HKSAR v. TSANG WAI-HUNG AND OTHERS

CACC 328/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 328 OF 2004 

(ON APPEAL FROM NO. dccc 848 of 2003)

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J U D G M E N T

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Hon Yeung JA (giving judgment of the Court):

Background

1.  Team Power Enterprise Limited (Team Power) was incorporated in July 2000 and the 1^st applicant – Tsang Wai-hung (Tsang) had since been one of its directors.

2.  The 2^nd applicant – Yu King-ming (Yu) and the 3^rd applicant – Leung Fung-yan (Leung) were, at all material times, Team Power’s employees.

3.  It appeared that both Yu and Leung used their respective pseudonyms of Yu Cheuk-lung and Leung Chi-ling in conducting Team Power’s business.

4.  In Team Power publications, Yu was described as “Global Principal Consultant” and Leung as “Marketing Strategy Consultant”.

5.  The applicants were authorized signatories of Team Power’s account with the International Bank of Asia Ltd. They played various roles in recruiting and persuading clients to invest in Team Power.

6.  In or about November 2001 Team Power’s “business” collapsed, leading to the applicants’ arrest and prosecution on a charge of conspiracy to defraud.

7.  The applicants pleaded not guilty, but were all convicted as charged by HH Judge Day in the District Court and sentenced to three years’ imprisonment.

8.  The applicants now seek leave to appeal against conviction.

Prosecution Case and Evidence

9.  Team Power made available a number of investment plans for its clients, including a Gold Planting Plan (the plan) in which a participant would pay three installments of $3,500 each and could receive a return totaling $166,300 by the end of the 13^th term. There was another version to the plan involving different amounts.

10.  To encourage participation, the applicants would explain the plan to individual participants or from a stage to large crowds of eager investors. The investors were even shown a newspaper article built around the beguiling photograph of one of their members receiving an outsized cheque from the applicants.

11.  The publications of Team Power invariably focused on the massive profits that could be made from the investment plans it offered, e.g. $48,000 to earn over $2 million and $96,000 to earn over $4 million after 24 terms.

12.  Under the plan, the payment of the $166,300 to a participant on an investment of $10,500 took the form of a rebate of $500 on the 3^rd term, a payment of $1,000 on the fifth term, followed by further payments in increasing amounts over the following terms to the 13^th one, at which time the total sum of $166,300 would have been paid to the participant.

13.  Further, for every $3,500 paid, a participant would receive 10 red Bonus Vouchers (BV) which could be used to exchange for tea, watches, red wine etc.

14.  A participant, who introduced a new member to the plan, would receive a referral commission of $350 for every $3,500 spent by the new member.

15.  In their dealings with Team Power, clients had to sign purchase order forms ostensibly relating to the purchase of tea or other goods. Above the client’s signature, there was a paragraph indicating that the client had agreed to the conditions of the plan and at the bottom of the first page, there was also a paragraph dealing with the storage of the goods if they were not collected.

16.  At the back of the forms, there were 20 paragraphs; including a paragraph (paragraph 18) to the effect that bonus would only be paid if Team Power reached a certain sales target. It did not, however, specify what that target was.

17.  According to the prosecution, Team Power would lose $155,800 for every plan on top of the referral commissions paid for the introduction of new participants.

18.  As the income for the plan was less than the required payments and as Team Power had no other business and could only meet its commitments from the payments made by later participants, the scheme was bound to fail when Team Power could not recruit sufficient new participants whose payments would be used to meet its obligations.

19.  In any event, as Team Power would make a loss on the plan, the more plans it sold, the more loss it would suffer.

20.  The prosecution alleged that the whole of Team Power’s business was just a device to defraud the participants. The plan could not be a genuine business arrangement as it was bound to fail because its income could never meet the payments promised by the applicants.

21.  The ostensible purchases of tea and other goods, and the purchase order forms that clients signed were just part of the fraudulent scheme.

22.  Five participants of the plan and a Treasury Accountant (an expert) gave evidence for the prosecution.

23.  The five participants (all ladies of senior age) were persuaded by one or other of the applicants to invest in the plan. They were told if they invested $10,000 (three terms of $3,500 each, less a rebate of $500 on the 3^rd term), they would receive over $160,000 after 13 terms. They were shown company documents showing a table of returns on their “investments”.

24.  When some of the participants questioned the viability of the plan, their concerns were assuaged by the suggestion that lawyers and auditors monitored Team Power’s investments in the Mainland and Japan.

25.  The participants were all attracted by the huge return and had purchased various numbers of units of the plan for tens of thousands of dollars.

26.  However, Team Power failed to pay the bonus as the applicants promised and the participants all suffered losses although the exact extent of their losses was not known.

27.  The participants denied the suggestion that under the plan, they were purchasing goods and that the cash rebates were ancillary to such purchases. They said as part of the plan they were awarded bonus points, which could be exchanged for goods.

28.  They were adamant that had they been aware of the terms of the purchase order forms or that if there was any risk of them not getting back their investment, they would not have joined the plan.

29.  The participants were referred to the purchase order forms and the conditions contained therein. Their explanation was that they did not read the documents and relied instead on what the applicants told them.

30.  They denied the suggestion that they had been told before hand and therefore they were aware that the rebate payment would only be made if certain sales targets were reached.

31.  The only other witness for the prosecution was Mr Li Wing-shing, a Treasury Accountant.

32.  Mr Li pointed out that a contribution of $10,500 leading to a reward of $166,300 meant a loss of $155,800 to Team Power for each plan sold.

33.  On examining the company documents, Mr Li was able to say that from August 2000 to 31 August 2001, there were sales of plans (described as sales of tea) of over $43 million and that the figure for the future sale from 1 April 2001 to 31 August 2001 was just $8,900.

34.  There were records showing purchases of watches, wine and tea by the company of $5.4 million.

35.  Mr Li said there was no evidence that Team Power was engaged in any other business than the sales of the plan.

36.  Mr Li also said the company could only continue to operate by successfully recruiting more participants in sufficient numbers so that payments from them could cover payments required to be paid to previous participants.

37.  However, the more participants the company had, the more loss it would suffer and sooner or later, the “business” would collapse.

The Defence Case

38.  None of the applicants gave evidence or called any witness. They relied on the suggestions put to the prosecution witnesses in cross-examination, namely that the plan was for the purchases of tea and other products; that the cash rebate was only ancillary to the purchases; that the participants’ attention had been drawn to the terms of the purchase order forms; and that the rebate payments would only be made if certain sales targets were reached.

39.  The suggestion was that the plan should be governed by the terms of the brochure and the purchase order forms, particularly the condition in paragraph 18 that Team Power would only pay the participants if certain sales targets were reached.

The Judge’s Findings

40.  The judge found the participants truthful and reliable witnesses. He accepted their evidence that they were promised a return of over $160,000 for an investment of just over $10,000 with no strings attached.

41.  The judge accepted the participants’ explanation that they had never been made aware of the terms of the purchase order forms.

42.  The judge also accepted Mr Li’s evidence. Indeed the judge said “common sense indicated that the market open to Team Power must be finite and that the plan must eventually fail.”

43.  The judge rejected the defence suggestion based on paragraph 18 of the purchase order forms that the rebate was only payable upon the attainment of a certain sales target.

44.  The judge commented, “This has not been an action for breach of contract, it has been a criminal trial alleging conspiracy to defraud and the question in this trial has not been whether in contract a person would be bound by a document he signed, whether or not he read it, but whether the customers were dishonestly induced to sign the documents by fraud.”

45.  The judge concluded that Team Power was not engaged in any other business other than the sales of the plan.

46.  The judge further concluded that the applicants were part of the conspiracy to defraud the participants by falsely representing to them that the investments they made in the plan would net huge profit, knowing full well that Team Power could not and would not meet the payments they had promised and that they were acting dishonestly.

Grounds Of Appeal

47.  Mr Andrew Bruce SC, on behalf of the applicants, submits that contract law principles are relevant to the issues. He suggests that the participants in the plan were all bound by the terms of the purchase order forms, particularly the stipulation in paragraph 18 that payment would only be made if certain sales targets were reached.

48.  Reference is made to cases to the effect that anyone who signs a contractual document is bound by its terms unless his signature is obtained by fraud or misrepresentation.

49.  The suggestion is that in receiving the payments from the participants and not paying them as they had expected, the applicants were just exercising a claim of right as they had fulfilled what the contractual arrangement obliged them to do.

50.  Mr Bruce submits that having ruled that the principles of civil law of contract had no application, the judge could not have properly considered the issue of dishonesty on the part of each of the applicants.

51.  Mr Bruce further submits that the judge had not properly applied the objective and subjective tests as required by R v Ghosh [1982] QB 1053 in determining the guilt of the applicants.

Discussion

52.  With the greatest of respect, we are astonished by Mr Bruce’s submission, made with complete disregard to the prosecution case and the findings of the judge.

53.  Whether civil law principles have any application in a criminal case is of course fact sensitive. Sometimes, in determining if an element of a charge has been established, civil law principles may be relevant as demonstrated in the case of Fisher v Bell (1961) 1 QB 394.

54.  However, as the judge rightly pointed out, the case was not about whether the principles of the civil law of contract applied. The question was whether the prosecution had proved all the elements of the charge against the applicants.

55.  The judge referred to the civil law principles as a side issue. In our view, it is a complete red herring.

56.  The judge found that the applicants had told the victims that their investment of just over $10,000 would bring in a total return of over $160,000, with no strings attached.

57.  The judge also found that none of the applicants was aware of the terms of the purchase order forms, which set out the conditions to be fulfilled before payments would be made. He also accepted their evidence that if they were aware of the terms in question, they would not have joined the plan at all.

58.  Such findings must also be viewed together with the expert’s evidence that Team Power was not engaged in any business other than the sales of the plan.

59.  On the evidence of the expert, Team Power could never pay the participants the promised return. Indeed, the more plans Team Power managed to sell, the more loss it would suffer and sooner or later, the scheme would be bound to collapse.

60.  The representations made by the applicants to the participants must necessarily be false. If the applicants truly believed in the terms of the purchase order forms, they would not have made the representations to the participants as they did.

61.  Clearly the brochure and the purchase order forms, containing terms contrary to the representations made by the applicants, were part and parcel of the scheme to defraud the participants.

62.  The condition that payments would only be made if the sales reached certain targets were couched in extremely vague terms and buried in massively misleading information, glorifying the plan and emphasizing the huge profit that could be made from the plan.

63.  The grandeur of the plan (a few ten thousand dollars would bring in a return of millions of dollars) and the glorified titles of the applicants were just part of the applicants’ attempts to entice the ignorant participants to part with their money. The existence of the “terms” in the purchase order forms were part of the shop-window dressing of the fraudulent scheme. It was a plan carefully devised for the purpose of defrauding the participants from start to finish.

64.  It would be a very sad day if perpetrators of a fraudulent scheme could escape liability by including, as part of the scheme, documents containing terms that ran contrary to the false representations they made to the victims, when the victims had no knowledge of the true meaning and effect of such terms.

65.  The judge concluded that the applicants could not rely on the suggestion that the participants should be bound by the terms of the order forms that they had signed to escape liability. On the facts of the case, the judge’s approach was impeccable.

66.  The judge was perfectly entitled to accept the evidence of the expert that Team Power did not engage in any other business than the selling of the plans and as such could never make any profit.

67.  The judge was also entitled to accept the evidence of the participants that the applicants had made the representations of the huge return with no strings attached and that they were never made aware of the terms of the purchase order forms.

68.  The ostensible purchase of tea and other goods was clearly a sham arrangement and it was not even suggested otherwise.

69.  The applicants’ representations were made as part of the fraudulent scheme to defraud the participants. The applicants were clearly acting dishonestly. The judge had properly applied both the objective and subjective tests in including as he did that the applicants were acting dishonestly.

Conclusion

70.  The applicants were rightly and properly convicted. There is nothing unsafe or unsatisfactory about such conviction.

71.  The applicants’ applications for leave to appeal against conviction are all dismissed.

72.  Having heard submission from counsel and applying the principles enunciated in Chau Ching Kay v HKSAR (2002) 5 HKCFAR 540, we are satisfied that this is a proper case to order loss of time against each of the applicants under s.83W of the Criminal Procedure Ordinance Cap. 221.

73.  We therefore order that three months of the time that each of the applicants has been in custody pending appeal will not be reckoned as part of the sentence imposed.