HKSAR v. KOTHARI CHIRAG

DCCC 577/2022 & DCCC 1367/2024 (Consolidated)

[2025] HKDC 1674

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 577 OF 2022 & 1367 OF 2024

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REASONS FOR SENTENCE

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1.  This is the consolidated trial of DCCC 577/2022 and DCCC 1367/2024.  The defendant has been convicted after trial on 3 counts of “Evasion of liability by deception” , contrary to section 18B(1)(b) of the Theft Ordinance, Cap.210 (Charge 1 to 3), and 2 counts of “Attempted fraud”, contrary to section 16A of the Theft Ordinance, Cap.210 and sections 159G and 159J of the Crimes Ordinance Cap.200 (Charge 4 to 5).

Facts

2.  RapNet is an internet communication platform for diamond, gems and jewellery dealers and exclusive to the members only.  CSK Diamonds (H.K.) Limited (CSK), Legend Bright Trading Limited (Legend Bright) and NYD HK Limited (NYD) were registered members of RapNet. 

3.  D was a self-employed diamond trader.  He conducted his business through CSK.  At all material times, D was the sole director, sole shareholder and de facto sole bank account signatory of CSK for all bank accounts of CSK.  D was also one of the directors and shareholders of Express State Limited (Express State).  The victims in the two cases was Legend Bright (Charge 1 to 3) and NYD (Charge 4 to 5). 

4.  Potential buyer needs time to consider whether a diamond is suitable.   It is a general practice in diamond trading between dealers to let the other to keep their diamonds for viewing with bipartite memo, which will specify the “length of the period” and no transfer of ownership until full payment made, and depending on the circumstances with or without collateral. 

5.  D was not able to meet all his financial obligations since January 2018.  Not knowing the D’s then financial situation, the victims entrusted/ continued to entrust their diamonds to D in their normal course of business.  D later offered to buy the diamonds and parties agreed on the prices.  Thereafter, D used a similar modus operandi, repeatedly and fraudulently induced the victims to believe that he had or would pay for the diamonds.  

6.  Legend Bright handed over the diamond (Diamond A) to D on 4 December 2017.  D later indicated he had a buyer for the diamond, parties negotiated on the price and initially agreed at USD 510,000 on 26 January 2018,  an invoice was issued payment be made “on or before 6 February 2018”.  D pretended he had fund to effect an on-line transfer to meet the payment of the diamond by screenshot of an on-line transfer, successfully evaded liability by deception (Charge 1).  

7.  The price of Diamond A later increased to US$ 520,126 and a new invoice dated 8 March (Exhibit P15) was issued.  D knowingly drew a cheque dated 13 March 2018 on an account closed in 2016 for the payment, but told Legend Bright there was fund in the account to meet the payment by a photo of a redacted ledger of another HSBC account, successfully evaded liability by deception (Charge 2).

8.  D further pretended he had fund to effect a fund transfer application made on 15 March 2018 to meet the payment of Diamond A by a photo of a redacted ledger issued by HSBC, successfully evaded liability by deception (Charge 3).

9.  NYD handed over Diamond B valued at US$ 81,518.40 to D on 19 January 2018.  Later D requested PW4 of NYD to remove the diamond from RapNet.  On 28 February 2018, D indicated he would make payment by 14 March 2018.

10.  D attempted to defraud PW4, pretended he had fund to meet the payment of Diamond B by making an on-line transfer on CSK DBS account in front of PW4 on 15 March 2018 and to inflate the balance of the DBS account on 16 March 2018 by a bounced cheque drawn on a CSK Standard Chartered account (Charge 4).

11.  D further persuaded PW4 to lend his account on 20 March 2018, to receive a sum of US$ 130,112 purportedly transferred from a client, Express State.   D attempted to defraud PW4, falsely represented to PW4 that the amount would have deposited into NYD account, attempted not only to induce PW4 to delay in taking any action for the recovery of the payment but also to part with an additional sum of US$ 48,593.6 to D (Charge 5). 

12.  Ultimately, the defendant made no payments and the victims reported their losses to the police in April and May 2018 respectively.  PW4 had fidelity guarantee insurance for Diamond B.

Background/Mitigation

13.  D aged 41, born in Belgium, has received university education and worked in Hong Kong since 2009.  He is a businessman, married with two children.  He has a drink driving record of which he was fined $6,000 in 2014, otherwise. Clear record.

14.  D has had a strong diamond trading background and established a good reputation in diamond trading.  He has a strong connection with Hong Kong.  He set up a Hong Kong office for his then employer in 2009 and took over the business in 2014. 

15.  D is a person with positive characters.  His wife, parents, in-laws and friends have written letters in support of a lenient sentence.  D was running a successful business and had no financial problems.  His problems commenced after he sold Legend Bright’s diamond to Mr Lau.  Defence at one stage submitted this is not a breach of trust case because there was no trust or relationship between D and PW1 or PW4.  D’s criminality lies not in stealing the diamonds or personal gain but only in the way he delayed the payments.  He did not intend not to pay them.  D will not be able to get back into the diamond industry.  That is a punishment in itself. 

16.  Further, there has been considered delay in this case, yet D had not contributed in any way to the delay.  This matter has been hanging over his head for many years. An appropriate discount should be granted to him for the stress and anxiety that he had gone through over this period of time.  

Sentence

17.  A person commits evasion of liability by deception is liable on conviction upon indictment to imprisonment for 10 years. A person commits the offence of fraud is liable on conviction upon indictment to imprisonment for 14 years.

18.  In HKSAR v Ho Ka Keung (No 2) [2009] 1 HKC 88, CACC 196/2007, the Court of Appeal explained the relevant factors in determining the sentence for commercial fraud cases: -

“11. ... It is well established that commercial fraudswill attract, other than in exceptional circumstances, an immediate custodial sentence, even for a first offender. Obviously the length of that sentence will be determined by reference to factors such as, but not exclusively, the nature of the fraud itself; the duration of the fraud; its sophistication; the role played by the convicted person; the effect it may have on the marketplace; whether there are cross-border or international implications; and the nature and extent of the risk to the victim’s proprietary interests, as well as, albeit to a minimal extent, the extent of any loss actually sustained.”

19.  In my view, D’s case involves breach of trust.  Defence refers to HKSAR v Leung Yuen-keung CACC 211/1998, a case about diamond trading.  The applicant in that case was a diamond trader.  In a period of two months, the applicant obtained from 7 suppliers a total of about $7millions in diamonds, for none of which he paid.  He faced 25 charges, 23 were charges of obtaining property by deception and 2 were of evasion of liability by deception.  He was convicted after trial on all charges and the trial judge adopted an overall starting point of 5 years imprisonment and allowed 6 months reduction for partial restitution to 2 of the victims.

20.  The applicant in Leung Yuen-keung sought to apply leave to appeal against sentence and argued that the offences did not involve breach of trust.   The Court of Appeal did not agree and stated that “in our view, a grave breach of a high degree of trust which was placed in the applicant by the merchants with whom he was dealing.  Diamond trading, as it is conducted, is predicated upon trust.  It would, in its present form, collapse if the merchants were not prepared to put that high degree of trust in the traders to whom they give the diamonds”.

21.  The Court of Appeal in Leung Yuen-keung considered that in all of the circumstances the starting point of 5 years was not excessive and the applicant was fortunate to obtain the 6 months discount.

22.  D took possession of the diamonds in the capacity of a bailee, once the victims agreed to sell the diamonds to D at an agreed price, the bailment turned to conditional sales.  This created a situation where the victims trusted D to uphold his end of the agreement and make the required payments, while also trusting that D would not damage or misuse the diamonds before full payment.  Where D failed to pay and sold the diamonds before he made full payment, it constituted a breach of trust.

23.  In HKSAR v Ng Tik Ki Chaneki CACC 68/2011, a case about investment fraud, the applicant posed himself to be a surveyor and a man of substance has defrauded a woman and her daughter over a period of 16 month for substantial sums of money in the range of $1 to $1.5 million. Mr. Justice Hartmann JA said:

“51. Criminal frauds take on an almost infinite variety of shapes, seeking to inflict all manner of harm. Often, as in the present case, they involve the exploitation of the victim’s trust. For such reasons, in respect of crimes of fraud, there is no sentencing ‘tariff’ as such.

52. That being said, in Secretary for Justice v Dank & Another [2008] 4 HKC 483, this Court said that in respect of sentencing in frauds involving breach of trust, of which this is one, the guidelines are those referred to in R v Clark [1998] 2 Cr App 137 as adopted in Hong Kong in HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776.

53. In HKSAR v Ng Kwok Wing [2008] 4 HKLRD 1017, the guidelines in HKSAR v Cheung Mee Kiu were adjusted. In cases involving a loss of between $1 million and $3 million, the sentence should be three to five years’ imprisonment.

54. In the present case, on a strict adherence to the guidelines, this would suggest a sentence of about three years and six months’ imprisonment. But guidelines are intended to assist the court in arriving at the correct sentence; they do not purport to identify the correct sentence itself: see R v Millberry [2003] 1 WLR 546, 556 per Lord Woolf CJ.”

According to the guidelines in Cheung Mee Kiu as adjusted in Ng Kwok Wing, where the loss was between $3 million to $15 million, the sentence should be 5 to 10 years’ imprisonment.

24.  In our case, though D has begun to default on his financial obligations since January 2018, he still have certain funds to settle some of his payment due.  However, because of D’s fraud participated in February and March 2018, the victims were not able to take recovery actions in their earliest opportunity.  D abused the trust reposed to him by the victims, made use of time lags in banking transactions and redacted ledger account printed by the bank etc. to mislead the victims.   D did all these for his own benefit.

25.  Loss/potential loss suffered by Legend Bright and NYD were US$ 520,126 and US$ 130,112 respectively, equivalent to around HK$ 5 million.  Diamond A was not covered by insurance while PW4 got fidelity guarantee insurance for Diamond B.  The net total loss was over HK$ 4 million.  Yet D did not intend to appropriate the diamonds from the beginning.  I consider the appropriate starting point for Charge 1 to 3 and Charge 4 to 5 is 4 year, and 2 years respectively, and the overall starting point to be 4.5 years.

· Delay

26.  The defence refer to HKSAR v Chiu Chi Wing CACC 243/2012, in paragraph 37 the Court of Appeal refers to seven factors identified by Buss JA in Scook v The Queen [2008] 185 A Criminal Review 164 at 176:

“The seven factors identified by Buss JA, which were stated not to be intended to be exhaustive or inflexible, were:

“ First, delay is not, of itself, a mitigating factor.

Secondly, delay will not ordinarily be a mitigating factor if it has been caused by difficulties in detecting, investigating or proving the offences committed by the offender, and the period of the delay is reasonable in the circumstances.

Thirdly, delay will not ordinarily be a mitigating factor if it is caused by the offender’s obstruction or lack of co-operation with the State, prosecuting authorities or investigatory bodies, but the offender’s reliance on his or her legal rights is not obstruction or lack of co-operation for this purpose.

Fourthly, delay will not ordinarily be a mitigating factor if it results from the normal operation of the criminal justice system, including delay as a result of the offender or a co-offender exercising his or her rights; for example, interlocutory appeals and other interlocutory processes.

Fifthly, delay may be conducive to the emergence of mitigating factors; for example, if, during the period of delay, the offender has made progress towards rehabilitation or other circumstances favourable to him or her have emerged.

Sixthly, delay (not being delay of the kind described in the second, third and fourth guiding principles) will ordinarily be a mitigating factor if:

(a) the delay has resulted in significant stress for the offender or left him or her, to a significant degree, in ‘uncertain suspense’; or

(b) during the period of delay the offender has adopted a reasonable expectation that he or she would not be charged, or a pending prosecution would not proceed, and the offender has ordered his or her affairs on the faith of that expectation.

Seventhly, delay caused by dilatory or neglectful conduct by the State, prosecuting authorities or investigatory bodies may result in a discount of the sentence that would otherwise be imposed on the offender, if the court thinks it an appropriate means of marking its disapproval of the conduct in question.”

27.  The offences date back to February 2018 which is over 7 years.  The case is not complicated.  The victims had provided the material WhatsApp records to the Police.  D was first arrested in April 2018 for Charges 1 to 3 and further arrested in July 2018 for Charges 4 and 5.  He was released on Police bail and later unconditionally released.  He was re-arrested on 18 May 2022 and charged for Charges 1 to 3 (DCCC 577/2022). 

28.  File of DCCC 577/2022 was submitted for legal advice in October 2019 and it took about 15 months for the final legal advice in February 2021.  File of DCCC 1367/2024 was submitted for legal advice in March 2021 and it took over 2 years to have the first legal advice in April 2023.  Though Covid-19 pandemic would inevitably be a contribution to the delay, I am of the view that the time spent on legal advice was excessive.   

29.  DCCC 577/2022 was initially scheduled for trial on 22 April 2024, however, the trial was adjourned to May 2025 due to the pregnancy of PW1.  Time being Charges 4 and 5 were charged (DCCC 1367/2024) and consolidated with Charges 1 to 3.  At the end D only needed to attend one trial instead of two.

30.  D did not contributed in any way to the delay.  Everyone who knows D believes he was acting out of character and plead for leniency on his behalf.  This matter has been hanging over D’s head for many years, during which as seen from the mitigation letters, despite the stress and anxiety of uncertainty, D continued to lead a positive life, honour his family responsibilities and contribute to the community. With his previous good characters, the risk of re-offending is low.  All these together I exercise my discretion and allow a reduction of 9 months to Charge 1 to 3 and 6 months to Charge 4 to 5 respectively.  I do not consider there to be any further mitigating factors.

Order