HKSAR v. CHOW TSZ LAM

CACC256/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 256 OF 2008

(ON APPEAL FROM DCCC NO. 296 OF 2007)

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REASONS  FOR  JUDGMENT

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Hon Lunn J (giving the Reasons for Judgment of the Court) :

INTRODUCTION

1. The appellant sought leave to appeal his conviction on 20 June 2008 in the District Court by Deputy Judge Douglas Yau of a single count of fraud, contrary to section 16A(1) of the Theft Ordinance, Cap. 210.  At the hearing of the application we granted leave, treated the hearing as the hearing of the appeal and dismissed the appeal.  We said that we would give our reasons for so doing in due course.  This we do now. 

THE CHARGE

2. The charge alleged that, on and between 1 January 2004 and 29 June 2006, the appellant together with his wife, Ms Yan Ka Man, Bonny, had applied in the name of Shaolin Microsystems Limited (“Shaolin”) for funds from the Government of the HKSAR (“the Government”) under the Small Entrepreneur Research Assistance Programme (“SERAP”) and in so doing dishonestly made false representations with intent to defraud and induced an officer or officers of the Innovation and Technology Commission of the HKSAR (“the Commission”), “to commit an act or make an omission which resulted in benefit to Shaolin, or in prejudice or a substantial risk of prejudice to the Government”.  The false representations were described in the Particulars of Offence as being :

(1) (i)   that the monthly salary paid or payable to Ma Pak Ling was $40,000, when in fact it was $20,000;

(ii)  that Mak Tat Ming and Lau Wai Lam were employed by Shaolin as software engineers in the project for which funds were applied;

(iii) that computer equipment was purchased for use in the project from Chance Computer Company as described in invoices and cash Memos;

(2)   contained in accounts, documents and information provided to the Commission. 

BACKGROUND

3. At trial, there was no dispute that the appellant and his wife, were directors and shareholders of Shaolin, a company engaged in the development of computer software, and that Shaolin was the recipient of funds provided under SERAP for a project known as “Software-based High Availability Cluster Storage System”.  The objective of SERAP is to provide “financing for pre-venture capital stage of technology entrepreneurs for starting up, carrying out R & D and conducting market validation”.  The funding was provided in two phases.  By an agreement dated 22 April 2004, funding in Phase II of $1,471,125 was to be provided in the period of eleven months from that date.  At various stages Shaolin was required to provide to the Commission information and documentary support in respect of the project, including the positions of employment of employees, their salary and details of expenditure. 

PROSECUTION CASE

4. The prosecution case was that false representations were made to the Commission by the appellant and his wife, on behalf of Shaolin, in advance of, during and after completion of Phase II of the project, as stipulated in the Particulars of Offence.  After the appellant had been informed by Mr Ho Yiu Wing, the senior manager of the Commission, that Shaolin was to be subjected to an audit by the Commission his wife was informed, by an e-mail dated 9 March 2005, that officers of the Commission intended visiting Shaolin on 16 March 2005, in prospect of which she was invited to have available for inspection, amongst other things, records relating to the employment of employees and quotations for expenses.  

5. On 16 March 2005, Mr Ho and his colleague Ms Sylvia Cheung Mei Ling visited Shaolin’s premises and were provided with documentation by the appellant’s wife, including an index describing variously the salaries and positions held by employees.  Then, or later, the Commission was provided with copies of contracts of employment in which descriptions were given of positions of employment and salaries of staff.  The documentation provided asserted that :

(i)   Ma Pak Ling earned $40,000 per month in the period 22 April to 30 June 2004;

(ii)  Mak Tat Wing was employed as a software engineer earning $15,700 per month from 20 April 2004 to 31 March 2005;

(iii) Lau Wai Lam was employed as a software engineer in the period 24 May to October 2004; and

(iv) Sufan Kan was employed in the period 22 April to 25 May 2004 at a salary of $26,000 per month. 

6. At the meeting, officers of the Commission were also provided with quotations and invoices addressed to Shaolin from Chance Computer Company in respect of the sale of computer components. 

7. In support of the contention that some of the invoices stipulated goods that in fact had not been sold by Chance Computer to Shaolin, the prosecution relied on the evidence of the former’s proprietor Lam Man Tak, who had pleaded guilty in the District Court in October 2007 to having conspired with the appellant to falsify accounts.  He testified that following receipt of faxes from the appellant dated 2 and 3 March 2005, and an ensuing conversation between the two of them, he had provided the appellant with invoices which included items that had not in fact been sold by Chance Computer to Shaolin. 

8. Of the assertions made to the Commission, that Mak Tat Ming worked as a software engineer for Shaolin, the prosecution relied on the evidence of Lau Wai Lam, Ma Pak Ling and Sufan Kan, all of whom worked at Shaolin, that they had never seen Mak Tat Ming before. 

9. Ms Sufan Kan testified that she was employed by Shaolin on a full-time basis between May 2002 and October 2003 and then, on a part-time basis, as a marketing manager between 8 December 2003 and 25 May 2004.  In the latter period, she received a salary of $12,000 per month.  In consequence, she agreed that the description of her, in the “Application” by Shaolin for Phase II SERAP funding and the Agreement itself, dated February and April 2004 respectively, as earning $26,000 a month was inaccurate.  She said that some time after she had left Shaolin the appellant’s wife had asked her to sign an employment contract reflecting her earlier employment, on the basis that she had been a full-time employee earning $25,000 per month.  She refused to do so. 

10. Of the issue of whether or not Lau Wai Lam worked as a software engineer at Shaolin, the prosecution relied on her evidence that she had worked there as a Marketing and Administrative officer, but never as a software engineer.  In her employment contract with Shaolin, dated 22 May 2004, she was described as a “Marketing and Administration officer”.  She said that in about March 2005, at the request of the appellant’s wife she had signed and sent to Shaolin a second version of her earlier letter of resignation, dated 10 September 2004, in which second version she was described as a “software engineer”.  

11. Finally, in respect of the assertions made to the Commission that in the period 22 April to 30 June 2004 Ma Pak Ling’s salary was $40,000 per month, the prosecution relied on his evidence that, although he had signed an employment contract at the request of the appellant which indicated that to be the case, in fact he did not earn that amount of money.  Although on two occasions he was paid that sum of money by cheque he had returned a total of $40,000 in four tranches of $10,000, as required by pre-arrangement with the appellant. 

THE DEFENCE CASE

12. Neither the appellant nor his co-accused wife gave or called evidence at their trial.  In cross-examination, Ma Pak Ling agreed that not only was he giving evidence under an immunity from prosecution but also that he had lied to officers of the ICAC in two witness statements given to them in 2006.  He denied the suggestions made to him that he had not made the rebates of four tranches of $10,000 each to the appellant, but accepted that he was unable to recall any of the details of the repayments nor provide any supporting evidence of the fact of repayment.  In response to the suggestion that his contract of employment dated 22 April 2004 had in fact been signed in March 2005 at the request of the appellant’s wife, the witness said that he could not remember. 

13. In cross-examination Lau Wai Lam said that she was not sure if she had received an e-mail from the appellant’s wife dated 15 March 2005 requesting that she sign another version of her employment contract, one in which she was described as employed as a software engineer.  At all events, she had not signed such a document.  She agreed that the actual work that she performed in the period of about six months during which she was employed by Shaolin was described in documents she was asked to review.  That work included translation from English into Chinese of technical terms. 

14. In cross-examination, Sufan Kan denied that the appellant’s wife had told her that she wished her to continue employment on a full-time basis and that she had budgeted for her employment on that basis.  She denied that that she had incurred a debt of US$2,500 on behalf of Shaolin without having received authority from the appellant or his wife and that before she left her employment at Shaolin she had said to them that she had settled the matter.  She denied that the subsequent contact with her initiated by the appellant’s wife arose from the fact that the matter had not been settled.  She re-asserted her evidence that the appellant’s wife had requested that she sign a backdated contract of employment at an inflated salary in which it was asserted that she was a full-time employee. 

15. Lam Man Tak agreed in cross-examination that as part of the business dealings between his company and Shaolin he provided quotations that were repeatedly amended so that, in the result, he provided Shaolin with the software to produce amended versions of his quotations.  Mr Lam accepted that the fax documents that he had received from the appellant bearing the date 2 and 3 March 2005 described proposed purchases and sales between Shaolin and his own company.  However, he agreed that in the event only two items were sold to and paid for by Shaolin to a total of $57,500, as reflected in two of the nine invoices issued by his company to a total value of $222,380.  In re-examination, he said that he had issued the additional invoices at the request of the appellant. 

REASONS FOR VERDICT

16. In his reasons for verdict, the judge addressed each of the factual assertions stipulated in the Particulars of Offence.  Of Ma Pak Ling, he noted that he gave evidence under an immunity, that he had lied in two statements given to the ICAC about matters that went to the crux of his testimony and said that he had done so to protect his own position.  The judge stated that he had regard to the matters put to Ma Pak Ling in cross-examination, in particular that he knew more about the details of the SERAP application than he admitted and that inappropriately he had disclosed information that was confidential to Shaolin to others.  Of the former matter, it was his testimony that he had signed his contract of employment before his involvement with a presentation to the Commission on behalf of Shaolin, from which he gained information that led him to suspect the motives behind the arrangement initiated by the appellant of his inflated salary payments followed by his rebate of monies.  However, in cross-examination Ma Pak Ling accepted that he had participated in the oral presentation of Phase II of the SERAP project to the Commission in February 2004 as part of the Application for funding and clearly in advance of the date on which he had signed his employment contract. 

17. The judge noted that, whilst in examination-in-chief Ma Pak Ling had asserted that he had signed his contract of employment in which he was described as earning a monthly salary of $40,000 in April 2004, in cross-examination, when it was suggested that in fact it had been signed in March 2005, he said that he could not remember when it had been signed.  Nevertheless, the judge determined him to be an honest and reliable witness.  He accepted his evidence that he had agreed with the appellant to return $20,000 of the $40,000 monthly salary when paid and had done so.  In accepting that Ma Pak Ling had made those payments, the judge acknowledged the fact that he had been unable to provide any particulars whatsoever of the circumstances of the repayments, but nevertheless determined of Ma Pak Ling :

“... there is simply no reason why he should make that up against D1, incriminating himself in the process.”

18. The judge found that the employment agreement, in which Ma Pak Ling was described as earning $40,000 per month, was :

“… generated for the sole purpose of inducing the ITC to take the inflated salary into consideration when dealing with these SERAP project of Shaolin.”

He determined that, in consequence, the Commission was prejudiced in its dealings with Shaolin in its provision of funding to the company, in that if the truth have been known to officers of the Commission matters would have been approached differently. 

19. The judge stated that he found Lau Wai Lam to be a truthful and reliable witness.  He accepted her evidence that she did not work as a software engineer at Shaolin, rather she worked as the Marketing and Administration officer, albeit that she was involved in translating technical terms, and that in about March 2005 she had been asked by the appellant’s wife to sign documentation describing her as a software engineer.  She signed a letter of resignation containing that job description but did not sign a contract of employment so describing her.  The judge found that the purpose that the request was made of her was to create false information “to induce the ITC to deal with the granting of funds to Shaolin more favourably”, thereby causing officers of the Commission to act to its prejudice. 

20. The judge accepted the evidence of Sufan Kan that in 2004 she was employed at Shaolin on a part-time basis on a salary of $12,000 a month and not at a salary of $26,000 per month, as described in the Application made to the Commission for Phase II funding by Shaolin in February 2004 and in the Agreement between the Commission and Shaolin dated 22 April 2004. 

21. The judge found that Mak Tat Ming did not work at Shaolin.  He accepted the evidence of Lau Wai Lam, Ma Pak Ling and Sufan Kan that none of them had seen him at Shaolin’s premises or conversed with him by telephone during their periods of employment.  The judge determined that the representation made to the Commission that Mak Tat Ming was an employee paid at a particular salary level was a false representation intended :

“… to induce the ITC officers to take his purported employment and wages payment into consideration when dealing with Shaolin’s SERAP project”.

22. The judge accepted the evidence of Lam Man Tak, that he had produced false invoices at the request of the appellant, and found that they had been generated so that they could be produced to officers of the Commission to induce them to treat the contents at their face value. 

23. Having noted that the evidence was to the effect that the appellant and his wife ran the business of Shaolin jointly, the judge found that in producing information to the Commission, either at the specific request of the Commission or in support of applications for or the processing of SERAP funding of the project, the appellant and his wife acted together in the knowledge that :

“… the ITC officers dealing with the SERAP project of Shaolin will inevitably rely on the false representations in the provided documents and thereby be prejudiced.”

Conclusion

24. Accordingly, the judge stated that he was satisfied that the prosecution had proved beyond reasonable doubt all the elements of the offence and convicted the appellant of Charge 1. 

GROUNDS OF APPEAL AGAINST CONVICTION

25. On behalf of the appellant, Mr Phil Chau, advanced only one general Ground of Appeal, namely that the conviction was unsafe and unsatisfactory.  In support of that contention, he took issue, under three separate “Particulars” with findings of fact made by the judge. 

Particular A

26. Under Particular A, Mr Chau submitted that in determining that Ma Pak Ling was “an honest and reliable witness”, the judge failed to consider “blatant inconsistencies, inherent contradictions and material weaknesses in his evidence”.  He contended that, given that Ma Pak Ling gave evidence under an immunity from prosecution, the caution with which the judge stated that he approached his evidence was insufficient.  In particular, he pointed to his evidence of the circumstances in which, after he had made two statements to officers of ICAC, he had approached ICAC in order to recant the account that he had given earlier.  Mr Chau contended that the judge ought to have been more sceptical of Ma Pak Ling’s claim that he did not act out of fear, rather he wished to tell the truth. 

27. Mr Chau submitted that the judge gave insufficient weight to the evidence of Ma Pak Ling’s inability to provide any particulars whatsoever of the circumstances in which he had come to make repayments of four tranches of $10,000 to the appellant, noting his own financial circumstances at that time were such that the likelihood is that, if his account was true, he would have been able to provide more details. 

28. Mr Chau suggested that the evidence given by Mr Ma that he had been prepared to sign the contract of employment, dated 22 April 2004, in which his salary was exaggerated as being $40,000 per month, because of the implicit threat from the appellant to his continued employment at Shaolin was undermined by his acceptance in cross-examination that it was possible that he signed that contract in March 2005, long after he had ceased to be employed at Shaolin.  Also, he submitted that the judge had not paid sufficient regard to the inconsistency between the testimony of Mr Ma and the evidence of Mr Ho.  The latter testified that he did not know of the reason that the appellant wished him to sign a new contract of employment at the time that he had signed it, but that he had become suspicious of that reason when he participated in the oral presentation on behalf of Shaolin to the Commission.  Mr Ho testified that the appellant had participated in Shaolin’s presentation to the Commission in February 2004 in support of its application for Phase II funding. 

Particular B

29. By Particular B, Mr Chau contended that the judge had given insufficient weight to the totality of the evidence, rather he had been selective in accepting evidence in favour of the prosecution and rejecting that in favour of the appellant.  Firstly, it was submitted that in determining that the appellant and his wife had known of the falsity of the invoices to Shaolin from Computer Chance that had been submitted to the Commission the judge had ignored evidence of the practice between the parties of the amendment of quotations, the presentation of invoices before contracts or delivery was reached and in respect of “paid” invoices. 

Particular C

30. By Particular C, Mr Chau submitted that the judge erred in fact in finding that in documentation submitted to the Commission the salary of Lau Wai Lam was falsely exaggerated.  There was no such evidence.  In any event, that issue was not one stipulated in the Particulars of Offence as being relied upon in proof of the charge against the appellant. 

SUBMISSIONS ON BEHALF OF THE RESPONDENT

31. On behalf of the respondent Mr Michael Wong submitted that it was evident from the judge’s recital and analysis of the evidence of Ma Pak Ling that he was fully aware of the dangers of relying upon his testimony.  It was trite law that it was only in exceptional circumstances that an appellate court would interfere with findings of fact of a trial judge, given that the latter had the distinct advantage of hearing and seeing testimony as it was given in court. 

32. Mr Wong pointed out that Ma Pak Ling had contacted the ICAC the day after he had made his second statement, asking that he be permitted to make a further statement and that he be protected.  Of the complaint of the lack of detail in his testimony of the circumstances of repayment of monies to the appellant, the court was reminded that the events described had occurred four years earlier and that he had provided some detail, namely that he had made repayments in cash within one or two weeks of receiving the salary payment by cheque. 

33. Of the issue of when it was that Ma Pak Ling had signed his contract of employment dated 22 April 2004, it was submitted that, whilst Ma Pak Ling had accepted that it was possible that he had signed the document in March 2005, he remained adamant that the threat to his employment by the appellant had occurred in 2004 and had resulted in the fact of his repayment of the monies to the appellant.  Mr Wong contended that, in signing the contract of employment, he was assisting in concealing the earlier fraud in which he had participated.  That conduct was consistent with the fact that he had lied about the issue of rebates of salary to ICAC in the first two statements he had made. 

34. Of the complaint that the judge paid insufficient regard to all of the evidence in determining that the appellant knew of the falsity of the invoices obtained from Computer Chance at the time that they were produced to the Commission having regard to the evidence of Mr Lam as to the practice between the appellant and his company, Mr Wong submitted that the issue fell within a small compass.  In the faxes of 2 and 3 March 2005 the appellant sought the issue of invoices from Computer chance to Shaolin.  In response, Mr Lam provided nine such invoices to a total value of $222,380.  It was Mr Lam’s evidence that only two of those invoices, to a value of $57,500, were in respect of goods actually sold and delivered to Shaolin.  In the result, he submitted that the judge was entitled to draw the inferences adverse to the case of the appellant that he drew. 

35. Mr Wong accepted that there was no evidence that the salary of Lau Wai Lam, namely $8,500, was exaggerated in documentation provided to the Commission.  The judge was in error in stating that the salary was falsely exaggerated.  However, that issue had never been part of the prosecution case.  Nevertheless, Mr Wong submitted that the judge was entitled to accept her evidence that, at the request of the appellant’s wife, she had provided another version of her letter of resignation, dated 10 September 2004, in which the job title was now stated to be software engineer.  The judge was entitled to accept that evidence and determine that it was false. 

A CONSIDERATION OF THE SUBMISSIONS

36. At the outset, it is to be noted that the period stipulated in the Particulars of Offence over which the offence was alleged to have been committed was stipulated to have been 1 January 2004 to 29 June 2006.  By contrast, Phase II of the agreement between the Commission and Shaolin, dated 22 April 2004 called for a “completion date” of 22 March 2005.  Assertions of fact, for example in respect of salary levels of named employees, were made by Shaolin in both the “Application” for funding and in the “Agreement” between Shaolin and the Commission, dated respectively 11 February and 22 April 2004.  Further assertions of fact by Shaolin were made to the Commission in the First Progress Report, required under the agreement between the parties, for example that Lau Wai Lam and Mak Tat Ming were employed by Shaolin as software engineers.  At the meeting of 16 March 2005 and thereafter officers of the Commission were provided with a selection of documentation by the appellant’s wife in respect of the salaries and positions of employment of employees, quotations and invoices from Computer Chance.  

37. As noted above, the judge approached each particular provided in the Particulars of Offence separately and in sequence.  Of course, nevertheless there was an overall unity to the alleged misconduct.  The primary allegation was that the appellant was a party to a joint enterprise with his wife to obtain funding from the Commission, in part increased by the inclusion of exaggerated salaries in respect of some employees, claims for salaries for persons who were not employees, claims for persons who did not occupy the stipulated employment position of software engineer and in respect of invoices for goods which were not bought and for which payment was not made.  The prosecution case was that some of the false representations contained in documentation provided to the Commission were made contemporaneously, whilst other documentation was backdated.  On the prosecution case, there was an evident connection between the backdating set in motion in March 2005 to the fact that the Commission had advised the appellant and his wife in early March 2005 that they were going to perform an inspection of their records at their premises. 

38. There is no doubt that the judge was aware of the degree of caution that was required of him before he accepted the evidence of Ma Pak Ling : he gave evidence under an immunity from prosecution and had admitted in testimony that he had lied in two statements to the ICAC, in which statements he had denied that he had agreed with the appellant to rebate monies from his inflated salary and that he had repaid monies under that arrangement. 

39. There was no dispute that there was no supporting evidence of the issue went to the core of Mr Ma’s testimony, namely that he had made rebates of four tranches of $10,000 in cash to the appellant within one or two weeks of receipt of the respective salary cheques of $40,000 on 2 and 30 June 2004.  Of the provenance of the monies, all he was able to say was that it came from “... my pocket money or from several accounts”.  He could not remember from which account or where he had obtained the money.  Of the denomination of the banknotes, all he said was “... I think they were 20 $500 notes, but I am not sure.”  Although the bank account statements of Shaolin evidence the debit of those two cheques to that account on 2 June and 2 July 2004 respectively, no bank statements or bankbooks were produced to reflect the receipt of those monies and/or the withdrawal of part of the money by Ma Pak Ling in advance of the period in which he said the rebates had been made. 

40. It is to be noted that the judge was cognizant of the absence of any detail in Ma Pak Ling’s account of the rebates of these monies :

“It may be slightly strange for him not to be able to recall anything at all about the four occasions that he had paid cash to D1, but I accept his explanation that it was quite some time ago and he was not able to remember.”

Relevant in that context was the fact that the first statement taken from Ma Pak Ling by officers of ICAC was taken two years later on 30 June 2006, that on the face of it being the first time he had been asked to recall these events. 

41. In approaching the appropriate assessment of Ma Pak Ling’s testimony of his repayment of monies to the appellant the absence of supporting evidence was compounded by the inconsistency in his testimony as to when it was that he had signed his employment contract dated 22 April 2004.  It is to be noted that the date “22/4/04” appears in handwriting beneath his signature and that of the appellant’s wife as the signatories to the contract.  The significance in the inconsistency between his evidence-in-chief, when he said that he had signed the document on the date it bears, and his acceptance in cross-examination that he may have signed it in March 2005 lies in the fact of his assertion that when he had signed it on 22 April 2004 he had done so because of his concerns about his continued employment with Shaolin, he being the provider for a family of four.  No such concern was relevant to March 2005, his resignation from Shaolin having become effective on 5 July 2004. 

42. However, the concerns that we have about the judge’s acceptance of Ma Pak Ling’s evidence in respect of the arrangement he had reached and put into effect with the appellant, as described above, are to be viewed in the context that this matter was but one of the particulars relied upon by the prosecution in support of its case against the appellant on this charge.  The evidence in support of the other particulars was powerful and compelling. 

43. Lau Wai Lam was unshaken in her evidence that she was employed by Shaolin as a Marketing and Administrative officer, not as a software engineer.  Her testimony to that effect was supported by her employment contract dated 24 May 2004, in which she was described as a Marketing and Administrative officer, and her original letter of resignation of 10 September 2004 in which she was described in like manner.  Although there is no dispute that the judge was in error to determine that there was a false representation to the Commission in respect of her salary, there is no reason to believe that that finding impacted in any way upon his finding in respect of the false assertion of her position of employment. 

44. Similarly, Sufan Kan gave uncontradicted evidence that she was employed part-time at Shaolin in the first half of 2004 at a salary of $12,000 per month, not as described in the “Application” for Phase II funding, the Agreement itself and in the index given to the Commission at the meeting on 16 March 2005 describing the positions of employees and their respective salaries. 

45. The evidence of Lau Wai Lam, Sufan Kan and Ma Pak Ling that they had never seen Mak Tak Ming was uncontradicted by any other evidence.  That evidence is to be viewed in the context of the evidence that there were no more than about half a dozen employees of Shaolin.  Finally, the evidence of Lam Man Tak was simple when reduced to its essence, only two out of nine invoices rendered by Computer Chance to Shaolin in respect of goods said to be sold to the latter by the former related to goods actually sold.  All nine invoices had been generated at the request of the appellant in his faxes to Mr Lam dated 2 and 3 March 2005. 

46. The was no dispute that documentation supporting the assertions stipulated in the Particulars of Offence had been provided by the appellant and his wife to the Commission at various stages of the Phase II project. 

CONCLUSION

47. In the result, we were satisfied that that there was compelling evidence upon which the judge was entitled to convict the appellant of the charge and, although we granted leave to appeal, we dismissed the appeal.