HKSAR v. LEE KWOK YUN AND OTHERS

CACC 117/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 117 OF 2004

(ON APPEAL FROM HCCC NO. 275 OF 2002)

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REASONS  FOR  JUDGMENT

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Hon Stock JA (giving the Reasons of the Court):

Introduction

1. These were applications for leave to appeal against conviction, in the case of one applicant, and sentence in the case of all the applicants, in respect of letter of credit frauds.  On 5 July 2005 we refused leave in each instance and said that we would give our reasons later.  This we now do. 

2. There are three applicants in this case. The first applicant, Lee Kwok Yun is the husband of the second, Chan Chi Wah, and the father of the third, Li Chi.  They were directors of a company called Kwong Wah Steel Pipe Company Limited (Kwong Wah), of which the father and son were 20% shareholders.  This company was incorporated in 1989 and ceased business on 31 July 1993.  Another Hong Kong company, Guang Xin Enterprises (Guang Xin) held 60% of the shares of Kwong Wah through some of its directors, one of whom is a man named Geng Guangli. 

3. This case concerns letters of credit issued upon the application of Guang Xin with Kwong Wah as beneficiary.  Underlying the letters of credit were supposed sales of steel pipes by Kwong Wah to Guang Xin.  The prosecution case was that at the inception of Geng, a conspiracy was formed with the three applicants whereby false documentation would be produced to banks evidencing the sale and delivery of steel pipes to Guang Xin, upon the presentation of which the banks would authorize payment to Kwong Wah, and immediately thereafter the funds would be transferred to Guang Xin.  The truth was that there were no goods and no sales, and that the documentation was false.  The three applicants were signatories to false invoices and to banking documents, such as collection orders and bills of exchange, and the second and third applicants signed cheques and withdrawal slips and transfer slips by which the proceeds of monies received by Kwong Wah were remitted to Guang Xin.  Furthermore, in March 1995 an agreement was reached whereby, thereafter, Kwong Wah was to receive a handling fee of 0.1% of the value of the letters of credit; and the evidence was that a significant part of that handling fee was paid to a company called Best Billion, which is a company owned by the third applicant and his wife.

4. It is not in dispute that the total amount paid by the various banks under 138 letters of credit between 5 October 1993 and 5 September 1997 amounted to $2,590,460,780. All these monies were eventually repaid to the issuing banks.  The proceeds of 136 of the letters of credit was shown to have been remitted to Guang Xin by Kwong Wah.  The proceeds of the other two were sent to accounts in Macau by the first applicant on the instructions of Geng.  The amount of the commission paid as a result of the March 1995 agreement was HK$2,027,604.

5. There was another conspiracy with which the court below was concerned but which affected only the first applicant.  It was a conspiracy of the same nature as the Kwong Wah conspiracy.  Again, the applicant for the letters of credit was Guang Xin.  This time, the beneficiary was a company called Wah Yue Trading Company (Wah Yue), owned by the first and second applicants.  This operation encompassed the period October 1997 to July 1998, and nineteen letters of credit were issued totalling US$42,869,500.  Again, a handling fee or commission of 0.1% was levied on the value of the letters of credit, as a result of which Wah Yue received US$42,875.  After deduction of this handling fee, the monies were transmitted to Guang Xin.  In this case there was a loss to the banks in the sum of US$11,428,900.  None of that loss has been recovered.  The first applicant signed all the false invoices and much of the related banking documents needed to process the letters of credit.

The indictments

6. The original indictment contained 20 counts:

(1)	The first (Count 1), as against all three applicants, alleged the Kwong Wah conspiracy, namely, a conspiracy between the three applicants and others, including Geng, “to defraud such banks who might be induced to issue letters of credit to Guang Xin by dishonestly causing and permitting the banks to issue letters of credit in favour of Kwong Wah knowing there were no genuine underlying commercial transactions relating thereto; and causing and permitting payments to be made under the letters of credit to Kwong Wah by producing false documentation evidencing supposed commercial transactions”.
(2)	Count 2 was the Wah Yue conspiracy, directed only at the first applicant.  It alleged that between October 1997 and July 1998 he conspired with various directors and managers of Guang Xin; a conspiracy in the same terms as that alleged in Count 1 save that there was substituted Wah Yue Trading Company as the beneficiary.
(3)	Counts 3 to 20 inclusive were all counts of false accounting in relation to the Kwong Wah letters of credit, contrary to section 19(1)(a) of the Theft Ordinance, Cap. 210.  Typically, they asserted that the three applicants on the particular date specified, which ranged from 16 December 1993 to 20 March 1997, dishonestly and with a view to gain or with intent to cause loss, falsified a commercial invoice of Kwong Wah by making or concurring in the making of an entry which was misleading, false or deceptive in a material particular in that it purported to show that goods to the value specified in the invoice (this sum ranged from HK$9,769,000 to HK$21,358,000 and from US$978,200 to US$3,269,500: an overall total of between HK$270 million to HK$280 million) had been sold by Kwong Wah to Guang Xin.

The pleas

7. On 2 February 2004 the first applicant pleaded guilty to Counts 3 to 20 inclusive. Since these were alternatives to Count 1, Count 1 in his case was ordered to be left on the file.  The indictment was then severed to enable the trial of the second and third applicants to proceed on an indictment that did not include the Wah Yue conspiracy.  It follows that the second and third applicants were then tried upon an indictment containing 19 counts: Count 1 was the Kwong Wah conspiracy; Counts 2 to 19 the eighteen false accounting charges.  To this indictment those two applicants, who thus became the first and second defendants respectively, pleaded not guilty. They were tried before Lunn J and a jury.  On 3 March 2004, they were each unanimously convicted in respect of Count 1, the conspiracy count, and the jury was discharged from returning a verdict on the remaining, alternative, counts.  On the following day, the first applicant pleaded guilty to the Wah Yue conspiracy, that is, to the sole count on the severed indictment.

The sentences

8. On 5 March 2004, the judge sentenced the second and third applicants to a term of seven and a half years’ imprisonment each.  In relation to Counts 3 to 20 of the original indictment, that is to say the eighteen false accounting charges to which the first applicant had pleaded guilty, the judge imposed a term of four years’ imprisonment.  In relation to the Wah Yue conspiracy, he imposed a term of six years’ imprisonment and ordered the terms to run concurrently, making a total for the first applicant of six years’ imprisonment.  He also made an order in relation to each applicant under section 168E of the Companies Ordinance, Cap. 32, that each be disqualified for a period of eight years from being a director of a company.

The present applications

9. This Court was presented with the following applications:

(1)	An application by the first applicant for leave to appeal against sentence.  For this purpose he was represented by Mr Hoosen.
(2)	An application by the second applicant for leave to appeal against conviction and sentence. She was unrepresented in relation to conviction, but in relation to sentence was represented by Mr Choy.  Before us, she abandoned her application for leave to appeal against conviction and we dismissed that application. We had thereupon to deal only with her sentence.
(3)	An application by the third applicant for leave to appeal against conviction and sentence.  As to conviction, he was represented by Mr Harris.  He was unrepresented as to sentence.

Evidence

10. It was common ground that the second applicant signed a substantial proportion of the 138 letters of credit, and that the third applicant signed at least twenty-one of them including all those that were the subject of the false accounting charges.  It was also formally admitted that the second applicant signed, on behalf of Kwong Wah, collection orders and bills of exchange in respect of a proportion of the transactions and that she also signed withdrawal and transfer slips to effect the transfer to Guang Xin of funds paid under the letters of credit.  So too it was admitted that the third applicant signed a proportion of collection orders and bills of exchange and also signed cheques making payments to Guang Xin.

11. In early January 2000, the second applicant was interviewed by officers of the Commercial Crime Bureau.  She challenged the admissibility of the record of that interview but that challenge failed, and the contents of that interview were before the jury.  In that interview, she said that in early 1993 it was decided that Kwong Wah would wind up its business.  However she said that she was party to a discussion with Geng in which he suggested that Kwong Wah should apply for letters of credit to enable Guang Xin to obtain money from the bank.  She was aware that there were no goods for Kwong Wah to sell but she thought that as Guang Xin was Kwong Wah’s dominant shareholder it was in order for her to do as asked and that she did so.  She knew, she said in that interview, that no goods were delivered or received and she knew also that it was part of the arrangement forthwith to transfer monies received under the letters of credit to Guang Xin.  She was aware of the fabrication of cargo receipts and she admitted her part in the transfer of monies to Guang Xin.  She described too the agreement reached with Guang Xin in 1995 for the payment of a handling fee.  The essence of her case in the course of these interviews was that she well knew that there were no transactions underlying the letters of credit, that she knew that the invoices were false, and that she was party to the remittance of funds to Guang Xin; but that she did not act dishonestly because she thought that acting in accordance with the instructions of the major shareholder was in order.

12. Her defence at trial was somewhat different.  There, she said that although she was a director of Kwong Wah, she attended at its offices rarely and that she simply signed invoices that were blank, and signed them when she was asked to do so either by her husband or a member of the company's staff.  She said that she did not know whether Kwong Wah had or had not ceased business, and in so far as it was shown that some of the invoices had information typed in when she signed them, she asserted that in such instances she had not bothered to read the contents and had merely signed because her husband had asked her to do so.  Similarly, in relation to collection orders, bills of exchange, cheques, withdrawals and transfer slips, she signed those when they carried within them no information.  In so far as this testimony conflicted with the account given in her interviews, she said that in those interviews she was merely relating, not her own experience with Guang Xin, but rather what her husband had told her.

13. The third applicant had also been interviewed by the police.  He said that he was not sure whether after 1993 Kwong Wah conducted business.  He could not remember, he said, when he appended signatures to the invoices but he tended to sign invoices when asked by a member of staff to do so, when one of his parents was unavailable and when the matter was urgent.  Despite the very large sums concerned in each invoice, he said that he never asked either his mother or father what the transactions represented.  He said that he had no idea whether there were goods at the time.  One of the problems facing this applicant was that he had signed a declaration for presentation to the Inland Revenue Department showing that Kwong Wah’s business had ceased on 31 July 1993.  He said, as to this, that he had not read it carefully before signing.  It will be recalled that this applicant, together with his wife, owned the company called Best Billion to which part of the handling fees were paid.  He said that that company shared the same address as Kwong Wah from about April 1995.

14. When he testified at trial, the third applicant said that he had only become a director of Kwong Wah on the instructions of his father that after 1993 he spent a substantial part of his time in the Mainland, and that most of the invoices signed by him were signed when they were blank.  But in relation to those that were demonstrated not possibly to have been blank at the time of signature, he said that he thought Kwong Wah had resumed business.  He read those invoices and took notice of the price of the goods which, it was pointed out, individually exceeded the gross turnover of Kwong Wah for a whole year, in the years in which Kwong Wah was known to have traded.  As for receipts showing payment of handling fees to Best Billion, his own company, he said he knew nothing of these until he was shown them by his solicitor who had received them from the police.

Conviction and the Third Applicant

15. The first ground of appeal in relation to conviction raised on behalf of the third applicant is the suggestion that there was a material irregularity in the trial in that, so it is asserted, “at least one of the members of the jury appears to have anticipated difficulty in understanding in English the address of counsel for the third applicant.”  The point arises in this way.  During the course of the final speech of counsel for the second applicant, a note was sent by the jury to the judge which read as follows:

“Can we request the translator to translate the address from Mr Donald, defence counsel for the second defendant, for the members of the jury?”

The judge passed the note to counsel to read and asked for counsel’s reaction to it.  Counsel, Mr Donald, said:

“It's not the first time people have said that they had difficulty with my questions and understanding. … I don't think there are any rules against …

Court:  No, of course not.  One obvious point is you’re farthest away from the jury.”

The judge suggested that Mr Donald might move nearer to the jury and, secondly, that the interpreter might translate his speech and that “that requires speaking in a measured way and it may be that that is the device to accommodate the jury's request and the delivery of the speech”.  Mr Donald undertook to take his speech at a slow pace. When the jury returned after the discussion between the judge and counsel, the judge spoke to the jury telling its members what it was proposed to do.  Apparently, Mr Donald did not move closer to the jurors, but the interpretation took place.

16. The suggestion is that this revealed a difficulty on the part of at least one juror to understand English, such that he may not have followed the proceedings properly.  It was, so the argument runs, therefore incumbent on the judge to conduct some further inquiry to ensure that the jury had been able properly to follow the proceedings.

17. We did not in the event believe that this complaint withstood proper analysis.  There are a number of indicia to be set against the concern raised:

(1)	The very fact that the jury made the request reveals it to be a jury conscientious of its duties when faced with a particular anticipated or perceived difficulty.  One might in such circumstances rest assured that a difficulty in following the proceedings, had it occurred, would have been raised.
(2)	No request was made of a similar nature in relation to the judge's summing up.  This suggests, not that there was any difficulty in understanding English generally, but, rather, a concern with grasping the details of an important speech by one particular individual, known to some of us as a speedy speaker, a fact evidenced by the judge's request that counsel should slow down.
(3)	All the witnesses called in this particular case gave evidence in Cantonese save for two, so that counsel’s questions to all the non-English-speaking witnesses will have been translated aloud; wherefore each of the applicants, and necessarily therefore the jurors, could hear the translation.  The two witnesses examined in English were an accountant who discovered irregularities, and a banker who had produced an affirmation, and it was not suggested by Mr Harris that either witness gave evidence of consequence.
(4)	It is evident from what transpired between judge and counsel that nobody interpreted the jury's request as evidencing a failure hitherto to follow the proceedings.  This is a case that had lasted some five weeks and, given the experience of this conscientious judge, we have no doubt but that had the jury's request carried with it any risk of showing problems thus far in following the proceedings, that risk would have emerged in discussions between the judge and counsel and in follow-up questions to the jury by the judge.

18. Accordingly, this particular ground of appeal fails.

19. It is then said on behalf of the third applicant that the judge's summing up to the jury was insufficiently balanced, in that the defence case was inadequately addressed, and that the judge over-emphasised factors that ran against defence contentions.  This ground is without merit.  Both the essence and the detail of the third applicant's defence were put squarely by the judge before the jury, and was done in some detail, and we see no imbalance arising from such instances in which the judge drew to the jury’s attention matters that they might wish to bear in mind when assessing the veracity of certain assertions made by this applicant.

20. For these reasons, we dismissed the third applicant’s application for leave to appeal against conviction.

Sentence

The first applicant

21. This applicant was sentenced to a total of six years’ imprisonment.  That sentence was arrived at in the following way.  The judge took the view that the appropriate starting point in relation to the false accounting charges was one of six years’ imprisonment and, given the fact of the guilty plea, one of four years’ imprisonment in the event.  This he achieved by imposing a sentence of three years’ imprisonment on each of the false accounting charges (Counts 3 to 20 of the original indictment) but ordering one year of the sentence imposed in relation to Count 20 to be served consecutively to the rest.  In relation to Count 2, the Wah Yue conspiracy, he noted that the conspiracy was conducted over a period of ten months, that nineteen letters of credit were obtained, that the total amount of money thus obtained exceeded US$42.8 million, that the loss to the banks exceeded US$11.4 million, and that the applicant himself had been rewarded to the tune of US$42,000.  For this conspiracy he took a starting point of nine years’ imprisonment, reducing it, on account of the guilty plea, to a term of six years’ imprisonment.  He ordered all the sentences to run concurrently, making a total of six years’ imprisonment.  The order made under section 168E of the Companies Ordinance, to which we have earlier referred, is not the subject of appeal (in the case of any of the applicants) and with that order we will not interfere.

22. The mitigation advanced on behalf of this applicant concentrated upon his age (then 69 years); the fact that he had no previous convictions; the fact that he suffered from depression both before and after his arrest; and the fact that he was not the instigator of the conspiracy.  That instigation, as the judge accepted, came from within Guang Xin. The suggestion was that this applicant was not aware that the banks were at any real risk, for he assumed that the funds would find their way back to the bank.  It emerged in the course of this mitigation that the Wah Yue conspiracy began when Geng pointed out that letters of credit to a company (Kwong Wah) in which Guang Xin had a substantial interest was risky, or had been disapproved by the bank, so that Wah Yue was suggested as a substitute beneficiary.

23. It was asserted for the first applicant that the starting point of nine years’ imprisonment in relation to the Wah Yue conspiracy was manifestly excessive; that the judge failed to give sufficient consideration to the fact that the first applicant was not the instigator of the offences but was acting under pressure from a director of Guang Xin; that the judge failed to take into consideration that the 0.1% handling fee was a fee received, not for the applicant's personal benefit, but to defray expenses incurred on behalf of Guang Xin; and that the judge failed to give proper consideration to the applicant’s good character and to the delay between arrest and trial, a consideration expressly accorded to the second and third applicants; and that the judge erred in not giving a discount on account of the applicant’s advanced age and poor health.  There was no justification, said Mr Hoosen on this applicant’s behalf, for taking a nine year starting point for the Wah Yue conspiracy when it involved a smaller sum than did the Kwong Wah conspiracy and when it stretched over a period of ten months, compared to a longer period for the Kwong Wah conspiracy.  We have also considered a letter written by this applicant to the court, as well as a letter from a prison chaplain.  We have also been taken to sentences passed in other letter of credit frauds.

24. What distinguishes the offences with which we are dealing from many of the others to which our attention has been drawn is, first, the simply staggering amounts of money involved and, secondly, the period over which documentation was deliberately falsified in order to cheat banks.  Beyond that, in the case of this applicant, the amount of the loss to the banks as a result of the Wah Yue fraud is very high indeed.  It is the fact that this applicant was not the instigator of these offences.  Yet, neither was he an employee, and month after month, year after year, he was instrumental in the falsification of invoices and other documents needed to give effect to the fraudulent scheme. The judge quite rightly accorded little discount to the suggestion of pressure and was well aware when he passed sentence of the age of the applicant and the unfortunate depression to which this applicant has been subject.  The trial judge had the benefit of hearing the testimony of this applicant at the trial of the second and third applicants and from that testimony he concluded, not surprisingly, that the applicant had played a pivotal role in drawing down monies under the letters of credit as well as in securing the handling fee of 0.1%.  As to the judge's rejection of the suggestion that that fee was charged to defray expenses, we are not surprised that was rejected and, in any event, the judge had intimated to counsel that he was not prepared to accept that mitigation as fact on its face, and it was open to Counsel to invite the judge to hear testimony in that regard.  No such invitation was made.  There was a loss in the Wah Yue case of US$11.4 million, that is to say, a figure not far off HK$90 million.  That is an enormous figure and the fraud was an exercise in continuous cheating, coming as it did on top of several years of cheating on a massive scale.  The starting point was not in our view manifestly excessive.  Even if it were reasonably arguable that the starting point was high, nonetheless the global result is clearly not.  

25. We note that in relation to this applicant the judge did not, as he did with the others, make an express concession in relation to delay  in any discount afforded to the applicant.  That the judge was conscious of the delay factor is evident from remarks he made in the course of the sentencing process.  It may well be that in his case no specific mention was made of delay because there were medical reports which showed that the applicant had suffered depression, a factor expressly taken into account by the judge and to which condition delay no doubt contributed.  We are satisfied that the judge had it in mind when sentencing this applicant.

26. Our task was to see whether or not the sentence imposed by the judge was in all the circumstances with which he was presented manifestly excessive and whether, in relation to the particular point raised as to delay, there could be said to be any justifiable sense of grievance.  In our judgment, the sentences imposed upon this applicant were appropriate.  This applicant was, overall, significantly more culpable than his wife and son; and a final result, whatever the approach to this factor or that, of less than six years’ imprisonment would not have met the criminality of the matter.  Accordingly, this application for leave to appeal against sentence was dismissed.

The second applicant

27. It was said on behalf of the second applicant that the starting point of eight years imprisonment adopted by the sentencing judge was manifestly excessive given the fact, so it was put, that the second applicant derived no personal benefit from the handling fee; that the banks in the event suffered no loss; that the second applicant played a role subsidiary to that of the chief culprit, Geng; that the applicant is of an advanced age; and that there has been a substantial delay for which no adequate discount has been given.  In her case, too, we read a letter from a prison ministry.

28. It has been said too often to require any detailed explanation that the gravamen of offences of this kind lies in the substantial risk that they impose upon banks and the damage that is done to the lifeblood of commerce by letters of credit fraud.  The fact that there was in the event no loss to the banks is a factor to be taken into account and it is a fact that the judge took into account; but, nonetheless, the risk was always there, and the amounts involved were enormous and the period over which the conspiracy was effected, and in which the second applicant played a central role, was substantial.  This applicant signed most of the 138 invoices which were presented to the issuing banks, as well as other banking documents, as well as withdrawal slips and transfer slips.  The judge had full regard to her health commenting, however, that her condition was not unusual for someone of her age.  The judge had the advantage of observing this applicant in the course of the trial, and when she gave evidence, and in the video recording of her interview with the police.  She was not, as he commented, some compliant person merely doing what she was told by her husband.  To the contrary, she was well in command of business operations, the business of Kwong Wah, and knew full well how letters of credit operate. As to the question of delay, it must be remembered that the very nature of an exercise of the type with which this case was concerned results in a lengthy and complex investigation, especially when defendants indicate that they intend to contest the proceedings.  The discount given by the judge to take account of the delay was, in our opinion, not one that we are prepared to criticise as being insufficient.

29. It is always sad to see somebody of the applicant’s age, who has not previously offended, imprisoned, let alone imprisoned for a substantial term.  That said, given the nature of the offences, the amounts involved, the duration of the fraud, and the role of the applicant, we were satisfied that this application must fail and, accordingly, it was dismissed.

The third applicant

30. In his home-made grounds of appeal against sentence, this applicant asserted that the sentence upon him was too heavy.  He also addressed us orally.  In doing so, he said that he played a lesser role than that of his mother, and that the invoices which he himself signed totalled $300 million, less than the $2 billion covered by the Kwong Wah conspiracy as a whole.  He denied that he was the beneficiary of monies received by Best Billion.  We have read a letter submitted on his behalf for the purpose of this application.

31. It is to be remembered that this applicant was not only a director but a shareholder of Kwong Wah and also occupied the position of company secretary.  He signed not only invoices but also other banking documents which he knew to be false, and which related to very substantial sums of money.  He also signed withdrawal slips and transfer slips to effect the transmission of sums to Guang Xin.  He owned Best Billion, the recipient of a substantial proportion of the handling fees and, as the judge commented in his sentencing remarks, counsel for this applicant “accepted that the monies proved to have been received by Best Billion under the 0.1% handling fee arrangement was about USD100,000” (page 778 appeal bundle).  The judge had the advantage of hearing this applicant’s evidence, and of assessing over a period of five weeks the true essence of the roles played by each of the applicants, and we were not persuaded that a differentiation is warranted in sentence as between his case and that of the second applicant. We were satisfied that the sentence imposed on him was neither manifestly excessive nor wrong in principle.  Accordingly, the application for leave to appeal against sentence in his case was dismissed.