3 years and 8 months’ imprisonment is appropriate; we therefore dismiss the application for leave to appeal against sentence.

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