SECRETARY FOR JUSTICE v. ANDREW MARC DANK AND ANOTHER

CAAR 7/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

APPLICATION FOR REVIEW NO. 7 OF 2007

(ON APPEAL FROM DCCC NO. 1058 OF 2006)

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   REASONS  FOR  JUDGMENT

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Hon Stock JA (giving reasons for judgment of the Court):

Introduction

1. On 25 June 2007 the first respondent, Dank, was sentenced by Judge Geiser in the District Court for a number of offences of dishonesty to 240 hours community service and the second respondent, Lam, to 160 hours community service.  Pursuant to leave granted on 19 July 2007, the applicant applied for review of those sentences.

2. We heard the application on 18 June 2008.  We allowed the application, set aside the community service orders and substituted sentences of imprisonment in respect of each respondent.  We said we would provide reasons later.  These are our reasons.

The facts

3. There is a company in the United States of America called Rubie’s Co., Inc. (“Rubie’s”).  It is a large company that manufactures and distributes Halloween and carnival costumes.  Dank was, at the material times, a director and majority shareholder of a Hong Kong company called New Age International Ltd (“New Age”).  Lam was that company’s merchandising manager.

4. Between 1993 and 1999, a period that preceded the charges with which we are concerned, New Age was one of Rubie’s business agents in Hong Kong, executed merchandising transactions for Rubie’s and was paid a 5% commission on purchases from vendors who were based either in Hong Kong or on the Mainland.

5. In January 1999 an affiliate of Rubie’s was established in Hong Kong, namely, Rubie’s Enterprises Ltd (“REL”).  In May 1999, a new arrangement was made whereby New Age was appointed to manage the affairs of REL, primarily to secure the supply of goods from vendors to Rubie’s or to its subsidiaries.  REL operated bank accounts with the Hong Kong branch of the Bank of New York, and Dank was authorised to operate REL’s Hong Kong dollar bank accounts, including a ‘vendors account’ which was designated to hold funds remitted by Rubie’s to REL for the purpose of paying invoices presented by suppliers.

6. What happened was that Dank, with the assistance of Lam, set up six companies – referred to in the trial as “mirror companies” – the names of which were identical to those of genuine suppliers, omitting only the word “Limited”.  Dank was the sole proprietor of each of the mirror companies.  The essence of the fraud was that Dank and Lam operated a mark-up scheme whereby REL submitted invoices to Rubie’s in amounts higher than the price of the goods actually supplied.  Rubie’s paid the inflated amount to REL, New Age paid the actual price of the goods to the suppliers, Dank drew the difference between the two amounts from REL’s bank account and credited that difference to the six mirror companies.

7. The scheme was in operation for just over two years, namely, from June 1999 August 2001.  The total amount thus misappropriated was about HK$641,000.

The proceedings

8. There were 33 charges.  The first two charged procurement of the making of an entry in the record of a bank by deception, and each of the remaining charges was a charge of fraud directed to a specific false representation of the amount due on a particular invoice.

9. After the prosecution had opened its case, Dank pleaded guilty to 17 of the charges, namely, the first of the charges of procuring the making of an entry in the bank record by deception, and 16 charges of fraud, namely, the odd-numbered charges.

10. Lam pleaded not guilty.  She did not give evidence, and was convicted of all 33 charges.

The judge’s approach

11. The judge commented that the offences were serious and noted that they spanned a period of two years and, in so far as the first respondent, Dank, was concerned, constituted a breach of trust.

12. In relation to Dank, the judge noted that he was, at the date of sentence, aged 47 years and had a clear criminal record.  He said that he was satisfied “that the money that is the subject matter of all of the charges has, in effect, been paid back to Rubie’s.”  This was a reference to the fact that there was a long-standing dispute between New Age and Rubie’s that ultimately resulted in the issue of proceedings by Rubie’s in September 2003.  This included an allegation of fraud and also a claim for the delivery up of 18 containers of goods said to be in possession of New Age.  On the other hand, New Age had for some time been complaining that Rubie’s owed New Age substantial sums on outstanding invoices.  These issues were resolved when a Tomlin Order was made by consent by which, as part of the overall settlement of the disputes, Rubie’s accepted responsibility for paying part of the outstanding vendors’ invoices.  The judge characterized the effect of what had happened: “… the money involved has effectively been set off against substantial debts owed by Rubie’s to New Age.  This was done in September 2003, some three years or so prior to the defendant [Dank] even being charged.”

13. This payment is pressed in mitigation before us as constituting restitution.  Strictly speaking, that is correct, but payment as a result of litigation commenced by the victim of fraud is a matter quite different from voluntary restitution; that is to say that it does not carry the same weight as spontaneous restitution, although the fact that there has, in the event, been no loss is a factor to be taken into account.

14. The judge had before him a probation officer’s report relating to Dank.  It spoke well of him and said that he had shown remorse.  The comment was made that this respondent “admitted his guilt in the present offences and fully regretted to have committed the crime out of ignorance of law.” 

15. We say in passing that any suggestion that Dank did not know that what he was doing was dishonest defies common sense.  If the suggestion is a reflection of the mitigation advanced on his behalf that he was taking money from Rubie’s because he felt aggrieved at the sums due to his company and because the agreement was renegotiated in 1999 in a way which he thought disadvantageous, our response is that there are lawful ways to redress such grievances and we do not find that a mitigating factor.

16. The amount of money dishonestly obtained in relation to the charges to which Dank had pleaded guilty amounted to HK$354,687.

17. The judge accepted that Dank was genuinely remorseful and took into account his plea of guilty.  He said that he was prepared to take an exceptional course and he made a community service order of 240 hours, concurrently on each charge.

18. At the date of sentencing, Lam was aged 34 years.  She was a person of previous good character.  The sums defrauded in relation to the charges of which she was convicted amounted to HK$641,000.  She did not have the advantage, as did Dank, of a plea of guilty as mitigation.  In her case too, the judge had the advantage of a probation officer’s report which spoke well of her, saying that she had led a simple and industrious life and suggested that she had played a passive and secondary role in the fraudulent dealings.

19. We accept that her role was secondary but we do not accept that it was passive.  She held a managerial position and the Reasons for Verdict show that she handled Rubie’s accounts and was active in assisting the scheme on its way.  Nonetheless, we accept the judge’s conclusion that it was “obviously clear from the evidence that [she] played a secondary and subsidiary role to that of [Dank].  She was merely an employee of [Dank] and followed his instructions.  I am satisfied, also,” he said, “that [she] obtained no financial benefit from her part in these offences.  The reports that I obtained on [her] also indicate that she is remorseful and has gained insight into her wrongdoings.”  He ordered her to serve 160 hours community service, on each charge concurrently.  

20. Each respondent has satisfactorily completed the community service ordered.

The application

21. The applicant argues that the sentences were manifestly inadequate and/or wrong in principle.  It is said that a community service order did not reflect the severity or gravity of the offences; sends a wrong message to potential offenders; and would adversely influence the confidence of foreign investors in Hong Kong, since they would perceive little deterrence to dishonesty directed at them.  It is said also that the judge placed undue emphasis on the clear records of the respondents, given the fact that the offences were committed over a period of years.  It is contended, further, that the judge gave too much credit for the fact that the money had been repaid, since the circumstances in which repayment was made show that this was not the result of some act initiated by either of the respondents but was part of a settlement of a civil suit commenced by Rubie’s.  It is said also that the role of Lam has been underestimated by the judge for she occupied a senior managerial position, did the bulk of the accounting work, gave instructions for the setting up of the mirror companies and personally prepared two of the purchase orders. 

Analysis

22. In breach of trust cases, of which this is one, the guidelines are those referred to in R v Clark (1998) 2 Cr App Rep 137 as adopted in Hong Kong: HKSAR v Cheung Mee-kiu [2006] 4 HKLRD 776.  For the amounts involved in a case such as this and given the period of time over which these offences were committed, this is a case in which an appropriate starting point for the first respondent, Dank, would have been one in the region of two years six months’ imprisonment.  In arriving at that point, we took into account the absence of loss to Rubie’s, but as against that there stood not only the extended period of the offences but the fact that Dank by his conduct deliberately drew an employee into criminality.  Whilst she ought not to have succumbed to his instructions, such conduct of an employer, which necessarily carries a coercive element, is an unattractive and aggravating factor.  We note too the special degree of trust reposed in this respondent in that the overseas company entrusted him not only to deal honestly with them as their agent but also gave him signing powers over their bank account, a power that was unlikely to have been conferred had Rubie’s been a local company.

23. Dank’s plea of guilty did not merit a one-third discount.  It was not a timely plea, coming as it did after the start of the case.  We would afford him a 25% discount which, rounding the figures down slightly, takes us to a sentence after plea of 22 months. 

24. Much has been made of Dank’s suggested remorse.  We saw little sign of it.  Expressions of remorse are far less persuasive than objective indicators and all we have in this case, apart from the belated guilty plea, are belated protestations of regret recorded by the probation officer.  The objective indicia are the fact that when Dank was interviewed he said nothing and he thereafter offered no information and provided no assistance to the authorities, and pleaded only after the trial had commenced.  He is not penalized for that conduct, for it is his right to stay silent and to offer no assistance; but in such circumstances he cannot realistically pray remorse in aid.

25. From the 22 months at which we have arrived, there should be a discount for the fact, as is conceded by Mr Lee for the applicant, that a proportion of the delay in prosecuting the case lies at the door of the prosecution.  In these circumstances we would have imposed a term of not less than 20 months’ imprisonment. 

26. In the case of Lam, it must be remembered that without the employee willing to be party to dishonesty, albeit under pressure, offences of this kind are more difficult to perpetrate.  In her case there is not the mitigating factor of a plea of guilty, though we note that her defence was in the nature of putting the prosecution to proof and she did not give evidence.  Furthermore, the total sum for which she fell to be sentenced was larger than the sum in the case of Dank, although there is a degree of artificiality in this regard since the larger sum, as against her, was maintained because she pleaded not guilty.  One might in the circumstances wonder how it was that the length of the community service ordered in her case was substantially less than in the case of Dank.  In this regard we note the emphasis placed by the judge, who had the benefit of hearing all the prosecution evidence, upon the fact that she “was merely an employee of [Dank] and followed his instructions”, and that she “obtained no financial benefit from her part in these offences”.  The judge had the feel of a matter as far as relative culpability is concerned and in the circumstances we took the view that an appropriate overall starting point in Lam’s case was one of 21 months’ imprisonment, which should have been reduced for the factor of delay in prosecution to a term of 19 months’ imprisonment.

27. It is not the function of an appellate court upon a review of sentence instituted by the Secretary for Justice to substitute an increased sentence for that passed in the court below merely on the basis that it takes the view that the sentence passed was lenient or less than this Court would have imposed.  As was remarked in Attorney General’s Reference No. 4 of 1989 (1989) 11 Cr App R (S) 517 at 521 the test is that of undue lenience and:

“A sentence is unduly lenient … where it falls outside the range of sentences which the judge, applying his mind all the relevant factors, could reasonably consider appropriate.”

28. We were satisfied that in this particular case the sentences were unduly lenient.  We fail, with respect, to see what exceptional circumstances prevailed that would warrant the course that the judge took.  The offences were committed quite deliberately and with planning over an extended period of time.  The sums involved were significant, even though not huge.  There was no cooperation with the authorities and no remorse shown and in the case of Dank, the plea was not a timely one.  Dank was guilty of continuing breach of trust and he enrolled an employee in a lengthy course of dishonesty.  Whilst sentencing judges must always enjoy a discretion that gives proper recognition to their “feel” for the case and for the culpability and circumstances of the offenders, we could not in this case discern factors that explained the course taken.  We took the view that the sentences fell outside the acceptable range available on the facts.

Conclusion

29. The question thus arose whether we ought to interfere in the result by setting aside the orders made and substituting terms of imprisonment and, if so, what terms to impose.  In favour of the respondents lay the material fact that the community service order in each case has been performed.  Moreover, eleven months passed after leave was granted to make this application and before the hearing of the application.  Because the first applicant, Dank, could not at one stage be found, the papers were only served on him in October 2007 and it was in November 2007 that the case was fixed for hearing.  It follows that seven months elapsed since the fixing of that date and the hearing.  That is a delay that ought to be taken into account, for it is not a delay that lies at the door of either respondent.  Given the fact that this is a review, that these respondents have performed community service and that the hearing of the review has taken some eleven months to come on, we concluded that although an immediate term of imprisonment was required in the case of each respondent, that term should significantly be reduced.  

30. We took the view that an appropriate resulting term of imprisonment in the case of Dank, the first respondent, was one of eight months’ imprisonment on each of the charges to which he pleaded guilty, and accordingly we set aside the community service orders made by the District Court Judge and substituted that term of imprisonment on each charge to which he had pleaded guilty, and ordered these sentences to run concurrently, making a total of eight months’ imprisonment.

31. That resulting term reflects a significant reduction from the sentence which, in our judgment, was appropriate in the case of Dank and we are prepared in the case of the second respondent, Lam, to afford a greater proportionate reduction still, given the disparity in culpability and, to some extent, the personal circumstances in which she finds herself.  As for personal circumstances, we note that since the commission of the offences, Lam has set herself up in business and is no longer connected in any way with Dank and further, we are informed that she is pregnant and that the expected date of delivery is in October this year.  This is not to be taken as a suggestion that pregnancy after the commission of an offence is a mitigating factor, for the courts must ever be wary of its use as a weapon of pressure upon the courts not to impose sentences justified by the offence.  The applicable principle is appropriately summarized in Cross & Cheung ‘Sentencing in Hong Kong’ 5^th ed., p. 368: “The pregnancy of the accused is no bar to the imposition of the sentence upon the accused which is appropriate to the offence.”  However, in this case our attention has been drawn to the fact that in the course of mitigation before the District Court Judge, counsel for Lam said that this respondent and her husband had for long planned a family and had delayed their planning because of the pending criminal prosecution.  Lam fell pregnant after she was sentenced and in this unusual historical context, the fact of her pregnancy and the expected date of birth are factors that we cannot put entirely to one side.  In all the circumstances we have described, we decided that she should serve a term of three months’ imprisonment.  Accordingly, in her case, we set aside the community service orders imposed and substituted a term of three months’ imprisonment upon each of the charges of which she was found guilty and ordered them to run concurrently, making a total of three months’ imprisonment. That will ensure her release well before the expected birth.