HKSAR v. TSANG TAT YAN AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No.262
(Criminal)

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J U D G M E N T

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Power, V.-P. (giving the judgment of the Court):

1. The applicants Tsang Tat-yan (A1), Ha Shun-hong (A2) and Fok Mun-tong (A3) faced two counts of evasion of liability by deception.

2. The first alleged that they with intent to make default in whole on an existing liability by Fullham Company Limited to make payment in the sum of $16,509,000 Hong Kong Currency to C.P. Enterprises Trading Limited for purchasing granite from C.P. Enterprises Trading Limited by the said Fullham Company Limited, dishonestly induced C.P. Enterprises Trading Limited to wait for payment by deception, namely by falsely representing that three cheques drawn on the account of Fullham Company Limited with Po Sang Bank Limited, would be good and valid orders for the payment of the said sum of HK$16,509,000 if presented for payment on or after the dates set out thereon. The cheques were dated 29th July, 1st August and 15th August and were in the sums of $4,942,500, $4,486,500 and $7,080,000.

3. The second charge was almost identical, except that it referred to eight post-dated cheques dated from 15th September 1994 to 15th April 1995, which were in total the same amount as that involved in the first charge.

4. Each was found guilty of both charges after trial before Deputy Judge Jenkins and each now seeks leave to appeal against those convictions. It is necessary to set out the entities involved to understand what the Prosecution alleged occurred.

C.P. Enterprises Trading Limited

5. C.P. Enterprises ("CP") is a Hong Kong trading company. Its managing director at the time was Lau Fook-sun, its deputy general manager was Jackson Chan and its personnel and administrative manager was Hui Chai-wah.

Wing Ka Trading Limited

6. Wing Ka Trading Limited ("Wing Ka") was another trading company. A1 and A2 were directors of Wing Ka, A2 being the executive director and the owner of 19.8% of its shares; and A3 was its financial controller. CP and Wing Ka had done substantial business together since 1992.

Fullham Trading Company

7. Fullham Trading Company ("Fullham") was not involved in any trade other than four transactions with CP. A3 was a director and owned 50% of the shares, A1 and A2 were the authorized cheque signatories. This company had a bank balance of $1,000 prior to the transactions referred to.

Shenyi Construction Materials Company

8. The trial judge was satisfied that Shenyi Construction Materials Company ("Shenyi") was an entirely fictitious company.

9. Fullham ordered granite from CP for delivery to Shenyi. The granite was to come from a Mainland based company for delivery to Shenyi, which was another Mainland based company, and so never passed through Hong Kong at all. Shenyi was meant to pay Fullham who in turn would have paid CP. There had, before the transactions, out of which the charges arose, been four transactions in which payment was made. In the first of these Overage Engineering Limited, which was owned by Wing Ka, was said to be the supplier of the granite and in the other three Upspeed Company Limited was said to be the supplier. A1 was the managing director of this company which owned 39.6% of Wing Ka shares. Triumpmount Investments was said to be the recipient of the granite on the first two transactions. Honorich Management was said to be the recipient on the third transaction. The sister-in-law of A2 was a director of this company. Fullham was said to be the recipient on the fourth transaction. Granite was ordered and was said to have been delivered and was paid for in each of these transactions. It was the prosecution case that no granite existed and that these four transactions were carried out to set the stage for the transactions which gave rise to the charges.

10. In those later transactions, the purchases were made by Fullham for delivery to Shenyi. CP paid the supplier of the granite and Fullham was then to pay CP which it did by way of post-dated cheques. The first three cheques, the subject of the first charge, were signed by A1 and A2 and were not honoured upon presentation. Fullham then issued eight more cheques, also signed by A1 and A2, which were post-dated from 15th September 1994 to 15th April 1995.

11. The judge was satisfied that the suppliers and the end recipients in the first four transactions were all controlled by A1 and A2. There was evidence which showed that the money which was paid by CP to the suppliers was then channelled to the end buyers so that they could repay CP. The judge was satisfied that all of the transactions - both the first four and those which gave rise to the charges were entirely bogus. He was further satisfied as regards the latter, that Shenyi did not exist. There was no entity to which delivery could be made and there was in fact no granite for delivery. There was very strong evidence indicating a conspiracy to defraud CP. Conspiracy was, however, not charged. To establish these charges brought under section 18B(1)(b) of the Theft Ordinance, Cap.210 would require proof of "intent to make default in whole on an existing liability by Fullham Company Limited to make payment in the sum of HK$16,509,000 to C.P. Enterprises Trading Limited for purchasing granite from C.P. Enterprises Trading Limited by the said Fullham Company Limited".

12. The only argument with which we need to deal in this appeal, in which Mr M.K. Wong represents the applicants, is contained in Ground 1. This ground reads as follows :

"1. The Applicants were erroneously convicted of the 1st and the 2nd charges in that the element of 'an existing liability by Fullham Company Limited to make payment in the sum of HK$16,509,000 HK currency to C.P. Enterprises Trading Ltd. for purchasing granite from C.P. Enterprises Trading Ltd. by the said Fullham Co., Ltd.' did not exist according to the learned Judge's finding of fact.

Particulars

(i) The learned Judge found that Fullham contracted to buy granite from CP, and the cheques in question issued by Fullham, the subject matter of the 1st and 2nd charges, were purported payment for the granite delivered....

(ii) However, the learned Judge found that the granite transactions were bogus and granite was not the real subject matter of the purported agreements and that these were not true contracts. ...In other words, CP did not deliver granite directly or indirectly to Fullham in pursuance to these agreements.

(iii) Thus Fullham had no existing liability to pay CP as mentioned in the 1st and 2nd charges in that there was no contract between CP and Fullham and/or there was total failure of consideration on the part of CP to deliver the goods to Fullham."

It was Mr Wong's argument that the charge brought was not established by the facts proved. He submitted that, on the findings of the judge, there was no "existing liability" on the part of Fullham to pay CP as, whatever CP may have thought was the position, Fullham well knew that no granite was ever delivered and that it was never intended that any granite should be delivered. He submitted that there is no existing liability unless it could be demonstrated that there was a legally enforceable obligation on the party said to be under the liability to make the payment. He said that, given that the entire contract was a sham as the judge had found, there was no liability on Fullham to make any payment. He said that the section was never introduced to meet a situation such as this, but was intended to cover situations where there was no question that the amount was due and owing and the real matter for resolution was whether or not the cheque had been given in circumstances where the person charged knew that it would not be met.

13. Mr Turnbull, who appears for the respondent, argues that there was an existing liability in accordance with the meaning of that term as it is used in the Ordinance. He contends that there was a contract between Fullham and CP, and Fullham was required by that contract to make payment and, as Fullham acknowledged in a cargo receipt dated 30th June 1994, that goods had been delivered under the contract, that it was liable to make the payment even though no granite had in fact been supplied. He submitted that the liability must be determined by looking at the situation as it existed at the time when the cheques were given, and that at the time they were given, there was an acknowledged existing liability.

14. We cannot agree. There was, in the findings of the judge, a thoroughly fraudulent scheme and, given that there was no granite in existence and that Shenyi did not exist, no liability arose. This is, of course, not to say that there was no criminal liability for the fraudulent acts which the judge was satisfied were proved. There was simply no "existing liability" to make the payments for the delivery of non-existing goods to a non-existing company. The facts do not establish the charges. The applications must succeed. The hearing of the applications will be treated as the hearing of the appeal and the convictions will be ordered to be quashed.

15. Before leaving this matter, we feel it proper to indicate that the findings of the judge, which were soundly based on the evidence before him, would be clearly sufficient to establish a carefully planned and meticulously executed conspiracy to defraud. Indeed the appeal succeeds upon the basis, although nothing was admitted, that the transactions were a sham. We are satisfied that the public interest demands that properly formulated charges be prosecuted.