THE QUEEN v. LAWRENCE CHEUNG TSE SOON

IN THE COURT OF APPEAL

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J U D G M E N T

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Silke, V.P.:

1. Lawrence Cheung Tse Soon - "the Appellant" - appeared for trial before Hopkinson, J. and a jury, on six counts of conspiracy to defraud. In each of them the named co-conspirator was Albert Kwok Chi Hong, at the material time Chief Manager of Wing on Bank Limited, who is now dead. The Appellant was convicted on all six counts and now seeks leave to anneal against those convictions.

2. In the light of the proper and responsible concession made by Mr. Graham Harris, who appeared for the Crown both before us and below, in the course of the hearing of the application we granted leave, treated the hearing of the application as the hearing of the appeal and allowed the appeal, quashing the convictions. There bad been no issue of the application of the proviso and the Crown did not seek a re-trial. We stated we would give our reasons later and this we now  do.

3. The issue at trial was did the accented facts show beyond doubt that the actions of the Appellant were dishonest. The trial was conducted by counsel in an exemplary manner. All the major facts core agreed though there were some shades of difference of opinion on the law. That sensible approach we are thankful to say continued into the presentation of this appeal. Mr. Wilson, who appeared for the Appellant both here and below, and Mr. Harris were co-operative with and very helpful to both Courts.

4. The Crown's case was that there was a conspiracy to defraud the Wing On Bank or its subsidiary Wing On Finance collectively "the bank" by dishonestly causing or permitting the bank, to grant facilities - "the loans" - without those facilities being adequately secured, guaranteed or without their being proper provision for the payment of interest. The true nature of those facilities were concealed from the bank.

5. The Appellant had been a close personal friend of Albert Kwok, for many years. He had, and maintained, accounts in the bank since the early 1970s. In 1984, the bank and, as it later transpired Albert Kwok personally, was in financial difficulties. The loans obtained from the bank eventually totalled $25m. Their proceeds were paid over either to Albert Kwok personally or to two companies, Manifest Underwriters and Hong On Development Limited, both of which were within the control of Albert Kwok.

6. The loans were either by way of extension of the Appellant's own overdrafts on his personal accounts with the bank or were made to companies controlled by him which also had accounts with the bank. It was the Appellant's defence that he did this at the instigation of Albert Kwok and, as he thought, to assist in some way the bank or the Wing On, group. It was common case that he himself made no financial gain of any kind. The bank has instituted civil proceedings for the recovery of the monies.

7. It was emphasised by the Appellant, and seems indeed to have been his strongest point, that if he had thought there was any possibility of Albert Kwok not repaying the loans, plus interest, he would never have signed documents which, on their face, render him liable to repay $25m which he himself has never had. The trial Judge seems himself to have considered such a course unlikely as he said during the course of the summing-up having referred to the Appellant exposing himself Class in the event of Albert Kwok's default, "I'm sure he wouldn't have done that if it had ever entered into his mind that there would he a default".

8. The personal overdrafts of the Appellant were secured though the extension of those overdrafts came very Close to, if not exceeding, the limit of I the security. In respect of other of the transactions, the Appellant signed guarantees which be never expected have to honour. He made no personal provision for the interest payments, the necessary money being paid by Albert Kwok in one form or another. The necessary documentation appeared to he proper and normal in transactions of this kind. Nowhere did it disclose that Albert Kwok was to he the real recipient of the money. The bank was clearly misled.

9. A properly directed jury might or might not have come to the conclusion, on a consideration of the whole of the evidence, that the actions of the Appellant were dishonest.

10. The law applicable to conspiracy to defraud is a "mine-field" as Mr. Wilson described it. It is a, notoriously difficult charge to bring home. The jury needed to he very carefully directed.

11. It was one of Mr. Wilson's many grounds of appeal that a submission of no case made at the close of the prosecution's evidence should have been acceded to. He based this on that which he says were misdirections in law by the trial judge in the course of his summing up and which he submits, reveal that the judge took an incorrect view of the law which view he must hove had in mind. In overruling the submission. It is not, necessary, in the light of our conclusions, to deal explicitly with all the grounds or with this one, save to say that the matter of dishonesty was exclusively a jury, question, given there was evidence sufficient to go to the jury. We think that the judge's decision to leave the matter to them was the correct one. Clearly, the Appellant's required an explanation. He gave an explanation in evidence.

12. In his closing address to the jury Mr. Wilson emphasised the real issue before them - a dishonest and fraudulent exposure to risk - was that which the Crown had to prove and not merely an exposure to risk. He went on to indicate to them that the Crown had to prove:

"(1) that the defendant knew at the time that Albert Kwok proposing, to pocket the money himself and not use it for the benefit of the Wing On Bank and the Wing On Group, and (2) that in doing so the defendant knew that there was a real risk I am not talking shout exposing the bank to a risk - the defendant knew there was a real risk that Albert Kwok would not repay the bank the interest and the capital. That's what this case boils down to."

13. Mr. Harris in his closing address posed five questions to the jury which he suggested they would be required to answer. The first question were they satisfied that the transactions were spurious or bogus did they pretend to be something they were not; if they answered that in the affirmative, then the second question were they satisfied that the consequence of each transaction was such as to expose the bank to risk of loss; if they answered in the affirmative then: were they satisfied that the Appellant for whatever reason knowingly participated and appreciated the issues that arose from questions 1 and 2 if that were answered in the affirmative then: were they satisfied that the Appellant's conduct fell below the standards of honesty expected by ordinary and decent people if the answer to that was again in the affirmative then the final question did the Appellant appreciate that ordinary and decent people would have looked upon his conduct as dishonest.

14. In his lengthy and, with respect, diffuse summing - up the trial judge first directed the jury on the definition of "conspiracy" and "conspiracy to defraud". Mr. Wilson takes issue with matters which arose in the course of that direction.

15. At page 9 he impeccably directed the jury as to dishonesty on the line of R. v.Ghosh [1982] 2 all ER 689. However, there was a repetition later on the same page, the judge saying this:

"You first consider what is dishonest by ordinary standards, and then you consider whether be knew he was acting dishonestly. And you do this by applying your own standards of - I'm sorry, let me start again. You must not determine the question by applying your own standards of dishonesty but by putting yourself in his shoes and determining what was in his mind at the time."

This gloss upon the proper directions given moments before could have had little effect but to confuse the jury.

16. Immediately following that passage the trial judge made the first of his many references: to the "scheme". In the light of the question; subsequently asked, by the jury while they were in the course of their deliberations the constant repetition of that word was somewhat unfortunate.

17. The first portion of the summing up concluded at four o'clock. It was to continue on the following morning. The jury retired and, in their absence, both Mr. Wilson and Mr. Harris raised matters of law. Mr. Wilson asked the trial judge if he would consider-

"indicating to the jury it is implicit in what your Lordship has already said but it may be that the jury would appreciate this that the defendant cannot be guilty of conspiracy if he and Kwok envisaged different purposes for chat they were doing."

18. A debate covering some nine pages of the transcript then ensued. Mr. Wilson's colloquialism "pocket the money" seemed to have caused so to confusion in the mind of the trial judge - though at one point Mr. Wilson suggested the word "misapply" was probably a better one. Mr. Wilson's apprehension was that the jury might feel on the directions so far given that even if they accepted that the Appellant believed Albert Kwok to be telling him the truth, that is the money was to be used for the interest of the bank he could still be guilty of the conspiracy offences. This was not the way in which the crown put its case.

19. Mr. Harris agreed that if the jury felt that the Appellant might have thought in his own mind that Albert Kwok was going to use the money for the benefit of the bank:

"Then I think it would be very difficult for the Crown to say that it's proved that the defendant appreciated a risk of loss to the bank."

20. There was some shading as between Mr. Wilson and Mr. Harris as to the full proposition put forward by Mr. Wilson but nothing really turns on that.

21. When the summing up recommenced on 4th March, the trial judge continued to direct the jury on the law and, referring to Mr. Wilson's submissions already set out above, told the jury that Mr. Wilson's approach was simply not correct adding that such an approach would be correct if Albert Kwok had been charged with theft or conspiracy to steal. He went on at p.32:

"And the prosecution do not attempt to suggest that this money was pocketed - that Albert Kwok was proposing to pocket the money. Further, it is not in fact necessary to establish that the accused had direct knowledge, or that it would not have been necessary to establish that the accused had direct knowledge of the intention to pocket even misappropriate funds."

22. He reminded them of his directions the previous day that the prosecution must prove first: the existence of a "scheme" between Albert Kwok and the Appellant to induce a course of action that might imperil the economic interests of the bank; second: that the Appellant was engaged in such a "scheme" and that he knowingly participated in it, even if he did not know its full extent; third: that there was an intention in his mind to carry out the purpose of the "scheme" - that was, dishonestly to cause risk of financial prejudice or economic loss to the bank. He concluded this part at p.33 saying:

"I suppose I should say that if the two of them were in fact at completely cross-purposes and there was no intention as alleged on the part of Albert KWOK and that he really did intend to pocket the money, well that would he quite different because their minds would not he together and they would not he intending to carry put the same common scheme, and there could be no conspiracy in that situation."

23. The jury retired to consider their verdict at 11:13 a.m. At about 2:30 p.m. they came back with a question which is recorded at page 62 of the transcipt. It went - relative to confusion in the mind of the jury on the definition of conspiracy to defraud-:

"The confusion concerned is why dirt you mention that proof of conspiracy must show that the defendant had the knowledge of a scheme. He must know that. there is a scheme that goes beyond his first act before, he can be considered dishonest? We need to know if the defendant had to have had a knowledge of the whole scheme as in the mind of KWOK in order to conspire to defraud." (Emphasis Supplied)

24. Before the trial judge answered the question a debate had ensued between counsel and himself in open Court in the absence of the jury. Counsel indicated that they had agreed upon the answer. It is clear from the record that they anticipated a question of this nature. Mr. Wilson stated the agreement in these terms:

"In order to he guilty, the Crown must prove that the defendant knew, at the time that KWOK intended to use the money against the bank's interest. He did not need to know all the details."

25. Unfortunately, the trial judge was not prepared to address, the jury in those terms thinking the wording of the agreement to be inconsistent with what he already said. He did not desire to introduce a "slightly different idea that doesn't really follow from what I previously said." Mr. Harris raid: not wish to add anything to that which Mr. Wilson had said though he had some slight reservations arising from the use of the phrase "use the money"' He emphasised that it was the Crown's case throughout that the Appellant knew that he was a party to something that was against the bank's interest. He added:

"If the defendant thought KWOK was going to use the money in, a way that would riot expose the bank to risk of prejudice as my learned friend says, then of course it follows that the Crown has not proved a vital ingredient of the case. That must be so."

The Court accepted that.

26. The jury returned to Court at 3:27 p.m.. The question they had posed was read out. The trial judge said that they may have misunderstood his use of the word "scheme" and he explained it as being merely another word for "an arrangement" which in itself was another word for "agreement". He went on to give them further directions, but not in the terms of counsel's agreed answer and then said

"Well, if I can just add a rider if that's the right word to use, to prove the defendant's guilt, the Crown, the prosecution must show that the defendant knew at the time that KWOKintended the use of the money against the bank's interests."

27. It is the passages at panes 32 and 33 which aroused our major concern for there, with the greatest respect, the trial Judge, in refusing to accept the approach of Mr. Wilson to the law and in the direction that he gave, that it was not necessary for the Crown to establish that the Appellant "had direct knowledge of the intention to pocket or even misappropriate funds", was clearly wrong.

28. It was unfortunate that the colloquial expression "pocket the money" was ever used. "What the Crown had to prove was that the Appellant must have known that Albert Kwok intended to defraud the bank by obtaining its funds under the pretext that they were being borrowed by the Appellant and secured by him while they were in fact to be used by Albert Kwok for his own purposes. The word "misappropriate" means to apply money dishonestly to one's own use and, in the context of the agreed facts here, that is what the Crown did have to show.

29. In the context of the facts in this case the jury had to be directed that they must he satisfied that the Appellant knew, when he agreed to the loans being made in the way they were that the bank was being put at risk, i.e. he knew there was a danger that the loans would no the repaid. Further that the Ghosh test was satisfied on the proven facts.

30. Here the trial judge did tell the jury that the allegation was that the Appellant and Albert Kwok conspired to cause the bank economic loss or risk of economic loss. That was quite correct. "Rut that direction must be looked at in the light of the sentences which followed. The trial judge said the Crown did not have to prove the Appellant knew that Albert Kwok intended to pocket the money or even misappropriate it. The combination of these directions in close proximity one to the other rust have left the jury in confusion as to what they were required to find as to the Appellant's belief of what was going to he done with the money by Albert Kwok. It was essential that the jury was fully aware this being a charge of conspiracy, that the Appellant and Albert Kwok were both ware that the funds were being obtained from the bank not for the hank's purpose but for Albert Kwok's personal use and that the Appellant knew that the bank might not be repaid. That they were not so aware is shown by the question which they asked during their deliberations.

31. We do not consider that the answer to the Jury's question was capable of removing, the doubts they had as to the correct test they had to apply.

32. Mr. Harris having had this view indicated to him reflected over a luncheon adjournment, took instructions and accepted that those passages contained a material misdirection.

33. In the circumstances of this particular case, we accept that the law as sire between counsel was the lay applicable and that the assistance which they gave to the Court in formulating principles of lay was both helpful and correct.

34. We accepted that the alteration or gloss placed upon the Ghosh test of dishonesty to which we have referred and the plain misdirection on pages 32 and 33 were such as to make these convictions unsafe and unsatisfactory. We should add that Mr. Wilson expressly, and properly, Aid not seek an order for costs.