Secretary for Justice v. CHENG CHI SIN AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 5
(Application for Review)

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J U D G M E N T

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Mayo, J.A. (giving the judgment of the Court):

1. The Applicant seeks to review the sentences which were imposed upon these Respondents by Deputy Judge Geiser in the District Court on 3rd April 1998.

2. Both Respondents were jointly charged with eight offences under the Leveraged Foreign Exchange Trading Ordinance, Cap. 451.

3. Charges 1 to 3 were in a similar form. Charge 1 reads:

"False representations in obtaining a licence, contrary to section 10 of the Leveraged Foreign Exchange Trading Ordinance, Cap. 451.

Particulars of Offence

LAM Shu-man, on or about the 29th day of September 1994, in Hong Kong, with LUI Wai-man, for the purpose of obtaining a Leveraged Foreign Exchange Traders Licence, made a representation which they knew or had reasonable grounds for believing to be false or misleading in a material particular in that it purported to show the total ranking liabilities of Canwell Forex International Limited was $3,654,443 Hong Kong currency, CHENG Chi-sin, at the same time and place did aid and abet, counsel and procure the said LAM Shu-man and LUI Wai-man to commit the said offence."

4. Charges 4 to 8, were also framed in a similar manner.

5. Charge 4 reads:

"Failure to maintain financial resources requirements, contrary to section 19 of the Leveraged Foreign Trading Ordinance, Cap. 451.

Particulars of Offence

CHENG Chi-sin and LAM Shu-man, on or about the 30th day of June 1995, in Hong Kong, together with Canwell Forex International Limited having become aware of the inability of the aforesaid company to comply with the financial resources rules made by the Securities and Futures Commission under section 73 of the Leveraged Foreign Exchange Trading Ordinance, for the purpose of section 17 of that ordinance, failed to forthwith (i) notify the commission of that inability and (ii) cease to carry on a business of leveraged foreign exchange trading otherwise than for the purpose of giving effect to any transaction permitted by or by virtue of its licence entered into before the time when it became so aware."

6. The 1st Respondent pleaded guilty to all the charges and gave evidence at the trial for the prosecution. After hearing all the evidence including the 1st Respondent the Judge was satisfied at the appropriate level that the 2nd Respondent was guilty as charged.

7. The Judge sentenced both men at the same time. He fined the 1st Respondent a total of $80,000 and passed concurrent sentences on all charges of 6 months having adopted a starting point of 9 months' imprisonment. However he suspended the sentences for a period of 18 months. He fined the 2nd Respondent $60,000 and imposed similar suspended sentences of 6 months on him on all charges.

8. The main rationale for the difference in sentencing was that the Judge regarded the 1st Respondent as being much more culpable than the 2nd Respondent. He did however give him credit for his guilty plea and although it was not expressly acknowledged it would appear that he gave him some credit for the fact that he had testified against his co-accused.

9. It is necessary to consider the nature of the offences which were committed. The Leveraged Foreign Exchange Trading Ordinance provided for a requirement that persons or bodies engaged in the type of activities coming within the scope of the Ordinance had to lodge returns with the Securities and Futures Commission which provided details of the financial status of the company. Put very simply the applicant for a licence had to demonstrate that it has sufficient financial resources. This means having to maintain liquid capital of not less than $25 million.

10. Prior to the introduction of the legislation there was no requirement to prove such financial viability. It appears to have been accepted that prior to the introduction of the legislation Canwell had successfully operated as a Foreign Exchange Dealer. The 1st Respondent was in effect the proprietor of the business and the 2nd Respondent was the manager. What emerges from the mitigation which was advanced on the 1st Respondent's behalf by Mr. Spicer at the trial below was that he faced a choice of resorting to the stratagem he did or alternatively faced the prospect of having to close down his business.

11. The stratagem he resorted to was to obtain a short term loan at a very high interest rate and then present to the authorities a false financial picture that he had complied with the statutory requirements. This stratagem was resorted to over a period of approximately 1 year. Put this way the Respondents deliberately attempted to circumvent the financial requirements of the legislation.

12. Mr. Reading for the Applicant advances four main grounds to support his contention that the sentences imposed were wrong in principle and or manifestly inadequate.

13. The 1st ground is that:

"The Judge did not properly take into account that the maximum penalty for a person convicted on indictment of an offence against sections 10 or 19 of the Leveraged Foreign Exchange Trading Ordinance Cap. 451, is imprisonment for 2 years and a fine of up to $1,000,000. As McMullin V.P. stated in R. v. HO Chun-chau [1985] 1 HKC 40, 45:

'We accept that the proper approach of the Court should, when considering sentence, be to have regard to the intention of the legislature as indicated in the penalties provided and to measure the case before it against the kind of case capable of attracting the maximum penalty.' "

14. There is considerable merit in this ground. Clearly it is necessary to have regard to the penalties provided for in the legislation. The penalty under section 10 and section 19 is a maximum fine of $1,000,000 and imprisonment of up to 2 years. It has to be stated that where as in the present case there has been a continuing attempt to flout the relevant provisions it is necessary to consider a sentence at the upper end of the penalties provided for. Mr. Spicer's arguments to the effect that fraud and dishonesty were not involved are beside the point. Neither Respondent was charged with more serious offences and that is the end of the matter.

15. The 2nd ground is that:

"The Judge did not have any or sufficient regard to the gravity of the offences which involved a serious and protracted course of conduct in misrepresenting to the Securities and Futures Commission that Canwell Forex International Limited had far smaller ranking liabilities when applying for a Leveraged Foreign Exchange Traders Licence than was in fact true, and then, having obtained the licence, misrepresenting to the Securities and Futures Commission that Canwell Forex International Limited held a minimum of $25,000,000 in liquid assets."

16. This ground covers similar material to the 1st ground. In his reasons the Judge did say that it was necessary to take a serious view of the offences. The problem was that he didn't take heed of his own directions.

17. At the commencement of the hearing Mr. Reading sought to amend the 3rd ground or ground (c) to read:

"The Judge erred in ordering that all sentences imposed run concurrently because Respondents' conduct involved the commission of two separate offences, each or more than one occasion, over a protracted period of time."

18. This application was not opposed and we granted leave to amend in this form.

19. It could reasonably be contended that all of the transactions were inter related and that it was proper to order that the sentences should run concurrently. However the fact that there were a number of such offences would undoubtedly be an important factor in increasing the starting point. A similar result might be achieved by making the sentences consecutive and then applying the totality principle.

20. The 4th ground is that:

"The Judge erred in suspending the sentences of imprisonment because no member of the public had suffered financial loss. The gravamen of the charges under section 10 of the Leveraged Foreign Exchange Trading Ordinance Cap. 451 is the misrepresentation of the company's financial state and under s. 19 the failure to maintain the resources required to protect the investing public. The charges strike at activity designed to remove such protection and therefore the absence of actual loss suffered by the public is not a good ground for suspending any sentences of imprisonment."

21. Again there is considerable merit in this ground. It is clear from the Judge's Reasons for Sentence that the absence of a loss to members of the Public weighed heavily with the Judge and was probably the justification for ordering that the sentences should be suspended. The Judge was in error in being influenced by this in the way he was. There were no proper grounds to justify suspending these sentences.

22. It is accepted that both these men were of previous unblemished character and that the Probation Officers speak well of them. However these were serious offences and the sentences failed to reflect this.

23. Taking all factors into considerations we would not interfere with the fines which were imposed. However we are of the view that immediate custodial sentences were required.

24. The appropriate starting point for the 1st Respondent is 18 months' imprisonment and for the 2nd Respondent is 9 months' imprisonment.

25. We consider that the 1st Respondent should receive a discount of 50% to reflect his plea and the assistance he gave the prosecution by giving evidence against his co-accused. No reduction can be made from the starting point for the 2nd Respondent.

26. This application is accordingly successful. Both Respondents are sentenced to 9 months' imprisonment and the fines imposed are not interfered with.