SECRETARY FOR JUSTICE v. CHAN BOON NING

CAAR 1/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

APPLICATION FOR REVIEW NO. 1 OF 2002

(ON APPEAL FROM HCCC 34 OF 2001)

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J U D G M E N T

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Stuart-Moore, VP (giving the judgment of the Court):

Introduction

1. This application, made on behalf of the Secretary for Justice (the Applicant), for a review of sentence pursuant to section 81A of the Criminal Procedure Ordinance, Cap. 221, follows the Respondent's conviction before Tong J on 12 December 2001 in the Court of First Instance, after a nineteen-day trial, on three counts of theft and four counts of false accounting, contrary to sections 9 and 19(1)(a), respectively, of the Theft Ordinance, Cap. 210.

2. On 19 December 2001, the Respondent, aged 36, was sentenced to three concurrent terms of six years' imprisonment for the theft offences to run concurrently also with four concurrent terms of four years for the false accounting offences.

3. Leave was granted by the Chief Judge of the High Court on 11 January 2002 for sentence to be reviewed. The Applicant submitted that the totality of six years' imprisonment was manifestly inadequate.

Prosecution's case

4. The nature of the allegations made against the Respondent at his trial was fully set out in the judgment of this court (differently constituted) handed down on 7 August 2003 when dealing with his application for leave to appeal against conviction, CACC 571/2001 (unreported). For ease of reference, we shall repeat the relevant portions of what was stated by Stock JA in that judgment, as follows:

"Introduction

....

2. The essence of the case against the applicant (the Respondent in the present proceedings) is that he caused funds to be withdrawn from the account of a company called Fairyoung Port Investments Limited ('FPIL') to the tune of almost $81 million to be channelled to pay for debts which two of his companies had incurred in margin trading; that to his knowledge he had no authority to cause the withdrawal of these funds; and that he sought to cover up what had happened by falsifying accounting records of FPIL to show that the funds were for payment of an investment in a ports and warehousing project in Xiamen, whereas in fact the funds were for his personal use.

The companies

3. There are, in the story which unfolds, a number of companies with the name Fairyoung in them - Fairyoung Holdings; Fairyoung Port Investments Holdings; and Fairyoung Port Investments Ltd. It works in this way:

4. Fairyoung Holdings is a public company of which the applicant was the chairman and a major shareholder. Together with a company called Asian Infrastructure Fund ('AIF'), Fairyoung Holdings formed a company called Fairyoung Port Investments Holdings ('FPIH). Fairyoung Holdings held 42.59% of FPIH; and AIF held 42.74%. As its name suggests, FPIH was a company which invested in ports and port development. The directors of AIF were, at the material times, Mr Michael Rule, Mr Bruce Allen, and Mr Andy Tse.

5. There was concluded a shareholders agreement, the essential clause of which, for present purposes, was that any transaction by FPIH over the sum of US$4 million could proceed only with the agreement of AIF. The applicant and Mr Rule were directors of FPIH.

6. At some date after 1994, there was formed another company, which is a publicly listed company called Pacific Ports Company Limited ('PPC'). 75% of it is owned by FPIH. The applicant was chairman and director of PPC, and Mr Rule one of its directors.

7. The company with whose bank accounts we are concerned in this application is Fairyoung Port Investments Limited ('FPIL'), which is a wholly owned subsidiary of PPC and of which the applicant was a director.

8. There were two private companies owned by the applicant: Kian Realty Ltd, and Anklong Ltd. These two companies held margin accounts with DMT Finance Ltd ('DMT'). The applicant had pledged his shares in Fairyoung Holdings to DMT to enable his two companies to operate their margin accounts. In 1997 the value of the shares thus pledged fell and, as a result, the indebtedness of the companies increased, and DMT pressed the applicant for payment. The prosecution case was that this triggered fraud by the applicant.

The indictment

9. On 19, 22 and 23 January 1988 the applicant caused three cheques to be issued on FPIL's account with the Dao Heng Bank. The applicant signed each cheque, made out to 'cash' and uncrossed, in the sums of HK$5.9 million; $5.169 million; and HK$70 million respectively. The first and third cheques were used to purchase cashier orders which were delivered to DMT. The proceeds of the second cheque were split: $0.5 million went to Fairyoung Holdings, whereas the balance of $4.669 million went to Anklong Ltd. The prosecution case was that the three cheques were issued without the knowledge or consent of the directors of either PPC or FPIL. In short, it was said that the applicant stole the choses in action represented by those balances (in the case of the second cheque the sum of $4.669 million was chosen) in FPIL's account. Those were the first three counts on the indictment.

10. Three of the four false accounting charges related to accounting vouchers that were completed at FPIL. They were dated 20, 21 and 23 January 1998 and recorded the bank payments from the company's accounts. When these vouchers were first completed, the column under 'particulars' was left blank but, somewhat later, each was filled in by the words 'Deposit for W&P Zone Investment'. 'W&P' was the company's shorthand for warehousing and processing, so the entries denoted - and we shall shortly see the context - deposits for investment in a warehouse project. The vouchers were signed by the applicant under the rubric 'approved'. They therefore purported to show payments from the company for such investments but since it was alleged that the payments were not for such investments at all, they resulted in three charges of false accounting - counts 4, 5 and 6. Count 4 is a typical count:-

Fourth Count

STATEMENT OF OFFENCE

False accounting, contrary to section 19(1)(a) of the Theft Ordinance, Cap. 210.

PARTICULARS OF OFFENCE

CHAN Boon-ning, on or about the 20th day of January 1998, in Hong Kong, dishonestly with a view to gain for himself or another or with intent to cause loss to another, falsified a document or record made or required for an accounting purpose, namely Fairyoung Port Investments Limited bank payment voucher dated the 20th day of January 1998, by making or concurring in the making of an entry therein which was or may have been misleading, false or deceptive in a material particular in that it purported to show that the sum $5,930,654 Hong Kong currency had been paid as a deposit for W and P Zone Investment.

11. The suggested deposit for a warehouse investment has its background in the applicant's attempts to persuade the board of directors of PPC that PPC should invest in a joint project in Xiamen for the purchase of a warehouse and land from a company called Xiamen Xiangyu Group Company Limited ('XXG'). The applicant's case was that since he was chairman of PPC, he had authority to enter upon an agreement with XXG, and to pay a deposit in the sum of $85 million to XXG through its agent in Hong Kong, a company called Topmost Enterprises Ltd. ('Topmost'). In addition, there was between him and XXG, he said, an oral agreement for the loan by XXG to him, the applicant, of the $85 million for his own use pending completion of the transaction between XXG and PPC. That is how he, he said, came to use the money for the benefit of his own companies, Kian Realty and Anklong Ltd.

12. The seventh count relates to the suggested written agreement between PPC and Topmost, and it was alleged that on or about 6 February 1998 the applicant dishonestly, and with a view to gain, falsified a document or record made or required for accounting purposes, namely, that agreement, and that it was false in two material respects: that it purported to show that it had been made on 19 January 1998; and that PPC had agreed to pay Topmost $85 million as earnest money within seven days of the agreement. The assertion was that no agreement had been reached by 19 January with Topmost or Topmost's suggested principal, XXG. Indeed the contention was that no agreement of the type suggested by the document had ever truly been reached; and, in any event, Topmost had not even been formed by 19 January. It was not asserted in terms by the prosecution that the applicant and XXG personnel had not even discussed such a project. The assertion was that if they had, there was never by 19 January any agreement. The applicant used the fact of negotiations - if indeed there ever had been any - as a convenient vehicle by which to pretend that agreements had been reached. The written agreement which was in due course produced, and dated 19 January, did not reflect any commercial reality or fact.

The prosecution evidence

13. Mr Rule's evidence was that on 23 January 1998, whilst he was in Canada, he received a telephone call from the applicant who sounded disturbed and who said that he, the applicant, had financial problems. The following day, Rule received a fax which announced a board meeting of PPC for 26th January at which, so the fax suggested, there was to be discussed a possible investment by the company into road tolls on the mainland. This would be an unusual investment for that company to make, so Rule telephoned the applicant and told him that the meeting should be postponed, for it was at too short notice and the change in the company's normal business, as evidenced by the proposal, was significant. The applicant told Rule that he had financial troubles because of share trading, and that the proposed business offered a method of saving his company Fairyoung Holdings. Rule's answer was that for the directors of PPC to assist in this way was unorthodox. The meeting was postponed to 2 February.

14 On Rule's return to Hong Kong on 1 February, there was waiting for him a notice of a directors' meeting to take place on 2 February, signed by the applicant as Chairman of PPC, and dated 26 January. It said that the meeting was so that the directors could discuss and approve two matters: first, the acquisition by PPC of 51% of a toll company in Xiamen; and, secondly, the acquisition by the company of a warehouse and land in Xiamen. Brief information of the proposals was annexed.

15. The proposal for the acquisition of the warehouse and land was within the company's normal objects, but it represented a major proposal and the documents attached did not, so far as the directors, apart from the applicant, were concerned, suffice as a basis for decision. There were not even any land valuation reports produced. Mr Rule was surprised at the speed with which the proposals were being presented, and he sought a meeting with the applicant to take place before the PPC board meeting. There, the applicant agreed to put off, for six weeks, discussion of the toll proposal.

16. Attending the PPC meeting were the applicant, Mr Rule, Mr Tse and Mr Bruce Allen, as well as a Mr Ng of Fairyoung Holdings, and Ms Gladys Yuen to take minutes. Mr Rule's evidence was that the meeting discussed the proposal as they would any other first introduction of a new project. The applicant introduced the subject and suggested to the meeting why it was a good investment for PPC. The consensus, according to Mr Rule's evidence, was that it was interesting and might be a good investment depending on further information. Those attending then moved on to the next subject.

17. Mr Rule and the other director witnesses from AIF were clear in their testimony that there was no suggestion by the applicant at that meeting: (1) that there had been any negotiations with XXG; (2) that he had come to an agreement or understanding with XXG; (3) that anyone had authorized the use of funds by the applicant for the purpose of such an agreement or for himself; or (4) that funds had been withdrawn from FPIL for the purpose of the suggested acquisition. They were not aware:

(1) that on 27 January, the chief accountant of the Fairyoung Group had sent to a firm of solicitors a draft agreement for the acquisition by PPC of the warehouse and land in Xiamen which draft provided that a deposit of $85 million was to be paid within seven days of signing of the agreement. (The solicitor suggested some changes, especially to the provision for a deposit which the solicitor thought should be a payment as a sign of earnest rather than a deposit. There was in fact no question of a concluded agreement by 19 January let alone 2 February, for drafts and documents went back and forth, to and from the solicitor, well after 2 February. Indeed, as late as 9 February, the solicitor faxed a second draft of the agreement. The agreement which was ultimately dated 19 January 1998 and which was used by the applicant to support the payments in this case had not by that stage, that is, by 9 February, even been seen by the solicitor);

(2) that in late January, draft minutes of the meeting of 2 February had already been prepared. The prosecution's case was that these minutes had been prepared on the applicant's instructions but the witness who wrote them, Ms Gladys Yuen, said that although such pre-preparation was without precedent, she could not recall if she had first consulted the applicant about them. The draft referred to the toll proposal and included a conclusion that the company had resolved the authorisation of that acquisition and of the applicant to negotiate and conclude terms of an agreement. It referred also to the Xiamen warehouse and land acquisition and stated that the board had resolved to proceed with it. This draft was not however forwarded by the applicant to the board before the meeting;

(3) that the applicant had drawn the three cheques on the account of FPIL, in a total sum of $81 million; or

(4) that in early February the Financial Controller of the Fairyoung Group, Alvin Wong, had, allegedly on behalf of someone named Xu Qi, purchased a BVI company called Topmost Enterprises Ltd ('Topmost'). Topmost was the company named in the draft agreement, later dated 19 January, as the representative of XXG in Hong Kong.

18. After the meeting of 2 February, the directors received draft minutes. They recorded that the board had deferred consideration of the toll proposal. As for the warehouse and land in Xiamen, it said that: 'After due discussion, the directors approved in principle on the Xiamen acquisition and further due diligence would be conducted on such issue.' There was no reference to any draft agreement, or to ongoing negotiations, or to the payment of any deposit or earnest money.

19. There was evidence from a solicitor, instructed by Alvin Wong, that on or after 3 February he sent various documents relating to the proposed acquisition of the warehouse and land, one of which was an agreement to appoint an agent in Hong Kong to act for XXG, and to receive the deposit on its behalf.

20. On 5 February, Mr Rule saw the applicant who seemed to him to be agitated, and Mr Rule and his colleagues were sufficiently concerned by recent events to begin inquiries of their own on the Mainland.

21. On or after 6 February 1998, the agreement between PPC and XXG was executed, with the applicant signing on behalf of PPC, and Xu Qi on behalf of Topmost as XXG's authorized agent. The agreement was then backdated to 19 January.

22. The first that Mr Rule saw of this document was on or about 20 February. His evidence was that the applicant had no authority whatsoever to sign that agreement on behalf of the company. Furthermore, $85 million was a large sum indeed as earnest money. So too was it unusual for cheques to be cash cheques in the amount in which these three cheques were drawn. He, Rule, only found out about these cheques on 21 February from the new Financial Controller of the company.

23. There was evidence from an assistant accountant that the three cheques in this case were issued in a manner which was contrary to normal company practice. The first cheque was not drawn by the accounts department, and was issued without an invoice or requisition form. The particulars for the voucher were completed when she, Ms Chow, was given the acquisition agreement by the accounts manager, Ms Connie Leung, and told to fill in the particulars 'W&P Zone Investment'. As for the second and third cheques, the Financial Controller, Alvin Wong, asked her to write out cash cheques. These were again prepared without any requisition document and, when sent off for approval, the vouchers were not complete as to particulars. Nor was the 'approved' box signed. They were subsequently signed by the applicant.

24. There was evidence, too, on behalf on DMT that in October and November 1997 the margin level in the accounts of the applicant's two companies had fallen below an acceptable point; that in December the applicant was called and pressed to clear the debts; and that starting from January 1998 DMT would no longer accept the shares of Fairyoung Holdings for financing purposes, since the value of those shares had dropped. In January, pressure was maintained and then the applicant said that he was ready to clear the debts. These were settled by two cashier orders."

The application

5. Mr Turnbull, on the Applicant's behalf, submitted that this case revealed the plainest of breaches of trust which called for a consideration of the principles set out in R v Barrick [1985] 81 Cr App R 78 at 82, namely:

"....(i) the quality and degree of trust reposed in the offender including his rank; (ii) the period over which the fraud or the thefts have been perpetrated; (iii) the use to which the money or property dishonestly taken was put; (iv) the effect upon the victim; (v) the impact of the offences on the public and public confidence; (vi) the effect on fellow-employees or partners; (vii) the effect on the offender himself; (viii) his own history; (ix) those matters of mitigation special to himself such as illness; being placed under great strain by excessive responsibility or the like; where, as sometimes happens, there has been a long delay, say over two years, between his being confronted with his dishonesty by his professional body or the police and the start of his trial; finally, any help given by him to the police."

The above principles which were of particular concern in the present case were (i), in the light of the Respondent's position as the chairman and a director of PPC, the publicly listed company of which FPIL was a wholly owned subsidiary and of which the Respondent was a director, and (ix), because of the comparatively long delay prior to the Respondent being brought to trial.

6. Whilst the judge referred to the principles in R v Barrick (above), and also to the sentencing guidelines provided in R v Trevor Clark [1998] 2 Cr App R 137 to which we shall turn in due course, Mr Turnbull contended that effectively the judge had only paid lip-service to them without properly applying what those authorities had to say to the present case.

7. The judge's sentencing remarks had included a brief and accurate summary of the Respondent's criminality before he went on to say:

"In my view the (theft) of the cash, by virtue of the three cheques and the false documentations was basically one overall transaction. I accept that it was done to meet an emergency situation. The defendant had, through his own connection and effort, contributed to the growth and wealth of Pacific Port and the Fairyoung companies but as the chairman of a listed company he was clearly in a position of trust in the full extent of the term. It was unfortunate that many businessmen and commercial entities in Hong Kong was hard hit by the crises at the material time but that could not justify the defendant using the companies' money, and such an act would affect the public's confidence in the management of listed companies. The defendant ought to find a legitimate means to solve his own problem.

I note that the issue of delay could be a factor that I could take into account in deciding on the appropriate level of sentence. I accept that these matters have been hanging over the defendant's head for quite a long time. The defendant has also lost his position in the companies and, more importantly, his reputation. And no doubt the convictions will be a serious blow to him and his wife and family but then as an adult he must face the consequences of his own conduct.

I don't think it can be denied that the offences involved a serious breach of trust. The amount involved was very substantial, amounting to more than HK$80 million. As a matter of common sense the companies concerned and the shareholders would suffer as result of the loss of the cash in the account...." (Appeal bundle pp. 36-37)

8. The guideline tariffs and principles in R v Trevor Clark (above) (approved in HKSAR v Wong Kay Din, CAAR 7/1998 (unreported)) were, on the face of them and as the judge appeared to have accepted, applicable in the case presently before us. In R v Trevor Clark, where the English Court of Appeal updated the Barrick guidelines to take into account the effects of inflation, Rose LJ said:

"As was pointed out in Barrick, the amount stolen is not the only factor to be considered. On the contrary, there are many other factors, including the nine specifically identified by the judgment in Barrick.

The effect of inflation since Barrick means that approximately ￡17,000, ￡85,000 and ￡170,000 are the present day equivalents of respectively ￡10,000, ￡50,000 and ￡100,000, the figures mentioned in Barrick. Also since Barrick, as we have said, the maximum sentence for simple theft has been reduced from 10 years to seven years. On the other hand, the scale of so-called white collar dishonesty in the form of theft and fraud has, in the experience of the members of this Court, increased, both in complexity of execution and in the rewards which can be dishonestly achieved. It follows that, as recent authorities have shown, there are cases which properly attract longer sentences than were specifically contemplated in Barrick itself.....

In the light of all these considerations, we make the following suggestions. We stress that they are by way of guidelines only and that many factors other than the amount involved may affect sentence. Where the amount is not small, but is less than ￡17,500, terms of imprisonment from the very short up to 21 months will be appropriate; cases involving sums between ￡17,500 and ￡100,000, will merit two to three years; cases involving sums between ￡100,000 and ￡250,000, will merit three to four years; cases involving between ￡250,000 and ￡1 million will merit between five and nine years; cases involving ￡1 million or more, will merit 10 years or more. These terms are appropriate for contested cases. Pleas of guilty will attract an appropriate discount. Where the sums involved are exceptionally large, and not stolen on a single occasion, or the dishonesty is directed at more than one victim or group of victims, consecutive sentences may be called for."

9. Mr Turnbull submitted that something had apparently gone wrong in the sentencing process in the present case, where the loss of $81 million represented well over five times more than the amount for which a ten-year sentence was merited (to take the present-day conversion rate of over $14 to one pound sterling), and in circumstances where there had been a serious breach of trust.

10. We also take note of the fact that no restitution or compensation has ever been paid. This is not surprising as the Respondent lost all the money he stole in the gamble he took, with funds which were not his to spend, when attempting to settle the debts which two of his companies had incurred in margin trading. The Respondent has at no stage shown any remorse for his actions and he provided no cooperation to the Commercial Crime Bureau who investigated.

11. It was submitted on the Respondent's behalf by Mr John Griffiths, SC, that the judge, by his remarks at the time of sentencing, had shown a complete awareness of all the material aspects of the case, for and against the Respondent. It was rightly emphasised that a judge who has conducted a trial, particularly of the length of this one, will in all probability be best-placed to form an assessment of the appropriate sentence to impose. He submitted that unless the sentence in the present case lay outside normal discretionary limits, no question of interference on the part of this court should arise.

12. Although it was conceded that there would be cases where the circumstances might well justify a sentence which was much higher than the Respondent received for his theft of about $81 million, Mr Griffiths forcefully argued that some of the aggravating factors, often encountered with those who engage in commercial crime, were absent. In particular, the three thefts were effectively a single offence committed within a time span of as many days and the money was not utilised towards a lavish life-style.

13. We are grateful to counsel on both sides for their most helpful submissions. Obviously, this was a case of the utmost gravity in view of the massive scale of the loss incurred by the victim company. We consider the judge was right effectively to have treated the criminality involved in the offences as a single offence. The lengthy delay in bringing the case to trial was also an aspect of the case which gave rise to particular concern and again the judge rightly took this into account.

14. A most useful chronology of events was produced by counsel on each side which illustrated that an unreasonable delay had occurred. In short, the Respondent was arrested on 3 March 1998 for the theft offences, the subject of the present indictment. By 16 June 1998, the prosecution were still not in a position to proceed and an application was then refused for further adjournment. Accordingly, the charges were withdrawn but it was made clear to the magistrate by Mr Turnbull, who also appeared in those proceedings and whose general recollection we accept, that these charges would eventually be re-instituted. It seems that the prosecution were hoping to link the theft charges with an associated complaint with which ultimately, in November 2000, the prosecution decided not to proceed. Immediately following this decision, on 22 November 2000, the Respondent was re-arrested on the theft charges. The false accounting charges were also laid at that stage.

15. In short, the time between 16 June 1998 and 22 November 2000, a period of just under two and a half years, was entirely of the prosecution's making. Whether or not their motives were honourable or thought to be reasonable, the fact remains, as Mr Turnbull responsibly accepted on the Applicant's behalf, that there was an unreasonable delay of at least two years in bringing the Respondent to trial. The prosecution had the evidence to prosecute the thefts in 1998 and plainly they should have continued with those proceedings at that time. In the event, therefore, in a case where there existed very little solid mitigation for dishonesty on the scale demonstrated by this case, the delay provided a sound foundation for reducing the sentence.

16. In the court below, the judge had referred in some detail to the history of delay after Senior Counsel, then acting on the Respondent's behalf, had laid considerable emphasis upon it. It is clear from the judge's later reference to this aspect of the mitigation (cited above), that he took it into account although the extent to which he gave credit for this does not appear from his sentencing remarks.

17. We should add that our attention was also drawn by Mr Griffiths, who did not appear in the court below, to further delays in the post-trial events leading up to the application for leave to appeal against conviction and to this review. However, as those delays were mainly due to matters raised on the Respondent's behalf, we do not consider that these advance this aspect further.

18. Keeping all the issues which were raised on this review, both in argument in court and in the able written submissions of both counsel, we are left in no doubt that the sentence imposed, in its overall effect, was manifestly inadequate.

19. We consider that this was a case, in view of all the circumstances, which merited a sentence of not less than nine years' imprisonment after trial. The grave loss involved was the result of a breach of trust of a very high order. Having regard to the unnecessary and unreasonable delay to which the Respondent was subjected prior to his trial, we consider that this starting point should be reduced by a year. Furthermore, as this remains a substantial increase in the Respondent's sentence, we propose to make a further reduction of six months, leaving a totality of seven and a half years' imprisonment.

Conclusion

20. Accordingly, we shall allow this application. On count 3, the theft of $70 million, we shall quash the sentence of six years' imprisonment and substitute, under the terms of section 81B of the Criminal Procedure Ordinance, a sentence of seven and a half years' imprisonment to run concurrently with all the other sentences.

21. The remaining sentences on the other counts of the indictment, and the disqualification of the Respondent as a company director for a period of eight years, will remain undisturbed.

22. The Respondent's sentence, in totality, is increased, therefore, to seven and a half years' imprisonment.