HKSAR v. LAM SUK CHING AND OTHERS

CACC 571/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 571 OF 2002

(ON APPEAL FROM DCCC 402 OF 2002)

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J U D G M E N T

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Seagroatt J: (giving the Judgment of the Court)

1. These are applications for leave to appeal against conviction by the 4th, 7th and 11th Defendants. All Defendants at trial faced one charge of conspiracy to defraud. The essence of the charge was an attempt, successfully in many respects, to defraud their victims of sums of money. It is in the vernacular a "scam" or fraudulent criminal enterprise which has been prevalent. The victims were defrauded of approximately $2.5 million.

2. A company, "Treasure Base Limited" was formed without real assets. The shareholders are two directors who distanced themselves from any day-to-day activity. They are the 7th and 11th Defendants, the 7th being unrepresented. Commercial premises were rented and a deposit of three months' rental together with other liabilities were paid in advance. In due course the rent ceased to be paid. The company had no bank account. It had no records of any transactions conducted on its behalf. It purported to employ a number of persons who practised what this court now well recognizes as a series of deceptions as follows:

(1) The company advertised for employees for clerical work.

(2) One or more of the existing employees established a friendly rapport with the new recruits and showed them calculations purporting to demonstrate that easy profits could be made from so-called investment in the London Silver market.

(3) The recruits were persuaded to open an investment account with the company and to part with sums of money in cash purportedly to put in those investment accounts. They were informed they had to make a minimum number of transactions. Initially they were told that their 'investments' were making a profit, no doubt to induce them not to try and withdraw them whilst the 'going was good' and also to induce them to invest more.

(4) When losses eventually materialized, pressure was put upon them to put more cash in to keep the account open and operational. Eventually when they could raise no more cash, they were told that they owed the company money and the accounts were frozen.

3. With the exception of the 7th and 11th Defendants, all were identified by one or more of the victims as having played a specific role in the fraudulent conspiracy. Deputy District Judge Michael Jenkins convicted the 2nd, 3rd, 4th, 6th, 7th, 10th and 11th Defendants. Four other Defendants had pleaded guilty to the charge. He found the 8th Defendant not guilty. In his Reasons for his Verdict, he summarized the evidence of each witness including that of one particular victim Ms Chu Chui Lin, which gave a typical picture of the deceit and fraud practised upon her and others.

4. The flavour of the case can be fully appreciated if we set out here the Deputy Judge's summary:

"6. The 1st Prosecution Witness was Ms Chu Chui Lin. On 19 April 2000, she noticed an advertisement for a clerk in a newspaper and applied for that job. She was interviewed at the offices of Treasure Base in Pottinger Street and commenced to work on 25 April 2000. On her first day of work, she was shown into an office where someone gave her some files to read. A little later, the gentleman whom she knew as 'Sam' explained to her how to calculate commission from the information on the files. These files appeared to contain records of customers' dealings and she believed that the company was in the import/export business dealing in industrial silver.

7. After a day or so, she was told by Sam that another apparent member of the staff by the name of 'Janet' had her own personal account. Sam said that he wished to open an account himself and asked Janet about it. As a result, Sam spoke to another member of the staff by the name of 'Joe'. Joe said that a $200,000 deposit was needed to open an account. According to the 1st Prosecution Witness, Sam then left, apparently to go to the bank, and he returned and handed over what appeared to the sum of $100,000 to Joe. Joe said that that sum was insufficient and Sam said that he would raise another $100,000 from a friend. All this took place in the presence of the 1st Witness and it gave her, she said, the idea of opening her own account.

8. By now, she knew or thought that she knew from talking to Sam and Janet, how the system worked and how by trading in industrial silver, significant profits could be achieved. In particular Janet, she said, had told her of the profit she had made. She spoke to a person by the name of 'Alan' whom she described as another manager and she was told that she could open her own account if she had $200,000. She paid in the first instance $10,000 and later the same day withdrew $170,000 from her bank. Sam had accompanied her to her bank for this purpose.

9. The next day she withdrew a further $20,000 from a bank and handed it to Alan who gave her a receipt for $200,000. She was given an account number 3301, and began trading. She said that she shared a room with Sam. Inside the room was a computer which Sam operated and on which the prices were displayed. At some point during this day, another member of the staff by the name of Ah Man whom the 1st Witness had previously met, passed on the information to her that the price was good and a sale should be made.

10. She explained that in order to make a transaction, either a buy or sell, she had to give her order over a telephone. The person on the other end of the line confirmed the price and she then completed the buy or sell order form which was handed in at a window. At this window, the form was stamped with the time and date, returned to her and she then recorded the transaction in a ledger. The first few transactions went off smoothly enough and on paper at least she was showing a profit. It was plain from her evidence that in all that she did, she was following the instructions, or at least the advice, of someone else in the company. In doing so, she at one point placed two consecutive sell orders, only to be told by Alan that this was wrong. Alan also told her that to cover the situation, she should make two purchases or she would be at risk of losing all her money. Alan also told her that she should be prepared to raise at least another $200,000.

11. It was plain that she found the situation confusing. What she did know, because Alan had told her, was that she did not have enough money to cover the two sales of 70 lots each. She added that all this was happening very quickly and her mind was blank. She was told to follow their instructions which she did. She made two purchases of 70 lots to cover the earlier two sales. In the meantime the price had risen. Alan told that she had lost all her money and needed to raise more and if she did, he could help her regain her money. Joe also spoke to her along the same lines saying that if she could raise further money, she could continue working.

12. She attempted to contact a friend by telephone but the call was interrupted by another voice on the line. By now she had her suspicions about the company and did not return to work. Instead she went to the police.

13. On 1 June 2000, she accompanied the police to the office where she there identified a receptionist who was the 5th Defendant, a man by the name of Cheuk Ka-lok who is the 2nd Defendant and, at an identification parade on 19 July 2000, she identified the person she knew as Sam, who is the 9th Defendant. She suffered a loss of $200,000."

5. It may assist and it is in any event logical if we first set out the case against the 7th and 11th Defendants, being the directors and shareholders of the company. The undisputed factual matrix is set out in the Reasons for Verdict at paragraphs 169-172.

6. They were the two directors and shareholders of Treasure Base and they had signed the tenancy agreement for the office premises in Pottinger Street on 22 or 23 March 2000 at the offices of the landlord's solicitor, when they attended accompanied by an unknown third man. The advance rent was paid in cash in their presence on that occasion. Over $100,000 was handed over for the advance rent and other disbursements.

7. The address of the Pottinger Street premises had been given earlier in a document filed at the Companies Registry on 10 March 2000 relating to the allotment of shares and signed by the 7th Defendant. He also signed an application to the Inland Revenue Department for registration under the Business Registration Regulations. Both he and the 11th Defendant were named as directors in a further notification to the Companies Registry. Each held 4,999 shares in the company which had a share capital of 10,000 shares. The company advertised for staff in April 2000. Shortly thereafter the rent ceased to be paid. In fact, it appeared that no rental was paid after the advance payment of three months' rent.

8. This background and the fraudulent activity reviewed by the Deputy District Judge in his Reasons led him to conclude that the company was established as a vehicle for fraud. The police had raided the premises on 9 May, 1 June and 19 July arresting a number of the other defendants on each occasion. Some of them were arrested on all three occasions. It was clear that the company and the personnel were conducting the same fraudulent activity on each occasion.

9. The company had no bank account in Hong Kong. There were no genuine business records or financial or accounting documents. The initial payments on the signing of a tenancy were made in cash. In our view, the Judge's conclusion was unimpeachable.

10. The 7th and 11th Defendants remained directors and shareholders throughout the short period from the inception of the company to the final raid and arrests.

11. Directors direct companies. That is why they are appointed directors. Companies can act legally only through their directors. In forming such a company, obtaining premises and completing essential documents for formalities as these Defendants did, it is obvious that there would be a commercial purpose for such company. That purpose was amply demonstrated by the evidence of the fraudulent business.

12. It is an entirely reasonable inference that the directors knew of and approved the business being conducted. There is in the absence of any other evidence, no other reasonable inference. Neither the 7th nor the 11th Defendant gave evidence at trial and, as the Deputy District Judge very properly stated, he drew "nothing adverse from their failure to do so". But not having given evidence, there was nothing put forward by them which could explain the obvious inferences to be drawn by virtue of their positions as directors of this company, and the total absence of any genuine records of the business conducted.

13. On behalf of the 11th Defendant, Mr Osmond Lam has suggested that there was insufficient evidence from which to draw an irresistible inference of guilt from the mere fact that the 11th Defendant was a director. That is to overlook the status and responsibilities of a director. He suggested that there were other reasonable inferences to be drawn such as that he was only a nominal director. However, if that were to be the case, it would be for the 11th Defendant to say so or in some other way adduce evidence to that effect. He did not do so.

14. He relies upon this Court's decision in the HKSAR v. Chan Kwok Kuen, CACC 171 of 2001 (unreported) whereby the 3rd defendant in that case had his conviction quashed. He was a director of the company which practised an almost identical fraudulent enterprise but did not take on his duties as director until the conspiracy had been in existence for three months, although thereafter it is possible that he attended two company meetings.

15. That decision does not help Mr Lam in any way. The circumstances were significantly different. We are satisfied that there are no grounds for disturbing the verdicts in respect of either the 7th or 11th Defendant. Indeed, we found the Judge's conclusions were properly based and concisely expressed.

16. We turn now to the 4th Defendant, Ms Lam Suk Ching. She was arrested following the first police raid on 9 May 2000 and re-arrested following the raid on 19 July 2000. The evidence relating to her involvement is essentially that of the 3rd Witness. The 4th Defendant did not give evidence and therefore, although that can in no way constitute an adverse factor, there was no evidence from her to set against that of the victim. The Deputy District Judge found the evidence against this Defendant overwhelming. He set it out meticulously in his Reasons.

17. This Defendant cynically inveigled herself into a quasi-family relationship with the victim in order to win her confidence. She also accompanied the victim to the bank where, through sheer force of her personality it would seem, she facilitated the withdrawal from the victim's account of $300,000. This money was then handed over to one of the colleagues, Joe, and thus effected a loss for the victim. That was not the end of it for the victim. This Defendant somehow managed with others to persuade the victim to 'invest the remainder of her savings', $800,000. Inevitably that too was taken away from her. The conviction, in our view, cannot be faulted in any way. It was inevitable given the nature and the extent of the evidence against her.

18. Accordingly, these 3 applications are dismissed.