ATTORNEY GENERAL v. DCMINIC CHEUNG KAI MAN

IN THE COURT OF APPEAL

1987, No. 1
Application for Review

Headnote

Proper sentence in respect of serious fraud – whether consecutive sentences appropriate.

IN THE COURT OF APPEAL

1987, No. 1
Application for Review

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Dates of hearing: 20th, 23rd & 24th March, 1987

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JUDGMENT

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Cons, V.-P. delivered the judgment of the Court:

1. On the 16th December last year Dominic Cheung Kai Man pleaded guilty before Wong, J. to two counts of conspiracy to defraud the Overseas Trust Bank Ltd., its existing and potential shareholders, depositors and creditors. Both counts arose from his conduct as an officer of the Bank which, as everyone knows, would have failed financially in June 1985 had it not been taken over by the Government.

2. Dominic Cheung joined the Bank in 1972 after 25 years of experience with another bank. The following year he was made Manager of the branch in Macau. He retained that position to the end, but in addition was soon promoted to Assistant General Manager at the Head Office and then the Deputy General Manager. In July 1982, not long after the unexpected and sudden death of the then Chairman of the Bank, Chan Ming Thien, Dominic Cheung was made General Manager. It is accepted that the Chairman had been a man of domineering personality who had regarded the Bank and its associated group of companies as his personal family empire, and that within the management of the Bank itself, his word was unquestionable law. He was succeeded on his death by his son Patrick Chang. The period from the time that Dominic Cheung joined the Bank until it was taken over in 1985 had been one of great expansion.

3. The transactions on which the charges against Dominic Cheung were based were both commenced within the lifetime of the former Chairman, as was the original financial support provided from bank funds. There is however a vital distinction between the two conspiracies, in that the former Chairman was party to the first, whilst the second was deliberately concealed from him by those involved. Both however were concealed from everyone else, in particular from the bank auditors and from the Commissioner for Banking, and thus from the Bank shareholders, save those who were parties to the schemes, and from the Bank's depositors and other creditors.

4. It is not necessary to set out in detail how the concealment was achieved. Nominee companies and directors were used. Values were exaggerated and the loan approval procedures of the Bank were to some extent ignored, although this would appear to have been a not uncommon practice within the Bank in any event. During the course of the second conspiracy an account was opened and operated for sometime under completely fictitious names, and in one instance at least, a blatantly false document was inserted in the Bank's files.

5. Nor is it necessary to set out the details of the transactions into which the conspirators entered. Both were in the form of a joint venture for the development of land in Macau. The first was concerned with a piece of hillside opposite the ferry pier and known as the "Vila Leitao". In February 1980 the owners of the land, who wished to sell, approached Dominic Cheung in the hope that the former Chairman of the Bank might be interested in acquiring the land. It turned out that he was, and he instructed Dominic Cheung to enter into negotiations to this end, at the same time making finance available from the Bank. The sale was completed in December, by which time the project had become a joint venture with a well known businessman in Macau who was to have a 40% share while the Chang "family" were to have 60%. Five percent of the latter share was allocated to Dominic Cheung in August 1981 "as a bonus for his work in the transaction".

6. The second transaction was a venture, together with the owner of two pieces of land on the north side of the main island of Macau known as the "Avenida Venceslau de Morais", for their development into high rise factory units. The owner was to get cash down and three floors of the building on completion. The remaining profit was to be divided between the developer and the conspirators, that is Patrick Chang, T.C. Huang and Chung Chiu Fat, all of whom were directors of the Bank, and Dominic Cheung. Dominic Cheung's share was to be 13%. The former Chairman had no part in this scheme, indeed the participants were careful to ensure, by concealment of their own interests, that he knew nothing about it.

7. Dominic Cheung invested $500,000 of his own resources in the second conspiracy, otherwise both schemes were financed entirely from bank funds. The Bank would thus nave stood to gain considerably from interest payments had the schemes ever come to successful fruition. Unfortunately, due to the collapse of the property market, they did not. The loss to the Bank on both as at June 1985 was approximately $143 million, represented by $91 million advanced as principal and $52 million by way of interest. Since then $31 million has been recovered from the sale of the Vila Leitao land. But the conspirators never obtained any interest whatsoever in the other land and no further recovery can be expected. In neither case was adequate, or indeed any, valuable security furnished to the Bank.

8. It was suggested in mitigation that Dominic Cheung had little opportunity as to the part he played in the two conspiracies. He was, it was said, to start with working under an autocratic and domineering Chairman, and was in any event junior in the Bank's hierarchy to the Chairman's son and the other Directors concerned. But the judge below declined to accept him as a mere puppet. He said -

"... your role in this case, in my view, was not just a conduit pipe. You played an active and important role and were instrumental in the formation and implementation of these two transactions."

9. Patrick Chang was instrumental in two other transactions, which were the subject of two further counts of conspiracy. One concerned the short term advancement of Bank monies to finance a share issue on behalf of a personal friend. In that instance Patrick Chang stood to make no personal gain and the likelihood of loss to the Bank was slight, since the monies at all times remained in a subsidiary of the Bank. In fact there was no loss. The second however was quite different. The eventual loss to the Bank was some US$90 million and was the predominant cause of the Bank's collapse, although the losses in which Dominic Cheung was involved also played their part. Essentially it was a cover up operation designed to conceal a failed cheque kiting fraud. Chung Chiu Fat, who as we have just mentioned, was another Director of the Bank, was party to these two further conspiracies.

10. All four conspiracies were charged in indictments proffered before Wong, J. Patrick Chang pleaded guilty to them all. Dominic Cheung pleaded guilty to the two which we have set out more fully. Chung Chiu Fat pleaded guilty to the other two. He had originally also been charged the Vila Leitao conspiracy, but in the event the Crown offered no evidence against him.

11. The three men were not dealt with together. We have not had the occasion to investigate the reasons for this, but must emphasize that most of the problems and arguments over discrepancies of sentence and degrees of criminality would have been avoided if the three conspirators within the jurisdiction had been dealt with together. Only in exceptional circumstances would a course such as was pursued in the present instance be justified.

12. The first to come on for hearing was Patrick Chang. On the 14th July he was sentenced to three years on each of the four counts, the sentences to run concurrently. One month later Chung Chiu Fat was sentenced likewise, three years on each count concurrent. This was reduced to two by another division of this Court in December. A few days after that Dominic Cheung was sentenced to two years on each of his counts, also concurrent. It is in respect of this last sentence, and this alone, that the Attorney General now applies, with the leave of this Court, for a review. He complains that it is wrong in principle and manifestly inadequate. It will be seen that, in the particular circumstances, the two questions are in effect the opposing faces of the same coin.

13. We have been referred to the judgments in six cases of what Mr. Attorney describes as multi-million dollar examples of fraud committed by persons in highly responsible positions of trust. We have been referred, in generally less detail, to twelve cases forming a second set in which the amount involved was less and where more often the offender, although in a position of trust, was a lowly placed employee, such as a postman or security van attendant. A third set of six cases dealt with fraud perpetrated by persons not in a position of trust. For the sake of the record we append below a list of the cases in question.

14. We have been unable to discern in these cases any established pattern of sentencing. At best we can do no more than observe that on such material as has been put before us it would seem that offenders on the grand scale have, comparatively speaking, fared more favourably than their lesser counterparts. One reason for this may be that conspiracy to defraud is an offence at common law and until July last year Section 90 of the Interpretation and General Clauses Ordinance, Cap. 1 provided -

"90. Where an offence is a misdemeanor by any law and no punishment is provided therefor, that offence shall be punishable by imprisonment for 7 years and a fine of $50,000."

15. It has been suggested in the course of argument that quite apart from this statutory limit of seven years the courts of Hong Kong have established for themselves a practical limit at the same level, beyond which they would not go even if permitted by law, as for example where there are convictions on more than one count. It is said that no example can be found of any sentence passed by the courts in excess of seven years.

16. We do not ourselves accept that judges have created or observed any such practical limit. Nowhere do we find any hint of it, rather the reverse. In the present instance for example Wong J., when complaining that his hands were tied as to the sentence on Patrick Chang, blamed the limit of seven years not on any practice of his colleagues, but on his "jurisdiction". He said much the same when later sentencing Dominic Cheung -

“In sentencing Patrick CHANG Chen Tsong I took considerable pains to emphasize the inadequacy of the sentencing powers for this type of offence ......"

In R. v. John Castro Reyes & Others[1],O'Connor J., a judge most experienced in criminal litigation, remarked -

"These offences, the figures only have to be mentioned for it to be realised how grave the matter is, and I suppose everyone will be astonished to learn, except the lawyers, that the maximum punishment provided is 7 years' imprisonment."

17. It is axiomatic that maximum sentences are reserved for the worst possible example of the offence concerned. But as Lawton L.J. has observed[2] -

"... it is to be borne in mind that when judges are asking themselves whether they should pass the maximum sentence, they should not use their imaginations to conjure up unlikely worst possible kinds of case. What they should consider is the worst type of offence which comes before the Court and ask themselves whether the particular case they are dealing with comes within the broad band of that type."

18. Mr. Attorney has suggested four components as making up the kind of conduct which could probably be considered as within a broad band of fraud of the worst kind. The conduct should be, in his view, (1) a breach of trust, (2) in the multi-million dollar range, (3) by a person in a senior and responsible position and (4) with an element of public impact. With regard to the last component he observes that the Overseas Trust Bank was one of the three largest local commercial banks in Hong Kong, playing an essential part in the economic life of the community, which invited deposits generally from the public and which offered its shares equally generally by way of public listing.

19. In further reliance upon the remarks of Lawton L.J. in Ambler & Hargreaves² Mr. Attorney contends that, where the statutory maximum is low, no distinction is to be drawn between the various persons who have played a part in any offence which falls within the maximum band; or to put it another way, the maximum band tends to, become very much wider.

20. Ambler & Hargreaves² was a bad case of corrupting prison officers, for which the maximum sentence was only two years. We accept that where the statutory limit for a serious offence is as low as that, it may well be that there is little or no room for the distinction that is normally made in other cases where one defendant has played a significantly lesser part in the criminal operation. But we are of the view that a statutory maximum of seven years is sufficiently high to permit a discount where it is warranted.

21. The English Court of Appeal has in R. v. Barrick[3] set out what, in addition to the amount of money involved, it describes as "some of the matters to which the Court will no doubt wish to pay regard in determining what the proper level of sentence should be". We would respectfully adopt them as applying to all kinds of fraud. The predominance of one or more of such factors will enhance the seriousness of a particular case, and if excessive may well take it into the band reserved for the worst possible type of case. We take the view that the combination suggested by Mr. Attorney is likely to do that and would expect consideration of the sentence to be passed upon anyone found guilty of such conduct prior to the 11th July 1986 to commence from a point at or near the statutory maximum. Since that date Section 90(4) of the Ordinance has read -

“Where a person is convicted of the offence at common law of conspiracy to defraud, he shall be liable to imprisonment for 14 years."

22. That settles the level now for the worst offences, For other serious fraud, not quite up to that level, we would in future expect a starting point in the region of ten years, that is, for a single offence and after conviction following trial. This would not be out of line with sentences to be found in other jurisdictions, e.g. R. v. Snvundra[4], eight years, followed by a further two in default of payment of heavy fines.

23. By the very nature of things commercial crime is unlikely to be limited to a single or simple piece of conduct. Indictments and charge sheets commonly contain more than one count. In passing sentence it is then necessary to consider whether the sentences should be made consecutive or concurrent.

24. The basic approach with regard to crime generally is well established. The principles are conveniently set out in Thomas on Principles of Sentencing 2nd edition as from p.53. The essence is contained in these two passages -

"The one-transaction rule can be stated simply: where two or more offences are committed in the course of a single transaction, all sentences in respect of these offences should be concurrent rather than consecutive.

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The essence of the one-transaction rule appears to be that consecutive sentences are inappropriate when all the offences taken together constitute a single invasion of the same legally protected interest."

25. It is contended that so far as commercial crime is concerned a much wider approach has been taken by the courts of Hong Kong, which have in effect extended the one-transaction rule to include all transactions which have some sort of connection with each other. The practice of the court, it is said, is not to look at the individual offences, but to assess instead the totality of guilt - we may call it "the global fraud" - and pass concurrent sentences accordingly. As examples we have been referred to the cases of R. v. Eddy Ko Kin Wah[5] and R. V. Cheung Long Chung[6]. There is good reason for this practice, the contention continues, because it is a matter of accident in typical commercial frauds as to how many actual charges can be laid at the door of the individual offender.

26. Eddy Ko Kin Wah was charged with one count of conspiracy to defraud Dollar Credit and Financing Limited, its depositors, creditors, etc. by dishonestly causing or permitting the company to provide funds of the company to the extent of US$49 million for remittance to an account abroad, and with fifteen further counts of false accounting in that he falsified company vouchers purporting to show that various sums of money had been lent to certain companies. The facts of the matter are set out in some detail by Yang J.A. who delivered the judgment of the Court of Appeal. He introduced them with the sentence "The key operation which formed the basis of the indictment was an exercise commonly described as a cheque-kiting cycle". There were many such in the case which he put into four stages. It is the fourth which is important and we need only quote the following -

“The fourth stage occurred on 4th November 1982 when the Norrington cycle came to an end by the injection of genuine funds totalling U.S.$80 million into Norrington's account with Irving Trust in New York. Of the U.S.$80 million, U.S.$54 million came through DCF. It is the provision of this U.S.$54 million which gives rise to the charges in the indictment. Of the U.S.$54 million, U.S.$49 million forms the subject matter of the conspiracy charge and Counts 2 to 16, and U.S.$5 million forms the subject matter of Counts 17 to 20. For the purpose of this application, we are only concerned with D1's activities in respect of the U.S.$49 million through DCF. It is the Crown’s case that of the U.S.$54 million, U.S.$39 million was provided by the creation of false loans to those companies under the influence or control of John Mao so as to disguise the fact that funds from DCF were in reality being provided to Norrington (Counts 2 to 11). The remaining U.S.$10 million was similarly provided from DCF's funds by the creation of false loans to Willie Yu’s companies (Counts 12 to 16)."

27. In our view this case is a true example of the basic one-transaction rule.

28. Cheung Long Chung, together with his wife, was the owner of the entire equity in a deposit taking company. In order that the Commissioner of Deposit Taking Companies would not become aware that he was granting loans in breach of the rules laid down by the Deposit Taking Companies Ordinance, Cap. 328, he falsified the accounts of his company so that they did not truthfully reveal where the money was going. He did this on fourteen occasions during a period of one year. The judge passed concurrent sentences of seven years on each count. Again we do not see this as other than a normal application of the one-transaction rule.

29. In R. v. Fung Kai Dick[7] the defendant was convicted of one conspiracy to offer bribes and of two conspiracies to defraud Lloyd's Bank. He was sentenced to eighteen months' imprisonment on the first conspiracy and to five years on each or the other two, the latter being made concurrent to each other but consecutive to the former. All sentences were made concurrent on appeal, but there is nothing in the judgment of this Court to suggest that this was because of an established local practice to this effect. Although one of the several factors taken into account by this Court was "that these were a series of very much interlinked offences", the ultimate consideration was that a "total sentence of 5 years' imprisonment would be proper". And in Cheung Long Chung⁶, Li V.-P. expressly referred to the possibility of imposing an appropriate sentence by means of individual consecutive sentences.

30. We are not persuaded of any practice whereby the one-transaction rule has been locally varied in the case of commercial crimes. On the contrary, if the offences are distinct and separate it will normally be the duty of the judge to pass consecutive sentences, even if the seriousness of the individual offences means that the total sentence will be more than could have been passed in respect of any one of them. We cannot see that the result will ever get out of hand. However many charges might be laid against an offender, however great the aggregate of consecutive sentences might otherwise become, the totality principle requires the Court in the last instance to take a look at the total and to see whether, in the circumstances, it is just and appropriate, and if not, to reduce it accordingly.

31. At no time when passing sentence on either Patrick Chang, Chung Chiu Fat or Dominic Cheung did the judge refer to the possibility of passing consecutive sentences or why he chose or felt obliged to pass concurrent sentences. In our judgment he was under no such obligation. The facts we have outlined earlier show that the two conspiracies in which Dominic Cheung was involved were separate and distinct. They were not committed in the course of a single transaction, nor did they constitute a single invasion of the same legally protected interest. Indeed the second conspiracy was something in the nature of a double cross upon one who was party to the first. Nor, from what we have been told, did those conspiracies form a single transaction with the further conspiracies charged against Patrick Chang and Chung Chiu Fat, which seem themselves to have been independent of each other.

32. This is a matter of some importance. For in dealing with Chung Chiu Fat the judge, because of the sentence he had already passed on Patrick Chang, deliberately refrained from passing the higher sentence to which he said he was tempted. And by his reference to Patrick Chang and Chung Chiu Fat when dealing with Dominic Cheung it seems likely that the judge was similarly concerned.

33. With respect it was a misconceived concern. Chung Chiu Fat was convicted on different counts from Dominic Cheung and the sentence on Patrick Chang was dramatically influenced by the judge's acceptance of him as being in a category of a "Supergrass", a concept we find, with respect, difficult to apply to commercial crime. In any event that was a consideration purely personal to Patrick Chang, quite irrelevant to the case of either Chung Chiu Fat or Dominic Cheung.

34. The correct approach of the judge in sentencing Dominic Cheung should have been to assess first the appropriate terms of imprisonment with regard to each of the two conspiracies, bearing in mind that both were bad cases of their kind and would of themselves attract a sentence at or near the then maximum. The judge should have gone on to consider whether the part played in either by Dominic Cheung was significantly less than others concerned. In our view he could properly have come to the conclusion with regard to the first conspiracy that, although Dominic Cheung was active in its practical execution, the original initiative came from the former chairman of the Bank, who until his death must have exercised considerable influence over Dominic Cheung. No such excuse can be relied upon in the second conspiracy. There we are satisfied that Dominic Cheung was equally to blame with Patrick Chang.

35. Finally the judge should have turned his attention to the considerations personal to Dominic Cheung. He had pleaded guilty to both counts. He had an exceptional record of lifelong and devoted service to the community through the medium of the Catholic Church. That had to stand well in his favour. He had also lost half a million dollars of his own money, although that is minute in comparison with what the Bank had lost.

36. Had the judge approached the sentencing exercise in this manner we think it likely that he would have arrived at consecutive sentences probably of two and four years respectively. A total of six years would, bearing in mind his particular personal considerations, have not been inappropriate. However in accordance with the practice established by this Court when amending sentences on review we would reduce them now to one and three years respectively, making a total of four years.

37. We appreciate that such a sentence may leave Dominic Cheung with a sense of grievance in that his colleague Patrick Chang, who has committed other crimes besides his own, and Chung Chiu Fat, who has committed different but equally serious crimes, should both be serving lesser sentences. That is understandable from his point of view, but the community interest cannot be ignored. We cannot do better by way of explanation than to repeat the remarks of Roskill L.J. (as he then was) in R. v. Stroud[8] approved by this Court in R. v. So Hung Lee[9] -

“It is said that there is here such a glaring disparity that this Court ought to interfere in order to remove what is said to be a grievance on the part of the appellant Stroud.

That argument pressed to its logical conclusion would mean, as Scarman, L.J. pointed out during the course of the appeal, that because one inadequate sentence is wrong, the other prisoner must also get a glaringly inadequate sentence in order to produce what is said to be a proper adjustment between the two and to avoid disparity. In the view of this Court that is quite wrong."

38. Before leaving this case we feel we should mention an agreement made between counsel for the Crown and counsel for Dominic Cheung prior to the taking of his plea, that if he should plead guilty to the counts against him, counsel for the Crown would say nothing to the trial judge as to whether the sentences should be concurrent or consecutive, and if asked by the judge would say that it was a matter for the Court, making no submission either way.

39. Such an agreement cannot possibly, of course, be binding upon any court. But in so far as it must in our view tend to hamper counsel for the Crown in the proper discharge of his duties to assist the Court we think it should not be repeated.

40. Mr. Marash, who appears together with the Attorney General in these proceedings, tells us that prosecuting counsel feel in any event very much constrained by the long established practice of the Bar to do no more in respect of sentence at first instance than to state the relevant facts of the case dispassionately and provide personal details of the accused. Where appropriate they would like for example, but feel reluctant, to offer the Court information as to sentences passed by other judges in comparable circumstances. On review before this Court much greater latitude is allowed and counsel are permitted to argue the principles of sentencing which he thinks should apply, draw the court's attention to the facts which militate for a heavier or different sentence, seek, by argument, to persuade us that the lower court was wrong and draw attention to sentences imposed in similar cases: A.G. v. Chan Wai Lan[10].

41. We assume that the practice of the Bar became established at a time when anything in the nature of an appeal against sentence would have been regarded as near heresy. That outlook no longer prevails and it may be that the time is ripe for a reconsideration of the practice at first instance. In any event, while not wishing to encourage prosecuting counsel to press for any particular sentence, we do not think any objection could be raised if counsel came prepared with details of comparable sentences which he could make known to the judge if so requested. Judges are commonly engaged in a variety of different work and most would, we think, be grateful to know that they could rely upon prosecuting counsel in this way.

42. For the reasons we have given we allow the application, and for the sentences below we substitute consecutive sentences of one and three years respectively.