HKSAR v. LEUNG CHUN-HEI

CACC 222/2021

[2022] HKCA 934

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 222 OF 2021

(ON APPEAL FROM DCCC NO. 361 OF 2021)

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REASONS  FOR  JUDGMENT

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Introduction

1.  The applicant pleaded guilty to one count of fraud[1] and was sentenced to 56 months’ imprisonment by District Judge A.N. Tse Ching (“the judge”) on 29 September 2021. Subsequently, he applied for leave to appeal against his sentence. At the conclusion of the hearing, I granted leave in respect of ground 1 (as amended) and ground 3 but refused leave on ground 2. These are my reasons.

Facts admitted by the applicant

2.  In summary, the following is the prosecution case. The applicant was the Senior Sales Manager of Philips Lighting (“Philips”), a company specialized in selling lighting products, and was responsible for handling customers’ orders. At the time, Philips had two sales channels, the Original Equipment Manufacturer Channel (“OEM”) and the Trade Channel. The applicant was authorized to act for Philips in negotiating prices with the customers provided that the agreed prices did not fall below the minimum prices set by Philips, namely the Asia Limited Prices (“ALP”). For prices below the ALP, the applicant was required to seek approval from other managers.

3.  On 25 September 2006, Supreme Profits International Limited (“Supreme”) was incorporated with the applicant’s wife Madam Suen (they got married in November 2011) as the sole shareholder-cum-director. In about 2006 or 2007, upon the applicant's introduction, Supreme became an OEM customer. Thereafter, Supreme purchased most of its products from Philips for re-sale to others.

4.  Between 4 February 2016 and 5 November 2018[2], Supreme placed 3,848 purchase orders with Philips for a total invoiced amount of HK$106,828,365.

5.  Between January 2017 and August 2018, the applicant had, on three occasions, sought approval to sell Philips' products to Supreme at prices lower than the ALP. The discount involved was HK$343,864.

6.  In addition, there were promotion funds set up by Philips for its customers. When customers met the requirement (sales targets) of utilizing the promotion funds, they were entitled, in relation to future transactions, to draw certain sums from the funds to settle payments with Philips. In about 2014, the applicant told the management that the prices offered by Philips to its OEM customers were not competitive and suggested that OEM customers should also be entitled to use the promotion funds in the Trade Channel to which suggestion Philips eventually agreed.

7.  From February 2016 to November 2018, a total sum of HK$11,775,199 generated from the promotion funds of other OEM and Trade Channel customers was used by Supreme. Upon the judge’s enquiry, the prosecution later confirmed that HK$9,338,327 out of the said sum was generated from the Trade Channel.

8.  Had Philips known about the applicant's relationship with Supreme, it would have assigned other staff members to handle the transactions and would not have agreed to the applicant's suggestion to use the promotion funds in the Trade Channel to subsidize OEM customers.

Reasons for Sentence

9.  The judge did not accept the defence submission that the benefit to the applicant was unquantifiable. She found that even if Supreme was entitled to use the promotion funds in the OEM Channel, Supreme was not so entitled with regard to the funds in the Trade Channel. The judge further considered that the applicant’s conduct was tantamount to theft involving a breach of trust and relying on HKSAR v Lam Wing On[3], she took the view that the sentencing guidelines in HKSAR v Cheung Mee Kiu[4]and HKSAR v Ng Kwok Wing[5](“the Cheung & Ng guidelines”) were applicable. The judge commented that even if the guidelines were not so applicable, they could be used as a reference.

10.  In the end, having considered all the relevant circumstances, the judge took the view that the appropriate starting point should be 7 years. As, apart from the applicant’s guilty plea, she did not find the mitigation to be of any force, she passed a term of 56 months.

Grounds of appeal

11.  Mr Paul Leung for the applicant advanced three grounds of appeal.

12.  Ground 1 avers that the judge erred in viewing the present case as one of theft and applying the Cheung & Ng guidelines.

13.  Ground 2 avers that the judge erred in taking into account matters which were not borne out by the facts prepared by the prosecution, including: (1) the applicant was able to ensure that Supreme could purchase Philips’ products at the “most competitive prices”; (2) Philips was not aware that the applicant was “suppressing” the price of the goods to benefit himself and/or his wife; (3) the applicant was the mastermind behind Supreme in actual control of its business; and (4) Supreme had annual orders of over HK$100 million.

14.  Ground 3 avers that the sentence imposed in all the circumstances of the case was manifestly excessive.

Consideration

15.  In SJ v Andrew Marc Dank & Another[6] which involved a number of fraud charges with an element of breach of trust, the Court of Appeal said that,

“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. …”

16.  Similar observations were subsequently made in Lam Wing On[7] and HKSAR v Chong Hung Shek[8].

17.  Therefore, if by ground 1, Mr Leung was putting forth a general proposition that the Cheung & Ng guidelines would not be applicable in a case of fraud involving a breach of trust, then in view of the authorities, I do not consider the argument to be tenable.

18.  However, having gone through Mr Leung’s written submissions and when examined in context, I found that the crux of the complaint raised in ground 1 is not so much about the application of the guidelines to the present case but rather the adoption of HK$9.3 million discount as the “amount stolen” and then using it as the basis to apply the guidelines. At the hearing, Mr Leung confirmed that this was his real complaint and he would seek to amend ground 1 along this line.

19.  In respect of this amended ground, I note that the general theme of the mitigation advanced by leading counsel for the applicant in the proceedings below was that “a discount is not necessarily a loss incurred” and that the giving of discounts was a commercial decision with the aim of boosting sales and keeping customers so that the business would continue.

20.  Before me, Miss Chan for the respondent accepted that Supreme was the largest OEM customer at the time and that before Supreme was entitled to use the promotion funds, it had to meet certain sales targets set by Philips. Although Miss Chan, at one stage, sought to suggest that the discount or that portion of the promotion funds in the Trade Channel used by Supreme was a loss suffered by Philips because if the amount was not used, it would go back to Philips’ profit ledger, she later accepted that if the funds were used, it would inevitably mean that, firstly, Supreme had met the sales targets, and secondly, Supreme had made more purchases when using the funds to settle payments, thus bringing in additional revenues to Philips.

21.  In other words, Miss Chan accepted that the HK$9.3 million in the Trade Channel did not just vanish and became “money stolen” from Philips. Instead, the HK$9.3 million, when used by Supreme, had generated other rounds of business, resulting in more revenues for Philips. Viewed in this light, it could reasonably be argued that the dollar value in the promotion funds had only been converted to the dollar value in additional revenues or profits for Philips and no money had been taken away.

22.  Given the operation mechanism of the promotion funds, it would be arguable that the HK$9.3 million in the Trade Channel might not properly be regarded as “money stolen” from Philips or as the judge put it, “the benefit obtained by the defendant”.[9]

23.  In addition, although paragraph 17 of the summary of facts[10]stated that “ … Had Philips known that Defendant’s wife SUEN was the owner of Supreme, it would have assigned other staff member to handle the transactions with Supreme, and would not have agreed to Defendant’s suggestion to use the promotion funds in Trade Channel to subsidize OEM customers including Supreme.”(emphasis added), it is not clear what the state of affairs would have been had Philips assigned another staff member to handle Supreme. To put it simply, the facts did not say that if the suggestion for the OEM customers to use the Trade Channel funds had come from another staff member, Philips would still not have approved it. After all, the facts were only that Philips would assign another staff member to look after the Supreme account, not that it would not do business with Supreme simply because the owner of Supreme was the wife of one of its sales managers.

24.  In short, whether there was cogent evidence to support the finding that the promotion funds in the Trade Channel used by Supreme was Philips’ loss is clearly arguable.

25.  Before leaving this ground, I should also mention that, unlike the previous cases and authorities brought to the attention of this court wherein it was invariably the victim companies making payments to the defendant-related companies, what happened here was the other way round. It was Supreme making payments to the applicant’s employer company and not Supreme getting paid. Certainly, this fact alone could not be determinative of anything but, at least, it would appear to me to be one particular feature to be taken into account when considering the questions of loss, benefit, and money stolen.

26.  I therefore granted leave in respect of amended ground 1, that is, the judge erred in treating the HK$9.3 million discount as the loss suffered by Philips, or alternatively, as the benefit obtained by the applicant, and thereby erred in proceeding to sentence the applicant based on this amount.

27.  Ground 2 could be disposed of shortly. I take the view that based on the facts admitted by the applicant and the matters put forth in mitigation, the judge was entitled to make the general comments now complained of under this ground (except the reference to Supreme’s annual orders being over HK$110 million[11]when that amount was over a period of about 2½ years[12], but that would appear to be a mere slip).

28.  If one were to paint an overall picture of what happened from the facts admitted, one could reasonably come to the conclusions or observations made by the judge. There was no departure from the prosecution case. Neither were those observations not supported by the evidence before the judge. As a result, I do not consider this ground reasonably arguable.

29.  In any event, given that the judge essentially sentenced the applicant on the basis of the HK$9.3 million being the money stolen, the judge’s observations on these matters, in my view, would not have materially affected the sentence passed. I therefore refused leave on this ground.

30.  Since I found amended ground 1 reasonably arguable, it follows that ground 3 (the manifestly excessive ground) would also be arguable and I granted leave accordingly.

Conclusion

31.  The applicant was granted leave to proceed with amended ground 1 and ground 3.

32.  However, in respect of ground 2, leave was refused and the applicant was reminded that he could renew his application on this ground before the Court of Appeal but a warning was given to him that should he do so, and should the Court of Appeal find no merit in respect of the renewal application, the Court of Appeal may order loss of time which the applicant has spent in custody pending his appeal.