RE LILY CHIANG

DCCC265 & 266/2009(Cons)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 265 & 266 of 2009

(Consolidated)

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1.  There are three defendants in this case. They are charged with the following offences. D1 is charged jointly with D2 with a charge of conspiracy to defraud, Charge 1. They are also jointly charged with two charges of false statement by company directors, contrary to section 21 of the Theft Ordinance. These are Charge 2 and Charge 3 and both are laid as alternative charges to Charge 1.

2.  D1 is further jointly charged with D3 with a charge of fraud, Charge 4, and a charge of authorising the issue of a prospectus relating to shares of a company incorporated outside Hong Kong containing an untrue statement, Charge 5.

Prosecution case

3.  Charge 1 to Charge 3 concern the Pacific Challenge Holdings Limited (PCH).  I call them the PCH charges.  Charge 4 and Charge 5 concern the Eco-Tek Holdings Limited (Eco-Tek).  I call them the Eco-Tek charges.  The offences in this latter set of charges in fact took place before those in the PCH set of charges.  I will deal with the two sets of charges according to their chronological order.

The allegations of the prosecution may be outlined as follows:

Eco-Tek charges

4.  Eco-Tek was incorporated in the Cayman Islands on 6 December 2000 and was registered in Hong Kong as an overseas company on 18 April 2001.

5.  At the material time, D1 and D3 were executive directors of the company.  D1 was the chairman as well.  She held about 54% of Eco-Tek issued share capital through Team Drive, a company wholly owned by Peace City which was wholly owned by her.

6.  In June 2001, with Celestial Capital Limited (Celestial Capital) and SBI-E2 (Hong Kong) Limited (SBI-E2) as its sponsors, Eco-Tek applied to be listed on the Growth Enterprise Market (GEM).

7.  It was stated in the Prospectus (Exhibit P76), inter alia, that Yip Yuk-chun (PW1, hereinafter called Iris), held 8,844,800 shares of Eco-Tek and that D1 only held beneficially 299,341,200 shares of Eco-Tek through Team Drive; and that shares were allotted and issued to Iris as an incentive and that she was independent of and not connected with Eco-Tek, its directors, chief executive, substantial shareholders or initial management shareholders. 

8.  The prosecution alleges that Iris was in fact holding the shares for D1.  The Prospectus, therefore, contains an untrue statement.

9.  The published Prospectus was prepared by Celestial Capital upon instruction of Eco-Tek.  It was approved by Eco-Tek’s Board of Directors at a meeting on 21 November 2001, which D1 and D3 attended (Minutes, Exhibit P186).

10.  As D1 was an initial management shareholder of the company, she was to comply with certain GEM Listing Rules including observing a moratorium period in relation to disposal of her securities.

11.  As a result of the concealing of the fact that Iris had been asked to hold the shares for D1, no moratorium period was imposed by the Stock Exchange on those shares upon approval of the listing of Eco-Tek on the GEM Board.

12.  Eco-Tek’s listing on the GEM Board took place on 5 December 2001.  Then, upon the instruction of D1, Iris sold 844,800 shares and handed over $340,000, representing part of the proceeds to D1.  D1 had also instructed Iris to transfer 8 million shares in her name to a company, IWK Net.Com Limited (hereinafter called IWK).  Iris did so, but did not receive any proceeds of this transaction.

PCH charges

13.  PCH has been a listed company since October 1998.  At the material time, D1 and D2 were two of the executive directors of the company.  Teli Chan was the other executive director.  D1 also held 0.87% personal interest and 32.65% corporate interest in PCH through E1 Media Technology Limited (hereinafter called E1 Media) and Super Drive Incorporation (hereinafter called Super Drive).

14.  There was in place a share options scheme for some years by which the Board of Directors may grant to any full time employee of PCH or its subsidiaries, subject to conditions, as an incentive measure.

15.  By an Announcement dated 12 April 2002 (Exhibit P15), PCH announced that it had received on 28 March 2002 a proposed conditional cash offer for all its shares at an offer price of one cent each from Yu Ming Investment Management Limited (Yu Ming) acting on behalf of Ontime Capital Investment Limited (Ontime Capital).  For convenience sake, I call it the Yu Ming offer.

16.  On 22 April 2002, PCH issued another Announcement (Exhibit P17) advising its shareholders to take no action in connection with the Yu Ming offer until they have been advised on the mechanics and contractual arrangements to effect the offer and distribution and have considered the views of the Board and the financial advisor, Anglo Chinese Corporate Finance Limited (hereinafter called Anglo Chinese).

17.  It also announced for the first time that PCH had issued share options to subscribe a total of 23,888,000 shares at an exercise price of 32 cents per share and stated that the said offer failed to take into account the outstanding options.  The Announcement is the subject matter of Charge 2.

18.  Share options were granted to 10 employees in the Group, some of them were from subsidiaries in Taiwan and Mainland.  The prosecution alleged that at least some of the grantees of the share options, in particular Tang Wai-shing (PW3, hereinafter called Tang), Becky Poon (PW4, hereinafter called Becky), and those in the Mainland were only holding the share options on behalf of D1.  As such, the share options grants were not made under and in accordance with the Share Options Scheme.  Under the Scheme and the Listing Rules, such grant should be personal and the rights are not assignable.

19.  The said PCH Announcement was prepared by Anglo Chinese based on instruction from PCH.  Various draft versions were sent by Anglo Chinese to the Stock Exchange for comments and approval.  The prosecution alleged that D1 and D2 concealed from Anglo Chinese and the Stock Exchange the fact that at least some of the grantees were not the true owners of the share options.

20.  On 25 April 2002, another company, Kandy Profits Limited (Kandy Profits) announced that Tingkong-Rex Capital Securities International Limited (Tingkong) had made a voluntary conditional cash offer on behalf of them to acquire all of PCH shares and outstanding options at 65 cents per share and 33 cents per option respectively (see Exhibit P18).  For convenience sake, I call it the Kandy Profits offer.

21.  On 30 April, the offering price was revised to 67 cents per share and 35 cents per option respectively (Exhibit P21).

22.  On 6 June 2002, PCH issued a Circular (Exhibit P27) which included a letter from the Board which stated inter alia that there were 21,492,000 outstanding share options granted to certain employees of PCH. Contents of the Circular was approved by the Board of Directors at a meeting held on 4th June which was attended by D2, Teli Chan and others, but not D1.  The letter from the Board is the subject matter of Charge 3.

23.  Eventually, the Yu Ming offer was withdrawn and Kandy Profits on 2 August 2002 announced that they had acquired 219,344,000 shares and paid out all the 21,492,000 share options.  The proceeds paid to each grantee for his surrendering of the share options was $835,000.

24.  After completion of the offer, D1 instructed Iris to use her personal bank account to deal with the proceeds of the surrendering of the share options on behalf of the Mainland grantees.  She further instructed Iris to withdraw the money and pass it to her (D1).

25.  D1 also asked Iris to accompany Becky to withdraw her proceeds.  Becky withdrew around $600,000 and passed it to Iris. Iris then passed it to Tang, who then handed the money to a domestic helper at the residence of D1.

26.  Tang also did not keep his proceeds.  Upon instruction from Iris, he withdrew on different occasions the majority of the proceeds from his account and passed the money to another person.

Defence case

27.  D1 elected to testify and called a witness, who was Chan Shi-yuen, one of the Mainland grantees.

The crux of the D1’s case is as follows:

28.  In relation to the shares of Eco-Tek, it was given by her to Iris beneficially as a token of gratitude for past assistance and support she had provided to her.  D1 did not receive any money from Iris as the latter alleged.  She had taken no steps to avoid the moratorium period as alleged by the prosecution.

29.  In relation to the share options granted by PCH, at the material time D1 was suffering from ill health and therefore had minimal involvement in the management of the company.

30.  Despite she had been informed of the proposal to grant share options, she had no involvement in any way in the selection of the grantees.  It was decided by the Board of Directors in which she had entire trust.  She did not even know who were on the list of the grantees despite she had been told that a decision to grant share options had been made.

31.  She believed the share options were granted in accordance with the Share Options Scheme and the Listing Rules.  She had not received any money from any of the grantees directly or indirectly.

32.  The defence witness said he was a genuine grantee.  He had surrendered his options and obtained an amount of proceeds which Iris said he was entitled to.

33.  Both D2 and D3 did not testify.  Their respective case, as revealed from cross-examination, was mainly one of denial of the allegations in particular the direct allegation from Iris that in relation to the Eco-Tek charges, D3 had asked her to hold shares for the company; and in relation to the PCH charges, D2 had asked her to type up the minutes of the Board of Directors meeting on 4 February 2002 which approved the grant of share options.

34.  D2 made a mixed statement when he was interviewed under caution by ICAC.

Evidence

Prosecution evidence

35.  On the list of prosecution witnesses, there are more than 30 witnesses, some of them were called.  Evidence of other witnesses, save for PW7, was adduced by way of producing their witness statements pursuant to section 65B of the Criminal Procedure Ordinance.  PW7, whom I was told is the former manager of Long Heng Brother Industrial Company Limited, was not called.

36.  Since many witnesses have been called, I consider it desirable to call them by their name rather than by their witness number.

37.  If witness number is quoted, it is the consensus to stick to the witness number as stated in the list of witnesses rather than by reference to the sequence of their being called, to avoid confusion.

38.  The prosecution adduced more than a dozen of bundles of documentary exhibits.  The record of interview of D2 (Exhibit P232), the admissibility of which was not challenged, was also adduced.

39.  There are also Admitted Facts, some related to all the defendants and some to a particular defendant only.

40.  I now summarise the evidence of the more important witnesses.  For the others, their evidence will be cited when necessary.

PW1 - Iris Yip Yuk-chun

The evidence of Iris covers both sets of charges.

41.  Iris has worked since 1992 in Chen Hsong, a company owned by the father of D1.  She worked in a pool of secretaries and served D1, who was a director of the company.

42.  Around 2000, upon the request of D1, she shifted to work in another company owned by D1, also as a secretary.  She could not recall whether it was E1 Media or Eco-Tek, but she did work in both.

43.  She had also worked in PCH.

44.  She could not recall the exact period of time in which she worked in a particular company.

Eco-Tek charges

45.  On a day in 2001, in the office, D3 asked her if she could hold some shares for the company.  Without asking for any more information about the arrangement, she agreed.  She did not know on whose behalf she was supposed to hold the shares.

46.  She opened a stock account with SBI-E2 Brokerage Limited, a firm introduced to her by D1, for the purpose of handling the shares.

47.  D1 also gave her eight shares certificates of Eco-Tek, each of one million shares, and another one of 844,800 shares, all in her name, to sign.

48.  On the day Eco-Tek was listed, 5 December 2001, D1 gave her a form to sign for the purpose of transferring a sum of 8 million shares to IWK, a company which she did not know.

49.  On 6 December 2001, Iris acquired 844,800 shares of Eco-Tek.

50.  Then, upon being told by D1, she sold the shares and obtained a cheque of $370,000 being the proceeds of the sale.  She deposited the cheque into her account with Bank of China.

51.  Later, D1 told her to withdraw $340,000 in cash and hand it to her.  She did so.  She did not know how D1 dealt with the money.

52.  She kept $30,000 in her bank account because D1 told her $17,000 was for her double pay and $13,000 was her bonus.

PCH charges

53.  On instruction of D2, and based on a draft he provided, she typed out the minutes of the PCH Board of Directors meeting of 4 February 2002 (Exhibit P188), which states that share options were to be granted to 10 employees of the Group.  This was the only time she had prepared minutes of the Board of Directors.

54.  The minutes were eventually signed by Teli Chan.  D2 also signed against his name.

55.  On a day shortly afterwards, she typed out offer letters for all the 10 grantees of the share options, based on wordings also provided by D2.  Exhibits P82 to P91 were copies of the letters.  The letters were signed by Teli Chan.

56.  She passed the offer letters to Becky and Tang for their signature.

57.  Later, D2 gave her the signed letters of some other grantees which she passed to the company secretary, Dorothy Yim (PW6, Dorothy).  She wrote the date of 8 February 2002 on the letters of Tse Chai-wan, Chan Tse, Chan S Y upon the instruction of D2 when she told him these letters were not dated.

Kingston Stock Account for Becky and Tang

58.  Shortly afterwards, D1 telephoned and asked her to open stock accounts for Becky and Tang to take care of their stock.  She passed account opening forms of Kingston Securities to Becky and Tang.  She did not know whether they had actually opened an account or not.

Proceeds of the grantees

59.  Later, D1 told her to handle some of the proceeds of surrendering the share options to Kandy Profits since the Mainland grantees did not have a bank account in Hong Kong.  She agreed.  The cheques for the three Mainland grantees were therefore issued in her name.

60.  As for the grantees from Taiwan, she was told their proceeds would be collected by Liu Chung-laung.  Accordingly, she prepared authorisation letters for them to sign (Exhibits P111 to 116).  The cheques for the three Taiwan staff were issued in the name of Liu Chung-laung.

61.  Upon instruction of D1, she collected nine cheques from the securities company, Tingkong-Rex Capital.  Each cheque was in the sum of $835,800 representing proceeds of surrendering of the share option.

62.  She then followed instruction of D1 and deposited the four cheques issued in the name of Liu Chung-laung into his account.

63.  She also followed the instruction of D1 and deposited the cheques for Becky and Tang into their bank account respectively.

64.  D1 asked her to accompany Becky to withdraw money after deducting an amount necessary for tax purpose.  On 7 August, she went to the bank together with Becky and withdrew around $600,000 in cash. Becky passed the cash contained in a manila envelope to Iris.  As told by D1, Iris handed it over to Tang.

65.  As far as the money deposited into the account of Tang is concerned, she did not know how he handled it.

66.  She deposited the three cheques for the Mainland grantees but issued in her name to her bank account with Bank of China.  Upon instruction of D1, she withdrew the whole sum of $2,507,400 in cash and passed it to her.

67.  Earlier, D1 had asked her to find out in which bank was a safe deposit box available.  She found that one was available in the old Bank of China headquarters branch.

68.  On 13 August 2002, D1 and she went separately to that branch.  When D1 was performing procedures for opening of a safe deposit box, she went upstairs to withdraw the money.  After she received the cash, she went downstairs to hand it over to D1.  She saw D1 going into the safe deposit area with the bag containing the cash.

69.  About one to two days afterwards, D1 telephoned and told her to go to the Mainland without telling her the purpose nor specifying the place to go.  D1 just said something like “You know about that.” On 16 August, Tang drove her and her husband to Dongguan.  They stayed there for a few hours and returned to Hong Kong.  She did not meet anyone nor pass anything to anyone there.

70.  After PCH had been sold in July 2002, she continued to work there until September.  Though D1 had resigned after the taking over, she still gave her instructions and she continued to work for D1.

PW3 - Tang Wai-shing

71.  Since 1996, save for a period of about eight months from October 2000, Tang had been working for D1 as a driver, earning a salary of $12,000 to $14,000 a month.  Before the eight months’ absence, he worked in Chen Hsong.  When he resumed work for D1, he was not sure exactly which company was his employer.

72.  At some stage, the exact time he was not clear, he was assigned to be a driver in Eco-Tek.  Apart from being a driver for D1 and her family, he also performed duty for delivering to petrol stations equipment to reduce car pollution called Eco Trap, earning an extra pay of about $2,000 to $4,000 per month.

73.  There were company documents showing he worked as quality controller in Eco-Tek from 3 July 2001 (Exhibit P203) and investment manager (industrial and construction) in Pacific Challenge Investment from 1 November 2001 (Exhibit D1-39).  However, he denied he had been so employed. Although he admitted that the signatures in the documents were his, he said he had no idea of such documents.  He was given documents by Iris to sign from time to time.  He just signed without attention since he trusted her.  He insisted he was only a driver.  He had not received any pay for working as a quality controller as stated in the said employment letter of Eco-Tek.

74.  He quit his job as a driver for D1 in February or March 2006 since the work was too hard.

Granting of share options

75.  D1 did not mention anything about the share options to him.  She just told him that Iris would notify him for signing of something.  He was not clear what it was about.

76.  On a day which he said was after 9 February 2002, but he could not recall how much later, Iris handed the offer letter for the share options grant to him to sign without any explanation.  He was in a car and signed without reading the letter and asking any questions (Exhibit P115).

77.  Though it was not signed on 9 February 2002, he put down that date as told by Iris.

78.  He did not need to pay any money in relation to this document.

Payment of $838,400

79.  On a subsequent day, Iris told him that a cheque had been paid into the bank account used for payment of his salary.  D1 had not spoken to him about this sum of money.  He did not recall whether anyone had explained to him why money had been deposited into his account, but he was aware he had to withdraw the money after being deposited.  Nobody had ever told him anything which led him to believe that the money was something given to him for his own use.  He just followed instructions.

80.  Then Iris telephoned him asking him to make several withdrawals.  On 5 August 2002, he made two withdrawals of cash: $81,000 and $335,000.  On 8 August 2002, he made another withdrawal of $228,000, making a total of $644,000.

81.  Also upon the instruction of Iris, he handed the first and second sums of money on two separate occasions to another person.  He was not sure whether the two sums were given to the same person, who was a woman, or that the first sum was given to Iris.

82.  As regards the third sum, he also had handed it to someone but he did not recall who it was.

The remaining money

83.  $190,000 was left over in his account.  Iris told him that about $17,000 was for his tax payment and he could keep about a few thousand dollars as his reward, and the rest was reserved for reimbursement of purchases he made for the company.  He just needed to produce bills for this purpose and Iris would keep track of the balance.

Iris passing him money

84.  On one day, upon request by Iris, he drove to the headquarters of HSBC and waited for her.  He saw Iris coming down the escalator with Becky.  After Becky left, Iris came over and handed over to him a packet.  He did not know what was in the packet.  He drove it to D1’s home and handed it over to the Filipino domestic helper as instructed by Iris.

The Dongguan trip

85.  He did drive Iris and her husband once to the Mainland.  It was to Dongguan and the destination was suggested by him after the couple boarded his van.

D2

86.  He knew D2 since he was working in Chen Hsong and they had become good friends.  He had driven D2 many times.

87.  D2 did sometimes assist him in the delivery of Eco Trap.

PW4 - Poon Pik-kiu, Becky

88.  Becky started work in E1 in April 2000 as personnel and administration officer, until May 2001.  Then she was employed by PCH from June 2001 to September 2002.  During that period of time, she still performed duties in relation to E1.

89.  Thereafter, she worked in Eco-Tek, not remembering for how long, and then in Ideal Far East Limited.

90.  In E1, PCH and Eco-Tek, she reported mainly to D1.

The share options

91.  On one day in April 2002, D1 told her that somebody would acquire PCH and share options would be granted to her.  D1 also told her that if necessary she should stand on her side in meetings to help her, but she did not specify what.  D1 did not tell her any more details about the share options, not even how many shares and the price.

92.  At that stage, she did not have any understanding what share options was about and how it was operated.

93.  About a week after her conversation with D1, Iris gave her the share options acceptance letter (Exhibit P87) to sign and told her that she was not required to pay the $10 consideration.

94.  She signed without reading the terms and conditions of the share options scheme and did not know what the stipulated exercise period was.  On the document the date of 9 February 2002 was written, she said it should not be the date she signed the letter.

Account with Kingston Securities

95.  About one month after signing of the offer letter, Iris gave her the documents to sign for opening of account with Kingston Securities.  This account had never been used.

Proceeds of the share options

96.  At the beginning of August, Iris telephoned her and told her that a company had taken over PCH and the new company would buy her share options at $0.35 per share.  She also asked her for her account number so that she could deposit a cheque of $835,000 into her account.

97.  On 6 August 2002, the cheque was deposited into her account.

98.  On the following day, she withdrew $648,000 in cash from her account.  She did so because Iris telephoned her in the morning and asked her to meet her at the HSBC headquarters at 4 pm to withdraw the money.  The amount to be withdrawn was calculated by Iris, having deducted an amount for tax payment.

99.  The cash withdrawn was contained in a manila envelope.  She passed it to Iris who told her that it would be passed over to D1.

100.  They went downstairs together, with Iris holding the envelope containing the cash.  They then parted and she did not know what Iris was to do with the money.

Court adjourns - 11.30 am

Court resumes - 12.06 pm

All defendants present. Appearances as before.

PW5 - Wu Shek-chun, Wilfred

101.  Wilfred is a certified public accountant.

102.  He joined PCH in November 2000 as chief financial officer and company secretary and dealt with all financial matters of the company including liaison with the Stock Exchange and filing of reports such as the Annual Reports.

103.  In January 2001, he returned to Kennick Lai & Co.

104.  In April to June 2002, he was seconded to work again in PCH.  His main duties were to deal with the offeree documents and publishing of the Annual Report.

105.  D1 verbally told him that share options had been granted and reminded him to disclose in the offeree document that share options had been granted.

PW22 - Chan Chi-ming, Benson

106.  Benson was, at the material time, the director of corporate finance, Celestial Capital, a sponsor of Eco-Tek in listing application in GEM Board and was personally involved in the listing application.

107.  D3 was his key contact in Eco-Tek.  He contacted D3 almost every day, mainly by telephone calls, and sometimes they met face-to-face.

108.  He sometimes contacted D1 as well.  But it was rather scarce, only once in every few weeks.  They contacted more often when it was close to listing, also by means of telephone calls, correspondence, as well as face-to-face meetings.

Correspondence with the Stock Exchange

109.  He said a copy of every correspondence from the Stock Exchange was sent to Eco-Tek.

110.  The correspondence was only copied to D1 and D3, not all the directors, because they were the principal communication channel, which was set up in each IPO application.

The Prospectus

111.  The drafts of Prospectus were sent to the Stock Exchange for perusal.  The drafts were products of joint effort by different professionals.  Eco-Tek was responsible for providing the primary source of information to him.  Many staff of Eco-Tek were also involved.  Exhibit P294 is the first draft submission Prospectus.

112.  Queries were made by the Stock Exchange in relation to the drafts.  Queries made included those in relation to Iris and Chow Yuk-ngor.  The Stock Exchange asked for background information of the two, the reasons for allotting of shares to the two, and whether they had any relationship with the company, director and/or senior management of the company.

Correspondence with the Stock Exchange included the following:

113.  Exhibit P49 was the reply dated 24 July.  It was copied to Eco-Tek marked “Attention:  Dr Lily Chiang and Dr K P Pau”. The letter was prepared by him and was signed by him as well as D3.  It was said in paragraph 8 that “Miss Iris Yip and Chow Yuk-ngor are the assistants of Dr Lily Chiang and have worked for her for more than eight and two years respectively.  The directors have confirmed that the shares were issued to them as an incentive and in recognition of their loyalties to Dr Chiang.” Benson said he obtained the information from D3 and he did not discuss with anyone else in Eco-Tek about this information.

114.  Exhibit P176 is the reply from Eco-Tek dated 1 August 2001 to Celestial Capital.  It stated that both Iris and Chow Yuk-ngor were employees of the company and that they worked for D1 for many years and also they have given a lot of support and encouragement to her when she established Eco-Tek.  This reply was made under the fax cover issued in the name of D3.  Benson said the handwriting in the document seemed to be that of D3.

115.  Benson said he discussed with D3 in relation to this query.  D3 only told him a reason along the line as provided in the letter without telling him what support and encouragement the two had given D1.

116.  Exhibit P177 is the reply dated 3 August 2001 from Celestial Capital to the Stock Exchange.  The reply to queries (87) and (88) was given along the line as stated in Eco-Tek’s letter.  This reply was signed by Benson and D3.

117.  On 30 July, the Stock Exchange had also sent two faxes of queries to Celestial Capital on the submissions dated 5 and 20 July and the fourth proof submission of the Prospectus dated 24 July.  Celestial Capital provided a reply on the same day which is Exhibit P52.

118.  In answering the first question raised in the second fax of queries (Exhibit P50E) concerning why shares were issued to D2, D3, Iris and Chow Yuk-ngor at nominal value, it was stated in Exhibit P52 that it was because the two defendants were “the senior core management staff of the company” and “Iris and Chow Yuk-ngor were the assistants of Dr Lily Chiang and have worked for her for more than eight years and two years respectively and the directors have confirmed that the shares were issued to them as an incentive.”  Benson said the information was obtained from D3.  The reply also bears the signature of D3 for the purpose of confirming and certifying the truth, accuracy and completeness of the information and statements contained in the letter for and on behalf of Eco-Tek.

119.  Benson received a fax from Eco-Tek purportedly sent out by D3 to Chiu & Partners, copied to various parties including Celestial Capital (Exhibit P178).  Attached to the document was the staff list of 1999, 2000 and 2001.  The document shows that Iris was a secretary appointed on 5 January 2001 and Chow Yuk-ngor was also a secretary and was appointed on 16 December 2000.

120.  Benson said that after he had received the fax (Exhibit P178), he had discussion with D3.  His memory was firm since there was a change of post title and appointment date in relation to Iris.  D3 told him there was a typo and in fact Iris was an administration manager and not a secretary.  He had a firm memory of the matter because this caused him embarrassment since he had to give the Stock Exchange an explanation.

121.  In a fax dated 5 November 2001 (Exhibit P57) about the 12th proof Prospectus, the Stock Exchange told Celestial Capital if the information that Iris and Chow Yuk-ngor were not senior management and were independent of the company and its connected person is true, it should be stated clearly in the Prospectus.

122.  As a result, this position was stated in the final version of the Prospectus (Exhibit P76).  He also gave an account of the application for waiver of moratorium period, and the withdrawal of the application.

D2’s record of interview

123.  What D2 said under caution in the interview may be summarised as follows.  He was an executive director of PCH until about one month after it had been sold.

124.  As regards the minutes of the Board of Directors dated 4 February 2002, he admitted he had put his signature on it.  He denied that the minutes had been backdated.

125.  As regards the list of grantees, he said Board of Directors asked the department head to bring out name of their staff whom they thought were going to be useful to the company and would contribute to the company long term, for the consideration of the Board.  When asked had he come across the list, D2 said he thinks so.

126.  He said Teli Chan told him that at that time the morale of the company was down and the management liked to keep some of the staff for the long term.  Teli Chan also said it was a waste of time, energy and money to train staff.  It was his judgment as well.

127.  He said in the meeting, they discussed and everyone, including independent non-executive director (INEDs) agreed on the point.  He said it was not a formal meeting and it was just a general discussion.  He thought there were some other issues and they came up with this.  Recommendation of the grantees came from the department heads and final decision was made by the Board of Directors.

128.  He knew some of the grantees.  One of them was Liu Chung-laung.  He said originally he wanted to leave the company, but stayed after accepting the share options.

129.  Another one was Becky, whom he knew was working in the personnel department, working as a personal assistant to him and Teli Chan.  He did not recall exactly why she deserved granting of share options.

130.  Another grantee he knew was Tang.  He said the department head said he was good, hardworking, and that he was a manager and should be given share options.

131.  As regards Wai Chee-leung and Wang Hui-lin, he said he knew they were working for the company, but knew nothing else about them.

132.  He could not recall Chan Shi-yuen and had no idea about Chan Tse, Cheng Hsiu-ling and Tse Chai-wan.

133.  He said D1 had knowledge of the matter as an executive director.  When they were standing in office, she said to Teli Chan to look carefully and if she (Teli Chan) really think those people are useful then, “You can grant, I am with you.”

134.  He had no idea what happened to the share options granted to these people.  He did not follow up.  He had no knowledge that after exercising or selling the share options they might have returned some money to the company or its management.  He, himself, had never received any money or advantage from these people.

135.  He admitted that the monthly return dated 7 March 2002 of PCH to the Stock Exchange (Exhibit P39) was signed by him.  He said sometimes his secretary gave him a bunch of files to sign.  Sometimes it was done in a rush; he looked at it generally, but might not have gone into the details.  His understanding was that the grant of share options should have been included in this return.  He did not know the reason why it was not.  The document was prepared by the corporate finance, not by him.

136.  As regards the revised monthly return (Exhibit P40) in which granting of the share options was included, he said might be they realised that they had not included the item and therefore revised it and he signed it.  It was not he who discovered the omission.  He said he thought the two documents were signed by him on the same day, since he left Hong Kong around the 8th or 9th.

Defence evidence

D1

137.  D1 exercised her rights and elected to testify. She also called a witness and adduced bundles of documents.

The testimony of D1 and her witness is summarised below.

D1 - Lily Chiang

Eco-Tek

138.  She was its largest shareholder.  The second largest shareholder was Advanced New Technology Limited, which was the commercial arm of Polytechnic University.  It obtained about 20% of shares as a result of agreeing to forgo receiving of the $3 million patent fee in relation to Eco Trap.

139.  Eco-Tek was a very small company and had less than 10 staff, including Chow Yuk-ngor and Becky.  Iris joined later.

140.  When it started business, it had a cash flow problem.  The directors had not received any pay until July 2001 when the sums due to the three directors, that is D1, D2 and D3, were paid on the suggestion of the sponsors for its listing.

141.  Tang was her driver in Chen Hsong.  In 2000, he left to have his own business.  Some months later, he telephoned her and asked if any job was available since his business was not good, but he did not want to be a driver only.

142.  She discussed with D2 and learned a person was needed to inspect and clean the filter of Eco Trap and delivery of the device. She considered the experience of Tang relevant and therefore employed him as a quality controller of Eco-Tek for a salary of $8,000 a month.

143.  In that capacity, Tang visited more than 30 service stations a day, delivery Eco Trap for installation, collecting filters for inspection and resolve problems on installations.  In addition, he also had to drive her family members.

144.  Later, since Tang complained that the work was too heavy and had little prospect, a mutual agreement was reached to terminate his employment with effect from 1 November 2001.

145.  At the same time, Tang started to work for PCH since it required someone to perform duties in relation to trading of industrial products and components.  His salary was $12,000 a month (see IRD Return, Exhibit D1-40B).

146.  At the same time, Tang also worked for Eco-Tek as a quality controller, but his salary was varied to $500 a day (Exhibit D1-2C).

Iris

147.  When D1 was in Chen Hsong, she was responsible for marketing and finance.  Iris helped her in documentary work she assigned to her.  When she was on business trip, Iris handled her finance and account. When she left Chen Hsong, Iris continued to work there.

148.  When she was setting up E1 Media and Eco-Tek, Iris offered her assistance without any additional pay.  She invited Iris to join Eco-Tek.  Iris asked for a change in title to one of managerial.  She agreed.  Iris was employed by Eco-Tek as an administration manager (Exhibit D1-1).

149.  When Iris visited her during Lunar New Year in 2001, she said she wanted to make an investment of 5%.  She told Iris it was not necessary and that she was going to give her 1 to 2% of shares as gift.

150.  However, when she discussed with D2, D3 and the sponsors, she was told it was a bit too much and she revised the amount to 0.8%. Iris was discontented and asked for 2%, saying that she had helped her for many years and what she received was less than the Hong Kong Polytechnic University.  Eventually, she agreed.

151.  She agreed to give shares to Iris as a gift, as a gratitude for her assistance, appreciation of her work and also because she quite liked her.

152.  In Eco-Tek, apart from being a secretary, Iris was also responsible for all administration matters, and during listing, she helped D3 in collecting material and information.  She also managed the stock of Eco Trap and assisted in the following up replacement of unusable Eco Trap.

153.  Iris left Eco-Tek for PCH in February 2002 after Lunar New Year, also as an assistant manager (Exhibit D1-12).  Teli Chan decided the move since she found Iris experienced in the preparation of listing documents and collection of relevant information.

154.  Iris left PCH in September 2002 and joined E1 Media as an administration manager (Exhibit D1-15).  It was also arranged by Teli Chan who considered Iris able to assist in the new project in hand.  She also felt embarrassed for having put Iris under a new management in PCH.

155.  Iris worked for E1 Media till about 2006. Before she left, she asked her (D1) about working for Eco-Tek again.  She suggested to her to talk with its management since she no longer worked for Eco-Tek.  She did not think Iris did later work for Eco-Tek, she was told she worked for the Japanese.  At that time, the Board of Directors did not want to continue with the business any longer.

156.  After March 2006, she (D1) no longer gave Iris any employment personally.  However, her charity fund, Widesky, did employ Iris part time around the end of 2005 or early 2006 for handling of the leasing of properties in the Mainland.

157.  Her relationship with Iris deteriorated when she found out the latter had used her account to place orders for groceries without her knowledge, and when she received complaint from a client, Mr Sung Wai, about her solicitation of gift from him.

D2

158.  She knew him before he was appointed a director of PCH.

159.  When she set up Globe Trade, she appointed him as a director and gave 10% of shares to him.

160.  She later invited him to be a director of E1 Media, Eco-Tek and some other companies.

161.  He remained a director of PCH until its change of ownership.

162.  His responsibilities in PCH included development of new projects, business with Mainland and Taiwan, and business in industrial products.

D3

163.  She had met D3 in her childhood as he had joined Chen Hsong in 1968.  She got to really know him since they started to work together in 1982.

164.  D3 was an expert in mechanical, electrical and hydraulic technology and had been leading Chen Hsong in innovative mechanical development.  She, herself, was more in manufacturing and business.

165.  She invited D3 to join Eco-Tek as a consultant. On 16 January 2001, he became a director.

166.  When D3 performed duties for Eco-Tek, he worked in factory premises not at Modern Warehouse, which was an office.  Iris worked in Modern Warehouse.

Giving of shares

167.  She followed the example of her father, who has a strong belief in sharing of fruit to distribute shares to employees.

Court adjourns - 1.01 pm

Court resumes - 2.37 pm

All defendants present. Appearances as before.

Eco-Tek

168.  Pre-IPO share options were granted to herself, D2 and D3 to provide incentive since Eco-Tek was a new company.  These share options were all eventually exercised.

169.  Besides, shares had been allotted to various parties including D2 and D3, who were directors, and Wong Wai-tat, a supervisor in the engineering department and Chow Yuk-ngor, who was providing secretarial service to her and responsible for purchasing in Mainland of components for Eco-Tek.

170.  Then further shares were allocated to various parties including Iris.  She denied the grant of shares to her was a sham.

Charity work

171.  She followed the example of her father in contributing to charity and had set up a charitable trust, Widesky Management in 2002 and the Lily Chiang Charitable Foundation in 2003.

172.  When she was working in Chen Hsong, she and the company had made donations mainly on education, hospitals and made donation to the poor.

173.  She had returned her salary to Chen Hsong for around a million dollars a year.

Listing of Eco-Tek

174.  Celestial Capital was engaged as Eco-Tek’s financial advisor.

175.  Different people in Eco-Tek were responsible for providing information to Celestial Capital, including herself, D2, D3, Jenny and Mr Tsui, depending on the area of information concerned.

176.  Twenty to thirty drafts of Prospectus had been submitted to the Stock Exchange before it was finalised.  She seldom communicated with Benson save for a couple of important issues such as the date of listing, the ultimate price of shares and a couple of occasional road shows.

177.  Eco-Tek was listed on 5 December 2001, the listing price was $0.238.  It was over-subscribed by almost 60 times.

178.  Record of stock price between 5 December 2001 to 22 February 2002 was consistently over $0.60 (Exhibit D1-89).

Application for waiver

179.  An application for waiver of the moratorium period had been made.  She was told that it was made as a routine application.

180.  She had been told of the intended relaxation of the rule.

181.  Eventually, D3 told her that the moratorium period had been relaxed and since their application had been made prior to July, the moratorium period would automatically become six plus six.  Later, D3 told her that Celestial Capital informed him that Stock Exchange wished them to withdraw the application as a formal procedure.

182.  She said the moratorium period had never been her concern.  She had no financial need and had an eye on the good future of the company.  She had no intention to avoid the moratorium period and had no reason to ask others to hold shares for her.

183.  Iris was the beneficial owner of the shares. She did not give shares to her to hold on her behalf to avoid the moratorium period.  She denied each and every act which Iris alleged she had done in connection with dealing of the shares and their proceeds.

PCH

184.  D1 gave an account of the development of PCH since E1 Media started to acquire its shares through its subsidiary, Super Drive, in February 2000.

185.  In February 2001, she, D2 and Teli Chan became directors of PCH.

186.  There were plans to transform and expand the business of PCH from primarily investment and financing to internet business.

187.  It also developed in the manufacturing fields and acquired manufacturing companies including Nissan Top in Taiwan and Long Heng Machinery in the Mainland.  These two companies were under the management and supervision of D2.

Kistefos

188.  It was the second largest shareholder.  At the time of acquiring a company called Cents.com, friction developed between the two largest shareholders.  Kistefos started legal proceedings in March 2001; it ended with a settlement in 2004.

189.  This prolonged disagreement affected morale of the director and staff, and caused difficulty in recruitment of staff and high staff turnover.

Ill health

190.  She became pregnant in August or September 2001.

191.  Unfortunately, by the end of October, one of the twins she had could not survive.  Though physically she was not very unwell, she was under psychological distress and was advised to keep relax.

192.  Since October 2001, she had hardly gone to the office to work because she was very stressful and very unwell.  She started to take formal sick leave in December to February.  However, since the listing process of Eco-Tek was going on, she still attended several presentations with investors.

193.  She seldom went to work until she gave birth to her child on 6 May 2002.  She started to have maternity leave early, from 10 April to 14 July.

194.  Although her maternity leave finished on 14 July 2002, which was just shortly before the takeover of PCH, she did not return to work since her doctor strongly recommended bed rest.  She did not return to work until 29 July when she tendered her resignation.

Share options

195.  In the beginning of 2002, when she was taking sick leave, D2 mentioned to her the idea saying that granting of share options might help solve the problem of low staff morale, recruitment difficulties, retention problem and high staff turnover.  She supported the idea since she felt it might assist in the development of the company.

196.  She did not attend the Board of Directors meeting which made the decision and did not take part in the selection of grantees, nor involved in any discussion with other directors.

197.  As far as the grantees are concerned, she knew Liu Chung-laung, Becky, Tang and Wai Chee-leung, and gave a brief account of each of them.

198.  Though she did not take part in selecting the grantees, she did not think any of the above four grantees in any way unsuitable.

199.  She did not discuss with Becky in relation to the share options grant, or give her any instruction in connection with the share options.

The other grantees

200.  She did not know any of them in 2002.  She had no reason to believe they were unsuitable.

Mega Land’s proposal to buy Super Drive’s shares of PCH

201.  In early 2002, there was a proposal from Mega Land to buy Super Drive’s shares of PCH.

202.  The proposal was agreed.  The main considerations were:  she (D1) was in ill health and she felt she was overloaded with so many business and could not afford; morale problem in PCH as a result of the Kistefos litigation; PCCW and HTC had no interest to send people to do the management.

203.  Mega Land had been informed of the share options grant by an undated letter signed by her (Exhibit D1-95).

204.  However, this transaction did not complete despite several postponements since Mega Land failed to obtain the approval of the SFC, the main reason was their failure in fund proof.

The Yu Ming offer

205.  The Yu Ming offer was made on 28 March 2002 when the Mega Land offer was still open, subject to conditions.

206.  The PCH Board of Directors did not consider this a genuine offer and viewed the chance of success slim.  She, herself, felt it was somewhat a practical joke.

207.  Anglo Chinese was engaged as advisor since the corporate finance considered a firm with experience in handling hostile takeover was necessary.  The matter caused financial and human resources of PCH to be occupied.

The Kandy Profits offer

208.  The Kandy Profits offer which was announced in the Tingkong Announcement dated 25 April 2002 (Exhibit P18) was considered a genuine offer.  Negotiation between Kandy Profits and E1 Media on the price started and resulted in an improved offer (see Announcement dated 30 April, Exhibit P21).

209.  The offer was accepted by the Board of Directors of E1 Media at the meeting held on 29 April 2002.  She did not attend since she was on maternity leave (see Exhibit D1-56).

210.  Super Drive decided to irrevocably undertake to accept the Kandy Profits offer and informed the PCH directors by a letter dated 6 May 2002 (Exhibit D1-57).

211.  The Kandy Profits offer went ahead.  On 29 July 2002, the existing Board of Directors of PCH resigned.  The new Board of Directors was appointed on the same day.  At that time, she was still on sick leave and had spent very little time working for PCH.

D1’s salary of PCH

212.  From end of 2001 to February 2002, though she was entitled to receive sick pay, she did not take any pay.  As a result, she did not receive three months of salary of a total of $1.05 million.

213.  She also gave up her annual 20% pay adjustment and other fringe benefits such as medical and insurance benefit, granting of shares and share options, clubhouse facilities and travelling expenses.

214.  She also gave up other entitlements.  The three directors were entitled to a bonus up to 10% of the profit which amounted to several million dollars in that year.  All three of them did not take any bonus.

215.  According to the service agreement, clause 3, the directors were entitled to nine months’ payment in lieu when they were required to resign.  Whilst D2 and Teli Chan did receive certain such payment, she declined to accept it even though it was offered to her.

Proceeds in relation to the share options

216.  She denied all the relevant allegations made by Iris, Becky and Tang.

217.  She stressed that after her resignation from PCH on 29 July 2002, she had no authority to give Iris any instruction in relation to the share options and cheque for the payments.

The Bank of China safety box

218.  She received a lot of gifts on behalf of her daughter, who was born on 6 May 2002, most of which were gold and jewellery.

219.  Since the daughter was the only twin survived, she was more sentimental and therefore desired to keep the gifts together and pass them to her daughter when she reached the age of 18.

220.  She therefore asked Iris to find out where a safety box was available.

221.  In August, after she had resigned from PCH, Iris told her that a safety box was available in the BOC branch in question.  Iris said she needed to go to the bank to do something on that day and could go to process her application if it was convenient to her.

222.  It was 13 August.  She arrived at the bank between 3 to 4 pm.  She went upstairs and dealt with the paperwork at a counter.  Then a manager took her down to the safety box area.  There, she filled in some forms and was provided with the key.

223.  A staff took her inside the vault area and taught her how to open the box.

224.  She stayed in the vault area for about 20 minutes and left the bank.

225.  On that day, she did not see Iris at all at or outside the bank.  She did not receive anything let alone $2.5 million from Iris.

The defence witness, Chan Shi-yuen

226.  In 1998, after having worked as an engineer and sales in the technical field for almost 30 years since graduation, he worked for Chen Hsong in Shenzhen.

227.  Two years later, he started his own business in hydraulics, but business was difficult.

Work in Long Heng

228.  Then, around August 2001, he went to Dongguan and started to work in the Long Heng company, selling injection moulding machines in Dongguan and its vicinity.

229.  He received a monthly pay of RMB1,000 for transportation and accommodation expenses as well as commission amounting to an average of RMB50,000 a month.

Granting of share options

230.  Around February 2002, the Deputy Head of Long Heng, Mr Ong, told him that the company had recommended him to PCH as the company saw him as an important person in sales.

231.  Then a lady staff in charge of administration in Long Heng surnamed Tsang or Chang (I call her Tsang for convenience sake) told him that PCH would issue share options to him.

232.  He accepted the offer by signing the documents (Exhibit P82) and paying the consideration.

Takeover of PCH

233.  He came to know that a company wanted to acquire PCH and had offered to buy out shares and share options.

234.  He thought it was a once-in-a-lifetime opportunity and decided to sell his share options as soon as possible because he found it a good thing to do.

Payment for the share options

235.  He signed the form of renunciation (Exhibit D1-109) and sent it to PCH.

236.  In June, he was told that a cheque in Hong Kong currency had been issued to him.  Since he did not have an account in Hong Kong currency, he asked Tsang whether he could collect the money in cash.  He was told it was not possible.

237.  Since he could not collect the money himself, he asked if anyone in Hong Kong could collect it on his behalf.  Later, Tsang told him that a Ms Yip Yuk-chun (it is the name of Iris and I refer to this person as Yip) in Hong Kong could assist him and collect the money in Hong Kong on his behalf.  He had heard of Yip as being a secretary of the Board of Directors and an administration manager of PCH.  He agreed to the arrangement and signed the authorisation letter (Exhibit P111).

238.  In August, around the 16th, he received a call from a lady introducing herself as Yip.  She told him she was to deliver the money to the Long Heng office and asked him to go to the office to collect it. However, he could not make it since at that time he was quite far away at work.

239.  He asked Yip whether she could deliver the money to the company for him to collect later.  She agreed.  She told him the amount was over $610,000.  It was less than the proceeds of his surrendering of the share options and the explanation Yip provided to him was that a tax amount of 15% of the sum and a handling fee had to be deducted.

240.  He went back to the office on the following day and collected the money.  Although he had not counted, he was satisfied that the amount was as what Yip had told him.

241.  He had written out a receipt and passed it to Tsang.  However, a couple of days later, Tsang told him the written receipt was not proper and a printed one was sent from the head office for him to sign.  He signed the receipt and gave it back to Tsang (Exhibit D1-74).

242.  After having worked in Long Heng for a year, since Long Heng had a new boss and the business of his own company improved, he returned to his own company and was running its business since then.

Use of the money

243.  He did not change the money into renminbi and kept the cash in Hong Kong currency at home.

244.  He had spent some of the money to buy an apartment in Shantung (Sales and Purchase Agreement, Exhibit D1-110) for the price of RMB385,000.  He paid the full amount at one go in Hong Kong currency, which was about $350,000 to $360,000.

245.  However, the transaction did not complete since the original owner failed to comply with the requirement and was not able to transfer the property.  He therefore reached an agreement with the owner to cancel the transaction and obtained a full refund (Exhibit D1-111).

246.  He then used part of the money to decorate his house in Shantung and kept some for his future expense and spent some on his company since cash flow of the company was tight.  He had never put the money into a bank.

D2

247.  D2 exercised his right to remain silent.  He did not call any witness, but has adduced some documents.  He made a mixed statement under caution.

D3

248.  D3 exercised his rights to remain silent.  He did not call any witness but has adduced some documents.

Court adjourns - 3.27 pm

Court resumes - 3.43 pm

All defendants present. Appearances as before.

Assessment of credibility

249.  In assessing credibility of witnesses and indeed throughout the consideration of the whole case, I bear in mind certain features which I consider are relevant and crucial.  These features include the followings which I do not mean to be an exhaustive list.

250.  All the three defendants have a clear record.

251.  D1 was and still is highly regarded in the commercial field and has demonstrated herself to be a civic-minded person.  She has served in many public posts and commercial organisations.  She is also generous in charity work.

252.  At the material time, D1 was suffering from prolonged ill health connected with her complicated pregnancy.  Details can be seen in the medical report of Dr Catherine Siu (Exhibit D1-121) and I pay particular attention to the dates of events which were mentioned.

253.  There is no evidence of any pressing financial need for D1 to go through all these alleged dishonest conducts which required careful planning and implementation spreading over a considerable period of time.

254.  As far as the Eco-Tek shares are concerned, their value was speculative at the time the decision was made to grant them to Iris, bearing in mind it was uncertain even whether the application of listing of Eco-Tek would be successful or not.  Before listing, Eco-Tek was only a small scale company.

255.  As far as PCH is concerned, there is no evidence to prove that on 4 February any of the defendants knew, or even anticipated, that there would be a takeover offer, either by Yu Ming or Kandy Profits.

256.  Prior to the Yu Ming offer, by an Announcement (Exhibit P11) dated 18 February 2002, PCH announced that its single largest shareholder, Super Drive, which was wholly owned by E1 Media in which D1 has 60% interest, has agreed to sell or procure the sale to Mega Land a total of some 84 million shares which included 2.5 million shares held by D1.  Though eventually, upon many times of deferments this transaction did not go through, it was an event going on at the material time.

257.  There is no evidence from the grantees in Taiwan and Mainland that they had not received the proceeds of surrendering of the share options, and quite to the contrary, at least the defence witness said he had received it, and evidence tends to show that the Taiwan grantees had received their proceeds as well.

258.  One of the grantees, namely Wai Chee-leung, did in fact exercise the options.

259.  The allegation of Iris about handing of proceeds to D1 took place after D1 and D2 had resigned from PCH, as a result of the acquisition.

260.  In assessing credibility of each witness, I consider the whole of the relevant evidence and put individual matters in context.  I remind myself of the proper approach of assessment as highlighted by the Court of Final Appeal in HKSAR v Egan FACC3/2009.

Prosecution witnesses

Iris

261.  She is the most important witness for the prosecution.  Assessment of her credibility is of paramount importance in this case.

262.  In assessing her credibility, I bear firmly in mind that she is an alleged accomplice and was giving evidence under immunity. Care must be exercised in assessing credibility of this category of witnesses and reliability of their evidence.  This applies also to Becky and Tang.  For convenience, hereinafter when I need to refer to all the three of them, I will call them the trio of witnesses.

263.  I am also mindful of the risk that in testifying they have their own interests to serve, in particular to avoid prosecution. Indeed, Iris admitted in cross-examination that it has been her desire to avoid prosecution.  The defence submitted strongly that Iris was under pressure to give evidence as expected of her, and this is a pressure difficult to resist.

264.  On the other hand, the prosecution submitted that if what D1 said is true, that is, she had given Iris shares in Eco-Tek and it turned out to be a substantial sum of money, Iris should be very grateful to D1 and has no reason at all to give false testimony against her.

265.  In consideration, I note that there is little direct evidence to support Iris’s allegation against D1.  In any case, there is no record which goes to support her evidence that she had handed over cash to D1.

266.  I also bear in mind the evidence that Iris had substantial involvement in dealing with the proceeds of the PCH share options, at least as far as Becky, Tang and the Mainland grantees are concerned and there is allegation that she might have dishonestly pocketed part of the proceeds.  It was submitted that Iris has a motive to conceal the truth and put the blame on others.  It was further submitted that it might be a reason why she made false allegation in relation to the Eco-Tek affairs.

267.  There is criticism against ICAC in relation to the way they handled the matter, including what happened during the first contact with Iris and the subsequent actions, in particular, the memory-refreshing exercise.

268.  When ICAC went to the residence of Iris, despite the officers were equipped with a search warrant, it was not shown.  Whilst Iris was clearly a suspect, she was not arrested and no caution was administered.  She was just invited to go to ICAC, but was arrested there soon after arrival.  There is submission that these breaches by ICAC were performed with the intent to reduce Iris’s alertness to her rights and put pressure on her to cooperate.  In cross-examination, Iris admitted that she started to be under fear upon being arrested which took place beyond her expectation.

269.  After Iris had been arrested, she was interviewed for more than once under caution.  She gave statements in these interviews.  At that time, Iris was alone and had no independent advice.  I note there are inconsistencies between what Iris said in the first cautioned statement and what she said later in various stages, including in court. However, no major departure from the main line of allegation made in the first instance had been drawn to my attention.

270.  There is submission that the stand of Iris had been crystallised soon after her arrest and thereafter she found herself impossible to resile from it.

271.  Iris maintained that at the various stages she had told the truth according to her memory then prevailing, and that she had not been coached.

272.  Bearing in mind the criticism about the ICAC’s conduct at the time Iris was first approached, Iris had been arrested and properly cautioned before she was interviewed.  There is nothing that indicates Iris did not understand the allegations put to her and the rights available to her at that time.  There is no indication that Iris made the statements in any circumstances which would have in any way been improper and affected her voluntariness.

273.  She did exercise her rights upon being told to telephone her husband.  Despite she did not expressly tell him that she had been arrested, she told him she was detained in ICAC.  What she did is understandable and by itself does not cause me concern.

274.  I note that the telephone call was made only after the first cautioned interview.  From the evidence, I am satisfied that the arrangement did not have any adverse impact on the mind of Iris.

275.  The fact that a lawyer came to see her and her refusal to see the lawyer invited much criticism.  To this matter I have given careful consideration.

276.  The relevant evidence is set out in detail in counsel’s submission and I do not intend to repeat it here.  It is submitted that Iris’s declining to see the lawyer was for dubious reasons.  I was reminded that the refusal took place after the cautioned interviews and before taking of the first non-prejudicial statement.

277.  Iris maintained that she was aware of the rights and it had never occurred to her that she should see a lawyer.  This is not something uncommon amongst people being detained.  The main reason Iris gave for refusing to see the lawyer who had come was that the lawyer was not instructed by her or her husband, and she had no idea who instructed her to come.  I considered the whole of the relevant evidence, and paid particular attention in looking for a sign that might indicate the possibility of Iris being put under undue influence by ICAC or her exercising of self-induced restraint.

278.  Having considered the whole of the relevant evidence, I find that there is no malice on the part of ICAC and that what happened was as described by Iris.  I am satisfied that the mind of Iris had not been unduly influenced by the authority.  As a matter of fact, Iris eventually did meet a lawyer who came with her husband.

279.  It is a condition of the immunity given to the trio of witnesses that they are to give full and true evidence.  The defence submitted that in the circumstances Iris would feel under an obligation to testify in accordance with what she had said in non-prejudicial statements to avoid losing the protection of the immunity.

280.  In this connection, my attention was drawn to the fact that there was a 47-minute meeting between ICAC and Iris after the first non-prejudicial statement had been made, said to be for clarification. There is no record as to what clarification had been made and what was said during the period of time.  No witness statement was taken, and I accept that if the clarification was in connection with any previous statement made by Iris, a witness statement should have been taken.  I have considered carefully the submission of possibility of coaching, manipulation of suspect, prompting her to give evidence against others, and other malpractice during that period of time.  I do not find anything materially untoward had happened during that period of time, despite my observation that better documentation should have been made.

281.  Learned defence counsel also stressed the significance of a memory-refreshing exercise conducted close to the start of the trial.  It was said that the way it was conducted amounts to a coaching exercise by which the ICAC instilled upon Iris an expectation for her to testify in conformity of her non-prejudicial statements.

282.  Instead of the common practice of providing Iris with her witness statement, which in fact had been done already previously, ICAC officers read her statements to Iris.  It was said that this practice was undesirable and was an effort to make sure Iris would not diverge from the witness statements.  I am satisfied that in all the circumstances this was just a zealous effort performed in good faith on the part of ICAC to make sure that there was a memory-refreshing exercise.  I do not find conducting the exercise in ICAC without more objectionable in the light of the nature and complexity of the case in question.  A lot of documents were involved and they might need to be referred to in the course.

283.  Iris was criticised for having selective recall.  It was submitted that this is consistent with there being coaching of her, and in any case, her making up of false stories.

284.  In consideration of this matter, and indeed throughout the course of consideration of the whole matter, I take into account the inherent probabilities of the overall and individual allegations or assertions of each witness, bearing in mind submission from learned counsel. Matters which I take into account include what I have mentioned earlier and what I will discuss later.

Incidents of alleged selective recall include the following:

285.  When Iris testified, from time to time she said she could not recall what had happened during certain durations of time when she was in custody.  Examples include whether there were conversations with ICAC officers after the second interview, and whether there were conversations before her release for bail.  Albeit being detained was a unique experience for her and it took place just three years ago, much closer in time to the incidents which were the subject matters of the trial, there is a high degree of difference in importance between the two types of events.  Bearing in mind the relevant allegations and submission, in my judgment forgetting those matters which happened in ICAC does not affect her credibility.

286.  Iris had no recollection about the exact time when D3 allegedly asked her to hold shares for the company.  This is obviously an important piece of information.  I have no surprise that if the matter did take place it stays in the memory of Iris since it is something so unusual to her.  However, owing to the lapse of time, it is also not surprising that one can recall the occurrence of the event but not exactly when it did take place. If Iris is making a false accusation, it would have been easy for her to create a date and stick to it.

287.  Iris said she had handed over $340,000 to D1, being part of the proceeds of her sale of the Eco-Tek shares, but she could not tell much detail, in particular when exactly she did so.  This is obviously another very important aspect of her evidence but again, failure to remember the exact date does not, in the circumstances of the case, cause me to doubt her credibility.  Whether Iris is credible has to be assessed by considering the whole of the relevant evidence.

288.  Learned counsel criticised about Iris’s testimony in relation to the reason why she had attended listing meeting of Eco-Tek.  Her testimony in this area is somewhat indefinite.  I do not find Iris dishonest or evasive in this aspect.  Quite to the contrary, I find it natural that if one was holding shares for others and was told to attend meetings, he would not be able to tell the exact reason why he had to do so.

289.  Iris was criticised for being vague as to the timing of events during her visit to Dongguan.  Bearing in mind the significance of this trip, in particular the assertion that the trip was for delivering of share options proceeds, I do not find her evidence in this aspect so unsatisfactory that would affect her credibility.  What she said she had done in Dongguan was something ordinary.  If the purpose was to deliver money, I see no reason why Iris had not asked Tang to drive her to the factory.  There was nothing for her to conceal, and it would be in her interest to have a witness for her visiting the factory.  The duration was not long, but it was sufficient for the couple to have done what they described within that time.  The evidence of the couple about going to a hairdresser shop is supported by the evidence of Tang.

290.  Iris also claimed to have no memory of signing of certain documents.  Those are understandably routine matters which Iris was expected to perform day in day out amongst other similar office work.  One cannot be expected to have memory of every such piece of work.

291.  Having considered the whole of the evidence, including that which had been drawn to my attention, bearing in mind all events took place in 2001 and 2002, I do not consider this a case of selective recall.  I am satisfied that what Iris claimed she could recall is reasonable since they are major events and what she said she could not recall are mostly relatively minor details.

Court adjourns - 4.44 pm

7 June 2011

8 June 2011

Court resumes - 9.41 am

All defendants present. Appearances as before (Mr Adrian Bell, Mr Kevin Egan absent).

292.  The attention of the court was drawn to the discrepancies of what Iris said in various statements and interviews, and between these previous statements and her evidence in court.

293.  When Iris testified in court, she said in clear terms that it was D2 who asked her to prepare the 4 February Board of Directors meetings minutes.

294.  However, as learned counsel for D2 set out in his submission, when Iris gave the statements, on many occasions she said it was either D1 or D2 who had done something.  Examples include the following.

295.  Contrary to her testimony, in her first cautioned statement Iris said that it was D1 who told her to type the minutes of meeting.  Besides, she said she could not recall who gave her the name of the grantees and whether it was D1 or D2 who asked her to type the share options letters.

296.  In the second cautioned interview, she said it seems there was a chance that it was D2 who asked her to type the Board minutes and it was probably D2 who told her to type out the offer and acceptance letters.

297.  When she gave the first non-prejudicial statement, she said it was either D1 or D2 who asked her to type the 4 February Board of Directors minutes.

298.  In her second non-prejudicial statement, she said it was either D1 or D2 who provided her with a sample copy of some other minutes to use as a template.  She did not recall that D2 provided a sample for her to type the offer and acceptance letters.  But later she said she probably typed them by copying a sample D2 gave her.

299.  When cross-examined, Iris said that about three to four months before the trial started she recalled it was D2.  She said she could recall because she had more time to think about the matter.  It was not triggered by any particular incident.

300.  In assessing, I bear in mind the defence submission that to enhance her own interest Iris might have been tempted to give evidence against D2, realising otherwise there was none to implicate him.

301.  Iris said she had informed ICAC of what she recalled but was told by Officer Chris Lai to simply tell the facts in court. No further witness statement was taken from her.

302.  However, her evidence is not the same as that of the officers concerned.  Chris Lai said Iris told him that it seemed that it was D2 rather than D1.  Tse Suk-yee said Iris told her she thought it was D2 rather than D1.  When Iris was confronted with these, she said she could not recall exactly what she had told the officers.

303.  I do not find material inconsistencies exist between the evidence of Iris and that of the officers.  In my judgment, the difference was a result of her way of expression.  Incidentally, I find the evidence of the officers telling in showing that there had been no improper coaching or influence on the witness.

304.  I agree to the submission from learned defence counsel that, normally, memory lapses with time.  However, it is also normal that when a person is given time to think the matter over, memory returns.

305.  Learned counsel also pointed out that it was not probable that it was D2 who asked Iris to type the minutes for the following reasons.  D2 was not the director who was normally responsible for administration matters whereas Teli Chan was.  Teli Chan was the chairperson of the meeting and she signed the minutes and the offer letters.  Besides, the minutes contained Chinese names of the grantees and D2 did not write or read Chinese.

306.  This last mentioned point does not cause me much concern since D2 himself admitted to have signed the letter (Exhibit P80), which contains as many Chinese characters.  Besides, the Chinese characters are just the names of the grantees which will not be an obstacle for D2.

307.  At that time D1 was on leave.  It is her evidence that D2 had taken over her responsibility and therefore received a much higher salary than he usually did.  D2 did not challenge this part of her evidence.  It does not strike me as odd that it was D2, rather than Teli Chan, who told Iris to type the minutes.

308.  When D1 was on leave, there were only two executive directors; one is a man, and the other, a lady.  In all the circumstances, I find it convincing that when Iris was given time to think it over, memory came back to her.

309.  Iris also told the court that it was D1 who asked her to prepare authorisation letters of the grantees.  However, in her witness statement she said it was D2 who asked her.  In cross-examination, she said when she made the statement in fact she had not been sure it was D2.  In this regard I bear firmly in mind the submission that it would have been difficult for a witness to memorise everything she invented.

310.  Having considered the whole of the relevant evidence, I am satisfied that Iris had been trying her best to tell what was in her memory at the time.  It does not necessarily reflect any dishonesty on her part.

311.  I have, however, exercised care in my overall assessment since Iris was shown to have included something in her witness statement which she in fact was unsure.

312.  The defence also said there was discrepancy between her testimony and her record of interview as to who suggested going to the Bank of China on 13 August 2002.  Having considered carefully this aspect of the evidence, I do not consider there is any material discrepancy.

313.  Some other discrepancies have been brought to my attention and I find each of them not material so as to affect the credibility of the witness.

314.  Iris was criticised also for being frequently evasive in answering questions, particularly in cross-examination.  I do not intend to quote every matter raised by the defence, some of which I do not consider to be material.

315.  Learned leading counsel for D1 criticised Iris for not giving direct answer to questions in relation to whether there was discussion between ICAC and her about possibility of giving evidence for the ICAC against other people.  She said she did not understand the question and then asked what was meant by “against other people”.  I note that Iris has been cautious in giving evidence and has displayed a responsible attitude.  She stressed that she was only telling the truth.  I find it just another way of saying that her primary purpose of testifying is not giving evidence for ICAC against other people.  I do not find her evasive.

316.  Leading counsel also criticised her for not answering directly whether she had been provided with any benefit by the ICAC since October 2007.  After being asked several times, she said she did not want to give a wrong answer and wanted to clarify what the word “benefit” means. She said she did not quite understand the distinction between whether it is a kind of benefit or not.

317.  In consideration, I bear firmly in mind that the relationship between ICAC and the couple is a sensitive issue raised in the trial.  I think the situation was sufficiently apparent for Iris to appreciate what counsel was referring to by “benefit”.  However, the matter must be considered in the context of the Witness Protection Scheme.  What the couple received were provision by ICAC under the scheme.  In the circumstances, it is understandable that Iris was not sure whether it should be described as a benefit.  Besides, she had given an undertaking and been made aware of the relevant restriction on disclosure.  I do not consider Iris deliberately evasive or dishonest.

318.  Iris originally did not admit the signature on Exhibit D1-2 was hers, and only eventually came to admit after having been shown her admission in the video record of interview and various employment contracts.  This is a document dated 31 October 2001 which recorded the mutual agreement with Tang to terminate his employment with Eco-Tek.  The purpose of producing this document is to show the extent of authority Iris had in the company.

319.  Whilst whether Iris was a mere secretary as she asserted or was in a position with higher authority is an issue in the trial, I do not think Iris had this issue concretely within her contemplation.  I believe she really did not recall whether she had signed this letter, rather than intending to conceal her position in the company.

320.  It may be convenient to consider at this point the issue whether Iris was merely a secretary and whether she has been dishonest in this aspect.  A main line of argument consistently put forward by the prosecution is that Iris, being a relatively low-ranking staff, did not deserve the granting of so many shares to her.

321.  It is of concern to note that her testimony of being merely a secretary is clearly inconsistent with the many documents produced and her apparently being relatively free of supervision in the office.

322.  Besides, when she was interviewed under caution, she told ICAC that she was a manager.

323.  In addition, she had written a letter requesting for a reference stating that she had been an administration manager for a long duration of time, and this requested confirmation is, by itself, inaccurate.

324.  In consideration, I bear in mind submission that there is no evidence that the relevant employment letters of Iris were forged. Objectively speaking, there was no obvious need to falsely state the position of Iris since there is no restriction on granting shares to a secretary.

325.  On the other hand, I bear in mind evidence of other prosecution witnesses, many of whom when mentioning Iris, referred to her as the secretary of Ms Chiang.  I see no reason for these witnesses to lie in this aspect.

326.  Having considered the whole of the relevant evidence, I find that Iris was aware that she had been appointed with the title of administration manager.  Title inflation has been a common phenomenon for a considerable period of time.  I am satisfied that at the material time she was performing duties mainly for D1, in the capacity of a secretary or personal assistant.  That is what Iris in substance had been doing and must be what all other prosecution witnesses who had worked with her perceived she had been doing.  Iris might have on occasion wished to take advantage of the more appealing job title, but when she said she was the secretary of Ms Chiang, I believe she was telling the truth of what in her mind was the substantial nature of her job.  I note that even when Eco-Tek first stated her position in response to queries from the Stock Exchange, she was said to be a secretary.

327.  The close relationship between Iris and D1, together with the latter’s superior position in various companies, is a ready explanation for the relatively lax supervision on Iris.  It may well be the reason why, as Iris said, when the new management of PCH took charge, nobody bothered to give her any work to do.

328.  I do not agree that it was a case where Iris was saying that she was a secretary to boast the theory of the prosecution.  I do not think the authority would have given Iris any indication that she should do so.  The fact that she had called herself a manager in the interview and of her request for the reference letter were obviously known to them.

329.  The defence also highlighted certain aspects of Iris’s evidence which are said to be inconsistent with that of other prosecution witnesses.

330.  A more significant matter which has been raised is in relation to the evidence of the disposal of the share options proceeds of Becky and Tang.  In relation to Becky’s proceeds, Tang said Iris instructed him to deliver the item to D1’s home, whereas Iris said she had no idea how he handled it.  In relation to his own, Tang said he handled it in accordance with the instruction of Iris.  Iris said it was not clear to her how he handled it.

331.  First of all, I do not consider there is real inconsistency since even if Iris had done what Tang said, strictly speaking she could not have known what actually had happened since she was not present during the physical disposal of the money.  I believe it was only a case where she did not want to guess on something she did not have actual knowledge.

332.  This is not the only matter I have taken into account.

333.  In relation to the proceeds of Becky, I see no reason for Iris to conceal that it was she who told Tang to deliver the item to D1’s home.  She had otherwise by and large disclosed her involvement in the matter.  I am sure if what Tang said had happened, Iris has not been deliberately dishonest, the matter has just escaped her memory.

334.  In relation to the proceeds of Tang, Iris again did disclose she had involvement in the share options arrangement of Tang. There appears to be little point in concealing that she had given Tang some instruction in relation to the proceeds since this assertion is consistent with her overall tone of evidence that Tang was not a genuine grantee.

335.  In consideration, I have considered the submission of the possibility that Iris might have pocketed part of the proceeds of Becky and Tang and see if the inconsistency is an indication of such dishonest conduct.  I reject the idea of Iris having pocketed part of the proceeds.  It was impossible in the circumstances of the case.

336.  Besides, even according to Tang, Iris was not the person who received the proceeds from him.  There is no obvious reason for Iris to fear and to conceal.  I do not consider this matter by itself affects the credibility of Iris.

337.  If Iris did give instruction, it was just one of many actions taken by Iris in the whole course of events which she might have forgotten over the lapse of time.  Besides, according to Tang, what Iris had done was give him several calls asking him on different occasions to hand over a certain amount of money to another person.  The amount of these individual sums of money did not tally with the amount of the proceeds.  It is possible that when Iris talked to him, she did not have the proceeds in mind.

338.  Other inconsistencies were brought up, such as whether Iris took care of her own salary payment, whether Iris had followed up with the opening of accounts in Kingston Securities for Becky and Tang, and who suggested going to Dongguan.  The inconsistencies are, in my view, minor and not material.

339.  Another important aspect of Iris’s evidence is in connection with what happened in the Bank of China on the day D1 opened her safety box account.  The following matters were raised.

340.  Firstly, Iris said she saw D1 come out from the safety box area and then went back into it with the cash she had given her. However, the bank record shows that D1 had only entered the vault area only once.

341.  I note that this fact was only clarified during the trial and originally the record was erroneous, showing apparently that D1 had entered the vault area twice.  I remind myself of the submission about coaching and consider whether this is a sign of it.

342.  If D1 was actually coming out from the vault area, it would have been impossible that she had entered the area again as Iris described.

343.  Bearing all these in mind, I do not find this a material inconsistency.  I have taken care to ascertain what Iris had testified.  She said D1 came out from the safety box area and went back to it, she did not say it was the vault area.  To Iris, whether D1 was already in the vault area and coming out to meet her is not something important.

344.  Secondly, learned counsel pointed out that the bank record shows that there was only a gap of about two minutes between the time Iris’s withdrawal slip was clocked and the time D1’s application for entry was clocked.  This is a matter to which I have given very careful consideration.

345.  This is an undisputable fact and notably the clocking was done by the same system.  The relevant evidence strictly is this. There is no imprint of time on the withdrawal slip, but there is a record of time in another statement.  A bank staff said the time in the statement should be the time when the computer imprint of information was made on the withdrawal slip.

346.  It is not very clear on evidence at what stage of the withdrawal process the computer imprint took place.  It could be at the very beginning when the slip was handed in or at a later stage when the cash had already been prepared for collection.  I am not entitled to speculate what was the position.

347.  The following are what Iris said took place after the cash was ready.  That included bringing Iris to the room where the cash was counted; Iris going out to the bank lobby to look for D1; not seeing D1 in the safety box account opening section which was just opposite the withdrawal area, Iris went down one floor by the escalator to where the safety box area was; there Iris met D1, passed her the money and D1 went back to the safety box area.  Of course, these were just what Iris said took place after the cash was ready.

348.  Having given it careful thought, I conclude that the time would have been tight, but not impossible that those things could have happened in around two minutes.  This factor does not necessarily indicate that Iris has not been honest.

349.  Thirdly, Iris said she did not count each of the banknotes which were arranged in stacks, but had just counted the number of stacks.  The money was provided by a leading bank.  It comprised a lot of banknotes.  What Iris said she did is not an unreasonable step to take.  It is not unreasonable to have a degree of trust in the bank.  I do not agree to the submission of the defence that it was inconsistent with Iris having a duty to collect money for D1.

350.  Fourthly, it was submitted that Iris did not try to contact or locate D1 by calling her.  It would have been reasonable for Iris to think that D1 was either at the account opening counter or the safety box area.  This matter alone does not cause me concern.

351.  I now consider matters which are concerned directly with each set of charges.  In this regard, I bear in mind submission of inherent improbability in relation to certain events.

Eco-Tek matters

352.  At the forefront of my consideration is the fact that there is no independent evidence to support the allegation of Iris that she had transferred shares to IWK on the instruction of D1 and that she had given over to D1 part of the proceeds of sale of the rest of the shares, also on her instruction.

353.  The defence highlighted the evidence that Iris kept the proceeds for some 13 days and submitted that it is inconsistent with her assertion that she was not the owner.  The time in question was not too lengthy.  It was consistent with her evidence that was waiting for instruction.  It by itself does not cause me to doubt the evidence of Iris.

354.  As regards the remaining $30,000, Iris said that D1 allowed her to retain it as her double payment and bonus in connection with her employment.  It was submitted to be incredible since the responsibility of paying Iris double pay and bonus was on the company, not on D1 personally. Besides, there is evidence showing that Iris had received her double pay from the company already.  I do not think this matter is so material as to affect the overall credibility of Iris, especially as far as her evidence in relation to Eco-Tek is concerned.  In this regard, whilst strictly speaking it might not reflect the real situation, I find that it was still possible that Iris had been so told.  It is not surprising that the person who asked Iris to do all these for her benefit considered Iris deserved to receive this amount as a reward.

355.  It was submitted that Iris’s assertion of being asked to hold shares for the company is not probable in the light of the following evidence:  Fong & Ng and Chiu & Partners, involved as early as April 2001 to reorganise the share structure of Eco-Tek and shareholding; due to her involvement, Iris must have knowledge of changes in the number of shares to be allotted to her; any reasonable person in her position must have clarified when asked to hold shares, the fact that she did not is a sign that she in fact was the beneficial owner; without further communication with other parties, the alleged dishonest plan was bound to fail since there were risks that Iris would have to speak with lawyers, sponsors and others; she signed Exhibit D1-7 with full opportunity to read the content and the document signed in the presence of solicitors; she noticed her name and changes in shareholding in the Prospectus but paid little attention; and it was mentioned in various documents that shares were allotted to her as an incentive but Iris raised no queries.

356.  In my judgment, if it was Iris’s understanding that she was only holding shares for others and she was not the beneficial owner, she would not be surprised to see the corresponding information in the relevant documents.  Plainly, it is her evidence that she believed the shares allotted to her was part of the plan.  In my judgment, it did not matter whether or not she considered there was a need to ask and clarify.  When asked whether she noticed the changes in the documents, Iris said, “Those shares were not mine, I did not care about the changes.”  In the circumstances, it would be reasonable for her to be prepared to sign the relevant documents even if she was aware that the document stated that she was the beneficial owner.

357.  I do not agree to the submission that the plan was bound to fail for lack of further communication.  There is little dispute that Iris was an efficient and reliable staff who understandably was trusted to be of the right calibre and character to be capable to handle the situations. She had been serving D1 for a long time, even though different companies have been her formal employers.  She was invited by D1 personally to leave Chen Hsong and join her.  Ability, loyalty and trustworthiness must have been regarded by D1 as impressive attributes of Iris.

358.  It was suggested that D1 could not have given the share certificates to Iris to sign since there is evidence that normally unsigned certificates would only be released to the named shareholder.  The evidence of PW20, Miss Leung Yee-ming of Union Registry, shows that it was possible that the share certificates were passed to the company first if there was such instruction.

359.  Learned counsel also submitted that nobody made any attempt to conceal that shares were to be given to Iris.  The fact was disclosed to sponsors, lawyers, the Stock Exchange, together with reasons for allotting shares, during the lengthy listing process.  I do not see there was any point to conceal the allotting of shares.  It had to be disclosed.  What was secret, if the allegation is true, was only that Iris was not the real beneficial owner.

360.  It was submitted that there was no incentive for any of the defendants to engage in the dishonest acts for the sake of avoiding the moratorium period.  I bear in mind the low percentage of shares said to be nominally held by Iris compared with that beneficially held by D1, the uncertainty of the future and that there was to be relaxation of the rules in relation to moratorium period.  Notwithstanding that, the potential benefit of not being bound by the moratorium period was still there.  As a matter of fact, even though the moratorium period was substantially shortened, D1 was still subject to a moratorium period of 12 months.  I note she did not sell her shares upon expiry of the moratorium period.  Obviously, whether there was a disposal of shares depended on the need and circumstances prevailing at the time.

361.  Learned leading counsel also pointed out that taking into consideration the market climate at the time, disposal of the shares at once after listing was consistent with an act of an unsophisticated investor like Iris.  Whether to sell at a particular point of time is always a matter of judgment no matter it is by an old hand or not.

362.  Iris said when D3 asked her to hold shares for the company, they were in the office.  There is evidence that D3 mainly worked in factory premises separate from the office premises of Eco-Tek.  Bearing this in mind, I come to the view that it does not mean D3 did not have the opportunity to talk with Iris in the office.

363.  This statement is the major, if not the only, allegation Iris made against D3.  It has been criticised as vague and ambiguous.  Whether this is so is by itself a subject of consideration, however, it is my view a matter inconsistent with the allegation of coaching.  It is beyond imagination that such a clumsy coaching would have taken place.

PCH

364.  Iris said she still obeyed instruction from D1 after she had new boss in PCH.  Iris had, for a long time, been looking after a wide area of business, both official and personal, for D1.  I am not surprised to learn that she was still doing things upon the instruction of D1, in particular, as her link with D1 continued at the time.

365.  Besides, for reasons I will set out later, I find that Iris must have at some stage started to appreciate the illicit nature of what she was told to do.  They were not official duties performed for PCH; it does not matter whether D1 was still in charge of PCH.

366.  Iris said it was D1 who instructed her to make arrangement for Becky and Tang to open account with Kingston Securities.  Records in Kingston Securities show that the accounts were in fact opened on 8 May 2002, shortly after D1 had given birth after a complicated pregnancy.  I note there is no clear evidence as to when exactly D1 gave the instruction and when Iris started to take action.  I bear in mind the alleged inconsistencies of evidence amongst the trio of witnesses.  I also note the fact that after the Announcement of the Kandy Profits offer the need for any stock transactions became minimal.  Bearing also in mind the submission that Iris had the interest to put the blame on others, I do not find any indication of a need to lie on this piece of evidence.  Even if D1 was not well at that time, making of the instruction was not something too burdensome for her.  Iris said D1 instructed her over the phone.

367.  Learned counsel pointed out that Iris seldom mentioned Teli Chan despite she was the main contact person with Pedro Woo in relation to acquisition and was in charge of the transactions.  It was suggested that there was no point to do so since Teli Chan had absconded.  In consideration of the case I bear this comment in mind and form the view that it is not a sign of dishonesty on the part of Iris.

368.  Iris insisted that she had not handed over any proceeds to any of the Mainland grantees.  However, Exhibit D1-74 is a receipt signed by the defence witness confirming that he had received the money of the share options from Iris.  For the reasons I am to give when I consider the credibility of the defence witness, and having regard to the whole of the evidence, I do not find this piece of evidence undermines the credibility of Iris.

369.  In this connection, I note Iris did not make direct allegation against D1 for not delivering the proceeds to the grantees. In fact, when she was cross-examined, upon being shown Exhibit D1-74, she said it was not her who personally handed over the money to the defence witness.

370.  The allegation of Iris about handling of the proceeds took place after D1 had resigned on 29 July 2002.  However, what alleged to have happened were something illicit.  It did not matter whether D1 still had the authority to instruct Iris.  If there was anything which required a person in authority to perform, it had been done before 29 July.  What Iris described concerned only with dealing with the proceeds which had been deposited into the respective accounts as a result of prior arrangement.

371.  The defence also pointed out that Iris had been given very substantial material and other benefits by the ICAC as a result of agreeing to be a witness, as set out in the second Admitted Facts (Exhibit P368).  Iris had received $707,265 subsistence allowance and her husband $159,600.  In addition, a total of $507,984 of accommodation allowance was paid directly to the owner of the flat the couple was living in.  ICAC also kept regular contact with the couple and the defence submitted that a special relationship developed.  As mentioned earlier, Iris was also criticised for being evasive when she was asked about the benefits she received.

372.  The allowance which the couple received was legitimate under the Witness Protection Scheme.  There is nothing to indicate that the amount is not within the reasonable range.  Iris lost her original job upon her arrest.  I do not see what the couple received can be said to be an incentive for them to give evidence dishonestly as alleged.  I do not agree to the submission that what was provided to the couple was a result of their agreeing to be witnesses.  I also do not consider a special relationship had developed between ICAC and the couple.  What ICAC had done was consistent with the statutory duties imposed by virtue of section 7 of the Witness Protection Ordinance.

373.  Iris was also criticised for having received double payment of the accommodation allowance after the mortgage of her own property had been fully repaid.  She disclaimed knowledge as to the reason for the payment.  I do not consider her explanation so unconvincing that would undermine her credibility.

374.  Iris was also criticised for having exhibited the following dishonest conducts.  Firstly, she had placed own orders for grocery items using the account of D1 and claimed privilege when she was asked for details in cross-examination.  Even assuming there had been improper conduct as alleged, they were peripheral and something relatively minor.

375.  Secondly, there was a complaint from a client of her soliciting of a gift from him.  The gift was an MP3 player.  It is an even less serious matter which I do not consider would affect credibility of Iris as a witness in this case.

376.  Thirdly, Iris was criticised for having asked for a false or misleading job reference.  I do not find Iris dishonest. Judging from the whole of the evidence, in particular taking into account the evidence in this aspect of the trio of witnesses, I find the companies concerned adopted quite a flexible approach in employment policy.  Employees in different companies shared the same office premises and performed work for other companies irrespective of which payroll he was put in.  I find it the reason why prosecution witnesses sometimes could not give definite evidence as to which company was actually employing him during a particular period of time.  More importantly, it must have been obvious to Iris that she had no chance to deceive the company.  In substance, Iris was not making a representation, she was asking for a reference in response to which the company was expected to check its record.

377.  Iris was also criticised for telling the court that she was working for D1, whereas there is evidence such as official documents which show that someone else was her employer at the period of time she referred to.  This is understandable because of the employment arrangement I mentioned earlier and I also accept that whoever the formal employer was at a particular time, Iris was still doing things for D1.

378.  Iris has also testified to the effect that she was continually employed by D1 until the time of her arrest.  This is contradicted by evidence of payment of salary and her employment letter (D1-75).  Although her testimony is not strictly in accord with the truth, I do not consider her dishonest or deliberately telling anything untrue.  I believe all along she was working for D1.  Indeed, the companies which employed her formally at different stages were all closely associated with D1.

379.  Iris denied that she had conspired with others to commit the offences.  I do not think this has any material impact on her credibility.  It is an opinion she formed.  She might have misconceived the position.  Even if it is a case where she was not prepared to admit, my view is still the same.  The important thing is that she had disclosed her involvement in the matter.

380.  I have considered everything raised by learned counsel including what I have expressly mentioned above.  It is impossible for me to set out in detail everything I have considered and therefore if there is anything I have not mentioned it does not necessarily mean that it has escaped my attention.

381.  I have also taken into consideration whether Iris would be able to create such a well-structured lie implicating D1 when she was arrested by surprise more than five years after the incident.  Despite certain areas of inconsistencies, the main frame of her evidence remains consistent throughout.

382.  All in all, having considered the whole of the relevant circumstances, taking into consideration of submission, I do not find there is anything by itself or there are anything having such cumulative effect which cause me to doubt the credibility of Iris.

383.  Despite thorough and comprehensive cross-examination, Iris remained firm and unshaken as far as the main line of her evidence is concerned.  Having considered every matter which is suggested to be inherently improbable, I find the core of her evidence cogent and reasonable.  It is not reasonable to think that Iris would have anticipated the nature of allegations put to her upon her arrest.  It is quite impossible for her to create a pack of lies like this.  The account she gave, despite all the complaints about selective recall or lapse in memory, has an abundance of details the crux of which is consistent with the overall circumstances.  Whilst I have mentioned many times the lack of direct evidence to support her evidence, it is not a case where there is no evidence or circumstances which shed a favourable light on her evidence.

384.  As far as the Eco-Tek charges are concerned, I take into account the peculiar transfer of shares to IWK.  Whilst I recognise that there are people who may make false allegation against others without apparent motive, as far as the Eco-Tek case is concerned if what the defence suggested is the truth, Iris should be very grateful to D1 and there is no convincing reason for any need to make false allegation against her, as what Iris received would be lawful and legitimate.

385.  As far as the PCH charges are concerned, the evidence of Becky and Tang add weight to her evidence.  Despite minor discrepancies, the consideration of which I have set out, their evidence interlaces so well with one another.  The evidence of the trio of witnesses fits in the jigsaw very well.  In my judgment, it is a result which cannot be achieved by any architect of lies.

386.  The presence at the bank of Iris and D1 at the same time and the discovery of cash in the safety box are something not to be ignored.

387.  I also take into account the odd overall arrangement of the share options.

388.  All in all, I find Iris an honest witness who has been trying her best to relate the truth of the matters to the court.

Court adjourns - 11.38 am

Court resumes - 12.11 pm

All defendants present. Appearances as before.

PW2 - Wong Wai-ming

389.  The main part of his evidence is in relation to the visit to Dongguan.  I find the crux of this part of his evidence largely consistent with that of Iris and Tang.  Any inconsistencies that exist are minor and immaterial.

390.  In cross-examination, he has been asked whether there had been discussion with Iris about the evidence she was giving.  He said Iris had only told him about her experience in court and she found questioning from counsel very annoying.  They had not discussed on the content of the evidence because he learnt from television programme that it should not be done.  Bearing counsel’s comment on this reason in mind, I do not find this aspect of his evidence cause me any concern.

391.  When he was in ICAC, despite his request he was not allowed to see his wife, Iris, until after he had given a witness statement.  In the circumstances of the case there is nothing to cause me to start to think that the practice was improper.  He said he had not been given the statement of Iris before he made his own statement.

392.  I also do not consider there exists material inconsistencies between his evidence and that of Iris in relation to the evidence covering the period when she was in custody of ICAC.

393.  I find PW2, Iris’s husband, an honest witness.

PW3 - Tang Wai-shing

394.  Learned counsel for D2 made harsh comment on his credibility.  I have taken care in assessing whether he is credible, in particular as his evidence, if accepted, supports certain area of that of Iris’s.

395.  He was also testifying under immunity and I exercise extra caution for the reasons I have mentioned earlier in relation to this category of witnesses.

396.  He insisted that he was only a driver of D1 despite there were various documents signed by him stating that he was occupying other more senior posts.  There was suggestion that he was attempting to understate his position with a view to be consistent with the main line of the prosecution case.

397.  Whilst he denied certain employment arrangements as stated in the employment letters reflect the real situation, he did not conceal his performance of duties in relation to Eco Trap, which was in fact the only major task other than driving that the defence was able to point out specifically and concretely.  He added that he had to perform whatever duties assigned to him by the boss even though he felt it was unfair.

398.  He denied he had been employed as an investment manager in Pacific Challenge Investment despite the existence of an employment letter and tax returns.  I note that apart from the documents there is nothing concrete to show that he had really performed the duties of an investment manager.  There is no convincing reason why, without any experience in that field, he would be so employed.  His previous experience was mainly on engineering and technical aspect, there is no convincing reason why he would suddenly have become an investment manager.  In addition, despite the title, his income remained by and large unchanged at $12,000 a month.

399.  He said he had no knowledge to have replaced D2 as a director of Ideal Far East despite it was so shown in official documents, such as records in the Companies Registry.  It was also stressed by defence counsel that the only other director was a company.  It was submitted that it goes a long way to show that Tang was a staff who was more than a driver and was trusted even by the new management of PCH.  Bearing this submission firmly in mind, I will not speculate as to the exact reason or basis why Tang was appointed a director.  Apart from the company records, there is no other evidence showing what exactly Tang had done in the capacity of the director.

400.  In normal circumstances, being a director is a recognition of the company and an honour to Tang; I see no reason why he had to lie if he had genuinely took up the post of a director.  In this regard, I note his evidence that he trusted Iris very much and was prepared to put down his signature on whatever documents given by Iris to him to sign.

401.  In a bank document he put down himself as a sales manager of a company called IDF Limited.  Learned counsel suggested that IDF indeed was Ideal Fast East and submitted that Tang was trying to conceal his position as a director.  The document was just for the purpose of opening a bank account.  As Tang said there was nothing to gain to make a misrepresentation and he had just put down something to comply with the formality.  I accept his explanation and note that he had only represented himself as a manager, not a director.  This was not an honest act, but is not so material as to damage his credibility.

402.  In any case, this matter, which happened after the incident in question and has little connection with D1, bears little significance and does not undermine the credibility of this witness.

403.  As regards the suggestion that Iris might have pocketed his proceeds, in my judgment it would have been impossible; if Tang had the slightest belief that he was the beneficial owner of the share options, he would not have complied with what Iris said so lightly.

404.  In connection with the handling of share options proceeds of Becky and himself I note the alleged inconsistency with the evidence of Iris, which I have considered earlier.

405.  As regards his account of what he had done, nothing peculiar had been brought to my attention.  I find the account he gave not unreasonable and is consistent with what a person knowing he did not have the real interest in the proceeds or regarding himself only as a chess would have done.

406.  There exists no material inconsistencies with Iris and her husband about their evidence in relation to the Dongguan trip.

407.  If he had been a genuine grantee of the share options, it means that he had just obtained a lawful and legitimate benefit. It was his right to dispose of the proceeds in any way as he wished.  It is more than reasonable for him to tell that he had disposed of the proceeds since he would have no worry to do so.  There was nothing drawn to my attention to suggest, let alone explain, why he did not do so, but had to tell lies to implicate D1 who had been a considerate boss to him.

408.  Having considered the whole of the relevant evidence, I also find Tang an honest witness.  Nothing in the course of examination causes me to doubt his credibility.

PW4 - Becky Poon

409.  The most important aspects of her evidence are: D1’s conversation with her in relation to the share options, timing of that conversation, what she was told to do in connection with the share options, and her subsequent withdrawal of the proceeds and handing it over to Iris.  She was also testifying under immunity and I remind myself of the need of extra caution.

410.  During cross-examination, she admitted that it was her understanding that since she had been arrested she was to give a witness statement.  She thought she had no option, but stressed that this thought was not based upon anything said or done by ICAC.  She did not feel she had committed any offence and she felt, as she knew something, she had to tell what she knew.  Though she admitted she wanted not to be prosecuted, she categorically denied that she was anxious to assist ICAC to get immunity. Having considered the whole of the relevant evidence, I am satisfied that Becky had given a statement in her free will and was not under any improprieties.

411.  She was not able to recall some matters which took place in ICAC, but she maintained that she could recall what happened in 2002.  The reason she gave was that it was the only occasion matters so special had happened to her.  I find her explanation convincing.

412.  She was only cross-examined by learned counsel for D1.  It was put to her that when she was interviewed under caution, she told ICAC officers that she could not recall too well the content.  She said what she meant was that she could not tell the exact wording and the details, but she could recall the gist of the conversation.

413.  She was confused about which was exactly the company which employed her in a specific period of time and appeared to be puzzled when she was shown letters of employment with her signature, which are inconsistent with her testimony.  She maintained that in whichever company she worked, she mainly performed the duties of personnel and administration officer and she did perform cross companies duties.  The relevant observation I mentioned when I assessed the credibility of Iris is applicable.  I do not find Becky evasive or dishonest in giving this aspect of evidence.

414.  She gave an account of what she was told to do after share options had been granted to her, including attending meetings.  She also described her reaction and feelings when she was told she was to be granted share options and later that she was to give away the proceeds.  She said on both occasions she was surprised.  I found her reaction on both occasions reasonable in the circumstances.

415.  The main evidence which indicates that the minutes of the 4 February Board of Directors meeting might have been backdated comes from Becky.  She said that D1 talked with her in relation to the share options on a day in April 2002.

416.  However, when she was interviewed under caution, she said the date should be between the end of 2001 and beginning of 2002.

417.  Besides, the date she mentioned in testimony is contrary to other evidence, in particular the share options documents she had signed.  In this regard, I note the cumulative effect of the evidence of the trio of witnesses is that the date put down might not be the actual date the document was signed.

418.  It appears that the evidence of Becky on the date was a result of reconstruction based on her memory that it took place after D1 had moved to work in the Westlands Centre office.  Reconstruction may sometimes make the evidence more reliable than mere memory so long as it has a sound basis.

419.  Relevant tenancy agreements show that Eco-Tek should have moved in the new office much earlier.  Becky herself made a record dated 28 December 2001 that she had made arrangement to redirect mail. However, Becky also said D1 moved in later than others, but she could not remember exactly when.  I also bear in mind that if it took place in April, it would be close to the time D1 was to give birth to her baby.  Her daughter was born on 6 May.

420.  I also note the point raised by the prosecution that PCH did not mention in their earlier Announcement, including the one on 12 April 2002 anything about the share options grant and the first time it was mentioned was in the Announcement dated 22 April (Exhibit P17).

421.  On the other hand, there is evidence which the defence pointed out is contrary to her evidence.

422.  The monthly return of PCH in March had disclosed the share options.  The first one submitted did not mention the share options grant.  The information was included only in its amendment.  Whilst it is not very clear when the amendment was submitted, on the whole of the evidence I accept that it could be in March.

423.  I also take note of the date when Wai Chee-leung exercised the share options.  The letter by which he exercised the share options was dated 9 May 2002, which was just over three months from 4 February, the earliest time when the share options could be exercised.

424.  Whilst reliability of this aspect of her evidence is subject to further scrutiny, I find that Becky had been honest when she testified and tried her best to tell the court what she believed was the truth.

425.  Becky said D1 told her that if necessary she should stand on her side in shareholders meeting to help her.  It was submitted that in the circumstances then prevailing, there would be no need to ask Becky to attend meetings and help D1 as she asserted.  This matter alone does not cause me concern.  I find it inconceivable that she would have invented this piece of evidence.

426.  Learned leading counsel criticised that the content of the conversation which Becky related was highly ambiguous.  In this regard, I note that the conversation concerned an area and concept which were unfamiliar to her and I am satisfied that Becky had not been deliberately ambiguous or evasive.

427.  She admitted that she had spent some of the amount left in her bank account after handing over the amount as requested by Iris.  She declared the whole proceeds of the share options in her tax return. I have considered whether this is an indication that she was indeed the beneficial owner of the share options contrary to what she testified.  I find this matter alone does not necessarily contradict her evidence and is not material enough to affect her credibility.

428.  There was a request of re-issuing of the cheque for payment of the proceeds to her.  It is unclear why this was necessary. Becky herself also could not explain.  The second cheque issued to Becky was deposited into her account about a week later than the other grantees.  Learned leading counsel commented this as suspicious and submitted that if D1 was the beneficial owner, she would have avoided the delay.  I do not consider this matter has any significance so as to affect the credibility of Becky.

429.  Becky said that upon withdrawal of the proceeds she retained some $187,000 for the purpose of tax payment, as told by Iris. The amount represented about 22.5% of the proceeds, higher than the tax rate. Becky said it was Iris who made the calculation.  Iris in turn said D1 told her the tax amount would be about 15 to 20%.  This is obviously not accurate. Learned leading counsel submitted that this allegation against D1 is not true since she would not have made such a mistake.  Becky said as a matter of fact she was required to pay tax for the proceeds.  The fact that she was permitted to retain an amount higher than the tax requirement does not cause me to doubt the credibility of Becky, or that of Iris.  If there was an implicit reward, it does not surprise me.

430.  As for Iris, Becky was criticised for failing to recall certain events or conversations which might have taken place in ICAC. For similar reasons I mentioned when I assessed the credibility of Iris, these matters do not cause me to doubt the credibility of Becky.

431.  Despite the matters aforesaid, I do not find there exists anything by itself or having a cumulative effect with others, which cause me to doubt the credibility of Becky.

Court adjourns - 1.00 pm

Court resumes - 2.36 pm

All defendants present. Appearances as before.

Other prosecution witnesses

432.  Though the defence was not accepting every aspect of the evidence of individual prosecution witnesses, challenge of credibility had not been an important concern in cross-examination of them. Having considered the whole of the relevant evidence, I find each of the other prosecution witnesses honest witnesses.  If there is anything which is relevant to the assessment of credibility of a witness or consideration of the case, I will mention it at a later stage.

Defence witnesses

D1

433.  Assessment of credibility of D1 is also very important.  If the crux of what she said is true, or may be true, or is capable of casting a reasonable doubt in the matter, she must be acquitted. Consequentially, the prosecution will be unable to prove the case against D2 and D3 as well if the evidence of D1 is relevant.

434.  In the course of assessing, I bear firmly in mind that D1 is a person with a clear record.

435.  I have also borne in mind the overall surrounding circumstances which I have outlined when I assessed the credibility of the prosecution witnesses, as well as what counsel set out in his submission, in particular those in relation to inherent improbabilities of the prosecution allegation.

436.  I have paid special attention to the evidence that at the material time D1 was suffering from ill health and seldom attended office, and there is no evidence to indicate that D1, her companies and any of the defendants were in financial difficulties.

437.  I also note that there is evidence, which the prosecution did not seek to dispute, that D1 is a person who was prepared to give up fringe benefit, bonus, and payment in lieu on termination, when she felt it right to do so.

438.  It is important to note that the prosecution is not able to prove that all of the grantees were not real beneficiaries and indeed evidence clearly showed that the grant to Wai Chee-leung was real.

439.  I also bear in mind that in granting share options, PCH incurred little extra cost as a measure of boosting morale, and indeed would receive an income from payment of the exercise price.

440.  The new PCH management also granted share options and grantees included staff earning a monthly salary of $10,000. Whilst I bear this in mind, at the same time remind myself that without evidence I should not speculate as to the basis on which and the circumstances in which share options were granted to any particular staff by the new management.

441.  I also note that Mega Land did not object to the share options grant when it was told.

442.  When Kandy Profits learnt about the share options grant, it raised no concern.  In this regard, I also note the evidence that normally such grant would not affect the overall price Kandy Profits would offer in the acquisition.  Besides, if there were secret dealings in the matter, Kandy Profits would not be able to know.

Eco-Tek matters

443.  The essence of the evidence given by D1 in relation to Eco-Tek is that the shares to Iris was a gift to her and she was the real beneficial owner of the shares.

444.  The prosecution submitted strongly that it is wholly unconvincing and out of proportion that Iris deserved to have 8,844,800 shares of a company which was going to be listed.  Taking into consideration the fact that it was uncertain whether the application for listing would be successful, if successful when it would take place and how much the shares would be worth, I agree that this observation is sound.

445.  The company management must have certain anticipation of the value of the shares.  Despite the uncertainties, the shares have potential value and in reality it turned out to be quite substantial.  In any case, allotting of shares was meant to be a benefit, not a detriment or burden to the staff.

446.  Even accepting for a moment that the work performed by Iris was as described by D1, they were mostly low level administration work.  There would have been many ways to show appreciation to Iris for the loyalty and assistance to D1; giving her such a large quantity of shares was in my judgment out of proportion.

447.  It can be seen from the Prospectus (Exhibit P76) that Iris was going to hold 1.6% of the shareholding immediately after completion of placing, whereas the two directors, D2 and D3, were going to hold 0.1% and 3% respectively.  Whilst I fully recognise that this was a commercial judgment of D1, taking into consideration the nature of work said to have been performed by Iris, I do not believe it was a gift to her.

448.  D1 said that Iris had argued with her for a higher percentage of allotment.  This is inconsistent with her own evidence that Iris initially requested to buy shares as an investment.  Whether this latter matter is true or not, there is no evidence which shows that Iris had any expectation to be granted shares.  As such, I see no reason why Iris would feel aggrieved about the percentage.  I find it an attempt by D1 to tailor the evidence to explain the indisputable fact of change in percentage of allotment of shares to Iris.

449.  The reason stated in the Prospectus for giving Iris the shares was incentive.  What is stated in the Prospectus must have been an expression carefully chosen.  If it was really meant to be an incentive, it is reasonably expected of an experienced businesswoman like D1 to have certain understanding, if not asking for commitment, with Iris that she should continue to serve in the company.  There was none.

450.  In fact, Iris only worked for Eco-Tek for less than three months after its listing.  On 1 March 2002, she was transferred to work for Pacific Challenge Investment.  The move was inconsistent with the assertion that the shares were meant to be an incentive.  It was submitted by the defence that the move was simply rotation of staff between companies owned by D1 to suit her need.  I note that it is the evidence of D1 herself that by March 2002 her interest in PCH had been diminishing.  There was no convincing reason why she allowed the move of a staff, whom she said she considered to be so important, to leave her growing company.

451.  Whilst D1 stressed that she had been following the example of her father in sharing with staff the fruit of success, it is inexplicable that none of the more senior staff, apart from D2 and D3, had been given shares.  She produced evidence to show that she had given shares to staff in other companies as well (see Exhibits D1-81 to D1-84).  Whilst it is true that shares had been given out, the staff concerned were people occupying much more important positions than Iris.

452.  I note the submission that it was reasonable to give Iris shares to provide her with incentive to leave the stable job in Chen Hsong.  I bear this in mind, but in consideration the whole of the evidence should be taken into account.

PCH matters

453.  D1 said she was told that share options were granted to alleviate the problem of low morale and high staff turnover.  The prosecution commented that this is hearsay.  In my judgment, it is admissible at least to prove the belief and state of mind of D1.  The same applies to other matters for which the prosecution made similar comment in paragraph 177 of their submissions.

454.  The prosecution submitted that there is little objective evidence to support the assertion of high staff turnover problem. The only notable departure was Wilfred Wu.

455.  According to D1, she was told of the high turnover problem.  The problem would not have been obvious to her when she was still actively in charge of the company’s affairs.  If she had really been so told by others at a time when she as affected by her ill health, it must have caused her alarm the situation had turned back so rapidly.  The calm reaction as she described is just too unreasonable to be worth any degree of belief.  I find it an attempt of D1 to try to make up an excuse for the grant of share options and her innocent belief of its genuineness.

456.  D1 painted a clear picture that not only had she not been involved in the selection of the grantees, she had indeed little interest to know who they were.

457.  In my judgment, such a degree of indifference is impossible, even taking into account the personal circumstances she was in. She was the major shareholder of the company and the matter would have quite an impact on her interest even taking into account the dilution effect cannot be said to be substantial.  A major shareholder like her is reasonably expected to have at least enquired why the staff on the list deserved to have the benefit which would affect her own interest.  Even though she had shown in the Mega Land deal her intent to depart, such a degree of indifference is not believable.

458.  She said she had informed Mega Land about the share options grant; it must have been in her own interest, and as an experienced and successful businesswoman she must know care had to be taken about this matter so as not to disrupt the deal.  She had to be prepared to answer queries which the opposite party would like to make.

459.  I do not believe a person in D1’s position would have such a complete reliance on the decision of the Board of Directors and displayed such an indifferent attitude.

460.  The prosecution made strong comment that most people on the list did not deserve the grant of such an amount of share options.  In consideration of this matter, I bear firmly in mind that this was entirely the discretion of the Board of Directors.  It is also not for the court to say, at least in the present case, that giving commission at a higher rate as suggested by the prosecution is a better measure than granting of share options.  However, reasonableness of the matter is what the court should take into account in assessing credibility.

461.  In this connection, I bear in mind that at the Board of Directors meeting that approved the grant, an INED was regarded to be present by way of conference call.  If the merit of each individual staff being nominated was required to be considered, a conference call is no comparison to physical presence in the meeting.  Besides, there is no evidence as to what exactly had been going on apart from the confirmation letter of the INED, Mitsuo Mituishi (Exhibit P188).  I have no doubt that the decision was confirmed by the INED.  The question was what he had been told.

462.  The defence stressed that the share options had been granted to staff in other companies connected with the defendants, in particular, D1.  Benson Chan also said that there were cases where share options were granted to staff not at high rank, such as secretary.

463.  On the other hand, the prosecution pointed out that from the evidence adduced by the defence, none of the companies connected with the defendant had granted share options to junior staff, thus at least showing that granting of share options to junior staff was not something ordinary to this group.

464.  The prosecution took issue about the grant to Becky, Tang and the defence witness.

465.  As far as Tang is concerned, he received quite a humble salary in Eco-Tek for driving and duties in connection with Eco Trap. For the reasons I have given before, I do not believe he had really performed the duty of an investment manager.  In any case, even when he was so employed, according to the record such employment started in November 2001 and the salary was $12,000.  D1 said he had to work part time for Eco-Tek to supplement his income.  In these circumstances, it is hard to believe that the Board of Directors genuinely considered what Tang was doing for PCH group deserved a distinct recognition.

466.  Even if accepting D1’s evidence that she had been told Tang did introduce business to the company, she did not know any further details.

467.  All these matters were known to D1.  I do not believe she would have the attitude she said she had when she came to know that share options had been granted to Tang.

468.  The situation of Becky is similar.  It was in D1’s knowledge that she was only a personnel and administration officer and had started to work in PCH only since 1 June 2001.  Becky and D1 had testified. There is nothing to indicate that Becky had done anything so valuable to the company or so outstanding that the Board of Directors considered necessary to grant her share options.  Becky herself said she was surprised to learn of the grant to her.  As in the case of Tang, it is hard to imagine D1 did not even feel the need to ask, but readily accepted that she was a suitable candidate.

469.  As regards the Mainland grantees, all of them came from a subsidiary in which D1 had limited knowledge.  There was a lack of basis for her to think that they were suitable candidates.

470.  Besides, whilst fully respecting that it was the discretion of the Board of Directors, the fact that none of the staff shouldering heavier responsibilities in the company was on the list should reasonably have called for queries from a person in the position as D1, in particular if she really had in mind the problem of morale and high staff turnover.

471.  D1’s explanation that she was not well and that she had full trust in the Board of Directors is far from convincing.

472.  It has been submitted that there were no queries even from authorities like the Stock Exchange and SFC, and other professionals involved.  It must be noted that the role and duty of each of them was limited.  Their position was unlike D1 whose financial interest had been affected.

473.  The prosecution submitted that D1 tried to distance herself from the sham, whereas there is evidence to show that she maintained active interest in PCH business and affairs even if she came to office much less.

474.  The prosecution quoted the evidence from PW36, Mr Cassidy of Anglo Chinese, who said he had no recollection that D1 had any difficulty in attending any of the meetings between the two of them in the course of takeover.

475.  PW6, Dorothy Yim, the company secretary, said she saw D1 in the office about once a month, even at the late stage.

476.  I am satisfied that around the time the share options was granted, D1 was involved much more in the office work than the picture she tried to paint.  In any case, I believe PW6 did keep D1 informed of the whole takeover matter, since it was a reasonable thing for her to do.

477.  The prosecution also pointed out that D1 had signed documents during the period when she said she was absent from duty.  The documents include a notification to IRD in relation to Tang (Exhibit D1-2B). It was signed on 30 April 2002, about a week before her giving birth to her baby.  She also signed an Eco-Tek cheque dated 5 March 2002 to Iris (Exhibit D1-10), the shares certificate dated 17 May 2002 to Wai Chee-leung (Exhibit P198), the PCH letter dated 27 June 2002 to the auditor (Exhibit P154) and certain notices required under the Securities (Disclosure of Interests) Ordinance (Exhibit P154).  I agree that signing of documents of different nature and degree of importance is an indication of involvement in the business, however, in view of the small quantity of the documents quoted this point should not be given undue weight.

478.  D1 said that due to her condition she did not draw any salary from PCH between December 2001 and February 2002.  Exhibit D1-54 was produced to prove this fact.  However, the document also shows that during the same period whilst D1 did not receive any salary, the salary of D2 inflated from $30,000 to $380,000 which, incidentally, amount to the aggregate of the original income of D1 and D2.  The explanation D1 offered was that there was a need for another person to take up her responsibility.  Since D2 had taken up the responsibility and was in charge of the company, he should receive appropriate remuneration.  During those days, the other director, Teli Chan, was frequently out of town to satisfy her migration requirement.  I agree to the submission of the prosecution that the salary arrangement was quite odd, but there is insufficient evidence to prove that it was false.

479.  Having considered the whole of the relevant evidence, I do not believe that D1 had taken so little interest and had so little involvement in the business of both Eco-Tek and PCH as she had described to the court.  In giving evidence this way, she tried to distance herself from the grant.

480.  D1 gave an innocent account of her involvement with the safety box, an area of evidence which the prosecution relies heavily upon.

481.  I do not consider the explanation she gave for going to the bank on that particular date credible.  I accept that Iris had informed D1 that a safety box was available in that particular branch, but there is nothing in evidence which indicates that the opening of the safety box had to take place on that day.  If it was Iris who asked D1 to go to the bank on that day, it is impossible that they did not meet at all.

482.  The undisputable fact is that both of them were in the same bank at the very same time.  Would it be just a coincidence? Having considered the whole of the relevant circumstances, I do not think so.

483.  D1 said that the case of $77,400 which ICAC found in the safety box after her arrest was gift for her son from friends in Taiwan.  Her son was born in June 2000 and she received the money sometime in 2001, which was said to have been blessed.  She kept the money at home and it had not crossed her mind that she should keep this money at a safer place.  She only asked Iris around June 2002 to look for a safety box after she had received jewellery gift for her newborn daughter.  To a rich person like D1, the sum might not be a great deal of money.  However, she said it had much sentimental value to her and she wished to keep the same money until her son grows up since it was blessed.  If that was true, she should have kept it in a safer place much earlier.  I do not find the account for the source of the cash credible. In reaching the decision, I take into account that all the banknotes found were issued before 2002.

484.  I do not believe in the matters of importance on which D1 had testified.  I find her not an honest witness and reject the part of her evidence which has exculpatory effect.

The defence witness

485.  His evidence relates directly to the PCH set of charges.  If what he said is true, or may be true, it means not only that the prosecution is unable to prove that the share options granted to him was not genuine, it also casts a favourable light to the defence case and damages the credibility of Iris.

486.  In assessing his credibility, I note that he was able to produce documents to support his testimony.

487.  He said that he had genuinely been granted the share options, upon being nominated by the management of Long Heng.  From the evidence, we heard the purpose was for retention of him and recognition of the contribution he had made to the company.  In this regard, I bear in mind that Long Heng did contribute much to the business of PCH.

488.  However, what contribution could the defence witness have made to the company at the time the grant was decided which attracted the attention of the management in Long Heng and recognition of the PCH management?

489.  The defence witness started to work for Long Heng in October 2001, that means at the time he was nominated for the share options he had only worked in the company for four months.  I consider what he could have impressed the management in this initial four months.

490.  He said he was paid RMB1,000 per month, but on top of that he received a commission equivalent to 1.5% of the sales he achieved.  The commission was calculated every June and December, based only on the business for which payment had fully been made and settled.  He received his first commission in June 2002, the amount was over RMB30,000.  Before he left Long Heng, having worked there for about a year, he received another amount of commission of about RMB10,000.  No record of these payments is produced.

491.  A commission of RMB30,000 means RMB2 million of business fully paid.  The business he had secured was substantial.  However, it must be noted that the defence witness did not receive any commission when the first commission was due for calculation in December.  He admitted in cross-examination that business was better at later stage, which is a common phenomenon for a newly appointed sales personnel, in particular as he had only worked in Dongguan for a short time before he joined Long Heng.  Whilst noting the possible reason for no payment of commission in December 2001 might have been that business he had secured was not yet paid, in my judgment there can be no valid and convincing reason that the management found the performance of the defence witness so impressive that he should be nominated to receive the share options.

492.  Notwithstanding the submission that the share options granted would only become a real benefit when the market price is higher than the exercise price or there is a general offer, and neither situation could be expected, if the grant is genuine the management is reasonably expected to choose only those who are deserved.  In my judgment, there was just no track record to justify choosing the defence witness.

493.  Besides, the defence witness received the same amount of share options as Wai Chee-leung, who was said to be the director of corporate finance and had worked for PCH since 1994.  The arrangement is just too unreasonable to be credible.

494.  Besides, the grantees did not include any of the management staff in Long Heng whom the defence witness mentioned.  It is incredible that if share options were to be granted to retain staff in this factory which had contributed much to the profit of PCH, none of the senior staff was included.

495.  The account which the defence witness gave for his receiving of the proceeds for his surrender of the share options is also incredible.  The amount of money he was to receive was substantial to him. Even bearing in mind the foreign exchange control, I find it incredible that he had not even tried to explore whether there were safer ways for him to obtain the proceeds than to receive the whole sum in cash.  Worse still, instead of receiving it personally, he agreed just too readily that it could be left with the office staff.

496.  I also find it too unreasonable to believe that he had accepted the purported reasons for receiving almost $200,000 less than the original proceeds amount.  He was not an unsophisticated and inexperienced person.  He was well-educated and had worked in various fields including selling commodities in different places.  It is incredible that he had not even raised further queries and asked for proof of the need for tax payment and charges, the explanation he said Iris provided to him.

497.  He exhibited evasiveness when he said he did not count the money when he received it.  He was receiving the money not directly from Iris and in any case there was no basis for him to have such a high degree of trust in Iris and the arrangement.  The sum was substantial to him.  It would not take much time to count; according to him it involved just about 600 banknotes.

498.  Without any record to assist him, he said he could recall that the date he received the telephone call from Iris was 16 August.  It was indeed the day on which Iris visited Dongguan.  He was not able to give a convincing reason why he was able to recall the date which took place in 2002.  Even though receiving such a large sum of money was something important, the date of receiving it was not.  I do not believe he could have the date in his own memory.

499.  He produced a receipt (Exhibit D1-74) which he said was for the proceeds of the share options.  When Iris was cross-examined, she said she had seen the receipt but she did not recall the circumstances and by whom it was shown to her.  Her evidence shows at least that she had come across this document in the course of her work.  And importantly, it is not something recently invented.

500.  According to the defence witness, this receipt was a document formally produced to him for signature after he had written out a receipt for the proceeds when he received it.  Some days later, he was told that the written receipt was not proper and a printed one was sent from the head office for him to sign.  What caused me concern is the simplicity and lack of details in the document.  It is only stated that, “I hereby confirm that I have received the money of the share option from Ms Yip Yuk-chun.”  Not only that the content lacked the precision which is expected of a document of this nature and importance, quite inexplicably the amount of money received is not stated. A receipt protects the interest of both parties not just the payer.  I do not believe a person as experienced as the defence witness could have agreed to sign a receipt without stating the amount, especially as he had by then discovered what he received was less than he had expected.

501.  The defence suggested that this might have been a creation of Iris to conceal the fact that she had pocketed part of the proceeds and the grantee had only received a portion of the proceeds.  It was categorically denied by Iris.  I find it inconceivable that having pocketed some money in this manner, Iris could convince the company with this document that she had discharged the duty.

502.  I do not believe in what the defence witness said as to the circumstances in which this document came into being and its purpose.  I do not accept that this document is the receipt of the proceeds as the defence witness asserted.

503.  The defence witness said he kept the cash of $610,000 at home for about four months.  His explanation for not keeping, what to him was a substantial sum of money, in a bank is that it was too inconvenient and troublesome.  Bearing in mind the risk involved and the importance of this money to the defence witness, I do not believe he had really kept the cash at home.  It is just a convenient excuse in a situation where there is no other evidence of his possession of the money.

504.  I have considered the evidence of the defence witness about how he used the proceeds.  He said he entered into an agreement to buy an apartment in Shangtung for the price of RMB385,000.  He further said he had paid in Hong Kong currency.  However, the transaction did not complete since the original owner failed to comply with certain requirement.  He obtained a full refund.

505.  The significance of this aspect of the evidence is that judging from the routine income the defence witness said he could earn, this was too large a sum of money and is therefore consistent with it being part of the proceeds.  The sale and purchase agreement (Exhibit D1-110) and the cancellation agreement (Exhibit D1-111) were produced and there is no direct evidence to prove that these two documents are false.  However, the documents just contained the signature of the two parties.  No lawyers or any third party seem to have been involved.  There is not any form of accreditation.  Besides, I find it odd that full payment had been made before the transaction of this nature was completed.  In my judgment, this aspect of the evidence does little to support the assertion that the defence witness did in fact receive the proceeds.

506.  The defence witness further said that he then used part of the money to redecorate his home in Shangtung and part of it on his company.  He said he is still running his company, Huaqing, in Dongguan. He is its legal representative and earned a nominal salary of RMB12,000 a month.  The company was making a net profit of about RMB1 million-odd in the past few years.  Although he was entitled to a share of the profit he did not take it but kept it for the ongoing running of the business.

507.  In this regard, he produced the following documents:  tax registration certificates of Huaqing, dated respectively 15 December 2006, 15 November 2006, 8 July 2010 in each of which he was stated as the company legal representative (person in charge) (Exhibits D1-112 to D1-114), certificate of enterprise code in relation to Huaqing in which the effective period is stated to be 26 March 2007 to 26 March 2011, certificate of organisation in relation to Huaqing in which the validity period is stated to be 15 March 2011 to 15 March 2015 (Exhibit D1-116), and two profit statements in relation to Huaqing which show the company’s profit from the year 2008 and 2010 (Exhibits D1-117 to D1-119).

508.  The documents show the existence of Huaqing which has been making good profit in recent years and the defence witness was its legal representative at least in 2006 and 2010.

509.  It is the evidence of the defence witness himself that the company was set up by a cooperation of his colleagues and himself. The business was difficult in the beginning.  When he returned, he was entitled to only a share of the profit.  I find the documents fall short of supporting the defence witness’s verbal assertion of his substantial role in the company. They also provide little support to the account of the defence witness that he had received such a large sum of money back in August 2002.

510.  Having found the material parts of his evidence not credible, I found the defence witness dishonest when he testified and reject his evidence to the effect that he was a genuine grantee of the share options and had received the proceeds upon surrendering of the options.

D2

511.  On the whole, his record of interview is a mixed statement.  Following the case of R v Sharp [1988] 1 WLR 7 and the subsequent cases which approved its approach, I considered the whole statement and decide where the truth lies.  If the exculpatory part of his statement is true or may be true, he must be acquitted.

512.  In consideration, I bear firmly in mind that D2 is a person of good character.

513.  I also take into account that when D2 was interviewed, he did not have much time to think over the matter which took place several years ago, he did not have the opportunity to consult anyone, and he had no record to refer to.

514.  His statement covers the Board of Directors meeting which approved the grant of share options and the list of grantees. When asked had he come across the list, he only said he thought so.  If this had been a genuine exercise, he, as one of the two directors who were physically present in the meeting, should have taken much care in making the decision.  A much more definite answer is expected.  I find D2 evasive.

515.  D2 said that amongst the grantees, he knew Liu Chung-laung, Becky and Tang.  He did not recall exactly why Becky deserved granting of share options apart from saying that her case was similar to that of Liu Chung-laung.  Liu Chung-laung was about to leave the company.

516.  This was the first time PCH had ever granted any share options.  The list was not long, there were only 10 grantees.  Becky was one of the grantees he personally knew.  As far as he knew, she was performing personnel duties.  If the grant to her was genuine, it was reasonable to expect him to have given careful thought as to why share options were granted to this staff who, on the face, was not occupying a very important position in the company.  I find D2 again evasive and dishonest.  It is clear evidence of Becky that she had no intent whatsoever to leave the company.  There is nothing to indicate that D2 had been misled in any way.

517.  As regards Tang, he said department head said he was good, hardworking and that he was a manager and should be given share options. Evidence shows that he had quite a close working relationship with Tang in Eco-Tek.  In replies to SFC, Tang was stated to be an investment manager of Pacific Challenge Investment.  At that time D2 was a director of Pacific Challenge Investment and had signed documents in relation to Tang.  Besides, Exhibit D1-134 shows that Tang was taking over him upon his resignation as a director of Ideal Far East, in October 2002.

518.  Leaving aside for a moment whether Tang was primarily a driver for D1, in all the circumstances D2 must have a much deeper knowledge of Tang.  In the interview, D2 was trying to paint a picture that he was basically considering recommendation from others, not having much personal knowledge of him.  I find him evasive and dishonest.

519.  He said he knew Wai Chee-leung and Wang Hui-lin were working for the company, but knew nothing else about them.  By the same token, if there had been genuine consideration over the matter, despite the lapse of time, the answer of D2 strikes me as a surprise.

520.  I also consider it reasonable to expect him to be able to tell more about the other grantees such as Chan Shi-yuen, Chan Tse and Tse Chai-wan.  I note the evidence of D1, which was not challenged by D2, that he was the person who supervised the business of Long Heng.

521.  He admitted that the monthly return on movement of listed equity securities (Exhibit P39) was signed by him.  Basically, it was a nil return and it was silent on the grant of share options.  D2 said the document was prepared by the corporate finance and from time to time bunches of documents were put to him to sign in a rush.  Whilst fully appreciate the possibility of heavy workload of a director, I do not believe it was mere inadvertence that such an important decision, and the first time for the company, could be left out in the document without notice.  The document was dated 7 March, within a month of the big decision.  I do not think D2 was telling the truth.

522.  I do not believe D2 was honest when he said about the circumstances leading to the grant of share options, in particular the selection of Becky, Tang and the Mainland staff as grantees.  I reject the exculpatory part of his statement in the record of interview.

Court adjourns - 4.33 pm

8 June 2011

9 June 2011

Court resumes - 9.41 am

All defendants present. Appearances as before (Mr Adrian Bell, Mr Kevin Egan present).

Consideration of the case

523.  The prosecution brings the case and has the burden of proof.  They have to prove beyond reasonable doubt every element of the offences.

524.  D2 and D3 did not testify.  They were only exercising their rights.  I do not draw any adverse inference against them because of this.

525.  Notwithstanding my finding that D1 and the defence witness are not honest and credible witness, and D2 was not honest when he was interviewed under caution, and reject the parts of their evidence which have exculpatory effect, this is not a basis to reach a conclusion against the defendants.  None of the defendants has anything to prove.  The burden of proof remains always on the prosecution.

526.  There are three defendants.  I have considered the whole of the relevant evidence to decide whether the prosecution is able to prove beyond reasonable doubt the allegation in each charge against each defendant.  I considered each charge against each defendant independently and separately.

527.  In consideration, I bear firmly in mind that all the three defendants are persons of good character and without a criminal conviction record.  The propensity of each of them committing an offence is low. I also bear in mind evidence that all three of them were persons who would give up or decline to receive remuneration in situation they considered fair or suitable to do so.

528.  The alleged matters took place more than seven years ago.  I bear in mind the possible effect of the lapse of time, in particular that on the defendants.  I also warn myself that because of the lapse of time, even if a prosecution witness is honest, reliability of his evidence has to be assessed with care, in particular when there is no record or supporting evidence.

529.  In consideration of reliability of evidence, I take into account the whole of the relevant evidence, including matters which I have mentioned earlier and have considered inherent probabilities.

530.  D2 gave a statement under caution.  It is evidence against himself only and cannot be used against any of the other defendants.  Some of what D2 said during the interview is consistent with the case of D1.  In this regard, I bear in mind the case of R v Myers [1988] AC 124.  However, the effect of D2’s statement is limited since I find him not honest during the interview in which he made the statements.

Eco-Tek charges

Charge 4

531.  D1 and D3 are jointly charged with this charge of fraud.  The charge relates to the allegation of false representation to the Stock Exchange in relation to shares allotted to Iris which induced Stock Exchange not to impose moratorium period on those shares.

532.  Prosecution evidence for this charge came mainly from Iris.  I have carefully assessed her credibility and find that she is honest in giving evidence.

533.  It was submitted that the prosecution had not alleged that the allotment of shares to Chow Yuk-ngor, another employee in Eco-Tek, was false.  Be that as it may, I remind myself that in consideration of the case, I must confine myself to evidence admitted.  I am not entitled to speculate where there is no evidence.

534.  Having considered the whole of the relevant circumstances, bearing in mind the lapse of time and the lack of record, and taking into account every matter which I had considered in the course of assessing of credibility, I find the crux of the evidence of Iris truthful and reliable.  I give full weight in the evidence which Iris gave against each of the defendants.

D1

535.  There is no dispute and I am satisfied that D1 was an initial management shareholder of Eco-Tek.

536.  It was argued strongly by the defence that there is no motive at all for D1 to do all those dishonest things to avoid the moratorium period.  There was an impending relaxation of the rule.  There were uncertainties about the listing application and the value of the shares.  The quantity of shares allotted was of relatively low percentage compared with that originally possessed by D.  However, it cannot be said that there existed no financial incentive at all.  D1, who had been successful in business, would have been able to make certain assessment and anticipation of the potential value of the shares in case Eco-Tek was listed.  At the end, it turned out that just about 10% of the shares allotted to Iris worth already $370,000.  The value of the shares was substantial.

537.  Eco-Tek was founded by D1 in October 1999.  The Stock Exchange received the listing application from Eco-Tek through its sponsors on 7 June 2001.  Amongst the application papers was an application for waiver from strict compliance with certain GEM Listing Rules requirements, including that in relation to moratorium period.  D1 said she had been advised that such application was made as a matter of course.  In all the circumstances, I do not find the requirement of moratorium period was something not of concern by D1.  It is a substantial restriction on disposal of shares.

538.  Right from the beginning, it was mentioned in a draft Prospectus submitted to the Stock Exchange for perusal that shares would be allotted to Iris.  The allotment of shares to Iris was not concealed. However, there was no need to conceal; if what the prosecution alleged is true, the allotment itself was the vehicle for the unlawful benefit.

539.  The allotment to Iris and Chow Yuk-ngor attracted queries from the Stock Exchange.  The Stock Exchange asked for provision of background information of them and enquired on their relationship with the company, its directors and senior management.  Enquiries on the same issues continued for several subsequent proofs of Prospectus.  There were exchanges of correspondence.  When the Stock Exchange raised no further queries, the Prospectus was published.  The final version of the Prospectus includes the statement to the effect that Iris had interest in 8,844,800 shares of Eco-Tek and D1 held beneficially only 299,341,200 shares through certain companies and also that Iris was independent of and not connected with Eco-Tek, its director, chief executive, substantial shareholders or initial management shareholders.

540.  Listing of Eco-Tek on GEM was approved on 23 November 2001.  By that time, the rule on moratorium period had been relaxed but was still applicable to initial management shareholders.  On 20 November, the application to waive strict compliance was withdrawn.  On the basis of the information provided by Eco-Tek, no moratorium period was imposed on the shares held by Iris.

541.  In relation to the shares purportedly allotted to Iris, I find her evidence truthful and reliable and give it full weight.  I make the following findings of facts.

542.  On a day in 2001, D3 asked Iris if she could hold some shares for the company.

543.  On the day Eco-Tek was listed, upon the request of D1, she signed a form transferring 8 million shares to IWK, a company which she knew nothing about.  She received nothing financially from this transaction.

544.  Then, upon further instruction from D1, Iris sold the remaining shares and obtained $370,000.  She deposited the sum into her bank account.  About 10 days later, upon further instruction from D1, she withdrew $340,000 and later passed the whole sum to D1.

545.  I find that it was a scheme designed by D1 whereby Iris was asked to hold the shares for her.  In reaching the decision, I have considered the suggestion that the possibility that the shares were initially indeed given to Iris as an incentive, and therefore she was the real beneficial owner, and then for some reason she returned the benefit to D1.  I totally reject the possibility since it is inconsistent with the overall tone of the evidence of Iris.  She had never been told that she was the true owner of the shares and the shares would be for her disposal at her own will. Rather, she had been following instructions to deal with the shares without any query.  This is simply impossible if she was intended to be, or was the real beneficial owner.

546.  I also note that in the Notification dated 30 April 2002 from Eco-Tek to Inland Revenue Department of an employee who was about to cease to be employed (Exhibit D1-1) which was signed by D1, the allotment of shares to Iris had not been mentioned.

547.  What is stated in the Prospectus and the prior representation made to the Stock Exchange are therefore false.  The shares in question were not allotted and issued to Iris as an incentive as stated.  Iris was holding the shares for the benefit of D1, she therefore, in this context, was not independent of and not connected with Eco-Tek, its directors, chief executive, substantial shareholders or initial management shareholders.  D1 was holding more than 299,341,200 shares as stated.

548.  D1 knew full well that the whole arrangement was a sham.  False representation had been made to the Stock Exchange in the course of the listing application.  The fact that she had interest in part or in whole of the shares of Eco-Tek held under the name of Iris was concealed from the Stock Exchange.  There is no direct evidence as to what she had actually done in the course of making the false representation.  However, taking into consideration her position in the company and her concern in the matter, it is the only irresistible inference in all the circumstances that she must be aware that such representation had been made to the Stock Exchange and have given her consent in making such a representation.

549.  PW22, Benson Chan of Celestial Capital, said he had arranged for correspondence with the Stock Exchange be copied to D1 and D3.  At the end, the Prospectus was approved by the Board of Directors meeting on 21 November 2001 in which D1 and D3 were present.  She put her signature on the final version of the Prospectus (Exhibit P76) which includes the false information.  She must be aware that false representation had been made.

550.  In doing so, D1 must be dishonest, by applying the test of Ghosh, and she must have the intention to defraud.  She must know her act would cause the staff of the Stock Exchange to act contrary to their public duty.  I also hold that she must have intended this result.

551.  I further find that, with the deceit, D1 induced the Stock Exchange when allowing the listing of Eco-Tek on the GEM Board, not to impose the moratorium period.  This resulted in a benefit to her, in that through Iris she was able to dispose of the shares which Iris held for her.

552.  According to the evidence of Iris, only $340,000 went to D1.  There is no evidence as to the final destiny of the shares Iris transferred to IWK.  However, these shares were disposed of under the instruction of D1.  D1 had enjoyed a benefit by being able to transfer an amount of shares, which worth a lot, to a party she designated.

553.  She had only been able to do so by way of the fraud on the Stock Exchange to avoid a moratorium period.  The same applies to her receiving of the $340,000 from Iris.  I find the prosecution proved beyond reasonable doubt that D1 had committed the offence in Charge 4.

D3

554.  In consideration, again I bear firmly in mind that he is a person with clear record.  He was a very conscientious and hardworking person who has built up a successful career from a humble start.

555.  There is suggestion that his level in English is not good.  Having considered the whole of the relevant evidence, and taking into account the academic standard he achieved, I reject the suggestion.

556.  Iris said D3 had asked her if she could hold some shares for the company and she agreed.  I find this piece of evidence truthful and reliable and give it full weight.

557.  The matters I considered including the following.  Firstly, was D3 talking about the same matter?  Secondly, even if Iris was holding the shares for D1, it is strictly speaking not the same as holding shares for the company.  As a matter of law, D1 and the company are two different entities and I believe this concept is clear to both D1 and D3.

558.  This was the only relevant conversation between D3 and Iris.  According to Iris, she had not sought clarification from either D3 or D1.  She had not talked with D3 on the same matter again.  I note all the comments about Iris not asking any question to clarify.  In this regard, one must not overlook that it was an interactive process.  What D3 said was not something of routine.  On one hand, Iris did not ask; on the other hand, D3 chose to leave it short and did not elaborate.

559.  Iris said this conversation took place in 2001. She did not recall when exactly it took place.  She maintained that D3 talked to her in the office, but she was not sure whether it was the office of Eco-Tek, or PCH.  She said she was working in a company of D1 and she had to work in different office premises.

560.  According to the employment letter (Exhibit D1-1), Iris was employed by Eco-Tek since May 2001 till February the following year.  It is beyond dispute that Eco-Tek considered Iris its employee during that period of time.  I note that D1 said Iris started to work for Eco-Tek before that time.  Iris also said she had started to work for Eco-Tek when she was still employed by Chen Hsong, but without any additional pay.  Indeed, evidence shows that the allotment of shares to Iris must have been decided before May 2001.  In the letter of Fong & Ng dated 21 April 2001 (Exhibit D1-3), allotment of shares to people, including Iris, had been mentioned.

561.  By the beginning of 2001, D3 was a director of Eco-Tek.  At the same time, he was also directors of other companies.  I have considered whether D3 would possibly be talking about something unconnected with the shares in Eco-Tek.  In consideration, I bear in mind that there is no positive evidence that this had been the case.  Notably, the only company in common between Iris and D3 at the material time was Eco-Tek.

562.  The following matters have happened only once: Iris had been asked to hold shares for others, shares were allotted to her, and she was told to dispose of the shares according to instruction.

563.  Iris said that after D3 had talked to her, she had attended a couple of listing meeting of Eco-Tek.  She did not know exactly why she had to attend the meetings, but she believed it was in connection with her holding of the shares.

564.  In all the circumstances, I find that D3 must have talked with Iris at a time before actual steps had been taken to allot shares to her and there was a very close proximity of time between the two matters.

565.  Being a director of Eco-Tek, D3 must have known in advance that there was going to be an application for listing by Eco-Tek. It is hard to imagine that D3, who had prior experience of being a director of other listed companies, had not been aware of the moratorium period requirement.  The application for waiver in respect Eco-Tek dated 7 June 2001 was signed by him.  He obviously was aware that D1 was subject to the requirement.

566.  D3 was heavily involved in the listing process.

567.  Benson said that he kept very frequent contact with D3 in connection with the listing matter.  Celestial Capital relied on the information provided by Eco-Tek.   Whilst I accept it might not necessarily be the case that every piece of information came from D3, I am sure D3 must have been involved in providing information regarding the shares of Iris.

568.  Benson Chan was adamant that the information about Iris being an assistant of D1 and had worked for her for eight years and that shares were issued to her as an incentive and in recognition of her loyalty to D1 came from D3.  He said he was sure because Eco-Tek had made an error stating Iris was a secretary.  D3 had discussed with him over the matter and gave him an explanation why this had happened.  Since he had to explain to the Stock Exchange, this had caused him great embarrassment.  I find this a cogent reason for the vivid and reliable memory of Benson.  Besides, there was a line of correspondence issued in the name of D3 and it is inconceivable that D3 had not played a part in it, especially as some of the documents were purportedly signed by him.

569.  These actions of D3, without more, does not necessarily mean he knew about the dishonest arrangement, bearing in mind that such arrangement would have been kept secret as far as possible.

570.  The irregularities were unlikely to be unveiled just by perusal of papers.  All the papers signed by Iris were consistent with her being the beneficial owner of the shares and gave rise to no suspicion that she was only a nominee.  This is a good reason why all the professionals involved did not find anything untoward.  By the same token, if D3 was not a party to the sham, there was at least a possibility that he was not able to find out the truth.

571.  The transferring of the shares as well as disposing of the proceeds took place after listing.  If it was a secret arrangement between D1 and Iris, D3 might not be able to know.

572.  I accept that if D1 found it fit to allot shares to Iris, D3 might have little say, let alone challenging it.  However, I do not think such a generous gesture would not have caused D3 concern, if he was not part of the dishonest scheme.  He had given up a lucrative job in Chen Hsong to join D1, but got just 3% of shares in Eco-Tek, whereas Iris, whose contribution and sacrifice were nowhere near his, got 1.6%.  There is no evidence that D3 had any sense of grievance about the arrangement.  No such grievance was suggested to D1 when she was cross-examined.

573.  D3, being a director of Eco-Tek, was holding a very important position.  Why did he ask Iris to hold shares?  In this regard, I rule out any possibility of error or misunderstanding on the part of Iris.  I am sure she had accurately related to the court the gist of what D3 had said to her.

574.  Learned counsel submitted strongly that even if the statement had been made, it was ambiguous.  I do not agree.  The message was clear.  It was about asking Iris to hold shares for the company.  “To hold” is not ambiguous.  It means clearly to every sensible person that he was not going to be the beneficial owner, he was just a nominee.  What Iris did subsequently was consistent with her having this understanding.  She said when she was told to transfer shares to IWK, her understanding was that it was related to shares D3 had asked her to hold.  Albeit it was only the understanding of Iris, in my judgment this understanding was a reasonable one. There was only one such conversation, there was close proximity in time, there was no retraction from D3.

575.  Whilst I will not go to the extent of thinking that asking someone to hold shares for the company by itself must be for an improper or illegitimate purpose, in my judgment there must be a purpose behind in making such a request.  D3 was a director of the company, Iris was his subordinate.  For D3 to ask his subordinate to do so is not something ordinary.  If it was for a forthright purpose, D3 is reasonably expected to have told Iris more about the arrangement.  That was not done.  It carried with it a sign commonly exhibited in illicit activities.

576.  This was the only time that there was such a conversation between the two of them.  They were working in the same company. D3 was aware that Eco-Tek would apply for listing.  Shares were eventually allotted to Iris, which in fact was a false arrangement.  There was a close proximity of time between these matters.  This was the only occasion when shares were allotted to Iris.  This was the only occasion when Iris had been instructed to dispose of shares which had been registered in her name.

577.  When the Stock Exchange obviously showed serious concern about the allotting of shares to Iris, in discharging his duties D3 did not make enquiries with Iris.  There is no direct and concrete evidence as to what enquiries he had made on the matter.  Despite repeated queries from the Stock Exchange, only bare information without details about the situation of Iris had been provided.  This reflects limited enquiries, if not deliberate failure, to provide further reason on a decision which was a very generous gesture to Iris even though the value was uncertain.

578.  Learned counsel submitted about the ambiguity of the statement even if D3 had said it and argued about different interpretation of what was said.  In consideration, I am of the view that the whole circumstances have to be taken into account and the statement be put in context.

579.  The conversation, in the circumstances of the case, was not an ordinary one.  It was about a director asking a subordinate to hold shares for others.  I fully recognise it is the right of D3 not to testify.  Having considered the whole of the evidence available, I find that the whole circumstances of the case supports the only irresistible inference that D3 must be aware of the sham arrangement.  What he said to Iris was in connection with the Eco-Tek shares later allotted to her.  Knowing full well that Iris was only going to hold the shares for D1, he concealed the fact from the Stock Exchange.

580.  I note that D3 had only asked Iris whether she could hold shares for the company, not for D1.  In my judgment, the matter has to be considered in context taking the whole circumstances into account.  In most circumstances, it makes little sense to ask one to hold shares for the company.  In the present case, the fact of the very superior position of D1 in Eco-Tek cannot be ignored.  Eco-Tek essentially was her company.  In any case, for so many years that followed, Iris had not been given any shares to hold for any company.  This was the only time such thing happened.

581.  In providing information to answer the queries from the Stock Exchange D3 concealed the fact that Iris was only holding the shares in question for the benefit of D1.  When he did so, he knew full well the responsibility of the Stock Exchange and the implication on the moratorium period imposed on initial management shareholding, including D1.  He was dishonest and had an intent to defraud.  His dishonest act induced the Stock Exchange not to impose the moratorium period and as a result he assisted D1 to achieve the aim of enjoying the benefit of freely disposing of the shares.

582.  Bearing firmly in mind that both D1 and D3 are persons of good character, I find the prosecution proved beyond reasonable doubt every element of the offence in Charge 4 against D1 and D3.

Charge 5

583.  In the light of my finding in relation to Charge 4, I also find the prosecution proved beyond reasonable doubt Charge 5 against both D1 and D3.  The Prospectus of Eco-Tek, a company incorporated outside Hong Kong, contains an untrue statement as set out in the particulars of offence.  Since Iris was only holding the shares as a nominee for D1, the shares were not allotted and issued to her as an incentive and she was not independent of and not connected with the initial management shareholders of Eco-Tek.

584.  It is beyond dispute that both D1 and D3 had authorised the issue of the Prospectus.  Publication of the Prospectus was approved in the Board of Directors meeting of Eco-Tek on 21 November 2001. Both D1 and D3 were present in the meeting.  Both of them had signed on the final draft of the Prospectus (Exhibit P76).

585.  In my judgment, the offence is a strict liability offence.  It is provided in section 342F of the Companies Ordinance that the person who authorised the issue of the Prospectus which includes an untrue statement shall be liable to punishment unless he proves either that the statement was immaterial or that he had reasonable grounds to believe and did up to the time of the issue believe the statement was true.  Having considered relevant authorities, in particular the Court of Final Appeal’s decision in HKSAR v Ng Po On FACC6/2007 and Hin Lin Yee v HKSAR FACC 7/2009, I find that it is a strict liability offence.  The prosecution is only required to prove that the Prospectus contained an untrue statement and the defendants had authorised the issue of it.  So long as the prosecution is able to prove to the required standard, i.e. beyond reasonable doubt what they have to prove, the defendant is guilty unless he can rely on the defence.  He has to prove on a balance of probabilities that the defence is available to him.

586.  In the circumstances of the present case, it is irrelevant since I have found both D1 and D3 authorised the issue of the Prospectus with full knowledge that it contained the untrue statement.  I find D1 the author of the dishonest scheme and D3 had knowingly acted in concert with her.

587.  Learned counsel for D3 also argued that the common law defence of honest and reasonable belief is also available.  Having regard to the Court of Final Appeal decision in Hin Lin Yee, I do not agree to this view.  In any case, in the light of my finding, it is again not relevant.

588.  I find D1 and D3 both guilty of Charge 5.

PCH charges

Charge 1

589.  It is a charge of conspiracy to defraud.  D1 and D2 are jointly charged with this offence.

590.  A conspiracy is an agreement between two or more persons to effect an unlawful act or to effect a lawful act by unlawful means. The crime lies in the agreement.  Once the agreement is made, the crime is complete.

591.  In R v Anderson [1986] AC 27, Lord Bridge said:

  “But beyond the mere fact of the agreement, the necessary mens rea of the crime is, in my opinion, established if, and only if, it is shown that the accused when he entered the agreement, intended to play some part in the agreed course of conduct in furtherance of the criminal purpose which the agreed course of conduct was intended to achieve. Nothing less will suffice. Nothing more is required.”

592. Knowledge of the facts is a necessary ingredient of the offence. The prosecution must establish to the required standard that the accused knew that the agreed course of conduct if carried out would involve the doing of acts which constitute the relevant actus reus with the relevant mens rea.

593.  It is not necessary that all the parties to a conspiracy reach agreement at one and the same time.  It is possible for persons to join a conspiracy at various stages and times provided that that conspiracy is a single, on-going one  (see R v Sheik Abdul Rahman Bux and Others [1989] 1 HKLR 1).

594.  It was also held in R v Griffiths [1966] 1 QB 589 that:

“In law all must join in the one agreement, each with the others, in order to constitute one conspiracy. They may join in at various times, each attaching himself to that agreement; any of them may not know the full extent of the scheme to which he attaches himself. But what each must know is that there is coming into existence, or is in existence, a scheme which goes beyond the illegal act or acts which he agrees to do.”

595. More recently, it was held by the Court of Appeal in Mo Yuk Ping v HKSAR [2007] 10 HKCFAR 386, that the offence of conspiracy to defraud is constituted by becoming a party to an agreement with another or others to use dishonest means: (a) with the purpose of causing economic loss to, or putting at risk the economic interest of, another; or (b) with the realisation that the use of those means may cause such loss or put such interests at risk. The offence also extends to cases in which the dishonest means caused a person to act contrary to his public duty.

596.  In determining whether the means agreed upon are dishonest, the test in Ghosh [1982] QB 1053 should be applied.

597.  I found that each of the prosecution witnesses is honest and credible but, as I have mentioned time and again, I need to assess reliability of their evidence with care, and that I did.  Having considered the whole of the relevant evidence, and bearing in mind the lapse of time and lack of contemporaneous record of most of the crucial testimony, in particular that of the trio of witnesses, taking into consideration the features I have mentioned earlier and everything said by learned counsel, I find the crux of the evidence of each of the prosecution witnesses truthful and reliable.

D1

598.  There is no dispute that D1, D2 and Teli Chan were the executive directors of PCH.  D1 was also its chairman.

599.  As at March 2002, D1 directly or indirectly held 33.52% of the issued share capital of PCH (Exhibit P141).

600.  The main concern of this charge is the grant of share options.  The grant was said to be an effort to alleviate the problems of low morale and high staff turnover.  The decision was made in an alleged difficult time of PCH.  At that time, D1, as the main shareholder, was in the course of disposing a substantial proportion of her shares to Mega Land.

601.  The share options grant was said to have been decided on 4 February 2002.  There is evidence which tends to show that the Board of Directors meeting which purports to have made the decision was not held on that day, but some time later.

602.  The evidence of both Iris and Tang has that effect.  However, in my judgment, their evidence is not solid enough to prove this point.

603.  Becky’s evidence is more concrete.  However, taking into account all the relevant matters, including what I have set out when assessing her credibility, though I find her honest I do not find the whole of the relevant evidence support a conclusion that the meeting was definitely not held on 4 February.

604.  I therefore consider the case on the basis that the meeting was held on 4 February.  As such, just as the defence submitted, there is no place for the backdating theory.

605.  There is evidence that amongst the grantees, Wai Chee-leung had exercised the share options granted to him.  Obviously, it can never be said that the whole exercise of share options grant was a sham.

606.  Besides, there is no direct evidence to prove that the Taiwanese and Mainland grantees had not received the proceeds of the share options.

607.  In the circumstances, I have considered whether the prosecution is able to prove beyond reasonable doubt that at least the grant to some of the grantees were not made under or in accordance with the share options scheme.

608.  As said, there is no place for the backdating theory.  When the share options were granted, there was only in existence the takeover offer from Mega Land.  There is no evidence that anyone had the knowledge, or even anticipation, that there would be offer coming from Yu Ming and Kandy Profits.

609.  The suggestion by the prosecution that the grant was an attempt to ward off the Yu Ming offer is, in the circumstances, lacking of force.

610.  It was submitted that in the circumstances there was no motive at all for any of the directors to take so many dishonest actions.  However, if Becky, Tang and the Mainland grantees were merely nominees of D1, there was at least a potential benefit for her to enjoy, despite the diluted effect.

611.  It turned out that each of the grantees, apart from Wai Chee-leung, was given proceeds of $835,800 upon surrendering of his share options.  From the evidence, which I accept, over $3 million of these proceeds had been handed over to D1.  It is not so surprising that one would be tempted to engage in a design which, though involved risk, brought hope of future benefit and did not involve much financial costs.

612.  The defence argued that there is insufficient basis for the prosecution to suggest that the share options were highly valuable. I accept that the exact value of the share options was unknown when they were granted.  However, it must have been viewed by the company and people concerned as something of value.  The company meant to grant them as incentive or reward.

613.  Although the share options scheme had been in place for some years, it was the first time PCH ever granted share options. The decision to utilise the scheme and its selection of the grantees must have been an important decision to make.

614.  The grant must have an impact on the share distribution of the company.  It must have also been viewed at least as a potential benefit to the grantees, despite much had been said on the unpredictability of the value.  It has a potential impact on the overall morale of the staff.  All the directors in the company must be aware of these and in any case would have taken care in selecting the grantees.

615.  The prosecution submitted that Becky, Tang and the Mainland grantees were all undeserving and therefore the grant to them was false.  In consideration of this matter I bear firmly in mind that the Board of Directors had the discretion to decide to whom share options were granted. After all, this was a commercial judgment.  That said, if the grant was grossly unreasonable, it is a factor the court is entitled to take into account.

616.  As regards Tang and Becky, for the matters I have already mentioned, I find both of them not occupying a key position in the company.

617.  Tang was primarily a driver and even if he had contributed in the business of Eco Trap, the contribution was towards Eco-Tek, not PCH.  For whatever work he had performed, his salary was at a humble level.  I accept his evidence that he had not actually discharged any duty as an investment manager.

618.  Becky was not a senior administration staff and she herself said she was surprised to hear that share options were granted to her.

619.  I note both of them had worked for D1 and have quite a close working relationship with her.

620.  There is no admissible evidence as to the status and remuneration of the Mainland grantees, except the defence witness.  I have found the defence witness not an honest witness.  I further find that even based on his own evidence, there was insufficient track record and no convincing basis to persuade the management, if acting bona fide, to find him as such a valuable staff so that share options should be granted to him.

621.  I find the grant to at least these three persons extremely dubious.

Court adjourns - 11.29 am

Court resumes - 12.04 pm

All defendants present. Appearances as before.

622.  If the grant was false, the grantee in question would not get the proceeds.  As said, there is no direct evidence to prove that the Mainland grantees had not received the proceeds.  However, evidence of the defence witness was rejected.

623.  His proceeds had been dealt with by Iris.  Iris said that she had given $2.5 million, which were the proceeds of the three Mainland grantees, to D1 at the bank.  Having considered the whole circumstances, I find the evidence of Iris that she had handed over the money to D1, truthful and reliable.  I find that the opening of the safety box in that branch was part of the plan.  Safety box is not a common place to keep cash.  I reject the evidence of D1 about the source of the cash found subsequently in the safety box.  Almost all the case were $1,000 banknotes and all banknotes were issued before 2002.  Bearing in mind the comment from learned defence counsel, I find the inference is that the cash was the remaining sum of what Iris had passed to her.  The simultaneous presence of D1 and Iris at the bank was not a coincidence.

624.  In all the circumstances, I find the only irresistible inference must be that the proceeds of the Mainland grantees were disposed of at the wish of D1 and had not been delivered to any of the Mainland grantees.  Otherwise, there was no need for D1 to instruct Iris to perform those cumbersome acts.  In addition, there was no reason why the money had to be given to D1 first if it was to be delivered to the Mainland grantees.

625.  I also take into account the trip of Iris to Dongguan.  Immigration record shows that she seldom went to the Mainland.  She only went to the Mainland once in August.  It took place only three days after the withdrawal of the proceeds of the Mainland grantees.  It matched well with her assertion that it was D1 who asked her to go to the Mainland without any specific instruction as to where to go and what to do.  It served the purpose of showing people that the trip was for delivering of proceeds.  It helped serve the purpose of D1.

626.  Tang said he had handed over part of his proceeds to someone else upon being told by Iris.  Iris said she had no idea how Tang dealt with the money.  Having considered the apparent inconsistency, I find both of them honest and were telling the court what they recall.

627.  I find that Tang had been told by other, possibly Iris, and in any case directly by or indirectly from, a person whom he felt obliged to obey, to hand over the money to other people.  That he was prepared to do so definitely reflected that all along in his mind he was not a genuine grantee.  Otherwise, even the most timid person would have raised query.  The money was a very substantial sum to him.

628.  What happened must be a consequence of a designed scheme.  I find that the grant to Tang was false.  The instruction to him to dispose of the proceeds so soon after it was available is a clear indication that it was the plan all along.

629.  As regards Becky, she said when D1 talked to her she thought she was a real grantee.  She said she was happy, but at the same time surprised.  Eventually, she followed the instruction of Iris and handed over to her part of her proceeds.  She said she was surprised when she was asked to do so.  By that time at the latest, she must have come to realise that she was only a nominee.

630.  It does not matter even though at some stage Becky considered herself the beneficial owner.  The essence is, according to the plan of those who designed it, Becky was not the real owner.

631.  I accept the evidence of Iris that, after Becky passed the money withdrawn to her, she handed it over to Tang.  I have no doubt in all the circumstances of the case that what Tang received was the same money.  I also accept the evidence of Tang that he handed over the packet to a domestic helper at D1’s home.  The only irresistible inference that can be drawn must be that it was a design to let D1 receive the proceeds of Becky. Tang said, “Somebody had made the arrangement”.

632.  In reaching my decision, I have considered the submission that Becky and Tang might have been manipulated by Iris and she had pocketed the money.  It is an affront to common sense to find that such was the case.  The two of them, though not occupying important positions in the company, were not without experience.  They would not have allowed themselves to be so manipulated.  It would be impossible that the dishonest conduct had not been uncovered if the two were not willing.  Besides, if Iris had dishonestly obtained such an amount of money which the colleagues legitimately gained, it is reasonably expected that she would have fled.  She, however, for years continued to work in the companies related to D1.

633.  The evidence of the trio of witnesses fits well in the jigsaw puzzle.  This could not have happened if any of them was creating a false story.

634.  All in all, I find that the grant of share options to Becky, Tang and the three Mainland grantees was false.

635.  I now consider the case alleged against D1.

636.  I take into account submission that there is no evidence that D1 had engaged in any overt acts, including those set out in paragraph 118 of the submission of learned leading counsel.  In my opinion, the matter has to be considered by assessing the whole of the evidence.

637.  D1 was not present at the Board of Directors meeting which decided the grant.  Her physical presence, however, was not absolutely required to carry out the alleged scheme.

638.  In all the circumstances, I find that the only irresistible inference that can be drawn must be that it was all along the plan of D1 that Becky, Tang and the Mainland grantees were listed as grantees of the share options for her own benefit.

639.  That is why D1 had asked Iris to take steps to collect the proceeds for the Mainland grantees.  Even if the Mainland staff did not have an account in Hong Kong, there is no convincing reason why D1 had been so concerned and gone to that length, in particular as it happened at a time when she was not enjoying good health and had reduced her involvement in work. If there had been no intervention by someone very influential, it is inconceivable that the Mainland grantees would have authorised Iris, a person whom they were not familiar with, to collect the cheques issued in her name representing the proceeds on their behalf.  Most importantly, I also believe the evidence of Iris that it was D1 who asked her to withdraw a sum of $2.5 million-odd and that she had passed them all to D1 at the bank.

640.  So far as the share options to Becky and Tang are concerned, D1’s instruction to Iris in relation to the securities account for Becky and Tang shows her keen interest in the matter and a desire to exercise control if necessary.

641.  I find that the proceeds of Becky eventually reached D1.

642.  The proceeds of Tang were disposed of under the instruction by others.  It is not entirely clear from whom the instruction was given.  Tang mentioned Iris, but I do not find it certain enough to support a finding that it must be Iris.  What I am sure is that the instruction must have come from someone Tang felt under an obligation to obey.  D1 was such a person.  And importantly, the only irresistible inference must be that the grant was false from the outset and that each of the three directors must have engaged in the conduct of using Tang as a vehicle of fraud by falsely granting share options to him.

643.  All these were done at a time when D1 was not enjoying good health and has seldom attended office to work.  However, there is ample evidence to prove that her health was not so poor that she could not have designed a plan like this and given instruction to various people as they had testified.  The evidence of Wilfred Wu, Dorothy Yim and Cassidy shows that D1 was capable of handling important matters and was available as and when necessary.

644.  According to various witnesses, D1 had taken active interest in the share options matter, in particular in relation to Becky, Tang and the Mainland grantees.

645.  Wilfred Wu said that D1 had specifically reminded him to ensure disclosing the granting of share options in the offeree documents.  Having regard to submission, I find this piece of evidence credible and reliable.

646.  All in all, I find that D1 was the real beneficial owner of the share options in relation to Becky and the three Mainland grantees.  It is likely that she was also the beneficial owner of the share options granted to Tang.  In any case, she was instrumental in the selection of Tang as grantee and was in a position to decide how his proceeds were to be disposed of.  She has shown keen interest in matters in relation to the share options granted to Tang.  I find that it had been her intent from the outset that Tang was only a nominee, and definitely not a case of forming a desire to become the beneficial owner after the grant.

647.  According to the share options scheme and the Listing Rules, such grant must be personal.  Therefore, the grant of share options to be above-said people was not granted under and in accordance with the share options scheme.

648.  D1 was in full knowledge of the false arrangement all along.  Applying the Ghosh test, I find that what she had done were dishonest means.

649.  I further find that by using these dishonest means she had defrauded the various parties set out in Charge 1.  There was false representation to PCH before the grant that the share options were to be granted under and in accordance with the share options scheme and there was such continuous false representation after the grant.  It was done with a view to cause PCH to grant the share options.  The purpose was achieved.  Economic loss was caused to the company.  D1 must have realised the risk of such loss.

650.  When existing shareholders and potential investors of PCH, the SFC and the Stock Exchange were informed after the grant, the same false representation was made and the truth was concealed from them.

651.  In doing this, D1 had the purpose of causing economic loss to the company, its shareholders and potential investors, and putting at risk their economic interest.  At the least, she must have realised that the use of those means may cause such loss or put such interests at risk.

652.  Economic interest of existing shareholders will at least be put at risk because of possible diluting effect on shareholdings and other possible consequence of such false and illegal conduct of the directors.

653.  Economic interest of potential investors will also at least be put at risk since they would not be able to make informed decision.

654.  The Announcement (Exhibit P17) which is the subject matter of Charge 2 and the letter from the Board (Exhibit P27) which is the subject matter of Charge 3 were, amongst others, vehicles which had been used to make the false representations.

655.  The Announcement stated, inter alia, that “On 4 February 2002, the company issued share options under the share options scheme to subscribe a total of 23,888,000 shares”.

656.  Similar statement was made in the letter from the Board.

657.  Since the grant of share options to some of the staff in question is false, both statements are misleading, false or deceptive in a material particular.  The statement in the Announcement is material since it was included to fortify the position of the company to advise shareholders to take no action in connection with the Yu Ming offer.  The letter provided members with further information about the Kandy Profits offer, including the position in relation to the share options.  Both documents were published with the clear intent to deceive members of PCH about its affairs.

658.  Taking into account D1 seldom attended office during that period of time and not enjoying good health, and everything leading counsel said in paragraph 121 of his submission, I find that the inference that can be drawn must be that she must have concurred in publishing the two statements.  She was the chairman of the company.  The matter affected her most.  It must have been part of her plan that necessary steps be taken to conceal the matters from members of the company.  It is beyond any imagination that she was not aware of the impending publishing of the two statements taking into account the importance of them.  As regards Exhibit P27, it was the evidence of Wilfred Wu that D1 had reminded him to disclose the grant in the offeree documents.  Dorothy Yim said that D1 had directed her to send the draft offeree documents to all directors for approval on 3 June 2002.

659.  At the same time, concealing of the fact of the false grant did cause SFC and the Stock Exchange to act contrary to their respective public duty.

660.  According to PW15, Mr Cheuk Kam-wa, and PW16, Ms Zarina Curreem, both of the SFC, the false representation caused the SFC not to ask Anglo Chinese and PCH for clarification and require PCH to take appropriate action in relation to the false statements contained the two documents.

661.  According to PW14, Ms Grace Kan of Stock Exchange, had the Stock Exchange known the true position, they would have made inquiry into potential breaches of the Listing Rules and would not have issued the “no comment” letter to PCH allowing the company to publish the two documents.

662.  Such act to conceal the truth must have been within the contemplation of D1 when she embarked on this dishonest and illegal scheme.  She must have realised that what they did would case the Stock Exchange and SFC to act contrary to their public duty.

663.  There was submission from the defence that Charge 1 involves more than one conspiracy.  Having considered cases such as R v Greenfield [1973] 57 CrAppR 849 and R v Griffiths [1966] 1 QB 589, I do not agree.

664.  Despite it involved two major categories of affected parties and whose interests were of different nature, one being economic and one being public duty, in the particular circumstances of the case the matters were so intertwined that any detriment to the two interests were part and parcel of the same plan.  Performance of duty by SFC and the Stock Exchange was well within the contemplation of those who engaged in this defraud exercise.  These people must realise from the outset that the scheme would not only affect economic interest of the company, its members and investors, it would involve concealing of the truth from the public body and thereby affecting their performance of public duty in order to enjoy the fruit of this dishonest plan.  In my judgment, it was one single conspiracy which required a series of action to achieve the purpose of obtaining the benefit of dishonest and false granting of share options.

665.  Whether each and every person named in the charge had joined in the same conspiracy is a separate matter to consider.

666.  All in all, I find the prosecution proved beyond reasonable doubt every element of the offence in Charge 1 against D1.  In all the circumstances, she must be the mastermind of this illegal scheme.

Court adjourns - 12.53 pm

Court resumes - 2.35 pm

All defendants present. Appearances as before.

D2

667.  D2 is alleged to be a co-conspirator of D1.  I bear firmly in mind that he is a person of good character and take into account everything said on his behalf.

668.  Learned counsel argued that there is no evidence of criminal acts done by D2 in pursuance of a criminal purpose and what proved to have been done by him were what one would expect a company director to do in performance of his normal duties in good faith.

669.  Prosecution stressed the fact of the non-mentioning of the share options grant until the Announcement on 22 April. In this regard, I note that the Listing Rules prevailing at that time only provided for an obligation to announce the grant of share options in the interim reports and Annual Report.  It was not until December 2008 that new rules were introduced to impose a duty to make public Announcement for share options as soon as they are granted.  I also note the other relevant observations as stated in paragraph 65 in the written submission of learned leading counsel.  I agree that this matter should not be given undue weight.

670.  D2 was one of the two executive directors who were present at the Board of Directors meeting which approved the grant.  He admitted to have approved the grant of share options to the grantees.  In his cautioned interview he gave an innocent account of his involvement in the meeting, which I rejected.

671.  Having found that D1 was in fact the real beneficial owner of some of the share options, it takes a short step to draw the inference that she must have exerted influence on the directors who made the decision to make sure that her plan could proceed.  There was a need to have someone in the Board of Directors to carry out her plan.  It is telling that as a matter of fact the Board of Directors did select the staff who were only holding the share options for D1.

672.  As mentioned earlier, I find that the basis of granting the share options to Becky, Tang and the Mainland employees dubious. The lack of objective merit must have been obvious to both D2 and Teli Chan.

673.  Whilst Teli Chan was the director normally more involved in administration and not D2, it is reasonably expected that D2 had been greatly involved in this important exercise which the company had never done before.  Besides, at that time he was discharging the duties for D1 and receiving the whole sum of her salary on top of his own.

674.  From the evidence of Iris which I accept, D2 was the person who directed her to prepare the minutes in question.  I have been very careful in assessing the reliability and truthfulness of this evidence taking into consideration everything relevant including what I mentioned when assessing credibility of Iris, in particular the confusion about whether it was D1 or D2 when she was giving her statements.  I have also reminded myself that, even if Iris was honest, her evidence may still not be truthful and reliable, in particular as there is no supporting evidence.

675.  At the material time D1 was absent from office most of the time.  She was not present at the meeting.  In all the circumstances I am satisfied that D1 was not the person who gave the instruction to Iris.  I am sure Iris would not have mistaken D2 for Teli Chan due to their gender difference.  I am sure this aspect of the evidence of Iris is true and reliable.

676.  This was a peculiar step to take as, and D2 must know, preparation of board minutes was not the usual duty of Iris.  This step should be considered in the light of the evidence that Iris was subsequently also instructed to take actions in relation to the share options.

677.  D2 also asked Iris to prepare the offer and acceptance letters for the signature of the grantees.

678.  This work should normally be performed by Teli Chan.  The active involvement of D2 shows his special interest in the matter.

679.  I note that it was Teli Chan who signed the minutes of meeting and the offer letters, and D2 was out of town soon after she had signed the letters.

680.  D2 admitted to have signed the letter dated 24 April 2002, which was a reply to SFC (Exhibit P80).  In the letter, he described Tang as an investment manager.  The prosecution submitted strongly that having regard to their close relationship, D2 must know that Tang was not an investment manager.

681.  In this regard, I note that there exists an employment letter (Exhibit D1-39) with the signature of Tang stating that he was appointed with effect from 1 November 2001 as an investment manager (industrial & construction).  There also exists an employer’s return to IRD of staff remuneration stating the same position of Tang.  There is no evidence that in November 2001, there was any sign of a takeover offer, therefore there would be no expectation of a general offer making the share options valuable.

682.  The only evidence which proves the falsity of the employment arrangement comes from Tang.  Tang maintained that his primary duty was one of a driver and denied having performed any duty as an investment manager.  He said he had signed documents from time to time without caring the content and it was all the arrangement of the company.  Having considered carefully, I find I can give full weight to the evidence of Tang.  On top of matters I have mentioned earlier, I note that Iris referred to Tang as the driver of D1 and definitely it was Tang who drove her to the Mainland and it was August 2002.  Becky also referred to him as the driver of D1 and said she did not see him doing any work in the office.

683.  I share the observation of the prosecution that the frequent changes of employment arrangement in short spans of time are something very odd.  There is no convincing reason why Tang, who had all along been working in the engineering and technical field, would become an investment manager.  There is also no convincing reason why he suddenly moved from Eco-Tek to a PCH company.  What the two companies have in common was that both were associated with D1.

684.  I find that Tang had not performed any duties as an investment manager, though he might have been put under the payroll of Pacific Challenge Investment in the name of an investment manager.

685.  I have considered very carefully whether D2 was in honest belief that Tang was in substance an investment manager.  Taking into consideration their relatively close relationship, I find that it was not possible.  I used the expression “in substance” since it was what really mattered in the grantee selection process, not just the post title.

686.  In all the circumstances I find that at least in deciding to include Tang as a grantee, D2 knew very well that he was not going to be the real beneficial owner of the share options.  He knew Tang’s real position in the company.  Tang saw himself as a driver and did not believe he was beneficially entitled to the money.

687.  I also infer that D2 knew Becky and the Mainland grantees were not the real beneficial owner.

688.  D2 admitted to have signed documents, some of which clearly show both Becky and Tang were not earning high income.  There is no reason for D2 not to know that Becky was performing administration duties not at high level.  Becky said she was surprised when she was told about the share options grant.  She said she had no intent to leave the company.

689.  As regards the Mainland grantees, even accepting what the defence witness said about his role in Long Heng, given his not yet successful track record, the basis of granting him share options would appear to any responsible person to be flimsy.

690.  The prosecution stressed the duties imposed on directors and submitted that any degree of enquiry in performance of the duty would have unveiled the falsity of the grant to these people.  In this regard, I remind myself that the court is not concerned with breach of responsibility but the offence of conspiracy to defraud.  However, I agree that such failure of duty in the particular circumstances of the present case is a matter the court is entitled to take into account.  The evidence that D2 was at that time in overall charge of the company must not be ignored.

691.  I note that D2 was out of town shortly after the grant exercise.  However, it was after his finishing of the major overt acts in carrying out the illegal plan.

692.  Subsequent correspondence clearly shows that D2 was heavily involved in answering queries from the two public bodies, the Stock Exchange and SFC.  Anglo Chinese was the middleman between the two public bodies and PCH.  I believe the evidence that Anglo Chinese relied on information provided by PCH when they handled the matter.

693.  Learned counsel submitted that in answering the queries, D2 might have been relying on information available to him.  The submission is sound only when there is no adverse finding against D2 in relation to his selection of the grantees.  I find D2 had engaged knowingly in deliberate acts to conceal the truth from the parties set out in Charge 1.

694.  I find that the only irresistible inference that can be drawn in all the circumstances must be that D2 had entered into agreement with D1 to dishonestly and falsely represent to the various parties that all the share options were to be and were granted under and in accordance with the share options scheme and concealed the truth from these parties.  When he entered into the agreement, he intended to carry it out and achieve its purpose.  He implemented the dishonest agreement with the purpose of causing economic loss to the company, its shareholders and potential investors, and putting at risk their economic loss; at least he must have realised that the use of those means may cause such loss or put such interests at risk.

695.  He concurred in publishing of the Announcement and the letter from the Board knowing that both of them contained statements which were misleading, false or deceptive in a material particular, with intent to deceive members of the company about its affairs.

696.  D2 also took an active role in concealing of the truth to the public bodies.  He must have realised that the use of those dishonest means may cause SFC and the Stock Exchange to act contrary to their respective public duty.

697.  I am satisfied that the prosecution has proved beyond reasonable doubt that D2 had entered into agreement with D1 to embark on the conspiracy as set out in Charge 1.

Teli Chan

698.  Teli Chan is named as a party to the conspiracy.  Evidence against her is very limited.  As she was the only other director present in the approval meeting, she was pretty much in the same position as D2.  She was the director in charge of administration, she must be aware of the relatively low position of Becky and Tang in the company.  She presided the 4 February meeting.  If there had been genuine and bona fide discussion, it was impossible that the irregularities that had just been highlighted would not be noticed.  Having regard to the circumstances and the evidence of Pedro Woo, she should have been the person who telephoned the INED and explained and persuaded him that these people should be granted share options.

699.  I reject the possibility that it was merely a case where D1 exploited the situation and take advantage on the grantees after they had been selected by the Board of Directors in good faith.

700.  I draw the inference that Teli Chan did participate in the dishonest scheme and took steps to implement it.  She must have realised that this was dishonest and when she participated in using this dishonest means she must have the purpose required of the offence or realised the risk as required.  I find Teli Chan a party to the same conspiracy.

Iris

701.  When she testified, she denied being a party to the conspiracy.  In my judgment, this aspect of her evidence should not be given weight on its face value.  Her involvement should be considered in the light of the whole of the relevant evidence, in particular her evidence about what she had done.

702.  Her denial may be a result of her understanding of the law, and I find it an erroneous one.  It may be a result of her reluctance to admit; having made careful consideration, I do not find it affects her overall credibility.

703.  I find Iris had entered into the same agreement with D1 and had the intent to carry it out.

704.  There is insufficient evidence to conclude that Iris had joined in the agreement at the outset, but there is ample evidence to find that she entered into the agreement at the latest when she followed the instruction of D1 to dispose of the proceeds of Becky and the Mainland grantees.

705.  Despite according to her own evidence, there had been no express discussion between D1 and her; by then she must have realised that she was participating in an unlawful scheme in relation to the share options in question.  Before she was asked to take action in relation to the proceeds, D1 had already shown her extraordinary interest in the share options by asking her to take actions for the Mainland grantees as well as Becky and Tang.  The instruction on her to handle the proceeds must have made things clear to Iris.  Her appreciation of what was happening is reflected by her belief of the purpose of D1 asking her to go to the Mainland for no express reason.

706.  Having regard to the case of R v Griffiths, I find that the prosecution has proved beyond reasonable doubt that Iris was a party to the conspiracy.  She must realise that this was dishonest and that the economic interest of the company, its shareholders and potential investors had been put at risk.  She still went ahead and took steps to carry out the agreement.

707.  There is little evidence about her involvement in the conduct to conceal the truth from the public bodies.  Even if she might not have a full appreciation of this part of the conspiracy, I am satisfied that she did join as a party to this single and same conspiracy, the primary purpose of which was to take advantage of the false grant of share options.

Tang Wai-shing

708.  I find that Tang had never really worked as an investment manager as stated.  His job was primarily a driver.  He said he had signed documents, including those in relation to the share options, merely in compliance with the request of Iris out of trust of her.  He also followed instruction of others, probably Iris, to withdraw the proceeds and hand over the money to another person specified.  He categorically denied that this was his money and said it was impossible that the whole sum of proceeds was given to him personally.  I believe his evidence that nobody had ever told him anything which led him to believe that the money was something given to him for his own use.  He was only following instructions.

709.  In all the circumstances, I agree to the prosecution submission that Tang must have known that there was an illegal scheme in existence in connection with the grant of share options to him and, by complying with the instructions, he agreed to participate.  He took actions in furtherance of the agreement.  Despite he might not know the full extent of the scheme I find that he was a party to the conspiracy.  When I make the finding, I note that Tang had not made any specific allegation against D1 in relation to his share options.

Becky Poon

710.  Despite Becky said she was happy, though surprised, when she was told of the grant, obviously at that time she did not have a clear understanding of the matter.  She said she was surprised at receiving the money and further surprised being required to give it back.  The fact that she gave up the proceeds upon request of Iris without raising query or complaint reflects that it was never firm in her mind that she was the real beneficial owner.

711.  In any case, it was the state of mind of the people manipulating the situation that really matters.

712.  I find that it must all along be the plan of D1, who took active interest in the matter and eventually asked Iris to get back the money, that she herself was the real beneficial owner of the share options.  It must be the only irresistible inference to draw in all the circumstances of the case.  I note the evidence that the money did reach her home.

713.  I find that Becky joined exactly the same conspiracy when she acceded to the request to withdraw the proceeds and handled it.  She was told by Iris that the money would go to D1.  With this in mind, she complied and therefore rendered assistance.  By that time, the latest, she must have realised that the grant was false.  Her behaviour and lack of grievance or complaint clearly shows that she did not think it a case where she was compelled to letting D1 have the money that she legitimately had, but that she was never its real beneficial owner.  At the latest, when she was told to give up the proceeds, she must have realised that she was not the beneficial owners of the shares and, by complying, she joined the same on-going overall agreement as set out in Charge 1.

Findings

714.  I find that D1 and D2 were parties to the conspiracy in Charge 1.  Not only that, Teli Chan, Iris, Becky, Tang had, at different stages, also entered into the same and single agreement with the necessary mens rea.

Conclusion

715.  Based on the matters aforesaid, I find D1 guilty of Charge 1, Charge 4 and Charge 5; D2 guilty of Charge 1; and D3 guilty of Charge 4 and Charge 5.