HKSAR v. LAM TSZ HIM AND ANOTHER

CACC 87/2024 [2025] HKCA 447

On appeal from [2024] HKDC 592

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 87 OF 2024

(ON APPEAL FROM DCCC NO 16 OF 2022)

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REASONS FOR JUDGMENT

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Hon Zervos JA (giving the Reasons for Judgment of the Court):

1.  This is a case of insurance fraud in which six defendants were charged with a single conspiracy to defraud, contrary to common law and punishable under section 159C(6) of the Crimes Ordinance (Cap 200). On 28 March 2024, following a trial before HH Judge E Lee (the Judge) in the District Court, D1, D2 (the 1^st appellant), and D4 (the 2^nd appellant) were found guilty of the charge, while D3, D5, and D6 were acquitted. For the purposes of this judgment, the appellants and the other defendants will be referred to by their trial designations (D1-D6). On 15 April 2024, the Judge sentenced D2 to 25 months’ imprisonment and D4 to 28 months’ imprisonment.

2.  On 24 February 2025, the Single Judge refused D2 and D4 leave to appeal against conviction, but granted them leave to appeal against sentence.

3.  At the conclusion of the hearing, we allowed the 1^st and 2^nd appellants’ appeal against sentence. We substituted the 1^st appellant’s sentence with 20 months’ imprisonment, and the 2^nd appellant’s sentence with 24 months’ imprisonment. We indicated that we would hand down our reasons in due course, which we now do.

The conspiracy to defraud

4.  The particulars of the conspiracy charge alleged that the six defendants, who were employees (variously as manager or agent) of AXA China Region Insurance Company Limited (AXA), between 25 November 2014 and 28 September 2017, conspired together to defraud AXA by dishonestly falsely representing that the financial consultant’s declarations in the policy application forms were genuinely made. By doing so, they induced AXA to approve those policy applications and to pay commissions and bonuses to D1, D2, D3, and D4 in connection with the relevant policies.[1]

5.  AXA is an insurance company that, at the material times, offered various insurance products and D1 to D6 were insurance agents. D1 was the direct upline manager of D2 to D6, although D4 took up the position of unit manager on 1 March 2016.

6.  The conspiratorial enterprise involved creating false policies to collect commissions and bonuses. One defendant would offer free insurance to a friend or an acquaintance to obtain their personal data. False representations were made in the relevant application forms by naming an uninvolved defendant as the financial consultant (i.e. the handling agent), thereby causing AXA to approve the insurance application and pay commissions and bonuses to the uninvolved defendant and the upline manager. The monthly or annual premiums of the policies were mainly paid by D1, although sometimes they were paid in cash or by D4. The premium payments were made or maintained to enable the defendants to earn commissions and extra bonuses, according to AXA’s management calculation method. This practice was known as “diverting” policies, which the Judge explained as follows:

“36. PW9 confirmed PW8’s evidence on calculation of agent’s bonuses, namely the higher the aggregate number of insurance policies sold by an agent, the higher the bonuses that would be paid to that agent. PW9 elaborated that this was precisely one of the reasons why AXA did not permit the ‘diverting’ of policies, i.e. one AXA agent who actually dealt with a client recorded the name of another AXA agent who was never involved in the selling process as the financial consultant in AXA documents so that the latter would get commissions or bonuses despite having no involvement. She explained that by diverting policies, the agent who had policies ‘diverted’ to him/her might be able to reach certain performance targets and would be paid additional bonuses by AXA. The upline manager of the agent would also be paid. That agent would not have been entitled to such bonuses in the first place if he/she did not actually sell the insurance policy in question.”

7.  During the period of the conspiracy, a total of ten policies were processed under this scheme, resulting in AXA approving the policies and paying commissions and bonuses to D1 to D4. The relevant particulars of the purported policyholders and the involvement of the relevant defendants, as stated in the Admitted Facts, were as follows:[2]

(1) Leung Sin Tung Pavlova (PW1) was a friend of D1 and the purported policyholder of Policy 1 (the premium was paid in cash and a commission was paid to D3’s account); Policy 2 (the premium was paid by D1 and D4[3] and commissions were paid to D3’s bank account with payments transferred to D1); and Policy 3 (the premium was paid in cash and commissions were paid to D3’s account).

(2) Lau Kwok Pan (PW2) was a friend of D5 and the purported policyholder of Policy 4 (D1 and D4 paid premiums and commissions were paid to the accounts of D2 and D4, with payments transferred to D1 or D1’s mother).

(3) Ho Man Wai (PW3) was a friend of D1’s mother and the policyholder of Policy 5 (the premiums were paid in cash and commissions were paid to the accounts of D1 and D3); and Policy 6 (D1 and D4 paid the premium and commissions were paid to the accounts of D2 and D3, with payments transferred to D1’s account).

(4) Ng Siu Him (PW4) was a friend of D6 and the purported policyholder of Policy 7 (the premium was paid by D4 and a commission was paid to D3’s account); Policy 8 (D4 paid the premium and a commission for Policy 7 and Policy 8 was paid to D3’s account, with payments transferred to D1’s account); Policy 9 (D4 paid the premium and a commission was paid to D3’s account, with payments transferred to D1’s account); and Policy 10 (the premium was paid in cash but no commission was paid).

8.  D1 was the named manager in the application forms of Policies 1, 2, 3, 4, 6, and 10. D2 was one of the named financial consultants in the application forms of Policies 2[4], 4, 6, and 10. D3 was the named financial consultant or one of the financial consultants in the application forms of Policies 1, 2, 3, 5, 6, 7, 8, 9, and 10. D4 was one of the named financial consultants in the application form of Policy 4 and the named manager in the application forms of Policies 7, 8, and 9. He also made various payments for the premiums or renewal premiums for Policies 2 (although D4’s involvement in this policy was unclear), 4, 6, 7, 8, and 9.[5]

9.  Most of the premiums for the false policies were paid by D1, and most of the commissions and bonuses were ultimately paid to him. The Judge addressed this in his reasons for verdict:[6]

“130. … D1 paid for all the substantial yearly premiums ranging from $190,000 odd to close to $300,000. D4 paid for the small premiums (and renewal premiums). D1 was never the handling agents on paper of any of those policies (D2, D3 and D4 were). D4 was on paper only one of the handling agents for Policy 4.

131. However, whenever commissions were paid by AXA into the accounts of D2, D3 and D4 (as they were handling agents on paper), almost every time on the same day or shortly afterwards, similar sums were paid out from those accounts to D1’s account (or account of D1’s mother) and cash withdrawals were made. Sometimes even much bigger sums were paid out to D1’s account. It was not in dispute that D1 was in possession of the relevant bank cards of D2 and D3 with passwords so that D1 was in control of those accounts. It was also not in dispute that D4 had paid D1 money on those occasions, although claiming for an innocent reason of investing in D1’s furniture business.

132. Although D1 was not the policyholders or even the handling agents, he paid for the very substantial premiums of about $730,000. If that is the end of it, it would be most unusual and unreasonable for D1 to do that. It simply does not make any sense.

133. The matter of course did not end there. Almost simultaneously on each occasion (on the same day or shortly afterwards), the commissions and bonuses totalling close to $770,000 paid out by AXA to the respective accounts of D2, D3 and D4 (who were the handling agents on paper) were transferred to D1’s account (or that of D1’s mother). D1 was in control of those respective accounts of D2 and D3 as D1 had the relevant bank cards and passwords. D4 agreed that he did pay out of his commissions and bonuses from his account to D1, but claiming for an innocent purpose of investing in D1’s furniture business.”

10.  The economic loss suffered by AXA according to the Judge’s findings was as follows:

“92. This issue is quite straight forward as there had been clear evidence from PW8 that the commissions and the bonuses paid out by AXA in respect of Policies #1 to 10 were in total $748,866.56. In particular, the bonuses, according to PW8 and PW9, were to be calculated not only based on these 10 policies alone but also a bundle of other policies sold in a month or a quarter. As such, PW8 worked out the figures of the extra bonuses in respect of Policies #1 to 10 paid out by AXA to D1 to D4 to be $296,030.31.

93. Another way of considering that issue of economic loss suffered by AXA was to compare the total premium received and the total amount (commissions, bonuses, overrides included) paid out by AXA arising from these 10 policies in question. According to PW8’s evidence, for Policies #1 to 10, AXA had received total premiums of $815,833.15 and had paid out a total sum of $944,802.36 to D1 to D4. The net loss was therefore $128,969.21.

94. In addition to the above actual economic loss, I also find that AXA was put at risk of further economic loss by having approved and issued these 10 policies. It is apparent that these 10 policies were approved and issued to the policyholders by AXA in the absence of the knowledge of the false representations contained therein (including the false financial consultant’s declarations and other false particulars of the applicants’ employment and income). These policies would not have been approved and issued if AXA was aware of those false representations, as confirmed by PW5 of AXA’s Underwriting Department. It followed that these 10 policies, which would not have been approved and issued in the first place, must have exposed AXA to risks of economic loss arising from any potential claims by the policyholders and/or the beneficiaries.”

11.  D1, D5, and D6 did not give evidence. D2, D3, and D4 testified in their defence. They called a common witness, Emily Hui (DW5), a handwriting expert, who testified that the signatures on the relevant application forms, in which D2, D3, and D4 were the named financial consultants, were not written by them. The prosecution did not contest this expert evidence.[7] The defence of D2, D3, and D4 was that they “blindly” followed D1’s instructions and there was no conspiracy or dishonesty on their part.

12.  D2 testified that he had no involvement in the scheme and gave his bank card to D1 to organise investment seminars and repay a debt. D2 said he wanted to quit but did not because D1 warned him that he would have to return the allowances that he had previously received from AXA.[8] D3 testified that D1 was his instructor in church and that he trusted him. He said he did as D1 instructed him in respect of the policies. He also called a friend as a defence witness (DW3), who testified as to D3’s character and relationship with D1.[9] He confirmed that D3 trusted D1 implicitly and would do as he was told by him.

13.  D4 testified that he simply followed D1’s instructions; D1was the manager of both D3 and D4. He explained that the numerous transfers of funds into D1’s account, and those he made into AXA’s account, were related to his investment in D1’s furniture business.[10]

14.  The Judge acquitted D3 because “it was at least possible” that he was an innocent dupe.[11] He also acquitted D5 and D6 because of the lack of proof showing that they were involved in the scheme.[12] He convicted D1, D2 and D4. He rejected D2’s case that he was “ignorant” of the existence or handling of Policies 4, 6 and 10. However, he found that D2 was a party to the conspiracy because he wanted to keep his job with AXA and retain his earlier allowances.[13] He considered that D2, as a member of the finance and insurance industry, would have appreciated the consequences of providing his bank card to D1.[14] He rejected D4’s evidence that he was “ignorant” of the scheme and was just following D1’s instructions.[15] He dismissed D4’s explanation that the transfers of funds to D1 were for investing in D1’s furniture business. He found that the financial transactions related to the policies in which D4 was involved, Policies 4,6, 7, 8, and 9.[16] He concluded that the only reasonable inference was that D4 knowingly assisted D1 pursuant to the conspiratorial agreement.[17]

15.  The Judge found that D1, D2 and D4 had conspired together to defraud AXA by the dishonest scheme of “diverting” policies.[18]

The sentences

16.  The Judge concluded that D1 played a pivotal role in the scheme, as evidenced by his significant involvement in the various policies and his control of the respective bank accounts of D2 and D3, from which he made bank transfers and cash withdrawals.[19] In his sentencing remarks, the Judge identified the criminality of the defendants:

“26. Quite clearly, D1 was the key figure and integral to this dishonest scheme. Not only that he was the upline manager of the other defendants in most of the relevant times, but he was also playing the major role. To get the scheme started, D1 paid for all the substantial yearly premiums in the subject policies for about $730,000 in total. By having control over the respective accounts of D2 and D3 as well as receiving transferred payments from D4, D1 was eventually able to recoup close to $770,000, excluding the various cash withdrawals totalling $140,000 from the respective accounts of D2 to D4.

27. As I found in my reasons for verdict, D1 though playing the pivotal role could not have worked on and executed this dishonest scheme of “diverting” policies alone. D1 needed and in fact had obtained the cooperation of D2, D3 and D4, in particular but not limited to transferring the commissions and bonuses from their accounts to D1’s. I found both D2 and D4 knowing and participating parties to this conspiracy and that D3 could possibly be an innocent dupe having been used by D1.

28. I found D2 a party to this conspiracy and a participant in this dishonest scheme of “diverting” policies, for D2 to lend his name to D1 to falsely represent D2 as the financial consultant in some of the subject policies where D2 in fact had no involvement in order to defraud AXA to pay out commissions and extra bonuses. D2 also willingly and knowingly provided the bank card to his salary account maintained by AXA to enable D1 to obtain the relevant commissions and bonuses.

29. I also found D4 a party to this conspiracy and a participant in this dishonest scheme of “diverting” policies, for D4 to assist D1 in submitting those relevant application forms with false representations in the financial consultant’s declarations, to defraud AXA to pay out commissions and extra bonuses. D4’s role was essential as it included paying for some of the premiums and renewal premiums to cause the subject policies to become effective or continue to remain effective. In addition to that, D4 also lent his name to become the named financial consultant in one subject policy and named manager in 3 others, as well as leaving his mobile phone number on some AXA’s payment slips to maintain contact and keep track of some of the subject policies. I therefore found D4 to be the second-in-command to assist D1 in this dishonest scheme.”

17.  The Judge found that the actual economic loss caused to AXA was in the region of about $130,000 to $300,000, depending on the different methods of calculation, emphasising that this was one of the factors to consider in sentencing. He considered that the “major criminality” lay in the defendants’ breach of trust as employees, and more importantly, in the sophistication of the dishonest scheme.[20]

18.  When sentencing the three convicted defendants, D1, D2 and D4, the Judge gave each of them a reduction of 2 months for their good backgrounds and agreeing a substantial quantity of the documentary evidence, thereby shortening the length of the trial.

19.  The Judge found that D1 was “the key figure and integral to this dishonest scheme”, who played a major role in initiating and executing the scheme. In sentencing D1, he adopted a starting point of 36 months’ imprisonment, which he reduced by 2 months to 34 months’ imprisonment. In sentencing D2 and D4, he treated them to some degree differently from D1. He adopted a starting point of 27 months’ imprisonment for D2 and 30 months’ imprisonment for D4, which he reduced by 2 months, resulting in sentences of 25 months’ imprisonment for D2 and 28 months’ imprisonment for D4.

Discussion

20.  A defendant participating in a joint enterprise typically shares equal culpability, even if he or she has a different role from other participants. Accordingly, sentencing courts generally decline to apportion blame and adjust sentences to any marked degree when defendants are participants in a joint enterprise: HKSAR v Muhammad Rizwan and Ors [21]; HKSAR v Wong Kam[22]. This principle reflects the fact that the crime could not have been completed without each participant’s contribution. A participant is generally aware of the object and plan of the joint enterprise, and possibly also of the roles of others in its execution. A differential sentencing approach may be warranted where the crime is a conspiracy to commit multiple offences, and the defendant is a participant in only one or some of them. In such cases, culpability depends primarily on the defendant’s involvement in the offence or offences that form part of the conspiracy.

21.  Three issues have been raised concerning the sentences imposed on D2 and D4. First, the conspiracy concerned ten policies, but D2 and D4 were not involved in all of them. D2 was involved in three (Policies 4, 6, and 10), and D4 in five (Policies 4, 6, 7, 8, and 9).[23] The issue is whether they should have been sentenced differently, taking this factor into account. This will, of course, depend upon the nature of their role and involvement in the specified policies and the conspiracy overall.

22.  Secondly, D1 played a key and prominent role in this fraudulent scheme. He initiated and implemented the scheme. Both D2 and D4 claimed that they acted on D1’s instructions. The issue is to what extent this factor should have been taken into account when sentencing D2 and D4. The Judge appears to have made some allowance, but the question is whether it was sufficient in the circumstances. Notably, the Judge acquitted D3, who testified that he was deceived by D1 into lending his bank card and that he was unaware of D1’s fraudulent conduct. D2 also put forward a similar defence, claiming he lent his bank card to D1 and merely followed D1’s instructions.

23.  Thirdly, the actual loss caused by the scheme was $128,969.21, which in D2’s case was limited to three policies and in D4’s case to five policies. The question is whether the loss suffered in the policies in which they were involved was less than the loss suffered by the ten policies. However, as pointed out by the Judge, the loss suffered was one of several factors to be taken into account in the sentence to be imposed. Furthermore, there is the additional question as to whether it was correct for the Judge to consider the potential loss to the insurance company of any claims made under the policies when this was not the object of the criminal enterprise and did not feature in the criminality involved.[24] However, he explained that in sentencing the defendants, he only took into account the actual economic loss.[25]

24.  In addressing the appropriateness of the sentences imposed on D2 and D4, it is necessary to consider the nature of the conspiracy. In our view, an accurate description of the criminality involved is that of a “wheel conspiracy”, where a number of conspirators deal with a central conspirator at the hub, and all are members of the same conspiracy. The central conspirator here was D1, who was the creator and driving force of the scheme. It is noteworthy that D1 was the upline manager and in charge of the other defendants, as well as the main beneficiary of the fraudulent scheme.

25.  D1 would recruit other insurance agents to participate in the scheme, who would individually obtain the personal particulars of others to take out false insurance policies. D1, and sometimes D4, would pay the policy premiums to authenticate and maintain the policy, although this would only be temporary. In the meantime, the insurance agents involved would receive a commission or bonus depending on the nature and terms of the policy, as well as their sales record with the company. Once the commission or bonus was paid, the payment of the premiums would stop. It is apparent that D1 was instrumental in implementing and operating the scheme and used the others involved in various capacities, which sometimes included using their bank accounts, either to pay the policy premiums or share in the proceeds of this fraudulent scheme. It would appear that the financial transactions underpinning the scheme were made or arranged by D1 and that the bulk of the proceeds of the fraud were received by D1 through the accounts of D2 and D3, either as a reward or to reinvest in the scheme. In the circumstances, the Judge was correct in distinguishing the role and culpability of D1 from the other conspirators involved. He was clearly the major miscreant in this scheme, and the Judge dealt with him accordingly when passing sentence. The issue, therefore, is whether the Judge, in the unusual circumstances of dealing with a joint enterprise where offenders would normally be punished on the same or similar basis, made appropriate allowance for the nature and level of involvement of the other conspirators for the part they played.

26.  The prosecution allegation and case against the defendants was that this conspiratorial enterprise consisted of ten policies, and it was on this basis that they were convicted. Whilst D2 and D4 were parties to the conspiratorial agreement concerning the ten policies, they were only actively involved in some of them. D2 was involved in three policies (Policies 4, 6, and 10), in which he was listed as the financial consultant. He additionally let D1 use his bank account through which various transactions concerning the fraudulent scheme were conducted. It also appears that the proceeds of the fraud perpetrated in the three policies were transferred to D1. D4 was involved in five policies (Policies 4, 6, 7, 8, and 9), in which he either paid the premium or was listed as the financial consultant or manager. It appears that the proceeds of the fraud perpetrated in the five policies were transferred to D1.

27.  Mr David Boyton, representing D4, submitted that as this case involved a wheel conspiracy with D1 at its centre and D2 and D4 each at the end of one of the spokes in the wheel, they should be punished for the policies in which they were involved. He further submitted that the Judge, having accepted that “the major criminality lies in the element of the defendants’ breach of trust”, required considering the individual role of the defendant applying the first band of Ng Kwok Wing [26], which suggests a sentence of less than 2 years’ imprisonment for a theft involving a breach of trust of under $250,000.[27]

28.  In the rather exceptional circumstances of this case, it seems appropriate that D1’s fellow conspirators, who were only involved in some of the fraudulent transactions, should be punished on that basis. These fraudulent transactions were separate and distinct, but a spoke in the wheel of the conspiracy. As already noted, D2 was only involved in three policies as a named financial consultant, although he lent his bank card to D1, who carried out numerous financial transactions in furtherance of this fraudulent scheme. D1 also used D3’s bank card for the same purpose. D4 was involved in five policies and paid premiums or renewal premiums in various amounts, with the payments in Policies 7, 8, and 9 being for small amounts for a batch of policies at the end of the period of the conspiracy. We do not think the characterisation of him being “second-in-command” to be appropriate in the circumstances, but he did indeed play a greater role than D2. Significantly, D1 was behind the false policies, paying the premiums and ultimately receiving, most, if not all, the commissions or bonuses. This is an important factor and warrants adjustment to their sentences.

29.  We agree with the starting point of 3 years’ imprisonment adopted by the Judge in relation to the overall conspiracy consisting of ten policies. In sentencing the defendants, the Judge reduced the starting point by 2 months in respect of each defendant, for their good characters and for agreeing to most of the prosecution case. We will do the same.

30.  In the case of D2, we would adopt a starting point of 22 months’ imprisonment, which after a reduction of 2 months, would result in a sentence of 20 months’ imprisonment. In the case of D4, we would adopt a starting point of 26 months’ imprisonment, which after a reduction of 2 months, would result in a sentence of 24 months’ imprisonment.

Conclusion

31.  For the foregoing reasons, we allowed the sentence appeals of D2 and D4 and substituted their sentences with 20 months’ imprisonment and 24 months’ imprisonment respectively.