HKSAR v. CHENG CHEE-TOCK, THEODORE AND ANOTHER

CACC 460/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 460 OF 2012

(ON APPEAL FROM DCCC NO. 476 OF 2011)

____________

______________

______________

Hon Lunn JA (giving the judgment of the court):

1. The applicants, to whom we will refer by their numerical designations as defendants at trial, sought leave to appeal against their convictions on 4 October 2012 after a trial by District Court Judge Stanley Chan. They stood trial together with Chong Ching Lai, who was acquitted of all the separate charges which he faced, on and between February and August 2012. The 1^st and 3^rd defendants were each convicted of conspiring together and with Nam Kok Teng, Kenny (“Kenny Nam”) to defraud the Board of Directors and shareholders of CY Foundation Group Limited (“CYF”), contrary to Common Law (Charge 1). In addition, the 3^rd defendant was convicted of 2 charges of dealing with property known or believed to represent proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap 455 (Charges 3 and 7).

2. On 30 October 2012, the judge sentenced each of the defendants to 5 months’ imprisonment for Charge 1.  In addition, the 3^rd defendant was sentenced to 6 months’ imprisonment on each of Charges 3 and 7.  The judge ordered that 2 months of those sentences be served consecutively to the sentence of 5 months’ imprisonment imposed in respect of Charge 1.  Accordingly, the 3^rd defendant was sentenced to a total of 7 months’ imprisonment.

THE CHARGES

Charge 1 (1^st and 3^rd defendants)

3. The Particulars of Offence of Charge 1 alleged that on and between 2 April 2007 and 28 January 2008 the two defendants conspired together and with Kenny Nam to defraud the Board of Directors and shareholders of CYF by dishonestly:

“ (i) falsely concealing from CYF that said Cheng Chee-tock, Theodore had a beneficiary or financial interest in a property at 17th floor, No. 200 Gloucester Road, Wan Chai; and

(ii) falsely representing to CYF that the acquisition of the said property by CYF did not constitute a connected transaction for the purpose of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (‘the Listing Rules’),

thereby inducing CYF to complete the purchase of said property without convening the required company meeting(s) or complying with the Listing Rules.”

4. Pursuant to its duty to ensure “an orderly, informed and fair market”[1] the Stock Exchange of Hong Kong (“SEHK”) has made the Listing Rules[2] which have been approved by the Securities and Futures Commission.[3]  Chapter 14A, of the Listing Rules applicable at the material time, addresses ‘Connected Transactions’.  Rule 14A.01 states that those rules “…are intended to ensure that the interests of shareholders as a whole are taken into account by a listed issuer when the listed issuer enters into connected transactions.”  Rule 14 A.02 provides:

“ This is achieved through the general requirement for connected transaction to be disclosed and subject to independent shareholders’ approval. Accordingly, where any connected transaction is proposed, the transaction must be announced publicly by means of an announcement published in accordance with rule 2.07C and a circular must be sent to shareholders giving information about the transaction. Prior approval of the shareholders in general meeting will be required before the transaction can proceed. A connected person with a material interest in the transaction will not be permitted to vote at the meeting on the resolution approving the transaction.”

5. Rule 14A.11 provides a definition of ‘connected person’ for the purposes of Chapter 14A, stating that it includes:

“ (1) a director, chief executive or substantial shareholder of the listed issuer;

(2)…

(3)…

(4) any associate of a person referred to in rules 14A.11(1)…….In this Chapter, an “associate” of a person referred to in rules 14A.11(1)…. Includes the following additional persons:

(a) any person or entity with whom a person referred to in rule 14A.11 (1)…has entered, or proposes to enter, into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, with respect to the transaction which is such that, in the opinion of the Exchange, that person or entity should be considered a connected person;”

Charges 3 and 7 (3^rd defendant)

6. Charges 3 and 7 alleged against the 3^rd defendant that on the 26 October and 19 December 2007 he had dealt with property, namely $10.7 million and $2,056,679.99 respectively, knowing or having reasonable grounds to believe that the monies, in whole or in part directly or indirectly represented the proceeds of an indictable offence.

BACKGROUND

CYF

7. CYF is a company listed on the Main Board of the Stock Exchange of Hong Kong (stock code 1182).  Prior to 25 May 2007 its name was Foundation Group Limited (“FGL”).  The 1^st defendant was its Chairman from February 2007 to 8 April 2011.[4]

The 1^st defendant

8. Apart from being the Chairman of CYF, the 1^st defendant was also Chairman, Chief Executive Officer and controlling shareholder of Sino Strategic International Limited (“Sino Strategic”) an Australian company listed in Australia.  China Entertainment Holdings Limited (“China Entertainment”), a company incorporated in the British Virgin Islands and of which the 1^st defendant was a director was a wholly-owned subsidiary of Sino Strategic.[5]

The 3^rd defendant

9. The 3^rd defendant was the owner of Havaleigh International Limited (“Havaleigh”).  It occupied premises within the CYF’s office premises.  By an agreement, dated 6 March 2007, the 3^rd defendant was employed as a consultant of CYF from that date until 5 June 2007.  By an agreement dated 5 June 2007 Haveleigh was employed as an in-house Treasury adviser of CYC from that date until 5 December 2007.[6]

The prosecution case

10. The ‘Agreed Case Summary’, which the parties prepared at the direction of the court, has been of help in summarising the prosecution case.

The acquisition of the property at 17/Floor 200,Gloucester Road

11. It was the prosecution case that in March 2006 the 1^st defendant arranged for China Entertainment to acquire Sino Joy Holdings Ltd (“Sino Joy”) a company incorporated in Hong Kong on 17 March 2006.  China Entertainment held 100% of the shares of Sino Joy.  On 11 May 2006, Sino Joy acquired by assignment from China Will Investment Limited and LY (Hong Kong) Limited two units on the 17/Floor of 200 Gloucester Road, which together comprised the whole of the floor, (“17/Floor property”) for a total of $42,176,320.[7]  By an agreement dated 11 May 2006, Sino Joy leased the 17/Floor property to China Entertainment for 3 years for $184,700 per month, exclusive of rates and management fees.[8]  Sino Joy had no other business.

17/ Floor property: office sharing agreement

12. By an agreement dated 28 February 2007, China Entertainment agreed to share with CYC the cost of sharing the space of the 17/Floor property on terms that with effect from 1 March 2007 CYC was to bear 57.5% of all the rental and other expenses on a monthly basis, which proportion was to rise to 100% with effect from 1 June 2007.[9]

Sale of the 17/ Floor property

13. It was the prosecution case that consideration by the 1^st defendant of a sale of the 17/Floor property arose out of a need to ameliorate a cash flow difficulty experienced by Sino Strategic, which had to be resolved by its financial year-end of 30 June 2007.  However, the 1^st defendant wished to retain an interest in the 17/Floor property.  He considered a sale to FGL, as was evidenced by e-mails[10] dated 2 and 3 April 2007 from the 1^st defendant to Mr Josiah Choi Siu Pang, a legal and credit officer of Horizon Structured Solutions Ltd (“Horizon”), a company which the 1^st defendant operated.[11]

14. In an initial e-mail to solicitors, copied to the 1^st defendant, Mr Josiah Choi noted that it was proposed that FGL acquire Sino Joy, which company owned the 17/Floor property and was a subsidiary of Sino Strategic.  Further, it was asserted that the 1^st defendant was a shareholder and director of both FGL and Sino Strategic.  It concluded by stating that the lawyers would handle the “SE and SGM”, the latter being a reference to a Special General Meeting of the shareholders of FGL.  In response, the 1^st defendant enquired:

“ May we use Kenny Lam [sic] to buy first and transfer to 1182 at a later stage?”

Mr Josiah Choi replied on 3 April 2007:

“ …it is simple and viable to acquire Sino Joy by 1182 as we need to hold a SGM….

It seems no good for Kenny to pay [sic] a significant role in 1182.  Pls instruct your final decision.”

No instructions or reply was forthcoming from the 1^st defendant.

Sale of the 17/Floor property to Mansion Gains

Mansion Gains

15. Having been told by the 1st defendant that he was considering selling the 17/Floor property to Kenny Nam, at the latter’s request Mr Edwin Yuen, the business manager of Horizon and a witness called by the prosecution, arranged for the acquisition of Mansion Gains Holdings Ltd (“Mansion Gains”).  In the absence of Kenny Nam it was arranged on 27 April 2007 that Mr Wong Dah Wai, a colleague of Mr Edwin Yuen and a witness called by the prosecution, became the sole shareholder and director of Mansion Gains.[12]

16. On 30 April 2007, China Entertainment entered into a provisional Sale and Purchase agreement with Mansion Gains for the sale by the former to the latter of the entire share capital of Sino Joy, which company owned the 17/Floor property, for $46.5 million.[13]  That was the valuation given to China Entertainment in the opinion of BMI Appraisals dated 14 May 2007 for the 17/Floor property as at 27 April 2007.[14]  On 25 May 2007, the sole share in Mansion Gains was transferred from Mr Wong Dah Wai into the name of Kenny Nam.[15]

17. The costs of the acquisition and the transfer of the sole share into the name of Kenny Nam were borne by Luck Continent Limited (“Luck Continent”) by a cheque dated 29 May 2007 signed by Dato Poh Po Lian (“Dato Poh”) drawn on Luck Continent’s account with Hong Leong Bank in favour of Incorporated Company Secretaries Limited for $10,460.[16]  That sum of money was the total amount of money demanded for those two services in two invoices rendered to Mansion Gains on 27 April and 25 May 2007 respectively.[17]  The latter invoice described the transfer of the share from Wong Dah Wai as having been to Luck Continent.

Luck Continent

18. Luck Continent was a company incorporated in the British Virgin Islands, of which Dato Poh was the sole shareholder and Chairman, and the majority shareholder of CYF.

19. On 15 June 2007, China Entertainment entered into a Sale and Purchase agreement with Mansion Gains for the sale of all the shares of Sino Joy and its shareholder loan for $46.5 million.[18]  $4.65 million was payable before the agreement was signed, a similar amount on the signing of the agreement and the balance of $37.2 million on completion, 29 June 2007.

Payment and completion

20. $4.65 million was paid to China Entertainment on 30 April 2007 by a cheque drawn on Luck Continent signed by Dato Poh.[19]  Two other sums of money in like amounts were paid to China Entertainment by cheques drawn on the account of Sino Gain Holdings Ltd (“Sino Gain”) on 15 and 29 June 2007 respectively.[20]  China Entertainment was a wholly-owned subsidiary of Sino Strategic.[21]  The balance of the consideration was provided by way of facilities granted by the Bank of China on 29 June 2007.  On that date completion occurred with the sale of all 100 shares of Sino Joy by China Entertainment to Mansion Gains and the making of the Deed of Assignment of the debt owed by Sino Joy to China Entertainment to Mansion Gains.[22]

Sino Gain

21. Sino Gain is a company incorporated in the British Virgin Islands, of which Kenny Nam became sole shareholder and then the sole director on 29 April 2006 and 14 May 2007 respectively.[23]

Preparation for the sale of the 17/Floor property by Mansion Gains to CYF

22. In August 2007, in anticipation of the sale of the 17/Floor property by Mansion Gains to CYF, the 3^rd defendant sought valuations of the 17/Floor property from various surveyors.  Having been engaged on 15 August 2007,[24] Vigers Appraisal and Consulting Ltd produced valuation certificate dated 23 August 2007 for $52 million but, at the request of the 3^rd defendant by e-mail that it be increased to $55 million, eventually produced a valuation certificate for $54.2 million.[25]

The sale of the share of the 17/Floor property to Beauford

Beauford

23. On 7 September 2007, Kenny Nam’s ill-health caused him to faint after a meal.  On 11 September 2007, at the request of the 3^rd defendant, Chong Ching Lai the former 2^nd defendant, became the sole shareholder of Beauford Ltd (“Beauford”), a company incorporated in the British Virgin Islands.[26]  The invoice, dated 21 September 2007, for the expenses concerned, US$680 or its equivalent in Hong Kong dollars of $5,304, was sent by Offshore Incorporation Hong Kong Limited (“OIL”) to CYF for the attention of Ms Joan Kwok.[27]  The bank book of Sino Gain described a payment in that amount to OIL on 15 November 2007, stating “company acquisition fee for Beauford Ltd. (paid O/B Kenny Nam)”.[28]  On 11 September 2011, Beaufort acquired the sole share of Mansion Gains for the stipulated consideration of $53.5 million.  However, none of the payment was made.  Documentary records and statutory of records of Beauford, together with the company chop, were seized from the offices of the 3^rd defendant on 30 August 2010.  An undated Sold Note and an Instrument of Transfer, in respect of the sole share of Beauford, signed by Chong Ching Lai were amongst the documents.[29]

The sale of the 17/Floor property to CYF

Highsharp

24. By a Sale and Purchase agreement dated 9 October 2007, Highsharp Investments Ltd (“Highsharp”), a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of CYF, agreed to purchase the sole share of Mansion Gains for $53.5 million.[30]  The stipulated completion date was 30 November 2007.  The 1^st defendant was one of the three directors of CYF who by a resolution dated 9 October 2007 approved the purchase.[31]  The sale was duly completed on the stipulated date.

25. CYF did not hold a Special General Meeting to obtain the consent of its shareholders to acquire the share of Mansion Gains and thereby the 17/Floor property.

Representations to the Stock Exchange of Hong Kong and to the shareholders of CYC

(i) CYF’s Announcement: 9 October 2007

26. It was the prosecution case that the acquisition of Sino Joy, and thereby the 17/Floor property, was a transaction in respect of which the Listing Rules of the Stock Exchange of Hong Kong imposed on CYC a duty of disclosure.  Pursuant to the duty of disclosure Ms Joan Kwok, the company secretary of CYF, communicated with the Stock Exchange of Hong Kong by e-mails on 8 and 9 October 2007 attaching a draft initial and then re-drafted proposed Announcement to be made by CYF in respect of the acquisition of Beauford and ultimately the 17/Floor property.[32]  Throughout, it was asserted of Beauford that :

“ (its) ultimate beneficial owner are third parties which are independent of the company and the connected persons of the Company as defined under the Listing Rules.”

The ‘Company’ was CYF.  As the chairman of CYF, the 1^st defendant was a ‘connected person’ for the purposes of the Listing Rules.  The Announcement was published by CYF on 9 October 2007 in the name of all 8 directors of the company, namely executive, non-executive and independent non-executive directors.[33]

(ii) CYF’s Circular: 30 October 2007

27. Subsequently, during the month of October there were further exchanges of e-mail correspondence between Ms Joan Kwok and the Stock Exchange of Hong Kong concerning the proposed issue of a Circular by CYF to its shareholders.[34]  The same representation was made to the Stock Exchange of Hong Kong in respect of the owners of Beauford and ultimately to the shareholders of CYF, when the Circular was published on the 30 October 2007.[35] Again, the Circular was published in the name of all 8 directors of the company.

Payment for the acquisition of Beauford and the 17/Floor property

28. The Sale and Purchase agreement, dated 9 October 2007, stipulated payment of a deposit of $10.7 million on signing of the agreement and the balance, of $42.8 million, on completion, namely 30 November 2007.  By a letter dated 30 November 2007 from Beauford to Highsharp the actual balance of consideration outstanding at completion was stipulated to be $10,876,679.99.[36]

Payments to Chong Ching Lai

29. By letter, dated 16 October 2007, to LGT Bank the 1^st and 3^rd defendants authorised the bank to make payment of $10,701,000 to the account of Chong Ching Lai with the Bank of China.[37]  That sum of money, less a handling charge of $10, was deposited into the account of Chong Ching Lai on 24 October 2007.[38]

30. By an e-mail dated 5 December 2007 from the 3^rd defendant to Ms Joan Kwok, but copied to Maria Lau, instructions were given that the final payment to Beauford was, as identified above, namely 10,876,679.99.[39]  By a letter to LGT Bank, dated 10 December 2007, the 1^st and 3^rd defendants authorised that payment to a stipulated bank account of CYF with HSBC.  Those monies were received on 17 December 2007 in that account of CYF, on which date a cheque dated 30 November 2007 drawn on the account of CYF with HSBC in the same sum of money was deposited into the account of Chong Ching Lai on 17 December 2007.[40]

Remittances by Chong Ching Lai

26 October 2007: $10.7 million

31. On 26 October 2007, Chong Ching Lai remitted $10.7 million from his account with the Bank of China to an account in the name of the 3^rd defendant with the Hang Seng Bank.[41]

32. On 19 December 2007, Chong Ching Lai obtained three cashier’s orders, debited to his account with the Bank of China, in favour of the following and in the stipulated amounts:[42]

(i) US$1 million in favour of Agustus Investments Limited (“Agustus”);[43]

(ii) HK$1 million in favour of Madam Leonora Yung, the 1^st defendant’s wife;[44] and

(iii) HK$2,056, 679.99 in favour of the 3^rd defendant.[45]

33. Chong Ching Lai made all those payments as arranged by the 3^rd defendant.  As is apparent from the calculation made on the application for the third cashier’s cheque, namely in the sum of $2,056,679.99, that sum of money was the difference between the monies remitted to Chong Ching Lai in the first place, namely $10,876,679.99, less the aggregate of the two other cashier’s cheques.[46]  In a letter, dated 31 January 2008, to Chong Ching Lai, Kenny Nam purported to acknowledge that all consideration had been paid, save for an outstanding amount of about $1.5 million, which he directed to be paid to Sino Gain.[47]

Agustus

34. Agustus is a company incorporated in the British Virgin Islands on 25 April 2007, on which date Kenny Nam became its sole shareholder and co-director.  On 28 December 2007, Agustus transferred US$1 million to the bank account of Special Opportunity Limited (“Special Opportunity”)[48] On 28 January 2008, Special Opportunity transferred US$750,000 to Agustus.[49]  On the same day Agustus transferred the same amount of money to the account of Sino Gain with the Bank of China, which payment was described beneath the description ‘Details of payment’ as being “Repay Loan”.[50]

Remittance by the 3^rd defendant

35. On the same date, 19 December 2007, on which Chong Ching Lai remitted $1 million to the Hang Seng Bank account of Madam Leonora Yung the 3^rd defendant remitted a similar amount to the same account.[51]

The defence case

36. Neither the 1^st defendant nor 3^rd defendant gave or called evidence in the defence case.  By contrast, Chong Ching Lai testified in the trial.  Since no attempt was made by the parties in the ‘Agreed Case Summary’ to summarise the case of the 1^st and 3^rd defendants at trial, at least as advanced in cross-examination and submissions, we set out the summary of those cases provided by the judge in his Reasons for Verdict:[52]

“ Defence case for D1

96. In gist, it was submitted that the prosecution has failed to prove that D1 had a beneficial and financial interest in the 17/F property. Hence, D1 had no interest to disclose and the property transaction was not a connected transaction at all. The decision to buy the property was a collective decision made by the board of directors and was in the best interests of CYF.

97. It was simply submitted that “there was no need for D1 to make any declaration of any interest he was holding in respect of the units because he had none. The property was being owned by Nam independently of D1 or CEH or SSI.”: paragraph 110 of the closing submission of D1.

Defence case for D3

99. In gist, it was submitted that although D3 was working closely with the company secretary Joan Kwok in every stage of the transaction, D3 would rely on Kwok’s competence and responsibility to comply with the Listing Rules.  D3 did not sit in the board of directors of CYF and did not know if D1 had made any declarations.

  100. It was further submitted that the prosecution failed to prove the mens rea of D3 under the limb of the knowledge in committing the money laundering offences.  The proceeds of sale were not tainted and they were proper proceeds derived from legitimate sale of the 17/F property by Nam to CYF.  D3 was merely handling the proceeds for Nam.  The source of the proceeds was lawful.”

Reasons for Verdict

37. The judge’s Reasons for Verdict extended to no less than 69 pages.  In addition, attached to those reasons was an Annexure of 95 pages, in which the evidence was summarised, witness by witness.  The judge said that there were four stages to the 17/Floor property transaction.[53]

(1) Stage one - period before June 2007:

The 17/F property was owned by Sino Joy.  Sino Joy was owned by CEH.  CEH was owned by SSI.  D1 was the chairman, CEO and controlling shareholder of SSI.

(2) Stage two - between 29 June 2007 and 11 September 2007:

The 17/F property was still owned by Sino Joy.  CEH transferred Sino Joy to Mansion Gains at the consideration of HK$46.5 million. Mansion Gains was owned by Nam.

(3) Stage three - between 11 September 2007 and 30 November 2007:

 Kenny Nam transferred Mansion Gains to Beauford which was owned by D2 at the consideration of HK$53.5 million.  Hence, Beauford owned Mansion Gains which held Sino Joy which then owned the property.

(4) Stage four - from 30 November 2007:

      CYF set up Highsharp.  D2 transferred Mansion Gains to Highsharp at the same consideration of HK$53.5 million.  Hence, Highsharp owned Mansion Gains which owned Sino Joy which then held 17/F property.

38. The judge identified, in over 30 pages of his Reasons for Verdict, “incidents or events” which he determined were relevant to the drawing of inferences.[54]  Then, he went on to make his findings:[55]

“ All the issues or events point to one direction, and I find that the whole management of CYF, including the subsidiaries of CEH, Sino Joy, was involved one way or another in the property transaction. In my view, the formulation of the agreement does not necessarily start with D1’s email in P-181 in April 2007. The conspiracy originated from the liquidity problem of SSI (Sino Stategic), and capital injection was required so that the position of SSI in the Australian Stock Exchange would not be adversely affected. With the decision to sell the property, I find that D1 was eager to keep the property in his reach by having it transferred to CYF which had more funds. D1 was confident that the property market would continue to boom. Nam was a close associate of D1, and even without anything on paper, Nam was entrusted to set up Mansion Gains which would hold Sino Joy which in turn held the 17/F property. In September 2007, Nam’s health deteriorated drastically and even fainted on one occasion after dinner. The plan was changed to have D2 taking up the role of Nam and, hence, a BVI company Beauford was set up. Beauford was to hold another BVI company, Mansion Gains, and that indirectly held the property. And then the final stage would be for D2’s Beauford to pass the property to CYF through Highsharp.”

39. Of the issue of dishonesty, the judge said:[56]

“ When the Ghosh test is applied, it is not difficult to find that, objectively, the transfer of the 17/F property originally held by SSI, a company where D1 was the majority holder and CEO, to other BVI companies before the property was further transferred back to Highsharp, a subsidiary of CYF, was a dishonest act. The creation of these BVI companies, namely, Mansion Gains and Beauford, was to camouflage the existence of connected transaction. It was submitted that D1’s interests in certain companies and his association with Nam and D2 were not a secret. That said, it does not negate the fact that when the announcement and circular were prepared in accordance with the Listing Rules, it would certainly be difficult for a third party or the outsiders or the authority to find the transaction fishy. If the majority shareholders cannot vote in the specially convened shareholders’ meeting, there is a chance, even though it might be a slight one, for a veto. And above all, it would be more time-consuming to comply with the listing rules, and more queries from the Stock Exchange would be raised if a connected transaction is in place. It is noted that on paper, when Nam and D2 transferred the property to Highsharp, there was a profit of some $7 million as the consideration that SSI sold to Nam was $46.5 million while Nam and/or D2 sold the property to CYF at $53.5 million. There is no evidence to show who would pocket the profit - Nam himself or Sino Gain or some other people.

Subjectively, D1 and D3 together with Nam should know that they were practising dishonest means to pursue their interests at the expense of other minority shareholders of CYF, a public listed company. The property market could fall and by buying an office property, the purchase could put the economic interests of CYF and other shareholders at risk.

Chapter 14A of the Listing Rules states clearly that the connected transaction rules are intended to ensure that the interests of shareholders as a whole are taken into account by a listed issuer when the listed issuer enters into connected transactions.  I have no doubt that what D1 and D3 did in this conspiracy act was to circumvent the Listing Rules.”

40. In the result, the judge concluded:[57]

“ I find that when all the evidence was considered in its entirety, not in isolation, the cumulative effect and the facts of combination would provide the only compelling and irresistible inference that D1 and D3 together with Nam did act in concert to pursue a common criminal purpose. That is both D1 and D3, together with Nam and, possibly with some other persons, conspired together to defraud the board of directors and/or shareholders of CYF in this transaction. From the above analysis, I also find that D1 did have the beneficiary or financial interests in the 17/F property through his co‑conspirator Nam. Accordingly, I find the prosecution proved its case against both D1 and D3 on Charge 1. I convict D1 and D3 of Charge 1.”

Charges 3 and 7: the 3^rd defendant

41. Having set out his reasons for acquitting the erstwhile 2^nd defendant, Chong Cheng Lai, of all four charges of ‘money laundering’ in respect of his dealing with the proceeds paid by CYF for its acquisition of Mansion Gains and the 17/Floor property, the judge went on to set out his reasons for convicting the 3^rd defendant of the two charges of ‘money laundering’ which he faced, namely Charges 3 and 7:[58]

“ D3 occupied a different category from D2 in these two money-laundering charges. D3 was one of the co-accused in Charge 1 and it is not in dispute that the money in question in these two charges originated from the sale proceeds of the 17/F property that D2 received from CYF. I have no doubt that D3 occupied a central position in orchestrating the scheme and in preparing all the bank forms for the transfer of these two sums of money from D2’s bank account to D3’s own bank account with the Hang Seng Bank in October and December 2007 respectively. On the last occasion, a cashier’s order was issued to effect the transfer. D3 also kept D2’s bank passbook.

Counsel for D3 relied on the case of HKSAR v Wan Yet Kwai CACC 372 of 2008 and submitted that the money that D3 received came from a legitimate and lawful source. It was said the monies were proper proceeds derived from legitimate sale of the property by Nam to CYF and D3 was merely handling these proceeds for Nam. Hence, the offence under section 25(1) was not made out.

The element of mens rea in these charges against D3 would be under the limb of knowledge rather than that of “having reasonable grounds to believe”. I have found D3 guilty of Charge 1 which is an indictable offence. The act of dealing is broadly defined in section 2 of OSCO, Cap. 455. The actus reus of the offence was not in dispute. The sales proceeds can be taken as payments received by D3 in connection with the commission of the indictable offence.

  To conclude, I am satisfied that the prosecution has proved its case against D3 on these two charges.  Accordingly, I convict D3 of Charges 3 and 7, and that completes my reasons for verdict.”

GROUNDS OF APPEAL AGAINST CONVICTION

The 1^st defendant

Ground 1: the 1^st defendant’s financial interest in the 17/Floor property

42. The nub of the 1^st defendant’s submissions in respect of ground 1 was that the judge erred in determining that the 1^st defendant had a financial interest in the 17/Floor property on 9 October 2007 at which date Highsharp, a subsidiary of CYF of which company he was Chairman, agreed to buy the sole share of Mansion Gains from Beauford, which held a 100% interest in Sino Joy through which it had a 100% interest in the 17/Floor property.

43. Mr Ronnie Wong SC submitted that such indirect financial interest that the 1^st defendant had in the 17/Floor property, through his shareholding in Sino Strategic, was extinguished when Sino Strategic’s wholly owned subsidiary company, China Entertainment, disposed of its holding of Sino Joy shares on 29 June 2007 on completion of the Sale and Purchase agreement of 15 June 2007, made pursuant to the provisional Sale and Purchase agreement dated 30 April 2007, between China Entertainment and Mansion Gains.

44. Next, it was contended that the judge had failed to address the critical issues of the purpose of the various transfers of the 17/Floor property and the effect on the underlying financial interest in the 17/Floor property.  Then, it was contended that the judge was wrong to have found that the 1^st defendant’s enquiry in the e-mail of 2 April 2007 to Mr Josiah Choi “May we use Kenny Lam [sic] first and transfer to 1182 at a later stage?” evidenced the consideration by the 1^st defendant of using Kenny Nam as an agent of the 1^st defendant to hold the shares of Sino Joy and thereby the 17/Floor property, rather than owning the shares and the 17/Floor property in his own right.

Ground 2: inconsistencies and contradictions in the prosecution case

45. By ground 2, it was contended that the judge had failed to resolve the inconsistencies and contradictions in the prosecution case as to the consequences in respect of any financial interest in the 17/Floor property on the various occasions of transfer of the shares of Sino Joy.

Ground 3: inadequate reasons

46. By ground 3, it was submitted that the judge had failed to give adequate reasons in respect of his analysis of the evidence and the findings which he reached.  In particular, it was contended that he was in error to determine that the incidents or events, that he had identified in paragraph 121 of the Reasons for Verdict, provided a “compelling and irresistible inference” adverse to the 1^st and 3^rd defendants.

Grounds 4 and 5: dishonesty

47. By grounds 4 and 5, it was submitted that the judge erred in determining that the 1^st defendant was dishonest in his conduct relevant to the matters specified in the Particulars of Offence of Charge 1.

Ground 6: the judge’s impermissible extension of the ambit of the conspiracy

48. By ground 6, it was contended that the judge had erred in determining in his Reasons for Verdict that various persons were co-conspirators, when they were not stipulated as conspirators in the Particulars of Offence of Charge 1.  To do so was to extend the ambit of the conspiracy as advanced in the prosecution case to the prejudice of the 1^st defendant, in that the case found by the judge was a different case from that which he had met in the evidence and by the submissions of his counsel.  Further, the 1^st defendant was deprived of the opportunity of seeking the recall of witnesses for cross-examination, calling other evidence or making further submissions.

The 3^rd defendant

Grounds 1 and 2: the judge’s impermissible extension of the ambit of the conspiracy

49. Mr Tse SC advanced submission similar to those advanced by Mr Ronnie Wong in contending that, in finding persons to be co-conspirators in the conspiracy other than those stipulated as co-conspirators in the Particulars of Offence, the judge was extending the ambit of the prosecution case impermissibly to the prejudice of the 3^rd defendant.

Ground 3: inadequate reasons for verdict

50. By ground 3, it was contended that the judge had failed:

(a) to make a sufficient evaluation of the credibility of those witnesses that he found to be co-conspirators and to make related findings;

(b) to explain how he arrived at determinations of fact that were unsupported by any evidence and/or contrary to other evidence.

Ground 4: speculative findings of fact

51. By ground 4, it was submitted that the judge had made findings of facts in the absence of supporting evidence and/or by engaging in speculation.

52. By ground 5, it was argued that the judge’s errors in reaching his findings of fact in respect of the 3^rd defendant’s conduct relevant to Charge 1 impugned his determination that the 3^rd defendant knew that the monies with which he dealt as promoted in Charges 3 and 7 were the proceeds of an indictable offence.

A CONSIDERATION OF THE SUBMISSIONS

The prosecution case: the 1^st defendant’s financial interest in the 17/Floor property

53. At the outset of his Reasons for Verdict the judge summarised the prosecution case in respect of Charge 1.  He noted that the nub of the allegation was:[59]

“ (a) conspiracy to defraud the Board of Directors and shareholders of CY Foundation (CYF) by concealing an alleged connected transaction and completed the said transaction without complying with the listing rules of the Stock Exchange.”

54. Having traced the history of the acquisition of the 17/Floor property by Sino Joy in 2006 and the subsequent dispositions, the judge addressed the circumstances leading to the impugned transaction:[60]

“ In September 2007, D2 became the shareholder of another BVI company called Beauford Ltd (Beauford). On 11 September 2007, Beauford acquired Mansion Gates from Nam for a consideration of $53.5 million. Through its subsidiary Highsharp, CYF acquired the 17/F property with the same consideration of $53.5 million. No Special General Meeting nor general approval from shareholders was held or obtained. An Announcement and Circular was issued by CYF in accordance with the listing rules to the effect that the property transaction was not connected with any connected persons of the company. It also stated that the ultimate beneficial owner of the property was third parties who were independent of CYF. The prosecution alleged that the property transaction was in fact a connected transaction and D1 had the beneficiary or financial interest in the property.” [Italics added.]

55. The judge went on to identify the nub of the defence of the 1^st defendant as articulated in submissions by counsel on his behalf, which submission was repeated by Mr Ronnie Wong in this court:[61]

“ It was submitted that D1’s connection with the 17/F property ended when Mansion Gains acquired Sino Joy on 29 June 2007, and that was not D1’s decision but that of the board of directors of SSI.”

56. Clearly, the judge rejected that submission.  On the contrary, he found:[62]

“ D1 did have the beneficiary or financial interest in the 17/F property through his co-conspirator Nam.”

57. Of the circumstances in which the 1^st defendant held that interest, the judge noted that the sale of the 17/Floor property came about because of the liquidity problem of Sino Strategic, but went on to determine:[63]

“ .. D1 was eager to keep the property in his reach by having it transferred to CYF which had more funds. D1 was confident that the property market would continue to boom. Nam was a close associate of D1, and even without anything on paper, Nam was entrusted to set up Mansion Gains which would hold Sino Joy which in turn held the 17/F property. In September 2007, Nam’s health deteriorated drastically and even fainted on one occasion after dinner. The plan was changed to have D2 taking up the role of Nam and, hence, a BVI company Beauford was set up. Beauford was to hold another BVI company, Mansion Gains, and that indirectly held the property. And then the final stage would be for D2’s Beauford to pass the property to CYF through Highsharp.” [Italics added.]

Clearly, the judge found that Kenny Nam held the sole share of Mansion Gains on behalf of the 1^st defendant.

58. Of the role of the 2^nd defendant, Chong Ching Lai, the judge noted that there was no issue that he became a shareholder and director of Beauford merely as a nominee of Kenny Nam.[64]

59. We are satisfied that was the nub of the prosecution case throughout.  That was the case that the defendant had to meet.  There is no merit in the submissions that the defendants were prejudiced in their defence by a shifting of the prosecution case.

60. In oral argument, Mr Ronnie Wong accepted that as a share holder of Sino Strategic, which company held a 100% interest of the 17/Floor property through its subsidiary companies China Entertainment and Sino Joy, the 1^st defendant had a financial interest in the 17/Floor property.  That concession was made correctly.  As a shareholder, enjoying the panoply of the rights of shareholders, including that in respect of the receipt of dividends paid by Sino Strategic, the 1^st defendant had a financial interest in the 17/Floor property.  However, if the judge was correct to determine that Kenny Nam held his interest in the 17/Floor property on behalf of the 1^st defendant, we are satisfied that the judge was correct to determine the latter continued to enjoy a financial interest in the 17/Floor property, albeit by a different route.  The judge’s finding as to the role of Kenny Nam in relation to the 1^st defendant is challenged by both defendants in many of their other grounds of appeal.

The ambit of the conspiracy

61. The crux of the submissions made on behalf of the defendants in respect of the ambit of the conspiracy as found by the judge is that to their surprise, and without prior warning, the judge determined in his reasons for verdict that persons, other than the three stipulated conspirators, were also co-conspirators.  It was contended that in consequence the defendants were prejudiced: their defence was conducted on a different basis; other lines of cross-examination might have been pursued; witnesses who were not called, such as Ms Joan Kwok, might have been called; and the defendants might have availed themselves of the right to give evidence.

62. In support of their submissions on behalf of the defendants, counsel pointed to findings of the judge in respect of the roles of not only the stipulated co-conspirators but also prosecution witnesses and, in the case of Joan Kwok, a person not even called as a witness in the trial.  Although the judge did not find specifically that any of those persons was a co-conspirator in the conspiracy alleged in Charge 1, it was suggested that, at least in respect of some of them, it was to be inferred that was the case.

63. The judge said:[65]

“ I find that after Nam acquired the property at $46.5 million from CEH, the scheme was modified in light of Nam’s poor health condition. The witnesses mentioned D2 fainted after the meal in early September. In my view, that led to the idea of making use of D2. Hence, Beauford was set up to acquire Mansion Gains from Nam who, on paper, pocketed a profit of $7 million. D2’s Beauford sold the property at the same price to Highsharp, a subsidiary of CYF, in less than three months’ time. So why the property was sold at the same price? Why there was no valuation report, like the previous one from Vigers, to update the property price before the sale to Highsharp? D2 maintained, and I believe, that he had no money to buy the property, and he did not pay anything. If Nam was really an independent vendor, he had to bear the legal costs in this transaction and for setting-up of Beauford. D2 could be considered as a conduit in a series of transactions leading to the purchase of the property by CYF.

These factors point to the fact that the whole scheme was orchestrated by people in CYF. Who were they? From the exchange of emails and other documentary exhibits, I have no doubt that D3, PW1 Poh, PW4 Sneah and Joan Kwok were also involved in and instrumental to the ultimate acquisition of the property by CYF. In my view, the fact that these people are not named in the particulars of the Charge 1 is irrelevant to my findings. It can be inferred that they were aware of the fact that ultimately CYF was to acquire the property from SSI’s Sino Joy.

D3 was asked by D1 to help SSI out and to solve SSI’s cash flow problem.  There was a time constraint for SSI as SSI had to prepare the annual report and the book was to be closed on 30 June.  Hence, it is obvious that time was of essence in order to save SSI.  I find that D1 was anxious to keep the 17/F property and at the same time to solve the financial problem of SSI, of which D1 was the major shareholder.  D3, PW5 Rudy Io, PW25 Daniel Law and even Joan Kwok were involved in the preparation of the relevant company documents, e.g. minutes of meetings, agreements, bought and sold notes.  These documents were prepared to satisfy the requirements under the Companies Ordinance.”  [Italics and sub-paragraphs added.]

64. The judge went on to say:[66]

“ D3 was in fact carrying out D1’s business plan and that included the plan to save SSI and to keep the 17/F property in their own hands. I find that there existed tacit agreement amongst all parties, including D1, PW1 and D3 and the companies concerned, including SSI, Sino Joy, Mansion Gains to execute the plan of saving SSI and of keeping the property in the hands of D1.” [Italics added.]

65. Of the role of Ms Joan Kwok, and the position taken by the prosecution in respect of her, the judge noted:[67]

“ Counsel for D1 and D3 attacked the prosecution for not including Joan Kwok as one of the conspirators because Joan Kwok should have full knowledge of the relevant and material facts of the transaction. The fact that Joan Kwok was not named as a conspirator should not hamper or usurp the court’s function in the finding of facts. The court is entitled to consider all relevant circumstances to perform the fact-finding exercise.” [Italics added.]

66. As noted earlier, notwithstanding those findings, the judge did not determine specifically any person to be a co-conspirator other than the three stipulated co-conspirators.  In his concluding findings in respect of Charge 1 he said:[68]

“ ….both D1 and D3, together with Nam, possibly with some other persons, conspired together to be brought on board of directors and/or shareholders of CYF in this transaction.” [Italics added.]

67. It is to be noted that in the middle of cross-examination by Mr Ronnie Wong of Dato Poh, with his agreement and that of counsel for the prosecution, the judge warned the witness of his rights in respect of self-incrimination.[69]  At that point in cross-examination, he was being asked questions as to the basis on which he was a party to the ‘responsibility statement’ of the board of directors of CYF set out in the Circular of 30 October 2007, in which it was asserted that the ultimate beneficial owner of Beauford were third parties who were independent of the connected persons of CYF.  The witness availed himself of that right and declined to answer a question as to what enquiries he had made in respect of the beneficial owners.

68. In his written submissions Mr Cooney SC conceded that “it appears” that the judge found Dato Poh to be a co-conspirator. For the purposes of addressing the submissions made on behalf of the defendants, we are prepared to accept that the concession is well made.  But, what are the consequences?  We do not accept for one moment that the defendants were in any way surprised by such a determination.  If there was a conspiracy, as alleged by the prosecution, there was compelling evidence of Dato Poh’s involvement, in particular his involvement in the initial stages through Luck Continent.  Nor do we accept that any prejudice was caused to the defendants by the fact that Dato Poh was not stipulated to be a co-conspirator in the Particulars of Offence.  Although called upon to do so, Mr Tse was wholly unable to point to any actual, rather than theoretical, prejudice.  Mr Tse’s contention that, if alerted to the prospect of the judge determining Dato Poh to be a co-conspirator, the 3^rd defendant might have called Ms Joan Kwok as a witness, in the anticipation that she would deny complicity in a conspiracy, notwithstanding that she was very involved in the mechanics of the various transactions, was an option open to the defendants throughout the trial.

Inadequate analysis and reasons for findings by the judge

69. Contrary to the submissions made by Mr Tse, the judge conducted a lengthy analysis of the salient features of the evidence in the course of which he made many determinations of fact which reflected findings of credibility, in consequence of which he drew inferences and, ultimately, concluded that the defendants and Kenny Nam had conspired as alleged in Charge 1:[70]

“ ..both D1 and D3, together with Nam and, possibly with some other persons, conspired together to defraud the board of directors and/or shareholders of CYF in this transaction. From the above analysis, I also find that D1 did have the beneficiary or financial interests in the 17/F property through his co‑conspirator Nam.”

70. Earlier, the judge had made determinations of fact that obviously reflected findings as to the credibility of Chong Ching Lai (the 2^nd defendant) and Dato Poh.  Having noted that Kenny Nam’s illness had led to him fainting at a meal on 7 September 2007, he went on to make findings in respect of Chong Ching Lai, Dato Poh and others:[71]

“ In my view, that led to the idea of making use of D2. Hence, Beauford was set up to acquire Mansion Gains from Nam who, on paper, pocketed a profit of $7 million. D2’s Beauford sold the property at the same price to Highsharp, a subsidiary of CYF, in less than three months’ time. So why the property was sold at the same price? Why there was no valuation report, like the previous one from Vigers, to update the property price before the sale to Highsharp?

D2 maintained, and I believe, that he had no money to buy the property, and he did not pay anything. If Nam was really an independent vendor, he had to bear the legal costs in this transaction and for setting-up of Beauford. D2 could be considered as a conduit in a series of transactions leading to the purchase of the property by CYF.

These factors point to the fact that the whole scheme was orchestrated by people in CYF.  Who were they?  From the exchange of emails and other documentary exhibits, I have no doubt that D3, PW1 Poh, PW4 Sneah and Joan Kwok were also involved in and instrumental to the ultimate acquisition of the property by CYF.”  [Italics and sub-paragraphs added.]

71. Of the fact that a cheque dated 30 April 2007 in favour of China Entertainment for $4.65 million drawn on the account of Luck Continent was used as the initial deposit for the purchase of the shares of Sino Joy by Mansion Gains, the judge noted that Dato Poh testified that “he had no idea how Nam made use of the cheque.”[72]  However, clearly the judge rejected that evidence, finding:[73]

“ .. the original intention was for CEH to sell the property to Luck Continent. Hence, PW1 Poh signed those ‘unused’ company documents relating to the setting-up of Mansion Gains. PW6 Mou of CEH was actively involved in the process, and Luck Continent even paid for the first deposit. The transfer voucher of Mansion Gains and the receipt voucher of CEH (P-35) recorded the entry as initial deposit and was dated 30 April 2007. The same date when the provisional S&P agreement was signed (DP-22) and the formal agreement was to be signed on 15 June 2007. Subsequently, because of a change of mind, PW7 Wong was asked to transfer shares in Mansion Gains to Nam who became the new shareholder and director of Mansion Gains on 25 May 2007. PW1 Poh’s Luck Continent paid for the company acquisition fees both for Nam and his own set of documents which was not used.”

The judge’s failure to explain findings of fact unsupported by evidence or contrary to other evidence

72. Mr Tse complained that the judge’s determination that he did not accept that “CYF changed her mind only after Nam’s acquisition in June and decided to purchase the property instead of having a long-term lease”[74] and that “although the decision to purchase the property was made by the board of directors the ultimate say came from D1”[75] was contrary to the evidence of Dato Poh and Samuel Woelem.  Both findings were direct rejections of submissions made by Mr Tse in his closing speech.[76]

73. The context relevant to consideration of the submission is that Dato Poh and Mr Samuel Woelem, together with the 1^st defendant, were the three Executive directors, who signed the Minutes of CYF dated 9 October 2007 in which it was resolved that CYF, through its subsidiary Highsharp, would acquire the shares of Mansion Gains from Beaufort and thereby of the 17/Floor property.

74. Mr Tse pointed to the evidence of Mr Sam Woelem, summarised by the judge in the Annexure to the Reasons for Verdict, that “at the beginning” he raised an objection to the proposed purchase of the 17/Floor property by CYC, but that later he “changed his mind and agreed to the acquisition”.[77]  The former time period appears to have been April 2007, in particular the reference in respect of the sale of the 17/Floor property, “May we use Kenny Lam (sic) to buy first and transfer to 1182 at a later stage?”[78]  His change of mind occurred in July and August 2007 at which time, in discussions with others, he agreed that “the acquisition was in the best interests of CYF”.[79]

75. As is clear from his lengthy Reasons for Verdict the judge approached the making of findings having regard to all the evidence.  He did not deal specifically with the evidence of Mr Sam Woelem’s change of mind, or perhaps the implied suggestion as to his power to resist the decision of the 1^st defendant as to the direction in which CYF was to proceed.  He approached the matter from the opposite direction, determining that the 1^st defendant was the person with the most influence in the companies:[80]

“ Even though the final decision was made by the board of directors of SSI or CYF, I find that D1 had the ultimate say and was the most influential person in the companies.  D1 in his cautioned interview said, “As chairman of CYF, he was mainly responsible for business development and fundraising, including issuing new shares, handling listing work and looking for projects.” ..… PW5 Io gave evidence to the effect that D1 was the one who formulated ideas and concepts for the company.  PW4 Sneah mentioned that Nam addressed D1 as his boss, and it was the case that the ultimate power to run the company rested with D1.”

76. Similarly, the judge noted the evidence to the same effect of Dato Poh and Mr Edwin Yuen:[81]

“ I accept PW1’s evidence that when he said D1 decided the direction of the business of CYF….. I also accepted PW2’s remark that D1 had the major say in the board of directors’ meetings of SSI.”

77. In that context, as noted earlier, the judge found that there was tacit agreement “amongst all parties, including D1, PW1 and D3……to execute the plan of saving SSI and of keeping the property in the hands of D1.”[82]  Furthermore, he found:[83]

“ There are many other instances to show that all the changes of hands relating to the property was on paper only, and in substance, the ownership was still in tight control of D1 and/or related parties. In my view, it can be inferred that Nam was acting on behalf of D1 to hold Sino Joy which in turn owned the property.”

Kenny Nam’s offer to buy the 17/Floor property was the only offer

78. Then, it was contended that the judge’s observation that it was “unreasonable” that it turned out that Kenny Nam was the “only available purchaser to buy the property” was contrary to the evidence of Mr Edwin Yuen.[84]

79. It appears that the description of the situation as being “unreasonable” addressed the issue of whether or not the sale was a proper and appropriate ‘open market’ disposal.  As noted earlier, in the e-mail of 2 April 2007, the 1^st defendant had mooted using Kenny Nam to buy the 17/Floor property first and transferring it at a later stage to CYF.  The possible solution of selling the property in the open market was raised in an e-mail dated 11 April 2007 from Mr Edwin Yuen to Mr Richard Li, copied to the 1^st defendant, in which the former observed “but it may take some time to conclude transaction”.[85]  Of the steps that were taken to secure the sale of the 17/Floor property, Mr Edwin Yuen said that he had “approached two or three real estate agents to consider selling this property”, but that the only offer received for the property was from Kenny Nam.[86]  He said the 1^st defendant had told him the purchase price of $46.5 million, but said that he had no idea how that had been negotiated.[87]

80. It is to be noted that the purchase price of $46.5 million matched exactly the valuation placed on the premises, as at 27 April 2007, stipulated in the valuation certificate of BMI Appraisal dated 14 May 2007 and provided to Mr Edward Yuen at China Entertainment.  To that extent the sale was secured at market valuation and achieved expeditiously, given that the provisional Sale and Purchase agreement was signed by the parties on 30 April 2007.  Having regard to those facts only, the sale to Kenny Nam was not “unreasonable”.  However, it is clear that the judge had regard to a wider view of the evidence, namely his finding that “Nam was acting on behalf of D1 to hold Sino Joy which in turn owned the property.”[88]  In that context, he noted that the 3^rd defendant had sought to obtain a higher valuation for the 17/Floor property from the Vigers in September 2007 in respect of the sale from Beauford to Highsharp.  Given that the 3^rd defendant was working as a consultant for CYF the judge observed, “It defies commercial sense for a purchaser to ask the property consultant to raise the price.”[89]  Obviously, even if the 3^rd defendant was helping Kenny Nam, in conducting himself in that way the 3^rd defendant was compromised by a conflict of interest.  Of course, the judge found that Kenny Nam was in effect acting as the 1^st defendant’s agent and the 3^rd defendant knew that to be the case.  The real implication of the judge’s observation that it was ‘unreasonable’ that Kenny Nam’s offer was the only offer, is that there was no real attempt to sell the property on the open market.  Rather, Kenny Nam was pre-selected.

Kenny Nam’s available means: use of monies from others to make payments for the shares of Sino Joy

81. Complaint was made that the rhetorical questions posed by the judge in the context of the issue of the means available to Kenny Nam to fund the acquisition of the shares of Sino Joy by Mansion Gains did not take into account evidence that suggested he had means available.  In the context of the fact that the initial deposit of $4.65 million paid for that acquisition was by a cheque in favour of China Entertainment dated 30 April 2007 drawn on an account of Luck Continent the judge noted:[90]

“ PW1 Poh said he left the money for Nam’s disposal. There was no IOU signed by Mansion Gains to Luck Continent. There was no loan agreement.”

Then, he posed the question:

“ If Nam was a man of substantial means, then why there was a need for him to borrow money from Luck Continent? Why not a loan from Nam to Mansion Gains?”

82. As the judge noted, the $4.65 million amount paid by Luck Continent to China Entertainment was entered as a liability owed to Luck Continent in the books of Mansion Gains and recorded as such in the Balance and Profit and Loss accounts, even as at 31 August 2007.[91]

83. Although the judge noted in the Annexure to the Reasons for Verdict that Mr Ricky Lam, a bank officer of the Bank of China, said that the loan facility of about $32.5 million granted by the bank to Sino Joy on 29 June 2007 had been guaranteed by Kenny Nam and that the bank had performed a due diligence exercise on the latter’s asset portfolio, he did not advert to that evidence specifically in his consideration of Kenny Nam’s means in his Reasons for Verdict.[92] In his evidence, Mr Ricky Lam said that as part of the due diligence Kenny Nam had shown him evidence of his assets, including CYF shares and deposits in bank accounts in the name of Kenny Nam, part of which was a deposit with the Bank of China.  He checked the balance.  He did not check when the credit was deposited to make the balance.[93]  Although he was requested by Mr Ronnie Wong to provide the records of the due diligence exercise maintained by the bank, Mr Ricky Lam testified that the bank declined to do so in the absence of an order from the court.  It appears that no such order was sought at the trial.  No bank passbooks, bank or share statements in the name of Kenny Nam, rather than in the name of a company, were produced at trial.

84. In respect of Agustus and Sino Gain, both companies of which Kenny Nam was the legal owner, elsewhere in his reasons for verdict the judge expressed reservations in respect of the issue of their beneficial ownership.  Of the evidence of Sneah (PW4), the Chief Financial Officer and later the Chief Executive Officer of CYF he noted:[94]

“ PW4 Sneah mentioned that Nam addressed D1 as his boss, and it was the case that the ultimate power to run the company rested with D1. PW4 did not regard Nam a wealthy person. I accept PW4’s evidence that D1 in fact was the man behind Agustus even though it was Nam who owned the company on paper.”

85. Of the accounting bank book of Sino Gain for the one-year period from December 2006, the judge noted that payments were made for the benefit of the 1^st defendant and his wife, as well as for Kenny Nam.[95]  In the result, he concluded:

“ Sino Gain even paid for the credit card expenses of D1. Sino Gain paid for the air tickets for D1, PW1 Poh, D3 and PW11 Wolem. The company also bought the car AJ 711 for Leonora Yung. Nam even got cash from the company account on several occasions. It can be inferred that the bank accounts of Sino Gain were not used by Nam solely, and the sources of funds in the accounts were dubious in that there was no actual revenue from the operations of the company.” [Italics added.]

86. It would seem that the judge’s use of the description “dubious” in respect of the provenance of funds in the account meant no more than they were not the product of revenue generated by the company, but were otherwise of unknown provenance.

87. The judge’s interest in the fact that the initial deposit paid to China Entertainment for the purchase of the shares of Sino Joy was made by a cheque drawn on Luck Continent, and reflected thereafter as a liability owed by Mansion Gains to Luck Continent, rather than being a payment made by Kenny Nam is to be viewed in the context of his other findings.  As noted earlier, he determined that the original intention of the parties was for the shares of Sino Joy, and thereby its ownership of the 17/Floor property, to be sold to Luck Continent, “Hence, PW1 Poh signed those ‘unused’ company documents relating to the setting up of Mansion Gains.”[96]  That was a reference to the evidence that Dato Poh had signed on behalf of Luck Continent a Bought Note and an Instrument of Transfer dated 25 May 2007 in respect of the purchase from Wong Dah Wai of the sole Mansion Gains share, together with a Consent to Act as a director of Mansion Gains, which documents were all dated 25 May 2007, but none of which were used in the event.[97]  The judge found that the switch to the use of Kenny Nam was because of a “change of mind”.[98]  He noted that his finding was supported by the evidence that Luck Continent paid the expenses of the acquisition of Mansion Gains and for the transfer of the Mansion Gains share held by Wong Dah Wai, described in the invoice as being transferred to Luck Continent.[99]  Finally, as the judge said, an e-mail dated 21 May 2007 from the 3^rd defendant to Mr Josiah Choi asserted in terms that to be the case:[100]

“ Per Teddy and Kenny, the new purchaser of Sino Joy Holdings Limited shares will be Luck Continent.”

88. Obviously, given the undisputed evidence of the existence of those documents and the cheque signed by Dato Poh, the judge’s finding that it was intended originally that Luck Continent would acquire the shares of Sino Joy was a clear rejection of the repeated denials in the testimony of Dato Poh that Luck Continent ever had any interest in acquiring those shares and thereby the 17/Floor property and that he did not know that the $4.65 million cheque dated 30 April 2007 that he had signed was in fact used as the initial deposit for the purchase of Sino Joy’s shares.[101]

89. The judge’s finding in that respect is, of course, an implied rejection of Dato Poh’s testimony as to the basis on which the $4.65 million was given to Kenny Nam.  Of that, the judge noted in the Annexure to the Reasons for Verdict that Dato Poh testified that Kenny Nam had assisted him in the placement of CYF shares that he had made in the Top-up placement and that he explained the issue of the $4.65 million cheque on the basis that:[102]

“ Part of the payment was to reimburse Nam for those expenditures he had already paid. A portion of the sum or the money would be used as the operation costs, and the remaining sum would then be used as a reward for Nam.”

90. The judge went on to note that Dato Poh testified that he had expected Kenny Nam to prepare an account statement detailing the breakdown of items, but that none had been prepared in view of the latter’s ill-health and then death.

The speculative nature of the judge’s finding

91. Complaint was made that the judge was wrong to have determined, in the context of the difficulty or otherwise of securing a resolution in favour of the purchase of the 17/Floor property in a Special General Meeting of the shareholders of CYF, that the majority shareholders were not allowed to vote in such a meeting.[103]  Luck Continent, controlled by Dato Poh, was the majority shareholder of CYF.

92. The judge returned to the same issue later, observing that “if the majority shareholders cannot vote in the specially convened shareholders meeting, there is a chance, even though it might be a slight one, for a veto.”[104]  However, he went on to say:

“ And above all, it would be more time-consuming to comply with the listing rules, and more queries from the Stock Exchange would be raised if a connected transaction is in place.” [Italics added.]

93. The judge did not cite any evidence in support of his assertion that a majority shareholder could not vote at a Special General Meeting called in consequence of the connected transaction arising from the fact that the 1^st defendant was a director of CYF and a substantial shareholder of Sino Strategic.  In oral submissions, Mr Cooney accepted that no evidence was adduced at trial supporting the judge’s assertion.

94. By contrast, the judge’s findings in respect of the prospect of delay arising from the procedures attendant to the holding of a Special General Meeting were soundly based.  The monies to be made available by the sale of the 17/Floor property had to be in place in Sino Strategic’s accounts by 30 June 2007, to avoid the possible consequences to its listed status in Australia of losses in two successive quarters.  By coincidence, at the very time that the sale of the 17/Floor property was being considered, in March/April and May 2007, the time-consuming nature of compliance with the procedures necessary for convening a Special General Meeting arising from a connected transaction were made evident to those involved in CYF.  On 21 March 2007, CYF had announced a Placing and Subscription with Lucky Continent of its shares.[105]  Because of difficulties in complying with the requirements of the Stock Exchange CYF announced on 12 April 2007 the issue of the Circular, required within 21 days of the announcement, had been delayed with the consent of the Stock Exchange until 27 April 2007.[106]  On the latter day, the Circular was issued giving notice of the fact that a Special General Meeting was to be held on 21 May 2007.[107]  An announcement of the approval of the resolution was made by CYF on 21 May 2007.[108]

95. Then, complaint was made of the judge’s statement, in respect of the monies paid by CYF for the acquisition of the 17/Floor property, that although there was no evidence that those monies went to China Entertainment or Sino Strategic, that was of no significance since “there were many ways to siphon off the proceeds”.[109]

96. Once again, it is clear that the judge’s observation was in response to the submissions of counsel.  Mr Tse’s written submissions were contained in a chapter entitled ‘The sales proceeds belonged to KN’.  Broadly speaking, there it was contended that there was no evidence that the benefit of the proceeds had not gone to Kenny Nam.  Conversely, it was submitted that there was no evidence that tranches of the proceeds have been transferred to the 1^st defendant or his private companies. Viewed in that context, the judge’s observation was a statement of the obvious: there was no evidence that those monies went to the two named companies, but that monies could be moved around without it becoming obvious who was the beneficiary.  Its net effect was neutral.

97. Finally, it was accepted by the respondent that the judge’s statement that Chong Ching Lai testified that the expenses of setting up Beauford had been paid for by CYF was incorrect.[110]  He had given no such evidence.

98. As noted earlier, an invoice dated 21 September 2007 had been sent by OIL in respect of the cost of sale, the company which sold Beauford, to CYF, marked for the attention of Ms Joan Kwok.  As the judge noted, in her witness statement admitted into evidence pursuant to section 65B of the Criminal Procedure Ordinance, Cap. 221, Ms Sally Broadbent stated that Beauford was bought by CYF.[111]  The invoice detailed receipt of payment on 21 November 2007 by cheque number 518224.  The bank book of Sino Gain records payment by that cheque number to OIL for the acquisition of four companies, including Beauford.  All four payments were described as being “O/B Kenny Nam”.  As the judge noted in the Annexure to his Reasons for Verdict, Daniel Law testified that he had made that entry after he had been given the invoice by Kenny Nam and told to “charge him”.[112]

99. Although the judge was incorrect in attributing to Chong Ching Lai the assertion that CYF had paid for the acquisition of Beauford and there was no evidential basis for him to state that the majority shareholder of CYF could not vote at a Special General Meeting called in respect of a connected transaction, in light of the other evidence relating to those issues we are satisfied that those errors were not material.

100. It is clear that the judge had regard to all the evidence in reaching his determination that the applicants were parties to the conspiracy alleged in Charge 1.  Of his approach, he said that he considered the evidence “in its entirety, not in isolation”.[113]  There is no doubt that was the correct approach.  The judge found that, having determined to keep the 17/Floor property, the 1^st applicant “entrusted” Kenny Nam “to set up Mansion Gains which would hold Sino Joy which in turn held the 17/ F property.”[114]  Clearly, the judge’s finding was to the effect that Kenny Nam was to act as the 1^st applicant’s agent and on his instructions.  We are satisfied that the judge was entitled to make that finding.

101. Of course, relevant to that determination was his finding that originally it was intended that Luck Continent acquire Sino Joy and that various steps were taken to achieve that goal, including the payment of $4.65 million by Luck Continent to China Entertainment.  However, there was a change in the plan and Kenny Nam replaced Dato Poh as a person to take over from Wong Dah Wai in Mansion Gains.  It was in those circumstances that Kenny Nam inherited the liability in respect of the $4.65 million owed to Luck Continent by Mansion Gains.  As the judge noted, “the scheme was evolving and changing from time to time”.[115]

Dishonesty

102. In his oral and written submissions Mr Ronnie Wong did not address the complaint made in the grounds of appeal advanced on behalf of the 1^st defendant that the judge erred in determining that he was dishonest in causing the transfer of the 17/Floor property from a company owned by Sino Strategic through Mansion Gains and Beauford to CYF, but then asserting in the Announcement and the Circular that the ultimate beneficial owners of Beauford were third parties independent of connected persons in CYF.

103. The nub of the complaint was that the judge erred in failing to determine that Kenny Nam acted as a principal in his own right and not as an agent of the 1^st defendant.  Accordingly, the judge was wrong to describe the use of Mansion Gains and Beauford as being “to camouflage the existence of connected transaction”.[116]  Of the subjective limb of the element or dishonesty, it was contended that the judge erred in failing to have regard to the fact that not only was it “known to all relevant executives of CYF” that Kenny Nam was the beneficial owner but also none of them objected to the acquisition of the 17/Floor property.

104. What we have described as the nub of the complaint, namely the role of Kenny Nam in the transactions, has been considered at length earlier.  As we have said, we are satisfied that the judge was entitled to determine that Kenny Nam acted, in effect, as the agent of the 1^st defendant.

105. Amongst the directors whose approval was required for the acquisition of the 17/Floor property were the 3 independent non-executive directors.  The judge noted that they “expressed a lack of concern and made no further enquiry about the transaction”.[117]  Context is given to that observation in the testimony of Michael Sze Tsai Ping (PW9).  Of his testimony, the judge noted in the Annexure to the Reasons for Verdict:[118]

“ PW9 believed the content of the circular represented a truthful statement. He was told that the company was buying the property from a subsidiary of a BVI company called Mansion Gains, and Beauford was the vendor. PW9 was told by Joan Kwok in the committee meeting. PW9 had asked if the purchase constituted a connected transaction and John Kwok (sic) told him that the members of the committee, including Steven Chow, John Wu, that the parties were independent. PW9 was the chairman of the committee meeting.

  PW9 was the former member of the Listing Committee of the Stock Exchange from 1997 to 2003 and hence he was concerned about whether the purchase was a connected transaction or not.  They normally asked this question.  PW9 did not know the owner of Beauford but was told the latter was an independent third party.  The audit committee recommended the purchase to the Board of Directors which subsequently approved the deal.  In the Board of Directors’ meeting, D1 was the chairman.  During the Board meeting, D1 explained the advantages of the purchase.  No question of connected transaction was raised.”

106. Of course, the information given to independent shareholders of CYF in the Announcement and the Circular did not inform them of the true nature of the transaction, namely that it was a connected transaction.  The opposite was asserted.

CONCLUSION

107. For the reasons set out above, we are satisfied that the judge was entitled to determine that the defendants were parties to the conspiracy alleged in Charge 1.

Charges 3 and 7

108. Mr Tse acknowledged in his submissions that, if the judge was correct to find that the 3^rd defendant was a party to the conspiracy alleged in Charge 1, he was entitled to convict the 3^rd defendant on Charges 3 and 7.  He was correct to do so.

109. In the result, we dismiss the applications for leave to appeal against conviction.

Costs

110. We direct that, if the respondent seeks an order of cost against either or both of the defendants, the application for costs is to be made in writing and filed with the court within 14 days of the handing down of this judgment.  In the event that there is such an application, if the party against whom an order for costs is sought opposes the application, that party is to file with the court written submissions opposing the application within 28 days of the handing down of this judgment.

[1] Securities and Futures Ordinance, Cap. 571 section 21.

[2] Securities and Futures Ordinance, Cap. 571 section 23.

[3] Securities and Futures Ordinance, Cap. 571 section 24.

[4] Admitted Facts; Appeal Bundle, page 19.

[5] Admitted Facts; Appeal Bundle, page 20.

[6] Admitted Facts; Appeal Bundle, page 19.

[7] Exhibits P9 and P10; Appeal Bundle, page 1563-7.

[8] Exhibit P11; Appeal Bundle, page 1567-9.

[9] Exhibit P13; Appeal Bundle, page 1595.

[10] Exhibit P181; Appeal Bundle, page 1610.

[11] Admitted Facts; Appeal Bundle, page 20.

[12] Exhibit P40; Trial Bundle, page 153-4.

[13] Exhibit DP 22; Appeal Bundle, page 1625.

[14] Exhibit P11; Appeal Bundle, page 1656-63.

[15] Exhibit D3P17; Appeal Bundle, page 1674-5.

[16] Exhibit DP 23; Appeal Bundle, page 1677.

[17] Exhibit DP 24(1) and (2); latter in the Appeal Bundle, page 1676.

[18] Exhibit P15; Appeal Bundle, page 1685.

[19] Exhibit DP 22 and P112; Appeal Bundle, page 1650-1.

[20] Exhibits P114 and P119; Appeal Bundle, pages 1706 and 1717.

[21] Admitted Facts; Appeal Bundle, page 20.

[22] Exhibit P17; Trial Bundle, page 61-6.

[23] Admitted Facts; Appeal Bundle, page 17.

[24] Exhibit P60; Appeal Bundle, page 1755.

[25] Exhibits P56 and P59; Appeal Bundle, pages 1817 and 1763-6.

[26] Exhibits P18 and P19; Appeal Bundle, pages 1802-5.

[27] Exhibit P289(a)-(d).

[28] Exhibit P103; Appeal Bundle, page 1976.

[29] Admitted Facts; Appeal Bundle, page 62.

[30] Exhibit P23; Appeal Bundle, pages 1898-1924.

[31] Exhibit P8; Appeal Bundle, pages 1925-8.

[32] Exhibits P234-P240; Trial Bundle, pages 1708-1785.

[33] Exhibit P48; Appeal Bundle, pages 1890-7.

[34] Exhibit P241-5; Trial Bundle, pages 1786-1844.

[35] Exhibit P49; Appeal Bundle, pages 1930-1945.

[36] Exhibit P29; Appeal Bundle, page 1952.

[37] Exhibit P27; Appeal Bundle, page 1929.

[38] Bankers Affirmation, Trial Bundle, page 2269.

[39] Exhibit P207; Trial Bundle, page 789.

[40] Exhibit P248; Trial Bundle, page 2057; Exhibit P29; Appeal Bundle, page 1953.

[41] Exhibit P251; Trial Bundle: Bankers Affirmation, pages 2270-1 and 2219-2220.

[42] Exhibit P30-32; Trial Bundle, pages 126-136.

[43] Exhibits P32 and P251; Trial Bundle, pages 132-6 and 2270.

[44] Exhibit P30; Trial Bundle, page 126-8.

[45] Exhibit P31; Trial Bundle, page 129-131.

[46] Exhibit P31; Trial Bundle, page 129.

[47] Exhibit P21; Appeal Bundle, page 2009.

[48] Exhibit P249; Trial Bundle: Bankers Affirmation, pages 2115-6 and 2157-8.

[49] Trial Bundle: Bankers Affirmation, pages 2158-9 and 2115-7.

[50] Exhibit P251; Trial Bundle: Bankers Affirmation, pages 1918-9 and 2317.

[51] Trial Bundle: Bankers Affirmation, pages 2226-7.

[52] Reasons for Verdict, paragraphs 96-7 and 99-100.

[53] Reasons for Verdict, paragraph 120.

[54] Reasons for Verdict, paragraph 121(1)-(38).

[55] Reasons for Verdict, paragraphs 122-3.

[56] Reasons for Verdict, paragraphs 127-9.

[57] Reasons for Verdict, paragraph 131.

[58] Reasons for Verdict, paragraphs 143-6.

[59] Reasons for Verdict, paragraph 3.

[60] Reasons for Verdict, paragraph 9.

[61] Reasons for Verdict, paragraph 121-14.

[62] Reasons for Verdict, paragraph 131.

[63] Reasons for Verdict, paragraph 123.

[64] Reasons for Verdict, paragraphs 80 and 134.

[65] Reasons for Verdict, paragraph 121-5.

[66] Reasons for Verdict, paragraph 121-6.

[67] Reasons for Verdict, paragraph 121-129.

[68] Reasons for Verdict, paragraph 131.

[69] Transcript of the evidence of Dato Poh, page 100 A-G.

[70] Reasons for Verdict, paragraph 131.

[71] Reasons for Verdict; paragraph 121-5.

[72] Reasons for Verdict, paragraph 121-16.

[73] Reasons for Verdict, paragraph 121-21.

[74] Reasons for Verdict, paragraph 121-5, page 101 N-P.

[75] Reasons for Verdict, paragraph 121-31.

[76] Appeal Bundle, pages 1472 and 1500-1.

[77] Reasons for Verdict, paragraphs 349 and 351.

[78] Appeal Bundle, page 1610.

[79] Reasons for Verdict, paragraph 351.

[80] Reasons for Verdict, paragraph 121-4.

[81] Reasons for Verdict, paragraph 121-31.

[82] Reasons for Verdict, paragraph 121-6.

[83] Reasons for Verdict, paragraph 121-12.

[84] Reasons for Verdict, paragraph 121-5.

[85] Appeal Bundle, page 1611.

[86] Transcript, page 772.

[87] Reasons for Verdict, paragraph 215.

[88] Reasons for Verdict, paragraph 121-12.

[89] Reasons for Verdict, paragraph 121-5.

[90] Reasons for Verdict, paragraph 121-17.

[91] Reasons for Verdict, paragraph 121-17; Exhibit P 104, Trial Bundle, pages 378-382.

[92] Reasons for Verdict, paragraph310.

[93] Transcript, page 1092-4.

[94] Reasons for Verdict, paragraph121-4.

[95] Reasons for Verdict, paragraph 121-17, pages 110-115.

[96] Reasons for Verdict, paragraph 121-21.

[97] Appeal Bundle, page 1673-5.

[98] Reasons for Verdict, paragraph 121-21.

[99] Reasons for Verdict, paragraph 121-16; Appeal Bundle, page 1676-7.

[100] Reasons for Verdict, paragraph 121-24, page 121 P-R; Appeal Bundle, page 1670.

[101] Transcript of Dato Poh’s evidence, page 145-151.

[102] Reasons for Verdict, paragraph 148.

[103] Reasons for Verdict, paragraphs 121-5, page 101 I-J.

[104] Reasons for Verdict, paragraph 127.

[105] Appeal Bundle, pages 1602-5.

[106] Appeal Bundle, pages 1612.

[107] Appeal Bundle, page 1612.

[108] Appeal Bundle, page 1667.

[109] Reasons for Verdict, paragraph 121-7.

[110] Reasons for Verdict, paragraph 121-35.

[111] Reasons for Verdict, paragraph 416; exhibit P289 (a)-(d).

[112] Reasons for Verdict, paragraph 401.

[113] Reasons for Verdict, paragraph 131.

[114] Reasons for Verdict, paragraph 123.

[115] Reasons for Verdict, paragraph 121-3.

[116] Reasons for Verdict, paragraph 127.

[117] Reasons for Verdict, paragraph 121-30.

[118] Reasons for Verdict, paragraph 316-7.