HKSAR v. LUK KIN PETER JOSEPH AND ANOTHER

DCCC 851/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 851 OF 2013

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REASONS FOR VERDICT

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The Charges

1. The first charge, against both D1 and D2,  alleges that they conspired as agents to use a document, with intent to deceive their principal, contrary to sections 9(3) and 12(1) of the Prevention of Bribery Ordinance, Cap 201 and sections 159A and 159C of the Crimes Ordinance, Cap 200.  The document concerned is a minutes of meeting of the board of directors of Biogrowth Assets Limited (BAL), which was a wholly owned subsidiary of China Mining Resources Group Limited (CMRG), a company listed on the Hong Kong Stock Exchange.

2. The meeting, held on 21 November 2008, related to the disposal by CMRG of a wholly owned subsidiary company, Cell Therapy Technologies Centre Limited (CTTC) which was held by BAL.  At the time of the disposal, D1 and D2 were the only directors of  both BAL and CTTC.

3. In November 2008 CTTC was sold to a company called United Easy Investments Limited (UEIL), a company registered in the name of D1’s wife’s aunt, Ho Pui Fan, Fanny ( HO). Documents relating to this sale were prepared and signed on the basis that UEIL was an independent third party. On 21 November 2008 the BAL minutes concerning the sale were signed by both D1 and D2 and stated, inter alia, that none of the directors were interested in the disposal. The prosecution alleged that UEIL was controlled and financed  by D1 and that D2 was aware of this and they had conspired to use the minutes to mislead BAL and/ or CMRG.

4. The prosecution alleged that all along, the intended buyer of CTTC was D1, who, as a director of  both BAL and CTTC, was a connected person under Rule 14 A.11(1) (a) of the Listing Rules of the Stock Exchange Hong  Kong ( SEHK).

5. In view of what appeared to be the unsubstantial and unconnected  nature of the Disposal the requirements of the Listing Rules of SEHK were not complied with and approval from SEHK was not obtained.  When a listed company engages in transaction(s) with its connected person, the Listing Rules require disclosure of such connected transaction by issuing an announcement and reporting in the annual report, and obtaining prior independent shareholders’ approval in a general meeting, unless the transaction falls within one of the categories of connected transactions in Rules 14A.16(1) to 14A.16(4) in which case the issuer will be exempted from complying with one or more of the requirements.  In addition, under Rule 14A.21, the issuer must comply with the requirement of seeking independent financial advice set out in Rules 13.39(6) and 13.39(7).

6. After the Disposal, D1 and D2 resigned as directors of BAL but continued as directors of CTTC.

7. The second and the third charges are concerned with an agent offering and accepting an advantage, contrary to sections 9(2)(a) and 9(1)(a) of the Prevention of Bribery Ordinance, Cap. 201 respectively. The first defendant faces the second charge while the second defendant faces the third. The subject matter of the charge is 1.5 million shares of CMRG which the prosecution alleges were offered by D1 to D2 on or about 3 November 2008  as an inducement to or reward for processing the sale of CTTC by BAL to UEIL.

8. The defence did not dispute that D1 did give 1.5 million shares to D2. D1 said that, with the consent of  the only other executive director of  what was then Innomaxx Biotechnology Group Limited (Innomaxx), Cai Yuan,  he gave D2 the shares in around November 2006 and it had nothing to do with the CTTC disposal.

BACKGROUND

Companies involved

9. Innomaxx Biotechnology Group Limited (Innomaxx) was a company listed on the Hong Kong Stock Exchange.  Its original majority shareholder was China World Best Group (CWBG).  In 2001, Innomaxx acquired CTTC through its wholly-owned subsidiary company, BAL.  CWBG  sold its entire Innomaxx shareholding to Cai Yuan in 2005.

10. In 2006, Investec Plc. (Investec) introduced the Lead Sun Group to acquire the majority of Innomaxx’s shares (Lead Sun Transaction).  Innomaxx changed its name to CMRG on 8^th January 2007.

11. Smart Year Investment Limited (SYIL) was a company incorporated in the British Virgin Islands. In April 2007, on the instructions of D1, D2 instructed a company called Offshore Incorporations HK Limited (OIL) to acquire two BVI companies on behalf of his wife’s aunt, HO ( Ex69 page 1690).  SYIL was one the companies acquired. The other company was UEIL.

12. According to D1, in 2007, SYIL acquired LuChun Company (LuChun), which owned a copper mine in mainland China, for HKD100 million plus shares in SYIL. D1 said that LuChun had earlier entered into a “Technical Service Agreement” with Xi’an Jintao Company (Xi’an) for the provision of mining consultancy services.  After its acquisition of LuChun, SYIL owed Xi’an RMB 3.8 million (i.e. HK$4.294 million) in professional fees for a mining feasibility report.

13. In September 2008, SYIL was acquired by Wah Nam International Holdings Limited (Wah Nam), a listed company. The price paid according to Jason Chan, the executive director of Wah Nam, PW10, was HKD650 million. D1 said that in 2009 he became the Chairman and Chief  Executive Officer of Wah Nam.

14. UEIL  purchased CTTC from CMRG in December 2008.

15. First International Resources Limited (FIRL) was a licensed remittance agency.

16. Goldbond Capital Holdings Limited (Goldbond) was the financial adviser of CMRG regarding the disposal of CTTC.  It later changed its name to Jaffray Piper.

17. Jackson Woo and Associates (“JWA”) was a solicitors firm acting for CMRG in its disposal of CTTC.  In this transaction, JWA was responsible for drafting the Sale and Purchase Agreement together with other documents including the Minutes.

18. The XS-S Limited was a company registered in Hong Kong. From  29 May 2005 to 29 May 2011 D1 and his wife, Cheung Sze Wai, Catherine (Cheung), were directors of the company and respectively held 60% and 40% of its shares. The company changed its name on 8 December 2010 to The XSS Limited ( Exhibits 237 to 244 pages 2717 to 2781).

19. XSS Group Limited (XSS) was set up on 8^th December 2008.  D1 was appointed as a director of XSS in March 2009.  According to D1’s evidence, it was set up so that the companies owned by him, his father, his mother and his wife could be grouped together under one company, as his father’s health was not good at that time . On 1^st December 2010, through XSS, D1 acquired the shares of UEIL.

People involved

D1 and Cai Yuan

20. In September 2004, D1 bought Innomaxx’s shares (through his corporate vehicle Equity Valley Investment Limited) and became a substantial shareholder of Innomaxx.  Later, CWBG sold its holding in Innomaxx to Cai Yuan, who then became the majority shareholder of Innomax.  On2^ndAugust 2005, D1and Cai Yuan were appointed as executive directors of Innomaxx [ Ex D1-5].  Cai Yuan resigned as a director of BAL and CTTC with effect from 1 June 2007 ( Ex 33/1174 and 38/1187) and was replaced by D2 who also became the financial controller of CTTC. ( Admitted Facts 14).

21. On 28^th September 2005, D1 was also appointed as a director of both CTTC and BAL [P253A, admitted facts, paragraph7].  On 28^th November 2005, D1 was elected Deputy Chairman of the Board of Directors of Innomaxx and appointed the Chief Executive Officer of Innomaxx.  Cai Yuan was also elected as the Chairman of the Board of Directors of Innomaxx on the same day [D1-6].  On 7^th July 2007, D1 resigned as director, Deputy Chairman and CEO of CMRG [Ex D1-11; P253A, admitted facts, paragraph 4].

D2

22. D2 was a qualified accountant. On 1^st of January 2006, she was promoted to become the Financial Controller of Innomaxx [P97, p.1815].  On 1^st May 2006, D2 was appointed as the Company Secretary and authorized representative of Innomaxx [D1-12].  A new Company Secretary of CMRG was hired on 17^th January 2007 and D2 resigned as Company Secretary and authorized representative on the same day [D1-9].  D2 continued to be employed as Financial Controller.  On 1^st June 2007, D2 was appointed as a director of BAL.  On the same day, D2 was also appointed as director and financial controller of CTTC [P99-102, pp.1817-1824].  On 21^st November 2008, D2 resigned as director of BAL.  On the same day, D2 became the Company Secretary of CTTC [P253A, admitted facts, paragraph 15].

Richard Yeung

23. After the Lead Sun Transaction, in late 2006, Investec introduced Mr. Yeung Kwok Kuen (Richard Yeung) to join Innomaxx as Chief Financial Officer (CFO); he was appointed as Executive Director on 17^th January 2007 [D1-9].

24. According to D1’s testimony, after the Lead Sun Transaction, Investec became the majority shareholder of CMRG and exercised its influence over the management of CMRG. Richard Yeung had also taken over most of D1’s role as the CEO .

Miss Ho

25. HO is D1’s wife’s aunt. On 20^th April 2007, HO became sole director and shareholder of UEIL. She was also the sole director and shareholder of SYIL.  According to D1’s evidence, HO acquired LuChun through SYIL.  SYIL was then sold to Wah Nam and  HO also became a substantial shareholder of Wah Nam.  Jason Chan of Wah Nam gave evidence that he knew HO was D1’s relative.  In December 2008 UEIL purchased CTTC.  After the CTTC transaction, HO was appointed as non-executive director of CTTC on 21^st November 2008 [P253A, admitted facts, paragraph 15].

26. HO held the title of ‘office assistant’ in XSS Limited from October 2007 [P93, p.1808].  She was a signatory of XSS Limited responsible for signing cheques [D1-2].  In April 2011 her terms of employment were revised and as from 1 May 2011 her basic salary was HKD7,500 per month.

Lee JunBo

27. Lee JunBo was originally a shareholder of LuChun before its acquisition by SYIL. After the acquisition he became a shareholder of SYIL and also became a shareholder of Wah Nam after Wah Nam purchased the Luchun mine from SYIL in September 2008.

28. On 15 December 2008 Lee JunBo sent an email, P81/1786, to D1 at XSS copied to Cai Yuan referring to an agreement for transfer of shares dated 8 September 2008 whereby Lee JunBo would transfer 30 million shares in Wah Nam to Cai Yuan for HKD6 million.

29. On 18 December 2008 HKD3,633,400 was transferred from the UEIL account to the personal account of  HO. This money was later paid to Lee JunBo following email correspondence between D1 and D2 regarding this payment. D1 said this payment related to money owing to Lee JunBo under a contract between Lee JunBo and Talent Zone, a company owned by HO. D1 asked D2 to get Lee Junbo’s account details from Cai Yuan to facilitate this payment – ExP81/ 1786.

30. D1 said that in 2009 he became Chairman and Chief Executive Officer of  Wah Nam.

Sabrina Fung and Tracy Li

31. Sabrina Fung and Tracy Li were solicitors of JWA.  They were responsible for advising CMRG in relation to the disposal of CTTC.

Vandanee Lau

32. On 17^th December 2008, after CTTC had been acquired by UEIL, Vandanee Lau joined CTTC as the CEO and Keith Mo, the original CEO, was asked to leave CTTC .

Prosecution witnesses

33. Leung Lai Ming Mary (Mary Leung) (PW1) was CMRG’s Company Secretary and accounting manager from 13^th July 2007.  She was involved in the disposal of  CTTC.

34. Chen Shou Wu (PW2) joined CMRG as an executive vice president (VP) and chief investment officer (CIO) in September 2007 after the Lead Sun Transaction.  He later became the Executive Director of CMRG in December 2007.

35. Chan Sze Hon (PW3) and Chu Kang Nam (PW4) were Independent Non Executive Directors of CMRG.

36. Chiu Pat Ngao Steven (Steven Chiu) (PW5) was the Goldbond financial adviser of CMRG in the earlier contemplated disposal of CTTC in 2007.

37. Sin Sze Man (PW6) joined XSS on 20 December 2010 as manager of the human resources and administration department.

38. Tang On Ki (PW6) was the assistant accounts manager of CTTC.

39. Leung Yat Kwan (PW8) was a laboratory technician of CTTC from November 2008.

40. Chan Kam Kwan Jason (Jason Chan) (PW10) joined Wah Nam in the middle of 2007 as the Company Secretary and was subsequently appointed an Executive Director.  On behalf of Wah Nam, he signed a loan agreement of HK$2 million between UEIL and Wah Nam .

41. Ko Chun Shun Johnson (Johnson Ko) (PW11) was FIRL’s director and shareholder from 1990.

42. Wong Kin On (PW12) was a colleague of Johnson Ko in FIRL.

43. Ngan Kwai Kwok (PW13) was also a shareholder of FIRL.

44. Chung Kin Sang Samson (Samson Chung) (PW14) was an assistant manager of FIRL.

45. Chau Ying Kit (PW15) was an assistant vice president of the Listing Division of the Hong Kong Exchange and Clearing Limited (HKEX).

46. Tse Yu Kuen (PW16) was the manager of Union Registrars Limited, the share registrar of CMRG.

47. Lo Sin Kit Tammy (PW17) was a staff member of  OIL.

TRANSACTIONS

D1’s purchase of Innomaxx shareholding

48. On 24^th September 2004, through Equity Valley Investment Limited, a company of which D1 was the beneficial owner, D1 purchased Innomaxx shares and became a substantial shareholder of Innomaxx.

Cai Yuan’s purchase of Innomaxx shareholding

49. In 2005, CWBG sold its shareholding in Innomaxx to Cai Yuan, who then became the major shareholder of Innomaxx.  On2^ndAugust 2005, D1and Cai Yuan were appointed executive directors of Innomaxx [D1-5].

Lead Sun Transaction

50. Lead Sun Group owned a mining business in Shanxi Province.  The deal was introduced by Investec to Innomaxx.  Innomaxx had to undertake a share placement exercise to raise cash for the deal.  According to D1’s testimony, immediately after the Lead Sun Transaction, D1’s shareholding was diluted.

51. After the completion of the Lead Sun Transaction at the end of October 2006, Investec, as a result of its position of arranging and providing funding for the transaction, became a key shareholder of Innomaxx.

52. After the Lead Sun Transaction, the name of Innomaxx was changed to CMRG on 8^th January 2007 to reflect its investment in mining resources [D1-9].

Sonjiang Transaction

53. In July 2007, CMRG completed the acquisition of a stake in a company called Harbin Songjiang, which operated a copper mining business in North East China [D1-10].  On the day following the Songjiang transaction, D1 resigned his directorship of CMRG .

SYIL acquisition of LuChun

54. LuChun owned a copper mine in Shanxi.  In 2007, SYIL purchased the majority of the shares of LuChun .

Wah Nam’s acquisition of SYIL

55. SYIL was subsequently acquired by Wah Namon19^thSeptember 2008.  D1’s testimony was that he was the adviser of both the sellers and Wah Nam.  D1 said that he made arrangements for Wah Nam to borrow HK$2 million from UEIL as they had insufficient funds to complete the purchase of  SYIL.

The Evidence

56. At the commencement of the trial I asked the parties to submit an agreed summary of the evidence in their final submissions. The prosecution provided a summary of the evidence as part of their written closing submissions which were circulated well in advance of the hearing of those submissions. No inaccuracy in this summary was brought to my attention and I have largely relied on that summary in this judgment.

Prosecution Evidence

PW1 LEUNG Lai-ming

57. PW1 was the Accounting Manager and Company Secretary of CMRG from July 2007.  CMRG was involved in the business of mining in China and umbilical cord blood storage in Hong Kong until November 2008 when the cord blood business was sold.  Around about October or November 2008,  Richard YEUNG, the Chief Financial Officer of CMRG, was PW1’s immediate superior.

58. PW1 stated that on 10 October 2008, she sent an email [Exh P43 p.1400/T1] to Sabrina FUNG, a solicitor of Jackson Woo & Associates (JWA), asking her to draft a sale and purchase agreement for the disposal of CTTC.  At the time, the seller was to be CMRG, the holding company of CTTC, and D1 was to be the purchaser.  The terms of the agreement were mentioned to her by Richard Yeung.  Initially, it was contemplated that BAL was to be sold [Exh P44 p.1402/T1 and Exh P46 p.1413].

59. On 7 November 2008, PW1 received an email [Exh P47 p.1436/T1] from Richard Yeung stating that instead of BAL, CTTC would be disposed of.  He also stated that the purchaser would be United Easy Investments Limited (UEIL) [p.1434].  PW1 said she had not had any discussion with any person about UEIL becoming the purchaser before she received the said email.

60. On 18 November 2008, PW1 received from Sabrina Fung by email [Exh P52 p.1496/T1] a draft announcement to be issued under the Listing Rules in relation to the disposal of CTTC.  In the announcement, the purchaser was stated as being UEIL [p.1493].  Following the name of the purchaser was the statement, “To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, UEIL and its ultimate beneficial owners are third parties independent of the Company [i.e. CMRG] and its connected persons.”  A note reading “Note: Please confirm.” was inserted after the statement.  PW1 stated that, by that note, the lawyer required CMRG to confirm whether the statement was correct or not. PW1 said she had taken steps to confirm the independent status of UEIL mainly by asking Richard Yeung for information.

61. On 20 November 2008, PW1 sent to D2 by email [Exh P55 p.1511/T1] the draft minutes of BAL and CTTC which were sent to her by Tracy LI, a subordinate of Sabrina Fung.  In the draft minutes of BAL under the heading "Declaration of Interests" [p.1505], it was stated at paragraph 3.2 that "It was NOTED that none of the Directors was interested in the transactions herein contemplated."  A note reading "Note: Please confirm" was inserted at the end of the statement whereby PW1 was asked by the solicitors to confirm whether the statement was correct.  PW1 said she had confirmed with D1 and D2, the directors of BAL , that the statement was correct.

62. Later on the same day, PW1 received from D2 the marked up minutes of BAL and CTTC by email [Exh P56 p.1536/T1].  In the marked-up minutes of BAL, the note "Note: Please confirm" was crossed out by D2 [Exh P56 p.1514].  PW1 took that to mean that it was confirmed that the statement was correct.

63. Also on the same day, PW1 sent the announcement which was marked with her amendments to Tracy LI and Richard Yeung by email [Exh P57 p.1540/T1].  PW1 had crossed out "Note: Please confirm" following the statement about UEIL, because she believed the statement was correct based on what she received from D2 [Exh P57 p.1539] and what she had been told by Richard Yeung.

64. The Instrument of Transfer pertaining to the transfer of 19,999,999 shares of CTTC was signed by D2 on behalf of BAL and HO on behalf of UEIL [Exh P22, p.1147].  D2 was present when HO signed the instrument.

65. PW1 stated that she was the secretary of the CMRG BoD meeting held on 21 November 2008.

66. Both PW1 and Richard Yeung handled the documentation of the transaction.  PW1 said she was dealing with lawyers of CMRG but not UEIL and that she had had no contact with the purchaser.

67. Under cross-examination, PW1 stated that, in respect of the sale of CTTC, she and Richard Yeung were the only persons giving instructions to solicitors about the transaction.  PW1 did not receive any information from any other director pertaining to the sale apart from Richard Yeung and she was acting on his instructions when she gave information to the solicitors.

68. In relation to the statement in the announcement regarding UEIL [Exh P52 p.1493], one of the steps PW1 took to confirm the truth of the statement was to raise it with Richard Yeung.  PW1 agreed that the information that UEIL was not related to CMRG was solely the information given to her by Richard Yeung.

69. PW1 also stated during cross-examination that it was likely D2 would like CMRG to prepare the draft UEIL board minutes.  CMRG would not take the initiative to prepare the board minutes for the purchaser.  PW1 said she must have spoken to D2 about the UEIL minutes.

PW2 CHEN Shouwu

70. PW2 joined CMRG in September 2007 as Vice-President and Chief Investment Officer and became an executive director in December 2007.  He was mainly responsible for the company’s mining business in Heilongjiang, China.

71. PW2 said he was the chairman of the CMRG board meeting held on 21 November 2008 and it was a meeting held by telephone conference with him being the only person physically present.  At the meeting, none of the directors declared any interest in relation to the sale of CTTC.

72. PW2 stated that in November 2008, he had no personal knowledge of UEIL.  However, he had no reason not to accept the information in the draft announcement [Exh P7 p.1064] about UEIL and its ultimate beneficial owners being third parties independent of CMRG and its connected persons.  If it transpired that any of the directors of BAL had an interest in UEIL, he would not consider them to be an independent third party.

73. PW2 signed the agreement for the sale and purchase of CTTC [Exh P18, p.1126] on behalf of BAL.  PW2 stated that, to his knowledge, none of the directors of CMRG or its subsidiaries had declared any interest in relation to the sale of CTTC to UEIL.

74. He further stated that he had checked against the company records of CMRG back to October 2008 and he could not find any record of employees making declarations regarding the acceptance of advantages or conflicts of interest.

75. Under cross-examination, PW2 stated that at the time he joined CMRG, it was clearly specified that the future business of the company would be mining and that other unrelated businesses would be disposed of .

76. He also said that, even at the CMRG board meeting held on 21 November 2008, he had no idea as to which executive director conducted the negotiations for the sale of CTTC.  At no time during the meeting was there any discussion amongst the directors as to who the owner of UEIL was.  He did not make a personal enquiry as to UEIL’s ownership.

PW3 CHAN Sze-hon

77. PW3 was an independent non-executive director (INED) of CMRG from 5 December 2007 to 23 November 2011.  He attended the BoD meeting of CMRG by telephone on 21 November 2008. He agreed to the proposed sale of CTTC by BAL to UEIL.  At the meeting, no one mentioned there was any relationship between the proposed purchaser, i.e. UEIL and any person in the directorate, management or staff of CMRG.  Had he been aware that there was a relationship to the extent that the sale might be considered a connected transaction, he would have asked for information from the BoD as to whether the consideration of HK$15 million was an appropriate price and he would also have consulted the solicitors to check as to the appropriate announcement according to the Listing Rules.

78. PW3 said that staff members of CMRG or its subsidiaries were not permitted to accept any advantages without the consent of the company.

PW4 CHU Kang-nam

79. PW4 was an INED of CMRG.  On 21 November 2008, he attended the BoD meeting of CMRG by telephone.  He agreed during the meeting that CTTC should be sold to UEIL.  It was not mentioned during the meeting that any of the directors was interested in the transactions contemplated.  Had he been told that UEIL was owned by a director or a former director of CMRG or any of its subsidiaries, he would have made his decision after making enquiries with the Stock Exchange of Hong Kong and CMRG’s lawyers.

80. PW4 said that employees of CMRG were not permitted to accept advantages in relation to the company’s business unless permission of the principal was obtained and granted.  If he had known that any staff member of CMRG or its subsidiaries had received advantages with relation to the disposal of BAL he would not agree to grant permission.

PW5 CHIU Pat-ngao Steven

81. PW5 was an investment banker of Goldbond Capital Holdings Ltd. (renamed Piper Jaffray Asia Ltd. in late 2007), a company providing, amongst others, financial advisory services.  He was acquainted with D1 and D2 through the introduction of his immediate superior, Mr. Stacey WONG.

82. On 11 July 2007, D2 sent an email to Stacey WONG (copied to D1) stating that CMRG was considering the disposal of its 100% interest in CTTC to a company owned by D1 and asked Stacey WONG to advise whether the disposal constituted a very substantial disposal and a connected transaction under the Listing Rules [Exh P71 p.1698/T2-3].  On 19 July 2007, PW5 replied to D2 by email that the disposal was a “VSD”, i.e. a very substantial disposal [Exh P71 p.1698/T1].  Later on the same day, D2 sent an email to PW5 asking him to advise on the major items for the connected transaction.  PW5 replied that approval by independent shareholders was required and that a letter of advice from an independent financial adviser had to be included in the connected transaction circular [Exh P71 p.1698/T1].

PW6 SIN Sze-man

83. PW6 was the manager of the Human Resources and Administration Department of The XSS Holdings Limited, one of the 6 subsidiaries of The XSS Group Limited.  She gave evidence that HO Pui-fan was employed by The XSS Limited, another subsidiary of The XSS Group Limited, as an administration assistant on 1 October 2007.  With effect from 1 May 2011, HO’s basic salary was HK$7,900 per month.

84. Under cross-examination, PW6 said she became aware that HO’s duties included general clerical work and dispatch of documents from her daily or regular contacts with HO.  HO managed the company’s petty cash and had quite a lot to do with the banking of the company.  She was also one of the authorized signatories of the company’s bank account.  However, PW6 was not aware that HO was a non-executive director of CTTC before she was shown an organization chart of the company dated 25 June 2009 ( Ex103/1825).

PW 8 LEUNG Yat-kwan

85. PW8 was a laboratory technician at CTTC.  She recalled that one day at around about the time CTTC was acquired by UEIL, D1 announced at a meeting with staff members of CTTC that the acquisition was complete and that he would continue to manage the company although he was not the boss.

86. Under cross-examination, PW8 said that D1 came to the company’s laboratory more often in 2007, then less frequently once Vandanee LAU took up the position of CEO around about the time of the acquisition.

PW10 CHAN Kam-kwan Jason

87. PW10 was the Executive Director of Wah Nam International Holdings Ltd. (Wah Nam).  In around the end of 2007, he came to know D1.  At the time, he was planning to acquire a copper mining company called Luchun in Kunming, China.  PW10 had discussed his plan with D1 and sought his advice.  He later commenced negotiations with D1 who knew the shareholders of Luchun.  The Luchun copper mine was held by Smart Year Investments Limited (SYIL).

88. During the negotiation, D1 and D2 dealt with the exchange of documentation when Wah Nam looked into the mining business of Luchun.  PW10 also contacted D1 and D2 as they had to verify the information on the copper mine and the vendor as included in the announcement of the acquisition.  PW10 had no dealings with the vendor and only negotiated with D1.

89. The price for the acquisition was HK$650 million, with the cash consideration being HK$119.8 million.  Wah Nam did not have sufficient cash when it had to pay up the cash consideration and D1 arranged for the company to borrow a loan of HK$2 million from UEIL.  A loan agreement [Exh P149 p.1943] was drafted by PW10.  The loan was deposited into Wah Nam’s bank account on 18 September 2008 [Exh P148 p.1940] and the acquisition was completed a few days afterwards.  On 17 October 2008, D2 sent an email to PW10 [Exh P72 p.1699/T1] asking Wah Nam to repay the loan.  On the same day, D2 again emailed PW10 advising Wah Nam to pay to UEIL [Exh P73 p.1700/T1].  The loan was later repaid to UEIL together with interest of HK$13,000 (totalling HK$2.013 million) [Exh P149 p.1943/T1 and 1942].

90. After the completion of the acquisition, D1 informed PW10 that a fee was to be paid to a company which conducted an investigation of the copper mine prior to the acquisition.  Wah Nam then received a payment instruction [Exh P151 p.1953/T2] from the company Xi’an Jintao Mining Management Consultancy Service Limited (Xi’an Jintao) that they had to pay to the company account of “Hop Yee” (Note: the Chinese name of UEIL).  PW10 thus arranged to pay HK$4.294 million to “Hop Yee” [Exh P151 p.1953/T1-12].  During cross-examination, PW10 agreed that it was in respect of a Technical Service Agreement between SYIL and Xi’an Jintao that consultancy fee of HK$4.294 million was paid [Exh P151 p.1953/T4-T12].

91. Separately, PW10 stated that D2 wanted to have money remitted to LEE JunBo.  PW10 had contacted FIRL, a licence remittance agency, to arrange the remittance of RMB3,190,125.2 (the equivalent of HK$3,633,400) for D2 [Exh P82 P83, P85, P87 and P88].  He had later met LEE JunBo once when he visited Luchun.  LEE was working for that company.

92. Under cross-examination, PW10 agreed that after the acquisition of the copper mine, shareholders in SYIL or Luchun became shareholders in Wah Nam as the consideration was paid partly by the issuing of shares to the different shareholders who made up the vendor, including HO Pui-fan.  As a result of the acquisition, Wah Nam inherited all the assets and liabilities of SYIL. 

PW11 KO Chun-shun

93. PW11 was the director and shareholder of FIRL, a foreign exchange dealer and a remittance agent.  He was not involved in the daily operation of the company.  He recalled that in November 2008 D1 had telephoned him and told him that a relative of his, his sister-in-law, had funds in Renminbi which were not yet due and needed $7 million.  D1 said that within a few days the funds would be remitted into Hong Kong and exchanged into Hong Kong currency and PW11 would be repaid.  PW11 agreed to transfer the money to D1’s relative.  Following that telephone conversation, on 18 November 2008 PW11 received an email [Exh P80 p.1785/T1] from D1 asking that HK$7 million be transferred to UEIL.  PW11 then asked his colleague, WONG Kin-on Ricky, to follow up the matter. Wong informed the executive director of FIRL to remit the money.  He also instructed his secretary, Rebecca LEE, to reply to D1 on the bank account of FIRL [Exh P80, p.1785/T1].  A few days later, he checked and found that the funds had been returned to FIRL.

94. Under cross-examination, PW11 stated that he vaguely recalled D1’s relative was surnamed HO.  When it was put to PW11 that it was the aunt of D1’s wife who was seeking a bridging loan of $7 million to buy a company called CTTC and that there was no mention of remittance, PW11 said that he recalled D1 mentioned that it was his relative who needed the money and that it was Renminbi.  PW11 agreed that he could not be sure whether D1 said anything about a remittance.

PW12 WONG Kin-on

95. The statement of PW12 [Exh P258A] was read out under section 65B of the Criminal Procedure Ordinance.  He stated that he sent a facsimile to PW13 and CHAN Hung-shui, Peter, of FIRL according to the instructions given by PW11 requesting FIRL to arrange a transfer of HK$7 million to the bank account of UEIL on 20 November 2008.  He did not know the nature or reason of the transfer and he had no knowledge of UEIL.

PW13 NGAN Kwai-kwok

96. The statement of PW13 [Exh P259A], a director and shareholder of FIRL, was read out under section 65B of the Criminal Procedure Ordinance.  PW13 stated that he and CHAN Hung-shui, Peter and a few other people had set up FIRL, a company carrying on the business of foreign exchange and remittance.  Since 1990, PW11 has been a substantial shareholder of the company.

97. He recalled that PW11 had called him saying he needed to transfer HK$7 million to UEIL and that he would be responsible for the sum of money.  PW13 agreed to handle it for him.  Later, PW13 received a facsimile dated 19 November 2008 from “Ricky WONG” addressed to him and Peter CHAN [Exh P153 p.1956] instructing FIRL to transfer HK$7 million to the bank account of UEIL.

98. According to a notice issued by Standard Chartered Bank [Exh P154 p.1957], FIRL transferred HK$7 million to UEIL on 20 November 2008.  The said transfer was handled by Peter CHAN.

99. PW13 recalled that, a couple of days after FIRL had transferred the HK$7 million, FIRL received a transfer of the same amount.

PW14 CHUNG Kin-sang

100. The statement of PW14 [Exh P260A], Assistant Manager of FIRL, was read out under section 65B of the Criminal Procedure Ordinance.  PW14 came to know PW10 through the introduction of PW11. PW10 was a regular customer of FIRL.

101. On 18 December 2008, PW14 received a phone call from PW10 saying that he would like to process a remittance transaction for a sum in Renminbi  for a customer’s friend called HO Pui-fan. PW14 asked PW10 to fax to him HO’s remittance instructions and the customer’s proof of deposit which he subsequently received [Exh P155 p.1961/T1-2].  PW14 then arranged the remittance of RMB￥3,190,125.20 to the account designated by HO.  He marked the account holder’s name, i.e. LEE JunBo, on the exchange slip [Exh P155 p.1961/T3].  After the transaction was completed, PW14 faxed the statement of account [Exh P155  p.1961/T4] to PW10 as proof.

PW15 CHAU Ying-kit

102. A redacted version of the statement of PW15 [Exh P262], Assistant Vice President of the Listing Division of the Hong Kong Exchanges and Clearing Limited (“HKEx”), was read out under section 65B of the Criminal Procedure Ordinance.  He was responsible for monitoring compliance with the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“the Listing Rules”) by Main Board and the Growth Enterprise Market listed issuers.  PW15 stated that as a listed issuer, CMRG must comply with the Listing Rules.

103. PW15 referred to Chapter 14A of the Listing Rules operative in November 2008 [Exh P205 p.2356-2388], which concerned connected transactions.  Under Rule 14A.13(1)(a), a connected transaction includes “any transaction between a listed issuer and a connected person” and under Rule 14A.10(13), a “transaction” includes the acquisition or disposal of assets by an issuer.  Under Rule 14A.11, the term “connected person” includes a director, chief executive or substantial shareholder of the issuer and any of its subsidiaries.

104. When an issuer engages in transaction(s) with its connected person, the Listing Rules require disclosure of such connected transaction by issuing an announcement and reporting in the annual report, and obtaining prior independent shareholders’ approval in a general meeting, unless the transaction falls within one of the categories of connected transactions in Rules 14A.16(1) to 14A.16(4) in which case the issuer will be exempted from complying with one or more of the requirements.  In addition, under Rule 14A.21, the issuer must comply with the requirement of seeking independent financial advice set out in Rules 13.39(6) and 13.39(7).

105. PW15 produced a “Declaration and Undertaking with regard to Directors” form of D1 [Exh P206 p. 2389-2403] in which he undertook, amongst others, that he in the exercise of his powers and duties as a director of CMRG, shall comply to the best of his ability with the Listing Rules and use his best endeavours to procure that CMRG shall so comply.

PW16 TSE Yu-kuen

106. The two statements of PW16 [Exh P255A and 255B], a Manager of Union Registrars Limited (“URL”), were read out under section 65B of the Criminal Procedure Ordinance.  URL was the share registrar of CMRG and was in possession of its register of members.

107. PW16 stated that on 26 October 2006, D1 was issued a share certificate (numbered GEL00026495) [Exh P251 p.2817-2818] for 1.5 million shares of CMRG.  (See Full Register List of CMRG in respect of D1 [Exh P166 p.1981])

108. On 7 November 2008, D1 had transferred the 1.5 million shares to D2.  (See Exh P166, the Form of Transfer at the overleaf of Exh P251 [p.2818] and the relevant Transfer Journal [Exh P168 p.1984])

109. The two stamp duty marks at the overleaf of Exh P251 [p. 2818] were dated 3 November 2008.

110. On 7 November 2008, 1.5 million shares of CMRG were transferred to D2 and a share certificate for those shares (numbered GEL00027696) [Exh P164 p.1978-1979] was issued to her on the same day.  (See Full Register List of CMRG in respect of D2 [Exh P159, p.1970-1971])

111. D2 had transferred the said 1.5 million shares of CMRG to Hong Kong Securities Clearing Company Nominees Limited on 8 December 2008. ( Exh P159, the Form of Transfer [Exh P164, p.1979] and Transfer Journal [Exh P165, p.1980])

PW17 LO Sin-kit Tammy

112. The two statements of PW17 [Exh P256 and 261], Compliance Manager of Offshore Incorporations HK Limited (“OIL”), were read out under section 65B of the Criminal Procedure Ordinance.

113. PW17 stated that clients of OIL may establish an offshore company by choosing a shelf company from a shelf list.  An administrator/principal client is the contact person and any instructions given by third parties, e.g. directors and/or shareholders, would not be accepted.

114. On 20 April 2007, UEIL was sold by OIL to HO Pui-fan, whose registered address was Flat 3, 10/F., Knutsford Commercial Building, 4-5 Knutsford Terrace, Tsim Sha Tsui.  D2 was the administrator/principal client of UEIL and she provided OIL the relevant information including appointment of directors and shareholders.

115. On 12 December 2008, The XS, S Group Limited (renamed The XSS Group Limited on 8 October 2010) was sold to D1 and D2.  D2 was the contact person of the company.  The registered address and email address of The XSS Group Limited were the same as that of UEIL.  D1 was the sole director and shareholder of the company.

116. Copy of documents kept by OIL [Exh P119-123 p.1868-1872] showed that on 1 December 2010, HO sold the sole share of UEIL at a consideration of US$1 to The XSS Group Limited, which became the sole shareholder and director of UEIL.

Video-recorded Interviews (VRIs)

117. The two defendants attended video-recorded interviews with ICAC officers on the day of their arrest (11 October 2011). An edited version of the video recording and transcripts of these interviews were produced as prosecution exhibits by agreement of the parties under section 65C of the Criminal Procedure Ordinance, Cap 221 of the Laws of Hong Kong. It was agreed by the parties that the defendants made their statements in the interviews voluntarily and the accuracy of the transcripts was not disputed: Admitted Facts [Exh P253A – Admitted Facts paras 46, 47].

D1 3 Video-recorded interviews P1 to P3(English Translations P1B, P2B and 3B

118. By agreement between the parties slight amendments were made to the translations at counter 1519,1524,1525,1472 and 1573 of P1B

119. Salient points in D1’s VRIs are as follows:

D1 to be the original buyerof CTTC

(1) CMRG wanted to sell off CTTC because it had a lot of liabilities. Initially, CTTC was to be acquired by D1. D1 negotiated the price with Richard Yeung. D1 thought since CTTC had liabilities, the proposed price of HK$15 million was bit too expensive and the reasonable price should be HK10 million but eventually he agreed to the figure of HK$15 million [D1 1^st VRI: 1577 - 1612; 1687 - 1689].

Simpler way to dispose of CTTC

(2) Later, Richard Yeung said to D1 that it would be better if a third party would acquire CTTC and it could be done in a simpler way as an “announcement/ announceable transaction” to which D1 agreed [D1 1^st VRI: 1579 - 1587; 1620 - 1627; 1670 - 1675; 1693 – 1695]. This suggestion from Richard Yeung was mentioned in other parts of D1’s VRIs in slightly different versions:

(a) Through such a transaction (by third party), it could be sold the quickest [D1 1^st VRI 1673 - 1683]

(b) Initially it was to be acquired in D1’s name. Later Richard Yeung told D1 perhaps things would be easier if it was acquired in someone else’s name [D1 2^nd VRI: 32].

(c) To be more simple, getting another person to make the purchase [D1 3^rd VRI: 424- 428].

(3) In reply to Richard Yeung’s suggestion of finding a third party to acquire CTTC, D1 told Richard Yeung that he had to remain as director of CTTC after the disposal because otherwise no one would agree to do it [D1 1^st VRI: 1703, 2253, 2267].

(4) D1 initially suggested approaching D2 to do this (i.e. finding a third party to acquire CTTC) but Richard Yeung suggested asking his wife’s aunt to buy CTTC because she had been asked by his wife to be shareholder or director of their many companies for a while. Ms. HO was like a mother to D1’s wife [D1 1^st VRI: 2269 - 2275; 2^nd VRI: 140].

(5) D1 later said he told Richard Yeung that UEIL would buy CTTC but he probably knew the company was owned by his wife’s aunt [D1 2^nd VRI: 55-74].

HO Pui-fan

(6) D1 initially said they paid HK$20 million to buy CTTC. He later clarified that it was his wife’s aunt, HO Pui-fan, who “showed up” to buy the company [D1 1^st VRI: 1513 - 1526]. When asked by ICAC officer if HO helped him to buy CTTC, D1 agreed [D1 1^st VRI: 1572 - 1573]. Later, D1 denied he owned UEIL “at the back” [D1 2^nd VRI: 37- 48].

(7) D1 had all along been the director of CTTC and run CTTC. He told HO that if there was anything wrong (loan or liabilities), he, as director, would be responsible. D1 thought it would be unfair to Ms. HO if she was to be held responsible for all the liabilities of CTTC since she never ran it [D1 1^st VRI: 1527 - 1528; 1542 - 1553; 2^nd VR: 131-136; 3^rd VRI: 430 - 436].

(8) D1 thought HO did not ask him why she had to hold the company in her name because as a matter of fact they had been very close. HO was like a mother to his wife, who sometimes asked HO to hold some companies in her name. HO might think buying CTTC was just one of those transactions [D1 2^nd VRI: 137 - 140].

(9) Later when the business of CTTC was getting worse, D1 thought it would be unreasonable for HO to be held responsible for the debt. D1 therefore offered to buy CTTC from HO, to which she agreed since after all she was not exactly running CTTC. D1 further said as a matter of fact, it was their plan to eventually look for someone to take over CTTC [D1 1^st VRI: 1615 - 1617; 1723 - 1725; 2281 - 2287; 2^nd VRI: 140-142].

(10) D1 said he had nothing to hide throughout the whole transaction and did not consider there would be any advantage as a shareholder because the account of CTTC was in the “negative” [D1 1^st VRI: 1695 - 1701; 2247 - 2251; 2^nd VRI: 34].

(11) HO did not make any contribution to the purchase of CTTC [1st VRI 2288 - 2289; 3^rd VRI: 315 - 316]. D1 did not pay HO anything for acquiring UEIL and absorbed the liabilities of UEIL after the acquisition [D1 1st VRI: 2290 - 2299].

D2

(12) D1 came to know D2 when he worked in CMRG. D2 was responsible for finance matters in CTTC [1^st VRI: 1814 - 1821]. D1 gave his personal shares in CMRG to D2 because at that time she wanted to resign. D1 had also given his own shares to his driver and secretary as a reward for their work. The value of the shares D1 gave to D2 would amount to HK$1 million at that time [D1 1^st VRI: 1822 - 1867].

(13) D1 said if they (including his wife) wanted to set up new companies, they would ask D2 to help. D2 bought UEIL in April 2007. When asked the purpose of buying UEIL, D1 said he had no idea and actually they bought many companies and sometimes they had not used them after the purchase [D1 3^rd VRI: 79 - 98].

BALminutes

(14) D1 recognised D2 and his own signatures on the minutes of the BoD meeting of BAL dated 21 November 2008 [D1 3^rd VRI: 0191 - 0206].

D2 - Two Video Recorded Interviews Exhibits P4 and P5, Translations P4B and P5B

120. Salient points in D2’s VRIs are as follows:

D2’s positionsin CMRG/CTTC

(1) D2 was the chief financial officer of CTTC at the time of the interview. At the beginning, D2 was employed by Innomaxx as the finance manager. She later became the financial controller and company secretary of Innomaxx. She had to take care of the company accounts, legal documents, attend meetings of the BoD and prepare minutes of those meetings [D2 1^st VRI: 71 – 102].

(2) D2 directly reported to D1 in CMRG after he joined the company [D2 1^st VRI: 225 – 228].

(3) D1 and D2 were signatories of CTTC’s bank accounts. Any one of their signatures could effect a transfer [D2 1^st VRI: 995 – 1005].

Purchase of UEIL/ shell companies

(4) D2 was responsible for buying UEIL for HO. She handled the relevant documents [D2 1^st VRI: 1140 – 1149]. When asked if she helped HO to buy UEIL, she said that was right because many shell companies which D1 told her to buy for him were also taken care of by her [D2 1^st VRI: 1149-1150].

(5) When asked if D1 or HO gave instruction to her to set up UEIL for HO, D2 said she could not remember [D2 1^st VRI: 1153-1154, 1278 – 1280, 1332; 2^nd VRI: 47 - 52; 59 - 60].

(6) D2 said she helped D1’s friends many times to buy shell companies. It was not part of her duty as company secretary of CMRG [D2 1^st VRI: 1308 – 1320].

(7) D2 recognised that the Knutsford Terrace address on Exhibit P108 p.1846 was the address of The XSS Limited, a company in which D1’s wife and HO worked [D2 2^nd VRI: 83 – 150]. D2 said the handwriting on the paper was not hers [D1 2^nd VRI: 153 - 164].

HO Pui-fan, Fanny

(8) D2 was told by D1 (“the boss”) that HO’s company, UEIL, bought CTTC in 2008. She met HO when the documents relating to the disposal of CTTC were signed in CMRG’s office. The consideration was HK$15 million [D2 1^st VRI: 841 – 922].

(9) When asked how D1 got to know HO, D2 said “I think, how to put it? They were definitely related.” When asked to clarify what that means, D2 said “I think they were acquaintances definitely” [D2 1^st VRI: 1043 – 1050].

(10) HO did not become a signatory of CTTC after the purchase of CTTC because she did not take part in CTTC’s operation. HO was an investor and the business was operated by D1 [D2 1^st VRI: 1113-1122].

D1 gave 1.5 million shares to D2

(11) D2 was given 1 million share options by the company around the end of 2005 as a staff benefit [D2 1^st VRI: 1398 – 1440; 1511].

(12) D1 gave 1.5 million shares of CMRG privately as gifts/ private bonus about two weeks before the CTTC transaction (November 2008) because at that time the transaction was really painstaking and she was the only one working on it and she wanted to quit [D2 1^st VRI: 1444 – 1488].

(13) Mr. Cai Yuan, the Chairman, did not give her shares privately [D2 1^st VRI: 1520 – 1529].

DEFENCE EVIDENCE

121. D1 elected to give evidence.

Personal background

122. D1, aged 44, is married and has one daughter. He has a clear record in Hong Kong [Exh P253A- Admitted Facts para.49].

123. He holds a bachelor’s degree and two masters’ degrees relating to business and finance and has been a Chartered Financial Analyst (CFA) since 2001. Between 1999 and 2005, D1 worked in the banking industry. In 2005, he started his own business which provided advisory services to state-owned enterprises and private companies on the mainland. D1 became the executive director of Innomaxx in August 2005.

124. While working in the banking industry, D1 was mainly involved in helping mainland companies to transfer assets from the mainland to Hong Kong; and Hong Kong or BVI companies to acquire mainland assets.

125. Under cross examination, D1 explained how the transfer of mainland assets to Hong Kong was arranged. He said banks and other lenders would make out bridging loans to Hong Kong companies for the acquisition of mainland assets. The loans would be repaid after the acquisitions.

Involvement in the management of Innomaxx/ CMRG (2 August 2005 – 6 July 2007)

126. In 2004, D1 became a shareholder of Innomaxx and held 14% or 300 million shares in Innomaxx through an investment vehicle, Equity Valley Investment Ltd, of which he was a director.

127. On 2 August 2005, he was appointed as executive director of Innomaxx [Exh D1-5] and became involved in the management of Innomaxx/ CMRG.

128. On 28 November 2005, D1 became the deputy chairman and chief executive officer (“CEO”) of Innomaxx [Exh D1-6]. He remained in the same positions until his resignation on 6 July 2007 [Exh D1-11].

129. At the time of D1’s appointment, Mr. Cai Yuan was appointed as an executive director and chairman of Innomaxx [Exh D1-5 and D1-6].

130. On 28 September 2005, D1 took up directorships of BAL and CTTC, which were subsidiaries wholly owned by Innomaxx [Exh P253A-Admitted Facts paras 7, 13].

131. According to D1, in 2005 and 2006, the main business of Innomaxx was umbilical cord blood storage although the announcement of the final results of Innomaxx for the year ended 31 December 2005 showed that the principal businesses of Innomaxx also included property investment and international trade [Exh D1-7]. During this period, D1 spent all of his working time on the affairs of Innomaxx.

132. On 10 August 2006, mining became the principal business of Innomaxx after it acquired 57% of the shares in Lead Sun Investments Limited (Lead Sun transaction), a mainland company which owned a rutile mine in Shanxi on the mainland. After the Lead Sun transaction, Investec became a major shareholder of Innomaxx and D1’s shareholding was diluted to 4.82% [Exh D1-8].

133. On 17 January 2007, Innomaxx changed its name to China Mining Resources Group Ltd (CMRG) and Yeung Kwok-kuen (Richard Yeung) was appointed as chief financial officer (CFO) and executive director of CMRG.  D2 resigned from her positions as company secretary and authorised representative of CMRG. It was Investec which requested Richard Yeung’s appointment [Exh D1-9].

134. Richard Yeung took over most of D1’s previous roles as CEO in CMRG after he became CFO and executive director of CMRG on 18 January 2007.

135. In early 2007, D1 found himself having differences with the board of directors and the management of CMRG. In particular, D1 mentioned the acquisition by CMRG of Harbin Songjiang, which operated a copper mine on the mainland and with which he had reservations. Ultimately, D1 did not object to the acquisition but he told the management of CMRG that he would resign after the transaction .

136. On 21 June 2007, CMRG announced the share placement exercise for the acquisition of Harbin Songjiang. D1’s shareholding was diluted to 3.9% after the acquisition [Exh D1-10].

137. On 6 July 2007, D1 resigned from the positions of deputy chairman and CEO of CMRG [Exhibit D1-11]. D1 remained as director of BAL and CTTC. His responsibilities in BAL and CTTC continued after his resignation as director of CMRG.

138. According to D1, the CMRG employee handbook [Exh P250 p.2795] was not in force when he joined Innomaxx. D1 was not aware of this handbook before he resigned from the directorship of CMRG.

Involvement in the management of CTTC

139. Between August 2005 and early 2007, D1 started to spend more of his time on the day-to-day management of CTTC and in the later period this took up about 70% of his time.

140. In early 2007, Keith Mok was appointed as the chief operating officer of CTTC. After his appointment, D1 spent 40% of his time in a week on the affairs of CTTC. This remained the same after he resigned as director of CMRG.

141. Except for the work on CTTC, D1 had no other responsibilities within the CMRG Group.

142. In 2007, D1 did not receive any remuneration as executive director of CMRG. [CMRG Annual Report 2008 Exh P209].

Proposed sale of cord blood business to D1 (July 2007)

143. In early 2007, in a gathering of major shareholders and informal meetings of directors of CMRG, D1 heard  talk about the sale of the cord blood business

144. An action plan of CMRG [Exh D2-1] prepared in June 2007 and a set of powerpoint slides on CMRG’s mission and strategies [Exh D1-3] prepared in August 2007 showed that the company planned to dispose of its cord blood business and the person responsible for this task was Richard Yeung.

145. In July 2007 after D1 resigned as director of CMRG, Richard Yeung and Kelvin Wu (representative of Investec, the major shareholder of CMRG at that time) proposed that D1 buy CTTC for two reasons: (1) the major business of CMRG was mining; and (2) there were many liabilities within CTTC and the management of CMRG did not want CMRG to be responsible for these liabilities.

146. According to D1, these liabilities referred to the upfront money paid by customers to CTTC for the cord blood storage services for the next 18 to 20 years. At that time, the assets of CTTC were far from enough to cover repayment to customers if there were problems with the operation and customers asked for a refund .

D1’s attitude towards CTTC

147. D1 did not like the business of CTTC because he was worried about the liabilities and, since at that time he had other businesses to run, the business of CTTC was not attractive to him.

148. D1 said if the management of CMRG insisted that he buy it, he would do so because he thought he was under a moral obligation to CTTC. He felt he had to look after his customers and colleagues in CTTC who had worked hard in making CTTC run on the right track. During cross examination, D1 added that more importantly he owed a moral obligation to the new shareholders of CMRG as most of them were introduced by D1 into CMRG.  D1 further added that he was still a substantial shareholder of CMRG and if buying CTTC created an overall advantage for CMRG, he would take up the offer. D1 agreed that no one could force him to buy CTTC if he really disliked it.

149. D1 also said if someone else wanted to buy CTTC, he would not mind and would welcome them to do so.

D1 knew it would be a connected transaction in 2007

150. Around that time in 2007, D1 was aware that the proposed sale to him would be regarded as a connected transaction because at that time he had just resigned from CMRG and any transaction between CMRG and D1 would be regarded as a connected transaction.

Consulting CMRG’s financial advisor in 2007

151. During cross examination, D1 said when the proposed sale of CTTC to D1 came up in 2007, Richard Yeung asked D1 to check if it would be a connected transaction. D1 then asked D2 to consult CMRG’s financial advisor, Steven Chiu (PW5).

152. The proposed sale of CTTC to D1 did not go ahead in 2007.

Disposal of CTTC in 2008

153. In early 2008, Richard Yeung continued his efforts to sell off CTTC. D1 referred a number of potential investors to Richard Yeung but no deal was made with these potential investors. At that time, Richard Yeung did not indicate to D1 as to why he was trying to sell to a third party as opposed to selling to D1.

154. In October 2008, Richard Yeung again raised with D1 the proposed sale of CTTC to D1. In response, D1 told him “okay”. At that time, D1’s attitude and feeling of “a moral obligation” remained the same as in 2007. 

155. On 10 October 2008, an email sent by Mary Leung (PW1) to Sabrina Fung of Jackson Woo & Associates and copied to Richard Yeung mentioned D1 as the buyer. D1 agreed that this was consistent with what he had agreed with Richard Yeung [Exh P44 p.1401].

D1’s understanding of “connected transaction”

156. When he reached an agreement with Richard Yeung that he would buy CTTC, D1’s understanding was that this was not a connected transaction. To D1’s knowledge, if the resignation as director was over one year, he would not be a connected person. He was not aware that being a director of a subsidiary of a listed company would be considered a connected person in October and November 2008.

Consideration and terms of payment

157. At about the same time in 2008, he discussed with Richard Yeung  the consideration for the disposal of CTTC. D1 thought CTTC was worth HK$10 million while Richard Yeung thought it should be worth HK$20 million. Finally, they agreed on the figure of HK$15 million because at that time CMRG still owed HK$15 million to CTTC . That was before HO came into the picture.

158. D1 and Richard Yeung then agreed that the consideration would be paid by assignment of debt. That means the purchaser (i.e. still D1 at that time) did not have to pay any cash but would assume the debt of HK$15 million.

159. Under cross-examination, D1 disagreed that the fair price of CTTC should be around HK$12.6 million (goodwill plus net assets) [Exh P29 p.1165 and P45 p.1408. D1 thought HK$15 million was a bit too expensive and the reasonable price should be HK$10 million based on the net asset value and cash flow generation. He agreed that the company assets still exceeded the liabilities in June 2008. D1 did not tell HO that he considered HK$15 million was a bit too expensive.

160. The HK$15 million mentioned above was transferred from CTTC to CMRG in around 2007 and at that time there was no discussion as to when the amount would be repaid but it was understood that it would be repaid sometime in the future.

Change of plan - UEIL as buyer of CTTC

161. In early November 2008, Richard Yeung asked if it was okay to get a third party to buy CTTC because it could be completed sooner and/ or faster. D1 did not quite understand what Richard Yeung was saying but he told Richard Yeung that he would try to look for a third party to buy it and that party would definitely ask D1 to be the director. Richard Yeung had no comments on D1’s position and told D1 that the most important thing was that if there would be liabilities or issues concerning CTTC, the new owner would not go back to CMRG and asked them to take responsibility.

162. D1 then approached potential investors,one of whom was HO, his wife’s aunt. D1 told her about the business of CTTC and that the consideration was only an assignment of debt and she would not be required to pay any money. D1 also told her he would continue to look after the business for her. HO then agreed to purchase CTTC. D1 approached HO because she had made some money from the SYIL Transaction (see below) and thought she would be interested especially when she did not have to pay anything [Day 10 p.76 L17 - p.77 L13]. At a later time, HO told D1 that she would buy CTTC through a corporate vehicle, UEIL.

163. Under cross examination, D1 said he approached 3 potential investors - a mainland based investor, a Hong Kong investor and HO. D1 denied that he wanted to find a buyer who would allow him to stay on to run CTTC or told the potential investors that he would remain as director. It was rather that these investors requested him to stay .

164. D1 then told Richard Yeung that his wife’s aunt was willing to buy CTTC. Two days later, Richard Yeung rang D1 and said “it’s okay”. On 7 November 2008, Sabrina Fung of JWA was informed about the information of the buyer (i.e. UEIL) by an email from Richard Yeung [Exhibit P47 p.1433].

Faster / simpler

165. During cross examination, D1 said Richard Yeung told him it would be faster instead of simpler if a third party was the purchaser. When asked whether or not he asked Richard Yeung why it would be faster D1 said he did not know. He said that he did not understand what Richard Yeung was talking about and he ignored it. D1 insisted he had nothing to hide and that he had disclosed to Richard Yeung the buyer was his wife’s aunt. D1 considered HO an independent third party. D1 did not consider seeking further advice from the financial advisor, Steven Chiu (PW5) on this matter because he had already told Richard Yeung about his relationship with HO and he thought the legal advisor was aware of the whole situation.  D1 also thought if the legal advisor considered UEIL a connected party the agreement and other documents would have reflected that.

D1 continued to be director of CTTC

166. Under cross examination, D1 agreed that it was an arrangement between him and HO that he would continue as director of CTTC. D1 denied having an interest in UEIL. D1 said he had never hidden the fact that he would continue to be a director of CTTC after the disposal and Richard Yeung was aware of this. D1 said that the minutes of the BoD meeting of CTTC also reflected this.

D1 told D2 UEIL as buyer of CTTC

167. D1 also told D2 about the use of UEIL as the buyer of CTTC about the same time. According to D1, D2 should have the email address of HO as he had sent to D2 the particulars of HO (email address, telephone number etc.) when he asked her to assist HO to establish a company . 

Change of payment terms- no assignment of debt

168. Around 10 November 2008, Richard Yeung told D1 that there would be no assignment of debt and UEIL had to pay the consideration of HK$15 million. The HK$15 million debt owed by CMRG to CTTC would be paid within 3 business days upon CMRG receiving the proceeds of the disposal. An email was sent by Richard Yeung to Mary Leung (PW1) and Sabrina Fung on 10 November 2008 about the aforesaid change.

169. D1 found the change troublesome because he had to get back toHO and tell her that she had to raise HK$15 million cash for the disposal. HO told D1 that she had HK$8 million and she needed HK$7 million to complete the transaction.

170. It was put to D1 during cross examination that he said in the 1^st VRI that HO had contributed no money at all and that he did not mention that HO had HK$8 million and she needed HK$7 million to complete the transaction. D1 explained that at the time of interview he mistakenly thought the purchase price was HK$20 million.

UEIL borrowed HK$7 million from FIRL

171. On 18 November 2008, D1 arranged with Johnson KO of FIRL (PW11) for a short term loan of HK$7 million to UEIL. According to D1, the “we” and “us” in the email he sent to Johnson KO referred to HO. The loan was repaid after the transaction was completed and the receipt for the loan repayment was forwarded by D2 to D1 by email [Exh P80 p.1784]. 

172. D1 denied he owned or had any interest in UEIL until 1 December 2010.

Minutes of BoD meeting of BAL

173. Around 21 November 2008, D2 put the minutes of the Board of Directors’ meeting of BAL (BAL minutes) [Exh P9 p.1094] on his desk together with other documents for his signature. D1 signed the BAL minutes on the day he received it and asked his secretary to hand it back to D2. D1 was not provided with any draft of the minutes before he received Exhibit P9.

174. D1 did not give any thought as to what would happen to the BALminutes when he signed it. He did not discuss the document with D2. There was nothing false in the contents of the BAL minutes [Exh P9 p.1094].

HO Pui-fan

175. HO was the aunt of D1’s wife i.e. her mother’s younger sister. She worked in The XSS Limited which was managed by D1’s wife. The main business of The XSS Limited was interior design services and renovation of properties. D1 was a director of The XSS Limited and held 60% shares and the remaining 40% was held by his wife [Exh P253 A para 22].

176. According to D1, HO was in charge of finance in The XSS Limited. She was not just an employee of The XSS Limited. She sometimes worked as partner with D1’s’wife and they shared profits in some renovation projects.

177. Under cross examination, it was put to D1 that the performance appraisal report seemed to contradict what he said about HO being a partner of his wife. D1 in reply said the appraisal was done in 2011 and employees of The XSS Limited were not told about HO’s relationship with his wife [ Exh P91 p.1805; P92 p.1807; P93 p.1808; P.94 p.1809].

178. D1 had no idea of HO’s educational background. HO lived with her husband and children in a public housing estate.  D1 knew that in 2007 and 2008 HO’s family operated restaurants in mainland China and also did little investments.

179. In 2006-2007, D1 and HO invested in a factory on the mainland together with other investors. The total investment was $10 million. D1 contributed $3 to $4 million and HO contributed $1 to $2 million. The factory was sold and D1 made almost double profit andHO made slightly less than he  had made.

180. D1 never told D2 that HO was related to his wife . D2 never asked D1 about his relationship with HO.

SYIL Transactions

Smart Year purchased a copper mine (end of 2007)

181. Towards the end of 2007, SYIL acquired Luchun, a company which owned a copper mine on the mainland for about RMB 100 million. At that time HO was the sole registered owner of SYIL.

182. The consideration for the acquisition consisted of cash, shares of SYIL and loans from previous owners of the mine i.e. instead of being paid cash, previous owners of the mine were given shares of SYIL and accepted a loan to SYIL. HO provided the cash for the purchase. When asked how much cash HO provided, D1 said the cash was around RMB20 million and HO had to pay about 30%. (i.e. around RMB 6 million) .

183. Under cross examination, D1 said the RMB100 million figure he mentioned in evidence in chief was just for the cash portion and it was difficult to say what the full consideration was because it consisted also of new shares in SYIL . When asked where HO got the cash to pay for the purchase of Luchun, D1 said HO later sold SYIL shares to some investors and got money from them. When asked again where SYIL got the money to buy Luchun, D1 said payment would not be required to be made at the time of purchase but a few months later. D1 took part in setting up this arrangement.

184. D1 was the advisor of SYIL  when it purchased the copper mine.

185. LEE JunBo was one of the previous owners of the copper mine. After SYIL acquired the copper mine, a number of previous owners of the copper mine became shareholders of SYIL. D1’s wife and mother also became shareholders of SYIL  after the acquisition.

186. Under cross examination, D1 agreed that the shares of SYIL would have been worth nothing before the purchase of  the Luchun copper mine.

Acquisition of SYIL by Wah Nam (early 2008)

187. D1 was reminded of the evidence of Jason Chan of Wah Nam (PW10) in relation to the acquisition of SYIL by Wah Nam in 2008. D1 was the advisor for both sides.

188. At the time of the acquisition, there were 5 to 6 investors in SYIL and D1 knew all of them. HO was the third or fourth shareholder of SYIL  at that time.

189. Wah Nam paid around HK$500 million for the acquisition of SYIL. HO earned HK$20 to 30 million from this transaction.

190. D1 said he did not have any financial interest in SYIL at that time. His wife and his mother did. They became shareholders of Smart Year after SYIL purchased Luchun and they acquired shares of Wah Nam after the acquisition. They were still holding the shares of Wah Nam today and whether they made a profit would depend on when they sell their shares.

191. D1 had provided information about the copper mine to the executive directors of CMRG and asked if they were interested in acquiring that mine. That was in late 2007 and before SYIL purchased the copper mine. Finally, CMRG were not interested in it.

UEIL lent HK$2 million to Wah Nam (Sept 2008)

191. In September 2008, Wah Nam was short of HK$2 million to complete the acquisition of SYIL. Jason Chan of Wah Nam (PW10) asked D1 to arrange a loan of HK$2 million. D1 asked HO who then agreed. When asked why he approached HO, D1 said it was because he knew that she would make money out of this acquisition. He said he was not involved in preparing the document regarding the loan.

Purchase of UEIL

192. D1 said he was not involved in the purchase of UEIL in April 2007. D1 suggested to HO in 2007 and before the acquisition of UEIL that if she would like to buy BVI companies she should go to D2. D1 made that suggestion because he knew that D2 had the experience and she was the company secretary of CMRG.

193. Under cross examination (XMN-D2), D1 said D2 was the only staff member who knew how to set up BVI companies. When he instructed her to help HO to purchase BVI companies [email dated 20 April 2007 - Exh P69 p.1690], it was HO who chose the company names, United Easy Investments and Smart Year Investments. D1 could not recall whether D2 was directly in contact with HO at that time but if there were contacts it would be through emails.

194. D1 was referred to Exhibit P69 p.1693 – a piece of  paper which containedHO’s personal particulars, another address in Knutsford Commercial Building and some Chinese characters which said “Please use this address”. D1 confirmed these Chinese characters were his writing  and that the Knutsford address on p.1693 was the office address of The XSS Limited.

D1 offered 1.5 million shares of CMRG to D2

D2’s positions in CMRG

195. When D1 became executive director in 2005, D2 was the accounting manager of Innomaxx. She was promoted to the position of financial controller on 1 January 2006 [Exh P97 p.1815]. She was appointed as the company secretary and authorised representative of Innomaxx on 1 May 2006 [Exh D1-12]. She remained in the same positions until her resignation on 17 January 2007 [Exh D1-9].

Lead Sun transaction in 2006

196. In 2006, D1 and D2 were working together on the Lead Sun transaction (acquisition of a rutile mine on the mainland). D2 was the main contact person and had to prepare financial statements for this transaction.  D2 complained that it was hard work and she tendered her resignation. To retain D2, whom he relied on to complete the Lead Sun transaction, D1 offered to increase her salary and personally to give her 1.5 million shares of Innomaxx after completing the transaction.

Increase in salary and promise of company shares

197. D1 discussed the above proposal with the executive director and chairman, Mr. Cai who then agreed. D1 confirmed that the 1.5 million shares offered to D2 were his personal shares. D1 explained that company shares were not offered to D2 because at that time the Lead Sun Transaction was in progress and shareholders’ approval would be needed if company shares were offered to D2 as company secretary.

198. On 3 October 2006, D1 signed the letter offering additional salary of HK$10,000 to D2 [Exh P98 p.1816]. It was around this time (October 2006) and before the issue of this letter that he offered to give D2 his shares in CMRG. The offer of increased salary and company shares were made to D2 at the same time. D1 did not put the offer of shares in writing.  Apart from Mr. Cai and his secretary, D1 did not inform anyone else in the company about the offer of shares to D2.

199. When asked if the human resources and administration department (mentioned in the  letter - Exh P98 p.1816) was told about the offer of shares to D2, D1 said the department did not exist and if it did exist, D2 was the only one working in that department.

200. Under cross examination, D1 said he made the promise to give D2 CMRG shares in about June 2006 when D2 tendered her written resignation. The promise was contingent upon the successful completion of the Lead Sun transaction and that she remained in the company after the transaction .

Share certificate no: 00026495

201. On 26 October 2006, after the Lead Sun transaction was completed, D1 exercised the 8.65 million share options which were given to him in January 2006.  D1 arranged to have the shares put under two share certificates: (1) no.00026495 for 1.5 million shares and; (2) no.00026496 for 7.15 million shares). In around November 2006, sometime after he received the share certificates, D1 signed at the back of the share certificate no. 00026495 [Exh P251 p.2817-2819] and gave it to D2 to honour his promise of offering his shares to D2 after the Lead Sun transaction. Mr. Cai exercised his share options of 8.65 million shares on the same day and his shares were put under one share certificate [Exh D2-3 and D2-4].

202. The share register list [Exh P166 p.1981] and the stamp duty chop on the share certificate no. 00026495 [Exh P251 p.2817] showed that the transfer of shares to D2 was made on 3 November 2008. D1 did not know why there was a delay in the transfer.

203. D1 said it was not true that the 1.5 million shares were given to D2 on or about 3 November 2008 as a reward for her processing the sale of CTTC.  As at 3 November 2008, the disposal of CTTC was not completed .

204. D1 denied that D2 was given the shares to help D1 conceal the fact that UEIL was not an independent third party.

Lock-out/black-out period

205. According to D1, “lock-out period” means for some period of time D1 was not allowed to trade his company shares. There was a lock-out period until 25 October 2006 and starting from 26 October 2006 the lock-out period was over. Other lock-out periods were December 2006; first quarter and second quarter of 2007.

206. D1 said in late November or early December 2006 he handed over the share certificate to D2 and requested that if she would like to transfer the shares under her name she should inform him because he might be in a lock-out period. D1 did not know what D2 did with the share certificate. D1 thought he should have told D2 that his lock-out period was over in about January or February 2008 and it was okay for D2 to transfer the shares to her name.

207. D1 also promised to give some of his shares in CMRG to his secretary, Vicky HO (400,000 shares) and his driver, Mr. Yip (100,000 shares) as a reward for their hard work. D1 did not give them shares but money which represented the market value of those shares in around 2008.

Share price of CMRG

208. Under cross-examination, D1 said D2 did not inform him in November 2008 that she was going to register the shares in her name and D2 ultimately sold the shares and received just over HK$300,000.

209. Under cross-examination, D1 agreed that in around October and November 2006 when he exercised his share options the market price of each share was around HK$1.83 and the total value of 1.5 million shares would have been HK$2.745 million. D1 also agreed that D2 should have been very anxious to transfer the shares under her name. D1 added that when he offered to give the shares to D2 (around July 2006 and 3 months before completion of the Lead Sun transaction, the share price would have been around 50 to 60 cents. D1 denied that he only gave those shares to D2 in November 2008 [Exh P265].

Fund transfers after the disposal of CTTC

HK$17.2 million from the CTTC account to the UEIL account

210. After the disposal of CTTC, D1 and D2 remained as directors of CTTC and retained the signing rights of the CTTC accounts. Any one of their signatures could effect a transaction in the CTTC account.

211. Two sums of money, HK$10 million and HK$7.5 million, were transferred from the CTTC account to the UEIL account on 24 November 2008 and 28 November 2008 respectively. D1 said it was HO who decided to transfer the two sums. D1 could not recall who signed to effect the two transfers but it should have been D2. The transfers were recorded as “shareholder’s loan” in CTTC’s accounting record [Exh P253A- Admitted Facts paras 27, 35, 37].

212. Under cross examination, D1 said this shareholder’s loan was not paid back and he did not enquire why it had not been repaid since he was not in a position to ask HO why repayment was not made .

Repayment of HK$7 million to FIRL

213. HK$7 million was transferred from the UEIL account to the FIRL account on 25 November 2008. It was HO who decided the sum should be paid out of the UEIL account. D1 and D2 did not have signing rights, only HO had the signing right of the UEIL account.

214. D2 forwarded the receipt concerning the repayment of HK$7 million to D1 so that he could present this receipt to Johnson KO of FIRL (PW11) [Exhibit P80 p.1784].

Transfer of HK$3 million from the UEIL account to D1’s parents’ account

215. On 12 December 2008, HK$3 million was transferred from the UEIL account to the account of D1’s parents [Exhibit P253A-Admitted Facts para 38].

216. According to D1, this HK$3 million was related to the acquisition of SYIL by Wah Nam. A “Technical Services Agreement” was signed on 18 January 2008 between SYIL and Xi’an Jintao for the latter to conduct a feasibility study on the copper mine owned by SYIL. The agreed service fee was RMB 3.8 million or HK$4.294 million. After the acquisition of SYIL, SYIL was required to pay HK$4.294 million to Xi’an Jintao. 

217. For some reason, the sum of HK$4.294 was paid by Wah Nam to UEIL (not to Xi’an Jintao) on 11 November 2008 [Exh P151 p.1949/ p.1953T]. D1 said he was not involved in the discussions about this payment with Xi’an Jintao, SYIL or UEIL.

218. D1 was not aware of the HK$4.249 million transfer in November 2008. It was only a few days before 12 December 2008 that D1 learnt from HO about this. HO also said to D1 that she needed to transfer HK$3 million to Xi’an Jintao according to the Technical Services Agreement. Because of the currency restrictions on the mainland and to secure a better exchange rate for HO, D1 arranged a RMB exchange deal between HO and his father, who had a business on the mainland and maintained a bank account in Shanghai. HO then transferred HK$3 million to the bank account of D1’s father in Hong Kong and D1’s father remitted a RMB sum equivalent to HK$3 million to Xi’an Jintao on the mainland .

219. D1 did not recall if HO had ever spoken to him about the remaining balance owed to Xi’an Jintao (HK$1.294 million).

Transfer of HK$3.6334 million from the UEIL account to Lee Jun-bo via HO account and FIRL

220. On 18 December 2008, HK$3.6334 million was transferred from the UEIL account to HO account 1. The sum was then transferred from HO account 1 to the FIRL account which then remitted an equivalent sum in RMB (3,190,125.20) to Lee JunBo [Exhibit P253A-Admitted Facts para 39; Exh P85 p.1790; Exh P87 p.1792-1796].

221. Lee JunBo was the previous owner of Luchun which owned a copper mine on the mainland. According to D1, this HKD3.633 million transfer was related to Wah Nam’s acquisition of SYIL in which D1 acted as a “go-between” for the parties. Upon completion of the acquisition, HO owed Lee JunBo HK$3.6334 million.

222. In the emails sent by D1 to Lee JunBo and to D2 dated 15 and 17 November 2008, D1 mentioned “we need to pay this”; “we will transfer that”. D1 said the “we” in the emails referred to HO. He used “we” when “he” communicated with others [Exh P81 p.1786].

223. D1 said after receiving the email from Lee JunBo, Ex 81/1786, dated 15 December 2008, he contacted Mr. Cai and HO on or about 15 and 16 December 2008 by telephone to ascertain what it was about. D1 was told by Mr. Cai and HO that Lee had signed an agreement with Talent Zone and Mr. Cai was a witness to the agreement. HO was the owner of Talent Zone, which owed money to Lee.  D1 then sent out a reply email to Lee on 17 December 2008 [Exh P81 p.1786; Exh P84 p.1789].

224. D1 did not copy the reply email to HO. D1 did not remember why he did not copy the email to HO but said he was not used to sending HO emails to follow things up.

Communication with HO

225. D1 usually communicated with HO by telephone or they would meet each other to discuss the transactions. D1 said that for anything complicated they would meet up and he could draw her a diagram to show her more clearly. In 2007 and 2008 HO had an email address. D1 had communicated with HO by email but D1 did not have access to emails of 2008 because his computer was infected with a virus and all the files were destroyed .

226. D1 was referred in cross-examination to Ex84 page 1789, an email dated 18 December 2008 from D2 to HO instructing her to transfer HKD3,633,400 from the account of UEIL to the Standard Chartered Bank account of FIRL. The prosecutor told D1 that it was unusual in that it was the only record he saw of any communication with HO.

227. D1 said that he thought the prosecution had to go back to the ICAC and ask them why the emails had been supplied selectively rather than all of them. D1 was told that his legal advisers would tell him that the ICAC gave them access to all unused materials which they had checked.

Management of CTTC after the disposal

228. HO was appointed as non-executive director of CTTC on 21 November 2008. D1 and D2 remained as directors of CTTC after the disposal. D1 and HO discussed the performance of the chief operating officer, Keith Mok, and they came to the conclusion that he should be replaced. Vadanee Lau was then appointed as the new chief operating officer. HO did not participate in the day-to-day management of CTTC [Exh P217 p.2588; Exh P103 p.18254].

229. After Vadanee Lau’s appointment, D1 did not go to the office on a daily basis. D1 only had meetings with Vadanee Lau and D2 once a month.

230. CTTC’s business started to decline after the disposal and, in 2010, D1 and the management were considering expansion into a new area - storage of cord, which involved a different technology and hence needed more investment. D1 had a discussion with HO about the proposed expansion. According to D1, HO did not feel comfortable going ahead with the new plan as she was not familiar with this field. D1 then proposed to buy CTTC from HO who then agreed.

231. In December 2010, HO sold all her shares in UEIL to The XSS Group Limited, a company owned by D1, D1’s wife and D1’s mother, for US$1. The XSS Group Limited inherited all UEIL’s liabilities after the transaction. The liabilities of UEIL exceeded its assets at that time [Exh P253A-Admitted Facts para 19; ExhP120 p.1869].

232. Under cross examination, D1 said US$1 was the cash portion of the consideration and there was around HK$20 million in liabilities owed by UEIL to others. D1 agreed that HO was released from the obligation to repay the shareholder’s loan after the sale of UEIL to The XSS Group Limited. D1 disagreed that HO sold UEIL for US$1 to D1 because she had acted only as  a “dummy’ for D1.

233. In the first quarter of 2009, D1 became chairman and CEO of Wah Nam, which was a full time position. D1 was the CEO of Wah Nam when he purchased CTTC on December 2010.

Video-recorded interviews (VRIs)

1^st VRI - Counter 1572 - 1573

234. In the 1^st VRI, at counter 1572, D1 was asked by ICAC officer whether HO acquired the company for D1 and D1 answered that it can be put in this way. D1 said he misunderstood the officer’s question at that time and thought he was being asked if “she [HO] helped me [D1] to buy that company, which was different from she[HO] bought it for me [D1]”. D1 further said HO was the one who could help the listed company to buy that company and HO did them a favour [Exh P1A/ P1B (translation)].

2nd VRI counter 37-46

1st VRI counter 2269

235. All along D1 thought HO had shareholdings in his wife’s company because she shared profits with HO in some renovation projects. D1 came to know that HO did not hold any shares in the company after ICAC’s investigation and after checking the documents .

D2-YU Oi-kee

236. During cross examination by counsel for D2, D1 agreed that D2 was a hard-working, efficient and conscientious person; and that she was rather timid and conservative. 

237. Exhibit P63 p.1593 - D2 emailed to Richard Yeung the corporate information of UEIL. D1 agreed that he instructed D2 to send this information to Richard Yeung. D1 also agreed that throughout the whole CTTC transaction D2 was complying with his instructions.

Directions

238. I reminded myself that the prosecution are required to prove each and every ingredient of each offence against each defendant beyond reasonable doubt. The defendants have nothing to prove. No adverse inference could be drawn against D2 for electing to remain silent.

239. The clear records of both defendants are relevant to the issues of propensity and credibility as regards what they said when interviewed and what D1 said in court.

240. I reminded myself that I had to separately consider the evidence for and against each defendant and in respect of each charge.

241. With regard to the video records of interview I reminded myself that exculpatory comments are admissible as evidence of their truth and also that assertions favourable to a co-accused are admissible as evidence of their truth. I took into account D1’ s evidence concerning D2. I also reminded myself that inculpatory statements made by either defendant against their co-accused in their records of interview are inadmissible against the co-accused save to the extent that such inculpatory matters were adopted by D1 when he gave evidence.

242. I also reminded myself that if I reject the exculpatory statements made by defendants when interviewed or what D1 said in evidence it does not mean the defendants are guilty of any of  the offences. I must consider the evidence I do accept and decide if that establishes the guilt of either defendant to the required standard on any of  the charges.

243. I reminded myself that, where the prosecution rely on circumstantial evidence, I can only draw an adverse inference from facts proved beyond reasonable doubt and such an inference must be the only inference that can be reasonable drawn from such facts, it must be an irresistible inference

Law

Section 9(3)

244.  Section 9(3) of the Prevention of Bribery Ordinance (“POBO”) renders it an offence for any agent, with intent to deceive his principal, to use any receipt, account or document in respect of which the principal is interested and which contains any statement which is false or erroneous or defective in any material particular and which to his knowledge is intended to mislead the principal.

Conspiracy – section 159A of the Crimes Ordinance, Cap. 200

245. Section 159A of Cap. 200 provides, “… if a person agrees with any other person or persons that a course of conduct shall be pursued which, if the agreement is carried out in accordance with their intentions, either-

(a) will necessarily amount to or involve the commission of any offence or offences by one or more of the parties to the agreement; or

(b) would do so but for the existence of facts which render the commission of the offence or any of the offences impossible,

he is guilty of conspiracy to commit the offence or offences in question.”

246. The actus reus of conspiracy is the words, gestures or conduct that signify the conclusion of an agreement between two or more conspirators for the commission of a crime.

247. The conspiracy is complete once an agreement is formed but will continue if the agreement continues to exist with at least two parties still participating.

248. It is the intention to carry out the crime that constitutes the necessary mens rea for the offence.

249.  If what the alleged conspirators agreed to do was on the facts known to them an unlawful act, they cannot excuse themselves by saying that, owing to their ignorance of the law, they did not realize that it was a crime (Archbold Hong Kong 2014, Chapter 36).

Section 9(1) and section 9(2) of POBO

250. Section 9(1) and (2) render it an offence for a person to offer an agent (section 9(4)) or for an agent to solicit or accept (section 9(1)) an advantage in return for him doing an act in relation to his principal’s affairs or business.

251. The elements of the offence are:-

(a) that there exists a principal/agent relationship

(b) that there be a solicitation or acceptance by an agent or an offer to him,

(c) of an advantage

(d) that it be as an inducement to or reward for, or otherwise on account of

(e) that agent either-

(i) doing or forbearing to do an act in relation to his principal’s affairs or business; or

(ii) showing or forbearing to show favour or disfavor to any person in relation to his principal’s affairs or business.

252. It is an essential ingredient of the offence that the action or forbearance of the agent should be aimed at the principal: Commissioner of the ICAC v Ch’ng Poh [1997] HKLRD 652, 656J-657D.

253. It is not necessary to establish a corrupt intent.  The only mens rea requirement is an intent to commit the acts proscribed by the section: R v Looi Kim-lee [1985] 2 HKC 410, 417 H-I.

254. I noted the provisions of s.9(4) and (5) of the POBO which provide a defence where the solicitation or acceptance of the advantage is made with the permission of the principal.

Evaluation of the Evidence

The Conspiracy Charge – Charge1 against both D1 and D2

255. The allegation against D1 and D2 is that they, as directors of BAL, conspired together to use the BAL minutes, which contained a false statement, with intent to deceive their principals, BAL and/or CMRG. The conspiracy covers the period between 10 October 2008 and 18 December 2008.

256. Elements of the charge that prosecution needs to prove :

(1) The principal-agent relationship (this was not in dispute);

(2) The minutes constituted a “document” for the purpose of s.9(3) of the POBO

(3) The BAL minutes contained a statement that was false in a material particular;

(4) There was an agreement between D1 and D2 to use the BAL minutes; and

(5) D1 and D2 knew that the statement in the BAL minutes was false and intended to be used to mislead BAL and/or CMRG.

The disposal of CTTC

257. The conspiracy is concerned with the disposal of Cell Therapy Technologies Centre Limited (CTTC), a subsidiary wholly owned by CMRG, to United Easy Investments Limited (UEIL), a supposedly independent third party company registered in the name of HO Pui-fan (“HO”) [ CMRG Announcement, Exh P208 p.2424 - 2426 ; BAL minutes, Exh P10 p.1098 - 1101].

258. CMRG held all CTTC shares through two of its investment vehicles, BAL (19,999,999 shares) and New Legend International Group Limited (“New Legend”) (1 share). CTTC’s principal business was the provision of cord blood bank and related laboratory services [Exh P253A- Admitted Facts paras 9,11].

259. The disposal of CTTC was by a written sale and purchase agreement signed between BAL and UEIL on 21 November 2008 (“The Agreement”). Completion of the agreement took place on the same day. The total consideration for the sale of the entire issued share capital (20,000,000 shares) of CTTC was HK$15 million [S&P Agreement – ExhP18 p.1117 - 1129; Exh P253A-Admitted Facts para.11].

The BALMinutes

260. On 21 November 2008, the board of directors (“BoD”) of CMRG, BAL, New Legend, CTTC and UEIL held meetings respectively to approve the disposal/purchase of CTTC. Minutes of these BoD meetings were prepared to record the proceedings of these BoD meetings:

(1) CMRG minutes - Exhibit P8 p.1067 - 1093

(2) BAL minutes - Exhibit P10 p.1098 - 1101

(3) New Legend minutes - Exhibit P13 p.1107 - 1108

(4) CTTC minutes - Exhibit P40 p.1189 - 1190

(5) UEIL minutes - Exhibit P15 p.1112 - 1114

261. The document referred to in the conspiracy charge is the minutes of the BoD meeting of BAL on 21 November 2008. Exh P10 p.1098-1101 is the original and Exhibit P9 p.1094-1097 is a certified true copy. Both exhibits were recovered from CMRG’s office.

262. The BAL minutes was signed by D1 and D2 as directors of BAL, in which they declared that none of them were interested in the disposal. Paragraph 3 of the BAL minutes [Exh P10 p.1098] contains a statement: “It is NOTEDthat none of the Directors was interested in the transactions herein contemplated.”  The minutes also state: “It is further noted that the consideration of the Sale Shares has been determined by the parties after arm’s length negotiations, on a willing buyer and willing seller basis.”. The CTTC minutes which were signed by D1 and D2 as directors of CTTC also contains the declaration “It is NOTEDthat none of the Directors was interested in the transactions herein contemplated”.

263. Also on 21 November 2008, CMRG issued an announcement regarding the sale of CTTC [Exh P208 p.2424 - 2426] pursuant to Rule 13.09(1) of the Listing Rules of SEHK. It was stated in the announcement that “to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, UEIL and its ultimate beneficial owners are third parties independent of the Company [i.e. CMRG] and its connected persons.”

264. It is the prosecution’s case that the statement in relation to the declaration of interests at paragraph 3 of the BAL minutes is false. Contrary to what D1 and D2 had declared in the minutes, D1 was interested in the CTTC transaction as he was the ultimate beneficial owner of UEIL. The prosecution alleged that D1 engineered and bankrolled the acquisition of CTTC by UEIL with the assistance of D2.

265. The prosecution alleged that D1 and D2 conspired to use the BAL minutes with intent to mislead BAL and CMRG (including its directors) into believing that UEIL and its ultimate owners were independent third parties when in fact D1, a connected person under the Listing Rules of SEHK, was the ultimate owner of UEIL.

266. The prosecution alleged that all along the intended buyer of CTTC was D1, a director of BAL and CTTC and hence a connected person under Rule 14A.11(1)(a) of the Listing Rules of SEHK.  If D1 or his company was stated as the buyer of CTTC in the sale and purchase agreement, the disposal would have been considered a connected transaction. Requirements for independent shareholder approval, reporting and announcement procedures under Chapter14A would have been triggered.

267. The prosecution alleged that to circumvent the requirements under Rule 14A, D1, with the assistance of D2, arranged for UEIL to be the buyer of CTTC. Company records show that a Madam HO Pui-fan, D1’s wife’s aunt, was the sole owner and sole director of UEIL. The prosecution alleged that she was not a genuine investor but acted only as a “stooge” for D1 in the disposal. It was alleged that she neither participated in the sale negotiations nor contributed to the bulk of the purchase price. On 1 December 2010 D1 acquired CTTC from HO by paying US$1 to buy her one share in UEIL through XSS – BVI a company owned by D1 and of which he was the sole director –[ Admitted Facts paragraphs 18 and 20].

The Conspiracy Charge - Evidence against D1

Events leading up to the disposal of CTTC in 2008

268. The origin of the disposal of CTTC can be traced back to the acquisition of Lead Sun Investments by Innomaxx (predecessor of CMRG) in October 2006. After the Lead Sun transaction, there were major changes to the core business (from biotechnology to mining), shareholders and management of Innomaxx. The change of the company name to China Mining Resources Group on 8 January 2007 [ExhD1-9] was one of the changes to reflect this major shift.

269. After the Lead Sun transaction D1’s previous role in CMRG was taken up by Richard Yeung, the new chief financial officer and executive director of CMRG appointed on 17 January 2007.

270. D2, D1’s direct subordinate, was promoted to the position of financial controller and authorized representative of Innomaxx in January 2006. With effect from 17 January 2007 she  resigned from those positions for personal reasons ( Ex D1-9 Announcement).

271. I noted that Exhibit 99/1819 is a letter dated 30 April 2007 directed to the Human Resources and Administration Department of CMRG whereby D2 tenders her resignation from CMRG as Financial Controller with effect from 1 June 2007. Her resignation is accepted by D1 as Chief Executive Officer of CMRG ( Ex P100/1818). On 31 May 2007 D1, as Chief  Executive Officer of  CTTC, offerred her the position of Financial Controller of CTTC with effect from 1 June 2007 at a basic salary of HKD45,000 per month.

272. On 1 June 2007 D2 was appointed as a director of CTTC and BAL[ Admitted Facts paragraphs 8 and 15].

273. D1 said that, after the acquisition of Lead Sun the cord blood business on which D1 spent the majority of his time  became a side business of the parent company [Action Plan of CMRG (ExhD1-3); Mission and Strategies of CMRG (Exh D2-1)].

274. D1 said that he disagreed with the CMRG management on the acquisition of Harbin Songjiang but the management went ahead with the share placement exercise in June 2007 which ultimately led to the acquisition.

275. D1 said that he tried to introduce an investment opportunity in a copper mine (Luchun in Shanxi on the mainland) to CMRG in  2007 but the attempt failed and the  mine was subsequently acquired by SYIL, a company registered in the name of his wife’s aunt, HO.

276. D1 said that the management of CMRG, including Richard Yeung, put pressure on D1 to dispose of the cord blood business (They asked D1 “to fix the situation”), which they viewed as a business risk to CMRG [D1 1st VRI 1467, 1592-1593 (Exh P1B).

277. On 6 July 2007, D1 resigned from the positions of deputy chairman and CEO of CMRG but remained as director of BAL and CTTC. D1 felt that although CTTC had a lot of liabilities, he should remain as director since at that time he no longer had a job and it was unfair to his colleagues in CTTC if he left [D1 1st VRI: 1467 - 1469].

The disposal of CTTC

Mid-July 2007

278. D1 said that he accepted the management’s offer to take over CTTC in July 2007 and started the disposal process. D1 asked D2 to consult CMRG’s financial advisor, Steven Chiu (PW5), and was later told by Steven Chiu that the proposed sale to D1 would constitute a connected transaction and a very substantial transaction on 19 July 2007 [ Exh P70 - P71 p.1694 - 1698]. The proposed disposal of CTTC to D1 came to a halt after mid-July 2007.

279. At the time when the financial advisor, Steven Chiu (PW5) was consulted, D1 had already resigned from all his posts in the parent company, CMRG, but remained as director of its subsidiaries, BAL and CTTC. Thus, by that time, D1 and D2  knew that a sale by CMRG to D1 (a director of a subsidiary) would potentially constitute a connected transaction under the Listing Rules.

280. It appears that there was a change of plan after Steven Chiu’s advice. According to D1, in early 2008, Richard Yeung started to search for other potential buyers of CTTC and D1 referred to him a number of such buyers but  no deal was made.

10 October 2008

281. D1 said that the original plan to sell CTTC to D1 came up again in October 2008. Lawyers were called in to deal with the mechanics of the disposal. It is clear from the email sent by Mary Leung (PW1) to Sabrina Fung of Jackson Woo & Associates on 10 October 2008 that D1 remained as the buyer of CTTC in October 2008 [Exh P44 p.1401]. 

282. According to D1, by that time he had reached an agreement with Richard Yeung on the amount of consideration (HK$15 million) and the terms of payment (assignment of debt). This was before HO came into the picture [D1 1st VRI: 1577 - 1612; 1687 - 1689 (Exh P1A)]. The first draft of the sale and purchase agreement (S&P agreement) prepared by the lawyer on 17 October 2008 and as amended by Mary Leung (PW1) reflected the agreement reached between D1 and Richard Yeung [Exh 46 p.1413 - 1432; Exh 48 p.1439 - 1444].

283. D1 claimed that  his understanding at that time was that he, being a director of a subsidiary of a listed company would not be considered a connected person .

7 November 2008

284. D1 said that out of the blue Richard Yeung told D1 it would be better to find a third party to buy CTTC because it would be “simpler”, “faster” or “easier” to complete the whole process [D1 1^st VRI: 1579 - 1587; 1620 - 1627; 1670 - 1675, 1693 - 1695; D1 2^nd VRI: 32; D1 3^rd VRI: 424 - 428].

285. D1 claimed he did not quite understand what Richard Yeung was saying. D1 said that he also he did not seek clarification but went along with Richard Yeung’s suggestion to find other potential buyers.

286. I had no doubt that D1 was lying when he claimed he did not understand what Richard Yeung was saying. I was sure that D1 was aware at that stage that he was a connected person and that was why the sale to him could not proceed without the company having to comply with procedures in relation to connected transactions according to the listing rules. I was sure that D1 was aware that that was the situation from July 2007.

HO Pui-fan

287. In his records of interview, D1 told the ICAC that HO, who was his wife’s aunt, had experience in holding companies for others before [D1 1^st VRI: 2269 – 2275 (Exh P1B); 2^nd VR1: 137 – 140 (Exh P2B)].

288. On 19 April 2007 Bonnie Siu of OIL sent an email to D2 attaching an updated BVI shelf company list for her reference [Ex 69/1690]. D2 responded the following day saying “we” would like to buy SYIL and UEIL. D2 attached a copy of HO’s ID and address for further handling and billing. D2 asked for the relevant documents to be sent to her company’s office in IFC in Central saying that if D2 was not available D1’s secretary, Vicky Ho, was to be contacted.

289. D1 provided HO’s personal particulars to D2 for the purpose of setting up the companies [Ex 69/1693]. D1 gave instructions that the address of  XSS, a company owned by him and his wife, be used as the registered address for the BVI companies. Although these BVI companies had no connection with the CMRG group for whom D2 worked, D2 concludes her email to Bonnie Siu “ Should you have any question, please give me a call at [mobile number]”..

290. In November 2008 D1 told Richard Yeung that HO would be the buyer of CTTC. On 7 November 2008, D2 emailed the corporate information of HO’s company, UEIL, to Richard Yeung [Exh P63 p.1593 - 1596], who then forwarded the information to the lawyer on the same day [Exh P47 p.1433 - 1436].

291. D1 said he had disclosed to Richard Yeung that HO was his wife’s aunt. D1 did not say that he disclosed to Richard Yeung anything about his business dealings involving HO. At this point, no attempt was made by D1 and D2 to seek further advice from CMRG’s financial advisor or lawyer as to whether HO was an independent third party or “connected person” given her relationship with D1. No clarification was sought with the lawyers when D1 and D2 received the draft of the S&P agreement which suggested the disposal was to go ahead as a transaction with an independent third party. I was sure that D1 and D2 did not want to reveal the true nature of D1’s involvement with HO.

292. D1 said that HO was close to his family and was like a mother to his wife. His wife had asked her to hold companies and be director for many of their companies [D1 2^nd VRI: 137 – 140 (Exh P2B)].

293. HO lived in a public housing estate. According to PW6, the HR and Administration Manager of XSS Holdings Limited, HO worked for the company as an administrative assistant and performed general clerical work and dispatch. This was a company owned by D1 and his wife and run by D1’s wife’s.  D1 claimed that Ho was not merely an employee but a business partner of his wife but the employees of the company were not informed about this.  

294. Ho’s appraisal form [Ex 91/1805] shows that she joined the company on 1 October 2007. Between 29 May 2005 and 29 May 2011 the registered address of XSS-HK was at Flat 3,10/F, Knutsford Commercial Building in Tsim Sha Tsui Hong Kong. D1 and his wife Catherine Cheung were the directors of the company  and D1 held 60% of its shares[Admitted Facts paragraph 22]. In Ho’s annual report for 2010 it states that “considerable room for improvement has to be made in terms of her work skills”. In May 2011 Ho was earning $7,500 per month [Ex 93/1808].

295. The transactions in which UEIL and SYIL were involved were all handled by D1 and D2.

296. In his interviews with the ICAC D1 said that HO did not make any contribution to the purchase of CTTC [D1 1^st VRI: 2290 – 2299 (Ex P1A)]. However, although D1 said in his evidence that HO told him she had HK$8 million , the bulk of the $8 million in the UEIL account was money D1 recovered from his other transactions (HK$2.013 million loan repayment from Wah Nam and HK$4.294 million from Wah Nam as fees for the feasibility study for the SYIL acquisition).

297. It appears that HO did not contribute to the acquisition of the Luchun copper mine by SYIL. Under cross examination, D1 said  that HO did not have to pay any cash for the purchase until a few months later after she sold SYIL shares to other investors. D1 said he took part in setting up this arrangement. 

298. D1 had already reached an agreement with Richard Yeung on the consideration and terms of payment for the disposal before HO was approached. HO was never involved in the negotiation.

299. D1 said that he did not tell HO that he thought the consideration of HK$15 million was a bit too expensive and the reasonable price should be HK$10 million.

300. HO was never made a signatory of CTTC’s bank account after the disposal. D1 and D2 remained as signatories and had control over its bank account.

301. D1 said that he told HO that he would be responsible if anything went wrong with CTTC. D1 said that he thought it would be unfair to HO if she was to be held responsible for all the liabilities [D1 1^st VRI: 1527 – 1528 (Exh P1B); 1542 – 1553; 2^nd VRI: 131-136 (Exh P2B)]; 3^rd VRI: 430 - 436 (Exh P3B)].

302. D1  later bought CTTC from HO by paying US$1 for all her shares in UEIL in December 2010.

SYIL transactions

Acquistion and Disposal of Luchun Copper Mine in Yunnan Province

303. D1 gave evidence concerning SYIL’s acquisition of the Luchun copper mine and its disposal to Wah Nam in late 2007 and  2008 and the various funds movements in relation to these transactions.

304. D1 said that at the end of 2007 SYIL purchased the copper mine for HKD100 million plus share transfers  and later sold the mine to Wah Nam for HKD500 million plus share transfers. According to PW10 the sale to Wah Nam took place on or about  20 September 2008 and the price was HKD650 million  with the cash consideration being HKD119.8 million.

305. D1 said that Lee JunBo, one of the previous owners of the mine, stayed on as a shareholder of  both SYIL and later Wah Nam. D1 said that SYIL had 5/6 investors and that HO was the third or fourth investor in terms of size.

306. In January 2008 a Technical Service Agreement  for a Geological Survey of the mine had been commissioned between SYIL and Xi’an Jintao Mining Management Consultancy Service Limited at a cost of HKD4,294,000 [Ex 151/1946].

307. It is clear from the evidence of D1, Jason Chan of Wah Nam (PW10) and Johnson KO of FIRL (PW11) that these transactions and the related fund transfers were all arranged by D1. Again, although these transactions and fund transfers had nothing to do with CTTC or CMRG, D2 followed up with the relevant parties in relation to the fund transfers and reported back to D1.

308. I noted that HO was visibly absent in the correspondence.

UEIL

309. I have set out above the circumstances in which D1 instructed D2 to acquire this company in April 2007.

310. D1 arranged for UEIL to lend HK$2 million to Wah Nam on 18 September 2008. D2 contacted Wah Nam for repayment of HK$2.013 million (loan plus interest) to UEIL [PW10 (Day 7); Exh P72-P73 p.1699-1700] on 17 October 2008 and received the draft loan agreement on 20 October 2008 [Exh P74 p.1701-1702].

311. D1, with the assistance of D2, arranged short term loans to UEIL in November 2008 for the purchase of CTTC and repayment of the loan shortly after the acquisition.

The finalising of the S&P agreementfor CTTC Disposal

312. On 7 November 2008 at 12:43, D2 emailed corporate information (copy of certificate of incorporation, register of directors and members) of UEIL to Richard Yeung [Exh P63 p.1593-1596].

313. On the same day at 4:01 pm, Richard Yeung forwarded the above information on UEIL to Sabrina Fung of JWA and told her UEIL was the buyer of CTTC [Exh P47 p.1433-1436].

314. Before D2’s email dated 7 November 2008, the identity of the buyer was left out on the draft S&P agreement dated 17.10.2008 [Ex P46 p.1413] and the previous email of 10 October 2008 showed that D1 was the buyer.  D2’s email was the source of the new buyer’s identity.

315. The covering page of the draft S&P agreement dated 17.10.2008 at p.1413 showed that the vendor was CMRG; the purchaser was unknown and BAL  was the company to be sold.

D2 emailed Richard Yeung comments on the draft S&P agreement

316. On 10/11/2008 7:25 pm, Sabrina Fung sent the revised draft S&P agreement dated 10.11.2008 to Richard Yeung, copied to Mary Leung (PW1) [Exh P64 p.1597].

317. The first page of the revised draft dated 10.11.2008 [p.1600] showed that the vendor was CMRG; purchaser was UEIL; CTTC was the company to be sold.

318. On 11/11/2008 14:36, Richard Yeung forwarded the revised draft dated 10.11.2008 to D2, copied to D1 [Exhibit P65 p.1597].

319. On 13/11/2008 15:30, D2 emailed Richard Yeung (copied to D1) their comments on the discussion draft and attached a marked-up draft to the email [Exh P65 p.1623 - 1646]. In the email, D2 said “We have the following comments….” D2 suggested that the vendor should be BAL, the loan due from CMRG should be repaid at completion and that the reference to a process agent should be deleted. The first page of marked-up draft [p.1624] showed that the vendor was changed to BAL.

320. On 13/11/2008 4:52 pm, Richard Yeung sent the marked-up draft from D2 to Sabrina Fung by email [Exhibit P51 p.1473 – 1490].

321. On 14/11/2008 11:53 am, Sabrina Fung emailed Richard Yeung  with, attached,  a revised draft dated 14.11.2008 [Exh P51 p.1473 – 1490]. In the email, Sabrina Fung said she had incorporated Richard Yeung’s comments and “those of the purchaser”. She also commented on the proposed deletion of process agent.

322. On 17/11/2008 11:06, Richard Yeung forwarded Sabrina Fung’s email of 14/11/2008 [Exh P51 see above] together with the draft S&P agreement to D1 and D2 [Exh P67 p.1671 – 1688]. By comparing the draft dated 10.11.2008 [Exh P65 p.1631] and the later draft dated 14.11.2008 [Exh P67 p.1679], I noted that  there was a change in the terms of payment. Clause 5.1 – 5.2 which were concerned with CMRG’s obligation to repay the debt of HK$14.749 million within 3 business days after completion were deleted. A new clause (d) was added under “Completion” which required CMRG to repay the debt to CTTC upon completion. It appears that D1 and D2’s comments that the loan due from CMRG should be repaid at completion [Exh P65 p.1623] was incorporated in the draft of 14.11.2008.

323. When asked during cross examination whether repayment to CTTC was important because UEIL had to repay the short term loan after completion, D1 said HO worried that CMRG might refuse to pay and that was why D2 wrote the email on 13 November 2008. 

324. I noted that despite HO’s alleged worries, none of the email correspondence concerning the documentation for the disposal was copied to her. In relation to all the transactions involving HO, only one email to her was produced. This was an email dated 18 December 2008[ex84/1789] from D2 to HO instructing her to transfer HKD3,633,400 from UEIL to the bank account of FIRL. This amount was later forwarded to Lee JunBo [Ex 55 1960]. Again I noted that this had nothing to do with CMRG or CTTC.

325. When asked about the lack of email correspondence with HO, D1 said he would speak to her on the telephone or they would meet up and he would draw diagrams to explain the situation. D1 said he might have sent emails to HO but all were lost after his computer was infected by a virus.  D1 later claimed that the ICAC had been selective in their disclosure in relation to email correspondence although no such complaint had been made by his counsel in that regard.I did not believe D1’s explanations for the lack of written correspondence with HO.I had no doubt that D1 was lying about this matter. The dealings and transfers involving UEIL and SYIL were complex and involved substantial sums of money. I found ludicrous D1’s suggestion that these complex matters were dealt with by way of telephone conversations and meetings during which he made diagrams for her.

The intended use of the BAL minutes

326. D1 and D2 first received the draft S&P agreement on 11 November 2008 [Exh P65 p.1597]. They also received a revised draft on 17 November 2008. They must have known from the draft that BAL, as vendor, had to deliver to UEIL minutes of its BoD meeting approving the sale. The draft minutes were prepared by the lawyer and Mary Leung (PW1) and forwarded to D2 on 20 November 2008. D2 returned a marked-up draft to Mary Leung, in which the words “[Note: please confirm]” at paragraph 3.2 [p.1514] were deleted, effectively confirming that the statement was correct [Exh P55-P56 p.1503 – 1536; PW1 Day 2 p.38 L1-3].

327. One of the two original signed BAL minutes [Exh P11] was kept in CTTC office while the other original minutes [Exh P10] and a certified copy [Exh P9] were delivered to CMRG for filing [Exh P253B- Additional Admitted Facts para 4].

328. In my view both D1 and D2 were well aware of the significance of the BAL minutes in this transaction as shown in D2’s email to Richard Yeung (copied to D1), wrote “Since the transaction involves a Lisco [listed company], We need Lisco and vendor[BAL]’s board approval on such transaction as well”[Exh P65 p.1623].

329. The recordings of minutes of company meetings keep all stakeholders informed of the decisions made and are critical for good corporate governance. The Companies Ordinance Cap 622  requires a company to keep a record of minutes of all proceedings of general meetings and where a company passes a resolution otherwise than at a general meeting, the company must keep a copy of such resolution  for at least 10 years [s.618].  A member of a company is entitled to inspect such records. The record is evidence of the passing of the resolution [s.621]. However, even where the articles of  a company provide that the minutes shall constitute  conclusive evidence of the proceeding, their accuracy may be challenged where bad faith or fraud is alleged (Kerr v. John Mottram Ltd [1940] Ch 657).

330. The contract in relation to the sale of CTTC was made between BAL and UEIL. D1 and D2 were directors of  BAL. On the totality of the evidence I was sure that D1 and D2 knew that D1 was the person behind UEIL. I was sure that both D1 and D2 knew that the declaration in the minutes to the effect that none of the directors were interested in the transaction was false and intended to mislead CMRG and its stakeholders. Both D1 and D2 have held senior positions in a listed company and were aware of the Listing Rules. D2 is an accountant. She had been the Chief Financial Officer and Company Secretary of CMRG, a listed company. She was involved in every step of the process. I was sure that both defendants knew that without this declaration in the minutes the disposal of CTTC could not proceed in the way it did.

1.5 million shares of CMRG given by D1 to D2

331. The reverse side of  the Innomaxx share certificatefor the 1.5 million shares issued to D1 [Ex 251/ 2818] is signed by D2. It is stamped by the seller’s broker on 3 November 2008the stamp duty chop is also dated 3 November.The company full register list [Ex 166 /1981] records the date of the transfer of the shares into the name of D2 as 7 November 2008.

332. D1 said that itwas in early November 2008 thathe told Richard Yeung his wife’s aunt would be the buyer of CTTC.  On 7 November 2008, D2 forwarded corporate information onUEIL to Richard Yeung [Exh P63 p.1593 – 1596] and thereafter followed up with Richard Yeung in finalising the S&P agreement for the purchaser [Exh P65 p.1623 - 1646; P51, p.473 - 1490].

333. At that time D1 and D2 were the directors of BAL. I was sure at that stage that D1 and D2 were aware that the disposal would proceed on the basis thatnone of the directors of BAL had an interest in the transaction and that that was not true.

334. I considered the evidence of D1 in relation to this matter. He maintained that the offer to transfer the 1.5 million shares to D2 was made in June 2006 because D2 had worked very hard in relation to the acquisition of  Lead Sun and was threatening to quit. He said he offered the shares and a raise in salary.  On 3 October 2006 he raised her monthly salary by HKD10,000. On 26 October he exercised his option to purchase 8.65 million sharesgiven to him in January 2006. D1 said he arranged for the shares to be split into two certificates of 1.5 million and 7.15  million and he gave the 1.5 million share certificate to D2 at that time. D1 said he told Cai about this. D1 said he gave shares to other employees, namely his secretary and driver, although he arranged to sell them on their behalf.

335.  D1 said that he thought he told D2 his lockout periods ended in about January or February 2008.

336. For reasons I will set out more fully later, I was satisfied that D2 was aware that D1 was the person behind UEIL and that HO was merely a nominee.

337. I was sure that both D1 and D2 were aware that the sale of CTTC to D1 could not go through as intended as he was a connected person.

338. I was sure that D1 and D2 were aware that when it was put forward that UEIL was to purchase CTTC they would be required to mislead the company as regards D1’s position in relation to UEIL and that they would be required to sign false minutes.

339. Taking all the circumstantial evidence into account I was sure that D1 gave the share certificate to D2 in November 2008 as an inducement for her agreeing to assist him in misleading CMRG and its stakeholders in relation to the CTTC disposal. I did not believe that D1 gave the share certificate to D2 in 2006 and that it related to the Lead Sun transaction.

Financial Arrangements in relation to the Disposal of CTTC

340. PW10 (Jason Chan of Wah Nam) gave evidence of his dealings with D1 and D2 in relation to Wah Nam’s acquisition of the Luchun copper mine from SYIL. PW10 said that the price for the acquisition was HKD650 million and the cash consideration was HKD119.8 million. He said that Wah Nam did not have sufficient cash and D1 arranged for Wah Nam to borrow HKD2 million from UEIL[Ex149/1943]. PW10 said that the money was deposited into his company’s bank account on 18 September 2008 and the acquisition was completed a few days later.

341. On 17 October 2008 D2 sent an email to PW10[Ex 72/1699] asking Wah Nam to repay the loan with HKD13,000 interest. On the same day, D2 again emailed PW10 advising Wah Nam to repay the loan to UEIL[Ex 73/1700 T1]. The loan and interest were later repaid [Ex149/1943/T1 and 1942].

342. PW10 said that, after the completion of the acquisition, D1 informed PW10 that his company had to pay HKD4.294 million for the Luchun mining survey report conducted by Xi’an Jintao. Wah Nam received a payment instruction dated 11 November 2008 [Ex151/1946- 1953 T1/T2] from Xi’an Jintao addressed to SYIL directing that the money should be deposited into the account of UEIL.

343. D1 arranged with Johnson KO of FIRL a short term loan of HK$7 million to UEIL on 18 November 2008. D1 agreed that the loan would be repaid by 25 November 2008 [Exh P80 p.1784-1785]. Johnson Ko did not know HO

344. By 21 November 2008, D1, with the assistance of D2, was able to raise the bulk of HK$15 million (HK$2.013 million+HK$4.294 million+HK$7 million) required to complete the acquisition of CTTC [Exh P253A - Admitted Facts paras 30-34].

Repayment of short-term loans and withdrawal funds from the UEIL accounts after the acquisition

345. D1, with the assistance of D2, secured the repayment of HK$14,749,078 due from CMRG to CTTC before the completion of the sale on 21 November 2008 [Exh P65 p.1623]. This meant that CTTC/UEIL would have enough money for repayment of the above mentioned short term loans.

346. On the instructions of D2, Tang On-ki (PW7), the assistant accounts manager of CTTC, caused two transfers from the bank account of CTTC to the bank account of UEIL and recorded the two transfers as “shareholder’s loan” in the books of CTTC:

(1) HK$10 million on 24 November 2008; and

(2) HK$7.2 million on 28 November 2008.

[Exh P253B- Additional Admitted Facts para. 6]

347. On 25 November 2008 D1, with the assistance of D2, arranged repayment of HK$7 million to FIRL from the bank account of UEIL. [Exh P80, p.1784-1785;  ExhP253A- Admitted Facts para. 36].

348. On 12 December 2008, HK$3 million was transferred from the bank account of UEIL to the bank account of D1’s parents [ExhP253A-Admitted Facts paras. 38 and 48].

349. On 18 December 2008, upon instructions of D1, D2 arranged the transfer of HK$3,633,400 from UEIL’s bank account to HO’s personal bank account. The same amount was then transferred to FIRL for remittance to Lee Jun-bo’s bank account on the mainland [Exh P81-P89p.1786-1803; ExhP253A- Admitted Facts para.39].

350. On 19 December 2008, HK$3 million was transferred from UEIL’s bank account to HO’s personal bank account.

351. By 19 December 2008, a total of HK$16,633,400 was taken out of the CTTC account and disbursed to various parties.

352. I considered very carefully the evidence of D1 set out above in relation to these fund movements.

Conclusion

353. In my view, from the totality of the evidence, the inference that D1 was the person behind UEIL was irresistible. In my viewhe was behind the whole set up of UEIL and carefully controlled the movement of funds. He arranged the acquisition by taking out short-term loans and recovering funds he obtained from other transactions which he handled. Since the proposed sale to D1 first came up in 2007, D2 had assumed the role of assisting D1 in handling the documentation and the fund transfers in relation to the setting up of UEIL and the disposal. I was sure that D1 and D2 knew that the de facto owner of UEIL was D1 and that UEIL was not an independent third party when they signed the BAL minutes to complete the disposal. 

The Conspiracy Charge - Evidence against D2

354. I was sure  from the evidence set out  above that D2 assisted D1 in the documentation and fund transfers in relation to the disposal of CTTC.

D2’s knowledge and participation in the conspiracy

355. It is the prosecution’s case that D2 knew D1 effectively owned and controlled UEIL and hence was interested in the disposal of CTTC. The prosecution alleged that D2 knew this when she signed the BAL minutes and she intended to use the minutes to mislead BAL  and CMRG. 

356. D2 helped D1 to buy and take care of many shell companies [D2 1^st VRI: 1308 – 1320 (Exh P4B)]. When asked in the VRI if she had helped HO to buy UEIL, she said that was right because many shell companies which D1 told her to buy for him/her were also taken care of by her [D2 1^st VRI: 1149-1150] Although she later said she could not recall who gave her instructions to set up UEIL [D2 1^st VRI: 1153-1154], it is clear from her first answer that she got instructions from D1 to buy UEIL.

360. D2 knew that the address to be used for registration (Knutsford Terrace) was the address of The XSS Limited, a company owned by D1 and his wife and HO worked there [D2 2^nd VRI: 83-150, Ex 112/ 1850-6]. Underneath the address was printed “Attn Peter Luk”. Also from the resolution of the first BoD meeting of UEIL, D2 would have learnt that all UEIL’s books and records were to be kept at the Knutsford Terrace address [Exh P112 p.1850-1861]. 

361. Evidence of Jason Chan of Wah Nam (PW10) and the related email correspondence indicate that D2 received instructions from D1 to recover the money owed to UEIL. PW5 said that throughout the acquisition of SYIL  he contacted D1 and D2 in relation to documentation and announcements.  In September 2008, D1 arranged for UEIL to lend HK$2 million to Wah Nam to complete the acquisition and in October 2008, D2 followed up with Jason Chan for repayment of the loan with interest (HK$2.013 million) and a letter evidencing the loan [Exh P72-74 p.1699 – 1702]. These acquisitions and dealings had nothing to do with her employers, CTTC, or the holding company CMRG. I was sure that by that time (October 2008), there couldhave been no doubt in the mind of D2 that D1 effectively owned and controlled UEIL.

362. D2 knew that D1 was the intended buyer when the disposal plan first came up in mid-2007.  D2 knew from Steven Chiu (PW5), CMRG’s financial advisor, that if D1 was the buyer the disposal would be considered a connected transaction [ Exh P70 p.1694 - 1695].  When in November 2008 D2 came to know that the buyer had changed to UEIL (a company which D1 had asked her to set up and which had been used in D1’s other dealings), she must have known that UEIL was potentially a connected party. There is no indication in the emails or documentation that D2 had raised this issue with the handling solicitors or with people at CMRG. Instead, she went along with finalizing the S&P agreement and the minutes as if it were a deal with an independent third party.

363. D2 said in the VRI that HO and D1 were “related” and they were acquaintances [D2 1^st VRI: 1043 – 1050]. D2 might not have known the exact relationship between D1 and HO but, given her past dealings with D1 in relation to UEIL, she must have known that D1 controlled UEIL and HO was only a nominee for D1.

364. In early November 2008 D1 told Richard Yeung his wife’s aunt would be the buyer of CTTC.  On 7 November 2008, D2 forwarded corporate information on UEIL to Richard Yeung [Exh P63 p.1593 – 1596] and thereafter followed up with Richard Yeung in finalising the S&P agreement for the purchaser [Exh P65 p.1623 - 1646; P51, p.473 - 1490].

365. The reverse side of  the Innomaxx share certificate for the 1.5 million shares issued to D1 [Ex 251/ 2818] is signed by D2. It is stamped by the seller’s broker on 3 November 2008, the stamp duy chop is also dated 3 November. The company full register list [Ex 166 /1981] records the date of the transfer of the shares into the name of D2 as 7 November 2008.

366. D2 admitted that D1 gave her 1.5 million shares as a gift or private bonus about two weeks before the disposal of CTTC on 21 November 2008 because at that time the transaction was painstaking and she wanted to quit [D2 1^st VRI: 1444 – 1488]. I reminded myself that any inculpatory statements made by D2 in her records of interview were not admissible against D1 whereas exculpatory statements in relation to D1 would be admissible as evidence of their truth. I also took into account the evidence of D1 in relation to this matter. D1 said he agreed to give these shares to D2 in June 2006 following the Lead Sun acquisition and Cai, the only other executive director of Innomaxx,  had been informed about this matter. D1 said he exercised his option to purchase the shares on 26 October 2006 and gave D2 the share certificate in November 2006. Counsel for D2 submitted that when D2 was interviewed about this matter she might have been confused as to which transaction was involved.

367. D2 told her interviewer when she left Innomaxx to join CTTC and about her roles in both companies.  At counter 787 the interviewer stated that the topic was to be changed to CTTC, her current company. At counters 835/6 D2 recalled that it was a subsidiary of Innomaxx and in 2008 it was bought by HO ( Counter 840). At 848 D2 said that it was UEIL which made the acquisition. At 864 she said that she went to work fully to meet the requirements of the SEHK to complete it and that lawyers were involved. At counter 900 she recalled that the consideration was HKD15 million. D2 was then asked a series of questions about HO’s role in CTTC and the relationship between HO and D1.

368. At 1073 the interviewer stated that the sale to HO’s company was on 21 November 2008. At counter 1233 the interviewer asked D2 if D1 had asked HO to act as nominal shareholder of UEIL to buy CTTC. At counter 1239 D2 was shown the CMRG announcement in respect of  the sale of CTTC to UEIL [Ex 208 /2424] which she read. The interviewer at 1263 read to D2 part of the announcement which stated that  UEIL and its ultimate beneficial owners are third parties and independent of the company and its connected persons. At 1271 the interviewer states that he suspected such a statement might have misled CMRG board of directors, shareholders and the HKSE. At 1272 D2 said “No,she simply did it for HO” When asked who instructed her to buy the shell company (UEIL) D2 said she could not recall if it was HO or D1 who asked her to buy the company (1280). She then said she could not recall when she got to know HO. D2 went on to give evasive answers about when she got to know HO.

369. D2 said at counter 1377 that the announcement concerning the sale of CTTC was issued by the Chairman Cai Yuan. She said that the management had  been changed and the lawyers were involved as well. D2 said that it was the same as with the previous acquisition relating to Lead Sun.

370. D2 was then questioned about shares and share options she had in relation to CMRG. At 1444 D2 was asked whether Cai or D1 ever privately transferred shares to her.  D2 replied at 1445 that is seems yes….”I really cannot remember well”.

371. There then followed this series of questions and answers:

1. “

1449	B [D2]	He/they just gave (them) to me privately. [A: Given to you as gifts.]  He/They did give as gifts, give (them) to me as gifts, because I, at that time work for that transaction was very painstaking.
1450	A	Right.
1451	B	That’s right.  I can only answer, answer you this way.  But if you ask me how many, I, maybe I really have to find out.  I really cannot remember how many.
		…
1454	A	Hey, we refer to [B: Mm.] what the information shows.
1455	B	Mm.
1456	A	On 7th November of year 2008, Mr LUK transferred to you one million and five hundred thousand [B: Mm.] China Mining shares [B: Mm mm mm.] which were under his name.[ The interviewer refers to  the CMRG Share Certificate Ex 164/1978-9]
1457	B	Right, right.
1458	A	Do you remember there was such a matter?
1459	B	(I) do, (I) do, yes.
1460	A	Correct, eh?
1461	B	Correct.  Correct.
1462	A	And such a transfer took place before [B: Mm.] this sale, about two weeks (before it).
1463	B	Two weeks.  Ya, nothing, purely because that transaction was really painstaking.  Because I acted as the F, that means, because at that time, I was the only one person who worked on it.
		…
1467	B	Right.  [A: Well–] Well, it was a purely private bonus given to me, something like that.
1468	A	But your transaction had not been completed.  That means, your sale transaction was not completed until 21st November.
1469	B	Mm.
1470	A	Well, 7th November, he transferred one million and five hundred thousand shares to you already.
1471	B	That’s right.  Ya.
1472	A	That’s right.  Well, how, you had not completed that thing.  How could it be possible for you–
1473	B	N- no, how to put it?  That means, it would not be given to me depending on whether or not the acquisition was successful.  [A: Right.] Instead, it belonged to a, that means, form of award.
1474	A	Right.
1475	B	That’s right.  Because at that time it was really very painstaking.  Well, it might be, because I did tell him I wanted to quit, because er, at that time, I, how to put it?  Previously there was a Com Sec, [A: Right.] well, but later on, I, I took care of it additionally, that way.  That’s very painstaking.  Well, he, in order to, because I told him (I) wanted to resign and quit, that way.

372. This extract from the interview was referred to by counsel for D2 in his closing submissions. I was invited to read this extract in its full context. It was submitted that when there is reference to “that transaction” the interviewer did not mention which transaction until counter 1468 when it becomes apparent that he was referring to the disposal of CTTC. It was submitted that D2 may have been confused about which transaction was being talked about.

373. I did not accept that submission. I had no doubt, having read the interview in its entirety that D2 must have been quite clear that the transaction being referred to was the acquisiton of CTTC by UEIL. She had earlier in the interview been shown the CMRG announcement in relation to this transaction [Ex 298/ 2424-6) and allowed to read it. She was told that the transfer of shares took place on 7 November 2008 about two weeks before the sale. D2 is an accountant, experienced in corporate matters and had held the positions of  Chief  Financial Officer and Company Secretary of a listed company. She made no reference to the share certificate having been given to her two years previously as asserted by D1. I did not believe that D2 could not “remember well” being given 1.5 million CMRG shares by D1.

374. The prosecution alleged that the offer of shares was an inducement or reward to D2 for processing the disposal of CTTC. Without the cooperation of D2 (the only other director) in signing the BAL minutes, D1’s plan to acquire CTTC could not have gone through as it did.

375. D2 had worked under D1 since he joined CMRG in August 2005. They had a very close working relationship. Not only did they work together within CMRG (for instance on the Lead Sun transaction) but also outside the company in other transactions. D2 assisted D1 in SYIL transactions by setting up SYIL and liaised with Jason Chan of Wah Nam with regard to documentation and loan repayment. D2 also admitted that buying shell companies for D1’s friends was not part of her duty as company secretary of CMRG [D2 1^st VRI: 1308 – 1320].

376. I was sure that D1 and D2 must have discussed the contents of the BAL minutes before D2 returned the marked up draft of the BAL minutes and confirmed the correctness of paragraph 3.2 in the minutes on 20 November 2008 [Exh P56 p.1512 – 1536].

377. I was sure that D1 and D2 were aware of the significance of the BAL minutes in the disposal of CTTC. In an email to Richard Yeung (copied to D1) on 13 November 2008, D2 said since the transaction involved a listed company (CMRG), they needed the approval from the BoD of CMRG as well as BAL [Exh P65 p.1623].

378. The totality of the evidence left me in no doubt that  both D1 and D2, as directors of BAL, were parties to a conspiracy to use the BAL minutes to mislead their principals, BAL and the parent company, CMRG.  I was sure that D1 and D2 knew that D1 was the de facto buyer of CTTC and was therefore interested in the disposal and that D1 and D2 went on to sign the BAL minutes in order to mislead BAL and CMRG into believing that UEIL was an independent third party. In reliance on the BAL minutes, CMRG and BAL proceeded with the completion of the disposal and announced the disposal to the Stock Exchange and the general public as if it were a disposal to an independent third party.

Are the BAL minutes a “document “for the purposes of s.9 (3) of POBO

379. It was submitted that  the BAL minutes were not a document for the purposes of  s.9(3) which criminalizes the deceptive use of “ any receipt, account or other document”. It was submitted that by virtue of the eiusdem generis rule the word “ document” in s.9(3) should be construed as a document of the same nature as a “ receipt” or “account”, namely a record of  financial information.

380. A number of cases were cited but none dealt with this particular point. As I have mentioned above, the law requires that companies record and retain minutes of meetings where resolutions are passed. The BAL minutes in this charge relate only to one matter, the sale of  CTTC to UEIL.

381. On 11 November 2008 Richard Yeung sent a draft sale and purchase agreement to D2 and copied the email to D1 [Ex 64/1597]. This draft had been sent to Richard Yeung by Tracy LI of JWA the day before.

382.  At page 4 of the draft agreement (1605) under the heading “Completion” it states that the “ vendor [BAL] shall deliver or cause to be delivered to the Purchaser…..a copy of the minutes of a duly held board meeting of the Vendor, certified as a true and complete copy of the original by a director of the Vendor, approving this agreement and the transactions contemplated hereunder, authorising the execution of this Agreement, and the performance by the Vendor of its obligations under this Agreement”. This draft clause later became clause 4.1(a)(ii) of the Transfer dated 21 November 2008 Ex 19/1130.

383.  On 13 November 2008 D2 sent a marked up  sale and purchase agreement to Richard Yeung with comments. This was copied to D1 [Ex 65/1623]. Under the heading “Completion” there is the same clause cited in  the previous paragraph ( page 1629). In the email to Richard Yeung and copied to D1, D2 reminds Richard Yeung that “ Since the transaction involves a Lisco. We need Lisco’s and vendor’s board approval on such transaction as well” The following paragraph states that “Purchaser’s board approval is required as well”.

384.  It is clear therefore that by 13 November 2008, D1, D2, PW1 and Richard Yeung would have known the BAL minutes were required to complete the transaction. They were all aware that without the BAL minutes CMRG would not have been able to proceed with the disposal in the manner it did. This would facilitate the company being able to publish the announcement regarding the agreement pursuant to Rule 13.09(1) of the Listing Rules [Ex P253A Admitted Facts Paragraph 12].

385.  On 20 November PW1 sent the draft board minutes of  CTTC and BAL to D2 and Richard Yeung [Ex 155 /1503]. D2 sent comments on the draft minutes of each company removing the brackets from around the words regarding directors having no interest in the transaction [Ex 56/1512].

386.  The documents tabled at the BAL BOD meeting were the agreement, draft instruments of transfer and draft bought and sold note. The false declaration in the minutes that none of the directors of BAL were interested in the transaction was of paramount importance to facilitate  the sale proceeding in the manner it did. The minutes are admissible as evidence of their truth. The BAL minutes is a key document in relation to this sale. In my view, the BAL minutes were an essential document relating to a financial transaction. I am satisfied that the BAL minutes was a document for the purposes of  s.9(3) POBO.

No use of the BAL minutes by D1 and D2

387.  It was further submitted that there was no evidence of use of the BAL minutes by D1 and D2. It was submitted that they simply signed the minutes, there was no evidence to indicate that they actually used them in any way. After D1 and D2 signed the minutes they may have been filed by BAL but that is not use by D1 or D2. It was submitted that the draft BAL minutes were not circulated  round the CMRG board and in any event the CMRG board minutes indicate the board meeting  had finished at 10.20am whereas the BAL minutes indicate their board meeting did not start until 12.30pm [ P8/1067 and P9 1094].

388.  As I have stated above, this sale could not have proceeded without a resolution by the board of BAL authorizing the sale. D1 and D2 were the directors of both BAL and CTTC. The CMRG company secretary, PW1, and the company’s legal advisers proceeded on the basis that the appropriate resolutions would be made by the relevant companies and  an announcement would be made by CMRG in relation to the disposal pursuant to the Listing Rules of the Stock Exchange to the effect that this was a  disposal to a non-connected party. I was satisfied so that I was sure that D1 and D2 signed the BAL minutes knowing that they told a lie. Corporate minutes are admissible as evidence of their truth and companies are obliged to keep copies of them for inspection. The minutes would be used as evidence, inter alia, that none of the directors of BAL were interested in the transaction. I was sure that well before 21 November 2008, when the sale to UEIL was to be pursued,  D1 and D2 knew that they would be required to sign corporate minutes in relation to the sale of CTTC and that those minutes would contain a lie as regards the declaration of interest. Those minutes would facilitate the sale of  CTTC as if the sale were to an independent party. In all the circumstances I had no doubt that D1 and D2 agreed to use the BAL minutes intending to mislead BAL and /or CMRG.

The Offering and Accepting Advantage Charges (2^nd and 3^rd Charges)

389. The subject matter of the charge is the 1.5 million shares of CMRG given by D1 to D2. There was no dispute that D1 and D2, being directors of BAL and CTTC, were agents of BAL and CMRG. There was also no dispute that the shares were transferred to D2’s name on or about 3 November 2008 [PW17 Exh P256, 261]. The issues are when D1 gave the shares to D2 and whether the shares constitute an advantage for processing the sale of CTTC.

390. I have set out in detail above the role played by D2 in processing the sale of CTTC. D2 was involved in the acquisition of UEIL in the name of HO and handled  documentation and fund transfers before and after the disposal.

391. It is the prosecution’s case that the 1.5 million shares constituted an advantage. The gift of shares was made without the permission of the company and was an inducement/ reward by D1 to D2 for her processing the sale of CTTC. I noted that shortly after the shares were transferred into D2’s name, D2 started working on the disposal of CTTC. She forwarded the buyer’s corporate information to Richard Yeung on 7 November 2008 [Exh P63 p.1593].

392. The two independent non-executive directors, Chan Sze-hon (PW3) and Chu Kang-nam (PW4) said that employees of CMRG were not permitted to accept advantages in relation to the company’s business unless permission of the principal was obtained and granted.  PW4 said that if he had known that any staff member of CMRG or its subsidiaries had received advantages in relation to the disposal of BAL, he would not have agreed to grant permission .

D1’s case

393. D1’s case, summarized above, is that the offer of shares had nothing to do with the disposal of CTTC in November 2008 but was related to the Lead Sun acquisition two years earlier in October 2006. D1 said that it was an incentive to D2 whom he regarded as indispensible in the Lead Sun transaction. D1 said that this offer of shares was in addition to a promise to increase her monthly salary by HK$10,000 to induce her to remain with the company. D1 said he gave the signed share certificate to D2 in around November 2006 to honourhis promise.

394. In support of this contention, D1 pointed out that when he exercised his option to purchase CMRG shares on 26 October 2006 they were divided into two certificates, one for 7.15 million shares and the other for 1.5 million shares. He also said  that he was in the habit of giving shares to his employees such as his driver and his secretary. D1 said that he did not actually give them the shares but sold them and gave them cash.  D1 also increased her salary by HKD10,000 on 3 October 2006 [P98/1816].

395. The shares were worth a substantial amount of money in relation to her monthly salary. She eventually sold the shares on 13 January 2009 and received HKD317,316.18.

396. If D1’s evidence on this matter is correct, D2 delayed registering the shares in her name for two years. In his evidence D1 refers to a lock out period in relation to the disposal of the shares but this would not explain such a lengthy delay. There was no explanation for such a delay.

397. There is no documentation evidencing D1’s offer of shares in November 2006 and the company’s permission in this matter. D1 said he had obtained the permission of the Chairman,  Cai Yuan, but no one else in the company was informed about this.

398. As I have referred to above, the timing of D2’s registration of the CMRG shares in her name coincided with D1 informing  Richard Yeung that UEIL would purchase CTTC. D1 and D2 were the only directors of CTTC and BAL.  I was sure that D1 and D2 were aware that the original proposal to sell CTTC to DI could not proceed because D1 was a connected person.  For reasons I have set out above, I was sure that D1 lied to the court when he claimed he was not the person behind UEIL.  I was sure that D2 was aware that UEIL was a company controlled by D1 and that they agreed to conceal this from CMRG. I was sure that D1 and D2 were aware that they would be required to sign false documentation to the effect that none of the directors were interested in the transaction. I was sure that it was in those circumstances that D1 offered the 1.5 million shares to D2 to secure her agreement to participate in the scheme to mislead BAL and /or CMRG.

399. There was no evidence adduced that in November 2008 the permission of the company was either sought or given.

400. To conclude, I found D1 not to be a credible witness. I did not believe his account as to the circumstances in which the 1.5 million CMRG shares were transferred by him to D2. I was sure that D1 gave his shares to D2 on or about 3 November 2008 as an inducement/ reward for her processing the sale of CTTC. I was sure that the prosecution has proved beyond reasonable doubt that D1 had offered D2 an advantage as an inducement/ reward for processing the sale of CTTC.

D2’s case

401. In the VRI, D2 admitted that D1 gave her 1.5 million shares as a “private bonus” for handling the disposal of CTTC. This happened about two weeks before the disposal of CTTC (21 November 2008). The reason being that the transaction was painstaking and she was the only one to do it and she wanted to quit [D2 1^st VRI: 1444 – 1488].  In relation to charge 1, I have set out above part of D2’s first VRI where she answers questions about the shares given to her by D1.

402. I bore in mind that the evidence of D1 and his exculpatory statements in his VRI were admissible as evidence of their truth in relation to D2.

403. As I have stated in relation to D1, I had no doubt that D2 was aware that D1 was behind UEIL and had agreed with D1 that they would conceal this from BAL and/or  CMRG.

404. Counsel for D2 submitted that when D2 was questioned about this matter by the ICAC there was a possibility she was confused as to which transaction she was being asked about. I have referred to certain parts of D2’s first record of interview in some detail above. I was sure there was no confusion as to which transaction was being referred to. I was sure that D2 knowingly admitted to receiving these shares about two weeks before the disposal of  CTTC to UEIL. I was sure that at that time D2 had reached an agreement with D1 to assist in the disposal of CTTC and conceal from BAL and /or CMRG the relationship between D1 and UEIL.

405. There is no evidence showing that company permission had been sought and given.

406.  To conclude, I was sure that D2 had been given the 1.5 million shares as an inducement/ reward for her agreeing to process the sale of CTTC and to conceal that D1 was behind UEIL. I was sure that the prosecution had proved each and every ingredient of Charge 3 against D2 beyond reasonable doubt.