HKSAR v. LAM HONG AND ANOTHER

HCMA989/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 989 OF 2001

(ON APPEAL FROM ESCC 79 OF 2001)

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R U L I N G

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1. These are applications for a certificate pursuant to section 32 of the Hong Kong Court of Final Appeal Ordinance, Cap. 484.

2. The applicants were convicted on 21 May 2001 after trial in the magistracy for various offences of conspiracy to defraud, contrary to common law and section 159(c)(6) of the Crimes Ordinance, Cap. 200.  The 1^st applicant was convicted of four such offences, the 2^nd applicant of one.  They were convicted together with two other persons found to be their co-conspirators.

3. Their appeals against conviction were dismissed by me on 23 January 2002 and they now ask me to certify that a point of law of great and general importance arose out of the appeal.  I will firstly summarize the facts of the case. 

4. Each applicant was employed by the victim shipping company China Express Agency Ltd or its subsidiary China Sea Marine Ltd (jointly referred to as “CECS”).  The business of CECS was simply the booking of space on cargo vessels for the purpose of their clients, export firms shipping goods overseas.

5. The 1^st applicant together with other co-conspirators incorporated a company called Smart Win Shipping (“Smart Win”), the 2^nd applicant becoming a shareholder 10 days after the incorporation of the company.  Each applicant continued to work for CECS.  What then happened was this : An important client of CECS was a company Zhong Hua Fang Da (HK) Ltd (“ZH Ltd”).  The applicants put into play a scheme whereby, with the cooperation of a staff member of ZH Ltd, ZH Ltd business was placed with Smart Win and Smart Win would then, on documentation presented to CECS, be represented as a client of CECS seeking shipping space.  Because Smart Win was a fellow shipping company, or represented as such, CECS in accordance with custom in the trade and its own practice would charge it a substantially reduced rate which exporting companies such as ZH Ltd were not entitled to.  Smart Win then charged ZH Ltd the full rate and pocketed the difference.  Each applicant benefited as a shareholder of Smart Win. 

6. The appeals against the conviction of each applicant were conducted on a number of grounds but only one complaint incorporated into those grounds is relevant to the present application.  It is that there was no sufficient proprietary right of CECS which was prejudiced so as to properly found a conspiracy charge.  Mr Duncan, SC for the applicants submits that the criminality in the case revolved wholly around the making of secret profits by employees of CECS by way of the scheme involving Smart Win.  He argues that the scheme, however morally blameworthy, did not prejudice any present proprietary right CECS was entitled to or might be entitled to, but only an uncertain future right which CECS might have become entitled to if in fact the ZH Ltd business obtained by Smart Win would have otherwise been directed to CECS.  ZH Ltd had conducted business with CECS on a transactional basis.  There was no continuing contractual obligation on ZH Ltd to use the services of CECS.

7. Mr Duncan relies on the well-known and widely applied judgment of Viscount Dilhorne in the House of Lord’s case of Scott v. Metropoliten Police Commissioner [1975] AC 819 which stated that :

“… it is clearly the law that an agreement by two or more persons by dishonesty to deprive a person of something which is his or to which he is or would be or might be entitled … suffices to constitute the offence of conspiracy to defraud.”  (emphasis added)

8. Mr Duncan points out that Viscount Dilhorne did not incorporate into this statement of the law a further category of something to which a person might become entitled.  He argues that this is a “grey area” of the law which was directly relevant to the present case and is of potential relevance to future conspiracy to defraud offences prosecuted in Hong Kong.

9. In my judgment, the distinction drawn on behalf of the applicants is more semantic than real. 

10. There were two questions before the House of Lords in Scott’scase and without reciting its well-known facts, the issues were whether deception was a necessary element of the offence of conspiracy to defraud (the first question) or whether it was sufficient to establish simply the dishonest prejudicing of the rights of another (the second question).

11. In answering those questions Viscount Dilborne proferred in respect of each his understanding of “defraud” and “prejudice”, (though in respect of the latter, he thought a better word was “injure”).

12. So far as “defraud” was concerned he said this :

“… to defraud ordinarily means in my opinion to deprive a person dishonestly of something which is his or of something to which he is or would or might, but for the perpetration of the fraud, be entitled.”  (emphasis added)

13. Earlier when dealing with the concept of “prejudice”, he had provided the statement of law set out in paragraph 7 above which has become the accepted definition of the offence of conspiracy to defraud.

14. The point so far as the present application is concerned is that Viscount Dilhorne obviously saw no conflict between these statements of law, and it is plain from the underlined portions of his statement as to the meaning of “defraud” that he envisaged that the proprietary rights which could be defrauded included those which the victim might have been entitled had there been no fraud.

15. In my view it is impossible in any practical or realistic way to distinguish between rights to which a victim may have been entitled had there been no fraud and rights to which he might have become entitled.

16. In the same judgment, it is to be noted Viscount Dilhorne cited the case of R. v. Button (1848) 3 Cox C.C. 229 with approval.  In that case employees of the victim employer used the employer’s industrial equipment to make profits for themselves without the knowledge of the employer.  Viscount Dilhorne said of that case :

“… the defendants obtained profits which might have been secured by their employer.  In the circumstances it is, I think, clear that they inflicted pecuniary loss on those owners.”

17. It is I think plain from the comments of Viscount Dilhorne and the context in which they were made that he saw no distinction between proprietary rights which did, or might, presently exist and those which, but for the fraud, might have come to exist in the future.

18. That view is borne out also by the judgment, in Scott, of Lord Diplock where he said, in agreeing with Viscount Dilhorne :

“Where the intended victim of a ‘conspiracy to defraud’ is a private individual the purpose of the conspirators must be to cause the victim economic loss by depriving him of some propriety right or right corporeal or incorporeal to which he is or would or might become entitled. …”  (emphasis added)

19. I might add in Wai Yu Tsang v. R. (1992) (P.C.) 1 AC 269 at 277, Lord Goff in delivering the advice of the Privy Council said that Lord Diplock’s categorization of fraud was too narrow and approved the statements of law by Lord Denning and Lord Radcliffe in Welham v. D.P.P. [1961] AC 103.  Lord Denning in that case said :

“Put shortly ‘with intent to defraud’ means ‘with intent to practice a fraud’ on someone or other.  It need not be anyone in particular.  Someone in general will suffice.  If anyone may be prejudiced in any way by the fraud, that is enough.”  (emphasis added)

20. In my view the law is sufficiently clear so as to be able to say this : It is the risk of prejudice to another’s rights which is central to the concept of fraud and there is nothing in the authorities which restricts that risk to existing rights or rights which may presently exist as opposed to rights which will or may coalesce at some time in the future were it not for the fraud. 

21. It is the risk of prejudice which is important.  There is no need to prove actual prejudice.  For that reason, there can be no logical distinction between risk to presently existing rights and risk to rights which may have come into being were it not for the fraud.  There is a risk of prejudice in either case.

22. It may well be that Professor Smith’s comments in “Property Offences”, 1994 Ed., p.582 as to there being untidiness and uncertainties in the law regarding secret profits made by employees from their employers’ business, when taken in the context of the House of Lords’ decision in Tarling v. Government of Republic of Singapore (1980) 70 Cr App R 77, are correct.  But in my view those difficulties have more to do with the application of the law of fraud to particular factual situations than to any inherent uncertainties in the law itself, at least so far as the quite narrow principle argued before me is concerned.

23. In short, I do not believe there is any grey area in the law as suggested and accordingly there is no point of law of great and general importance involved.

24. On that basis, the application is dismissed and I do not have to consider whether the applicants’ delay in bringing this application should in any event prevent the issue of a certificate.