HKSAR v. CHEUNG CHI FAI

[English translation – 英譯本]
CACC 208/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 208 OF 2009

(ON APPEAL FROM DCCC NO. 1085 OF 2008)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung JA (delivering the reasons of judgment of the Court):

1.  The Applicant was charged with two counts of Fraud, contrary to section 16A of the Theft Ordinance, Cap 210. Deputy District Court Judge Yip, as he then was, convicted the Applicant on both counts after trial and sentenced him to 15 months’ imprisonment. The application applied for leave to appeal against convictions. This Court dismissed his application after hearing. The reasons are as below:

Particulars of offence

2.  It is alleged in the two charges that the Applicant, an employee of Dah Chong Limited (Dah Chong Hong), concealed the interests he had in two companies, and induced Dah Chong Hong to engage the two companies to provide training and consulting services to its employees.

3.  The particulars of the first charge were:

‘[The Applicant], between 15th day of May 2006 and the 7th day of September 2007, in Hong Kong, by deceit, namely, by concealing from and failing to disclose to Dah Chong Hong Limited of his or his parents’ interests in Comwell Management Consultant Company Limited whilst the said [Applicant]was an employee of Dah Chong Hong Limited and was under a duty to make full disclosure of any existing or potential conflict with Dah Chong Hong Limited’s interest, and with intent to defraud, induced Dah Chong Hong Limited to engage Comwell Management Consultant Company Limited to provide training and consulting services to Dah Chong Hong Limited, which resulted in benefit to Comwell Management Company Limited or in prejudice or a substantial risk of prejudice to Dah Chong Hong Limited.

4.  Except the period of offence and name of the company, the particulars of the 2nd charge were the same as the first one. The period of offence of the 2nd charge was between 15th May 2006 and 8th October 2007, the name of the company was Host International Company Limited(Host).

Prosecution Case

5.  The shareholder and director of the aforesaid Comwell Management Consultant Company Ltd (Comwell) and Host were the Applicant’s parents. According to the evidence of the Applicant’s ex-wife(PW1), she and the Applicant took care of the business of the two companies from 1997 and 1998, the respective years when the companies were founded, to 2003. He was responsible for organizing training programmes and she handling paperwork and internal affairs. The parents of the Applicant had never taken care of the business of the two companies. The Applicant’s ex-wife divorced him in 2003 and she had never again taken care of the business of the two companies since then.

6.  The Applicant had been employed by Dah Chong Hong since 24th June 2002 as Training Manager and attached to the Human Resources Section of Dah Chong Hong. His scope of duties included organizing training programmes for the staff of Dah Chong Hong, identifying suitable training services companies, and recommending some companies to his supervisor/s for providing training to the staff of Dah Chong Hong.

7.  In respect of the first charge, on the recommendation of the Applicant, Dah Chong Hong awarded seven training contracts to Comwell between February 2006 and September 2007. Dah Chong Hong paid a total of HK$1,056,500 to Comwell for the seven contracts.

8.  In respect of the second charge, on the recommendation of the applicant, Dah Chong Hong awarded five training contracts to Host between August 2006 and October 2007 and paid it HK$670,996.05.

9.  The Prosecution alleged that when recommending Comwell and Host to Dah Chong Hong, the Applicant did not declare his or his parents’ interests in Comwell and Host. The supervisor of the Applicant said in making the selection, he would consider the experience of the contractors, their capabilities and charging rates before deciding to whom the contract should be awarded. The Applicant would then be informed of the result orally. Had he been aware of the interests the Applicant had in the Companies when considering the courses the Applicant recommended or when making payment, he would no doubt have refused to accept the companies he recommended.

Code of Conduct

10.  The learned judge ruled that the applicant had obtained from Dah Chong Hong an English copy of staff Code of Conduct(the Code), item 1.4 of which deals with conflicts of interests. Dah Chong Hong had given the Chinese version of the Code to its staff. As both parties agreed in the appeal that the English and the Chinese versions are the same, this Court therefore adopts the Chinese version of item 1.4:

‘1.4 Conflict of Interest Situations

Conflict of interest situations arise when the personal interests of employees compete or conflict with the interests of Company. Such situations at best can lead to divided loyalty and at worst can result in corruption or other questionable practices.

The most common types of conflict of interest situations employees may be involved in are:

· having undeclared financial interests in any supplier, contractor or party that do business with the Company;

· offering assistance to the Company’s competitors through taking on part-time employment of “consultancy” service;

· engaging in production of services or goods in competition with the Company;

· performing outside work on the Company’s premises and using the Company’s time and assets; and

· giving unduly favourable treatment to particular supplier, contractor, customer, job applicant or subordinate for personal reasons.

Every employee of the Company should take it as his personal responsibility to avoid engaging in situation that may lead to or be involved in conflict of interest. He should at all times ensure that his dealings with customers, suppliers, contractors and colleagues do not place him in a position of obligation that my lead to a conflict of interest.

In cases where an employee or his immediate family might have engaged in or are considering engaging in business, investments or activities that might have existing or potential conflict with the Company’s interests, it is the responsibility of the employee to discuss and make full disclosure in writing to the General Manager, Group Human Resources & Administration.’

Decision of the learned judge

11.  The learned judge ruled that the Applicant clearly knew that according to the Code, he had the duty towards Dah Chong Hong to declare his interests in the two companies, but he intentionally and dishonestly concealed or failed to disclose them. He was therefore guilty of Fraud.

Section 16A of the Ordinance

12.  Section 16A of the Ordinance states:

‘(1) If any person by any deceit (whether or not the deceit is the sole or main inducement) and with intent to defraud induces another person to commit an act or make an omission, which results either -

(a) in benefit to any person other than the second-mentioned person; or

(b) in prejudice or a substantial risk of prejudice to any person other than the first-mentioned person.

the-first mentioned person commits the offence of fraud and is liable on conviction upon indictment to imprisonment for 14 years.

(2) For the purposes of subsection (1), a person shall be treated as having an intent to defraud if, at the time when he practices the deceit, he intends that he will by the deceit (whether or not the deceit is the sole or main inducement) induce another person to commit an act or make an omission, which will result in either or both of the consequences referred to in paragraphs (a) and (b) of that subsection.’

13.  According to 16A(3), ‘deceit’ is defined as: ‘any deceit (whether deliberate or reckless) by words or conduct (whether by act or omission) as to fact or as to law, including a deceit relation to the past, the present or the future and a deceit as to the intentions of the person practising the deceit or of any other person.’

Grounds of Appeal

14.  Mr David Ma, Counsel for the applicant, submitted that the key to this case lay with the following four points:

1) Whether or not the Code can give the Prosecution sufficient basis to make the Applicant legally obliged to make the disclosure?

2) Was the Applicant in breach of the stipulations of the Code?

3) If he were, should he therefore be held criminally liable?

4) Was he dishonest?

15.  Mr Ma submitted that the answer to all four questions was ‘No’.

Whether or not the Code can give the Prosecution sufficient basis to make the Applicant legally obliged to make the disclosure?

16.  Mr Ma submitted that according to paragraph 1.4 of the Code, there is ‘conflict of interest’ when ‘the personal interests of employees compete or conflict with the interests of the Company’. As ‘mutual competition’ is not applicable to the present case, the only issue is therefore ‘conflicting interests’.

17.  He said that the pre-condition of the entire item 1.4 is that it must be interpreted as in the above, that is, merely by not declaring his interests in the two companies does not mean that the applicant necessarily had ‘conflicting interests’. Whether or not there were ‘conflicting interests’ depends on whether his own personal interests conflicted with those of Dah Chong Hong. No doubt, before deciding which contractors to engage, the most important consideration Dah Chong Hong had was whether the contractors provided good quality services at reasonable prices. But the Prosecution had neither adduced evidence on the quality of services or level of charges of the two companies, nor evidence on the level of charges of other companies providing similar services. In passing sentence, the learned judge even said expressly that he agreed to the submission of the defence on this. Mr Ma submitted that in the absence of such evidence, the Court could not properly find if the interests the applicant had in the two companies were in conflict with those of Dah Chong Hong. If they were not, it could not have constituted the so-called ‘conflict of interest’ in item 1.4, and the applicant was not therefore bound by it to declare.

18.  First, this Court is of the view that the charges allege that the applicant concealed and failed to disclose his and his parents’ interests in the two companies, and this concerns false representations through ‘omission’. The Court of Appeal in the case of HKSAR v Chan Shu Hung and Sze Yuen Nau (CACC512/2001) agreed to the following point of law: For a concealment of facts to be transformed into a false representation, the precondition is that the concealing party has a duty to disclose the relevant facts to the party from whom the facts are concealed. In other words, unless the parties have a special relationship or are bound by contract of a special nature so that the concealing party has the duty to disclose to the other party the facts, otherwise, the concealment of those facts would not be transformed into false representation.

19.  In the present case, the Applicant is an employee of Dah Chong Hong. According to the Code, one of the situations where personal interests conflict with the interests of the Company is when the ‘employee has undeclared financial interests in any supplier, contractor or party that does business with the Company.’ The Code also says that in cases where an employee or his immediate family might have engaged in or are considering engaging in business, investments or activities that might have existing or potential conflict with the Company’s interests, it is the responsibility of the employee to discuss and make full disclosure in writing to the General Manager, Group Human Resources and Administration. This Court finds that in the light of the employee/employer relationship between Dah Chong Hong and the Applicant and the stipulations of the Code, the Applicant had the duty to disclose to Dah Chong Hong the interests in question.

20.  Why were the interests the Applicant had in the two companies in conflict with those of his employer? The answer is obvious. It was the Applicant’s duty to recommend to his employer contractors who were interested in getting the training contracts of Dah Chong Hong, contracts which the training companies he or his parents owned were also interested in getting. Such connection firstly had ‘potential’ conflict with the interests of the employer, as the employer selected contractors basing on the recommendations of the Applicant. ‘Real’ conflict of interests arose when, in order to get the contracts, the Applicant refrained from recommending to his employer companies which offered terms similar to, or even more favourable than, those offered by his own companies. The Code required that employees to disclose to the employer when the former situation arose for the purpose of dealing with such ‘potential’ conflict of interests. Even if in the end, the applicant did not make use of his office to make unreasonable recommendations, his employer was still entitled to make the selections on fully informed basis. In the present case, the evidence the Prosecution relied on was had Dah Chong Hong been aware of the interests the applicant had in the two companies, it would not have selected them as its service providers.

21.  For the above reasons, this Court does not accept the submission of Mr Ma. As mentioned earlier in this judgment, since there existed potential conflict between the personal interests of the Applicant and those of Dah Chong Hong, the Applicant had to disclose his interests to his employer, the Prosecution does not have to adduce the evidence Mr Ma said it has to before it could prove that the Applicant was under a duty to disclose.

Was the Applicant in breach of the stipulations of the Code?

22.  Mr Ma submitted that there is no evidence in the case to show that the applicant knew or believed that the interests he had in the two companies were in conflict with those of Dah Chong Hong. In the absence of evidence on the quality of service and charges, the Prosecution could not rule out the possibility that the Applicant had borne in mind the interests of Dah Chong Hong, and brought about the possibility where the interests of Dah Chong Hong were not in conflict with those he had in the two companies. Besides, how the so-called ‘conflict of interest’ referred to in item 1.4 should be interpreted was up to the judgment of the employee (i.e., the Applicant). When there is no evidence to show that the interests the Applicant had in the two companies conflicted with (harmed) those of Dah Chong Hong, the Prosecution failed to prove that the Applicant knew that he had the duty to declare. Merely proving that the Applicant had been given the Code and understood its contents does not mean that it had been proved that he knew or believed that the interests he had in the two companies were in conflict with those of Dah Chong Hong, and hence under the duty to disclose.

23.  As mentioned earlier in this judgment, this Court is of the view that the correct approach to analyze this case is to see if the position of the Applicant vis-a-vis the interests of the Company could give rise to any potential conflict or inconsistency of interests; if so, such conflict or inconsistency was sufficient to require the applicant to declare; the Prosecution did not have to adduce further evidence to prove that the acts of the Applicant had actually breached the stipulations on conflict of interests.

If he were in breach of the Code, should he therefore be held criminally liable?

24.  Mr Ma said the Code was not legally binding; the worst that could happen to the applicant for breaching the Code was to be dismissed by Dah Chong Hong but not to be held criminally liable.

25.  This Court agrees that looking at the Code alone, it imposes restrictions on the civil acts of the employees vis-a-vis Dah Chong Hong, but this Court is of the view that if the Applicant was in breach of the Code, and had the dishonest intention to defraud Dah Chong Hong, inducing it to award contracts to Comwell and Host, this can constitute a criminal offence under section 16A. Breaching the Code is an important piece of evidence to support the charge. ‘Deceit’ is interpreted as to mean any deceit whether by ‘act’ or ‘omission’; the latter means to conceal facts that should have been disclosed to the employer. The Applicant’s failure to declare was an ‘omission’. If his intention was dishonest as mentioned later in this judgment, this constitutes the offence of ‘Fraud’.

Was the Applicant dishonest?

26.  Mr Ma submitted that breaching the Code was not equal to being dishonest. The main consideration an employee has when deciding whether or not to observe the Code is if he will be punished or even dismissed by the Company, a situation where the element of honesty or dishonesty does not usually exist.

27.  This Court agrees that civil and criminal liabilities are different. In this case, the learned judge had rejected the defence that the applicant had made disclosure to his supervisor. According to the Code, the applicant was required to disclose to his employer the interests he had in the two Companies, but he chose not to do so, and elected not to give evidence. In these circumstances, the learned judge was entitled to infer that the intention the applicant had was a dishonest one.

Translated by the Judgment Translation Unit of the Judiciary and approved by Mr. P. Y. Lo, Barrister-at-law.