HKSAR v. CHEUNG HING CHIK

DCCC 363/2022

[2025] HKDC 295

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 363 OF 2022

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REASONS FOR VERDICT

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INTRODUCTION

The Prosecution Case

1.  The defendant is a Certified Public Accountant in Hong Kong.  He was entrusted to handle the affairs of two companies in Hong Kong by PW1 and PW2 who resided overseas.

2.  The defendant held the shares of the two companies on trust for PW1. He was also their authorized signatory on their bank accounts.

3.  The defendant transferred to himself almost the entire assets of both companies totaling 1,258,000 USD.  He disposed of these assets for his own use.  He faces a single charge in respect of each company in respect of the assets stolen from them.

The Charge

4.  The defendant has pleaded not guilty to the two charges of theft.  They are particularized as follows: Charge 1 – Between 18 February 2016 and 3 January 2020 stole choses in action namely debts in a total of 426,200 USD owned by Hang Sang Bank Limited to Star Sight Holdings. Charge 2 – Between 26 July 2019 and 28 December 2019 stole choses in action namely debts in a total of 832,000 USD owed by HSBC to Ling Sing Limited.

The Background

5.  PW1 and PW2 are married.  Together they trade in Arts and Antiques. They resided in Thailand.

6.  PW1 is a Thai national, her husband PW2 is an American citizen.  They incorporated two companies in Hong Kong, Ling Sing Limited (LSL)  in 1997 and Star Sight Holdings Limited (SSHL)  in 2011.  LSL handled their arts and antiques business and SSHL their securities investments.

7.  As the couple resided outside Hong Kong the defendant who is a Certified Public Accountant in Hong Kong was entrusted to handle the business and financial affairs of the companies in Hong Kong.  In 2010 and 2011 declarations of trust were made whereby the defendant held the shares of these respective companies on trust for PW1.  The defendant became the nominee director/shareholder of both companies whereas PW1 remained the sole beneficial owner of both companies.  The defendant charged service fees for his works for these companies. The defendant controlled the banking accounts of the companies and was their authorized signatory.

8.  The defendant opened banks accounts for both companies and also a securities account with E-trade financial corporation.

9.  PW1 and PW2’s instructions were that funds from the LSL account were to be used and transferred to the SSHL account for the trading of securities in the E-trade account and the proceeds of that account were to be deposited to the SSHL account.

10.  The defendant was required to update the LSL passbook regularly and provide it to PW1 and PW2.  PW1 and PW2 said that the defendant could not dispose of any of the funds of LSL and SSHL without their consent.

11.  In July 2019 the defendant said he had lost the passbook to the LSL account.  From then on the defendant provided an ‘activity report’ to PW1 and PW2 purporting to show the account activity and balance.

12.  Between 8 August 2019 to 21 January 2021, the defendant sent 27 activity reports.  They purported to show accurate balances and transactions of the LSL account.

13.  In fact and it is not disputed the details on the activity report were false and designed to cover up the transfers the defendant was making from the company account to his own personal account.

14.  This came to light in January 2020 when a transaction made by PW1 and PW2 failed to proceed because of a lack of funds in the LSL account.

15.  The defendant admitted that he had taken the monies from the LSL account.  He also admitted selling securities held by SSHL and taking those sale proceeds.

THE PROSECUTION CASE

Evidence

16.  The Prosecution case consisted of the oral evidence of PW1 and PW2 and PW3 an employee of the defendant.

17.  The other evidence was agreed including the transfer of the funds of LSL and SSHL to the defendant’s personal account that the defendant was entrusted to handle the financial side of the business of SSHL and LSL in Hong Kong. That bank accounts were created for those companies with the defendant appointed as authorized signatory.

PW1 and PW2’s evidence

18.  PW1 lived in Bangkok with her husband PW2.  They both managed the business of LSL via email, WhatsApp and phone calls to the defendant.

19.  The defendant was required to get PW1 and PW2’s consent and approval before making any decisions in respect of LSL or SSHL.  The bank accounts of LSL and SSHL were monitored by PW1 and PW2 from information provided by the defendant.  Matters came to a head when payment for a jambhala buddha was not made, as a result PW1 and PW2 came to Hong Kong in January 2020 to see the defendant.

20.  The defendant told them all the shares held in SSHL had been sold by him two years previously and he had taken the money left in the bank account.

21.  The defendant was then removed as trustee and signatory to the bank account of the two companies.

22.  PW2 had known the defendant for 25 years.  The defendant was required to seek approval on every occasion or transaction that was made in respect of the bank accounts of LSL and SSHL.  The defendant was paid a fee of 60,000 USD per annum for his services.  The defendant was made a trustee and signatory of the companies accounts as part of his PW2’s estate planning not as a result of any taxation planning.

23.  PW2 was also chasing the defendant for transaction records on the accounts.  In December 2019, the defendant was authorised to make the payment for the jambhala buddha along with payments for a property transaction in Italy and a painting.  The transfers were not made.  The payments could not be made. The defendant via WhatsApp correspondence said he had taken the funds without consent or prior permission to help others.

24.  The defendant did not have permission to make any of the transfers to his own account number.  No permission would have been granted. PW2 in fact said that the Philippine Inheritance Case that the defendant had spoken about was a scam, he had told the defendant this. PW2 would never have given or loaned the defendant money for this purpose.

25.  PW2 was unaware of any discrepancy between the activity reports sent by the defendant and the true state of affairs in the LSL account. He was not able to use internet banking and relied upon the defendant for all his information concerning the bank accounts of the companies.

THE DEFENCE CASE

26.  The defence case consisted of three parts:-

(a)  that the defendant did not act dishonestly as he believed that he had the right to take the choses in action set out in the two charges;

(b)  that he had the consent of the owner to the appropriation of the LSL and SSHL choses in action;

(c)  that some of the monies in the SSHL account could be the defendant’s own.

27.  The defendant gave evidence he is of clear record. 

28.  He said that the establishment of the three declaration of trust was to deal with the United States Foreign Account Tax Compliance Act.  The change of beneficial ownership to PW1 who was not a United States citizen meant that no declarations were required under that Act.  The defendant said he considered that PW2 was still the effective controller of both LSL and SSHL.

29.  The defendant said that he believed that the trust instrument gave him absolute discretion to operate the accounts of the companies and to take out their monies.

30.  The defendant admitted that he had taken out all the monies from LSL that formed the particulars of the second charge.  This had been done to support a person involved in a Philippine Inheritance Case, losses had been incurred in this venture and LSL’s monies had been used to make good this losses.  Neither PW1 or PW2 had been informed their prior agreement had not been sought for these withdrawals.  He had not told PW2 about the withdrawals until January 2020.

31.  The defendant said that the passbook to the LSL account had actually been lost although it was found again on a later date.

32.  He admitted in his evidence that the amounts shown in the activity reports made by him did not reflect the actual state of the accounts and overstated the actual balance in the accounts.

33.  He believed he had an absolute discretion to use the monies in the LSL accounts.  That he had taken temporary loans which he intended to repay and that he could not let PW2 know these loans had been taken.

34.  The defendant also said he had sold the shares held for SSHL because he had an absolute discretion to do so and could operate the SSHL account as sole signatory.  Part of the money had also been used for the Philippine Inheritance Case.

35.  The defendant agreed there was no written agreement or written trust condition stating he had absolute discretion to operate the company accounts.

36.  The defendant said that apart from the Philippine Inheritance.  The monies taken from the account was used to help with the medical costs of Cambridge University students, and other medical expenses related to the Philippine matter.

37.  The defendant admitted that the 27 activity reports contained no reference to the monies removed by him and that they did not disclose the actual state of the LSL account.

38.  The defendant said he believed he would be in a position to repay PW1 and PW2 and that it was always his intention to do so.  He had not as of the trial date been able to make repayment.

THE LEGAL FRAMEWORKS

39.  The Prosecution has bought the charges the burden of proof remains upon then throughout they must prove the case beyond reasonable doubt.

40.  There are two charges of theft.  The charge of theft requires that the prosecution prove that the defendant (1)  dishonestly, (2)  appropriates, (3)  property, (4)  belonging to another, (5)  with the intention of permanently depriving that other of it.

RESOLUTION OF THE ISSUE

General

41.  The majority of the evidence at trial was agreed and reduced to the admitted facts. This showed that the defendant agrees that he has appropriated the choses in action belonging to the companies. The conclusion is that the only issue in respect of the evidence was the issue of the credibility of PW1 and PW2’s evidence on whether the defendant had any autonomy in controlling the companies and their accounts through the trust arrangement and did in fact possess the unlimited discretion claimed by him, and following on from that, the legal factual issue of whether the defendant’s uncontested appropriation of the company choses in action was done dishonestly and with an intention to permanently deprive.

42.  When considering whether the defendant was dishonest it is necessary to firstly determine that the defendant’s action was dishonest by the standard of ordinary reasonable and honest people, and that the defendant realized that his behavior was dishonest by this standard.

43.  Furthermore if it is necessary to use an inference to draw this or any other factual conclusion then such inference must be capable of being drawn beyond a reasonable doubt.

Credibility and reliability of PW1 and PW2

44.  The defence noticed that the prosecution case was originally stated on the basis that both SSHL and LSL were incorporated in Hong Kong by PW1 in 1997 and 2011 respectively and that PW1 delegated her husband to deal with matters of both companies on her behalf and in 2010 and 2011 declarations of trust were signed between PW1 and the defendant who then held the shares of SSHL and LSL on trust.  This was based on the written statements of PW1 and PW2.  However PW1 did concede in cross examination that in 1997 she was only a student and that LSL was originally acquired by her husband and run by him and that the case was similar for SSHL.

45.  PW2 for his part said he primarily dealt with the financial side of the business.

46.  However neither he nor PW1 had access to the original banking documents of the companies and they relied on information from the defendant for understanding the financial position of the companies.  The defendant was to inform PW1 and PW2 after every transaction by producing an image of the bank passbook to show the transaction.

47.  The reason for this was that in the handling of the companies finances the defendant had no discretion to act.  He was to follow instructions and then provide documentary evidence to show each instruction had been carried out.  In fact that the accounts was operated in this way was not seriously challenged and the fact that the defendant continued to supply the activity reports showed this was the case.

48.  In assessing the credibility of the witnesses, PW1 and PW2, I bore in mind that save for the extent of the defendant’s discretion to operate the companies their evidence were not seriously challenged.

49.  Their evidence was clear and supported by all the documentary evidence and bank records.  Their evidence was especially supported by the communications between the parties shown in the WhatsApp communications.  I formed the clear view that PW1 and PW2 were honest, reliable and credible witnesses.  I was prepared to allocate full weight to their evidence which I accepted in its entirety.  I placed full weight upon their evidence.

50.  I particularly accepted PW2’s evidence that the purpose of the trust instruments was not to evade US tax liability, but for estate planning and had resulted from health problems encountered by him around the time of the setting up of the trusts.

51.  In assessing the defendant’s evidence I bore in mind his clear record and professional status, he is of course a man of whom high standards of integrity are expected he has had a lengthy and hitherto unblemished career which he still practiced at the age of seventy five. His clear record is relevant in assessing his credibility and the reliability of his evidence and his propensity to commit an offence of this nature.

52.  Nevertheless I found the defendant to be entirely dishonest and unreliable as a witness.  The defendant’s assertion that he had ‘an absolute discretion’ to deal with the assets of LSL and SSHL was a manifest and obvious fiction created by him to give some support to the cavalier and dishonest way he had dealt with their assets.

53.  It is not disputed that the defendant through his companies was a trustee for PW1 as beneficiary.  He conceded in evidence that this did create a fiduciary duty to act in the interests of the beneficiary.  Yet he nakedly acted in his own interests to the total exclusion of the interests of the beneficiary and in a way that was plainly and obviously fraudulent.

54.  The defendant’s evidence of their being an absolute discretion was an outright lie, rightly denied by PW1 and PW2 and obviously a device thought up by the defendant to justify his predatory behaviour towards PW1 and PW2’s assets and interest.

55.  The defendant also claimed the existence of a loan arrangement with PW2.  However this is no written support for this evidence, which was it to be true one would expect to exist.  The most egregious evidence of the defendant mendacity was the activity reports.  When the defendant on 27 separate occasions falsified the position of the LSL account to cover up his stealing from that account.

56.  Furthermore the WhatsApp messages show that in the aftermath of the discovery of the defendant’s activities he proffered an apology to PW2 (see the WhatsApp messages)  which show that the defendant was cognizant of the fact that he was not in any way entitled to deal with the money in any other way than that permitted and instructed by PW1 and PW2.

57.  For these reasons I had no hesitation in rejecting the entirety of the defendant’s evidence as being obvious and brazen falsehoods.

58.  I concluded that the defendant simply saw the assets in the companies as being obvious targets for theft.  He raided the accounts over a period of time whilst presenting PW1 and PW2 with a false picture. He took advantage of and abused his privileged position as trustee and account signatory to take LSL and SSHL’s assets to fund his own pet projects.  He did this dishonestly and by fraudulent means. He drained the LSL account to a point where the company was incapable of conducting its business. He took all SSHL’s assets, clear breaches of his fiduciary duty.

CONCLUSION

59.  It is clear by my conclusions that the prosecution has been able to prove each and every element of both charges against the defendant.

60.  On both charges there is in fact no dispute that the defendant appropriated 16 choses in action by transferring them to his own account.

61.  That he did this dishonestly is proved.  In respect of Charge 1 the ultimate beneficiary of the assets PW1 was kept in ignorance of the appropriations when both PW1 and PW2 should have been informed about any activities in the accounts. In Charge 2 the PW1 and PW2 were fraudulently deceived about the true state of the account whilst the appropriations took place.

62.  I also had no doubt that in both charges the defendant’s appropriation was dishonest by the standard of ordinary reasonable honest people and that the defendant was aware his conduct was dishonest by that standard.

63.  His assertion that he would someday repay PW1 and PW2 when the Philippine Inheritance money came in was not worthy of belief.  The defendant acted in complete indifference to PW1 and the companies’ interests.  He assumed the assets were his to deal with.  Furthermore, he has never repaid any part of the monies taken even though they were taken in 2016 and 2019, I have entirely rejected as untrue the defendant’s assertion he would repay the monies taken from the companies and used by him.

64.  I therefore am sure beyond reasonable doubt that the defendant intention was to permanently deprive the companies of their assets.

65.  I am satisfied therefore that all elements of both charges are proved beyond reasonable doubt.

66.  I convict the defendant on both charges accordingly.