LEE CHI-CHIN and Another v. R.

IN THE COURT OF APPEAL

1993, No. 333
(Criminal)

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REASONS FOR JUDGMENT

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Mortimer, J.A. (giving the judgment of the Court) : The 1st applicant (D1) and the 2nd applicant (D2) were convicted on 31st June 1993 by Her Honour Judge Chua of fraudulently inducing investment under s.3(1)(b) of the Protection of Investors Ordinance, Cap.335. The following day D1 was sentenced to 18 months imprisonment and D2 to 8 months imprisonment suspended for two years.

2. In outline, the facts were that a Guangdong company wished to open a company in Hong Kong to deal in foreign exchange. silver and gold. Yung Ching- ping, a member of that company, provided the financial backing. He approached D1, who had some experience, to be chairman of the company and to organise the business. D1 was given a majority shareholding. Major Victory Investment Limited (MVIL) was established. There was one other shareholder. Cosmos Victory which was the Guangdong company's nominee. D1 was introduced to D2 (a clansman of Yung Ching-ping). D2 also became a director of MVIL although his experience was as an electrician. His task was to co-sign cheques and check the expenditure of MVIL on behalf of Yung Ching-ping, the real controller. The judge accepted that the intention was to establish a genuine business through this company.

3. Prestigious offices were obtained and 200 employees were hired. The company opened for business in March 1990. $5 million - possibly more - was injected into the company by Yung Ching-ping or the Guangdong company. There was evidence of later trading losses including one of $9 million in Taiwan. On 2nd February 1991 MVIL closed its doors and went into receivership. Complaints by customers led to the arrest of D1 and D2 and the charges and trial which followed. Yung Ching-ping, described by the judge as the "main culprit", disappeared without trace.

4. The trial began on 14th April 1993. Four days later the charge sheet had undergone four amendments. It was on the re-re-re-amended charge sheet that the applicants were eventually tried. This contained five charges - two of false accounting, one charge of fraudulent inducement against each applicant and a joint charge of conspiracy to defraud which alleged dishonestly inducing members of the public to invest.

5. At the close of the Crown case the judge ruled that there was no case to answer on the false accounting charges. Also, by that time, the Crown had been put to its election whether to proceed on the conspiracy charge or the substantive fraudulent inducement charges. It chose to proceed on the substantive charges and the judge acquitted D1 and D2 of the conspiracy. On the two remaining fraudulent inducement charges, the judge convicted D1 on the basis that he induced members of the public to invest by misrepresentations which were fraudulent or alternatively reckless. She convicted D2 on the basis that he induced investment by a reckless misrepresentation in one of the documents.

6. The judge's findings on the ingredients of the offence against each of the applicants are imprecise. This may have been the result of the manner in which the indictment was drawn and the way in which the trial proceeded, but it is not necessary for us to consider the point in detail because of what follows.

7. The evidence called to prove that members of the public were induced to invest consisted of four investors each of whom described how on different occasions and in different circumstances and the basis upon which they made their decisions to invest. The manner in which the company resolved to increase its authorised capital, to allocate the increased capital and to register it, and proof of the participation of D1 and D2 in increasing the authorised capital and their knowledge of the documents which were brought into existence at the time took up a large part of the evidence at trial. These matters were particularly relevant to the conspiracy charge which was then still alive but were also relevant to proof of their involvement in the fraudulent investment. This particularly related to two documents; Form 1B. the return of allotments of shares to the Registrar of Companies signed by D1 only; and second, a promotional booklet in Chinese - distinctly "puffing" in nature - in which there appeared the passage (as translated) "the registered capital reaches $20 million so there is no doubt about (the company's) strength".

8. We heard counsel's submissions on their applications for leave based upon the notices of appeal. It suffices to say that the notices on behalf of each applicant raise grounds which we consider arguable. In the course of submissions each member of this Court became concerned about the manner in which the trial had proceeded and the imprecise findings of the judge on the ingredients of the offences. Having considered the matter over night, on the second day, the Court raised with counsel whether charge 3 against D1 and charge 4 against D2 were bad for duplicity. Encouraged by the Court, counsel applied for and were granted leave to amend to add an appropriate ground to their notices of appeal to enable them to argue the point.

9. Each charge is framed in the same manner. The material part reads:

" Statement of Offence

Fraudulently or recklessly of inducing persons to invest money, contrary to section 3(1)(b) of the Protection of Investors Ordinance, Cap. 335.

Particulars of Offence

LEE Chi-ching/YUNG Sha-ping, being a director of Master Victory Investment Limited, between March 1990 and February 1991 in Hong Kong, induced members of the public to take part in investment arrangements in and with master Victory Investment Limited in respect of property other than securities, namely the sale or purchase of Commodities of all kinds, by fraudulently or recklessly misrepresenting orally through employees of Master Victory Investment Limited to the aforesaid members of the public and or by showing the public through the aforesaid employees copies of Form 1B that the authorised share capital of Master Victory Investment Limited was increased to Hong Kong $20,000,000 Hong Kong currency and actually paid up and or by promoting in distribute literature to the same effect and or creating otherwise a false picture of the prosperity, success and expertise of Master Victory Investment Limited." (The emphasis is added.)

Section 3(1)(b) of the Ordinance reads:

"any person who, by any fraudulent or reckless misrepresentation, induces another person -

(b) to take part in ... any investment arrangements in respect of property other than securities, shall be guilty of an offence."

For present purposes, in order to bring this offence home, the Crown must prove the following matters:

(1) that a person was induced to invest;

(2) that he was induced to invest by a misrepresentation;

(3) that the misrepresentation was made by the accused; and

(4) that the misrepresentation made was either fraudulent or reckless within the meaning of s.3(2) of the Ordinance.

10. A comparison of the terms of the Ordinance and the manner in which the charges were drafted demonstrates clearly both in the statement of offence and in the particulars that more than one offence was alleged. Further, this was the Crown's intention. The Crown made the allegation and then sought to prove it by calling four "members of the public" each of whom made a decision to invest on different occasion in different circumstances on different bases but with common elements.

11. Having been given time to consider the matter, Miss Hartstein for the Crown quite properly conceded that the two counts were bad for duplicity. But she contended that it was open to the Court to apply the proviso and uphold the convictions as in all the circumstances there had been no miscarriage of justice. The Court should therefore apply the proviso and dismiss the appeal.

12. She rightly points out that the proviso has been applied to uphold the conviction on counts said to be bad for duplicity by the Court of Appeal in the United Kingdom (R. v. Ballysingh (1953) 37 Crim. App. R. 28 and R. v. Thompson, 9 Crim. App. R. 252) and by this Court (R. v. Au Yuk Keung [1980] HKLR 287) following those English cases. However, each of these cases deals with particular facts and circumstances and are arguably authority for two propositions:

(1) that where the form of the indictment is not bad for duplicity but more than one offence is alleged in evidence, the court may uphold the conviction on the proviso; and

(2) that where the form of the indictment is bad but only has technical effect considering the whole of the trial, the court may also uphold the conviction on the proviso.

There is no doubt that if an examination of the indictment and the evidence called to support it shows that the objection taken is purely technical, has caused no embarrassment to the defence and has caused no injustice, the court will apply the proviso. This is particularly so if the appellant was represented by counsel at trial and no objection was taken.

13. In this case, however, not only was the form of the indictment bad but the evidence led sought to prove four separate offences. The charges were drawn as if they were conspiracies and this is how they were approached at trial. This led to a blurring of the real issues in the case as can be seen from the judge's imprecise finding upon the main ingredient of each offence - the inducement. The form of the indictment led the judge to concentrate upon the way in which the fraudulent or reckless representations were made to members of the public. Her approach is to be found on p.11 of her reasons for verdict when she said:

"What exactly is being alleged against D1 and D2 by charges 3 and 4. They are accused of having induced members of the public to take part in investment arrangements with MVIL by fraudulent or reckless misrepresentations made orally through MVIL's employees and/or by showing members of the public by the said employees copies of Form 18 that the authorised share capital of MVIL had been increased to $20 million and actually paid up and/or by promoting in distributed literature to the same effect and/or creating otherwise a false picture of the prosperity, success and expertise of MVIL."

The way in which the judge was misled can be seen from her approach to the issue whether the four Crown witnesses alleged to have been induced were in fact induced by the misrepresentations. She deals with this in a short passage under the sub-heading "Paid up capital and registered capital" on p.14:

"Three of the Crown's witnesses PW1 ... PW2 ...and PW3 ...were influenced by what was stated in Chinese in P19.2. They all understood 'registered capital' to mean the company 'had that amount of money in operation.' The Chinese version was of course meant to convey the same meaning as the English and the mistaken but prevalent view seems to be that the registered capital is the same as paid up capital."

The judge made no finding in relation to PW4.

14. It follows that it is quite impossible for this Court to say that if the counts upon which the applicants were convicted had been properly drawn that the judge would inevitably have convicted them. The error affected not only the trial itself but also the judge's findings.

15. There is a further consideration. This Court has no power to amend the charges. As drawn, they are bad in law in more than a technical sense. In this case it would be impossible to apply the proviso and uphold the convictions upon charges that are bad in law. On which of the alleged offences contained in one charge should the conviction stand?

16. For these reasons we gave both applicants leave to appeal and treated the applications as the substantive hearing of the appeals and allowed the appeals. In each case the conviction was quashed.

17. We add a further point. When the judge put the prosecution to its election whether to pursue the charge of conspiracy or the substantive counts and the prosecution chose to proceed on the substantive counts the judge acquitted each applicant of the conspiracy without hearing argument. Where the prosecution is put to its election in these circumstances the conspiracy count should normally be ordered to lie on the file. It is usually an error to acquit. If the conspiracy count is on all fours with the substantive counts it could lead in certain circumstances to a defence of autrefois acquit on the substantive counts.