HKSAR v. YU LAI LAI AGNES

CACC 242/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 242 OF 2013

(ON APPEAL FROM DCCC NO. 415 OF 2012)

________________________

BETWEEN

________________________

________________________

________________________

Hon Macrae JA:

1.  The applicant was convicted by HH Judge Sham in the District Court of one charge of Fraud, contrary to section 16A of the Theft Ordinance, Cap 210, and sentenced to 6 years and 8 months’ imprisonment. She applies for leave to appeal against both conviction and sentence. On 10 December 2013, we reserved judgment on both matters and said we would give our decision in due course. This we now do.

The prosecution case

2.  The applicant was one of two directors, the other being her son, of a private company called Jatrade (HK) Ltd (“Jatrade”).  Over the course of eight weeks from early September to late October 2008, the applicant applied by way of 15 separate applications to Hang Seng Bank Ltd (“the Bank”) for export trade loans to a value of HK$15,424,000.  The 15 application forms were each accompanied by one of six sets of documents, which included invoices and waybills relating to six separate transactions with foreign buyers.  Although there were only six transactions, the same invoice and accompanying waybill could be used for more than one application, provided the aggregate amount of the loan applied for did not exceed the invoice amount and Jatrade’s credit limit with the Bank.

3.  No payments were made by the buyers of the purported goods represented in the invoices, nor did Jatrade make any repayments to the Bank, as a result of which the Bank suffered substantial loss.

4.  It was the prosecution’s case that there were no underlying transactions as set out in the invoices and waybills which were tendered to the Bank in support of Jatrade’s loan applications.  By submitting documents to the Bank, which the applicant must have known were false because there were no underlying transactions, she must have intended by such false representations to defraud the Bank.

5.  The prosecution sought to prove the falsity of the documents submitted to the Bank by reference to the corresponding documents which were actually produced to the courier companies for the purpose of accompanying the shipment of the goods in the six transactions.  The documents produced to the courier companies were created by an employee of Jatrade and not the applicant.  However, that employee was not called as a prosecution witness at trial.  Each of the six sets of documents, namely those produced to the courier companies (which were described in the lower court as “the first set”) and those produced to the Bank (described as “the second set”) were shown to relate to the same particular transaction by virtue of the unique tracking number used in each shipment by the courier company concerned.  Witnesses from the two courier companies were able to identify the unique tracking number, which they had devised and by which they had monitored the carriage of the goods in each of the six consignments.  That same tracking number appeared in the documents submitted to the Bank vouching for the shipment of the goods in the six transactions.

6.  In the normal course, the first set of documents given to the courier company relating to each particular transaction and the second set of documents given to the Bank corresponding to the same transaction ought to have been identical.  However, notwithstanding that the tracking number was the same in each set of documents in relation to each particular transaction, there were substantial differences between the two sets of documents.

7.  First, the declared values of the goods in the invoices and waybills supplied to the Bank were substantially higher than the values stated in the documents supplied to the courier companies.  Secondly, the invoices accompanying the waybills supplied to the Bank were very different (not just in content but in their physical appearance) from those supplied to the courier companies.  Not only were the descriptions and values of the goods different, but only one invoice out of the six in the first set corresponded in terms of the invoice number with one invoice in the second set.  Thirdly, in respect of two of the invoices supplied to the Bank for the purposes of eight different loan applications, the invoice declared that the shipment concerned was by Federal Express (“Fedex”), when in fact the courier company was UPS.  Although the accompanying waybill supplied to the Bank was a copy of the UPS waybill with a declared value for the shipment corresponding to the amount shown on the invoice, there was no such discrepancy as to the identity of the courier company in the documents accompanying the actual shipments.  Moreover, as already observed, the values of the goods on each document given to the Bank were significantly higher than the values described on the corresponding documents supplied to the courier companies.

8.  In relation to the last application for a loan, the invoice submitted to the Bank describing goods comprising 130 Nikon lenses valued at US$372,060 did not disclose the name of the courier company at all, whereas the corresponding invoice submitted to the courier company describing 1 Philips component sample valued at US$279 specified that the shipment would be carried out by UPS.

9.  Since the documents supplied to the Bank ought to have been identical to those accompanying the goods, records of which were kept by the courier companies, the prosecution contended that there were no such underlying transactions as described in the documents supplied to the Bank.  Accordingly, the documents used to obtain the export loans from the Bank must have been false.  Although not determinative of the issue, the fact that no money was ever paid to Jatrade pursuant to these purported transactions tended to confirm that the invoices supplied to the Bank were bogus and that there were, indeed, no such underlying transactions.

The defence case

10.  The applicant did not give evidence.  However, the defence called two witnesses, a local buyer of goods from Jatrade and an officer of the Bank, to produce remittance records from an overseas buyer for the period January to June 2008.  The overseas buyer was one of the same buyers in two of the transactions used to obtain export trade loans.  Presumably, one of the purposes of this evidence was to show that Jatrade had recently been conducting genuine business with one of the buyers named in the impugned invoices.

11.  It was contended that since the maker of the documents supplied to the courier companies was not called to give evidence, the documents were hearsay if they were being relied upon as to the truth of their contents.  It was further suggested that there were a number of reasons why there could be a discrepancy between the value of the goods stated in the invoices (and the waybills accompanying them) given to the courier companies and the corresponding documents supplied to the Bank.  Accordingly, since one could not say that the contents of the documents accompanying the goods and produced by the courier companies were true, it was not possible to say that the documents tendered to the Bank were false.  Therefore, the charge must fail on the basis that the prosecution could not prove that any misrepresentations were made to the Bank.

The judge’s Reasons for Verdict

12.  The judge approached the evidence on the basis that the documents supplied to the courier company and the corresponding documents submitted to the Bank could not both be true: one set had to be false.  In the normal course, each corresponding set of documents for a particular transaction should have been identical.  Yet they appeared to be wholly different documents.

13.  Having identified the differences, the judge then asked himself why they should be so different.  He considered that there was no evidence that the different description and value of the goods in the documents given to the courier companies was done in order to avoid Customs duty.  If that had been the case, it would have meant that each buyer was colluding with Jatrade but there was no basis in evidence from which one could draw such an inference.

14.  If, on the other hand, Jatrade were unilaterally misdescribing the goods and deflating their value for some reason (and, again, there was no evidence as to why Jatrade should have done so), not only was there no obvious advantage to it in so doing, but there was significant risk not just to Jatrade but to the buyer who would be unaware of the misdescriptions.  The judge considered that doing such a thing would not make business sense.

15.  The judge concluded with this finding:

“45. For the reasons given above, I am satisfied that the transactions as described in the invoices supplied to the couriers were genuine – this is the only reasonable conclusion I can come to.

46. On the face of the documents of the first set, they were prepared by (an employee of Jatrade) who was not called by the prosecution. Defence counsel argues that since there is no proper evidence on the contents of the first set, their contents are but hearsay.

47. It’s clear from my analysis above, it is a matter of inference from the primary facts found by the court, and it is the only inference I can safely draw. It is, in my view, in conformity with logic and common sense.”

The applicant’s grounds of appeal

16.  A number of grounds of appeal against conviction have been advanced.  However, all of them, save for a complaint about the duplicity of the charge and a ground concerning the applicant’s knowledge (or lack of it), are concerned with the judge’s process of reasoning which led him to the conclusion just referred to, at para 45 of his Reasons for Verdict. Essentially, it is submitted that the judge must have relied on the truth of the contents of the first set of documents supplied to the courier companies in order to find that the second set of documents tendered to the Bank were false inasmuch as there were no underlying transactions.  Mr Chain, on behalf of the applicant, argues that if the contents of the first set of documents are hearsay and inadmissible as to their truth, then one cannot say that the contents of the second set of documents tendered to the Bank were not true.  Therefore, there was no admissible evidence that the applicant made any false representations to the Bank.

17.  In relation to duplicity, it is argued that since there were 15 different applications for export loans to the Bank involving six separate transactions, it was duplicitous to have a rolled up charge of Fraud involving distinct and separate allegations.

Discussion

(i) The hearsay grounds

18.  There is a superficial attraction to Mr Chain’s hearsay argument.  After all, the judge did say in terms that he was satisfied that the transactions recorded in the first set of documents supplied to the courier companies were genuine.  However, one has to examine the full context and scheme of his reasoning to understand why he said what he did.

19.  The judge identified at the outset of his Reasons for Verdict what he termed the ‘key issue’, namely:

“5. The prosecution says that the underlying commercial transactions as appear on the invoices relating to the (export trade loan) applications were bogus whilst the defence would argue that they were not.”

20.  He then referred to a number of preliminary matters involving the charge, a reference to the argument on duplicity and his earlier ruling on the matter, a summary of the respective positions of the parties at trial, and an identification of three relevant questions which the judge said he would deal with in turn.  The three questions were as follows:

“Question A - Whether the transactions as described in the commercial invoices, which were submitted to the bank in support of the loan applications, were genuine or bogus?

Question B – If bogus, was the defendant the person who submitted the forged documents?

Question C – If so, was she aware of the falsity of the documents at the time when she submitted them?”

21.  The judge then immediately continued by addressing Question A.  He set out the background evidence and put the matter in this way:

“30. Undoubtedly, goods must have been delivered on those occasions as shown by the shipping documents - the waybills, but one thing is also sure that the invoices of the first set and its corresponding invoices of the second set - both cannot be true. Prosecution says the first set is true, while the defence suggests (the second set) is.

31. In order to determine the issue, I think one has to approach the matter with logic and common sense.”

22.  It was in that context, and in answering Question A, that the judge considered the defence argument that the set of documents supplied to the Bank were or may have been true.  He said:

“34. Remember both sets come from Jatrade. For the sake of argument, assuming (the) defence suggestion to be correct, that is the second set are true in the sense that the underlying transactions depicted in the invoices are genuine; and that must follow the first set were false. In other words, Jatrade used false invoices when it shipped out the goods to the overseas buyers stating not only a much lower price but a different description of goods. Why did it want to do that?”

23.  It was in answering his own question that the judge considered whether there had been collusion for some reason between Jatrade and the buyers or whether Jatrade may have unilaterally decided to misdescribe and understate the value of the goods, which culminated in him concluding as a matter of commercial reality that the first set of documents supplied to the courier companies must have been genuine.

24.  Strictly speaking, it was neither necessary nor appropriate for the judge to come to a conclusion about the genuineness of the transactions in the first set of documents, as he would appear to have done at para 45 of his Reasons for Verdict.  Indeed, Ms Lam for the respondent takes issue with the judge’s suggestion (at para 30 of his Reasons for Verdict) that it had ever been part of the prosecution case that the transactions described in the first set of documents were genuine, if by that he meant that the contents of the documents were true: rather, the prosecution case was at all times that, by virtue of the manifest and manifold differences between the two sets of documents, in circumstances where they ought to have been identical, the second set of documents were false.  In this regard, we have been provided with the written submissions of prosecuting counsel in the court below and we cannot see that it was ever suggested in her closing address (or for that matter in the Opening) that the first set of documents were genuine, or that the prosecution thought that they needed to prove as much.  Rather, the prosecution were at all times arguing that the second set of documents submitted to the Bank were bogus in that there were no underlying transactions.  Those were the particulars of the charge the prosecution were tasked with proving.

25.  With respect to Mr Chain’s argument, we do not accept that the judge lost sight of this ‘key issue’, which was reiterated in Question A, and which was ultimately answered in the conclusion of his Reasons for Verdict.  What the judge appears to have been doing in this section of his Reasons for Verdict was dealing with the defence argument that the second set of documents submitted to the Bank were or might have been true (the corollary of which argument was, of course, that the first set of documents must or might have been false), by looking at the issue from a logical, common sense and business perspective. We should say here that Mr Chain’s subsidiary argument that both sets of documents might have been false does not assist him, even if there were any evidential basis for such an assumption.

26.  If one looks at the two sets of invoices side by side, as the judge did, they are completely different documents in terms of their content as well as physical appearance.  Four of the invoices supplied to UPS concern a single sample made in Holland (said to be ‘free of charge’), at a unit price of US$279 each.  The remaining two invoices supplied to Fedex are for camera parts made in Japan, with a total value of US$54,550 and US$52,380 respectively.  The total value of the goods in all six invoices is US$108,046.

27.  By contrast, the six invoices used to obtain HK$15,424,000 in export trade loans from the Bank were for US$477,200 (for memory sticks made in Japan); US$373,800 (for memory sticks made in Japan); US$192,899 (for camera parts made in Japan); US$124,693 (for camera parts made in Japan); US$735,000 (for memory sticks made in Holland) and US$372,060 (for camera lenses made in Japan); making a total for all six invoices of US$2,275,652.  The difference in total values between the first set of six invoices supplied to the courier companies (US$108,046) and the second set of six invoices furnished to the Bank (US$2,275,652) is enormous (US$2,167,606).

28.  A further not insignificant matter is that on two of the invoices furnished to the Bank in support of eight of the applications for export loans, the courier was described as Fedex when the undisputed evidence of the courier company was that the courier was in fact UPS.  To that extent, the invoices supplied to the Bank in these applications contained misleading information, although it is true that the waybills accompanying the two invoices in question were those of UPS.  We are not suggesting that this fact alone amounted to a misrepresentation which proved the charge: merely that this aspect of two of the invoices furnished to the Bank by Jatrade in respect of eight applications for export loans was plainly untrue.

29.  The prosecution were not contending that the information in the first set of invoices and waybills supplied to the courier companies was true.  Their case was that those documents were supplied to the courier companies in order to accompany the shipment of the goods (whatever they were) and that the information contained in them was almost entirely different from the information subsequently supplied to the Bank for the purpose of obtaining export loans.  In the normal course, as the judge observed, the two sets of documents ought to have been identical: yet they were not.  Indeed, they were so different in terms of their content as well as physical appearance that one might be forgiven for thinking that they concerned completely different transactions.  However, they were shown to relate to the same transaction by virtue of the courier company tracking number (and, in one instance, the invoice number).

30.  Absent any evidence (or reasonable inference) as to why the information in the first set of documents supplied to the courier companies should have been so different from the information supplied to the Bank, or why the value of the goods in the first set should be deflated to a mere fraction of the value represented to the Bank, the judge rightly found that it was not for him to conjure up reasons for the discrepancies.  He held, again rightly in our view, that one could not make assumptions without any evidential basis about the rates and schemes of Customs duty payable in foreign countries, any more than one could make assumptions about collusion between the various different buyers involved and Jatrade.  Since the documents supplied to the Bank ought to have been identical to those supplied to the courier companies, it followed in the light of all the evidence that, in the absence of any explanation for their obvious and substantial differences, the only reasonable inference to be drawn was that the contents of the set provided to the Bank must have been false.  The fact that no payment was ever received from any of the buyers in respect of goods supposedly worth US$2,275,652 clearly strengthened the inference that the invoices and the accompanying waybills testifying to these transactions were, indeed, bogus and that there were no such underlying transactions.

31.  The prosecution case was, in reality, very simple and straightforward.  It was an inferential case and depended on the court drawing the necessary inference that the documents produced to the Bank were false.  That inference did not just depend upon a simple comparison of the two sets of documents.  The primary facts from which this adverse inference was to be drawn were that:

(i) two mutually conflicting documents existed in respect of the same transaction;

(ii) the nature of the documents and the manner of their preparation made mistake or accident extremely unlikely to account for the difference between the two;

(iii) at least one set of documents must have been false and the falsity must have been deliberately created;

(iv) the applicant’s company, Jatrade, had a banking facility which enabled it to obtain advances from the Bank on the security of contracts it had in place;

(v) the amount of the advance that it could get from the Bank depended on the value of the contracts;

(vi) a year before it went into liquidation, Jatrade obtained advances from the Bank totalling $15,424,000;

(vii) these advances were based upon documents purporting to evidence contracts for the purchase of goods to a total value of US$2,275,652;

(viii) no payments from the purchasers pursuant to these purported contracts are recorded in Jatrade's records;

(ix) no repayment was ever made to the Bank by Jatrade of the advances made to it; and

(x) documents accompanying the goods that were sent pursuant to the contracts under which the advances were made, described wholly different goods of, for the most part, insignificant value which would not have entitled Jatrade to obtain the advances from the Bank that it did.

32.  From all these primary facts, and not just from a stand-alone comparison of the two sets of mutually conflicting documents, the prosecution contended that the only reasonable inference was that the documents produced to the Bank were false and were intended to deceive it into advancing monies to the applicant’s company, to which it otherwise would not have been entitled.

33.  Thus, the prosecution case did not depend upon a finding that the documents provided to the courier companies and sent with the packages to the purchasers were genuine; even less that the contents of those documents were true.  It mattered not what was in the actual packages or how those contents were described on the accompanying documents, or whether those descriptions were accurate.  What was relevant to show was that the first set of documents given to the courier companies, as against the second set presented to the Bank:

(i) were almost entirely different; and

(ii) were of a much a lower value that would not have enabled Jatrade to obtain the advances it did obtain from the Bank.

34.  With such incriminating facts before the court, the adverse inference that the prosecution invited the court to draw was clearly available. Once these primary facts were established, they cried out for an explanation from the applicant.  There was none.

35.  Accordingly, we reject Mr Chain’s attractively put but ultimately unrealistic arguments.  It follows that all of the applicant’s grounds which depend upon the judge’s supposed use of hearsay evidence must therefore fail.

(ii) The duplicity ground

36.  We turn to the argument that the charge was duplicitous.  We can dispose of this ground quite quickly.  The applicant made 15 individual applications over the course of an eight week period to the same bank for the same purpose of obtaining an export loan.  Four of the invoices were used in respect of more than one application.  The modus operandi was the same in each case as was the applicant and the victim bank.  It seems to us that the facts of this case come fairly and squarely within the classic statement of Lord Diplock in DPP v Merriman [1973] AC 584 at 607, that:

“Where a number of acts of a similar nature committed by one or more defendants were connected with one another, in the time and place of their commission or by their common purpose, in such a way that they could fairly be regarded as forming part of the same transaction or criminal enterprise, it was the practice, as early as the eighteenth century, to charge them in a single count of an indictment.”

37.  In its pleading of the offence, the prosecution made it clear that it was alleging a fraud to obtain the total sum of $15,424,000 from the Bank.  That this was to be achieved by a number of separate (albeit similar) fraudulent acts committed on different occasions, which had the effect of milking the Bank over a period of eight weeks of smaller amounts of money, does not render the charge duplicitous.  It may perhaps, in different circumstances, make the case for the prosecution harder to prove: but here, the conclusion that this was precisely what the applicant was doing was an inference readily available on the evidence.

38.  Moreover, we can see no prejudice whatsoever to the applicant in preferring a single charge of Fraud against her.  The judge was right for the reasons he gave to reject the argument that the charge was duplicitous.  This ground of appeal must also fail.

(iii) The remaining grounds

39.  For the sake of completeness, there was one further ground of appeal taking issue with the judge’s finding that the applicant must have known that the transactions recorded in the second set of documents did not exist.  This was not pursued in any depth at the appeal: indeed, Mr Chain did not advance any argument suggesting that the applicant was not responsible for making the applications to the Bank.  Given the size of the transactions and her position as director of the company making the loan applications, it is inconceivable that she would not have known about the transactions (or lack of them).  In any event, she did not give evidence as to her state of knowledge.  There is nothing in this point.

Conclusion on conviction

40.  In all the circumstances, we refuse leave to appeal against conviction.  Accordingly, we turn to a consideration of the application for leave to appeal against sentence.

Appeal against sentence

41.  The judge arrived at his sentence of 6 years and 8 months’ imprisonment by first considering the outstanding loss to the Bank of HK$15,424,000.  Had the offence involved a breach of trust in respect of such an amount, he considered that a sentencing court would have been obliged to pass a sentence of 10 years’ imprisonment or more after trial, in accordance with the guidelines in HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776.  However, since this offence could not be said to involve a breach of trust in its classic sense, he considered a starting point of 7 years’ imprisonment appropriate.  Bearing in mind that the applicant had never been in trouble before, he reduced the sentence by 4 months resulting in a sentence of 6 years and 8 months.

42.  Unfortunately, the judge was not given as much assistance on sentence as we have been.  As a result, although he was right to consider the offence a serious one involving a loss to the Bank of over HK$15 million, the identification of the 7 year starting point for an offence not involving a breach of trust appears to have been somewhat arbitrary.

43.  Every set of facts is different and that is particularly so in cases of fraud.  Therefore, recourse to other decided cases where different sentences were passed on different permutations of fact may not be a very useful exercise other than to give a general idea of the range of sentences applicable and the factors which may be taken into account in assessing where the defendant/applicant falls within that range.  As the Court stated in HKSAR v Dai Chi Wai (Unrep) CACC 84 of 2010, at para 4, in relation to letter of credit frauds, which we deem similar for sentencing purposes:

“Although the Court of Appeal has not laid down any sentencing guidelines for fraud by using false documents to apply for a letter of credit, it has stated clearly that the Court has to take into account factors including the amount of money involved, the number of banks deceived, the period over which the fraudulent act was committed, whether the banks had suffered any loss and the roles played by each of the defendants.”

44.  In the particular case before us, the applicant was the prime mover of a fraud committed against a single bank over an eight week period.  The loss to the bank was over HK$15 million.

45.  Mr Chain has referred us, among other cases, to HKSAR v Law Chi Man (Unrep) CACC 356 of 2006 in order to suggest that for a more sophisticated fraud against three different banks involving loans of HK$15.6 million and a total loss to the banks of $9.8 million, the Court approved individual sentences of 4 years’ imprisonment after trial which, when made partly consecutive in respect of each distinct fraud, resulted in an overall sentence of 6 years’ imprisonment.  Ms Lam, on the other hand, points out that the judge in that case had found that the applicant was not a key player in the scams nor had he made any personal gain from them.

46.  As we have said, every set of facts is different.  While the applicant in Law Chi Man made no personal gain, the Court found, at para 12, that the frauds were sophisticated and that the scheme to which he was party “was elaborate involving him in extensive and bare-faced lying to bank officials”.  While the overall loss to the banks was less than in the present case, the judge in Law Chi Man had found that the company had been specifically established as a vehicle for fraud.  In the present case, there is no doubt that Jatrade had been carrying on legitimate business for many years, which is no doubt why it was able to obtain the credit it did. Nevertheless, while the company was said by Mr Chain to have been hit by the financial crisis in 2008, the judge found that the applicant “had no intention of making any repayment at the time she took out the loans”.

Conclusion on sentence

47.  In our judgment, the appropriate starting point in the present case, bearing in mind in particular the applicant’s role and the sizeable resulting loss to the Bank, should have been 6 years’ imprisonment.  From that starting point we would honour the judge’s discount for the applicant’s good character at the age of 63 and accord her the same reduction of 4 months’ imprisonment.

48.  Accordingly, we grant the application for leave to appeal against sentence, allow the appeal and substitute for the sentence of 6 years and 8 months’ imprisonment, a sentence of 5 years and 8 months’ imprisonment.