HKSAR v. LAU SZE SHING EDWARD

CACC 442/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 442 OF 2007

(ON APPEAL FROM DCCC NO. 285 OF 2007)

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J U D G M E N T

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Hon Hartmann JA (giving the judgment of the Court):

Introduction

1.  On 5 December 2007, following a trial in the District Court before Judge D’Almada Remedios, the applicant was convicted on 22 charges of theft, contrary to section 9 of the Theft Ordinance, Cap 210, and one charge of fraud, contrary to section 16A(1)(8) of the same Ordinance.  The applicant was sentenced to a total of five years and six months imprisonment.  He has sought leave to appeal against all of his convictions.

Background

2.  Mr Chen Chi Kin and Mr Lin Zhi Yong are Mainland businessmen.  In 2002, they sought to set up a business trading in stainless steel, wood and similar commodities.  As the proposed business would be principally involved in the importation of these commodities into the Mainland, Mr Chen and Mr Lin wished to set up a Hong Kong office to oversee financial and administrative matters, particularly matters relating to letters of credit, customs clearance and the like.  They employed a Mr Lau Chi Keung to seek customers in the Mainland and it appears that, through Mr Lau, they were introduced to the applicant as a suitable candidate to run the Hong Kong office.

3.  The applicant was a senior executive with a bank in Hong Kong, dealing largely in trade finance.  Academically, he was well qualified.  He held a degree in business administration and an MBA from university in Canada.  Being in his late thirties, he was also a man of some experience.  At that time it was not anticipated that the work of overseeing the Hong Kong office would be a full-time job.  It was therefore agreed that the applicant would continue in employment with his bank and that he would oversee the Hong Kong office of the new business on a part-time basis.

4.  Mr Chen, who appears to have been primarily responsible for financing the new venture, testified that it was agreed that both Mr Lau, in his marketing position, and the applicant, in overseeing the Hong Kong office, would be paid a monthly sum of $30,000 and would also be entitled to such benefits as Hong Kong law made mandatory.  No further benefits were agreed.

5.  The new business was to trade under limited liability and to this end Couger Capital Limited was incorporated in or about mid 2002.  As for the shareholdings in Couger, Mr Chen and Mr Lin held 90% of the shares in a corporate vehicle, a BVI company called General Intertrade Limited.  Mr Lau held 5% and the applicant and his wife held the remaining 5% in a company of which they were the sole shareholders called Big C Limited.

6.  As for the capital requirements of the new business, all funding was to be supplied by Mr Chen and Mr Lin.  The evidence showed that a sum of about $20 million was invested during the time the applicant was involved in the business.  Neither Mr Lau nor the applicant was required to inject any capital.

7.  The applicant was in charge of Couger’s Hong Kong office for a period of about 19 months.  Two people were employed to assist in day-to-day office management.  The applicant therefore did have clerical assistance.

8.  In or about early January 2004 the applicant’s association with Couger ended.

9.  Subsequent to the applicant’s departure, it was discovered that he had on a large number of occasions withdrawn money from the bank accounts of Couger without leaving any record, or at least any clear and unequivocal record, as to why he had done so or that he had the required consent to do so.  The 22 charges of theft and the one charge of fraud of which the applicant was convicted arose out of the investigation.

10.  All the theft charges alleged that, during his time in charge of the Hong Kong operation, the applicant stole specific sums of money held in Couger’s bank accounts with either the International Bank of Asia or the Hang Seng Bank.  The charge of fraud alleged that, by setting up an auto-pay arrangement to deduct a monthly sum from Couger’s Hang Seng Bank account to meet the premiums on a personal policy of insurance, the applicant, by deceit, acted to his advantage and to the prejudice of Couger.  The total loss to Couger as a result of the thefts and the fraud was estimated to be about $5.5 million.

11.  At trial, it was not disputed that the applicant had withdrawn moneys from Couger’s bank accounts in the manner alleged by the prosecution.  Nor was it disputed that he had left no written records of any real value explaining why he had taken the moneys, nor any record evidencing the fact that he had permission to do so.  It was the prosecution case that, taking advantage of the trust reposed in him and the lax supervision of his co-directors, the applicant had on each and every occasion stolen the moneys or, by means of fraud, turned them to his advantage.

12.  On behalf of the applicant, it was accepted that his record keeping had left much to be desired.  It was however the defence case that, as the sole person in charge of the Hong Kong office, the applicant had been given a free hand to run Couger’s business affairs as he saw fit without the need to consult with his co-directors.  Accordingly, as to his withdrawal of funds, he had either been given express oral authority or he had acted as he saw best in the interests of the company on the basis, as he understood it, of implied authority.

13.  In summary, in respect of each charge considered separately, it was for the judge to determine whether she could be sure that the applicant had acted dishonestly.  The test for determining whether conduct is dishonest has been stated in R v Ghosh [1982] QB 1053 and followed in Hong Kong.  As Lord Lane expressed it in Ghosh (at 1064):

“In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest.  If it was not dishonest by those standards, that is the end of the matter and the prosecution fails.  If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest.  In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it.  It will be obvious that the defendant himself knew that he was acting dishonestly.  It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did.  For example, Robin Hood or those ardent anti-vivisectionists who remove animals from vivisection laboratories are acting dishonestly, even though they may consider themselves to be morally justified in doing what they do, because they know that ordinary people would consider these actions to be dishonest” (1064).

14.  Accordingly, acts asserted to be dishonest are to be tested, first, objectively; that is, whether, according to the ordinary standards of reasonable and honest people, what was done was dishonest, and, second, subjectively; that is, whether the accused himself must have realised that what he was doing was, by the standards of reasonable and honest people, dishonest.

The issue of record keeping

15.  As an issue of fact, it was of course fundamental, in respect of all the charges, for the judge to come to a finding as to the nature and extent of the applicant’s responsibilities as the person in control of the Hong Kong office.

16.  In this respect, Mr Grossman SC, leading counsel for the applicant, submitted that the judge’s approach had been fundamentally flawed.  As Mr Grossman put it, although the applicant was left in charge of Couger, with no parameters to his responsibilities, the court had approached the matter as if it was measuring his actions against those of a notionally well-run company, finding that the applicant’s actions fell short of this hypothetical approach.  In particular, said Mr Grossman, the court had failed to give due weight to the “extremely loose management style” which was adopted and tolerated by the principal backers, Mr Chen and Mr Lin.

17.  I am satisfied, however, that the judge did not adopt a hypothetical approach.  To the contrary, she came to a firm finding of fact as to the nature of the applicant’s responsibilities.  As it was said in the judgment:

“The [applicant] was solely responsible for the business in Hong Kong.  They [Chen and Lin] placed their full trust in the [applicant] when setting up the business on the basis that he was an experienced, reputable banker in a well-known bank.  The [applicant] was left to decide which banks Couger would use for its business.  He employed the staff, decided on their salary, entered into contracts with the overseas suppliers for the import of steel and dealt with all matters relating to the letters of credit and the banks.  Most significantly, he dealt with and was handling millions of dollars of Couger’s money.

I am satisfied in this case that the [applicant] knew from the very outset that he was to be in charge of and responsible for substantial sums of money without the supervision of the other directors.  He knew full well that he was left in a high position of trust …..” [paras 114 and 115]

18.  As for the criticism that there was a failure to give due weight to the loose management style employed in the running of Couger, the judge did take this into account but came to a finding of fact that the applicant was the real author of this state of affairs.  It is true perhaps that the applicant was not given any directions as to how specifically he was to manage Couger.  But, on a reading of the judgment as a whole, it is again clear that a finding of fact was made that it was for the applicant to set up the necessary systems.  That was his responsibility.  What is to be remembered, and what the judge would have been fully aware of by the end of trial, is that Couger’s Hong Kong operation was not, initially at least, of an unmanageably high volume or complexity.  Nor was the applicant required to involve himself in highly formalised, esoteric management practices.  Many private companies are run on a reasonably informal basis.  But that does not mean that records are not kept of important agreements and/or telephone conversations or that a simple system is not put in place to record expenses incurred or why payments have been made to third parties (including directors).

19.  What emerges from the judgment, in my view, are the following findings of fact, essentially contextual, as to the applicant’s own abilities, his place in Couger and the nature of his responsibilities in the management of that company:

(i)  The applicant, academically at least, was well qualified for the job at hand.  He had both a first degree and a master’s degree in business administration.  In addition, he had experience working in trade finance for a bank, a job demanding the keeping of salient records.

(ii)  However, while he was a director of Couger and a shareholder, he and his wife were very much minority shareholders, holding just 5% of the issued shares.  Mr Chen and Mr Lin held 90% of the shares and, in addition, had (and would) inject all capital.

(iii)  Nor could it be said that the applicant had a long and trusted past relationship with Mr Chen and Mr Lin.  This was his first association with them.  Accordingly, the applicant must have appreciated, that he was not Couger’s alter ego, that he was answerable to his co-directors and shareholders.

(iv)  As the applicant was given charge of the Hong Kong operation, it was for him to set up necessary managerial and financial systems and to ensure that they were run efficiently. 

(v)  The judge recognised that Couger was ‘loosely’ managed, but found that Mr Chen and Mr Lin placed their trust in the applicant to set up the Hong Kong office in accordance with accepted, prudent business practices.  That was the responsibility given to him on the basis that he was “an experienced, reputable banker”.

20.  An evidential matter of considerable importance was the admitted failure of the applicant to keep appropriate records, or often any records at all, of his dealings in the funds of Couger.  In coming to her findings that the applicant had acted dishonestly, the judge took into account his failure to keep records.  In this regard, for example, she said the following:

“The [applicant] was, and is, an experienced banker and educated man.  He was involved in a number of companies and their management.  He is no doubt aware of how to manage money, to keep records and to adopt a sound business practice.  In his management of Couger he has adopted the absolute opposite.  The [applicant’s] allegation that he kept a notebook of his loans and advances paid to Couger which has now been lost, is absurd and unbelievable.  The [applicant] from the very start of his participation in Couger intermingled his funds with that of Couger’s ……  He kept no records, except those on the cheque stubs which proved meaningless.”

21.  Of course, a failure to keep records, even when such records would quite clearly be required, is not of itself proof of dishonesty.  As Mr Grossman put it, to suggest that every banker is a practitioner of sound business practice is akin to taking judicial notice of the fact that every solicitor keeps his trust accounts properly.  But I do not think that the judge, in giving her reasons, came to any such false conclusion.  The judge instead made reference to the fact that, as an experienced banker and educated man, the applicant – in the circumstances in which he found himself – must have been aware at least of the need to put in place prudent financial and management systems which must have included the need for recorded transparency in respect of his dealings with Couger’s funds.  That being the case, his inexplicable failure to do so was one of the matters that could be taken into account in determining whether the prosecution had proved dishonest intent.  To extend Mr Grossman’s analogy, a solicitor will at least be aware of the obligation imposed on him to properly maintain his trust accounts.  That is a fact, if it is demonstrated, which a court may take into account when considering allegations of theft on the part of a solicitor who has persistently taken moneys from a client’s trust account for his own ostensible use without, and for no explicable reason, keeping any appropriate record or indeed any record at all.

22.  A further matter of relevance was the finding of fact as to the manner in which the applicant dealt with bank statements and also the circumstances of his departure from Couger.  In this regard, the following finding is detailed in the judgment:

“[The applicant] calculatingly concealed the bank statements from the staff at Couger so he was able to hide from and escape their detection of his wrongful appropriation of funds.  I find that he kept the bank statements to himself for fear that his surreptitious dealings with Couger’s funds would be exposed.”

23.  As to the circumstances of departure, a finding was made that the applicant informed Mr Chen of his desire to leave Couger very shortly after Mr Chen had ordered a check on the accounts.  More than that, the applicant then made himself scarce:

“I find thereafter that [the applicant] was unable to be contacted when those at Couger wanted an explanation [as to the accounts].  Despite being long term very good friends with [Mr Lau], whom he would see and contact often, he even severed all contact with him upon his departure from Couger.”

24.  In respect of these important contextual findings, I am satisfied that the judge’s evaluation has not been shown to be absent, lacking or flawed in any substantial way.

Charge 10

25.  This was the most serious charge faced by the applicant, alleging a theft of $3 million.  On conviction, he received a sentence of five years.  It was also in many ways – factually - the most complex charge.  It was the first charge considered by the judge in her Reasons For Verdict.

26.  It was Mr Grossman’s submission that, in respect of this charge, the judge made two fundamental errors as to issues of substance.  This, he said must have coloured the judge’s adverse finding that little or no reliance could be placed on the applicant’s testimony, a finding that must, to a greater or lesser degree, have carried over into her determination of the charges which she then moved on to consider.

27.  Charge 10 alleged that, on 16 January 2003, the applicant stole $3 million held in Couger’s account with the International Bank of Asia.  As to the disposal of the $3 million:

(1)  On 16 January 2003, the applicant withdrew the $3 million and paid it into his personal account with Standard Chartered Bank.

(2)  On 20 January 2003, the applicant paid $1.5 million into another account held by him in the Hang Seng Bank and paid the balance of $1.5 million into an account held in the name of a man called Paul Lan.

(3)  That same day, Paul Lan paid his $1.5 million into the account of a company called Oceanwide Investments Limited.

(4)  As for the applicant, on 20 January 2003 he paid $1.2 million into the account of Oceanwide, leaving $300,000 in his personal account.

(5)  However, it appears that nine days later the applicant transferred a sum of $1.74 million from his Hang Seng account to Big C Limited, the company in which he and his wife were the sole shareholders, and that company paid the $1.74 million into the account of Oceanwide. 

(6)  It further appears that, the day before that transfer of $1.74 million, the applicant had received a sum of $1.44 million into his account.  On its face, therefore, it appears that the $1.74 million may well have consisted of the $1.44 million plus the balance of $300,000 from Couger.

(7)        As for Oceanwide, it was a Cayman Island company incorporated just two or three weeks before the $3 million was removed from Couger.

(8)        Little is known of Oceanwide’s activities until late February 2004 when, about six weeks after the applicant had parted with Mr Chen and Mr Lin, it purchased, through a wholly owned subsidiary called Advance Elite, 8.5 million shares in a listed company called Prime Investment Holdings Limited.  The consideration for the purchase of those shares was $2.55 million.

(9)        After the purchase, the applicant became the Chairman and CEO of Prime Investment Holdings.

(10)    The Stock Market announcement as to the agreement stated that Advance Elite, the wholly owned subsidiary of Oceanwide, was indirectly owned by the following:

(1)  The applicant                  28.75%

(2)  The applicant's wife     12.08%

(3)  Ms Winnie Cheung         21.67%

(4)  Paul Lan                         20.83%

(5)  The Citic Group             16.67%

(11)      The above persons were therefore the stated shareholders in Oceanwide.  It will be seen that, although the $3 million, or almost all of it, that was taken from Couger was paid into the coffers of Oceanwide, neither Couger nor Mr Chen or Mr Lin, Couger’s majority shareholders, were shown as having any beneficial interest in any shares in the company.  The applicant, however, held 28.75% and his wife 12.08% while Mr Lan held 20.83%.

(12)      Indeed, the 2004 annual report of Prime Investment Holdings declared that the applicant was-

“…. a beneficial shareholder of approximately 28.75% of the issued share capital of Oceanwide Investments Limited, which indirectly holds 8,500,000 shares of the Company through its wholly-owned subsidiary, Advance Elite Holdings Limited.”

(13)      No mention was made in that (or any other contemporaneous document) that any of the applicant’s shares were held in trust for any third party.

(14)      A further complicating factor, but one that needs to be recited, is that the applicant’s 28.75% consisted of 16.67% held in a company called First Precision Investments Limited and 12.08% held in Big C Limited.

28.  On its face, therefore; that is, having regard to the circuitous movement of funds and the available documentation, it appeared that the $3 million taken from Couger was invested in Oceanwide, enabling the applicant and Paul Lan to acquire their shareholding in Oceanwide, the applicant being declared the beneficial owner of his shares.

29.  As for Mr Chen and Mr Lin, they testified that they had no knowledge of Oceanwide.  They denied ever discussing Oceanwide, or any investment in it, with the applicant.  Mr Chen denied giving any authority to the applicant to remove $3 million from Couger to invest in Oceanwide.

30.  The applicant’s testimony was to the contrary.  It was his case that he had first discussed his idea of setting up Oceanwide with Mr Chen and Mr Lin in late 2002, telling them that two PRC state-owned companies were considering investing.  A little later, after a second meeting, Mr Chen said that he wished to invest $3 million but, for reasons of confidentiality, preferred it if the applicant held his shares in Oceanwide on his behalf.  According to the applicant, he informed Mr Chen that his (i.e. Mr Chen and Mr Lin’s) shares would be held in a BVI company, that company being First Precision.

31.  It was the applicant’s testimony that, as a reward for him and Mr Paul Lan putting the project together, it was agreed that they would be entitled to take about $1.8 million of the $3 million to acquire shares in Oceanwide.  Mr Chen and Mr Lin were therefore left with $1.2 million – less than 50% of their stake.  The judge rejected this account, saying:

“I wholly disbelieve the defendant’s account that [Mr Chen and Mr Lin] would quite unwisely agree to more than half of their investment to be gratuitously paid over to the [applicant] and to a stranger, Paul Lan.  This agreement that the defendant puts forward between himself and [Mr Chen and Mr Lin] is most implausible.  It being an unwise unlikely investment.”

32.  As for the applicant’s assertion that he at all times held Mr Chen and Mr Lin’s investment on their behalf in his company, First Precision, it was his testimony that, in January 2004, at about the time of the break-up, he offered to transfer all his shares in First Precision to Mr Chen and Mr Lin for a nominal consideration of $1.00.

33.  In January 2004 there had, in fact, been a meeting at the offices of a solicitor.  An agreement had been reached in terms of which the applicant’s minority shareholding in another company (of no relevance to this judgment) was to be transferred to Mr Chen and Mr Lin for a sum of $1 million and the meeting was to enable the solicitor to witness this transaction.

34.  There was conflicting evidence as to whether there was one meeting with the applicant, Mr Lin and the solicitor all being present, or whether the applicant and Mr Lin saw the solicitor at different times.  But whichever way, it is accepted that Mr Lin was given a document in English which read:

“I, Lau Sze Shing Edward, being the sole shareholder of First Precision Investments Limited (“First Precision”), hereby agree to offer to sell to General Intertrade Limited all of my shareholding in First Precision’s shareholding for the sum of HK$1.  This offer and any associated share purchase are only valid and exercisable after July1, 2004.”

[General Intertrade was a company owned by Mr Chen and Mr Lin]

35.  It was the applicant’s evidence that Mr Lin well understood the true import of that offer.  It was Mr Lin’s evidence that he did not, that he was not interested in acquiring some unknown company from the applicant for $1 and he threw the letter away.

36.  On behalf of the applicant, it was submitted that Mr Lin’s evidence as to discarding the written offer was simply not credible.  I do not agree.  If, as the judge found, Mr Chen and Mr Lin knew nothing of Oceanwide at that time and therefore of any asserted investment in that company being held on their behalf, it was clearly open to the judge to accept that the offer may have been discarded as an inexplicable oddity.  Why take responsibility for a company about which you know nothing?

37.  In my view, it is noteworthy that the offer itself contained no preamble nor any explanation as to why the shareholding was being offered, no indication of any kind that First Precision held Mr Chen and Mr Lin’s investment in Oceanwide.  Yet, if the applicant is to be believed, he was at this time attempting to settle matters between himself and Mr Lin.  In business and banking, he was an educated man.  Why not therefore say something as to the purpose of, or reason for, the proposed transfer?

38.  In addition, as the judge herself noted, why offer the whole company, why not simply transfer, or offer to transfer, the company’s shares in Oceanwide?

39.  As I have indicated, the judge rejected the defence as a sham, concluding that Mr Chen and Mr Lin had never agreed to invest $3 million in Oceanwhide.  She accepted Mr Chen’s evidence that he would not invest in another company without doing so in his own name or in the name of a company which he controlled.

40.  In coming to her evaluation of the evidence, the judge said the following:

“The confirmation sheet prepared by a company secretariat for Oceanwide described the [applicant] as the beneficial owner of Oceanwide.  I find the [applicant’s] claim to know nothing about beneficial ownership or trusts to be unbelievable given his experience in the bank and his education.

Further, I find that the complex movement of the $3 million taken from Couger eventually finding its way to Oceanwide’s account is indicative that the funds were destined for the [applicant] and Paul Lan’s own sole use.

If it really was an investment by [Mr Chen and Mr Lin] why would the [applicant] simply not deposit the whole amount of $3 million directly into Oceanwide’s account from Couger’s and make any division thereafter.  Instead the [applicant] kept the money in his Standard Chartered Bank account for four days then the money passed through to his HSBC account and Paul Lan’s account.  Unmistakably, only $2.7 million was transferred into Oceanwide’s account from Couger’s account in the end.

41.  It was in these paragraphs, said Mr Grossman, that the judge made her two material errors of fact.  The first error, he said, was the finding (in paragraphs 70 and 71) that only the applicant and Paul Lan were the beneficial owners of Oceanwide.  The second error was the finding (in paragraph 72) that, of the $3 million removed from Couger, only $2.7 million made its way into Oceanwide’s account.

42.  In my judgment, there is no substance in the first criticism.  There was clear evidence before the judge that the applicant and Paul Lan were not the only shareholders in Oceanwide.  Nor, on an ordinary reading of paragraphs 70 and 71, can it be said that she misled herself:

(i)  In paragraph 70, the judge was simply dealing with the concept of beneficial ownership, recording that one Oceanwide document had described the applicant (and his wife) as being the beneficial owners of the shares and rejecting as “unbelievable” the applicant’s contention that, despite his learning and experience, he did not understand the concept.

(ii)  In paragraph 71, the judge was looking solely to the movement of the $3 million, there being no suggestion that the money had bought the applicant and Paul Lan the entire beneficial shareholding in Oceanwide.

43.  As to Mr Grossman’s second criticism, it may be that, in attempting to track the somewhat convoluted movement of funds, the judge was in error in saying that only $2.7 million reached Oceanwide, an amount of $300,000 being retained therefore by the applicant.  Assuming, for the purposes of argument, that there was an error, I do not see, however, that it takes the matter much further.  In the scale of things it was minor.

44.  On the findings of fact, there was more cogent and far-reaching evidence upon which the judge came to the conclusion that she was sure the applicant’s version of events was untrue.  For myself, on a reading of the transcript and a consideration of the relevant exhibits, as well as the telling absence of any contemporaneous records of any real value generated by the applicant, I have no reason to conclude that the judge’s finding was unsafe.

45.  In respect of charge 10, Mr Grossman made a number of further criticisms of the judge’s findings of fact.  While Mr Grossman put every point possible on behalf of the applicant, persuasively articulating his criticisms, I have found little substance in them.

46.  By way of illustration, a witness, Mr Lan Ning, was called by the applicant to testify that, in or about March 2003, he had been in a restaurant with the applicant and Mr Chen when matters concerning Oceanwide had been discussed in detail, Mr Chen saying that he would support the applicant in the venture.  Mr Lan Ning’s evidence was rejected by the judge.  In so doing, she said that he was a friend of the applicant and had been so for many years.  He also remained a director of certain companies controlled by the applicant.  He had every reason said the judge, “to fabricate his evidence to assist the [applicant] in his defence”.

47.  Mr Grossman argued that, in the factual context of the case, friendship alone was no ground for rejecting Mr Lan Ning’s testimony.  But the testimony was not rejected on that ground alone.  More telling was the judge’s finding that Mr Lan Ning was an evasive witness whose avoidance of various issues led her to disbelieve him.

48.  In my judgment, this was a case where the view of the judge was of the greatest importance.  The judge saw and heard the witnesses and was in a better position than this court to determine which factual matters had been proved by the prosecution and, in light of those findings, which witnesses were to be believed.

49.  It may be, in respect of this charge and others, that I would have laid less emphasis on certain factual findings or more on others but, in respect of charge 10, I am unable to say that the finding of guilt was vitiated by any error or mistake of sufficient substance to raise any lurking doubt.

50.  It was integral to Mr Grossman’s submission on charge 10 that the judge’s errors had led her to wrongly assess the applicant’s general credibility.  But, in my judgment, there being no errors of a material kind, it cannot be said that the judge’s finding, on all the evidence, that the applicant had embarked on a dishonest course of conduct was unsafe.

The application to adduce further evidence

51.  Before moving to consider the remaining charges, it should be said that the applicant sought, in support of his appeal, to introduce new documentary evidence related to charge 10.  The application was refused.

52.  First, one of the pieces of documentary evidence to be produced had already been produced at trial.  Second, as to the remaining documentary evidence (which included an accountant’s analysis to show that the applicant had not held back $300,000 of Couger’s $3 million for his own benefit), while it was relevant and likely to be credible, it was not, in the opinion of the court, evidence which might have led to a different verdict, rendering the conviction unsafe or unsatisfactory.

Charges 2 – 9

53.  The total sum represented by these charges of theft was $578,788.00.  The charges related either to cash withdrawals from Couger’s bank accounts or to cheques drawn on them.  The withdrawals were made over a period of about five months between August and December 2002.

54.  In respect of these withdrawals, the judge noted that none of the prosecution witnesses was aware of them at or about the time they were made or why they were made.

55.  It was the applicant’s case that he had withdrawn the moneys for several reasons: first, to reimburse himself for loans he had made to Couger; second, to reimburse himself for a loan he had made to Mr Lau, Couger’s marketing man; third, to pay himself his monthly salary/consultancy fees and, fourth, to reimburse himself for various expenses.  However, there were no internal documents compiled by the applicant to evidence these removals.  In the result, observed the judge, the applicant-

“…. has thrown to the court a mesh of figures which he asks this court to unravel and make sense of so as to fit comfortably with the amounts in the charges.  For some, because of the lapse of time, he says he cannot now remember.  Whilst in charge of business operations he kept no proper record of accounts.  He is the author of his own disorder.”

56.  But that being said, it was accepted that in June 2002, in the early days of Couger’s operations, the applicant did make two payments into Couger’s account totalling $300,000.  It was the applicant’s evidence that he did so to clear a small overdraft and to top up the company account.  In that respect also the records did reveal some rational connection between the payments made and the temporary status of the account.  Mr Grossman emphasised that these facts could not be ignored, arguing that they had to at least raise a reasonable doubt that, in respect of the $300,000, the applicant had an honest belief that he had a claim of right.

57.  However, while the judge acknowledged the payments made in by the applicant, she rejected the contention that the applicant had made a loan to Couger of $300,000 and therefore, in respect of that sum, believed at the time that he had a claim of right.

58.  The judge could not say why the payments had been made in but, on all the evidence, she was sure that they had not constituted genuine loans:

(i)   If he had made an honest loan to the company, why had he not said anything about it to his co-directors?  On his own admission, the applicant had said nothing nor had he left any unambiguous record in the accounting records of the company to prove his concern and generosity.  As the judge observed, to the contrary, he had concealed the matter from his co-directors, especially Mr Chen, the principal financial backer.

(ii)  If there had been cash flow problems of concern, said the judge, surely the applicant would have contacted Mr Chen.  The applicant after all was a minority shareholder and not a wealthy man.  Mr Chen on the other hand was a man of “significant means” who, on the evidence, was able to transfer funds when needed without delay.

(iii)  If a genuine loan of $300,000 had been made in two payments of $100,000 and $200,000, said the judge, it was logical to think that there would be a symmetry in the repayment.  If $100,000 was lent surely $100,000 would be repaid.  As the judge observed: “surely for his own record or, even if no record was kept, for his memory this is what one would do.  One would take out what one had put in, in whole exact figures so as not to cause any confusion or mix-up at a later date”.

(iv)  It was the judge’s finding of fact that the applicant had begun to use Couger’s account effectively as his own account.  He was sophisticated enough to order the accounts to what he saw to be his advantage.  To use the judge’s own words, she found the applicant to be “manipulative and scheming in his dishonest appropriation of Couger’s funds”.  As she observed:

“The [applicant] had intermingled his own personal funds with that of Couger’s.  He made transfers from his personal bank accounts to that of Couger.  He withdrew from his personal bank account monies and deposited it into [Mr Lau Chi Keung’s] bank account.  There are no internal documents found by Couger compiled by the [applicant] to show any of these transfers or any records.”

59.  When looking to the Reasons For Verdict, it is clear that the judge was satisfied that the applicant’s manipulation of Couger’s accounts was, to use the words of Mr Fitzpatrick, counsel for the respondent, a design to baffle enquiry.  In my judgment, there was telling enough evidence on which the judge was able to come to her conclusion.

60.  As Mr Fitzpatrick, pointed out, the greater part of the applicant’s defence was only revealed at trial.  It was not as if all of the applicant’s financial dealings in all the various corporations and accounts with which he had a connection were laid out for audit.  It is not always possible to resolve a mystery of the applicant’s own making.

61.  Mr Grossman’s point was one that initially raised some concern.  But, on looking to all the relevant evidence, I am, in the end result, left with no lurking doubt that an injustice may have been done.

62.  I have come to the same conclusion in respect of Mr Grossman’s criticism of the findings made in respect of moneys which the applicant said he had paid to Mr Lau on behalf of Couger as increased consultancy fees.

63.  On the facts as she found them, I am satisfied that the judge was entitled to reject any claim of right and to find that in respect of all the moneys taken from Couger (under charges 2 –9) he had acted with dishonest intent.

Charge 13

64.  On 10 February 2003, a cheque for $100,000 drawn on Couger was paid into a personal account of the applicant.

65.  It was the applicant’s case that Couger’s marketing man, Mr Lau, had requested a loan of $100,000 from the company.  The applicant, on behalf of the company, had advanced the loan: $30,000 by way of a deposit into Mr Lau’s bank account and the balance of $70,000 in cash.  The Couger cheque for $100,000 was simply reimbursement of the moneys the applicant had advanced.

66.  Mr Lau, who had been travelling in the Mainland a good deal of time, denied ever asking for a loan of $100,000 or of receiving $70,000 in cash.  He had no idea why the applicant had deposited $30,000 into his account.

67.  On behalf of the applicant, Mr Grossman criticised the judge’s conviction as being unsafe on the basis that she had materially based her conviction on the fact that, having advanced the money, the applicant had not charged any interest.  While I accept that this was a ground of limited value, there were other cogent findings of fact upon which, in my view, the judge was amply entitled to reject the applicant’s defence of claim of right.  I am satisfied therefore that the conviction was not unsafe.

Charge 18

68.  On 28 July 2003, a cheque for $200,000 draw on Couger was paid into a personal account of the applicant.

69.  It was the applicant’s case that this was reimbursement for a sum of $200,000 he had earlier advanced to Couger to clear an overdraft of some $49,000.

70.  The judge took note of the fact that the cheque stub to Couger’s cheque for $200,000 bore the cryptic endorsement: “D/F Director”.  This, said the applicant, had meant “due from director” when of course it should have stated “due to director”.

71.  All that error indicated, said Mr Grossman, was that the applicant was unfamiliar with accounting practice.

72.  But it is clear, in my view, that the judge’s findings were not that narrow.  As she said:

“Most significantly nothing on the cheque stub assists anyone to understand from what is written that this is for a repayment of a loan made by the defendant.  Nothing is written down by the defendant as to the date of the loan made by him to Couger or astonishingly what date that cheque for repayment was issued.”

73.  Although not stated in direct terms, it is clear that the judge was satisfied that this was another example of the applicant’s dishonest manipulation of Couger’s finances.  Was her determination of guilt lacking or flawed in any substantial way?  Viewed in the light of the contextual findings to which I have earlier referred, I am satisfied that it was open to the judge to come to the finding she did.  It was not unsafe.

Charge 15, 17 and 19

74.  In March, June and July 2003, the applicant paid three cheques to himself and/or his wife, the moneys being drawn from Couger’s bank account.  The total sum was $1.5 million.

75.  The applicant testified that, in early February 2003, he had reached an oral agreement with Mr Chen that, in addition to his monthly entitlement and any other benefits made mandatory by Hong Kong law, he would be entitled to a consultancy fee of $1.5 million for three years of continued service.  He would be entitled to that full sum with immediate effect: hence the three cheques for $1.5 million.

76.  The applicant said that he drew up a written agreement between Couger and his company, Big C Limited, signing on behalf of both Couger and Big C.  That contract, he said, was left in his desk when he ended his association with Couger.  Somehow it must have then gone missing.  The applicant accepted that he had not kept a copy of the agreement itself.  There was therefore no evidence of any such agreement, not even any accounting evidence explaining the three cheques.

77.  It was Mr Chen’s testimony, which the judge accepted, that he had never entered into any such consultancy agreement.  In rejecting the applicant’s assertion that there had been a consultancy agreement, the judge commented:

“I find it astonishing that the [applicant] would be able to sign the contract for both parties to the contract.  This dual capacity is obviously beyond any normal business practice.  It is highly irregular and unconventional.  There was and is no reason for the [applicant] to sign for both parties even if that were true, which I do not believe.  The contract could have been faxed or posted to [Mr Chen] to sign.  This was not …. contemplated by the defendant, surprisingly.”

78.  Mr Grossman criticised this finding on the basis that clearly the applicant had the necessary capacity to sign on behalf of both Couger and his own company, Big C.  But, read in context, I am satisfied that the judge was not speaking of capacity per se.  This was an agreement for an immediate payment of $1.5 million and one of the matters taken into account by the judge was that, in the circumstances, the contract – one of very considerable importance - could have been faxed (or posted) to Mr Chen to sign on behalf of Couger so that matters would be seen to be transparent and above board.  That was a legitimate observation when considered in light of the fact, as the judge put it, that the applicant had “failed to make a report to both companies or even to account to Couger for the payments taken”.

79.  Again, I am satisfied the conviction has not been shown to be unsafe.

Charge 20

80.  In July 2003, the applicant paid a sum of $25,575.00 for renovation work on an apartment that he had purchased some three months earlier.  The cheque in payment was drawn from Couger’s bank account.

81.  The applicant accepted that he did not inform any of his co-directors or his supporting staff of why this payment was being made.  It was, however, his case that, as a director, he had to socialise (by way of business) with other bankers and, from time to time, did so at home: hence his belief that he had implied authority to spend the money on renovations.

82.  On the evidence, the judge was sure that the applicant had acted dishonestly.  In coming to that determination, she said:

“It is most unlikely and uncommon that companies give carte-blanche to their directors who are on the pay roll to do anything at their own discretion.  More particularly when it concerns renovations to their own private abodes.  I reject the [applicant’s] case that he believed he had the authority or had the right to deprive Couger of this money.  I find the [applicant] to be dishonestly abusing his position by just helping himself to Couger’s funds to assist in his own personal gain in the renovation of his newly acquired flat.”

83.  In the formulation of his criticism, Mr Grossman said that, given that it was the applicant’s duty to host social events, the judge’s emphasis on the applicant’s failure to notify the others was misplaced.  Why should the applicant be required to report to his contemporaries that he was essentially doing his job?

84.  But what is to be remembered is that, in considering the test for dishonesty, the judge had to first consider whether, objectively, read in context, the applicant’s actions were dishonest.  It was her determination - one which, on the facts, was very much open to her - that any reasonable and honest person in the applicant’s position would have appreciated that he could not go ahead to pay for private renovations at the expense of the company without some discussion and concurrence on the part of fellow directors.  Company directors do not have a free hand to do whatever they wish, a fact which must have been appreciated by the applicant.

85.  From that objective finding, the judge went on to find that the applicant must have known that he was dishonestly abusing the trust reposed in him.  On the evidence, that finding too was very clearly open to her.

Charge 22

86.  In September 2003, the applicant purchased a computer.  He arranged to be refunded the purchase price by Couger.  The computer therefore became the property of the company.  However, when he ceased his association with Couger, the applicant failed to return the computer.  The applicant’s testimony in respect of the computer was summarised by the judge in the following terms:

“It is the [applicant’s] evidence that, shortly after the purchase of the laptop computer, the computer broke down many times.  By that time, the [applicant] had broken up with his wife and lived with his mother in Aberdeen.  He had left the laptop computer at his mother’s house.  The [applicant] said that he had forgotten all about the laptop computer.  When he asked his mother about the laptop computer a few years later she told him that she had thrown away the laptop computer.  The [applicant] says that he had no dishonest intention to keep the computer and treat the computer as his own to dispose of it.

87.  The judge looked to several evidential matters, drawing what she clearly saw as the only reasonable inference; namely, that, although he had got the company to pay for the computer, the applicant had nevertheless assumed rights of ownership over it.

88.  Mr Grossman submitted that the computer had not been an expensive item – less than $10,000 – and the fact that it had been left at the mother’s home was equally consistent with oversight as it was with a dishonest intent.

89.  The judge, however, was satisfied, as a finding of fact, that the applicant had not simply forgotten about the computer.  She further rejected the suggestion that the applicant’s mother would have thrown it away, a computer being an expensive item invariably containing data.

90.  In summary, the judge found it to be another episode in an intentional course of dishonest conduct.  It was a finding of fact open to her and not one, in my judgment, that presents any grounds for being disturbed as being unsafe.

Charge 23

91.  On 10 September 2003, a cheque for the modest sum of $2,500 drawn on Couger was made payable to a firm called A&P Interiors.

92.  It was the applicant's case that this was a small renovation charge incurred by Oceanwide which was paid on its behalf by Couger.  It was paid on behalf of Oceanwide, said the applicant, in recognition of the assistance Oceanwide had earlier given Couger by advancing it a sum of $4 million.

93.  There was evidence that Oceanwide had advanced that sum to Couger for a period of three weeks in March 2003.  The full sum had been repaid without delay.

94.  It was not disputed that none of the other directors of Couger were informed of this $4 million loan.  The judge noted that it was the evidence of Mr Chen, Mr Lin and Mr Lau that Couger had never required financial assistance by way of a short-term capital advance from any source, particularly from Oceanwide, a company they had not heard of before.

95.  On the facts, as she found them, the judge rejected the contention that the $2,500 was a genuine “gratitude” payment.  She was satisfied that the applicant had again dishonestly taken money from Couger to suit his own purposes.

96.  Quite clearly, as appeared elsewhere in her judgment, she was satisfied that the applicant’s co-directors in Couger knew nothing of Oceanwide.  There was therefore no open relationship between the two companies.

97.  Mr Grossman said it was unclear why the judge should have placed such strong emphasis on the fact that there was no record on the books of Couger concerning the $4 million as the relevant particulars were obvious to anyone who bothered to cross-reference the bank statements.  But in my judgment that does not meet the clear thrust of the judge’s findings in this regard; namely, that, if everything had been above board, surely there would have been clear records in Couger’s books and some mention to the other directors that Couger was in need of a very substantial, albeit temporary, advance.  As she said:

“Peculiarly, he did not even venture to inform the other directors about this enormous gratuitous loan from Oceanwide.  The same observations I made above as to not informing the other directors on the financial difficulties faced by Couger I repeat here.”

98.  Later, by way of a general conclusion, concerning the applicant’s dishonest course of conduct, the judge said:

“The [applicant] from the very start of his participation in Couger intermingled his funds with that of Couger’s.  He even went so far as to intermingle Oceanwide's funds a company wholly unrelated to Couger with Couger’s on the pretence it was a loan.  He kept no records, except those on the cheque stubs which proved meaningless.  An alleged notebook he had was lost ….”

99.  Mr Grossman made the further criticism that, if the applicant's conduct had been dishonest, the only alternative, given the circumstances, must have been a well-timed ploy to manipulate Couger's funds.  To ultimately suggest that the applicant deployed $4 million to illegally obtain a profit of just $2,500 was unrealistic.  That contention presupposes that the $4 million loan and repayment could only have been made to “give cover” for the $2,500 renovation charge – a very small sum – in respect of which payment was made some five months later.  But the judge did not accept any such nexus.

Charges 14, 24 and 25

100.  These charges concerned a policy of insurance taken out by the applicant to provide financial protection for himself and/or his wife in the event of critical illness.  The first two charges alleged theft in respect of cheques drawn on Couger's bank account to pay premiums.  The third charge – one of fraud – related to the setting up of an auto-pay arrangement whereby Couger paid those premiums.

101.  Although the applicant suggested that in some indirect way Couger could benefit from the policy, Couger was not in any way a stated beneficiary.

102.  This again was a benefit secured by the applicant without any consultation with the co-directors and again the judge found that the applicant, in all the circumstances, could not have believed that he had any authority to proceed in the way he did.  He was dishonestly abusing his position.  As the judge put it, he was at this stage “quite shamelessly” appropriating Couger’s funds.

Charges 11, 12 and 16

103.  Charges 11 and 12 concerned cheques made out in January 2003 in the sums of $12,872.40 and $13,661.80.  Charge 16 concerned a cheque for $100,000 made out in April 2003.

104.  When testifying, the applicant said that, due to the lapse of time, he was unable to remember for what purpose these payments were made to him.  He believed, however, that the first two cheques, because they were in such specific amounts, were reimbursement for expenses incurred while the third cheque in the sum of $100,000 - while there could be “many possibilities”- may have been repayment of a loan he had made to the company.

105.  By reason of the lack of accounting records in the archives of Couger, the prosecution witnesses themselves could not testify to any stated reason.

106.  The judge was therefore left in a position in which, without drawing up any appropriate record or, for example, filing any invoice or receipt to prove an expense, the applicant had made out these three cheques in his own favour.  As Mr Grossman put it, the fact that the prosecution was unable to prove what the sums were for did not throw any onus upon the applicant to explain them.  That is correct.  It is equally correct that each charge must be considered and determined individually.  It would therefore have been better, I think, if the judge had stated her reasoning in more specific terms.  Her single paragraph determination read as follows:

“I find that the [applicant] has fuelled his ambition with other people’s money.  When it is a small figure the [applicant] says it is expenses.  When there is a large figure he says it may be a repayment of a loan made.  The [applicant] has conducted the affairs of Couger in such a manner that is confusing to himself.  I do not accept that this was either a loan or repayment of reimbursement of expenses.”

107.  The inescapable conclusion, however, drawn from the Reasons for Verdict as a whole, is that the judge drew the inference - the only reasonable inference arising out of the applicant’s plunder of Couger's funds - that these payments too, unrecorded and in no way contemporaneously recorded in the files of the company, could only have been further instances of a course of dishonest conduct.  The judge had a stark choice to make.  But it was made against a background, each of the earlier charges being considered on their own merits, of a course of conduct which she found to be manipulative and dishonest, conduct on occasions that amounted to brazen theft.  Was it open to her to draw the inference she did as the only irresistible inference?  I am of the view that it was.

Hon Burrell J: 

I agree

Hon Beeson J: 

I agree

Conclusion

108.  For the reasons given, the application for leave to appeal is dismissed.