HKSAR v. KWAN EDWARD LEE AND ANOTHER

HCMA1223/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO.1223 OF 2004

(ON APPEAL FROM ESCC 3809 OF 2004)

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REASONS  FOR  JUDGMENT

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1. These are my reasons for allowing the appellants’ appeal against their convictions on one charge of possessing a false instrument, contrary to section 75(2) of the Crimes Ordinance, Cap.200.

Background

2. The 1^st appellant, Kwan Edward Lee and the 2^nd appellant, Michalowski Jacek were respectively the 1^st and 3^rd defendants in the proceedings in the magistracy.  They were jointly charged with two charges of possessing two counterfeit cheques on 29 June 2004 and on 2 July 2004.  The cheques in question were purportedly drawn by a company named Norwich Union Direct on its bank account with the Hongkong Bank (“HSBC”), Norwich branch, U.K. in favour of New Dragon (China) Ltd (“New Dragon”) of which the 1^st appellant was a shareholder and director.  The face amount of the cheques were £38.4 million and £40 million respectively.

3. On 29 June 2004, the appellants, together with a male Pasik Arthur Marrian, alias Soucek Eduard (the 2^nd defendant at the trial), and two other Chinese males went to the branch office of the Industrial and Commercial Bank of China (Asia) Ltd (“ICBC Bank”) in Central.  They were received by the customer relationship manager, one Mr Sit, of the bank.  Soucek produced the two cheques in question and requested Mr Sit to issue a bank reference letter in respect of the two cheques.  As the authenticity of the cheques has to be established from the drawer’s bank HSBC in Norwich, Mr Sit informed the defendants’ party that no reference letter could be issued until the cheques were authenticated.  He suggested that in the meantime they could open a safe deposit box with the ICBC Bank to safe-keep the cheques.  Mr Sit then invited the 1^st appellant and Soucek Eduard to the basement of the bank to complete the documentation to open a safe deposit box.  The opening procedures were handled by a female staff of the bank Ms Wong.  

4. When the 1^st defendant and Soucek were asked for their identification documents for processing, Soucek produced his Czech Republic passport to Ms Wong.  However, Ms Wong noticed some irregularities on his passport and she declined to accept the passport in satisfaction of the documentation requirements.  At that juncture, the 1^st appellant requested the 2^nd appellant to come to the basement and to open the joint safe deposit account with him.  An agreement for leasing a safe deposit box was signed by the 1^st and 2^nd appellants with the bank.  Having completed the requisite procedures, Ms Wong handed over two safe deposit box keys to the appellants. 

5. Based on the events that transpired on 29 June 2004, the appellants together with Soucek Eduard were jointly charged with joint possession of the two cheques in question (the 1^st charge).  Soucek was also charged with using the false Czech Republic passport. 

6. On the following day, Mr Sit received an e-mail message from the 1^st appellant requesting the bank to issue a reference letter to him on the cheques.  However, Mr Sit did not accede to the 1^st appellant’s request.  Instead, he reported this incident to his bank compliance officer who then made a report to the police.  The police promptly investigated into the matter.

7. On 2 July 2004, the 1^st appellant telephoned Mr Sit to discuss about the cheques.  As instructed by the police, Mr Sit requested the 1^st appellant to attend the bank.  The 2^nd appellant was also requested to come to the bank.  Both appellants were arrested when they showed up at the bank in the afternoon of the same day.  The appellants were jointly charged for possession of the two false cheques based on the events of 2 July 2004.  They were subsequently interviewed under caution and both gave exculpatory statements.  The voluntariness of the cautioned statements was not in dispute and they were produced as exhibits at the trial.

8. Soucek pleaded guilty to the two counts he was charged.  The appellants pleaded not guilty to the two counts of possessing false instruments.  After their trial, the magistrate found them not guilty on the 1^st charge but guilty on the 2^nd charge.

The 1^st appellant

9. From what can be distilled from the evidence of the 1^st appellant in court and the contents of his statement under caution, the 1^st appellant was a director and shareholder of New Dragon, a company registered in Hong Kong.  There are two other directors apart from the 1^st appellant.  The main business of New Dragon was to act as a middleman between investors and licensed-traders.  It dealt mainly with high yield investment programmes and purchasing medium term notes issued by banks.  Soucek, according to the 1^st appellant, represented a consortium of European investors and the cheques were funds raised by the investors for investment through New Dragon.  Since Soucek spoke only a little English, he had arranged for the 2^nd appellant to act as his own interpreter.  The 1^st appellant told the court that he had no reason to suspect the origin of the funds nor that the cheques were counterfeit.  To safeguard New Dragon’s interests in the business deal, the company would enter a profit sharing agreement with the investor named Funder Group of Poland which is represented by Soucek.

The 2^nd appellant

10. The 2^nd appellant is an investment consultant and is resident in Hong Kong.  He came to know Soucek through a friend while in Poland and he acted as a middleman between Soucek and New Dragon.  He had no knowledge of the identity of the provider of the funds.  His position was that if the deal was successful he would be able to earn a commission in the transaction.  It was the original intention of the parties that Soucek and the 1^st appellant would each hold a key to the safe deposit box in which the cheques were placed with a view to safeguarding the interests of both parties.  However, when problems were encountered with Soucek’s passport, he was requested by the 1^st appellant to lend his name in opening the safe deposit box.  As it was an arrangement which was acceptable to the parties and since he was eager to earn his share of the commission, he had no hesitation in lending his name in opening the safe deposit box.

Issues at the trial

11. The magistrate had correctly identified the elements to be proved by the prosecution regarding the possession charges.  At paragraph 2 of the Statement of Findings, he stated :

“The Issue at Trial

2.      The issues are whether the defendants were in physical control of the false instruments with knowledge that those were false instruments.”

To this, it might be added that to secure a conviction it was also open to the prosecution to prove that at the material times the appellants were in constructive possession of the two counterfeit cheques with the requisite knowledge.  In the context of this case, the prosecution could also prove the appellants were in possession of the keys to the safe deposit box and that they could have reduced the two cheques into their possession at any time they so wished.

12. At the trial, both appellants were represented by counsel.  The charges were contested on the basis that the appellants did not have the requisite knowledge at the material time that the two cheques were counterfeit instruments.

13. This was how the magistrate approached the evidence which he found to be in support of the two charges.  In the case of the 1^st appellant, he said :

“34.     I reject the 1^st defendant’s evidence entirely.  In my judgment, neither the investment program nor the funding ever existed, and he knew it at all material times, inclusive of 29 June 2004 and 2 July 2004 that no real funding in the form of the 2 cashier’s orders or otherwise would be forthcoming, he knew that the 2 cashier’s orders were false instruments at all material times, inclusive of 29 June 2004 and 2 July 2004.

35.      Insofar as physical control is concerned, the 1^st defendant and the 3^rd defendants each had a key to the safe deposit box, which contained the 2 cashier’s orders on 2 July 2004.  However, I find as a fact of degree that the 3^rd defendant could not be regarded to have physical possession of the 2 cashier’s orders on 29 July 2004.

36.      There was no lawful authority or excuse for him to have under his control such false instruments on 2 July 2004.”

As for the 2^nd appellant, this was how the magistrate came to his conclusions :

“44.     Soucek’s risk in having the 1^st and the 3^rd defendants as joint custodians of the 2 cashier’s orders in the safe deposit box would be immense and wholly unjustifiably taken.  The irresistible inference is that Soucek, the 1^st and the 3^rd defendants all knew that neither the investment program nor the funding ever existed, and that the 2 cashier’s orders were false instruments at all material times, inclusive of 29 June 2004 and 2 July 2004.  This is the only logical reason why Soucek would let the 3^rd defendant take his place to open the safe deposit box account and keep the 2 cashier’s orders with the 1^st defendant.

45.      Insofar as physical control is concerned, the 3^rd defendant and the 1^st defendants each had a key to the safe deposit box, which contained the 2 cashier’s orders on 2 July 2004.  However, I find it as a fact of degree that he could not be regarded to have physical possession of the 2 cashier’s orders on 29 July 2004.

46.      There was no lawful authority or excuse for him to have under his control such false instruments on 2 July 2004.”

14. It was the case that there was no material difference in the evidence against the appellants on 29 June 2004 and 2 July 2004.  On 29 June 2004 when the appellants left the bank premises after depositing the cheques in the safe deposit box, they each had a key of the box.  It must have been the case that they could have access to and retrieved the cheques at any time during the bank’s business hours if they so wished.

15. In the afternoon of 2 July 2004 when they were requested by Mr Sit to attend at the bank, the appellants’ ability to reduce the cheques into their possession had not changed.  They handed over their keys to the safe deposit box to a police officer who then opened the safe deposit box and seized the cheques in their presence.

16. Bearing in mind the nature of the evidence against both appellants, I find it strange that the magistrate had remarked that he found as “a fact of degree” for both appellants that they could not be regarded to have been in physical possession of the two cheques on 29 June 2004 and acquitted the appellants on the 1^st charge.  The magistrate clearly had not addressed himself on the issue on the appellants’ constructive possession of the cheques in both charges.  The magistrate’s decisions to acquit the appellants on the basis of inadequate degree of possession was not easily reconcilable with his findings on the 2^nd charge.

The grounds

17. The grounds of appeal against the appellants’ convictions can be conveniently grouped into three categories.  The first is that the magistrate had fallen into error when he described the cheques as cashier’s orders where in fact they were ordinary crossed cheques (Ground 1 of the 1^st appellant and Ground 3 of the 2^nd appellant).  The second criticism against the magistrate is that he failed to evaluate the evidence properly before him (Ground 2 of the 1^st appellant and Grounds 1, 2 and 4 of the 2^nd appellant).  The third criticism is that the magistrate had misapplied the burden of proof (Ground 3 of the 1^st appellant and Ground 6 of the 2^nd appellant).  In addition, the 2^nd appellant also contended that the magistrate failed to give a full and proper direction on the appellant’s good character.

18. On the issue of the good character direction, the trial magistrate was fully aware of the fact that both appellants were of good character, and this was specifically addressed in paragraphs 29 and 37 of his Statement of Findings.  I am of the view that it can safely be assumed that even if he made no further mention of it, the magistrate had given himself the directions on propensity and credibility associated with the appellants’ good character (see R. v. Fok Tin Yau [1995] 1 HKCLR 351).  There is no merit in this point.

19. On the issue that the magistrate had misapplied the burden of proof, the overall tenor of the Statement of Findings leaves no room for doubt that the magistrate had correctly applied the burden of proof.  The magistrate had also adequately addressed the issue of lawful authority or excuse which is a statutory defence available to a defendant charged under this section of the Ordinance.  I cannot find fault in the magistrate’s handling of the issue on burden of proof.  This ground of appeal must be dismissed.

20. What remained to be considered are the criticisms on the magistrate’s approach to the evidence of this case.  Throughout his Statement of Findings, he described the two counterfeit cheques as “cashier’s orders”.  Although the prosecution contends that there is no significant difference in describing what in fact were crossed account payee cheques as cashier’s orders, I am inclined to think otherwise.

21. A cashier’s order, in terms of banking practice, is very different from an account payee cheque which is the type of instruments involved in this case.  A cashier’s order is a document issued by a bank and, to a layman, it represents that the bank is promising to pay the payee the amount stated on the cashier’s order.  Whereas in the case of an account payee cheque, the cheque will have to be cleared through the drawer’s bank account which would be debited with the amount stated on the cheque if there are sufficient funds or facilities in the drawer’s bank account. 

22. It is clear that this was not a case where the appellants were presenting the cheques to either the HSBC or the ICBC Bank demanding payment.  The undisputed evidence at the trial was that the cheques were presented to ICBC Bank and a request was made to the bank for a reference.  The evidence also shows that such reference by the bank would only be forthcoming if the cheques were authenticated by the drawer’s bank in U.K and the appellants were made aware of this requirement on 29 June 2004 when they met with Mr Sit.

23. That raises an important question : If the appellants knew that those were counterfeit cheques, would they have presented to the ICBC Bank and made the requests for a letter of reference as they did knowing full-well at the time that the bank would have to authenticate the two cheques?  The conduct of making such a request to the bank and the subsequent deposit of the two cheques into the safe deposit box was inconsistent with guilty knowledge on the part of the two appellants.  Had they been fraudsters, it was unlikely that they would have parted with the cheques in the manner as they did in this case.  In order to secure a conviction of the defendants at the trial, the prosecution would have to prove beyond reasonable doubt that the appellants had the requisite knowledge that the two cheques were false instruments on 2 July 2004. 

24. In the case of the 1^st appellant, he took the initiative to ask the bank to issue a reference letter in respect of the two cheques.  In the case of the 2^nd appellant, his explanation was that he lent his name in opening the bank safe deposit box on the basis that he was assisting Soucek and also he was eager not to jeopardize his commission should the deal falls through.

Conclusion

25. Looking at the evidence as a whole, the conduct of the appellants on 29 June 2004 and on 2 July 2004 was not incompatible with their pleas of innocence.  The magistrate had failed to consider the evidence in favour of the appellants adequately so that their convictions on the 3^rd charge are rendered unsafe and unsatisfactory.

26. For the reasons I have stated, the appellants’ appeal against their convictions are allowed and the sentences quashed.