HKSAR v. XU ZHUO AND ANOTHER

CACC 139/2021

[2022] HKCA 366

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 139 OF 2021

(ON APPEAL FROM DCCC NO 149 OF 2019)

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R E A S O N S  F O R  J U D G M E N T

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Introduction

1.  The 1^st applicant (D1), the 2^nd applicant (D2) and D3 stood trial before District Court Judge Eddie Yip (the judge) on the following charges:

Charge 1: Conspiracy for an agent (D2) to accept advantages, contrary to sections 9(1)(a) and 12(1) of the Prevention of Bribery Ordinance (POBO), Cap 201, and sections 159A and 159C of the Crimes Ordinance (CO), Cap 200, against D1 and D2.

Charge 2: Conspiracy for an agent (D3) to accept advantages, contrary to sections 9(1)(a) and 9(3) of the POBO and sections 159A and 159C of the CO, against D1, D2 and D3.

Charges 3 to 6:  An agent accepting an advantage, contrary to sections 9(1)(a) and 12(1) of the POBO, against D2 as an alternative to Charge 1.

Charge 7:   An agent accepting an advantage, contrary to sections 9(1)(a) and 12(1) of the POBO, against D3 as an alternative to Charge 2.

2.  D3 absconded prior to the trial, which proceeded in his absence against D1 and D2.  At the conclusion of the trial on 15 June 2021, D1 and D2 were convicted of Charge 1 but acquitted of Charge 2, and D3 was acquitted of Charges 2 and 7.  The end result was that the judge only found Charge 1 proven against D1 and D2. 

3.  On 30 June 2021, the judge sentenced D1 to 1 year and 10 months’ imprisonment with a compensation order of $128,790; and D2 to 2 years and 6 months’ imprisonment.

4.  Both D1 and D2 apply for leave to appeal against conviction.[1]

5.  At the conclusion of the leave hearing, I was satisfied that the grounds of appeal advanced by D1 and D2 were reasonably arguable and leave was granted to them to appeal their convictions.  I said I would hand down my reasons for doing so in due course.  These are my reasons.

The grounds of appeal

6.  D1’s perfected grounds of appeal read as follows:

Ground 1:    The judge did not properly assess the central issue in the applicant’s (D1’s) defence. 

Ground 2:    The judge failed to give reasoned analysis to matters that contradicted an inference of guilt against D1. 

Ground 3:    The judge wrongly relied on the supposed conduct of D2’s employer and her lack of knowledge - when she was not called as a witness.

Ground 4:    There was a material irregularity and/or a breach of natural justice as the defence were not allowed the opportunity to make any oral closing submissions. 

7.  D2’s perfected grounds of appeal read as follows:

Ground 1:    The judge erred in failing to: (a) give adequate reasons for, and (b) adequately consider contrary evidence before erroneously concluding that Diana Chou was not aware of the alleged secret commissions.  In particular:

(i)     the judge failed to properly assess PW1’s evidence;

(ii)    the judge erroneously inferred that Diana Chou was not aware of the alleged secret commissions;

(iii)   the judge failed to give adequate reasons for rejecting the applicant’s (D2’s) evidence; and

(iv)   the judge failed to properly address D2’s defence.

Ground 2:    There was a material irregularity at the trial as D2 was deprived of the opportunity to make oral closing submissions.

The brief facts

8.  D1 was the sole director and shareholder of a company, Joy Fly Jet Limited (JFJ), which traded in jets as well as operating a jet charter brokerage business, arranging private jet charters for clients.  She was also an employee of a jet management company, Bellawings Limited (Bellawings), which maintained and managed jets for private jet owners.  D2 and D3 were employees of another jet charter brokerage company, L’Voyage Limited (LV).

9.  The prosecution case alleged that D1 and D2 conspired between 4 July 2017 to 19 March 2018 for D2 to accept advantages in the sum of HK $292,784.43 and US $95,486.18 by way of commissions from D1 (consisting of 15 payments), without lawful authority or reasonable excuse, in return for LV placing jet flight orders with JFJ for LV’s clients (Charge 1); and that Dl, D2 and D3 conspired between 4 July 2017 to 2 February 2018 for D3 to accept advantages in the sum of HK $192,557.60 by way of commissions from D1 (consisting of 4 payments), without lawful authority or reasonable excuse, in return for LV placing jet flight orders with JFJ for LV’s clients (Charge 2). 

10.  The prosecution case was that the two conspiracies involved 19 payments of corrupt commissions.  It was accepted that 6 of the 15 payments under Charge 1 were commissions paid by D1 to D2, while the remaining payments to D2 or D3 were either reimbursements or unrelated to LV’s business.

The issues at trial

11.  The subject matter of the offences was the chartering of jet planes by clients through a charter broker.  The usual transaction involved a client passenger engaging a jet charter broker, such as LV, to charter a private jet for a specific journey.  As LV was not a jet operator, it could not in its own right provide a jet for a client.  Instead, it would either engage a jet operator to provide the charter flight, or alternatively, if LV could not locate an operator with available jets, it would contract with another charter broker, such as JFJ, to find a jet operator that could provide the requested flight for a client.

12.  At the trial, the cost that the client paid to LV was referred to as the “Sell Price”, the cost that LV had to pay, whether to an operator or another broker, in order to obtain the charter jet was the “Buy Price”, which was usually marked up.  The profit margin LV made would be the difference between the “Buy Price” and the “Sell Price”.  The profit that JFJ made would be the difference between the “Buy Price” and the “Operator’s costs”, that is, the costs that JFJ had to pay Bellawings for providing the jet.

13.  Both D1 and D2 testified at trial. There was no dispute that D1, on behalf of JFJ, paid commissions to D2 and D3, employees of LV, in respect of flight charters that JFJ had arranged. There was also no dispute that it was D2who approached Dl to solicit such commission in a conversation that took place at the end of August 2017.

14.  The central issue in D2’s case was whether he in fact had permission or consent from his employer to accept the commissions in question. This issue affected both the conspiracy charges and the alternative substantive charges against him.  D2 testified that it was the practice for LV to pay D2 and D3 commissions for successful transactions.  If the charter involved an illegal flight, in the sense that the jet was not licensed to carry out commercial chartering (referred to as a Part 91 flight), then extra commission would be paid that would not be shown in LV’s records. The commission was paid and concealed by a mark-up to the fee for the charter. D2 claimed that this had been agreed to by the principal of LV, Diana Chou, who in effect owned and controlled the company.  However, she did not give evidence at the trial.  Instead, another member of LV, Tsang Hon Yu (PW1), the Director of Finance and Operations, gave evidence.  He testified that according to his knowledge and based on the available records, D2 had not asked Diana Chou or the management of LV for permission to receive any commissions from JFJ.

15.  D2 testified that at a meeting on or about 28 August 2017, he raised with Diana Chou the payment of extra commission for arranging the illegal flights.  She agreed to the payment of the extra commission which was to be reflected as a mark-up in the buy price of the transaction.  D2 admitted that he initially lied to the investigators about the reason for D1’s payments of money to him.  He said his motive for doing so was to protect Diana Chou from being investigated for the illegal flights.[2] 

16.  Subsequently, D2 left the employ of LV on 31 March 2018, and went to work for D1 at JFJ.  A solicitors’ letter was sent to D2, bringing to his attention that he was not to work for a competitor for a period of 6 months.  At about the same time, PW1 lodged a complaint against D2 with the Independent Commission Against Corruption (ICAC). 

17.  The evidence that extra commissions were paid in respect of the illegal flights came from the defence during the course of the trial.  It is to be noted that the judge rejected the evidence of D1 and D2. The judge addressed the issue of the illegal flights by finding that the relevant regulation would not apply to LV as a charter broker.[3]  However, the judge seems to have left open the possibility that such illegal flights did take place but that Diana Chou or the management of LV were not aware of them.[4] 

18.  Another aspect in this case is that the judge made a finding that Diana Chou was not aware of the illegal flights and if there had been discussion with her about the extra commission she would have followed it up and discussed it with PW1.  These findings were made in the absence of evidence from Diana Chou.  It raised the question as to what was the evidential foundation for the judge to make such a finding.[5] 

19.  The central issue in D1’s case was different. Her case was that D2 had told her that he had his principal’s consent to accept the commissions and, if he had not, then he had lied to her about having such consent.  As a consequence, the defence argued that even if D2 failed to establish lawful authority or reasonable excuse for receipt of the payment of the commissions, in order to prove the conspiracy charge the prosecution had to prove that D1 knew D2 did not have his employer’s permission or consent to accept the commissions in question. 

20.  D1 gave evidence that in June 2017, D2 approached her on an urgent basis to ask her to assist in arranging a flight for one of LV’s important clients.  The owner of Bellawings had available jets but they did not have any licence to carry out commercial chartering.  D1 consulted the jet owner, who ultimately agreed to provide the jet for the flight.  This was done on condition that no written contracts should be made regarding the charter since it was an illegal charter.  It was not disputed that on this occasion no illicit commission was paid.

21.  Towards the end of August 2017, Dl was approached again by D2 to arrange a flight for the same LV client.  D2 explained to D1 that due to the illegality of the Bellawings’ charters and the lack of written contract, LV could not pay him the commission for those charters directly, but his principal, Diana Chou, had consented that he could obtain commission from JFJ instead, by way of marking up the “Buy Price” so that JFJ could pay the commission to D2 from the inflated “Buy Price”.  Dl agreed.  Dl’s evidence was supported by the fact that D3 had used a similar arrangement on another operator by asking that operator to pay commission to D3 from an inflated “Buy Price” (to a company bank account designated by D3, which company did not in fact exist).[6]

The reasons for verdict

22.  As already noted, the prosecution case was that D1 made 15 payments into D2’s bank account as secret commissions affecting LV’s business interest without LV’s consent (Charge 1); and 4 payments into D3’s bank account with the aid of D2 as secret commissions affecting LV’s business interest without LV’s content (Charge 2).[7] 

23.  The prosecution grouped the 19 payments made by D1 to D2 or D3 into four categories: (1) “Reimbursement to D2 and as a token of appreciation for D2’s doing a foreigner (‘Do a Foreigner Category’)” - payments 1, 2, 5 and 6; (2) “Commissions to D2 (‘Commissions Category’)” - payments 3, 4, 7, 9, 10 and 12; (3) “Money Exchange or Remittance for Apex Air under D1’s Instruction (‘Remittance Category’)” - payments 1, 5, 11 and 15; and (4) “Transactions not upon D1’s Instruction (‘No Knowledge Category’)” - payments 13, 16 and 18.[8] The judge found that the prosecution had not proven that the categories of payments to D2 and D3 from D1 in (1), (3) and (4) were advantages as alleged.  This left the issue as to whether the payments 3, 4, 7, 9, 10 and 12 to D2; and payment 8 to D3 were within the terms and scope of the conspiratorial agreements under Charges 1 and 2.[9]

24.  The judge did not find the conspiracy in Charge 2 proven.  However, he found the conspiracy in Charge 1 proven but only in respect of payments 3, 4, 7, 9, 10 and 12, which D1 and D2 did not dispute were commissions paid by D1 to D2 in respect of illegal flights.

Discussion

25.  D1 and D2 complained that the judge did not properly consider the evidence as to their respective defences before erroneously concluding that Diana Chou was not aware of the extra commissions.  It was argued that the judge failed to properly evaluate the evidence and made findings based on evidence that was either inadmissible or tenuous. 

26.  It was not disputed by D1 and D2 that 6 of the 19 payments were extra commissions relating to jet charters for LV, while the others were reimbursements or unrelated to LV’s business.  The judge having rejected the prosecution case that all 19 payments were corrupt commissions, the central issue was whether Diana Chou, the owner of LV, had given her consent to D2 to accept the 6 payments from D1 as extra commissions to be included as a markup in the price for the jet charter.

27.  D2 testified that the 6 payments concerned jet charters that were illegal and therefore Diana Chou agreed that extra commission be paid to D2 for having arranged them.  This was in addition to the commission that would usually be paid to him for having arranged a jet charter.

28.  The respondent in its submission pointed out that the only evidence that Diana Chou had approved the extra commissions came from D2.  It was therefore essential that the judge considered the credibility of D2.  Among the reasons the judge gave for rejecting D2’s evidence was that Diana Chou would not have allowed D2 to earn such a large sum of commissions without any control by her, and if she had approved the commission, she would not have reported the matter to the ICAC.  Diana Chou did not testify at the trial so the issue now raised is on what basis could the judge make findings as to her knowledge and conduct, and how was her reporting the matter to the ICAC, if that was the case, relevant and admissible to her state of mind and act of not giving approval for the extra commissions. 

29.  The respondent also referred to an exchange of text messages between D1 and D2 in relation to certain flights in which it was implied that Diana Chou would investigate the matter.  It was submitted by counsel for D1 and D2 that what was said in these messages was in the context of cancelled flights and the repercussions that would follow because the client was aggrieved.

30.  In rejecting D2’s version, the judge reasoned that if there had been a discussion between Diana Chou and D2 about the extra commission, she would have followed it up and discussed it with PW1.  In this respect, the judge relied on PW1’s evidence.  The respondent noted that PW1 confirmed in his evidence that he had never heard Diana Chou suggest that extra commissions were to be paid to D2 from D1 by marking up the buy price.  It was submitted by the respondent in its written submission that:

“The evidence of PW1 was thus one of the bases, apart from the other matters set out in the prosecution’s closing submissions, from which the judge came to the finding that the 2^nd applicant had never raised the subject of extra commissions with Diana, let alone obtaining Diana’s consent to it.”[10]

31.  The respondent further submitted that D2’s principal was not Diana Chou but the company, which did not give its approval for him to accept extra commissions from D1.  This seemed to ignore the incontrovertible evidence that Diana Chou owned and controlled the company and in the circumstances could have given such approval.  The respondent submitted:

“The issue in dispute was whether or not LV had consented to the 2^nd applicant’s acceptance of commissions from the 1^st applicant. PW1 represented LV to testify. He did so under the instruction of the proprietor of LV. Instead of anything hearsay, PW1 evidence about receiving Diana’s instructions is further proof of Diana’s state of mind. It is the same as if a director being appointed by the board to give evidence on behalf of the company as agreed in a board meeting.”[11]

32.  Far from answering the complaint of D1 and D2, the respondent’s submissions affirm that it is reasonably arguable that the judge had made findings against D1 and D2 based on what Diana Chou knew or did, relying on what is possibly hearsay or inadmissible evidence. 

33.  Counsel on behalf of D1 and D2 have also raised questions about the judge’s findings and acceptance of PW1’s evidence.  The respondent accepts that the judge made an error in his reasons for verdict that PW1 had disagreed with the defence suggestion that certain contracts had not been made when his evidence was that the contracts in relation the transactions in question could not be found.  The respondent puts this down to the judge having made a clerical error.  It is argued on behalf of D1 and D2 this error and other matters led the judge to wrongly accept the credibility and reliability of PW1 as a witness. 

34.  Counsel for D1 argued that the judge, having rejected D2’s evidence that he had his principal’s consent to receive the extra commissions, was wrong to have found that D2 would have told D1 that he had his principal’s consent.  The respondent submitted that the judge had separately considered the issue and reasoned that D2 would not have had such “unfettered commission” and that D1 knew that LV was not aware that the sums refunded included the extra commissions paid to D2.  The question arises whether the judge could make such findings on the evidence.  The respondent further submitted that the judge relied on certain text messages between D1 and D2 but it was pointed out by counsel for D1 and D2 that these messages related to the refund for cancelled flights and have to be read in that context.

35.  Counsel for D1 also argued that the judge did not properly address D1’s further defence that if no consent had been given to D2, she had been lied to by D2.  He noted that D2 admitted he had lied about various matters and that this and other matters had not been properly taken into account by the judge, which supported D1’s case that D2 had kept things from her.  He further submitted that the prosecution did not put forward any positive case as to how D1 acquired knowledge that D2 lacked authority to accept commissions from the commencement of the conspiracy period.  Nor did the judge make any findings on this issue.

36.  The second ground of appeal that both D1 and D2 advance is that they were deprived of the opportunity to make oral closing submissions.  They were both represented by experienced counsel at trial, who submitted written closing submissions after receiving the prosecution’s written closing submissions.  There are instances in the judge’s reasons for verdict where he referred to arguments in the written closing submissions but that would have arisen whether the submissions were in writing or made orally. 

37.  Whilst I granted leave on this ground, I did so mainly on the question as to whether there was a right for a defendant to make oral closing submissions given the circumstances of the case, and whether counsel for D1 and D2 at trial by their conduct acquiesced to not making oral closing submissions. 

Conclusion

38.  It follows from what I have said that D1 and D2 be granted leave to appeal against their convictions on the grounds that they rely on.

[1]      D1 and D2 were each granted bail pending appeal by Zervos JA on 22 October 2021 and 16 December 2021 respectively.  See HKSAR v Xu Zhuo ([2021] HKCA 1550 and HKSAR v Leung Yuk Wing [2021] HKCA 1933.  The bail conditions of D1 and D2 were varied at the conclusion of the leave hearing.

[2]      Reasons for Verdict, at [45]-[53].

[3]      See Reasons for Verdict, at [68]-[73]. 

[4]      See Reasons for Verdict, at [76].

[5]      Reasons for Verdict, at [76].

[6]      See D1’s Written Closing [99]-[104].

[7]      Reasons for Verdict, at [6].

[8]      Reasons for Verdict, at [28].

[9]      Reasons for Verdict, at [67].

[10]     Respondent’s Skeleton Submissions, at [22].

[11]     Respondent’s Skeleton Submissions, at [27].