HKSAR v. CHAN CHUN HUNG

CACC 553/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 553 OF 2002

(ON APPEAL FROM DCCC NO. 489 OF 2002)

____________________________________

_______________________________

________________

J U D G M E N T

________________

Hon Stock JA giving the judgment of the Court:

Introduction

1 This is an application for leave to appeal against sentence imposed by HH Judge Chua on 23 October 2002. The applicant pleaded guilty to twelve charges of conspiracy to defraud and asked for eleven other offences of conspiracy to defraud to be taken into consideration. He was sentenced to four years' imprisonment in respect of each charge. The sentences are ordered to run concurrently.

The facts

2 The summary of facts, which was agreed, takes in all twenty-three offences and we have culled the following facts from that summary. It revealed that on twenty-three occasions between January 1998 and July 2000 the applicant, with the help of a friend who was also his assistant in the business, successfully applied for letters of credit from six different banks and, through this vehicle, obtained facilities to an extent of $36.499 million. All the underlying transactions were bogus.

3 At all material times, the applicant (D1 at trial) and Wong Kin Ching (Wong) were shareholders and directors of Hung Cheong Toys International Limited (Hung Cheong) which was wholly owned by a listed company since 1998. The case arises from the signing by the applicant and Wong on behalf of Hung Cheong of various application forms and supporting documents by which Hung Cheong applied for the issue by various banks of letters of credit in favour of four companies, namely, Chun Lee Material Trading, Wing Fung Hong Trading, Wing Tai Woo Metal Steel Company and Men Fai Enterprises, which had purportedly sold goods to Hung Cheong.

4 Ms Li Yeung who was the applicant's girlfriend was the sole proprietress of Chun Lee and Wing Tai Woo, and her younger sister Li Hung was the sole proprietress of Wing Fung Hong and Men Fai.

5 Man Man Kwan (who was D4) is the former husband of Li Hung and was the applicant's assistant. Ms Wong Wan Kuen was an Executive Director of Hung Cheong, who was responsible for accounting work and assigning general duties to the staff of Hung Cheong.

6 In mid-1996, Man, upon the applicant's instructions, assisted the applicant to set up Chun Lee as a beneficiary vehicle for Hung Cheong to apply for letters of credit with banks for bogus underlying transactions. Li Yeung was on his instructions or appointment to be the sole proprietress of Chun Lee. He also asked Man to rent a flat in Shatin which was to be the registered address of the company. He then arranged for Li to come to Hong Kong and asked Man to accompany her to the Business Registration Office to arrange for registration of the company. He also asked Man to accompany Li to open a current account with the Overseas Trust Bank (OTB), and to prepare a company chop of Chun Lee for receiving letter of credit funds from the banks. This was done.

7 Blank letterheads and contracts for Chun Lee were printed, and on the applicant's and Man's instructions there were also prepared false documents to support payments under the letters of credit. There were in fact no genuine business transactions between Hung Cheong and Chun Lee. After letter of credit payments were received from the OTB by Chun Lee, the applicant, Man or a Mr Wu Wai Sun, former manager of Hung Cheong, accompanied Li to withdraw cash from OTB and deposit it into the various Hung Cheong accounts.

8 In late 1997, the applicant feared that the banks would be alerted to the fraud were Chun Lee to remain the only beneficiary. So he instructed Man to establish Wing Fung Hong as a beneficiary. He said that he would appoint Li Hung to be the sole proprietress of Wing Fung Hong; he asked Man to rent a flat for the registered address of the company for Li Hung to come to Hong Kong; and he asked Man to accompany her to the Business Registration Office so that the company could be registered. He also asked Man to accompany her to open a current account with the Yien Yieh Commercial Bank (Yien Yieh), and to prepare a company chop of Wing Fung Hong for receiving funds from banks which were to issue the letters of credit.

9 Letterheads, contracts and false documentation to support supposed transactions were again produced and when letter of credit payments were received from Yien Yieh by Wing Fung Hong, Man and Mr Wu accompanied Li Hung to withdraw cash from Yien Yieh and deposit it into the various Hung Cheong accounts.

10 In early 1999, Man, upon the applicant's instructions, assisted him to set up Wing Tai Woo and Men Fai as further beneficiary vehicles to enable Hung Cheong to apply for bogus letters of credit on bogus transactions. On the applicant's instructions Li and Li Hung were appointed sole proprietresses of Wing Tai Woo and Men Fai, an apartment was rented and the companies were registered, and accounts were opened with the National Commercial Bank for Wing Tai Woo and with Wing Hang Bank for Men Fai.

11 False documents were again prepared and letter of credit payments were received from the banks and the proceeds were deposited into the various accounts of Hung Cheong.

12 By the time these matters came to light, it transpired that the applicant and Wong had signed blank letter of credit application forms for use in future applications.

13 On 4 October 2000, the applicant informed Man that the ICAC was conducting a search operation at the office of Hung Cheong in Shatin and he instructed Man to take away and dispose of any relevant documents in his possession. Man disposed of documents in relation to the four companies concerned.

The charges

14 Each charge was in a form common to letter of credit conspiracies to defraud. We set out the first charge only, as an illustration:

Statement of Offence

Conspiracy to defraud, contrary to Common Law and Section 159C(6) of the Crimes Ordinance, Cap. 200.

Particulars of Offence

CHAN Chun-hung, WONG Kin-ching, LI Yeung and MAN Man-kwan between the 13th day of January 1998 and the 22nd day of January 1998, in Hong Kong, conspired together and with WONG Wan-kuen to defraud Dao Heng Bank Limited by dishonestly:

(i) causing Hung Cheong Toys International Limited to apply and utilize credit facilities from the said Dao Heng Bank Limited in the form of one Letter of Credit numbered 16678832;

(ii) submitting or causing to be submitted false documents to the said Dao Heng Bank Limited purportedly evidencing genuine underlying commercial transactions between the said Hung Cheong Toys International Limited and Chun Lee Material Trading Company;

(iii) procuring or causing to procure the issue by the said Dao Heng Bank Limited of the said Letter of Credit in favour of the said Chun Lee Material Trading Company; and

(iv) causing the said Dao Heng Bank Limited to release a total of $1,000,701.02 Hong Kong currency to the said Chun Lee Material Trading Company under the said Letter of Credit.

15 Between 13 January 1998 and 15 July 2000, the conspiracy involving Chun Lee resulted in the issue of eight letters of credit applied for by Hung Cheong in favour of Chun Lee as beneficiary for various sums totalling $12,051,910.70, five of which formed the first five charges, totaling, $6.652 million. The scheme and its extent is best illustrated by a table.

Other offences taken into consideration

16 In relation to charges 6 and 7 and three other offences between 13 August 1999 and 25 April 2000, the applicant and others conspired together to defraud the banks into issuing five letters of credit in favour of Wing Tai Woo for various sums totalling $9,152,919. Two of these conspiracies are reflected in the twelve charges, namely, charges 6 and 7; the sums involved in the two charges are $2.805 million.

other offences taken into consideration

17 Between 22 April 1999 and 29 April 2000, the applicant and Man conspired on five separate occasions with Li Hung and Wong Wan Kuen to defraud the banks into issuing letters of credit in favour of Wing Fung Hong for various sums totalling $6.857,963. Charges 8, 9 and 10 reflected three of these conspiracies, in the total sum of $2.828 million.

Other offences taken into consideration

18 Finally, between 19 June 1999 and 7 July 2000, the applicant and Man conspired on five separate occasions with Li Hung and Wong Wan Kuen to defraud the banks into issuing letters of credit in favour of Men Fai for various sums totalling $8,426,254.06. Two of these conspiracies were reflected in charges 11 and 12 in the sum of $2.267 million.

Other offences taken into consideration

19 There were never any genuine underlying business transactions. It follows that the amounts defrauded in the activities reflected in the charges was $14.552 million, and all together $36.499 million.

Sentencing

20 The applicant was born in 1957; so he was aged about 43 years when the offences commenced. He may be treated as a person of previous good character.

21 In her Reasons for Sentence, the judge noted that save for the sum of $10,000 all the sums advanced by the banks found their way into the bank accounts of Hung Cheong and not into the applicant's personal pocket. In due course, she noted, the money was repaid to the issuing banks except in two instances involving the Dao Heng Bank but that was subsequently settled by a pledge of Hung Cheong's shares.

22 She noted as well the submission made on the applicant's behalf that his was a rags to riches story and that he had as a result of these offences fallen hard, and had been declared bankrupt. The history of his downfall is traced to the expansion of the business in 1997 when public listing was planned. Loans were obtained, but in 1998 the economic climate changed and banks called in their loans; and production costs increased and the company was forced to borrow from a finance company, and in due course the applicant set about the frauds of which he has been convicted.

23 The judge concluded that in this case the only factor deserving discount was his plea of guilty. She said:

"28. The aggravating feature in this case is his carefully organised plan as far back as 1996 to form one company after another as vehicles to obtain proceeds on bogus LCs and to put in place persons he could trust because, one way or another, they were beholden to him, using his girlfriend and her sister from mainland China as proprietors, their names unrelated to his, thus allaying any bank's suspicion.

29. He has admitted, for the purpose of having outstanding offences taken into consideration, another 11 LC transactions which, together with those charged, meant the six banks were put at risk to the tune of $36.5 million. On the other hand, most of the moneys settled on the LCs have been repaid. That the Dao Heng Bank has pursued a debt of $28 million and has had him declared a bankrupt will have serious repercussions for him as a businessman.

30. Mr Blanchflower has, no doubt, explained to [the applicant] what it means to have offences taken into consideration. This is a procedure not used as often as it should be in Hong Kong. For the police, it clears outstanding cases from their books, and for the defendant, he has his slate wiped clean. There will, naturally, be a stiffening of the starting point in sentence." (Tr pp 30-31)

24 The judge adopted a starting point of six years' imprisonment and reduced the term by one-third to reflect the pleas of guilty. Accordingly she sentenced the applicant on each count to a term of four years' imprisonment and ordered all sentences to run concurrently; thereby arriving at a total of four years' imprisonment.

The grounds

25 The written submissions import grounds which are a little wider perhaps than those encapsulated in the perfected grounds of appeal. The judge referred in her Reasons for Verdict to a decision of this Court HKSAR v Cheung King [2001] 3 HKLRD 68. She said that in that case:

"The Court of Appeal, indicated a 4 1/2 year starting point was appropriate when the defendant, rightly considered a 'small fry', prepared false documents for a letter of credit application where the sum invovled was US$891,000 - that is almost HK$7 million - even though the bank was repaid in full and the defendant derived no benefit." (Tr p 26)

26 Mr Choy, who appears for the applicant upon this appeal, and who had said everything that can possibly be said on his behalf, contends that that case was not intended to establish a guideline and was decided very much on its own facts to which he has taken us. He says that because the case turned on its own facts, it would be wrong in principle for the judge mechanically to add one and a half years to that sentence for this case to reflect what he refers to as the 'big shot' principle.

27 With respect, the judge did not do that. She prefaced her comments about that case with the remarks that there was no Court of Appeal decision which set down tariffs for this type of case and that Cheung King indicated with what gravity these cases are viewed. So there has been no error in principle by the judge, as has been suggested. Nonetheless, the fact remains that this case is altogether more serious than that, both in the role which this applicant played and in the amounts involved.

28 This was a case in which the scheme was initiated by this applicant; and it was a most elaborate scheme which progressed for over eighteen months and targeted several banks and involved also the creation of a number of bogus companies to enable the scheme to continue, drawing into the fraud and its planning a number of other persons. The amounts which were fraudulently obtained were very substantial. In our judgment, the judge cannot properly be criticised for the starting point which she adopted.

29 Then it is said that the judge failed to give sufficient consideration to the fact that in December 2000 the applicant was kidnapped by a disgruntled creditor in Shenzhen. He was released on payment of $1 million. We have some difficulty in understanding how that can be a mitigating factor.

30 We have recited the fact that the judge said that she was of the view that "the only factor deserving of a discount in sentence for D1 is his plea which has saved time and costs." Mr Choy asserts that there was a notable mitigating fact which was not there mentioned, namely, that the banks have been repaid, and also that that occurred, he contends, as a result of the applicant's voluntary effort.

31 Restitution at the voluntary instigation of a defendant, particularly well before trial, is a mitigating factor and it is not described as such by the judge.

32 It is clear that the judge was well aware that the banks were no longer out of pocket, save in a small amount. She makes that amply clear twice in her Reasons for Verdict: see pages 28C and 31C of the bundle.

33 The implication in Mr Choy's submissions when first this application came before us was that the repayments were not merely responses to debtor's action or pressure, but evidenced the type of proactive conduct at an appellant's instigation for the pure benefit of the creditor which merits further credit. No one was in a position at the first hearing of this application for leave to provide details, so we adjourned so that the history and circumstances of repayments could be investigated.

34 The fact transpires that in all but two of the twenty-three occasions with which we are concerned, the sums due to the banks under the letters of credit were paid on the due date and, in a few instances, one day late. These repayments are, in the circumstances, hardly cause for praise. The nature of the exercise was, in essence, similar to a cheque kiting one, in the sense that the sums due for one letter of credit were paid with the proceeds of the next one that had been fraudulently obtained. In relation to two sums due to the tune of just over $3 million, these payments were effected after the holding company of which the applicant was at one stage majority shareholder entered upon a debt restructuring agreement with its creditors. We have read a string of documents placed before us but, whilst the fact that the banks have in the event suffered no loss is a mitigating factor, which was a fact recognized by the judge, there is nothing over and above that so far as concerns the applicant's own conduct which in the circumstances of this case, in our judgment, merits a further reduction in sentence.

Result

35 In the event, we find no ground for disturbing the sentence imposed by the judge and, accordingly, this application for leave to appeal against sentence is dismissed.