HKSAR v. LEUNG KA YIN AND OTHERS

CACC 239/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 239 OF 1999

(ON APPEAL FROM DCCC 1394/1998)

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J U D G M E N T

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Leong JA (giving the judgment of the Court):

1. The applicants Kong Siu-ming (D1), Ho Chi-wai (D2) and Ho Wai-kuen (D3) were convicted in the District Court after a trial before Judge Poon of one charge of conspiracy to defraud. The particulars of offence alleged that between 9 October 1996 and 6 October 1997 they conspired together to defraud such companies, firms and persons as might deliver goods to Cimax Trading Company by dishonestly and falsely representing to such companies, firms or persons that cheques drawn on bank account No. 030-575-00015878 with Kincheng Banking Corporation in the name of Cimax Trading Company in payment for goods delivered would be good and valid orders for the payment on or after the said cheques becoming due for payment. They were each sentenced to 3 years imprisonment.

2. They now apply for leave to appeal against conviction. D3 in addition applies for leave to appeal against sentence.

3. The facts of this case are these:

4. D1 applied for business registration on 9 October 1996 and opened a company called Cimax Trading Company ("the company"). Two company accounts were opened. One account was the Kincheng Bank account specified in the charge. The other was an account with the Kwongtung Provincial Bank which is not relevant to this case. On 4 March 1997 D1 moved the company office to New City Centre in Kwun Tong. This office was closed in September 1997 and a secretarial office in Mongkok was engaged to handle the company's correspondence. D2 joined the company in March 1997 and because of his experience in plastics, he was responsible for securing suppliers. In January/February 1997 D3 sought employment from D1 but he was not employed until April 1997. D3's work was to supervise the office and do such work as instructed by D1. The actual buying and selling of goods was done by D1 himself who also collected payments by customers. Dl also employed a receptionist/typist. PW 11 Chu Yee-man worked as a receptionist in the company for a month only. She left because she found she had little to do in the company. During the time she was in the company, she only saw the three defendants two to three times. PW13 Cheng Hau-yee next worked as a receptionist in the company. She was interviewed by D3 for the post. She worked for two to three months and she did general office work such as answering the phone, typing cheques and invoices and arranging deliveries. During that time, she only saw D1 and D2 return to the office in the afternoon for a few hours on alternative days but D3 was there almost daily and stayed there for most of the day.

5. Since the company commenced business, a number of plastics suppliers (PW1 to 6, 10 and 14) had sold goods to the company. They dealt with D1 and D2. Initially, they were paid cash on delivery of the goods. There was nothing to show that the company was not a normal trading company. But later the suppliers were persuaded to accept payments by post-dated cheques. Between 19 to 22 August 1997 ten cheques were issued from the Kincheng Bank account to pay for plastic materials delivered to the company. Nine of these cheques were post-dated to after 23 August 1997. The total amount of these cheques was more than 2.2 million dollars. All of them were dishonoured on presentation. When the suppliers pressed D1 for payment of these cheques, D1 showed them two sales contracts signed by him with one Yan Bun Company ("Yan Bun") in Shenzhen. He explained to them that because Yan Bun had failed to make payments under these sales contracts, he was unable to pay them. He asked them to wait for payment. Subsequently each supplier was given a cheque for a few thousand dollars as part payment but this amount was too small to be of any significance. There was little evidence as to the existence of that company in Shenzhen except that some release orders bore a chop in the name of Yan Bun and the two sales contracts carried the name Yan Bun. D2 in his interview told the police that he was there when these two contracts were signed by D1 in a Shenzhen hotel but he could not tell which hotel it was. Immigration records showed that both D1 and D2 were in Hong Kong on the dates when those contracts were signed.

6. The company had sold some of the plastic goods it bought from the suppliers to PW6's company, Wah Fung at a loss. D2 dealt with PW6 in this transaction and he had explained to PW6 that the goods were originally destined for the mainland but due to lack of authorisation and free storage space, they had to be sold locally at a loss. But the documents showed that free storage was still available to the company on the date of the sale.

7. The company's Kincheng Bank account was used in the company's transactions but the credit balance in this account had always been kept low. To begin with, funds would only be deposited into this account immediately prior to the issue of cheques to enable them to be met on presentation. Dl's explanation for keeping the credit balance low was that he normally kept the cash received in the course of business in a safe. The only cheque deposited in this account was a cheque in the amount of $850,000 issued by a Tin Lai Trading Factory on 22 August 1997 but the bank account on which this cheque was drawn was closed some four years before, on 12 May 1993. This cheque was dishonoured. There was no evidence as to how this cheque came to be made to the company or the defendants. But D1 had showed this cheque to one of the suppliers in August 1997 to explain why he was unable to pay for the goods supplied. Apart from this cheque deposit, the Kincheng Bank account showed no other movement, whether in the form of transfer or direct deposit of funds.

8. All three defendants were interviewed by the police in the course of investigation. The interview records were produced as part of the prosecution case. D1 in his interview admitted that D2 and D3 were employed by him as sales persons and he also employed a girl to take care of the company accounts. He said that the goods he bought were sold to Yan Bun in Shenzhen and payment for them was in cash, cheque or remittance. The company documents relating to these transactions such as invoices, receipts and documents evidencing delivery of goods to and payment by Yan Bun had either been lost by him on his return from a trip to Shenzhen or when he moved office. He explained that apart from paying a 10% deposit on signing the first sales contract, Yan Bun had defaulted in payment since March or April 1997. What the balance was that remained unpaid is not clear from D1's statements as D1 mentioned various figures ranging from 2.8 million to 1 million Renminbi in his two interviews. In any event, his explanation for failing to honour the cheques was because Yan Bun defaulted in payment.

9. D2 in his interview gave the same story about resale of the goods to Yan Bun and payments were remitted to the company account with Kincheng Bank. When Yan Bun fell into arrears, he would go to the mainland to chase for payment. He said the company had always intended to honour the post-dated cheques and had it not been the default on the part of Yan Bun, the company would have sufficient funds to meet the cheques. He said it was only a financial problem of the company that the post-dated cheques were not met. He said in essence that he was an employee of the company and he had no knowledge that the company was not a legitimate trader.

10. D3 in his interview denied that there had been an incident involving suppliers going to the company office arguing with the company about accepting post-dated cheques for payments of goods supplied. He admitted that he had handled cheques, vouchers and had ordered goods and collected payments for the company. What he said in essence was that he was employed by a legitimate trading company, most of the time to do odd jobs in the company. He knew the company owed others money but he denied he was involved in the company's debt.

11. The Judge did not accept Dl had funds to put into his account as a result of his transactions with Yan Bun and he was unable to meet the post-dated cheques because Yan Bun did not pay him. The Judge found his claim of loss of company documents questionable.

12. On the evidence, in particular the abnormal functioning of the company and the involvement of the defendants in the company, the Judge found the company was not a genuine trading company and all the defendants knew it was so. She inferred that the defendants' involvement was pursuant to an earlier arrangement amongst them and there was a case to answer by all the defendants.

13. The defendants did not give evidence. There was no evidence from the defendants for the Judge to consider. Her conclusion is this:

14. The Judge then convicted the defendants as charged.

15. D1 has five grounds of appeal. In a nutshell, his complaint was that there was insufficient evidence for the Judge to draw the inference that he and the other defendants had conspired to defraud. Before us, D1 repeated his grounds.

16. D2's grounds are the same but he added this morning that he was only an employee who acted on his employer's instructions. He was unaware of the intention of his employer and unknowingly he fell into a trap.

17. D3 has a number of grounds and it may be convenient to deal with his case first.

18. The first ground is that the Judge adopted the wrong approach in considering what D3 said in his interview. The complaint is in respect of what the Judge said on p. 34 of her reasons for verdict:

19. Counsel for D3, Mr Macrae SC, submits that the interview statement of D3 is a mixed statement consisting of incriminating admissions and exculpatory explanations and excuses. What the Judge said would be correct if the statement was wholly exculpatory and self-serving but where the statement was mixed statement as in the present case, the Judge was wrong to adopt that approach. Counsel submits that the Judge should have followed the direction of Lord Lane C.J. in R v Duncan 73 Cr. App. R. 359 which was approved in R v Sharp [1988] 1 WLR 7 and followed in R v Chan Chi-wai [1992] 1 HKCLR 1 and R v Aziz [1995] 2 Cr. App. R. 478. Mr Macrae submits that the evidence against D3 was circumstantial and slim and the Judge by not adopting the correct approach, had not properly looked at all the evidence and fully considered D3's case as D3 explained in his statement. He submits that the Judge had failed to consider as evidence the replies given by D3 to the effect that his work was simply office management, that he had to follow instructions from D1 and that he joined the company in April 1997 and left the company on 4 August 1997, before the post-dated cheques were issued. Had she taken into consideration these replies as capable of amounting to material which could assist in deciding where the truth was to be found, she would not, Mr Macrae submits have concluded that "D2 and D3 had been working at Cimax from February 1997 onwards". He argues that these were relevant considerations in deciding whether D3 was part of the conspiracy to swindle the suppliers of plastic materials.

20. Mr Reading SC for the respondent does not seek to argue before us that the statements of the defendants are wholly exculpatory statements but he argues that although the Judge had treated the statement of D3 as self-serving, she had nevertheless considered all its contents, albeit rejecting the applicant's explanations, where they are at variance with the other evidence.

21. The direction of Lord Lane C.J. as cited with approval in the judgment of Lord Steyn in R v Aziz (at p. 484) is this:

22. Lord Steyn added this:

23. The defendants in their interview statements undoubtedly had made admissions of overt acts which the prosecution contended were pursuant to the conspiracy to run the company to swindle suppliers and from which it may be inferred that they were participants of the conspiracy. But these statements also contained their exculpatory explanations for these overt acts. The statements are therefore clearly mixed statements. Neither the Judge nor counsel at the trial appeared to have appreciated that these statements were of a mixed nature. Pausing here, we wish to add that although these were lengthy statements which required considerable time to go through, if the matter had been fully ventilated at the trial, the Judge might not have taken the wrong approach to treat them as wholly exculpatory and self-serving statements. That being said, if the Judge had in fact considered each statement as a whole, giving the incriminating parts as well as the exculpatory parts their due weight, the Judge would be entitled to have come to the verdicts she reached.

24. The Judge did not entirely ignore the evidence provided in the statements. She referred to the denials and, in relation to D3's interview, she said, to take the examples in her reasons for verdict at p. 34:

and later

These references, as well as similar references elsewhere in her reasons for verdict, do not show that the mixed statement of D3 had been properly considered by the Judge as evidence. This is compounded by what she said after she found there was a case to answer:

and that towards the end of her reasons for verdict at p. 36:

25. From these paragraphs, plainly the Judge had not regarded the explanations given in the defendants' interviews as evidence capable of being considered as forming the basis of a defence. This is a fundamental error in the Judge's approach to the evidence. The same wrong approach had been applied to all three defendants' interview statements. In these circumstances, there was a material misdirection by the Judge and the verdicts against them must be regarded as suspect.

The second ground of appeal of D3 is the Judge made a number of important mistakes of fact.

26. This ground can be disposed of shortly. There are indeed some discrepancies between the Judge's findings of fact and the evidence of prosecution witnesses and what D3 said in his interview. In our view, most of these are no more than matters of semantics and matters of little significance although it is unfortunate that these errors were made. In one example, however, the Judge's finding is that PW13 said that D3 stayed in the office a few hours each afternoon, when PW13 had in fact said he was there most of the day; it appears that the Judge made a more fundamental error. Be that as it may, the presence of D3, whether for a few hours or for most of the day in the office made little difference where there was ample other evidence to show that he was actively engaged in the daily operations of the company's office. In our view, the discrepancies, such as they were, are not of sufficient importance to found a successful ground of appeal.

27. The final complaint by D3 is that the Judge had allowed herself to be influenced in her assessment by what she had read in other defendants' statements and the Judge did not approach the case for and against D3 properly.

28. While the Judge had at the beginning of her reasons for verdict reminded herself that what is said by one defendant against the other in their records of interview is not evidence against the other, she had in fact allowed herself to use what D3 said in his interview as evidence against D1 and vice versa. That she did so is clear from what she said in the following paragraphs on page 30:

29. These references may not relate to the main issues in the case but they go some way to demonstrate that the defendants' respective cases had not been properly assessed according to the admissible evidence against each of them.

30. Having said that, we are of the view that there was ample evidence to show that the company was not a genuine trading company and that all three defendants were active participants in running the company pursuant to an agreement to defraud would-be company suppliers, such an agreement being one which persisted throughout the period charged. The fact that D3 may have left the company before the cheques were issued does not assist D3 if there was sufficient evidence that he had participated in this agreement at some time during this period.

31. If the Judge had properly and correctly directed herself as to the approach she should adopt in considering the answers which the three defendants made in their interviews, the verdicts would have been safe and satisfactory, there being overwhelming evidence, if accepted, to support a conviction on the charge brought against the defendants. We do not, however, feel confident that the Judge either considered at all or properly considered the exculpatory parts of the defendants' interviews.

32. For the reasons given, the applications of all three defendants are successful and, treating the application as the hearing of the appeal, we quash the convictions. Retrial was ordered for D1, D2 and D3 and D3 awarded costs of the appeal to be taxed if not agreed.