HKSAR v. LAM TSZ HIM AND ANOTHER

CACC 87/2024 [2025] HKCA 190

On appeal from [2024] HKDC 488

and [2024] HKDC 592

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 87 OF 2024

(ON APPEAL FROM DCCC NO 16 OF 2022)

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J U D G M E N T

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1.  This is a case of insurance fraud in which six defendants were charged with conspiracy to defraud, contrary to common law and punishable under section 159C(6) of the Crimes Ordinance (Cap 200).  On 28 March 2024, following a trial before HH Judge E Lee (the judge) in the District Court, D1, D2 (the 1^st applicant) and D4 (the 2^nd applicant) were found guilty of the charge, while D3, D5 and D6 were acquitted.  In this judgment I will refer to the applicants and the other defendants by their trial designations. 

2.  On 15 April 2024, the judge sentenced D2 to 25 months’ imprisonment and D4 to 28 months’ imprisonment.

3.  On 23 April 2024, D2 and D4 each filed a notice of application for leave to appeal against conviction and sentence.  D2 and D4 have each applied for legal aid which has been refused.  At the leave hearing, D2 appears in person, while D4 is represented by Mr David Boyton and Mr Thomas Martin.

The brief facts

4.  The particulars of the conspiracy charge alleged that the six defendants, who were employees (variously as a manager or agent) of AXA China Region Insurance Company Limited (AXA), between 25 November 2014 and 28 September 2017, conspired together to defraud AXA by dishonestly falsely representing that the financial consultant’s declarations in the policy application forms were genuinely made, thereby inducing AXA to approve those policy applications and to pay commissions and bonuses to D1, D2, D3 and D4 in connection with the relevant policies.[1]

5.  AXA is an insurance company that, at the material times, offered various insurance products and D1 to D6 were members of company’s staff.  D1 was the direct upline manager of D2 to D6, although D4 took up the position of unit manager on 1 March 2016.

6.  The conspiratorial enterprise alleged against the defendants operated as follows.  One of the defendants would offer free insurance to a friend or acquaintance to obtain their personal data.  False representations were made in the relevant application form by naming an uninvolved defendant as the financial consultant, that is, the handling agent, thereby causing AXA to approve the insurance application and pay commissions and bonuses to the uninvolved defendant and the upline manager.  The monthly or annual premiums of the policy would be paid, mainly by D1 and other times in cash or by D4, for one occasion or several occasions, which would then cease.  This practice, known as “diverting” policies, would enable the defendants to earn commissions and extra bonuses according to the calculation method of AXA management. 

7.  During the conspiracy period, a total of 10 policies were processed under this scheme, resulting in AXA approving the policies and paying $748,866.56 in commissions and bonuses to D1 to D4.  Relevant particulars of the purported policyholder and the involvement of the relevant defendants, as stated in the admitted facts, were as follows:[2] 

(1)  Leung Sin Tung Pavlova (PW1) was a friend of D1 and the purported policyholder of Policy 1 (the premium was paid in cash and a commission was paid to D3’s account); Policy 2 (the premium was paid by D1 and D4[3] and commissions were paid to D3’s bank account with payments transferred to D1); and Policy 3 (the premium was paid in cash and commissions were paid to D3’s account). 

(2)  Lau Kwok Pan (PW2) was a friend of D5 and the purported policyholder of Policy 4 (premiums were paid by D1 and D4 and commissions were paid to the accounts of D2 and D4, some payments to D1 or D1’s mother).

(3)  Ho Man Wai (PW3) was a friend of D1’s mother and the policyholder of Policy 5 (the premium was paid in cash and a commission was paid to the accounts of D1 and D3); and Policy 6 (the premium was paid by D1 and D4 commissions were paid to the accounts of D2 and D3, some of which was paid to D1’s account). 

(4)  Ng Siu Him (PW4) was a friend of D6 and the purported policyholder of Policy 7 (the premium was paid by D4 and a commission was paid to D3’s account); Policy 8 (the premium was paid by D4 and a commission for Policy 7 and Policy 8 was paid to D3’s account and transferred to D1’s account); Policy 9 (the premium was paid by D4 and a commission was paid to D3’s account and then transferred to D1’s account); and Policy 10 (the premium was paid in cash but no commission was paid).

8.  The involvement of the defendants in each of the policies was as follows.  D1 was the named manager in the application forms of Policies 1, 2, 3, 4, 6 and 10.  He was also one of the named financial consultants in the application form of Policy 5.  D2 was one of the named financial consultants in the application forms of Policies 2, 4, 6 and 10.  D3 was the named financial consultant or one of the financial consultants in the application forms of Policies 1, 2, 3, 5, 6, 7, 8, 9 and 10.  D4 was one of the named financial consultants in the application form of Policy 4.  He was the named manager in the application forms of Policies 7, 8 and 9.  He also made various payments for the premiums or renewal premiums for Policies 2, 4, 6, 7, 8 and 9.[4]    

9.  In his examination of the policies, the judge found that:[5]

“130. … D1 paid for all the substantial yearly premiums ranging from $190,000 odd to close to $300,000.  D4 paid for the small premiums (and renewal premiums).  D1 was never the handling agents on paper of any of those policies (D2, D3 and D4 were).  D4 was on paper only one of the handling agents for Policy 4.

131. However, whenever commissions were paid by AXA into the accounts of D2, D3 and D4 (as they were handling agents on paper), almost every time on the same day or shortly afterwards, similar sums were paid out from those accounts to D1’s account (or account of D1’s mother) and cash withdrawals were made.  Sometimes even much bigger sums were paid out to D1’s account.  It was not in dispute that D1 was in possession of the relevant bank cards of D2 and D3 with passwords so that D1 was in control of those accounts.  It was also not in dispute that D4 had paid D1 money on those occasions, although claiming for an innocent reason of investing in D1’s furniture business.

132. Although D1 was not the policyholders or even the handling agents, he paid for the very substantial premiums of about $730,000.  If that is the end of it, it would be most unusual and unreasonable for D1 to do that.  It simply does not make any sense.

133. The matter of course did not end there.  Almost simultaneously on each occasion (on the same day or shortly afterwards), the commissions and bonuses totalling close to $770,000 paid out by AXA to the respective accounts of D2, D3 and D4 (who were the handling agents on paper) were transferred to D1’s account (or that of D1’s mother).  D1 was in control of those accounts of D2 and D3 as D1 had the relevant bankcards and passwords.  D4 agreed that he did payout of his commissions and bonuses from his account to D1, but claiming for an innocent purpose of investing in D1’s furniture business.

134. Also, as can be seen from the above fund flow, at or around the relevant times when all those transfers took place, there were in addition several cash withdrawals totalling $140,000 from the respective accounts of D2, D3 and D4.”

10.  The judge found that D1 played a pivotal role in the scheme, as evidenced by his significant involvement in the various policies and his control of the respective accounts of D2 and D3, through which he made bank transfers and cash withdrawals.[6]

11.  The commissions and bonuses paid out by AXA in respect of the 10 policies were $748,866.56.  The bonuses were calculated on the basis of other policies that had been sold in a month or a quarter, and the extra bonuses in respect of the 10 policies to D1, D2, D3 and D4 were $296,030.31.  In calculating the actual economic loss suffered by AXA, a comparison was made between the total premiums received and the total amount of commissions and bonuses paid out in respect of the 10 policies.  AXA received total premiums of $815,833.15 and paid out a total of $944,802.36 to D1, D2, D3 and D4.  On this basis, the actual economic loss suffered by AXA was $128,969.21.  However, that judge also found that AXA was put at risk of further economic loss arising from any potential claims by the policyholders.[7] 

12.   D1, D5 and D6 did not give evidence, whereas D2, D3 and D4 testified in their defence.  They called a common witness, Emily Hui (DW5), a handwriting expert who testified that the signatures on the relevant application forms, where D2, D3 and D4 were the named financial consultants, were not written by them.  The prosecution did not contest this expert evidence.[8] The defence of D2, D3 and D4 was that they “blindly” followed D1’s instructions and there was no conspiracy or dishonesty on their part.  D2 testified that he had no involvement in the scheme and gave his bank card to D1 for organising investment seminars and repayment of a debt.  D2 said he wanted to quit but did not because D1 warned him that he would have to return the allowances that he previously received from AXA.[9]  D3 testified that D1 was his instructor in church and that he trusted him.  He said he did as D1 instructed him in respect of the policies.  D3 also called a friend as a defence witness (DW3), who testified as to D3’s character and relationship with D1.[10]  He confirmed that D3 trusted D1 implicitly and would do as he was told by him.  D4 testified that he simply followed D1’s instructions, who was the manager of both D3 and D4.  He explained that the numerous transfers of funds into D1’s account and those he made into AXA’s account were related to his investment in D1’s furniture business.[11] 

13.   The judge acquitted D3 because “it was at least possible” that he was an innocent dupe.[12]  D5 and D6 were acquitted because of a lack of proof as to their involvement in the scheme.[13]  D1, D2 and D4 were convicted.  The judge rejected D2’s case that he was “ignorant” of the existence or handling of Policies 2, 4, 6 and 10, and that he intended to keep his job with AXA.[14]  He considered that D2, as a member of the finance and insurance industry, would have appreciated the consequences of providing his bank card to D1.[15]  The judge rejected D4's evidence that he was “ignorant” of the scheme and was just following D1’s instructions.[16]  He dismissed D4’s explanation that the transfers of funds to D1 were for investing in D1’s furniture business.  He found that the financial transactions related to the policies in which D4 was involved.[17]  He concluded that the only reasonable inference was that D4 knowingly assisted D1 pursuant to the conspiratorial agreement.[18]

14.  The judge found that D1, D2 and D4 had conspired together to defraud AXA by the dishonest scheme of “diverting” policies.[19] 

D2’s appeal against conviction

15.  The challenge to D2’s conviction is based on a series of complaints in respect of the judge’s handling of various evidential matters.  D2 complains that the judge erred in his finding of facts that he would have appreciated the fraudulent purpose behind lending his bank card to D1 (which he argues the judge wrongly rejected his explanation that he lent his bank card to support insurance seminars and repay a debt); that his employment in the finance and insurance industry meant that he would have been aware of the requirements and procedures in applying and issuing policies (which he argues was wrong because his role required minimal expertise and the four policyholders in which he was allegedly involved had no connection with him); and that his statements in his video recorded interviews concerning the selling of insurance policies (which he argues was later clarified in his evidence in court as a misunderstanding).  The judge addressed these matters in his reasons for verdict and rejected D2’s submissions on these matters.  It was open to the judge to make these findings based on his analysis of the evidence and what he accepted and rejected.

16.  D2 argues that there was no direct evidence against him that he was a knowing party in the conspiracy and the case against him was circumstantial.  The fact that the case against D2 was circumstantial does not, without more, provide a basis to question the conviction.  As a circumstantial case, the judge drew inferences that were in accordance with the legal principles. 

17.  D2 complains that D3 was given the benefit of the doubt by the judge that D1 deceived him, but this was not extended to him, when this was also his defence.  D3’s case was different from the case advanced on behalf of D2 at trial and this was made abundantly clear in the judge’s reasons for verdict.  Whilst D2 advanced the defence that he was deceived by D1, the judge in his analysis of the evidence rejected this defence. 

18.  D2 contends that the prosecution did not prove he was dishonest under the Ghosh test[20] and the judge was wrong to make such a finding.  The Judge’s findings against D2 were mainly based on his financial relationship with D1 and his involvement in the policies in question.  The application of the Ghosh test is discussed in greater detail in D4’s appeal against conviction.

19.  Finally, D2 raises a number of evidential matters, mainly complaining about the judge’s consideration of the evidence, but I find no substance in these complaints.

20.  I do not find the complaints advanced by D2 against his conviction to be reasonably arguable.

D4’s appeal against conviction

21.   The essence of the complaint against the conviction is that a burden was placed on D4, as he was entitled to benefit from the same reasonable doubt that was afforded D3.  D3 was acquitted because he might have been manipulated by D1.[21]  The judge found that it was at least possible that D3 had been manipulated by D1 as described and that D3 could possibly be an innocent dupe.[22]  

22.  Mr Boyton accepts that the defence case, as it related to D4, was factually different from D3.  D3 was younger than D4.  D3 had been introduced to D1 under unusual circumstances, while D4 was more senior and a unit manager since 1 March 2016.  D3 called, as a defence witness, DW3, whose evidence the judge accepted.[23] He complains that the judge’s analysis of D4’s evidence did not consider the exploitative nature of D1 towards D4, even though he found that D3 had been “manipulated by D1”.[24]  While D3 was of young age and more impressionable, the manipulative nature of D1 was still a factor that should have inured to the benefit of D4 and should have been considered when assessing the case against D4. 

23.  As noted, D1 was D4’s upline manager, and D1 instructed D4 on various matters.  D4 claimed in his defence that he blindly followed D1’s instructions on the policies[25] and that the funds he transferred to D1 were an investment in a furniture business, but these claims were rejected by the judge.  Mr Boyton submits that the judge’s reasons for verdict reveal that he did not approach D4’s case in the same way as he did with D3’s case.  He refers to the following findings of the judge that (i) no “reasonable person”[26] would have invested such a large sum of money (with D1); (ii) it “could not be true”[27] that D4 thought surplus capital from the alleged furniture business was the source of money being returned to him; (iii) “no reasonable person”[28] would have relied on what his senior told him as to the source of his monthly commission payments; (iv) the depositing of money into D1’s bank account for investment purposes was described as “irrational and devoid of common sense”[29]; (v) D4’s defence was a “lame excuse”.[30]  It is contended that these phrases are categorical, and not consistent with the judge’s own direction to acquit if the account given “may be true”.[31]  Moreover, the judge failed to demonstrate in his reasons for verdict the same consideration was applied in D4’s case, as it was for D3.  D4 did not have a burden, he was entitled to benefit from the same reasonable doubt that was afforded D3.  This did not accord with the principle of inferential reasoning of drawing the only reasonable inference from the proven facts. 

24.  I am not persuaded that this complaint is reasonably arguable.  First, as acknowledged by Mr Boyton, D4’s case was different from D3’s case.  He was a senior employee of the company, who had attained a managerial position, and was well aware and familiar with the procedures relating to policies.  By his conduct, he would have known that he was involved in “diverting” policies.  To this end, his role included submitting application forms with false representations in the financial consultant’s declarations and paying for some of the premiums and renewal premiums for the policies to become effective or continue to remain effective. Secondly, it was D4’s defence that he blindly followed D1 and the judge was clearly focused on whether this was the case and whether D4 was manipulated by D1, which he rejected.  Thirdly, the judge, in questioning or rejecting aspects of D4’s case, was commenting or explaining why he found them improbable or implausible.  He did not place a different standard of proof on D4 or shift the burden of proof on D4.  It is apparent from the judge’s reasons that he found D4 guilty on the requisite standard of proof and evidence that he found showed that D4 was aware of the false and fraudulent nature of the policies in which he was involved.  Finally, the judge accepted the defence case of D3 but rejected D4’s defence which was primarily based on his contention that he believed he was dealing with D1 in relation to a furniture business.

The Ghosh test

25.   It is submitted by Mr Martin that the judge’s incorrect assessment of D4’s case was exacerbated by his application of the Ghosh test.  Although the judge found that D4 was a “knowing and willing party” to the agreement,[32] he contends that the judge did not sufficiently address the second limb of Ghosh, namely whether or not D4 was subjectively dishonest by ordinary standards.

26.   As stated in Mo Yuk Ping v HKSAR [33], the courts in Hong Kong apply the Ghosh test for the offence of conspiracy to defraud, namely whether the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people; and if so, did he himself realise that what he was doing was by those standards dishonest.

27.   In advancing this ground, Mr Martin injects into his submission the criticisms of the Ghosh test in Ivey v Genting Casinos (UK) Ltd (trading as Crockfords Club) [34] and R v Barton [35], which replaced the dishonesty test by the following questions, what was the defendant’s actual state of knowledge or belief expounded as to what was the defendant’s actual state of knowledge or belief as to the facts; and was his conduct dishonest by the standards of ordinary decent people.  Despite the change of approach with the test of dishonesty in the United Kingdom, the issue is whether the judge correctly stated and applied the Ghosh test.

28.  The short answer to this submission is that the judge was plainly aware of the terms of the Ghosh test.  There is nothing to suggest he did not correctly apply it, notwithstanding the intricate and detailed analysis of the judge’s reasons for his verdict by Mr Martin. 

29.   The judge noted that for the offence of conspiracy to defraud, dishonesty was an essential element, and the means agreed upon must be dishonest according to the Ghosh test.  He correctly set out the two questions he had to decide when applying the test.[36]  He was clearly mindful that there was an issue as to the element of dishonesty and he discussed this in some detail in his reasons.[37] He explained that the issue of dishonesty was fairly straightforward.  He noted that it was not in dispute that the respective financial consultant’s declarations in the application forms of the ten policies contained false representations, namely the named financial consultants were in fact not the handling agents and that at least the employment details, in particular the income of the applicants, were untrue or exaggerated.[38]  He went on to observe that the submitting of these application forms with false representations caused the insurance company to pay out commissions and extra bonuses that they would not have otherwise paid out if the truth had been known and was clearly a dishonest scheme according to the ordinary standards of reasonable and honest people.[39]  Mr Martin takes issue with the judge’s remarks that the defendants, by agreeing to participate in this scheme, would have realised it was dishonest according to the standards of reasonable and honest people, as a matter of common sense but also as members of the insurance industry with its rules and requirements.[40]

30.  Mr Martin contends that the judge's approach left open the possibility that (1) D4’s evidence was rejected; (2) the scheme was dishonest by ordinary standards; but (3) D4 did not realise that what he had done was dishonest by ordinary standards.  He also obliquely criticises the judge’s remarks that the defendants were members of the insurance industry when their defences were different.  The judge was acutely aware that their defences were different and addressed each in turn.  The point that the judge was rightly making by his remarks was that the defendants were working as insurance agents and aware of the requirements and obligations when arranging policies and submitting application forms to the company.  When those documents contained false representations it would have been obvious to them that what they were doing was dishonest.  With respect, I am unable to accept that the judge’s remarks hinted at him taking an objective approach to the subjective limb of the Ghosh test.  It is appropriate to refer to Lord Lane’s remarks in Ghosh when setting out the dishonesty test that, “In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it.  It will be obvious that the defendant himself knew that he was acting dishonestly.”[41] 

31.  Mr Martin also suggests that the judge’s analysis of D4’s defence was focussed on the issue of whether or not D4’s evidence about the scheme being for a furniture business was to be believed, and whilst he rejected this evidence, there was still the possibility that D4 was “an innocent dupe”.  It is obvious that the judge, in his analysis of the evidence with respect to the conspiratorial enterprise and the conduct of the defendants together with his finding that D4 was a knowing and willing party to the conspiracy, rejected the defence contention that D4 was an innocent agent.

32.  I am not persuaded that the complaints advanced by Mr Boyton and Mr Martin in respect of D4’s conviction are reasonably arguable.

The sentence appeal by D2 and D4

33.  When sentencing the three convicted defendants, D1, D2 and D4, the judge gave each of them a reduction of 2 months for their good backgrounds and admission of a substantial quantity of documentary evidence, thereby shortening the length of the trial.

34.  The judge found that D1 was “the key figure and integral to this dishonest scheme”, who played a major role in initiating the scheme and a pivotal role in its execution.  In sentencing D1, he adopted a starting point of 36 months’ imprisonment which he reduced by 2 months to 34 months’ imprisonment.  In sentencing D2 and D4, he treated them to some degree differently from D1.  He adopted a starting point of 30 months’ imprisonment for D4 and 27 months’ imprisonment for D2, which he reduced by 2 months, resulting in a sentence of 28 months’ imprisonment for D4 and 25 months’ imprisonment for D2.

35.  It is complained that the judge failed to consider delay as a mitigating factor.  However, after reconsideration of the matter, Mr Boyton withdrew this ground.  Notwithstanding the abandonment of this ground, there were other matters that were raised in oral submissions regarding the sentences imposed on D2 and D4.

36.  In the case of joint enterprise crimes, those who participate in the commission of such an offence will usually share equal culpability even though their role was different from other participants: HKSAR v Muhammad Rizwan and Ors [42]. This is so because without each participant playing his part in the joint enterprise, the crime would not have been completed.  A participant will be aware of the object and plan of the joint enterprise and possibly also the role of others in its execution.  The issue raised for consideration is that the conspiracy concerned ten policies, but D2 and D4 were not involved in all of them.  D2 was involved in four (Policies 2, 4, 6 and 10), and D4 was involved in six (Policies 2, 4, 6, 7, 8 and 9).[43] The question is whether they should have been sentenced differently taking this factor into account.  This will, of course, depend upon the nature of their role and involvement in the policies in question.

37.  Next, there is the matter that D1 played a key and dominant role in the overall scheme.  It seems the scheme was initiated and driven by D1.  The issue is to what extent this factor should have been taken into account when sentencing D2 and D4.  The judge appears to have made some allowance, but the question is whether it was enough in the circumstances of the case.  This factor is particularly a relevant matter in D2’s case, in light of the evidence concerning whether he was “an innocent dupe” as the judge considered in D3’s case. 

38.  Finally, there is the question of the actual loss incurred by the scheme, which is limited to four policies in D2’s case and the six policies in D4’s case.  The issue is whether the loss is considerably less than the loss incurred as a result of the ten policies.  However, as pointed out by the judge, the loss incurred was one of several factors to be taken into account in the sentence to be imposed.  Furthermore, there is the additional question as to whether it was correct for the judge to consider the potential loss to the insurance company of any claims made under the policies when this was not the object of the criminal enterprise and did not feature in the criminality involved.

39.  I am satisfied that D2 and D4 have reasonably arguable grounds of appeal against sentence.

Conclusion

40.  For the reasons I have given, I refuse D2 and D4 leave to appeal against conviction but grant them leave to appeal against sentence.

41.  I remind D2 and D4 of their right to renew their application for leave to appeal against conviction to the Court of appeal, but they are also informed of the consequences of doing so, which may include a direction of any loss of time spent in custody pending their appeal, if the Court were to come to the view that there was no justification for the renewal of their application.