HKSAR v. LAM CHI KIN, ANTHONY

DCCC 997/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 997 OF 2015

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Reasons for Verdict

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1.  The defendant has pleaded not guilty to one count of using a false instrument, contrary to section 70 of the Crimes Ordinance, Cap 200.

2.  The defendant is accused of giving PW1, an escrow agent, a false or forged document to keep in escrow.  PW1 accepted it as genuine in connection with his performance of his duty as such an agent.  This document was part of several documents relating to a property put up as security for a loan to the defendant and another party.  The loan was for US$700,000.  On paper, it appeared the defendant was authorised to put up this property as security.  The property was owned and held by a company, Lotto Holdings Limited.  The defendant was a shareholder but knew he had no authority to deal with this property as he held all his shares on trust for another, his sister-in-law, PW2. 

3.  P4 was a purported board resolution that was signed by the two directors of Lotto that made it known the defendant had pledged his shares as security for a personal loan.  He was authorised to sign on behalf of Lotto and deposit the title deeds of the property with an escrow agent pursuant to a loan agreement.  The truth was the two directors did not sign the board resolution nor hold such a meeting.  On the face of it, the defendant pledged the property in return for a personal loan to himself and another party.  If the loan was not repaid, the title deeds and share transfer documents held by the escrow agent would be released to the lender.  This loan was not repaid.  The lender asked for the documents to claim the shares.

4.  The false document, P4, eventually came to light. The defendant denies all knowledge of P4 or its contents. The defendant denied he used that document in that he did not give it to PW1 himself. 

5.  The issue in this case is the credibility of the witnesses and the defendant.  Much of PW1 to PW4's evidence was not challenged.  The defence say the prosecution evidence does not in essence materially challenge the defendant's version of events.  It appears the defence do not challenge the fact P4 was a false document, therefore the question is whether the defendant knew P4 was false or believed it to be false, also whether the defendant used P4 and if he did, did he intend the escrow agent, PW1, to accept it as a genuine document using it to his or any other person's prejudice.

6.  As further background to this case, this property in question was paid for by the defendant's elder brother, PW4.  He purchased it outright and in full in the name of the company, Lotto Holdings Limited.  He bought the property so the defendant, his ex-wife, PW3, and his children could live in it.  PW4, to appease his then sister-in-law, PW3, made her a director with him.  He made her a 30 per cent or a 30 share shareholder, 30 out of 100 shares.  The defendant was made a shareholder of the remaining 70 shares.  However, the defendant only held 70 shares on trust for PW4's wife, PW2.  In reality he had no beneficial interest.  He was also appointed the company secretary for Lotto. 

7.  The title deeds were not kept by PW4 himself but entrusted to another brother.  He felt PW3, his then sister-in-law, preferred an independent party hold the original title deeds. 

8.  The property was a flat in Baguio Villas, Pokfulam, purchased in August 2005 for HK$8.2 million.  It was the only property held by Lotto. 

9.  The Admitted Facts (1), P32, sets out the facts of the above arrangement as well as admitting all the documentary evidence relevant in this case.  In it the prosecution confirms the defendant has a clear record.

Prosecution Case

PW1, the Escrow Agent, Mr Andy Fung

10.  Mr Fung, PW1, is a solicitor and the sole proprietor of Messrs Andy Fung & Associates.  His role in this case, according to him, was not that of a solicitor but engaged for his services as an escrow agent only.  He was paid to hold documents given to him by two parties. 

11.  His evidence is on 18 June 2010 he was told over the telephone by the defendant to meet him at a coffee shop in Lippo Centre, Admiralty.  When he arrived, he met the defendant and the two Indian gentlemen, a Joseph and an Avinash.  They represented the lendor, Flywell International Limited.  PW1 was told by the defendant that there were two parties to an escrow agreement.  The defendant represented one company and the other two men represented the other.  Their business cards are exhibited at P33.  PW1 assumed both these two men were lawyers.  PW1 recalled the defendant telling him he was a shareholder and director of Lotto Holdings Limited.

12.  In-chief, PW1 said the defendant produced some documents and presented them to him.  They included the documents to be escrowed.  Some were original documents, Exhibit P2, P3 and P4, P4 being the material document here.  The title deeds to the Baguio Villas property were certified true copies, not the original title deeds.  PW1's evidence was that the defendant showed him all, including P4, the board resolution, and told him he needed PW1 to escrow these documents.  Joseph confirmed this.  He understood from what he was told and read that Flywell was lending money and the defendant had to pledge his shares of Lotto.  In short, he put up collateral of Lotto, the Baguio Villas property, to obtain the loan. 

13.  PW1 knew P3 was a share transfer document.  If there was a default in the loan, PW1 had to surrender P2, P3, P4 and the certified copies of the title deeds to Flywell.  In such an eventuality the 70 shares held by the defendant would go to Flywell.  The documents could not be released by him, the escrow agent, unless he had instructions from both parties in agreement. 

14.  PW1 informed Joseph and Avinash the title deeds and Deed of Mutual Covenant were not original documents.  He reminded them that if the defendant had the original documents he could sell the property without their knowledge.  The defendant responded to PW1's advice to Joseph and Avinash. He told those present that the certified copies were also legal documents.  He said he would not be so foolish to sell the property after he had pledged it because that would be committing an offence.  Joseph consulted Avinash and then informed PW1 he would accept the certified copies as escrow documents instead of the original documents.  After this conversation all parties signed the Escrow Agreement, Exhibit P7. 

15.  There were only two copies.  PW1 asked the parties to provide him with a third copy and sign it.  PW1 said the defendant came to his office later that day after they had all been to the bank after the meeting.  The defendant produced a third copy to PW1 and signed it.  Joseph came to his office on 15 July 2010 and did the same thing.

16.  Both parties also received a letter drafted by PW1, P8.  It repeated what was said during the coffee shop meeting, PW1 thought best to put in writing.  He called it "an addendum to the Escrow Agreement".  When he arrived at the coffee shop he did not know of the actual details of the Escrow Agreement or the loan or the pledge of Lotto's shares as security.  The defendant had said over the phone that he had earlier sent emails to PW1 but PW1 told him he had not seen them yet.  The defendant told him the meeting was urgent because they still needed to get to the bank before it closed.  He would show PW1 all the documents at the coffee shop meeting.  PW1 saw the emails only after the meeting at the coffee shop.

17.  Six months after the Escrow Agreement PW1 received a letter, P9, from Flywell demanding the release of the documents in escrow.  There had been a default in the repayment of the loan.  PW1 then called the defendant who refused to give permission to PW1 to release those documents.  Exhibit P10 is a letter from Messrs Kennedy Solicitors, representing Flywell, addressed to PW1.  It repeated the demand for the release of the escrow documents to Flywell.  It said several postponed deadlines for the repayment of the loan had passed and the loan remained unpaid.  It was dated 10 June 2011, a year after the loan had been made.  PW1 called the defendant when he received this demand letter but the defendant again refused to authorise the release of those escrowed documents.  He gave PW1 no reason for his refusal. 

18.  PW1 was uncomfortable with the stalemate and the position of the parties, so he wrote a letter to Lotto Holdings Limited dated 30 June 2011 setting out the events to date.  He also demanded payment of his services agreed at US$5,000 by the defendant which was still outstanding.  His letter is exhibited at P11.  The defendant paid the outstanding sum on 6 July 2011.

19.  It was as a result of this letter that the defendant's elder brother, PW4, and his ex-wife, PW3, came to first know of this loan and the pledge of the shares as security by the defendant.  Exhibit P12 is a letter from Lotto signed by PW4 as a director sent to PW1 and Messrs Kennedys solicitors.  It denied all knowledge of the loan, the authority of the defendant to act for Lotto and any board meeting leading to any resolution.  Lotto asked for copies of the escrow documents from PW1.

20.  On 5 July 2011, the same date as the letter P12, PW1 received a letter from a solicitors' firm representing PW3, the defendant's ex-wife.  It sets out PW3's instructions to her lawyers denying all knowledge of the loan to the defendant, the board resolution and the pledge of what was claimed by her as the matrimonial home as security for the Flywell loan.  This letter is exhibited at P13.  When PW1 received both P12 and P13 on the same day from both Lotto's directors, PW3 and PW4, he called the defendant.  The defendant was not happy that PW1 had called him and told him the matters were none of his business.  He refused to answer of PW1's questions with regard to the two letters.  PW1 had no choice but to hold on to the escrow documents and did not release them to anyone.  However, when the police became involved, he gave them the escrowed documents.

21.  Prior to that in August 2012, PW1 did receive a request from solicitors acting for Flywell asking not for the escrow documents but copies.  PW1 asked the defendant for permission to release copies which he gave.  That request was in a letter, Exhibit P30. 

22.  Under cross-examination, PW1 agreed that he had met the defendant at a Christmas party in December 2009.  PW1 had a client called Gaffor Ashroff who lived in Tai Tam and introduced PW1 to the defendant at his party.  PW1 disagreed that Ashroff was a party to the matter discussed at the coffee shop meeting on 18 June 2010.  He disagreed Ashroff called him prior to that meeting and discussed his services as an escrow agent.  He only heard of Ashroff's involvement when the police investigated this matter and he saw his name in the documents for the first time.  He denied knowledge of Ashroff's name in the loan agreement and did not know the borrower on the loan agreement was not Lotto despite Lotto pledging shares as security.  He had not studied the terms of the loan agreement because his only concern was with the terms of the escrow documents agreement.  The loan amount did not go through his hands or his firm so he did not look carefully at the terms of the loan agreement.  He reiterated that his job was to only hold escrowed documents.  He had nothing to do with the loan, the agreement or its terms. 

23.  He did give legal advice about the certified copies of the title deeds because it was a document to be escrowed.  He felt it was suspicious so had to give advice on it.  He did not question any of the other documents as they were originals and presumed genuine.  He did not need to verify documents to be escrowed nor consider their contents in detail.  He did agree that when he arrived at the coffee shop, all three men were already there; he was the last to arrive.  He agreed the documents were on the coffee table when he arrived.

24.  He did explain why he charged the defendant US$5,000 when the escrow agreement said $2,000 for each party.  PW1 explained that he did not really want this job, it was hurried and too urgent.  He asked for a high fee, assuming the defendant would say no.  He did not expect parties to agree but they did.  The defendant told PW1 that he would pay US$5,000 and Flywell would pay US$2,000 for his services.  PW1 was surprised.

25.  I did ask PW1 if he had been told that P4 was a false document would he have kept it in escrow.  He said "Of course not", he believed the documents were genuine and that the parties believed the documents and agreed to them.  If otherwise, he would not have agreed to be an escrow agent.  He said he only accepted the certified copies of documents despite voicing his concern of the risk because the parties were put on notice.  They had discussed it amongst themselves and accepted the copies instead of the originals. 

PW2

26.  PW2 was Mr Lam Chi-kuen, PW4's wife and the defendant's sister-in-law.  She knew that Lotto held a Baguio Villa property when her husband asked her to sign a share transfer document in 2012, Exhibit P34.  She trusted her husband and did not know the details surrounding P34.  That instrument of transfer set out a transfer of 70 shares in Lotto from the defendant to herself for nil consideration on 8 June 2012.  PW4 told PW2 that the transfer document was to protect their interest in the property.  She knew he had paid for that property in full.  She, PW2, did confirm she did not prior to that transfer authorise anyone to pledge over the 70 shares held on trust for her. 

27.  In cross-examination, she confirmed her husband, PW4, had been very kind to the defendant, adding he was kind to all his siblings and extended family.  He was willing to help the defendant financially if necessary. 

PW3

28.  PW3 was the defendant's ex-wife.  They were married in 2002 and had two children. They separated on 31 October 2008 and divorced in 2012.  In June 2010, she was living in Baguio Villa property owned by Lotto with the children.  The defendant lived elsewhere.  She now lives in Vancouver and has had no contact with the defendant since the summer of 2015. Their divorce was obviously acrimonious.  She explained under what circumstances she became a director of Lotto with PW4 and how she held 30 shares of 100. 

29.  She knew the company was set up to hold the Baguio Villa property bought outright by PW4.  She knew the other 70 shares were held by the defendant but on trust for PW4's wife.  Exhibit P23 to P29 are seven trust deeds for 10 shares for each deed.  PW3 said at the time the defendant and herself had no money and were living with her mother.  PW4 helped them by buying this property for them to live in.  They, the defendant and herself, were meant to pay PW4 monthly as it was not a gift to them but a loan.  The plan was when they had paid a total of $700,000 to $800,000 to PW4 he would give them one trust deed worth 10 shares.  That was about 10 per cent of the purchase price, but this did not happen.  In theory, if the defendant and PW3 had repaid the entire purchase price then they would be the legal and beneficial owners of all 100 shares in Lotto. 

30.  She recalls receiving Exhibit P11, PW1's letter to Lotto, in July 2011.  She knew nothing of the loan by Flywell to the defendant and another or the escrow agreement until that letter arrived.  She passed the letter on to PW4 and gave instructions to her lawyers dealing with her divorce.  She first saw Exhibit P4, the board resolution, when the police showed it to her.  She had never seen it nor did she sign it, as purported.  In fact there was no such board meeting held by her and PW4. 

31.  In cross-examination it was suggested she was a liar because she said in her witness statement she was a university graduate when in fact she attended university but did not complete nor graduate.  It was also suggested her evidence that if the defendant paid monthly sums to Lotto they could with time buy the property from Lotto was untrue.  The truth was that PW4 bought the property and expected them to pay rent, albeit below market value.  It was neither a gift nor a loan, they would never get any beneficial interest in it.  She denied this version of events. 

32.  In cross-examination it came out that she owned a property that she could no longer afford to finance and PW4 took over her mortgage.  She gave PW4 the title deeds when he paid off the mortgage for her. When she sold it, she repaid PW4.  She agreed this was the case. 

33.  It also came out that she was very concerned about the defendant's financial position.  In fact she had such concerns ever since they were married and continued to be concerned after they separated because of his adultery.  Her evidence was there were debt collectors always chasing the defendant for repayment of loans.  She was concerned about him maintaining herself and the children with regular financial contributions. 

34.  She knew in 2009 that he worked at a company called Black Swan Capital International Ltd.  She had heard of a man called Gaffor Ashroff but denied meeting him in an office in the World Trade Centre.  She did not recall asking him about the defendant's incoming income.  When it was put to her she knew the defendant had HK$5 million in potential commission she replied that she did not know about that amount but whatever figure came of the defendant's mouth was always over $10 million. She denied she signed Exhibit P4 when Ashroff gave it to her.  She denied Ashroff told her about the defendant and Ashroff borrowing money together.  She was accused of hiding the truth about her relationship with Ashroff which she denied outright. 

35.  It was put to her in 2009 she impersonated the defendant and sent emails to his customers and employees on his email accounts.  She and the defendant had set up a company together, LCK International Wealth Planning Limited.  She had bought a domain and registered it.  She set up several email addresses for the defendant in that company's name.  She also set up all the accounts for employees.  She knew all the passwords for all his email addresses.  

36.  In March 2010, the defendant stood trial in Eastern Magistracy for wasteful employment of police time.  In 2009, he had called the police and told the police to go to the Baguio Villa home because he was worried about the safety of PW3 and his children.  He ended up being charged with that offence.

37.  The defence provided PW3 during her cross-examination with the entire transcript of her evidence from that trial where she gave evidence as a prosecution witness.  The defendant was acquitted in that trial.  In the transcript it was put to her that she had sent an email from his account to a customer and an employee of the defendant's.  She agreed that she had.  She elaborated that the email content was "Go to hell".  She admitted in that trial that she was playing a trick on her husband, the defendant.  This matter was not related to the document of this trial, P4.

PW4

38.  PW4 was the last prosecution witness, the defendant's elder brother.  He is a retired partner of Ernst & Young, the accountants.  He is very close to the defendant and has helped him financially in the past willingly.  He had been known to give the defendant money and pay his rent on his behalf.  PW4 explained why he bought a flat in Baguio Villa with cash and put it in the name of Lotto.  He knew the defendant and his wife had marital problems in 2005.  He wanted to help them as well as placate PW3. He did not want PW3 to put so much pressure on the defendant.  He wanted to buy them a home to live in.  He intended to rent it to them for an amount below market value.  At the time, they were living as a family with PW3's mother and needed their own home. 

39.  He arranged Lotto to hold the property with himself and PW3 as directors.  He gave 30 shares to PW3 to placate her and help their marriage.  He put the remaining 70 shares in the defendant's name but held on trust for his wife as the real beneficial owner.  There were seven trust deeds prepared, each referring to 10 shares, P23 to P29.  PW4 held all seven original trust deeds after the defendant signed them.  The title deeds of the property were held by another brother and not himself because PW3 as a shareholder may have objected to him holding them.  By having a third party hold the original title deeds, this would prevent any party selling the property. 

40.  He did not hold any board meetings with PW3 in 2010 but it was not for want of trying.  He certainly did not want to hold a meeting to authorise the defendant to sign on behalf of Lotto an agreement to escrow documents including the original title deeds for his Baguio Villa property.  He wanted to call a board meeting for basically the opposite intent.  He wanted to execute the Declaration of Trusts for the 70 shares held by the defendant.  He wanted the 70 shares to be transferred to his wife. However, PW3 as the other director, refused to attend a board meeting to approve the transfer despite his request. 

41.  PW4 wanted to do this to protect his property. He knew the defendant and PW3 were divorcing and PW3 wanted to claim the Baguio Villa property as the matrimonial home.  He was trying to pre-empt such a claim.  It concerned him so much that in the annual return of Lotto dated 11 February 2010, P19, at page 3, he caused to be entered in the "Remarks" column next to the defendant's name and number of shares that he held an entry making it very clear that the 70 shares are to be transferred to his wife, the beneficial owner, pending a board meeting.  He put the world on notice that his wife, not the defendant, was the beneficial owner.  These 70 shares were eventually transferred in 2012, Exhibit P34.  PW4 said that he did not recall if the defendant knew about his wish to do the transfer in 2010. 

42.  PW4 only knew of the Flywell loan and the escrowed documents when he got PW1's letter addressed to Lotto in early July 2011, Exhibit P11.  He immediately responded with a letter denying all knowledge and challenging the authenticity of the escrowed board meeting resolution, P12.  It was the police that showed him that board resolution, P4, and he confirmed he did not sign nor agree to its contents in a meeting on 18 June 2010, that meeting never took place.  He also set out subsequent legal action that resulted.  In 2012, Flywell obtained a charging order over 70 shares of Lotto.  As a result, there was legal action following that decision. Ultimately it was resolved in PW4's favour and he sold his property in 2015. 

43.  In cross-examination his evidence was not challenged at all.  In fact he was asked questions akin to those asked of a character witness.  He agreed the defendant was honest, a man of integrity as well as gullible.  He agreed that if the defendant had asked him in May or June 2010, he would have given the defendant a few million dollars interest free and with no questions asked.

The Defence Case

44.  The defendant elected to give evidence.  He began with his curriculum vitae.  Like PW4, he had qualified as a CPA, an accountant.  From 1988 he had worked for the following companies:  Arthur Andersen, Coopers & Lybrand, Ernst & Young, Deloitte Touche, HSBC International Trustee Limited, Morris Roland and in his own start-up, LCK International Wealth Planning Limited, from 2004.  In 2009, he continued to run LCK that was set up by himself and PW3 but also went to work for a company called Black Swan Capital International Limited.  The services he provided through his own company included giving high net worth clients tax planning, probate and estate tax advice.  He also provided company secretary, nominee shareholders and directors services.  At Black Swan he was head of Professional Service and the company sold investment plans, products and insurance. 

45.  The defendant also gave details of his marriage and marital issues.  He explained how PW3 did have a property in her own name but they instead of living at that property, lived with his mother-in-law. When problems arose at his mother-in-law's, PW3 wanted to live in Pokfulam. They both approached PW4.  PW4 told them to find a flat in Baguio Villas and he would set up a company to buy it for them to live in.  PW4 would rent the property to them at low market value.  PW3 was very happy with this arrangement. 

46.  The defendant said it was PW4 who decided who were directors, shareholders and who held what shares.  It was PW4's idea that he held shares on trust for PW2. The defendant agrees that he and his wife separated in October 2008 and she moved out with the children.  However, in 2009 she demanded he leave the flat and they move back in.  At the same time his own business was not doing well and he was in financial difficulty.  PW4 helped him and paid on his behalf the office rent for several months before he ended that lease. 

47.  The defendant then gave evidence of how he met Ashroff, what their relationship was and how he came to borrow money from Flywell with Ashroff and why he pledged the Baguio Villas flat shares despite knowing he had no beneficial interest in it.  The gist of his evidence was that he believed Ashroff was a rich and successful businessman with connections to the Sri Lankan Government.  He had bank guarantees from wealthy people to inject into oil and petroleum projects that involved very large sums of money.  The defendant would take Ashroff's bank guarantees and approach banks to borrow money on the back of those guarantees.  The defendant was very familiar with Ashroff's businesses.  He knew it was liquid with deals in the pipeline coming to fruition in the second half of 2010.  He regarded him as a close friend and client.  When the defendant had to give up his lease for his own company, Ashroff said he had a spare room in his office and the defendant could work from there rent free. 

48.  The defendant also gave evidence that his ex-wife, PW3, had met Ashroff on many many occasions ostensibly to follow up on the defendant's promises that he had commission due from some business deals with Ashroff.  When he started at Black Swan in late 2009, he was still working from the room in Ashroff's office but he was paid $80,000 a month by Black Swan. But by January or February 2010 they were in financial difficulty and could no longer afford his salary.  However, before that his boss, a Mr Jesse Rao, organised a seminar in 2009 and had the defendant invite his own clients. Jesse Rao met Ashroff at that seminar.  In early 2010, Rao asked the defendant to ask Ashroff to invest in Black Swan.  He needed a cash injection for the business to continue.  Rao was looking for one investor and targeted Ashroff. In February or March 2010, there were three or four meetings to discuss Ashroff investing US$1 million in Black Swan.  The defendant attended meetings at Ashroff's request.  It was meant to be an investment due in April 2010. However, Ashroff did not have that cash in April but was waiting for some of his own deals to come to fruition later that year before he had cash to invest.  Rao was desperate so he told Ashroff that he had a client with a sum of money who was willing to lend it to Ashroff to invest in Black Swan. He had US$700,000.  Black Swan needed US$440,000 immediately, so Ashroff could invest that sum in Black Swan and use the balance for his own personal spending.  Ashroff found this a reasonable plan and it was arranged for Flywell International Limited to lend him $700,000 through the company representative, a Mr Joseph Pokett.

49.  Joseph met Ashroff along with the defendant and Rao on 17 June 2010 and his loan was made on 18 June 2010, the following day.  On 17 June the defendant was present but had nothing to do with this loan; he was not involved in it in any way.  However, at this meeting Joseph told Ashroff he wanted a Hong Kong Permanent Resident as a borrower on paper and not only Ashroff's company.  Joseph also wanted some security for the loan. 

50.  After Joseph and Rao left that meeting, Ashroff asked the defendant to be a borrower as he was a Hong Kong Permanent Resident, and asked him to put up his Baguio Villas property as security.  The defendant agreed because he believed Ashroff could repay the loan.  Ashroff said he would give the defendant US$128,000 out of the US$700,000.  The defendant agreed to do this but told Ashroff he had "No way to make Lotto directors agree to use the property as security".  Ashroff told the defendant that he would use his relationship with PW3 to convince her to agree to use the property as security.  The defendant told Ashroff if he could do that, the defendant's elder brother, PW4, would agree to help him.

51.  On the same day, 17 June, Ashroff called Rao and told him that the defendant would be a named party and that a flat in Baguio Villas would be pledged as security.  The defendant then rushed from this meeting to the Lands Registry to get a certified copy of the title deeds because he did not hold the originals.  Ashroff said he would convince Joseph to accept copies.  The defendant did not actually know who held the original deeds.  The defendant did not have time to call his wife or his own brother to discuss this matter because he was in a hurry and very busy on 17 and 18 June 2010.  He told Ashroff if he was able to convince PW3 then Ashroff could through PW3 contact PW4 to sign a board of directors' resolution.  When he was told later the next day by Ashroff that he had secured both PW3 and PW4's signatures on a board resolution, he did not see the document for himself.  It was given directly to Joseph.  The defendant did not discuss it with PW3 or PW4.

52.  In the evening of 17 June 2010, the defendant did receive by email from Joseph draft documents including the board resolution of Lotto, the Escrow Agreement, the Loan Agreement, but he did not read in particular the board resolution nor know its contents.  I refer to page 1 of Exhibit P1.  The defendant was told that PW1, Mr Andy Fung, had been informed by Ashroff he was to be engaged as an escrow agent for those same documents. 

53.  On 18 June 2010, there was a meeting in Black Swan's office.  The defendant was present with Joseph and another male from Flywell, Avinash.  During the meeting, after Ashroff told the defendant he had got PW3 and PW4 to sign the board resolution, Joseph said Ashroff had given him all the documents and he was satisfied with the security and the defendant as a co-borrower.  The Loan Agreement was then signed by the defendant, Ashroff and Joseph.  It is in schedule 2 of the Escrow Agreement, P7.  At all times Joseph had all the documents in his possession.

54.  The defendant said he forwarded the draft emails from Joseph to PW1 in the morning of 18 June and it was PW1 who decided the venue for the coffee shop meeting.  Despite Jesse and Ashroff being the main beneficiaries of this loan, they did not go to the coffee shop.  There was only the defendant, Joseph, Avinash and PW1 present.  The defendant did not know why they did not attend that meeting.  At the coffee shop it was Joseph that told PW1 that he was happy with the documents to be escrowed and all that was left to do was to sign the Escrow Agreement.  It was Joseph that gave PW1 documents including P4.  It was the defendant's evidence that he did not see Exhibit P4 until 2015 when he was charged by the police.  He did see Exhibit P2, the instrument of transfer, when he signed it at the office at the same time he signed the Loan Agreement.  He knew it meant he had authority to transfer 70 shares of Lotto to Flywell but only if there was a default in the loan and he was confident that would not happen.  He was not concerned when he signed P2.

55.  When cross-examined, the defendant denied debt problems and denied debt collectors went to the Baguio Villas property looking for him as described by PW3.  He only borrowed money from his brother. 

56.  When asked about the Baguio Villas asset and Lotto, he agreed he only held shares on trust with no beneficial interest in it.  He agreed he knew he had no authority to put the premises up as security but the Loan Agreement and meetings of the 17 and 18 June happened very fast. He was told Ashroff obtained Lotto directors' consent and told Joseph accepted the documentation.  It was all done very urgently but he did agree with hindsight he should have asked PW2 before signing a share transfer instrument.

57.  He denied he knew that only several months earlier PW4 had decided to transfer the 70 shares to PW2 but PW3 had refused to attend a directors' meeting to put that into effect.

58.  He also agreed he knew that in the divorce proceedings PW3 was claiming the Baguio Villas property as the matrimonial home.  That was in fact why PW4 wanted his wife to hold the 70 shares and not the defendant any more.  When it was suggested PW3 would have taken a big risk by agreeing to put up the property as security when she did not benefit from the loan and at the same time was claiming it as the matrimonial home, he agreed it was a big decision for PW3 to make but he did not know what Ashroff had said to her.  He at no stage asked him or her. 

59.  He agreed he was promised US$128,000 as a gift and not as a loan.  He himself did not need to repay any of the instalments for the $700,000 loan.  He repeated many times that he never thought Ashroff would not repay the loan.  He was given that $128,000 and had spent it.  He said he only agreed to be a co-borrower and put up the property as security because he was sure Ashroff was able to honour the loan.  He believed in Ashroff entirely.  He did, however, at the meeting of 17 June, ask Ashroff why he did not put his own property up as security.  He at that time lived in a detached house in Tai Tam.  He said Ashroff's response was that he "did not intend to use it and that was not the main point.  He intended to repay so it was not a problem".  He did not ask Ashroff to use his numerous bank guarantees as security for this loan because they were for enormous sums of money and US$700,000 was a relatively small amount.  Ashroff convinced the defendant to use the Baguio Villas flat as security because there was no risk he would not repay the loan.  The defendant believed this.

60.  It was put in cross-examination to the defendant that if Ashroff had used his own assets he would not need to give the defendant $128,000, which he agreed.  He also agreed he did not tell Joseph that the reality was he did not own the 70 shares in Lotto and the flat was not his to put up as security.  He said there was no need to mention that fact.

61.  The defence case is that the defendant was used by Ashroff, who he trusted as a good friend and believed him to be financially able to honour the loan so that the security was never going to be required or come into play.  The defence case is that the defendant did not use Exhibit P4 because he never possessed it to use.  It follows that he did not know or believe it was a false document having accepted Ashroff's word that the directors of Lotto agreed to put up the property as security.

62.  It was an admitted fact too, P35, that the police had arrested a Mr Ashroff for an alleged US$700,000 fraud and the complainant was a Korean business man.  This man jumped police bail and a warrant of arrest was issued on 7 May 2012.  He remains a wanted man and at large. 

Function of an Escrow Agent

63.  In this case it is important to define PW1's function as an escrow agent.  Such an agent performs the function of a service provider.  An escrow agent is a mutual independent third party.  To escrow means, in principle, depositing an amount of money or documents or chattels until predefined conditions are met in order to ensure that the underlying transaction is completed fairly, efficiently and in full.  An escrow agent enables the fulfilment of the agreed conditions.  The escrow agent is not a party to the underlying transaction.  He or she acts normally only on a fiduciary basis for both parties.

64.  PW1 here is appointed by both defendant and Flywell to be a custodian of documents agreed upon by both parties.  Both parties paid PW1 to discharge this duty.  The Escrow Agreement, P7, sets out the escrow parties as Flywell, Lotto and PW1's company, Andy Fung & Associates.  At page 2, paragraph (b) of P7, it specifies:

"Flywell and Lotto appoint the escrow agent to be the custodian and administrator of the duly executed escrowed documents."

The escrow period is for a maximum of 6 months and 7 days. Paragraph 3 sets out the responsibilities of the Escrow Agent. Paragraph 5 governs termination of the agreement and "the escrow agent should be discharged from all duties and liabilities hereunder". It is envisaged the escrow agent has duties and liabilities under this agreement but is paid for the services and risk undertaken. Paragraph 6 governs escrow charges paid for by Flywell and Lotto equally. Schedule 1 of the agreement contained the escrowed documents and schedule 2 contains the Loan Agreement between defendant personally, Ever Investments and Flywell. I repeat here that PW1, the escrow agent, said if he had known P4 was not a genuine true document he would not have kept it in escrow. He accepted it because he believed it was genuine and the parties believed it was genuine.

The Law

65.  Section 73 of the Crimes Ordinance, Cap 200, reads as follows:

"A person who uses an instrument which is and which he knows or believes to be false with the intention of inducing somebody to accept it as genuine and by reason of so accepting it to do or not to do some act to his own or any other person's prejudice commits an offence and is liable on conviction on indictment to imprisonment for 14 years."

The prosecution must prove the defendant used the instrument P4. The word "used" must be given a common sense definition. The defendant must have knowledge of it and intend to make use of it. He must know or believe it to be a false document. Then it is necessary to prove the double intention. First, an intention to induce PW1 to accept P4 as genuine and escrow it as agreed, and secondly, the defendant intended PW1 by reason of accepting the document would do or not do some act to his own or any other person's prejudice. The prosecution must prove all elements and ingredients of this section beyond reasonable doubt. The defendant has nothing to prove.

66.  I have referred myself to HKSAR v Kwan Hin Kee CACC 190/2005 which discusses the ingredients of this offence requiring proof of a double intention on the part of the defendant and the meaning of prejudice found in Section 70 of the same ordinance.  In that authority, the appellant was the director of a company used as a corporate vehicle to hold properties.  His two brothers were fellow directors.  He arranged an overdraft increase with the bank which agreed, but required a grant of a first legal charge for all moneys over nine properties, and this meant a set of minutes of a meeting of the board of directors of their acceptance of the overdraft facilities as well as a related resolution of all members of the company.  The appellant produced these documents to the bank but they were false.  The other directors did not sign any resolution or know of the overdraft facilities.  The Court of Appeal found Section 70(1)(a), (e) and (f) applied when determining prejudice.  For reference I set out and repeat Section 70.  Section 70(1):

"Subject to subsections 2 and 4, an act or omission intended to be induced is to a person's prejudice if, and only if, it is one which, if it occurs will:

(a) result in his permanent or temporary loss of property;

(b) result in his being deprived of an opportunity to earn remuneration or greater remuneration;

(c) result in his being deprived of an opportunity to gain a financial advantage otherwise than by way of remuneration;

(d) result in somebody being given an opportunity to earn remuneration or greater remuneration from him;

(e) result in somebody being given an opportunity to gain a financial advantage from him otherwise than by way of remuneration; or

(f) be the result of his having accepted a false instrument as genuine or a copy of a false instrument as a copy of a genuine one in connection with his performance of any duty."

Subsection (2):

"For the purpose of this section, an act which a person has an enforceable duty to do and an omission to do an act which a person is not entitled to do shall be disregarded."

Subsection (3):

"Reference is in this part to inducing somebody to accept a false instrument as genuine or a copy of a false instrument as a copy of a genuine one include references to inducing a machine to respond to an instrument or copy as if it were a genuine instrument or, as the case may be, a copy of a genuine one."

Subsection (4):

"Where subsection (3) applies, the act or omission intended to be induced by the machine responding to the instrument or copy shall be treated as an act or omission to a person's prejudice."

Subsection (5):

"In subsection (1)(a), 'loss' includes a loss by not getting what one might get, as well as loss by parting with what one has."

67.  The Court of Appeal said in that authority when dismissing the appeal at paragraph 19:

"In each case, the act so induced was and was intended to be the granting of an increased overdraft facility by the bank to the company. In respect of subsection (e), that was a financial advantage to the applicant. In respect of subsection (f), the duty that arose was that of the bank officer from his contract of employment who, having accepted the false minutes and the resolution as genuine, approved the increased draft facility of the company."

68.  In HKSAR v Chiu Yuen Wu HCMA 1144/2006, the Court of First Instance found similarly a police officer who accepted a faked report as genuine from a subordinate suffered a real prejudice in connection with his performance of a duty again under section 70(1)(f).

69.  The prosecution here submits the defendant did use board resolution P4 by presenting it to PW1 and signing to acknowledge this fact on P7 and P8.  The prosecution submits the defendant knew it was false and intended PW1 to accept it as genuine.  He needed to do this for the document to be escrowed as a prerequisite to the loan being forthcoming from Flywell.  The prosecution say the defendant induced PW1 to accept P4 as genuine and, as a result of PW1 agreeing to escrow it and other documents, did not act to his own prejudice.  The prosecution go further and say the escrow agreement, once complete, meant Flywell advanced US$700,000 and suffered prejudice.  Lotto also suffered prejudice because, as a result of the default in the loan, a charging order was created over the shares of Lotto.  This necessitated Lotto engaging lawyers and taking legal action to remove that order.

70.  During the course of PW1's evidence, the defence raised the question of legal professional privilege, LPP.  When PW1 gave evidence-in-chief, and as he was recounting the events surrounding the meeting, the defendant asked him to attend Lippo Centre coffee shop.  The defence did ask the court to excuse PW1 and make a submission in his absence.  Amongst the submissions made, it was argued there was LPP, legal professional privilege, between PW1 and the defendant, and PW1 was not allowed to recount the conversation between himself and the defendant, nor allowed to refer to what documents or materials the defendant gave him.  LPP was claimed to be invoked on more than one occasion as PW1 gave evidence.

71.  I rejected the submissions.  On the facts and from PW1's evidence, he was engaged to act as an escrow agent for both parties, the defendant and Flywell.  PW1 is a solicitor, but not everything handed to or said to a solicitor will be for the purposes of obtaining legal advice or said in confidence or subject to privilege.  According to PW1, and even the defendant in his own evidence, PW1 was only engaged to be an escrow agent.  The only advice he gave was to Joseph of Flywell, not to the defendant.  He made sure they were aware the title deeds to be escrowed were not original title deeds.

72.  According to the defendant's own evidence, PW1 came to the meeting at the coffee shop, and all he did was witness the defendant and Joseph sign the escrow document pre-prepared, and sign himself. Then he took away documents to be escrowed.  On the defendant's own version there was no legal advice sought by him nor any given to him by PW1.

73.  This was not a relationship that attracted any privilege.  Flywell was represented by a watching brief during the course of the trial.  The prosecution were told that if there was any privilege that existed between Flywell and PW1, Flywell waived that privilege.

74.  I did say in my ruling that if I was mistaken, and being the escrow agent meant there was legal professional privilege in this case, then if what was said was in furtherance of a fraud or, in this case, what was given to PW1, P4, was in furtherance of a crime, it loses that privilege.  I ruled no legal professional privilege existed in this scenario.

75.  I turn to my findings.  The defendant is a man of good character and clear record.  I have considered the likelihood and the propensity of a man in such a position committing this offence.  I have directed myself in accordance with the requisite directions set out in the authority of Tang Siu Man v HKSAR [1998] 1 HKC 371.

76.  I have also once again reminded myself of the prosecution's burden of proof to prove beyond reasonable doubt all the ingredients of the offence.  I have considered carefully the evidence of the four prosecution witnesses and the defendant.  I have considered carefully the submissions of the prosecution, MFI-1, and the defence, MFI-2 and 4.

77.  After careful consideration, I have no hesitation in rejecting the defendant's evidence as inherently implausible.  I accept the prosecution witnesses' evidence as credible, reliable, and without material discrepancy.  In any event, it went mainly unchallenged.  However, PW3 has been described as unreliable and dishonest.  Nonetheless, I am sure she did not sign nor have any knowledge of P4.  The matters raised to discredit her were unrelated to the facts surrounding this charge.  The half-hearted suggestion she signed Exhibit P4 was a bare assertion with little possibility of being a reality, having heard her evidence.  Nothing in her evidence makes me doubt her credibility.

78.  I am sure, contrary to the defendant's version of events, it was, as PW1 said and recounted, the defendant that called him and arranged to meet.  It was the defendant who said it was urgent as they still had to go to the bank that same day.  It was the defendant that accepted the demand for US$7,000 from PW1, who thought that might deter the parties engaging him as an escrow agent.  He did not want the job on such an urgent and rushed basis.

79.  PW1's evidence that it was the defendant who gave him the documents to be escrowed was not challenged.  I am sure that was the truth.  PW1 said the defendant showed him all the documents to be escrowed, including P4, and Joseph confirmed the documents.  I am sure the defendant used Exhibit P4 by presenting it to PW1.

80.  Despite the submission PW1 was not telling the whole truth, I repeat, the prosecution witnesses' evidence was not challenged to a material extent.  PW2 and PW4, relatives of the defendant, were certainly not challenged.  PW1 had no reason or motive to lie or frame the defendant. What I am sure of, having heard the evidence of PW2 to PW4, is that despite the generosity of PW4, the defendant's brother, they would not have agreed to put up the property as security for a loan.  PW3 would not have agreed even if the defendant had asked her, because at that time she was setting it up as the matrimonial home and trying to get a stake in it.  She would not have agreed when there was no benefit to her and only a small benefit to the defendant. PW4 would not have agreed without sound financial reasons, as an accountant and a careful man.

81.  I am sure the defendant would have known all of this.  Having heard the evidence and story behind the purchase of the property, the 70 shares put in trust, and the concern of PW4 over his investment, I do not believe the defendant's evidence that he thought Ashroff could exert pressure on PW3 to agree to such a directors' resolution, and in turn, PW3 could convince PW4.  He said he accepted this without question, which I reject.

82.  As early as February 2010, PW4 wanted the 70 shares held by the defendant to be transferred to his wife precisely because PW3 was in divorce proceedings, trying to claim the flat was the matrimonial home.  He wanted to protect his interest and that of his wife.  But PW3 refused to attend a board of directors' meeting to effect this transfer.

83.  As I have said, PW4 had this fact registered in the "Remarks" column of the company's annual return to alert any potential enquirer.  He, PW4, said he did not know if the defendant knew about this intention of his, but I find it very hard to believe the defendant did not know, as the trustee of the 70 shares, a party to the divorce, and Lotto's company secretary.

84.  With this knowledge and situation, I do not accept the defendant would have for a moment believed his brother would have agreed to put up the flat as security without so much as one question to him. It beggars belief.  In fact, the defendant's version of events in its entirety beggars belief, from why he agreed to be a party to the loan to how he accepted, without question, Ashroff's ability to get both directors of Lotto to agree to use the property as security without his personal intervention, request or confirmation.  To distance himself from P4, the false board resolution, the defendant had to say it was not obtained by him.  He said he let Ashroff get the approval of the board, but Ashroff was unrelated to Lotto or the defendant's family.  Ashroff had no influence over PW4 as he had not even met the defendant's brother.  The evidence surrounding the existence of P4 are bare assertions which are implausible.

85.  The evidence as to why the defendant agreed to be a party to the loan and put up the premises as security is also rejected. He made Lotto liable for US$700,000 when he obtained only US$128,000 solely because he believed Ashroff would not default in repaying the loan.  He put up PW4's premises as security knowing Ashroff had property he refused to use himself as security.  If Ashroff was so wealthy and reliable, the defendant should have expected him to put up security and not risk his brother's property without so much as a word to his brother.

86.  The defendant was unable to give satisfactory answers to probing questions put to him in cross-examination pertaining to why he would agree to be a named party and put up security that did not belong to him for little return or benefit.  His answers about his knowledge of the contents of P4 or how it came into existence were also nonsensical.  He does not deny he knew why it was required, but had not been given it to peruse. Ashroff gave it directly to Joseph, who gave it to PW1.  This evidence was a poor attempt to distance himself from P4 and make himself out as a victim.  I find him unsuccessful.

87.  The defendant also does not give a satisfactory answer to the signed instrument of transfer, P2.  It clearly states he, for a sum of $700,000 paid to him by Flywell, transfers his 70 shares in Lotto to Flywell.  This was a document escrowed to be released to Flywell if the loan was not repaid.  The defendant said it was a contingent document only, so he did not require authority from the real beneficial owner of the 70 shares.  He did not think it necessary to tell Flywell he only held the 70 shares on trust for another.  His answers defy logic, coming from a professional man claiming to be innocent.  This document, on the face of it, when read in conjunction with P4, would leave the reader to believe the defendant had authority to pledge his shares in Lotto.  I am sure that is precisely what the defendant intended PW1 and perhaps others to believe. Without these documents and others there would have been no escrow agreement and no loan made.

88.  As I have said, I believe PW1's evidence, and clearly, the defendant drove the meeting and the execution of the escrow agreement.  He requested the meeting on an urgent basis.  He gave PW1 the documents to be escrowed.  When PW1 questioned the validity of the copies of the title deeds and the risk of copies being escrowed, it was the defendant that sought to reassure Mr Joseph, or Flywell, and his lawyer that they could trust him.  He said he would not commit a crime by selling the property that was put up as security.

89.  I am sure the defendant did use the false document by presenting it to PW1 to escrow.  I am sure the evidence points to an irresistible inference that the defendant knew P4 was false.  It is the only reasonable inference to be drawn.  I am sure the prosecution can prove these elements beyond reasonable doubt.

90.  It follows I am also sure the defendant intended to induce PW1 to accept it as genuine.  If he accepted it, he would escrow it. Has there been any prejudice?  Has this led PW1 to do or not to do some act to his prejudice, or any other person's prejudice?  I find section 70(1)(f) applies here and is on point.  The prejudice falls within the ambit of this subsection as far as PW1 is concerned.

91.  PW1 accepted P4 as genuine in connection with the performance of his duty as an escrow agent.  He entered an agreement to act as such an agent and was paid to execute his duty according to the terms of P7 signed by all three parties.  By the very definition of that duty, PW1 expected the documents to be genuine.  He accepted P4 as such to his prejudice in connection with his performance of his duty.  He would not have agreed to escrow before if he had known it was a false document.

92.  I do not agree with the submission PW1 placed no reliance on P4 nor cared what it said.  That is not relevant to his role or duty.  Once the escrow agreement was signed and the documents required escrowed, the evidence is the loan was then made.  The escrow arrangement was a prerequisite condition to the loan.

93.  I find PW1 prejudiced as defined by section 70(1)(f).  Was any other person prejudiced?  There was no witness from Flywell to give evidence of prejudice suffered.  However, on the defendant's own evidence, Flywell's loan required the security of the property.  The escrowed documents agreed gave the parties peace of mind.  The documents relating to the security were held by a third independent party.  On the defendant's own evidence, Flywell believed P4 was genuine.  He intended to induce them to accept it as genuine, and on his evidence, they suffered a loss of the loan and the security when there was a default in the loan repayments and the subsequent legal action by Lotto.

94.  In addition, PW3 and PW4, as directors of Lotto, and PW2, as the beneficiary of the 70 shares held on trust by the defendant, have also suffered prejudice as a result of the defendant's intention to induce PW1 to accept P4 as genuine and escrow it.  Once that was done, the property ostensibly became security for the loan subsequently made.

95.  As defined by section 70(1)(a), an act intended to be induced is to a person's prejudice if it will result in his permanent or temporary loss of property.  We know from PW4's legal woes after Flywell obtained a charging order over the property that Lotto temporarily lost the property.  Legal action was launched to challenge this and reclaim it from Flywell, incurring legal costs.

96.  To conclude, I am sure PW1 suffered prejudice as defined by his duty and section 70(1)(f).  PW2, PW3, PW4 and Lotto suffered a prejudice under section 70(1)(a).

97.  I am sure beyond reasonable doubt the prosecution has proved the double intention required by this offence.

98.  Consequently, and despite the defendant's clear record, the prosecution has proved all ingredients of this offence beyond reasonable doubt.  The defendant is convicted as charged.