HKSAR v. WU MING FAT SIMON

CACC 531/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 531 OF 2002

(ON APPEAL FROM DCCC 413 OF 2002)

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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):

Background

1. On 7 October 2002, the applicant was convicted in the District Court, following a trial before Deputy Judge Tong Man, on fifteen charges of procuring the execution of a valuable security by deception, contrary to section 22(2) of the Theft Ordinance, Cap. 210. He was sentenced on 8 October 2002 to fifteen concurrent terms of five years' imprisonment and it is against this sentence that the applicant now seeks leave to appeal.

2. Much of the evidence at trial was undisputed. In essence, it was established that the applicant, a director of Daihatsu Holdings Limited ("Daihatsu") which was run by himself and other members of his family and Fortune Billion Enterprises Limited ("Fortune Billion") which was owned by him, applied for fifteen irrevocable letters of credit which were specified in the charges. The value of the credit obtained in this way, from a total of three banks, amounted to just over $49.72 million which was purportedly required for the purchase by Fortune Billion of vehicle parts from Daihatsu between about December 1999 and October 2000. The prosecution was able to prove that the bills of lading which were presented to negotiate the letters of credit were in each case false.

3. The allegation in every charge was in similar terms. It suffices to set out the particulars of the first charge which alleged that the applicant:

".... on a date between the 24th day of February 2000 and the 31st day of May 2000, in Hong Kong, with a view to gain for himself, dishonestly procured from Citic Ka Wah Bank Limited, the execution of an irrevocable documentary letter of credit number LC 502470100300H, amounting to $2,936,633.99 Hong Kong currency by deception, namely, by falsely representing that particulars in respect of quantity and value of goods contained in an application for the said letter of credit, dated the 31st day of May 2000, were true and accurate and related to a genuine contract of sale entered into between Fortune Billion Enterprises Limited and Daihatsu Holdings Limited."

4. The beneficiary of the letters of credit was Daihatsu. Out of the total amount which it was able to obtain, approximately $5.3 million is still outstanding.

5. Behind the applicant's scheme of deception, there existed a contract between a Japanese company known as Business Promotion Eikou Corporation ("BPEC") and Daihatsu for the latter company to be supplied with vehicle parts. Daihatsu then entered into contracts for the sale of these vehicle parts to Fortune Billion which had letter of credit facilities which were secured with three banks, as follows:

(1) $10 million deposit with Equitable PCI Bank, Inc. ("Equitable Bank");

(2) a flat at Dynasty Court with the Hongkong and Shanghai Banking Corporation Limited ("HSBC") (value unknown); and

(3) two property blocks to Citic Ka Wah Bank Limited ("Citic Bank") (value unknown).

6. Fortune Billion, in turn, entered into a contract to sell the vehicle parts it had purchased from Daihatsu to a Mainland Chinese company known as Luizhou Champ Limited ("LCL").

7. At trial, the defence case had been presented primarily on the basis that the applicant lacked knowledge of the falsity of the bills of lading. Secondly, it was suggested that, even if he was aware of their falsity, the applicant was entitled to an acquittal if it was shown that the vehicle parts were not fictitious but actually existed.

8. The applicant did not give evidence. He did, however, call a senior director of BPEC (PW11) who said that he had directly ordered vehicle parts from a company in the U.S.A. known as Onassia Motor Incorporated ("Onassia") and that he received a 3% commission on the contract price which was paid to him by an agent for LCL who was the real buyer of these parts. LCL was to pay Onassia directly and the vehicle parts were shipped directly to LCL by Onassia. In this arrangement, which the judge accepted, BPEC, Daihatsu and Fortune Billion were all middlemen. The judge found that it followed from this somewhat convoluted commercial arrangement that the applicant "knew there were no goods to be charged by the issuing bank to secure its payment on the letters of credit".

9. When sentencing the applicant, the judge made reference to the judgment given in HKSAR v Cheung King [2001] HKLRD 68 (having earlier given leading counsel who was then appearing for the applicant an opportunity to address him on that case) saying:

"When I drew Mr. Lok's attention to Cheung King's case, he stressed the distinguishing features in this case in that I have found there were genuine sales contracts here. I agreed only to the extent that it could lower the starting point of the sentence of the defendant but the serious nature of the offence .... remain(s) the same. I have run a calculation on the amounts involved in the letters of credit in this case and the figure I arrived at without counting the cents is HK$49,721,905 i.e. roughly about 7 times of the amount involved in Cheung King's case. Had it been a case about completely fabricated transactions, I would use a starting point of 7 years. Given the special circumstances in this case, I reduced the starting point to 5 years. This totality in my view should be able to reflect the criminality in the defendant's scheme in having successfully defrauded the banks into paying him the amount in this case without the collateral security on the relevant goods. I can find no other mitigating factor which can justify a further reduction of his sentence." (Appeal bundle p. 86)

10. In HKSAR v Cheung King (above), the appellant had prepared false documentation to support a bogus transaction in readiness for an application for a letter of credit involving US$891,000 (approximately HK$7 million). No loss was ultimately suffered by the bank and, in all the circumstances, this court considered that an appropriate starting point as in HKSAR v Cheung King (above) would have been four and a half years.

The application

11. We were taken by Mr Macrae, SC, who now appears on behalf of the applicant, to a number of decisions of this court which bore some similarities to the present case. He pointed out, as leading counsel for the applicant had done in the court below, that usually in cases of this type there is no genuine commercial transaction to be found underlying the letters of credit. The risk of loss by virtue of the banks' reliance on bogus documents, is obviously likely, he argued, to be higher when substantially insufficient security, or none at all, has been placed with the banks.

12. As to this aspect, the judge had referred in his Reasons for Verdict to the evidence given by PW11 which he accepted. The judge said:

".... The goods concerned in the contract would be sent by the US supplier to the Chinese buyer directly. According to PW11, the defendant did receive payments but only as commission shown on the various receipt vouchers starting from exhibit D65. Hence, the defendant should know well that the goods concerned would never come into the possession - actual or constructive - of (Daihatsu) or (Fortune Billion). ...." (Appeal bundle pp. 80-81)

13. Despite the accuracy of this assessment by the judge, Mr Macrae was able to rely heavily in the present case on the fact that the applicant had provided high value security to the issuing banks which reduced the risk of substantial loss on their part.

14. The judge was well aware of all considerations which were to the applicant's credit. In relation to the ultimate loss suffered by the banks, the position in respect of the letters of credit in charges 11 and 15, is that Equitable Bank is owed HK$5,328,911.81 and, in relation to charge 14, HSBC is still owed US$180,149.76. Citic Bank has in the event suffered no loss.

15. There was a further matter of potential significance which only occurred after the imposition of the applicant's five-year sentence.

16. On 16 May 2003, the applicant again appeared in the District Court, this time before Judge Whaley, when he pleaded guilty to a charge of conspiracy to defraud (DCCC 414/2002) which, in effect, was very similar to the present offences. The judge sentenced him to seventeen months' imprisonment of which twelve months were to be served consecutively to the five years imposed in the present matter.

17. The orders made by Judge Whaley are not the subject of appeal. Indeed, we were told that the applicant has abandoned his application for an appeal against sentence in respect of those proceedings. We have nonetheless been invited to have regard to the ultimate overall sentence which the applicant is now serving.

18. However, our function is to determine whether the sentence imposed by Deputy Judge Tong was manifestly excessive. The present case involved a substantial number of applications to several different banks for credit facilities in significant sums and there has been a loss to one of the banks alone of over $5 million. We have considered the cases to which Mr Macrae has taken us, as well as the particular facts of this case, but we are satisfied that it cannot properly be said that the sentence was manifestly excessive.

Conclusion

19. Accordingly, this application is dismissed.