HKSAR v. CHEUNG SZE WAH

CACC 301/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 301 OF 2009

(ON APPEAL FROM DCCC 1029 of 2008)

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BETWEEN

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J U D G M E N T

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Hon Macrae J (giving the judgment of the Court):

1.  The applicant appeared for trial together with two other defendants before HH Judge P Li in the District Court.  By Charges 1 – 3, the prosecution alleged that the applicant had managed three separate vice establishments in Mong Kok, known respectively as Prince Silver Spring Sauna (S1), Prince Sauna (S2), and Prince City Sauna (S3), contrary to section 139(1)(b) of the Crimes Ordinance, Cap 200.  Although the time frames alleged in the three charges were different, each charge concerned a different period between 16 March and 1 November 2005.

2.  Charges 4 – 9 alleged that the applicant between 16 March and 1 November 2005 had dealt with property known or reasonably believed to represent the proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap 455.  There were three pairs of such offences, each pair (Charges 4 - 5, 6 -7 and 8 - 9) relating to one of the three vice establishments.  In aggregate, the amounts which the applicant was alleged to have derived from his management of the said vice establishments totalled HK$31,120,413.08.

3.  The applicant was convicted of all charges after trial.  He received concurrent sentences of 29 months imprisonment on the vice establishment charges, the judge adopting a starting point of 30 months but discounting the sentence on these charges by 1 month because of the delay in bringing the applicant to trial.  In relation to the dealing with property charges, the judge sentenced the applicant to 3 and a half and 3 years imprisonment respectively for the first pair of charges (Charges 4 – 5), 3 years and 2 years imprisonment respectively for the second pair (Charges 6 – 7), and 3 and a half and 2 years imprisonment respectively for the third pair (Charges 8 – 9).  Whilst the sentences within each pair of sentences were ordered to run concurrently, one year of the sentence on Charges 6 – 7 was ordered to run consecutively to the sentence on Charges 4 – 5, with a further one year of the sentence on Charges 8 – 9 also ordered to run consecutively to the sentence on Charges 4 – 5; making a total of five and a half years for the dealing with property charges.  One year of the sentence in respect of the vice establishment charges was further ordered to run consecutively to the dealing with property sentences, making an overall sentence of 6 and a half years imprisonment. 

4.  The applicant appeals against both conviction and sentence.  On 25 July 2012, we refused the application for leave to appeal against conviction and said we would give our reasons in due course.  We now give reasons for that decision.  We also reserved our decision on the question of sentence and we now give judgment in relation to that question.

The Facts

5.  In relation to S1 and S2 the prosecution relied upon the evidence of two undercover police officers who worked in the establishments at the material time.  Furthermore, several other officers, who had posed as customers in numerous decoy operations at S1, S2 and S3, were able to tell about the different forms of sexual service which had been offered to them at each place.  Essentially there were different charges depending on whether the customer received masturbation, a body massage or sexual intercourse.  In respect of S1, the prosecution were also able to rely on the testimony as prosecution witnesses of D3 and D4, who had been manageresses of S1 at the relevant time, as to the system and charges in operation at that particular establishment.  When the three saunas were raided, police found over 800 condoms together with lubricant in the masseuses’ lockers and handbags in S1, 276 condoms and lubricants in S2 and 1,242 condoms and lubricants in S3.

6.  No issue is taken in this appeal with the finding that each of the saunas concerned was a vice establishment within the meaning of section 117(3) of the Crimes Ordinance.  At issue was whether or not the applicant could be shown to have managed each establishment, in particular S3.

7.  The applicant held 50% of the shares in Ocean Group Investment Ltd, which traded as S1.  His wife and a third person each held 25% of the balance of the shares.  All three shareholders were directors of the company.  Further, the applicant and three others held equal shares in Prince Sauna Limited, which traded as S2.  All four shareholders were directors of the company.  In respect of both S1 and S2, the applicant had signed a merchant agreement on behalf of the company with Hang Seng Bank for credit card payment facilities.  In addition he was one of the signatories to the company's savings account for S1 and one of the signatories to the company's savings and current account for S2.

8.  D3 gave evidence that the applicant turned up on a daily basis to S1, chaired monthly meetings on discipline and performance with all staff members and held special meetings with managers.  D4 identified the applicant as the boss who occupied a room known as the ‘boss room’, which was normally padlocked.  Each witness gave evidence that it was the applicant who had stipulated the different charges for the various sexual services on offer.

The appeal against conviction

9.  Mr David Ma, counsel for the applicant at this appeal, realistically accepts on the basis of the above evidence, all of which was accepted by the judge, that there was compelling evidence of the applicant's role as manager in both S1 and S2.  Accordingly, he has not sought to advance any ground of appeal impugning the verdicts on Charges 1 and 2.

10.  However, in relation to Charge 3 which relates to S3, there was no evidence that the applicant was present in the premises during any of the decoy operations nor were D3 or D4 able to give any evidence about the operation of this particular sauna.  In contrast to the position of S1 and S2, the applicant was not a director or shareholder of the company trading as S3.  Accordingly, Mr Ma advances but one ground in this appeal against conviction, namely that there was insufficient evidence to establish that the applicant was managing S3 at the relevant time.

Discussion on the appeal against conviction

11.  This ground of appeal may be shortly disposed of when one examines the remaining evidence available in relation to this charge. Whilst it is true that the applicant did not appear to be involved with the company which ran S3, it was an admitted fact that he had opened a savings and current account on behalf of S3 with Hang Seng Bank in August 2002 and remained one of the account’s four authorised signatories.  In October of the same year, he and another person had signed a merchant agreement on behalf of the company with the same bank for credit card facilities.  Furthermore, when the sauna premises were raided on 1 November 2005, cheques bearing the applicant's signature were found inside a safe in the manager's room, photographs of the applicant as well as an insurance policy in his name were also seized in safes in the manager's room and at the cashier’s counter and 27 deposit slips recording deposits into the applicant's personal account between 3 October and 1 November 2005 (which was within the period encompassed by the charge relating to S3) were found inside a safe in the manager's room.  More importantly, perhaps, in the light of the argument, letters signed by the applicant on behalf of S3 were also found in one of the safes. 

12.  The applicant did not give evidence so as to explain the presence of these rather significant items inside locked safes on the premises.

13.  We are satisfied that there was sufficient evidence not only to link the applicant with S3 but to demonstrate his involvement at the material time with the business in a managerial capacity.  We found nothing in this ground of appeal and, accordingly, refused the application for leave to appeal against conviction.

The appeal against sentence

14.  As can be seen, the applicant received a total of 5 and a half years imprisonment for the dealing with proceeds offences, which well exceeded the sentences in respect of his managing the vice establishments from which the proceeds derived.  Mr Ma argues that since the applicant’s receipt of proceeds was integral to the substantive offences of managing a vice establishment in that the proceeds of the offence were simply going into a bank, they did not add anything to the applicant’s criminality for the substantive offences; and, therefore, any sentences imposed for the dealing with proceeds offences should have been ordered to run concurrently with the sentences for managing a vice establishment.  He relies on the decision of the English Court of Appeal in R v Greaves and others [2011] 1 Cr App R (S) 72 which held:

“Where the offenders responsible for the primary crimes were also guilty of offences contrary to the Proceeds of Crime Act, if the conduct involved in the Proceeds of Crime Act in reality added nothing to the culpability of the conduct involved in the primary offence, there should be no additional penalty. A person should not be punished twice for the same conduct.”

Greaves was recently considered in HKSAR v Chan Kim Chung, Nelson [2012] 2 HKLRD 263 where the court said this (paras 17-19):

“The question for the purpose of sentence of the s 25 offence must always be whether its commission adds anything to the culpability disclosed by the commission of the predicate offence. If it does, then that extra culpability must be reflected in the overall sentence imposed. If, however, the s 25 offence adds nothing, then an effective additional sentence for the s 25 offence should not be imposed, for doing so would in effect be to punish the offender twice for the same conduct…..

Where the s 25 offence adds nothing to the culpability of the conduct involved in the primary offence, it will be appropriate either to say that “no separate penalty” is imposed for the s 25 offence or to impose a sentence for the s 25 offence but order it to run concurrently with that imposed for the predicate offence.

In the normal course of events the use of an account to conceal the proceeds of crime, to disguise them, or transfer them or remove them, or the conversion of the proceeds into some other form of property, so as to facilitate the crime’s commission or render its detection more difficult will constitute material additional culpability.  Conversely, where the s 25 offence evidences no more than the mere obtaining of funds already reflected in the predicate offence, it is unlikely -- unless the prosecutor is able to show otherwise -- that additional culpability is demonstrated.”

Discussion on the appeal against sentence

15.  Mr Ma’s argument has a superficial attraction, given that there was no apparent attempt to disguise the receipts from his management of these three vice establishments, which were simply received into a bank account.  However, Ms Ching for the respondent, has argued convincingly that the applicant's role in the primary offences was far greater than is normally encountered with the ordinary type of offence of managing a vice establishment which would generally be dealt with in the magistrate’s court.  The prosecution were in the unusual position of being able to prove either that the applicant was the ultimate beneficiary of the offences or that he had allowed his account to be used by others.  Either way, he could be shown to have had a significant share in the ownership of at least two of the establishments which were generating considerable profits.  It is clear from the evidence that he was no mere administrative manager: he played a ‘hands-on’ role in running the establishments from which he stood to make, and did make, a considerable amount of money.  He was the ‘boss’ in the real sense of that word.

16.  We accept her analysis.  In our view, the dealing with proceeds charges did add significantly to the applicant’s culpability for the primary offences of managing a vice establishment and should have been reflected in the overall sentence imposed.  The question remains whether or not the judge’s attempt to do that by passing an overall sentence of 6 and a half years imprisonment resulted in a sentence that was manifestly excessive or wrong in principle.

17.  On this question, Mr Ma makes a number of valid points.  First, he points out that the sentence for the dealing with proceeds charges were almost two and a half times the length of the sentence for managing the vice establishments, assuming 30 months was a correct starting point for three offences of managing a vice establishment viewed without the aggravating feature of the applicant’s role in and profit from the ownership of those businesses.

18.  Secondly, in calculating the proportion of the total proceeds derived from sexual services from the three vice establishments in question, the judge accepted that there was a legitimate side to the business of what were ostensibly saunas (and for which S1 held a valid massage establishment licence).  Accordingly, he discounted the proceeds of S1, S2 and S3 by 40%, 30% and 30% respectively in respect of genuine business to arrive at percentages of 60%, 70% and 70%, which represented the illicit profits of each establishment.  However, in doing so the judge fairly acknowledged:

“Counsel cannot propose any basis documentary or otherwise for the estimation of the proportion……There has to be a certain degree of arbitrariness one way or the other.”

19.  Since sentence was passed, the defence have approached the prosecution armed with an expert accountant’s report with a view to demonstrating, by reference to the daily customer record sheets exhibited, that the judge did not discount the proceeds in respect of genuine business transactions enough; or rather, that he took too high a percentage to reflect the illicit side of the businesses.  This matter has been properly examined within the Forensic Accountant’s Office of the Finance Division of the Hong Kong Police Force.  Whilst the original methodology proposed by the defence accountant was not accepted, both sides have since worked out a revised methodology which is acceptable to both parties.  It is not necessary for us to consider this matter further because Ms Ching now accepts, on the basis of the revised methodology, that the proportion of proceeds attributable to illicit business in the three establishments should have been 50%, 58% and 58%, which represents an improvement of one sixth in the applicant’s favour. 

20.  Very properly, Ms Ching has accepted that these figures now represent “a much more accurate and fair deduction” in respect of legitimate business.  However, she points out correctly that the amount of the proceeds concerned in such offences is not the sole, determining factor in the consideration of sentence.  She refers us to the decision in HKSAR v Leong Wai Keong (Unrep, CACC 467/2007) where, at para 29, the court said:

“The amount of money involved in a laundering operation is one cogent factor to take into account and indeed may be, in the circumstances of a particular case, the primary factor, though plainly a mathematical progression in sentence based on the sums involved is inappropriate.”

21.  Thirdly, Mr Ma refers to the one month discount in respect of the delay in bringing this case before the court, which delay was accepted by the judge.  He argues that by discounting the overall concurrent sentences for the vice establishment charges but not for the dealing with proceeds charges, and by making one year of the first set of offences consecutive to the second set of offences, the one month discount was meaningless and had no effect at all on the overall sentence.

22.  We have concluded, accepting the cumulative effect of Mr Ma’s submissions, that the overall sentence in this case was manifestly excessive.  Nevertheless, this was not a single, ordinary case of managing a vice establishment which might normally come before a magistrate’s court.  This was a considerable and lucrative business involving three separate vice establishments in which the applicant had a very significant role not merely in running each establishment but in profiting from it financially.  To properly reflect the applicant’s role, we think the correct overall sentence after trial (delay apart) should have been 5 and a half years imprisonment. We should add, however, that had there been any suggestion in the evidence of underage girls being involved or women being brought to Hong Kong from outside the jurisdiction for the purpose of prostitution, or if there had been any overt triad connection or involvement with the running of the businesses, or if the proceeds had been laundered in a more devious way, the sentence would have been higher.

23.  We shall achieve that result by reducing each of the sentences on Charges 4 to 9 by one year.  Each pair of sentences will remain concurrent and 1 year of each of the sentences on Charges 6 and 7 and Charges 8 and 9 will remain to run consecutively to the sentence on Charges 4 and 5.  The sentences of 30 months less one month in respect of Charges 1 to 3 will remain concurrent with each other but, instead of 1 year for these offences running consecutively to the overall sentence on Charges 4 to 9, 11 months will be ordered to run consecutively to the sentence on the other charges; otherwise, the applicant would effectively receive no discount for the accepted delay.

24.  We allow the application for leave to appeal against sentence, treat the hearing of the application as the appeal, allow the appeal and substitute the sentences indicated.  In the result, the overall sentence is reduced to 5 years and five months imprisonment.