IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

MAGISTRACY CRIMINAL APPEAL NO. 276 OF 1993

--------------------

--------------------

HEADNOTE

Accepting an advantage as an agent - section 9(1)(b) of the Prevention of Bribery Ordinance (Cap. 201) - whether “in relation to his principal’s affairs or business” means “in his capacity as an agent” - whether Crown required to prove (a) that Defendant accepted the advantage in his capacity as an agent or (b) that Defendant performed or abstained from performing the act for which the advantage was accepted in his capacity as an agent - concession adopted in A.-G. v. Li Fook Shiu Ronald (CA 3/90) not followed - whether Crown required to prove (a) that Defendant’s state of mind was corrupt or (b) that Defendant believed that the set of facts which the Crown had to prove had occurred.

------------------------

J U D G M E N T

------------------------

INTRODUCTION

1. On 8th February 1993 at Eastern Magistrates’ Court, after a hearing lasting 10 days, the Appellant was convicted, after pleading not guilty, of three charges of accepting an advantage as an agent contrary to section 9(1)(b) of the Prevention of Bribery Ordinance (Cap. 201) (“the Ordinance”). He was sentenced to 6 months’ imprisonment on each charge, concurrent to each other but suspended for two years, and ordered to pay the sum of $420,000 to the Hong Kong Government. He was acquitted on three charges of using a document as an agent with intent to deceive his principal contrary to section 9(3) of the Ordinance. He now appeals against his convictions.

THE FACTS

2. The facts of the case were not substantially in dispute. I take the facts from the magistrate’s findings of fact set out in the Reasons for Decision, and from the unchallenged evidence of the witnesses called by the Crown. The Appellant did not give evidence.

3. The Appellant was employed by Sulzer Diesel (H.K.) Ltd. (“Sulzer”). Its business was the sale of diesel engines and spare parts. The Appellant was Sulzer’s sales manager. His duties included making and maintaining contact with established and prospective customers of Sulzer with a view to selling Sulzer’s products to them, quoting prices for the sale of Sulzer’s products, and handling purchase orders for Sulzer’s products.

4. The prices for Sulzer’s products which the Appellant quoted to Sulzer’s customers were controlled by Sulzer’s holding company in Switzerland. However, the Appellant had authority to offer discounts in certain cases. It was his authority to offer discounts which provided the Appellant with an idea to make a secret profit for himself. If an order was placed by a customer, not with Sulzer, but with a company to whom the Appellant had authority to supply products at a discount, the Appellant could make a secret profit amounting to the difference between (a) the discounted price which Sulzer charged the company for the products, and (b) the price which that company charged Sulzer’s customer for the products. There is no doubt that if the Appellant put that idea into effect, he would be in serious breach of his fiduciary obligations to Sulzer, and in breach of an implied term of his contract of employment. Moreover, Sulzer would be deprived of the profit which it would otherwise have made if the sale had been made, without the discount, to the customer direct.

5. The Crown's case, which was not seriously disputed by the Appellant, was that the Appellant did indeed put that idea into effect. He approached a friend of his, Leung Yiu Kam (PW2), who was the sales manager of Lico Engineers & Trading Co. Ltd. (“LICO”). Lico dealt in air-conditioners and spare parts. PW2 agreed to permit the Appellant to transact business using LICO’s name. Specifically, the agreement must have been (a) to permit the Appellant to supply Sulzer’s products to LICO at a discount, (b) to cause LICO to sell those products to customers of Sulzer without that discount, and (c) to pay the Appellant the difference, less LICO’s administration and other expenses.

6. To clothe that plan with the veneer of commercial respectability, a document dated 24th May 1990 was drawn up and signed by the Appellant and by PW2 on behalf of LICO. By that document, the Appellant and LICO agreed to participate in a joint venture relating to spare parts for diesel engines. Not surprisingly, the document did not identify what the joint venture was, but it is plain that what was envisaged was the implementation of the agreement to which I have already referred. Two clauses in the document are relevant:

“ARTICLE 3 EXPENSES

All expenses, with exception of those incurred within LICO’s office and his administration costs, should be shared at 50/50 basis.”

“ARTICLE 4 PROFIT & LOSS SHARING

It is agreed both parties to share the gross/net profit at rate 85%/15%. The party who is engaged in contacting and securing order from customer will get 85%. When both parties contribute their effort in securing the order from customer, the sharing will be 50%/50%.”

7. It is plain that that document was a sham. Although, in the event, LICO deducted its administration and other expenses from the sum which it paid to the Appellant, there was no division whatever of the net profit. The whole of the net profit was paid to the Appellant. LICO merely acted as the        conduit pipe by which the Appellant’s plan was implemented. Article 4 of the document was, therefore, to all intents and purposes a dead letter.

8. Hoi Tung Marine Machinery Supplies Ltd. (“Hoi Tung”) was a customer of Sulzer. Yip Shun Kin (PW3) was employed by Hoi Tung as a purchasing clerk. In May 1990, he informed the Appellant that Hoi Tung wished to purchase some spare diesel engine parts. The Appellant told PW3 that he could introduce Hoi Tung to a supplier which manufactured spare parts at a price cheaper that that quoted by Sulzer. PW3 agreed to purchase the spare parts from the supplier introduced by the Appellant. The sequence of events thereafter was as follows:

(1) The Appellant drafted a quotation which was typed on LICO’s notepaper, and which PW2 signed, for the products which Hoi Tung wished to order, and that quotation was submitted to Hoi Tung. It was marked for PW3’s attention.

(2) PW3 subsequently discussed the quotation with the Appellant, and attempted to persuade the Appellant to cause LICO to give Hoi Tung a greater discount.

(3) Hoi Tung sent a purchase order to LICO for some of the products to which the quotation related.

(4) PW2 informed the Appellant of the receipt of that purchase order, and the Appellant drafted a letter from LICO to Sulzer, which was typed on LICO’s notepaper by one of LICO’s employees, ordering the same spare parts from Sulzer.

(5) In due course, the Appellant caused the spare parts to be delivered direct to Hoi Tung.

(6) The Appellant prepared an invoice addressed to Hoi Tung, which was typed on LICO’s notepaper, for the products which Hoi Tung had ordered.

(7) Sulzer then prepared an invoice addressed to LICO for the products which LICO had ordered.

(8) In due course, Hoi Tung paid to LICO the sum requested in LICO’s invoice, and LICO paid to Sulzer the sum requested in Sulzer’s invoice.

(9) The difference between the two sums was $135,591.40. LICO deducted the sum of $7,591.40 representing its notional administration and other expenses, and paid the balance of $128,000 to the Appellant.

9. On these facts, it is clear that the Appellant was diverting the business of Hoi Tung, an established customer of Sulzer, to LICO. However, there was nothing in it for LICO. Although LICO paid $128,000 to the Appellant, LICO made no profit at all, and merely allowed the Appellant to use its name, notepaper and bank account to cause Hoi Tung to believe that it was purchasing the products from LICO, and to cause Sulzer to believe that it was selling the products to LICO. In reality, Hoi Tung was purchasing the products from Sulzer, though neither Hoi Tung nor Sulzer realized that, and the Appellant was pocketing part of the proceeds of sale.

10. The facts which I have outlined relate to the first of the three charges of accepting an advantage as an agent which the Appellant faced. However, it was accepted that the modus operandi was, in all material respects, identical on the other two charges of accepting an advantage as an agent, and I do not propose to set out the particular facts relating to those charges. The sums paid by LICO to the Appellant in respect of the transactions to which the three charges related amounted to $420,000. However, I propose to concentrate on the first charge, because the appeals against conviction on all charges stand or fall together.

THE INGREDIENTS OF THE OFFENCE

11. The question which this appeal raises is whether on these facts the Defendant was in law guilty of accepting an advantage as an agent as charged. The ingredients of that offence were identified by the Court of Appeal in Attorney-General v. Li Fook Shiu Ronald (CA 3/90). I shall refer to that case as Ronald Li (No.1). However, that case related to a prosecution under section 9(1)(a) of the Ordinance, not, as here, under section 9(1)(b), and it is necessary to adapt the ingredients identified by the Court of Appeal to reflect what the Crown had to prove on a charge brought under section 9(1)(b). I propose to deal separately with those ingredients on which this appeal turns.

(1) The acceptance of an advantage.

11. The Crown had to prove that the $128,000 which the Appellant accepted constituted an advantage. An advantage is defined in, inter alia, section 2(1)(a) of the Ordinance as

“any gift, loan, fee, reward or commission consisting of money or of any valuable security or other property or interest in property of any description.”

The particulars of the charges which the Appellant faced alleged that the $128,000 was “a gift, fee, reward or commission”, and the Crown therefore had to bring the sum into one of those four categories. That is plain from the rationale underlying the dictum of Roberts C.J., in delivering the judgment of the Court of Appeal in Lee Chiu Yin v. R. (CA 553/79):

“.... if the particulars of offence allege a particular form of act or omission as being the basis of the solicitation or acceptance, it is for the Crown to establish on the evidence that the solicitation or acceptance was so framed.”

In both her opening and closing speeches, counsel for the Crown alleged that the $128,000 amounted to a reward, but that did not mean that the magistrate could only convict the Appellant if he was sure it amounted to a reward. It was open to him to convict the Appellant if he thought it amounted to a gift, fee or commission, even if he was not sure it amounted to a reward.

12. In order to determine whether the payment can be characterised as a gift, fee, reward or commission, it is necessary to identify what the payment was made to the Appellant for. There can be no doubt on the facts that the payment he received represented the secret profit which he was earning on the sale of the products. Contrary to the Crown’s argument, therefore, he was not being paid for diverting Hoi Tung’s business to LICO. Although he had diverted Hoi Tung’s business to LICO, LICO did not make the payment to him for doing that. That diversion was designed to conceal the profit which the Appellant proposed to make for himself. LICO was merely the vehicle which the Appellant used to make that profit for himself. Since the Appellant had done nothing for LICO, it is impossible to characterise the payment by LICO as either a fee, reward or commission. Nor could it be characterised as a gift: LICO was not giving the Appellant anything - it was merely passing on to him his own secret profit.

13. The magistrate recognised this up to a point. That is why he described the Appellant as having “received these sums as a result of the profits he had caused to be earned”. Where he fell into error was in thinking that those profits had been earned by LICO. They had not been. They had been earned by the Appellant using LICO as the vehicle by which he earned them. The magistrate’s belief that the profits had been earned by LICO led him to conclude that, although the Appellant had received the lion’s share of the profits, it could not be said that he was paying himself. That again was where the magistrate fell into error. He was paying himself, albeit through LICO. What he was doing was paying LICO its administration and other expenses by permitting LICO to withhold those expenses from the sums which they were to account to him for.

14. Since the $128,000 accepted by the Appellant could not be characterised as an advantage of any of the types specified in the charge, the appeal has to be allowed on this ground alone.

(2)     The Appellant’s capacity.

15. It was common ground before the magistrate, and before me, that the Crown had to prove that the $128,000 was accepted by the Appellant in his capacity as an agent of Sulzer. That is derived from what the Court of Appeal held in Ronald Li (No. 1). In that connection, no valid distinction can be drawn between section 9(1)(a) and section 9(1)(b). However, section 9(1) of the Ordinance does not expressly refer to the agent’s capacity, and I suspect the Court of Appeal had in mind, when holding that for the purpose of section 9(1) the advantage had to be accepted by a defendant in his capacity as an agent, that the words “in relation to his principal’s affairs or business” in section 9(1) equated with the words “in his capacity as a public servant” in section 4(2) of the Ordinance. However, neither the words “in his capacity as a public servant” nor the words “in relation to his principal’s affairs or business” relate to the capacity in which the public servant or agent accepted the advantage. The words relate to the capacity in which the public servant or agent performed or abstained from performing the act for which the advantage was accepted. I can discern nothing in section 9(1) which requires the Crown to prove that the agent accepted the advantage in his  capacity as an agent. To hold otherwise involves reading words into section 9(1) which simply are not there. With diffidence, therefore, I find myself in respectful disagreement with the Court of Appeal on the issue.

16. Am I bound, nevertheless, to follow what the Court of Appeal held? I think not. The Court of Appeal did not hear argument on the issue. That is because the necessary elements of the offence to be proved by the Crown were common ground between the Crown and the defence in Ronald Li  (No. 1). An inferior court is not bound by the mere adoption, without argument, by a higher court of a principle of law agreed between the parties to the hearing before that higher court. Accordingly, the criticism made by Mr. Plowman Q.C. for the Appellant of the magistrate in relation to his finding that the payment was accepted by the Appellant in his capacity as an agent of Sulzer is immaterial. The magistrate was not, in my view, required to make such a finding as a pre-condition of convicting the Appellant. For the reasons I have given, the Crown’s concession before him, and before me, that he had to make such a finding was wrong.

17. That disposes of another point made by Mr. Plowman. Mr. Plowman contended that the conviction of the Appellant on the three charges of accepting an advantage as an agent was inconsistent with the acquittal of the Appellant on the three charges of using a document with intent to deceive. That is because (a) the Appellant was acquitted on the latter charges, on the basis that when he used LICO’s purchase orders for ordering products from LICO, he was not acting in his capacity as an agent of Sulzer, whereas (b) in convicting the Appellant on the three former charges, the magistrate found that when he accepted the payment from LICO, he was acting in his capacity as an agent of Sulzer. Even if those were inconsistent findings, they were not material inconsistencies, since I have found that the Crown did not have to prove on the three former charges that the payments were accepted by the Appellant in his capacity as an agent of Sulzer.

18. However, although the Crown did not have to prove that the $128,000 was accepted by the Appellant in his capacity as an agent of Sulzer, the Crown did have to prove, in my view, that in diverting Hoi Tung’s business to LICO, the Appellant was acting in relation to Sulzer’s affairs or business. That is because the words “in relation to his principal’s affairs or business” in section 9(1)(b) relate to the capacity in which the agent showed the particular favour alleged. The Court of Appeal in Ronald Li (No. 1) did not identify this as an ingredient of the offence created by section 9(1), because it adopted the erroneous agreement between the Crown and the defence that those words related to the capacity in which the agent accepts the advantage. However, I agree with the Court of Appeal that the words “in relation to his principal’s affairs or business” should be construed as “in his capacity as an agent”: after all, section 9(1) begins with the words “Any agent who ....”.

19. I see no reason why the words “in his capacity as an agent” should not be construed in the same way as the words “in his capacity as a public servant” in section 4(2) of the Ordinance. In R. v. Kong Kam Piu [1973] HKLR 120, Leonard J. said at p.129:

“… the question which one must ask oneself when considering the corruptness of a gift given to or solicited by a public servant in order to induce him to abstain from a proposed course of action is ‘would that gift have been given or could it have been effectively solicited if the person in question were not the kind of public servant he in fact was?’ If the answer is ‘Of course not’ as it is in this case the gift has been solicited or given to him in his capacity as a public servant and is a corrupt one.”

This passage was expressly approved by the Privy Council in Attorney-General v. Ip Chiu [1979] HKLR 11 at pp.15-16. However, the Leonard test requires qualification in an important respect. That qualification was identified by McMullin J. (as he then was) in Attorney-General v. Chung Fat Ming [1978] HKLR 480. At p.488, he said that the Leonard test

“is clear and workable only if one interprets ‘the kind of public servant’ as meaning not merely that the official in question holds a certain office but also that he is, or is thought to be, in a position by virtue of that office to favour or disfavour the interest of the particular solicitee and that this is something apparent to both parties.”

Accordingly, adapting the Leonard test as so qualified to the facts of this case, what the Crown had to prove was that in diverting Hoi Tung’s business to LICO, the Appellant was, by virtue of the fact that he was Sulzer’s agent, in a position to divert Hoi Tung’s business to LICO. I have no doubt that that was what the Crown did prove. As Sulzer’s agent, the Appellant knew that Hoi Tung was an established customer of Sulzer. It was that knowledge which he was able to use when he told PW3 that he could introduce Hoi Tung to a supplier which manufactured spare parts at a price cheaper than that quoted by Sulzer, and thereby effected the diversion of Hoi Tung’s business to LICO.

(3)     The reason for the payment.

20. The Crown had to prove that the $128,000 was accepted by the Appellant for the reason specified in the charge, viz. “on account of [him] ... having shown ... favour to [LICO] in relation to [Sulzer’s] affairs or business, namely the redirection of clients of Sulzer ... to [LICO].” The requirement that there has to be a causal link between the acceptance of the payment and the favour which was shown is well established on the authorities: see, for example, R. v. Parker (1985) 82 Cr. App. R. 69 at pp.73 and 74 (a case concerned with section 1(1) of the Public Bodies Corrupt Practices Act 1889, the material parts of which are in substantially similar terms to section 9(1)(b) of the Ordinance), and R. v. Lam Kwok Kai (MA 1645/90). Moreover, the requirement that the favour shown must be the particular favour alleged in the charge follows from the rationale underlying the passage which I have cited from Lee Chiu Yin.

21. For the reasons I have already given, the Appellant did not accept the $128,000 for diverting Hoi Tung’s business to LICO. Although he had diverted Hoi Tung’s business to LICO, LICO did not pay him the $128,000 for doing that. LICO was merely passing on to the Appellant his own secret profit. I do not detect any reasons given by the magistrate for reaching the opposite conclusion, but it must have been because he believed that the profits had been earned by LICO, even though the Appellant received the lion’s share of them. For the reasons I have already given, it is inescapable that that was an erroneous review of the transactions underlying the scheme hatched by the Appellant and connived at by LICO.

22. I should add that in the course of argument, Mr. Plowman relied on a ground not specified in the grounds of appeal. That was that the magistrate erred in failing to consider whether the causal link between the acceptance of the payment and the favour which was shown had been established. I wholly acquit the magistrate of that charge. The passage in the third paragraph on p.10 of his Reasons for Decision shows that that was the very issue which the magistrate did consider. Where he fell into error, in my view, was in the conclusion which he reached.

(4)     The Appellant’s state of mind.

23. Mr. Plowman contends, as he contended before the magistrate, that the Crown had to prove that the Appellant’s state of mind was corrupt. That may be correct in a case in which it is alleged that the Defendant solicited an advantage: see, for example, R. v. Li Fook Shiu Ronald [1991] 2 HKLR 288 at p.299 E-G, a passage relied on by Mr. Plowman. But in this case the allegation is that the Appellant accepted an advantage. For that reason, the passage relied on by Mr. Plowman is of no assistance. The distinction in this context between a solicitation case and an acceptance case was recognised both by Mr. Plowman himself in his written submissions to the magistrate, and by Macdougall J. (as he then was) in Cheng Kin Ping v. R. [1982] HKLR 308 at p.312 B-C. As it was, Mr. Plowman relied on that passage in Cheng Kin Ping and certain obiter dicta in Keay v. R. [1956] HKLR 347 at pp.350-352 (a) to show that the giver’s state of mind is relevant, and (b) to submit that if the giver’s state of mind is relevant, so too must be the acceptor’s. However, the discussion in those two cases related to whether the state of mind of the giver and acceptor was relevant to the question whether an advantage had been solicited or accepted by the Defendant - not to whether a corrupt state of mind was a necessary ingredient of the offence.

24. In my view, Mr. Plowman’s argument is an unwarranted gloss on what the Court of Appeal said in the Ronald Li (No. 1). What the Court of Appeal said the Crown had to prove was that the Defendant’s

“state of mind was that he was receiving an advantage, in his capacity as an agent, as a reward for having [done or foreborne to do the act complained of].”

That is by far the more preferable approach. If the Crown has to prove whether the Appellant’s state of mind was corrupt, that begs the question as to what a corrupt state of mind is. That, no doubt, is why the Court of Appeal adopted the formulation that the Appellant’s state of mind had to be his belief that the set of facts which the Crown had to prove had occurred. Applying that to the facts of this case, and adapting it to reflect the point on which I disagree with the Court of Appeal on the issue of the Appellant’s capacity, what the Crown had to prove was that the Appellant believed (a) that the $128,000 was paid to him for diverting Hoi Tung’s business to LICO, and (b) that because he was Sulzer’s agent, he was in a position to do that.

25. I have no doubt that the Crown had proved that the Appellant had believed the latter to be the case. For the reasons I have given, the Appellant was, by virtue of the fact that he was Sulzer’s agent, in a position to divert Hoi Tung’s business to LICO. He must have believed that because that is what he did. However, I also have no doubt that the Crown had not proved that the Appellant believed the former to be the case. For the reasons I have given, the $128,000 was not paid to him for diverting Hoi Tung’s business to LICO, and I see no basis for inferring that he must have believed what was patently not the case.

CONCLUSION

26. In summary, therefore, on the primary facts found by the magistrate, and from the unchallenged evidence of the witnesses called by the Crown, the Crown had not proved three of the things which the Crown had to prove if the Appellant was to be convicted of the three charges of accepting an advantage as an agent. The Crown did not prove:

(1) that the payments constituted a gift, fee, reward or commission; or

(2) that the payments were accepted by the Appellant for diverting Hoi Tung’s business to LICO; or

(3) that the Appellant believed that he had accepted the payments for diverting Hoi Tung’s business to LICO.

Accordingly, this appeal must be allowed, his conviction on those three charges must be quashed, and the sentences imposed by the magistrate must be set aside.