HKSAR v. TABAGUA VALERIAN

CACC 238/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 238 OF 2014

(ON APPEAL FROM DCCC NO. 130 OF 2014)

____________

____________

________________

J U D G M E N T

________________

Hon Lunn VP (giving the Judgment of the Court) :

1. The applicant sought leave to appeal against his conviction on 2 July 2014 after trial by District Court Judge Woodcock of an offence of dealing with property, namely €349,966.40 between 8 and 16 August 2013, known or believed to represent proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap. 455.

The Trial

2. There was no dispute at trial that acting on the telephone instructions of an impostor, whom he believed to be Mr Pierre Beylier, the Chief Executive Officer of SpeedCast Ltd, Mr Van Der Stel, the recently hired financial controller of Satfa BV, of which SpeedCast Ltd was the holding company, made an online order on 8 August 2013 for the transfer of a total of €350,000 from the account of Satfa with Rabbo Bank in Holland to the account of M N Technology Ltd with HSBC in Hong Kong.  To comply with the monetary limits of such transfers the total transfer of €350,000 was ordered in two tranches, namely €200,000 and €150,000.  After the initial telephone contact with the impostor, in which Mr Van Der Stel was informed that the transfer was to be effected as soon as possible and was to fund a company acquisition, the latter was provided with an attachment to an e-mail, namely an invoice dated 8 August 2013 on the letterhead of M N Technology Ltd in Hong Kong directed to SpeedCast Ltd in the sum of €696,000, which was described as “Investment”.[1] The invoice requested that payment be sent to a stipulated bank account of M N Technology Ltd with HSBC at Emperor Group Centre in Hong Kong.

3. Later on 8 August 2013, when Mr Pierre Beylier came to learn of the transaction and the transfer of monies, a report was made to the police of the fraud.

4. Similarly, there was no dispute that the applicant arrived in Hong Kong on 14 August 2013.  On 15 August 2013 the applicant made an application at the HSBC branch at 1/F Emperor Group Centre for the telegraphic transfer of €332,432 from the bank account of M N Technology Ltd with HSBC to the account of Octans Industries Ltd with Versobank in Tallinn, Estonia.[2] The applicant was the sole shareholder and director of M N Technology Ltd and the sole authorised signatory of its bank account with HSBC.

5. On 16 August 2013, having returned to the HSBC branch at Emperor Group Centre to enquire why his instructions for the telegraphic transfer of those monies had not been carried out, the applicant was arrested.

The prosecution case

6. It was the prosecution case that the applicant had reasonable grounds to believe that the monies with which he dealt in the bank account of M N Technology Ltd with HSBC on 15 August 2013, when he ordered the telegraphic transfer of €332,432 to the account of Octans Industries Ltd with Versobank in Tallinn, Estonia, were the proceeds of an indictable offence.  The prosecution pointed to the fact that the applicant had last entered Hong Kong in April 2012 together with the fact that the bank account of M N Technology Ltd with HSBC had been dormant in the previous 15 months and that none of the transactions hitherto had been denominated in Euros.

The defence case

7. Although the applicant did not avail himself of his right to give evidence, nevertheless he called two witnesses in the defence case.

8. Mr Ivan Palienko described himself as a corporate lawyer.  He had acted for the applicant’s group of companies since August 2011. On 8 August 2013 at the offices of the applicant’s group of companies in Moscow he had been approached by Mr Igor Kolupaev and presented with a copy of a contract dated 7 August 2013.  It was described as Contract No. 015/8, between M N Technology Ltd, represented by the applicant, and Safta BV, represented by Mr Pieter van Kirkhoven, for the sale of 7,250,000 plastic capping devices for bottling for €696,000, delivery of which was required before 4 December 2013.[3]  Mr Ivan Palienko identified the signature of the applicant and the chop impression of M N Technology Ltd on the document.[4]  Mr Igor Kolupaev was employed by an M N Technology Ltd pursuant to a Market Service Agreement[5] as a commercial contractor to market plastic capping devices manufactured by Dalian Best Plastic Products Company Limited and under a related Service Order Agreement.[6]

9. Mr Palienko said he was shocked at the volume of the goods required to be supplied, namely 7 million units in a four-month period.  Their productivity level was only 1 million units per month.[7]  Delivery was unachievable.  Also, he thought that the agreement was strange since payment was denominated in Euros.

10. Mr Palienko said that he arranged for a telephone call to be made to the applicant, who he understood to be on business in Mainland China.  In the ensuing conversation he told the applicant that Mr Igor Kolupaev had presented him with a contract signed by the applicant,[8] which was a “big problem”.[9]  He told him that the contract was in the “shape” of one of their contracts and asked the applicant how he had agreed to that commitment, since they could never supply 7 million units.  The applicant did not respond directly, but directed him to “correct the situation”.[10]  They discussed the transfer of contractual duties to another company and, if there was such an assignment, the possible transfer of money.  Finally, they discussed the payment of commission, arising from the contract, to Mr Igor Kolupaev.[11]

11. Following their discussion, immediately he drafted an agreement entitled ‘Mutual Rescission and Release Agreement’ addressing those issues, which he signed on behalf of M N Technology Ltd and Mr Igor Kolupaev signed in his own capacity, but in which also he purported to represent the Safta BV.[12] The agreement provided that the original contract, exhibit D1, was terminated and rendered null and void and authorised the transfer forthwith of funds paid by Safta BV under the original contract to be paid to the bank account of Octans Industries Ltd with Versobank in Tallinn, Estonia.  Mr Palienko said that he obtained the name and details of Octans from documents provided to him by Mr Igor Kolupaev.  Further, the agreement provided for the imposition of a “penalty of €3500 per day of delay”, in the event of M N Technology Ltd’s failure to transfer the monies to Octans.

12. Mr Palienko said that on 9 August 2013 he received a telephone call from the applicant in which he confirmed that the agreement had been drafted and signed.[13] In response to the request of the applicant, that he find out if monies had been deposited into the account of M N Technology Ltd, he had suggested that he be provided with the electronic key which permitted access to the account.

13. On 12 August 2013, he met Ms Eleanor Kaprinskya at the company’s offices in Moscow.  She was the Chief Financial Officer of the Group.  She presented him with a number of documents, including a copy of an invoice in the name of M N Technology Ltd dated 8 August 2013 directed to SpeedCast Ltd in respect of “investment” in the sum of €696,000, payment of which was requested to a stipulated bank account of M N Technology Ltd with HSBC.  He said that the details provided in respect of a M N Technology Ltd were “fake”.  Moreover, he had never heard of SpeedCast Ltd.[14]

14. On 13 August 2013 he met Ms Eleanor Kaprinskya again.  She was in possession of the electronic key which provided access to the bank account of M N Technology Ltd.  However, she was unsuccessful in accessing that bank account.  At her request, he made a phone call to HSBC in Hong Kong to pursue their enquiries.  However, he was told that he was not authorised to do so.  They agreed that in order to resolve the issue it would be necessary for the applicant to attend the bank in Hong Kong in person.[15]

15. Mr Yang Shue Wai testified that on 18 July 2013 he flew to Moscow from the Mainland, having been engaged to act as an interpreter to the applicant in forthcoming visit to his factory in Dalian.  At the end of July/early August he flew together with the applicant and Ms Eleanor Kaprinskya from Moscow via Beijing to Dalian.  They were scheduled to return by the same route.  However, on 13 August 2013 the applicant changed their itinerary, so that they flew from Dalian via Shanghai to Hong Kong, arriving on 14 August 2013.

16. On 15 August 2013, he went together with the applicant to the HSBC branch at the Emperor Group Centre in order to make enquiries into failed attempts to transfer money out of the bank account of M N Technology Ltd.  On the basis of information provided to him by the applicant, he had filled out a draft application in English for a telex transfer from the account of M N Technology Ltd of €332,432 to the account of Octans Industries Ltd with Versobank in Tallinn, Estonia.  Then, the applicant copied out those details onto a telex transfer application form which the applicant signed.

17. Accordingly, as the judge noted, it was the nub of the defence case that the applicant had travelled to Hong Kong to deal with the deposit in the bank account of M N Technology Ltd with HSBC, which money “was a legitimate payment according to contract consideration of the sale of a particular product.”[16]

Grounds of appeal against conviction

18. In the Grounds of Appeal against Conviction advanced on behalf of the applicant, Mr James McGowan submitted that the judge erred in directing herself in respect of the law relevant to the offence in accordance with the judgment of this Court in HKSAR v Pang Hung Fai [17]. In quashing the conviction of Pang Hung Fai that judgment had been overruled by the Court of Final Appeal in various respects.  Mr McGowan submitted that in consequence the judge erred in her determination of what constitutes “reasonable grounds to believe”.  First, in determining that belief is “something more than suspicion and, implicit in what is said, something less than knowledge, see paragraph 133 (HKSAR v Pang Hung Fai)”[18]. Secondly, in failing to consider whether the applicant had “grounds”, rather than having regard to the “facts” known to the applicant, to believe that the money was other than the proceeds of an indictable offence.[19] In particular, in failing to have regard to the applicant’s knowledge/belief in respect of his dealing with the monies in the account.  Thirdly, in applying a test of the “sufficiency” of the evidence, rather than determining that the evidence was such that the applicant would believe the monies to be the proceeds of an indictable offence.[20]

19. Next, it was contended that the judge erred in rejecting the evidence of Mr Ivan Palienko.  In particular, in doing so:

· by determining that “much of what (he) said was hearsay evidence”[21];

· by attaching no weight to the explanations supplied as it pertains to… “the knowledge and belief of the defendant”.[22]

20. Then, it was submitted that the judge erred in determining of the HSBC bank account of M N Technology Ltd that the applicant:

“ …is in the sole control of the defendant, and any activity involving the account would have had to have been known to the defendant. After all, he was the only one with access to this account”

and in concluding that the applicant had reasonable grounds to believe that the sum of about €350,000 deposited into the account represented the proceeds of an indictable offence.

A consideration of the submissions

21. Under the rubric “The Law” the judge addressed the ingredients of the offence created by section 25(1) and (3) of the Organized and Serious Crimes Ordinance.  Of the second limb of the mens rea of the offence, the judge said:[23]

“ 19. This second part, having reasonable grounds to believe, contains subjective and objective elements. The prosecution must prove there are grounds that a common-sense, right-thinking member of the community would consider sufficient to lead a person to believe that the property in question constituted the proceeds of an indictable offence. This is the objective element. It must also be proved that those grounds were known to the defendant. This is the subjective element.

20. The recent authority, HKSAR v Pang Hung Fai [2013] 4 HKC 366, sets out the approach to this issue by first asking what were the facts known to the defendant that related to the dealing with the property. Then the second step would be to – I quote –

“ process these facts through the mind of the common-sense, right-thinking member of the community and determine whether this person, possessed of these facts, objectively would consider them sufficient to lead a person to believe that the property in question constitutes the proceeds of an indictable offence”, from paragraph 112 of that authority.”

21. I quote further:

“ When this reasonable person considers these facts objectively, it means he does so uninfluenced by the personal beliefs, perceptions or prejudices of the defendant.”

22. To be clear, the belief necessary is “something more than suspicion and, implicit in what is said, something less than knowledge”, see paragraph 133 of that authority.

23. The test or two-step approach is concerned with whether there are reasonable grounds to believe proven. It is not the case that the defendant can only be convicted if all reasonable persons furnished with the defendant’s knowledge and the understanding of the facts would believe that the property was the proceeds of an indictable offence.

24. I quote again from the authority at paragraph 126:

“ Just as the test is not concerned with whether the defendant has the requisite belief in respect of the property, it is likewise not concerned with whether the reasonable man has it or would have it.  Rather it is concerned with whether he would regard the facts as sufficient to ground the section 25(1) belief.”

25.  The grounds proved have to be such that a common-sense, right-thinking member of the community would consider sufficient and not would lead a person to believe; there is a difference.”

22. In her Reasons for Verdict the judge summarised in sequence the evidence called in the prosecution and defence cases.[24] Of the nub of the defence case she said:[25]

“ To conclude, the defence set out to show through DW1 there existed a contract that involved Satfa BV, the defendant’s company, and a sale of plastic capping devices. Also they thought there was apparently money sent to M N Technology Limited as a direct result of this contract. The money was sent from Satfa pursuant to this contract, or perhaps the assignment contract, D7. However, that would have been unlikely if these documents were true because the money was transferred hours before Exhibit D7 was drafted by DW1.

Apparently, the defendant was told of the money transferred to the HSBC Hong Kong bank account and told it had to be transferred to Octans Industries urgently to avoid financial penalties.  The defendant came to Hong Kong to do this in person on his way back to Moscow. The above was all according to Mr Palienko, DW1.”

23. However, of his evidence, she said:[26]

“ Much of what DW1 said was hearsay evidence. He repeated what Igor said to him, what the defendant said to him and what Eleanor said to him. Igor, the defendant and Eleanor did not give evidence.”

24. Of the documentary exhibits produced in the defence case, the judge said:[27]

“ As for the exhibits produced, if relevant, only one has any connection to the defendant and that is Exhibit D1. It is purportedly signed by him. However, there is no direct evidence relating to the origins of this contract, or produced by anyone connected to it with any personal knowledge. Yet it is a vital document to the defence because the money transferred into M N Technology’s account was a direct result of this contract. Hence, the defendant dealing with it as he attempted to do. No party to any contract or document, be it the defendant, Satfa BV, Igor, Octans Industries Ltd, gave evidence as to the document produced or the origin of the money received.” [Italics added.]

25. Clearly, the judge fell into error in the statement she made in the last sentence.  Mr Palienko testified that on 8 August 2013 he drafted and then signed the ‘Mutual Rescission and Release Agreement’.  He said that he did so on behalf of M N Technology Ltd and on the authority of the applicant, with whom he had discussed some of the terms in the agreement.[28]

26. In her analysis of the evidence, the judge recited the rhetorical question posed by Ms Mohamed, counsel for the prosecution, in her closing speech:[29]

“ What were the defendant’s reasonable grounds to believe that the property represented the proceeds of an indictable offence, ie what were the facts known to the defendant, and the objective factual circumstances in which he found himself and of which he was aware at the time at which he dealt with the property which is the subject of the charge, the subjective test?”

27. Then, the judge set out her determination:[30]

“ The following facts I find were known to the defendant and proved beyond reasonable doubt:

(1) On 8 August 2013, there were two transfers to the defendant’s company’s HSBC bank account of €200,000 and €150,000 from Rabo Bank Holland;

(2) For this M N Technology bank account, the defendant is the sole signatory. The defendant is the sole director and shareholder of this company at all material times;

(3) On 14 August 2009, the material bank account had a balance of over US$446,000 and when the defendant became sole signatory, this account was not particularly active or used much on a monthly basis. From April 2012, the account was practically dormant with no activity until 8 August 2013. Until this date, all sums deposited and withdrawn were in US dollars. Exhibit P40 is the relevant banker’s affirmation and account history;

(4) The defendant arrived in Hong Kong on 14 August 2013 and went to HSBC Bank branch to attempt to transfer out the Euros on 15 August 2013. Prior to this date, the defendant had last landed in Hong Kong some 16 months before in April 2012. This is about the same time the bank account became dormant;

(5) On 15 August 2013, the defendant filled out Exhibit P11 and requested the bank transfer almost all of the Euros received to a bank account in Estonia. About 5 per cent was to be left in the account. The beneficiary was Octans Industries Ltd;

(6) On 16 August 2013 the defendant returned to the bank to enquire why the Euros had not yet been transferred or deducted from M N Technology’s account;

(7)  The defendant had handwritten notes in his possession, Exhibit P20, with many numbers and figures.  On four sheets of paper the figures of €200,000 and €150,000 appear.”

28. Very obviously the matters to which the judge referred, whilst many of them were matters not in dispute, was evidence upon which the prosecution relied in its written closing submissions in answering that rhetorical question.[31]

29. In addressing the evidence adduced in the defence case, the judge said:[32]

“ Mr Palienko was called to put forward the defence case. However, what he says the defendant said to him is hearsay. It cannot be relied upon by the defence. He cannot give evidence on the defendant’s knowledge. The same principle applies to what Igor and Eleanor told him. What he did say by way of explanation along with the documents he produced, with respect, I treat with some scepticism. It seemed fanciful and tailor-made to explain away a transfer from a Satfa BV to M N Technology Limited, and then an attempt to send almost all of it to a bank in Estonia to an Octans Industries Ltd.

The documents produced explain this, but the circumstances surrounding these documents give rise to many unanswered questions. The documents have been produced but not to prove their contents. I place little weight on them, especially Exhibit D1, the original and first contract. No parties to this contract gave evidence.

The other documents, D3, 4, 5 and 6, did not relate to Exhibit D1 directly, nor were the signatories to D3 and D4 called to give evidence.  There is no evidence before the court as to the defendant’s knowledge of any of the documentary exhibits.  Exhibit D7 was drafted by and signed by DW1, but what he says the defendant knew about it is hearsay.  [Italics added.]

I do not intend to go into the terms of the documents or contracts, nor the legalities and principles of contract law.  It is not necessary for the purposes of this trial.  In fact, defence counsel agreed with Miss Mohamed’s submission at paragraph 44 of Exhibit 41, her final submissions, that there was no evidence as to the knowledge of the defendant regarding how Exhibit D1 came about and whether in fact the defendant had any knowledge of this document or terms of the contract at the material time.  In effect, there is no explanation why he came to Hong Kong on 14 August 2013 after a long absence to deal with the Euros deposited in his company’s account. [Italics added.]

Despite evidence from the defence, there are too many unanswered questions because of the nature of their evidence.  Much of it being hearsay or not admitted as proof of the truth of the content.  The prosecution has been unable to cross-examine the maker of the statements attributed to the defendant, Igor or Eleanor by Mr Palienko, DW1.  Therefore, his or her truthfulness and powers of memory and recall cannot be tested nor can credibility.  Of course there are situations where an out-of-court statement by another person is not hearsay, but I do not see those arising here.”

30. With respect to the judge, she fell into error in determining that there was:

“ no evidence before the court as to the defendant’s knowledge of any of the documentary exhibits. Exhibit D7 was drafted by and signed by DW 1 (Mr Palienko), for what he said the defendant knew about it is hearsay.”

31. There was admissible evidence before the court.  It came from Mr Palienko. What he said that he told the applicant about the ‘Mutual Rescission and Release Agreement’ (exhibit D7) was not hearsay.  Similarly, what he testified he had told the applicant about the copy of the contract given to him by M Igor Kolupaev on 8 August 2013, which was signed by the applicant and between M N Technology Ltd and Safta BV, was not hearsay.  It was admissible evidence of the information provided to the applicant.  Clearly, it was evidence relevant to the rhetorical question posed by the prosecution and recited by the judge in her Reasons for Verdict as to what facts were known to be applicant.  More particularly, it was relevant to the issue of what grounds the applicant had to believe that the monies were the proceeds of an indictable offence.  The judge erred in failing to have regard to those grounds.

32. Subsequently, in her Reasons for Verdict, the judge re-affirmed that was her approach to the evidence of Mr Palienko:[33]

“ As for the defence evidence, I have placed little or no weight on DW1’s evidence as it is, where pursuant (pertinent?) to the charge and Euros deposited in M N Technology’s account, hearsay.”

33. For his part, Mr Andrew Li, for the respondent, accepted that the judge was in error to have determined that there was “no evidence as to the defendant’s knowledge of any of the documentary exhibits” and that, in respect of exhibit D1, there was no evidence that “the defendant had knowledge of this document or terms of the contract at the material time”.  However, he submitted that, whilst that was an irregularity, it was not a material irregularity.

34. He invited the court to note that having expressed “some skepticism” about what Mr Palienko said “by way of explanation along with the documents he produced”, the judge said that “it seemed fanciful and tailor-made to explain away” the transfer of money into and the attempts to transfer the money out of M N Technology Ltd’s bank account with HBSC.[34]  Furthermore, the judge said of both Mr Palienko and Mr Yang:[35]

“ I attach no weight to the explanations supplied as it pertains to the origins of the Euros or the knowledge and belief of the defendant. In effect, there is no explanation as to the knowledge of the defendant where the money is concerned.”

35. It is not at all clear from that statement to which explanations the judge was referring.  It is to be assumed that she was not referring to evidence that she had already determined to be hearsay and therefore inadmissible.  Certainly, she did not preface those remarks by saying that, if she was in error in respect of her determination as to the evidence being hearsay, nevertheless she made contingent findings of fact.

36. We are satisfied that the judge’s determination that Mr Palienko’s evidence was hearsay, in the respects to which we have referred earlier, was in error.  Her failure to have regard to all the evidence that was admissible and relevant to the issue of what grounds the applicant had to believe that the monies were the proceeds of an indictable offence was a material irregularity.

Proviso

37. Notwithstanding Mr Andrew Li’s submissions to the contrary, we are satisfied that, in all circumstances of this case, it would not be appropriate to apply the proviso.

Conclusion

38. In result, we allow the application for leave to appeal against conviction and, treating the hearing of the application as the hearing of the appeal, we quash the applicant’s conviction.  We will hear the parties in respect of any consequential applications.

[1] Exhibit P 30.

[2] Exhibit P 11.

[3] Appeal Bundle; Exhibit D1, pages 264-7.

[4] Appeal Bundle; Exhibit D1, pages 139 E-F and 141 D.

[5] Appeal Bundle; Exhibit D3, pages 269-284.

[6] Appeal Bundle; Exhibit D4, pages 285-8.

[7] Appeal Bundle, page 141 K-O.

[8] Appeal Bundle, page 149 N-T.

[9] Appeal Bundle, page 150 D.

[10] Appeal Bundle, page 194 D.

[11] Appeal Bundle, page 194 M-O.

[12] Appeal Bundle, pages 304-8, exhibit D7.

[13] Appeal Bundle, page 167 B-D.

[14] Appeal Bundle, page 173 N-O.

[15] Appeal Bundle, page 177 N-T.

[16] Appeal Bundle, page 12 F-G, paragraph 9 (Reasons for verdict).

[17] HKSAR v Pang Hung Fai [2013] 4 HKC 366.

[18] Reasons for verdict, paragraph 22.

[19] Reasons for verdict, paragraph 21.

[20] Reasons for verdict, paragraph 25.

[21] Reasons for verdict, paragraph 72.

[22] Reasons for verdict, paragraph 93.

[23] Reasons for verdict, paragraphs 19-25.

[24] Reasons for verdict: prosecution case– paragraphs 26-52; defence case paragraphs 53-74.

[25] Reasons for verdict, paragraphs 70-1.

[26] Reasons for verdict, paragraph 72.

[27] Reasons for verdict, paragraph 74.

[28] Appeal Bundle, page 154 S-T.

[29] Reasons for verdict, paragraph 76.

[30] Reasons for verdict, paragraph 77.

[31] Appeal Bundle, pages 330-1, paragraph 40.

[32] Reasons for verdict, paragraphs 80-84.

[33] Reasons for verdict, paragraph 87.

[34] Reasons for verdict, paragraph 80.

[35] Reasons for verdict, paragraph 93.