HKSAR v. TSANG WAI LUN WAYLAND AND OTHERS

CACC 96/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 96 OF 2010

(ON APPEAL FROM DCCC NO. 24 OF 2008)

________________________

BETWEEN

________________________

________________________

J U D G M E N T

________________________

Hon Stock VP (giving the judgment of the Court):

Introduction

1.  In 2002, a Hong Kong listed company represented to its shareholders and to the public that it had acquired an interest in a joint venture with a Mainland company to provide gas facilities to the residents of Chongqing.  A document in the form of a joint venture agreement existed but in the criminal proceedings with which this application is concerned, the prosecution case was that it was bogus in the sense that the Hong Kong company had no intention of pursuing the project but had been instrumental in the creation of the agreement, had acquired or purportedly acquired an interest in the supposed joint venture and made the announcement as a dishonest device by which to bolster and maintain the price of its shares.  This resulted in a charge of conspiracy to defraud and a charge of conspiracy to publish a false statement.

2.  In the face of prolonged inactivity following the announcement, a complaint was made to the Stock Exchange by a minority shareholder.  The Exchange pressed the Hong Kong company for an explanation.  The company vacillated and, so ran the allegation, when matters became too hot to handle, attempted to reduce the heat by pretending to sell its interest in the joint-venture company.  Another announcement was made to the effect that it had disposed of its interest but the suggestion was that the sale was a sham.  This resulted in another charge of conspiracy to defraud.

3.  To give effect to the sham sale, there was a circulation of money from a finance company to the supposed purchaser of the company's interest, then to the listed company and then, through a circuitous route, back to the finance company.  This gave rise to a charge of conspiracy to deal in funds known or believed to be the proceeds of an indictable offence.

4.  The case was heard in the District Court before Judge A Wong.  The trial commenced in May 2009.  There were six defendants.  The evidence was completed in December 2009 and the verdict delivered on 5 March 2010.  Five of the six defendants were convicted upon various of the charges and those five are the applicants who now seek leave to appeal those convictions.

The first phase

5.  The case concerns the activities of a listed company Grand Field Group Holdings Limited (Grand Field) between February 2002 and July 2003 in connection with a (supposed) gas supply project in Chongqing.

6.  Mr Wayland Tsang Wai-lun (Tsang) was Chairman of Grand Field.  He was D1 at trial.  His wife is Mdm Nancy Kwok Wai-man (Kwok).  She was an executive director of Grand Field and in charge of day to day operations.  She was D2.

7.  In mid-March 2002, the share price of Grand Field fell from $0.68 to $0.12 and the suggestion was that Tsang and Kwok incurred significant losses as a result.

8.  Energy projects on the Mainland were then an attractive form of investment for some Hong Kong listed companies and there were agents or entrepreneurs engaged in introducing such projects to such companies.  One such person was Ivan Wong (PW1 at trial).  He knew a man called Li Tai-pang (D3), a director of Sino Energy Limited.  Wong suggested to Li that they cooperate in introducing energy projects and in March 2002, Li introduced two persons to Wong.  They were Victor Yeung and Andrew Lee (PW2 and PW3 respectively). Yeung and Lee had contacts on the Mainland, in particular in Chongqing where, according to them, there was available for investment a project for the supply of gas to residents of Chongqing.  The Mainland company said to be available as the joint venture partner for the project was the Chongqing Wansheng Coal Carbonization Gas Company Limited (Wansheng Coal).

9.  Yeung gave Wong documents relating to the proposed project, including a feasibility study and, against this background, Wong held several meetings with Tsang in April or May 2002.  Tsang expressed interest in the project, saying, according to the prosecution case, that it might prove a vehicle by which he could ameliorate losses occasioned by the recent drop in the share price of Grand Field.

10.  The essence of the prosecution case was that Tsang had no intention that Grand Field partake in the project, save on paper.  It was a device.  The idea was to form a company which would be the Hong Kong partner in a joint venture agreement with Wansheng Coal.  Grand Field, through a subsidiary, would acquire an interest in the new company and would issue shares in consideration of that acquisition.  The public would be told of the exciting new project, information which would impact favourably on the share price.

11.  The new company established on 3 May 2002 was Sino Richest Limited (Sino Richest).  The shareholders of Sino Richest were:

(1) Ivan Wong, who held 15% of the shares;

(2) Worldgate Developments Limited (Worldgate), a BVI company whose sole director was Lin Xianguo – this company held 55% of the shares; and

(3) Logistic China Enterprises Ltd (Logistic China), another BVI company, whose sole director was Zeng Qinqchun – this company held 30% of the shares.

Lin and Zeng were well-known to Tsang and his wife (Kwok), and were said by the prosecution to be their nominees.

12.  The directors of Sino Richest were Yeung and the son of Li Tai pang, Li Tsz chung.

13.  What next happened was that a report valuing the project was commissioned.  Tsang asked Ivan Wong to obtain a valuation of the project, a strange request (it was said) since Grand Field never commissioned its own report.  The valuer was one William Shum (PW4) of BI Appraisal.  Wong’s testimony was that much of the information which he provided to Shum was made up, none of it queried by Shum who did not even visit Qhonqing before his draft report with the valuation of $106 million was produced, he having been told by Wong that the value had to be no less than $95 million.  The report was tabled at a board meeting of Grand Field on 21 May 2002, attended by Tsang and Kwok and others, and approved.

14.  On 25 May 2002 the joint venture agreement was signed and with it was established the joint-venture company, Chongqing Sino Richest Wansheng Company Limited.  It was common ground that by that date no one from Grand Field had visited the proposed site of the project.  Yeung signed the agreement on behalf of Sino Richest.  Bizarrely, on the same date he also signed on behalf of Sino Richest a different agreement by which Wansheng Coal agreed to transfer the entire project to Sino Richest.  Under the joint-venture agreement, the registered capital was to be $30 million of which 80% was to be contributed by Sino Richest and 20% by Wansheng Coal.  The capital contributions were to be injected within three months of issue of the business certificate, which was a certificate required to be obtained from the Mainland authorities.

15.  The move towards the issue of consideration shares took a significant step further by the signing on 30 May 2002 of a share transfer agreement by which Chintex Oil and Gas Company Limited (Chintex), a wholly-owned subsidiary of Grand Field, acquired a 75% share of Sino Richest for the sum of $63 million payable by the issue of 315 million shares at $0.20 per share to Sino Richest’s three shareholders.

16.  On 4 June 2002, Grand Field issued a public announcement of Chintex’s acquisition of the 75% interest in Sino Richest in consideration of the issue of 315 million new shares to the vendors, an agreement represented to have been reached after arm’s-length negotiations pursuant to a valuation of the joint-venture – a valuation said to have been prepared “by an independent firm of professional valuers” – at $106 million.  The announcement said that the directors of Grand Field believed that the acquisition presented an excellent opportunity for Grand Field to diversify its existing businesses “into natural gas business in the PRC. … In view of the PRC government policy of encouraging the use of natural gas to lessen environmental pollution problems, the market potential of the [joint-venture] is very encouraging.”  Completion of the joint-venture agreement was conditional, according to the announcement, upon obtaining necessary approvals and licences from governmental authorities for the conduct of a gas supply business.

17.  Steve Au-Yeung was Grand Field’s company secretary.  He became an important prosecution witness (PW5).  He pressed Ivan Wong for production of the necessary approvals and licences, in particular a business licence and an approval certificate.  It was important to have these in order to obtain approval from the Stock Exchange for the issue of the consideration shares.  Wong in turn chased Li (D3) to secure these documents and was informed by Li in mid-June that they had to be collected in Chongqing.  Ivan Wong told Tsang that he should come with him to Chongqing when he, Wong, went to collect the documents since it was normal in the acquisition of such projects to conduct some form of due diligence and it would help in answering Stock Exchange enquiries if he had inspected the scene of the proposed project.

18.  So Ivan Wong went to Chongqing on 12 June and Tsang went the following day.  Wong was handed a business license as well as an approval certificate by a lawyer named Zhang, introduced to him by Yeung.  Wong and Tsang visited the relevant site which was an open space on a hill with some houses and other structures.  It is common ground that both the licence and the certificate were fakes.  On 12 June there was signed a supplementary agreement between the joint-venture partners, providing for the injection of capital contributions by instalments.

19.  On 1 August 2002 Grand Field passed a resolution to issue 315 million consideration shares, the issue of which was approved by the Stock Exchange on 18 September 2002.  Ivan Wong did not receive the number of consideration shares which he had been promised by Tsang, Tsang taking for himself 30 million of the 63 million promised.  Wong disposed of his shares.

The first and second charges

20.  This ends the first phase of the history behind the case.  It gave rise to the first two charges on the charge sheet.

21.  Charge 1 alleged a conspiracy between Tsang, Kwok and Li between 1 February and 30 September 2002, together with Wong, Au Yeung, Yeung and Lee, to defraud Grand Field, its shareholders and investors and the Stock Exchange by dishonestly representing that there was a genuine intention to acquire an interest in a business to develop and construct a gas pipeline in Chongqing with a view to causing the shareholders to approve the issue and allotment of consideration shares; the Stock Exchange to grant the listing of and permission to deal in those shares; and Grand Field to issue those shares.

22.  Charge 2 charged Tsang with a conspiracy to publish a false statement in that he, with the intent to deceive the members of Grand Field about its affairs, conspired with Sham (the man who produced the valuation report), Ivan Wong and Au Yeung to publish a written statement, namely, the public announcement of 4 June 2002 which to their knowledge was false or misleading as to the fair market value of the joint-venture.

The second phase

(1)The Stock Exchange inquiries

23.  The second phase of the history of this affair gave rise to the third and fourth charges and commenced with repeated enquiries by the Stock Exchange of Grand Field.  Since the manner in which Grand Field dealt with those enquiries occupies a central part of the case against some of the applicants, it is necessary to go into the correspondence in some detail.

24.  On 31 October 2002, the Stock Exchange wrote to the board of directors of Grand Field at its offices in Righteous Centre, Nathan Road.  It said that the Stock Exchange had received a complaint from a minority shareholder relating to the acquisition by Grand Field of a 75% interest in Sino Richest and that the complainant had alleged that Sino Richest had breached the joint-venture contract by failing to contribute the required capital and was therefore in breach of the agreement, had lost its entitlements under the agreement and was liable in damages; and further that Sino Richest had not yet acquired a business licence or approval certificate for the project.

25.  In its reply, signed by Tsang, Grand Field said that it had learned from Sino Richest that no complaints had been received of any suggested breach of contract and the letter enclosed the business licence and the approval certificate.  The suggestion that those documents had not been issued was “totally not factual.”  We pause in that regard to comment that whilst the evidence leaves open the possibility that Tsang only found out in early 2003 that the documents with which Grand Field had been provided were false, at no stage thereafter was the fact of that discovery revealed to the Stock Exchange by Tsang or anyone else on behalf of Grand Field.

26.  The next letter from the Stock Exchange was dated 15 November 2002.  They wanted to know the terms of the agreement relating to capital contribution, in particular as to the timing of the required contributions and whether the contributions had been made; and the Stock Exchange showed further interest in the business licence and approval certificate. The reply from Grand Field, signed by Tsang, did not provide the terms or timing of the proposed capital contributions save to say that Wansheng Coal’s capital contribution was in the form of transfer of assets (plant, buildings, railway) to the joint venture company, which transfer had not been “completed”, and that accordingly Sino Richest had not commenced its cash injection of capital. “Completed” was misleading, since nothing at all had been transferred and, furthermore, under the agreement Sino Richest’s obligation to make capital contributions was not conditional upon prior injection of capital assets by Wansheng Coal.

27.  It is noteworthy that Grand Field had not up to that stage provided the Stock Exchange with a copy of the joint-venture agreement itself.  So, in the next letter, the Stock Exchange pressed for a copy and for further information and said that it found the manner in which its enquiries had been dealt with unsatisfactory adding: “…we would expect the Board to exercise their due care and diligence as may be reasonably expected to respond to our enquiries with clarity and sufficient details.”  There was further correspondence in December, this time signed by Kwok on behalf of Grand Field, similarly evasive: it referred to advice “from our China lawyer” yet with no name for that lawyer given nor any correspondence from him or her; and it referred to Grand Field having obtained "the verbal consent of the local government that the regulation of the timeframe of capital injection can be relaxed” so that the validity of the approval certificate could be extended.  The absence of any written support for assertions and the repeated reference to oral, rather than written, assurances or negotiations became a repeated and marked feature of Grand Field’s answers to Stock Exchange queries.

28.  It is readily apparent that the correspondence from Grand Field then and thereafter assiduously avoided any of the clarity or sufficient detail for which the Stock Exchange had asked.  In the light of the submissions to us that there was scant support for the evidence of the prosecution witnesses who testified under immunity and that there was no reason for those of the non-Grand Field defendants to suspect anything amiss, the stark and deliberate evasiveness which pervades Grand Field’s prolonged correspondence with the Stock Exchange is, in our judgment, patent to all who might read it save to those who would turn a blind eye to the obvious.

29.  In January 2003, Tsang wrote telling the Stock Exchange that Grand Field did not know why the Mainland partner had failed to transfer assets in accordance with its obligations under the contract; that Sino Richest had negotiated with its partner to take up the entire interest in the project; that “in order to reach consensus.. either party does not regard the other party as having breached the .. contract; and there will be no claims arising from the inaction of the capital injection”; and, finally, that Mainland legal advice had been sought in connection with Sino Richest’s intended application for a business licence and approval certificate to run the whole enterprise itself.  We pause again to note the following, which (again) must readily have been appreciated by any reader of the correspondence:

(1)  The suggestion that Grand Field did not know why the Mainland partner had failed to transfer assets was an astonishing suggestion.  If Tsang had been acting honestly, he would have caused suitable enquiries to be made and pressed.  Not one letter or e-mail of inquiry has been produced.  It is an obvious and safe inference that no inquiries were made and, from that, a further inference that Grand Field’s interest in the project did not exist.

(2)  The assertion in the letter was that because of an attempt to reach an agreement for Sino Richest to take over the whole project, no claim against the joint venture partner was intended in respect of its (alleged) failure to comply with the agreement; yet not an iota of evidence was produced then or in the proceedings below of any negotiations to that end.  And not a hint of any steps taken thereafter by Grand Field or Sino Richest to suggest, let alone threaten, proceedings in relation to the alleged breach of agreement by Wansheng Coal.

(3)  No evidence has ever been produced of an application for a business licence and approval certificate for a wholly Grand Field owned Chongqing gas project.

(4)  The lawyer’s advice referred to in the letter was not produced nor was the lawyer identified.

30.  The contention that any person possessed of this correspondence would not readily have appreciated that Grand Field’s interest in the project was a sham, presupposes considerable naivety.

31.  In late January 2003, the Stock Exchange pressed for advice about progress of the alleged negotiations and for the legal opinion which Grand Field had said it was obtaining about the business licence and approval certificate for the wholly foreign-owned acquisition.  The Stock Exchange reminded Grand Field of its obligation to keep the market informed of material information relating to the Group, and required a reply by 7 February.

32.  It might be thought that the questions thus asked by the Stock Exchange were simple enough, yet the deadline of 7 February was not met and all that was said in Grand Field’s reply of 14 February, signed by Kwok, was this:

“We refer to your fax of 30th January 2003 and advise that we have retained a China lawyer to handle the issue of the JV Partner and Sino Richest and the application for the business licence and approval certificate for the wholly-foreign enterprise pursuing the Chongqing project exclusively. We shall advise you more should we have further information on the progress.”

33.  It will be seen at once that no answer was given about the progress of the negotiations or of the supposed application for a business licence and approval certificate.  No legal opinion was ever provided to the Stock Exchange.  One can well understand, therefore, the conclusion by the trial judge that no legal opinion was sought, that no negotiations were afoot, and that Grand Field, through Tsang and Kwok, was engaged upon a course of prolonged deceit.  None of the applicants testified at trial to the contrary and it is an exercise in unreality to propose any other conclusion.

34.  The Stock Exchange showed remarkable patience.  By letter dated 18 February it insisted upon the submission of a draft announcement by 20 February 2003 to include information about the formation of the joint-venture and about the absence of any capital or asset injection and the lapse of the relevant licence and of the approval certificate.

35.  So, on 27 February 2003 an announcement was made stating that the joint-venture had not been advanced because the Mainland partner had failed to transfer assets in accordance with the agreement but it went on to assert that, nonetheless, Grand Field was liaising with local government officials with a view to pursuing the project either on its own or with its original Mainland partner.  No evidence of such discussions has ever been produced.

36.  Correspondence continued in this vein in March 2003 with the Stock Exchange fruitlessly seeking concrete information and with Grand Field providing vague and unsupported answers.  On 21 March 2003 the Stock Exchange sent a fax complaining, somewhat understatedly, that Grand Field had not fully addressed its enquiries and asking for a reply to specific questions by 28 March.  This was met with a request, signed by Kwok, on 4 April for an extension of time to respond to the queries “since we need more time for gathering the information as required”, a palpably disingenuous response as evidenced by the ultimate reply that was provided by letter dated 8 April 2003, once again signed by Kwok, in which the confirmations that were forthcoming, supposedly heralding progress, were each said to be oral and by which the assertion was repeated that the Mainland partner to the joint-venture agreement had provided no explanation for its inaction; and yet, again, there was no suggestion either then or later of any complaint by Grand Field or of any threat of proceedings.  Once more, it must have been obvious to anyone who had sight of that letter and of earlier correspondence that Grand Field was deliberately not telling the truth.

(2)The money circle

37.  According to the testimony adduced at trial, Tsang, not surprisingly, felt the heat of the Stock Exchange’s enquiries as a result of which he held a meeting on a Saturday in March 2003 with Ivan Wong and Au Yeung in Shenzhen.  Au Yeung’s evidence was that Tsang expressed concern about the Stock Exchange’s questions and predicted that the matter could no longer be covered up.  The idea put to him by Wong was to put an end to the questions by selling Grand Field’s interest in Sino Richest to the three original shareholders at a sum in the region of $30 million, a sum based on the then current price of the share, namely, 10 cents.

38.  At this point, it is convenient to introduce the Upbest Group and three of its directors, who were the fourth, fifth and sixth defendants in the trial (the 3^rd, 4^th and 5^th applicants in the present application).

39.  Upbest Group Limited is another publicly listed company. Charles Cheng Kai-ming (D4) was an executive director, as was George Li Kwok-cheung (D5).  David Wong (D6) was an independent non-executive director and was also Managing Director of a tax advisory company called International Taxation Advisory Services Ltd (ITASL).

40.  Upbest Finance Limited is a wholly owned subsidiary of the Upbest Group.  Its principal business was and is moneylending and Cheng was at the material time, together with his wife, the sole authorised signatory of the bank account of Upbest Finance at Wing Hang Bank.

41.  Another wholly-owned subsidiary of the Upbest Group is Upbest Securities Company Limited, the principal business of which is and was securities dealing and broking; this company was Grand Field’s financial adviser in its acquisition of Sino Richest.

42.  The evidence was that at the Saturday meeting in Shenzhen, Tsang told Au Yeung to consult Upbest Securities for its view about the viability of the resale of Sino Richest to the original shareholders.

43.  Au Yeung met Cheng and George Li on the Monday following the Saturday meeting when, according to the evidence of Au Yeung, Cheng said that the idea canvassed might not be viable and he needed time to think about it.  Allegedly, George Li later said that it would be best to sell back to one of the shareholders instead of to them all and a couple of days later Kwok told Au Yeung that the project would be sold to Logistic China.  She told Au Yeung to discuss the matter with George Li and so there was a further meeting between Au Yeung, Cheng and George Li.  At this meeting, George Li said that Upbest would arrange for funds to go to Logistic China which would in turn pass the money to Grand Field which would then pass it to Tsang and from Tsang it would move on, via others, back to Upbest.  The payment to Tsang would be routed through a subsidiary of Grand Field, a company named Ka Fong Industrial Limited, and in the books the payment from Ka Fong to Tsang would be shown as repayment to Tsang of a sum due under a director’s loan. Li’s proposal was explained to Kwok, as was Upbest’s fee of $128000 for its proposed assistance.  Steps were then taken for Logistic China and Tsang to open bank accounts with the Wing Hang Bank, where Upbest also maintained accounts, so as to facilitate the transfers of funds.

44.  On 10 July 2003, there was a meeting between David Wong (D6), at his offices, with Kwok and Au Yeung.  The suggestion was that David Wong told the other two that he could assist in arranging foreign companies to act as vehicles through which to channel the $32 million consideration for the disposal and that Tsang could say that he had effected an overseas investment with the repaid director’s loan.

45.  To bring to life the flow of money which took place on 31 July 2003, we annex a flowchart used at trial.

46.  It will be seen from this chart that amongst the cheques signed by Cheng that day (we were told he signed a total of 13) six were for a total in the region of $45 million; two of which, those in favour of Nimrod Finance and Pyramid Finance, totalled $32 million, the exact consideration for Logistic China’s re-acquisition of the project.  The sum went on to Ka Fong and to Tsang and in due course back to Upbest; all this on the same day.  As will later be seen, David Wong’s connection with all the companies concerned in the flow, save for Logistic China and Ka Fong, was strong and quite different from the purely business relationship which we were, in the course of submissions – until we heard from counsel for the respondent – at first led to believe.

47.  On 31 July 2003, Au Yeung received from George Li a deposit slip showing the deposit into Ka Fong’s account with the Wing Hang Bank of $32 million, and Au Yeung sent the slip, or a fax copy of it, to the Stock Exchange, in purported proof of the sale of Grand Field’s interest.

48.  On 12 August 2003, Grand Field published an announcement that its interest in the joint venture had been sold to Logistic China, and stating that the Mainland partner had failed to inject the requisite capital which in turn had caused the business licence to expire.

Charges 3 and 4

49.  From these second-phase facts or assertions, emerged the third and fourth charges.

50.  The third charge alleged a conspiracy between Tsang, and Kwok with Au Yeung, between 1 March and 11 August 2003, to defraud the shareholders of Grand Field as well the Stock Exchange by dishonestly concealing the fact that there had been no genuine acquisition of a business to develop and construct a gas pipeline and by falsely representing that there had been a genuine disposal of that business.

51.  The fourth charge was levelled not only against Tsang and Kwok but also against the Upbest directors, Cheng, George Li and David Wong.  It asserted that between 1 March and 31 July 2003, “knowing or having reasonable grounds to believe that property, namely $32 million Hong Kong currency, in whole or in part directly or indirectly represented proceeds of an indictable offence, [they] conspired together and with Au Yeung Keung, Steve, to deal with the said property.”  The way in which this assertion was sought to be supported as a matter of law is a subject which we later examine in some detail.

The trial

52.  The main prosecution witnesses gave evidence under immunity.  They were Ivan Wong who testified from 26 May 2009 to 17 June 2009.  He was subjected to lengthy cross-examination.  Yeung testified for about 11 days; Andrew Lee and Sham for a few days; and Au Yeung for no fewer than 17 days.

53.  In August 2009 there was an application for a stay of proceedings.  It was made weeks after the grounds said to support it were known to those acting for the applicants and was, as we shall see, without merit.

54.  None of the defendants, save for Li (D3), testified.  Li was acquitted, so it follows that of the applicants for leave, none gave evidence.  Only one, David Wong, called evidence in support of his case and that was the evidence of a tax expert.

55.  Tsang had been interviewed under caution.  The records of those interviews were produced at trial but nothing in his application turns upon those interviews which were largely exculpatory.

Key findings

(1)Generally

56.  The Reasons for Verdict were delivered from 1 March to 5 March 2010.  District Court judges are required to read out rather than hand down their Reasons in criminal cases.  They do so with counsel and solicitors for the parties present.  The waste in terms of costs and public funds speaks for itself.

57.  The Reasons in this case run to 176 pages.  That is not a criticism of the judge but we mention the fact because in this case it is an indicator of the detail into which the judge went to explain not merely the evidence but the route by which he reached decisions, in particular why he accepted some evidence and rejected other testimony, often in respect of the same witness.  Though lengthy, the Reasons are commendable for the care which they illustrate.

58.  The judge accepted, as indeed had prosecuting counsel, that there was much to suggest that the evidence of the main prosecution witnesses were in material aspects unreliable and he found that “I cannot accept any of them as a witness who had told the court the whole truth.”[1]

59.  In relation to Ivan Wong, Yeung and Lee, he said that he would only accept such of their evidence as was “supported by credible and reliable independent evidence, not disputed, or so impeccably logical and highly consistent with common sense that it must be true.”

60.  He was particularly sceptical of Au Yeung.  Some evidence was inconsistent with witness statements he had made[2]; sometimes he was evasive[3]; his integrity was questionable[4]; there were matters where the judge had reservations as to whether he told the court the whole truth[5]; and there were other aspects where the reliability of his recollection was in doubt[6].  Yet the judge distinguished instances of unreliability of recollection from deliberate dishonesty[7].  At other times the judge explained why improper conduct by Au Yeung (for example, deleting an e-mail) had been truthfully explained in testimony[8].  In closing his analysis of Au Yeung’s evidence the judge said:

“307. [Au Yeung] did not impress me as a witness who was so honest that he was prepared to tell court the whole truth. He demonstrated a strong desire to preserve his own interest.

308. However, notwithstanding the matters raised in cross-examination and submission, including those I mentioned, I do not consider that the whole of his testimony is not worth believing. If there are parts of his evidence supported by credible and reliable evidence, not disputed, or so impeccably logical and highly consistent with common sense that in all the circumstances it must be true, I take it into account in consideration of the case.”

(2)The first charge

61.  In his consideration of the first charge, the judge noted the suggestion (a suggestion to which we must return when we consider the appeal ground relating to the stay application) that Tsang and others at Grand Field were themselves the subject of fraudulent misrepresentations by persons on the Mainland connected with the project but, quite correctly in our view, noted that nonetheless the key issue was whether Tsang and those charged with the first offence themselves did not intend to pursue the project[9].  In an instance of the rational analysis which he applied, he noted indicia favourable to the applicants as well as indicia against; for example, that whilst attempts to obtain a business licence and approval certificate were indicative of a real desire to pursue the transaction, there was a limit to which that indication might be taken since in order to obtain the necessary approvals from the Stock Exchange, those documents had to be obtained in any event[10].

62.  The judge concluded that in reality Sino Richest was never the owner of the project, in support of which conclusion he cited various pointers; for example, that Sino Richest itself had no capacity to run such a project; that the draft public announcement was issued after only a preliminary valuation; that key information was omitted from the approval certificate; that by the time of the agreement and the announcement, there had been no site visit; that there was no evidence of any preparation by Grand Field to effect a capital contribution; that there was never the slightest indication of a compensatory claim against the Mainland party; and that there was no evidence that Grand Field had indeed engaged a lawyer to provide proper legal advice in relation to the project.

63.  The judge was satisfied that Tsang at all material times had no intention of pursuing the project and that he acted dishonestly.  As for Kwok, there was evidence to support Au Yeung’s testimony that she was in charge of the day-to-day running of Grand Field, and he noted her involvement in answering questions from the Stock Exchange[11].  She signed relevant resolutions and he was satisfied that she must have known full well what was going on.

64.  In relation to the other alleged co-conspirators the subject of the first charge, he was unsure as to Ivan Wong’s intent; thought that Yeung may have had his own agenda, not necessarily commensurate with that of Tsang ; suspected that Lee may well have practised dishonesty upon Tsang and noted that in any event Lee’s role was far removed from that of the Grand Field personalities; and he could not be sure that Au Yeung came to know before the issue of consideration shares that there was no intent to make a capital contribution towards the project.

65.  As for Li (D3) and charge 1, he was not certain as to what exactly Li had done and what he knew; he had had only one meeting with Tsang, with little concrete evidence as to what was said during that meeting and no evidence that Li had any material involvement in the preparation of the dubious valuation report[12].

66.  In short, the judge was satisfied that dishonest intent at the material time was demonstrated to the requisite degree in the case of Tsang and Kwok only.  He acquitted Li but found Tsang and Kwok guilty of the offence alleged by the first charge.

(3)The second charge

67.  To bring home this charge as against Tsang, it was necessary for the prosecution to prove complicity in the particular conspiracy alleged by at least one of the other alleged co-conspirators, which is to say, Shum, Ivan Wong and Au Yeung.  The misrepresentation alleged by that conspiracy was the valuation of the joint-venture and the judge was not satisfied beyond reasonable doubt that any of the alleged co-conspirators was party to that particular conspiracy.  Accordingly, he acquitted Tsang of the offence alleged by charge 2.

(4)The third charge

68.  The conspiracy alleged by this charge was a conspiracy by Tsang and Kwok and Au Yeung.  Au Yeung was the prime witness in this regard and it was he who drafted, for the signature of Tsang and Kwok, the replies to the series of questions raised by the Stock Exchange, to some detail of which we have earlier alluded.  His evidence was that he explained the content of these drafts to Tsang and Kwok and this aspect of his evidence was accepted.  The judge found it an obvious inference, given the positions held by Tsang and Kwok, their roles in Grand Field, and the singular significance of what was happening at the material time, that they knew when they signed the documents what it is they were signing.  He was, not surprisingly, convinced that the obfuscatory nature of the replies (he appropriately called them ‘slippery replies’) was deliberate.  The correspondence was, he found, a desperate attempt by them to conceal the true situation from the Stock Exchange[13].  He held that at least from the time of the Shenzhen meeting, Au Yeung joined the conspiracy.  Accordingly, he convicted Tsang and Kwok on the third charge.

(5)The fourth charge

69.  The judge noted that the conspiracy alleged by charge 4 “involved various steps in transferring a sum of $32 million originated from Upbest Finance through various corporations so that it would be received by [Tsang] who would then dispose of the money for the purpose of its return to Upbest Finance” and that the prosecution allegation was that that sum represented the proceeds of the conspiracy to defraud which was the subject of charge 3, Tsang dealing with the funds by receiving them through his personal bank account and then passing them on[14].

70.  Following a detailed analysis of the evidence relating to the money flow, the judge held that the sell-back was a mere disguise and, once again, the judge addressed a series of inherent probabilities and improbabilities to back his conclusions.  For example, there was little commercial sense for Logistic China in buying back its interest; it was not believable that Grand Field would repay such a sizeable directors loan at a time when it faced huge financial problems; and Tsang’s immediate disposal of $32 million which, on the same day, found its way back to Upbest spoke for itself[15].  He was satisfied that Tsang was fully complicit in this illicit scheme as was Kwok.

71.  In relation to the remaining defendants who faced charge 4, he noted that all the financial transactions in question took place on the same day, a very sizeable sum moving from Upbest pursuant to cheques signed by Cheng, a director of the company; that all the companies through which passed the $45 million on 31 July finding its way back to Upbest had scant funds in their accounts on that day, save for the funds routed to them by Upbest; and that David Wong had been instrumental in establishing all the companies save for Logistic China and Ka Fong.  Those who had been invited to become directors of various of these companies had signed blank cheques which were available for completion by Upbest personnel.  All material transactions on 31 July involved accounts with the Wing Hang Bank.  The judge noted as well the involvement of Upbest in the original public announcement and, more specifically, of George Li in finalising many of the answers to the Stock Exchange enquiries.

72.  To the detail of the evidence touching upon the culpability of Cheng, George Li and David Wong, we shall later have to return; but it suffices for the present to state that the judge was satisfied of the complicity of each.

(6)Sentences

73.  Tsang was sentenced to a total of 32 months imprisonment; Kwok a total of 30 months imprisonment; Cheng to nine months imprisonment; George Li to 1 year imprisonment; and David Wong to 6 months imprisonment.  There are no applications in relation to sentence, which is hardly surprising.  If the convictions were justified, what they reflected was a course of prolonged, repeated and thorough dishonesty in which those closely associated with a public company thought nothing of persistently deceiving the Stock Exchange and shareholders: on that basis, the sentences were, in our unanimous opinion, significantly inadequate.

Allowing the appeal in relation to charge 1

74.  By reason of s 159B(2) of the Crimes Ordinance, which reflects the common law, a husband and wife are not guilty of conspiracy if the agreement in question is one to which they alone are party.

75.  Given the judge’s determination that he could not be sure that Ivan Wong, Au Yeung, Yeung and Lee or any of them were party to the conspiracy alleged by charge 1, it was as a matter of law not open to him to convict Tsang and Kwok of that conspiracy.  The point is properly conceded by Mr Marash SC, counsel for the respondent.

76.  It follows that the conviction of Tsang and Kwok in relation to charge 1 must be quashed.

The stay of proceedings ground

77.  At trial, an application was made on behalf of Tsang, Kwok and the third defendant (Li) for a stay of proceedings.  The application was detailed in terms of the number of witnesses required to address the issue and in terms of the submissions.  The application failed and counsel for Tsang and Kwok assert by a number of grounds of appeal, that the judge erred in refusing the stay.

78.  The application was made in respect of a group of persons who came to be known as in this case as “the missing witnesses.”  They constituted two groups: several Mainland witnesses who had been interviewed by officers of the ICAC and from whom witness statements were taken; and two persons said to be lawyers in Chonqing – one a person called Zhou who is said to have signed the joint venture agreement and another called Zhang who is said to have produced or secured the business licence and the approval certificate.

79.  The first group consisted in the main of officers of Wansheng Coal as well as an official from the Wansheng District.  We do not intend to rehearse the effect of each of the statements save to say that they were people who would know whether the Mainland company had entered into a joint venture agreement with Sino Richest and they all said that the company had not.  It would seem therefore that the Mainland signature on the joint venture agreement were bogus.  There was indeed an agreement for the transfer of the project to Sino Richest, but this was of no significance because it was a standard form, merely provisional, agreement entered into in the case of many proposed acquisitions of the project which did not resolve themselves into binding agreements.

80.  The names of these various witnesses were names provided to the defence teams as witnesses whom the prosecution intended to call.  But in about February 2009 the ICAC was notified by the Mainland authorities that the witnesses were not willing to come to Hong Kong to testify.  Efforts were made by the ICAC to chase the matter up but to no avail and shortly before the trial commenced in May 2009 the defence were informed accordingly.  The application for a stay of proceedings was made more than 50 days after the defence were thus notified.

81.  As for the Mainland lawyers, no statements were taken from them but the efforts of the ICAC to trace them came to nothing.  Zhou was said to be abroad and Zhang was not on the register of lawyers in that part of the country.

82.  The prosecution was in the circumstances content at trial for the witness statements to be produced as evidence pursuant to the provisions of section 65B of the Criminal Procedure Ordinance.  This did not satisfy counsel for the three relevant defendants, for the contention was that the efforts made to secure the attendance of the witnesses had been insufficient and that the defence were deprived of the benefits of cross-examination; and further they wished to see the correspondence between the ICAC and the Supreme People’s Procuratorate to test the veracity of the evidence of the ICAC as to the efforts which they had or had not made.  This resulted in a successful claim of public interest immunity.

83.  This ground of appeal is bereft of merit and ought not to have been advanced. We say so for the following brief reasons:

(1) The point which counsel wished to establish by way of these witnesses was that Tsang and Kwok had themselves been the subject of a fraud practised upon them as to the availability of a genuine investment.  Yet not only was the prosecution prepared to proceed on that basis but the judge himself was prepared to assume that Tsang was the subject of a double cross by Ivan Wong, Yeung and Lee, but he was nonetheless satisfied that Tsang had no intention of pursuing the project[16].  Furthermore, it was common ground that the business licence and the approval certificate were forgeries and it was not contended that Tsang knew at the outset that they were forgeries.

(2) The testimony of the missing witnesses is irrelevant to charges 3 and 4 with which the applications before us are concerned.  Whether or not Tsang and Kwok were at one stage the subject of a fraud in relation to the project, the case against them in relation to charges 3 and 4 was, in essence, an allegation of a bogus disposition of Grand Field’s interest in Sino Richest, in respect of which the missing witnesses were irrelevant.

(3) The suggestion that there had been an abuse of process was, not surprisingly, not pursued before us.  It is difficult indeed to see on what basis the judge could have concluded that a fair trial of the applicants was not possible.  A stay on such a basis must be founded upon exceptional circumstances indeed and there was none in this case.

(4) In so far as the defence wanted to use the statements to show inconsistencies between the statements of the missing witnesses and the testimony of Ivan Wong, Yeung and Lee, the judge proceeded in this regard upon a basis most favourable to the applicants.

(5) There was not a scintilla of evidence to suggest that the ICAC officers were not telling the truth about the efforts they had made to secure the attendance of the missing witnesses or to trace the whereabouts of Zhou and Zhang.  The desire to see correspondence between the ICAC and the special People’s procuratorate was no more than an exercise in fishing.

(6) Whilst it was no doubt incumbent upon the prosecution to do what it reasonably could to secure the attendance of witnesses, this does not mean that those acting for the applicants were entitled to sit back and do nothing so that in the event that the law enforcement authorities were unsuccessful in their attempts, a hue and cry in the form of a stay application was the only route available to them.  It is noteworthy that no attempt was made by those acting for the applicants to make their own enquiries of the witnesses or the two lawyers, to interview them, to write to them or to the Mainland authorities or to independent lawyers on the Mainland, or to seek to take evidence on commission.  It is against that backdrop that the comment was made by the Court in the course of Mr Bruce’s submissions that the application for a stay in the court below carried the unattractive aura of a game.  The point is that stay applications have for some years in this jurisdiction become routine despite repeated dicta by the Court of Final Appeal and by this Court that the circumstances which justify a stay must be truly exceptional.  The fact that the application was not made at the outset of the trial but some 54 days into it is an added unattractive feature which we hope not to see repeated in future cases.

Partial reliance on Wong and Au Yeung

84.  Both the prosecutor at trial and the judge in his Reasons for Verdict acknowledged that the testimony of the prosecution witnesses Ivan Wong and Au Yeung was in many respects unreliable.  It was a repeated theme of the argument of counsel, especially for Tsang, Kwok and Cheng, that in the light of these acknowledged flaws, the judge ought not to have relied on their testimony at all.

85.  The judge addressed this question in some detail.  The fact that he addressed it in some detail is not of itself an answer to the complaint, but the carefully explained and logical manner in which he addressed it is.

86.  He started by saying, generally, that: “I find I cannot accept any of them as a witness who had told the court the whole truth.  There are so many reasons for me to form [that] that I think it suffices for me to just set out some salient points which I have taken into account.”[17]

87.  He described Ivan Wong as a “clear opportunist” and the judge identified specific aspects of his testimony in which he was evasive; specific points where there were discrepancies between his testimony and the witness statement which he had given to the ICAC.

88.  As for Yeung, some of his evidence too was “not believable”; and Li demonstrated bias towards Wong and Lee and provided evidence that was in certain regards inconsistent with that of the missing witnesses.

89.  As for these three prosecution witnesses, the judge said that he would only accept such of their evidence is supported “by credible and reliable independent evidence, not disputed, or so impeccably logical and highly consistent with common sense that it must be true.”[18]

90.  As for William Shum’s testimony, the judge said that his evidence was to be viewed “with reservation.”

91.  We have already referred[19] to the judge’s treatment of the evidence of Au Yeung: instances of evasiveness; certain aspects of his evidence which the judge did not believe at all; some conduct that was not deliberately dishonest; but evidence which as a whole had to be approached with considerable caution.  He was not, so the judge found, a person who was so honest that he was prepared to tell the court the whole truth.  Nonetheless, the judge did not consider that the whole of his testimony was unworthy of belief and again we find the formula that “if there are parts of his evidence supported by credible and reliable evidence, not disputed, so impeccably logical and highly consistent with common sense that in all the circumstances it must be true I take it into account in consideration of the case.”[20]

92.  The suggestion by counsel on appeal is that the judge did not give effect to the formula, but the submissions tended to concentrate only on that part of the “formula” which referred to support by credible and reliable evidence, ignoring that part which emphasised testimony which was not disputed or which was consistent with the common sense of the matter.

93.  Time and again, we were told, in the vein of an address to a jury, that Au Yeung was a liar, and that therefore all of his testimony ought to have been disregarded.  This was not a realistic or, with respect, a mature mode of address to an appellate tribunal.  The judge’s reasoning in the aspect impugned by this ground of appeal was entirely sound.  He recognised that the mere fact that a witness has a self-interest to serve and in pursuit of that interest is prepared on occasions to lie or to be evasive does not necessarily mean that all of his testimony is untrue; and his Reasons for Verdict are redolent with instances of testimony by the five witnesses – in particular by the witness Au Yeung – which was indeed supported by uncontested testimony or by facts which were independently established.  It is unnecessary and would be an overly lengthy exercise to spell out each instance where such evidence is supported, but we will give a few examples:

(1) Au Yeung’s evidence that Kwok was involved in the day to day running of Grand Field was supported by the fact that she was one of the executive directors of Grand Field, that she signed several of the letters in response to questions from the Stock Exchange, that she signed material resolutions, that there was no suggestion that she had not attended the important meeting of 10 July 2003.  The judge specifically[21] used such factors as an example of evidence of Au Yeung which was supported (he also cited supporting evidence of Raymond Wong who was a consultant for David Wong’s tax advisory company) for which reason he was prepared to accept Au Yeung’s evidence as to her day to day involvement with Grand Field’s affairs.

(2) The evidence of Au Yeung about the meeting on 10 July and the advice given by George Li was supported not only by the fact that it was not in material respects contested but also by what the documentation showed happened after that meeting: the flow of monies all on the same day from Upbest through Logistic China, then Ka Fong and Tsang and all the way back to Upbest through companies connected to David Wong, using cheques which had been signed in blank for the use of Raymond Chan of David Wong’s tax advisory company.  All of this was consonant with the testimony of Au Yeung.  From these facts, including the uncontested evidence of the meeting itself, the judge was able to draw cardinal inferences as to what must have been apparent to David Wong[22].

(3) Suggestions by Au Yeung going to Cheng’s knowledge of the purpose of the money circulation were supported by the fact that Cheng signed the relevant cheques, and common sense dictates that a person in Cheng’s position with Upbest – no mere cipher – was unlikely to sign cheques for such substantial unsecured amounts without knowing their purpose.

(4) The flow of money on 31 July 2003, the earlier history of repeated evasive responses to enquiries by the Stock Exchange, the absence of proceedings or any threat of proceedings by Grand Field against the alleged Mainland joint venture company were amongst the many independently established facts that supported key allegations made by the impugned witnesses.

94.  Counsel who act for appellants are sometimes concerned that the advantage enjoyed by the trial judge of seeing and hearing a witness is given too much weight by appellate tribunals.  The answer to that concern is that the fact that a judge has seen and heard the testimony of a witness does not of itself mean that the judge has analysed that evidence correctly or must be taken to have made a correct assessment as to the reliability of the testimony or part of the testimony of that witness.  Conversely, the appellate tribunal is not a court of trial and if it be suggested that a witness has been untruthful where a judge has found him or her to have been truthful, appeal counsel must make that good and, to one degree or another, the fact that the judge has seen and heard a witness is invariably a material – even if not a conclusive – factor.  In this case, the judge saw and heard the impugned witnesses for days on end in each instance and his particularly careful analysis of the evidence of each, especially his cogent and logical explanations for why he accepted some evidence of each and rejected other evidence of each, is compelling and we are satisfied that to the extent that he accepted the evidence of each, he did not err.

Motive

95.  A further ground of appeal advanced by leading counsel for Tsang and Kwok was that the judge took an erroneous approach to the question of motive for the alleged offences.

96.  We were not referred either in the perfected grounds of appeal or in the very lengthy written submissions on behalf of these applicants to the particular passages in the Reasons for Verdict about which complaint is made but we note that the judge made a brief reference to a motive or possible motive[23] for the initial fraud; namely the very significant drop in the price of Grand Filed shares in mid-March 2002 such that “participation in a promising business operation may have a positive impact on the share price.”  The suggestion by the judge that these applicants stood to gain by the suggested fraud is said to have been unrealistic in that, for example, any gain would be “extremely short lived” because the fraud was likely soon to be discovered and, Tsang and Kwok, being the largest shareholders in Grand Field stood the most to lose; that the issue of consideration shares would lead to the dilution of their interest; that the suggestion that the “sell-back transaction” was false would presuppose that Tsang was going to forego repayment of the director’s loan; and that the judge failed to appreciate that these two “experienced business people” would, if the project was false, “certainly be found out and their reputation and Grand Field’s reputation as a listed company would definitely suffer severely.”

97.  We will not trouble with providing a point by point refutation of the submissions. Apart from the fact, as was acknowledged by Mr Bruce, that motive is not a necessary component of proof, it is counsel’s reasoning that is fundamentally impeachable, not that of the judge.  The sudden plunge in price in March 2002 was an admitted fact, not the figment of somebody’s imagination, and there was evidence, which the judge accepted, of Tsang’s considerable concern at that very time to pursue a project the announcement of which would have a positive impact on the price.[24]  Further, the factors advanced (the suggested natural consequences of the fear of discovery of the fraud) as inimical to guilt are not of the real world.  From time to time this Court offers a plea for its hard-pressed time not to be wasted by unrealistic submissions but it is a plea that so often falls on deaf ears.  The problem has long since become a serious one. It damages the administration of criminal justice generally in judicial time that is wasted; the consequential waste of public money; and the delay to cases down the line.

Standards of corporate governance

98.  Another ground which ought never to have seen the light of day is Ground 13 on behalf of Tsang and Kwok (there were no fewer than 15 grounds of appeal for them alone).  It is pleaded thus :

“ There was a material irregularity in the course of the trial in that the learned trial judge was not entitled to take judicial notice of standards of corporate governance and conduct on the part of directors of listed companies [and that in this regard] it was not open to the judge to impose standards of care and commercial acuity and ability and then to hold such against [Tsang and Kwok] that they fell below these standards. It will be submitted that there is no sufficiently recognised standard in Hong Kong which is capable of recognition of judicial notice. The standards imposed by the judge were wholly unrealistic. If it was permissible for the judge to take judicial notice of such standards … the judge failed to accord to [Tsang and Kwok] the opportunity to dealing with this issue because the first time that the judge dealt with these issues was in the reasons for verdict.”

99.  In other cases, we might be inclined to dismiss the ground out of hand without further explanation, under some such rubric as “There were other grounds of appeal which, in our judgment, carried no merit”, but since we are endeavouring to bring home to practitioners and to those concerned with public funds, our long-standing frustration with the frequent waste of judicial time in criminal cases, both at first instance and on appeal, occasioned by argument which, surely, conscientious attention by the adviser would expose as hopeless, we will take time to address this ground.

100.  The criticism emerges from passages in the Reasons for Verdict in which the judge remarked upon the absence of steps or of documentation which one would in circumstances of honesty expect in the conduct of a public company.  So, for example, the judge thought it noteworthy (and odd) that this company had not engaged its own valuer, independent of the introducer of the project.[25]  He commented on the fact that the minutes of the Board of Directors which he had seen showed nothing to the effect that the Board had been informed of progress or even non-progress in the suggested discussions to resolve the delay in capital contribution by the Mainland party[26]; and he expressed the view that if indeed there had been a real concern about the genuineness of the business licence which was produced, supposedly by the Mainland partners, given the huge sums involved and the fact that Grand Field had not hitherto engaged in such a project, it was odd indeed that “any listed company would have been as idle as Grand Field which had taken not even the minimal step to verify the genuineness of the document and to seek [an] expert view on it”; the same in the case of the approval certificate in respect of which the investor’s name was left blank and the capital issued incorrectly stated[27].

101.  But, says Mr Bruce, “[n]o evidence was adduced on these matters. … no evidence on whether a listed company must have written documentation recording and executive director’s discussion with outside parties to arrange future financing.  Nor was there any evidence that, when a listed company was given mainland legal documents such as Business License etc, it had an obligation to seek verification of their genuineness.  In fact, common sense and common experience contradicts the judge’s intuitions.  Standards of corporate governance in different listed companies differ greatly.  The qualities of corporate administrators differ greatly.  What may be the norm with regard to corporate governance for large blue-chip multinationals is not necessarily the preferred modus operandi of small listed companies.  There cannot be universal standards.  It is submitted that without any evidence supporting the judge’s intuitions, it was not permissible for the judge to make findings as to how a listed company must have been run at the material time.  The learned judge erred to take judicial notice of these matters.”[28]

102.  On the facts of this case and in relation to the points which the judge made, there was hardly any need for expert evidence as to standards of corporate governance in Hong Kong.  The points made spoke for themselves and their validity self evident.  The whole ground and the argument in support of it was, with respect, entirely out of touch with any common sense approach to the case.  It is a “chuck everything in” approach with no regard to merit or cost.

The co-conspirator’s rule

103.  This ground affects all applicants; not merely Tsang and Kwok.  It is a repeat or echo of the complaint that was raised with ultimate success in Vivien Fan and others v HKSAR[29].  It is that the prosecutor in this case[30] purported to rely upon the “co-conspirators’ rule” for the reception into evidence of acts and declarations made by co-conspirators in the course or in furtherance of the conspiracy, yet failed to particularise the documents upon which he relied to this end; and that the judge failed to identify the extent to which he, the judge, relied on the rule and therefore to justify such reliance as he placed upon it.

104.  The circumstances of the Vivien Fan case in this particular regard were somewhat different from those in the present case; most particularly in that in the Vivien Fan case it was apparent that the judge had, in reaching his findings against the defendants, relied to a significant extent on evidence which he considered to have fallen within the co-conspirator’s rule but without indicating, save partially, what evidence in that category he had relied upon, stating in terms : “When I rely on evidence on this basis I shall on occasions so indicate but it may not be so recorded every time.”  Further, the prosecutor had in that case effectively indicated it was seeking application of the rule to all documents it produced.  By contrast in this case, the judge made no such statement or, rather, the statement he made upon which the complaint is based was to an altogether different effect and, most importantly, he took pains to spell out with great specificity the precise evidence which in the case of each defendant led him to a finding of guilt.  None of it, save possibly one document of limited effect, engaged the co-conspirator’s rule; in other words, none of it was evidence of something said or done in the absence of a defendant, used nonetheless by reason of the rule as evidence against that defendant.

105.  Nothing was said by the prosecutor in his opening address about the rule or about his intended use of it in support of the prosecution case.  In his closing submissions, however, submissions of considerable length, he alluded to it in two paragraphs – the first to remind the court below of the content of the rule and the second as follows:

“There have been many acts/declarations of alleged co-conspirators of which evidence has been given in the trial and to which evidence the prosecution say the co-conspirators rule applies. Separate prosecution submissions are made against each defendant detailing the independent evidence which proves the conspiracy or conspiracies with which the defendant is charged. The independent evidence need only be established to the standard of a prima facie case for the co-conspirators rule of evidence to apply. The co-conspirators rule comes into play in proof of the case against each defendant whether or not they were aware of the act or authored or saw the document in question.” [31]

106.  In addressing the suggested case against each defendant and the evidence which, it was submitted by the prosecutor, compelled the court to a conviction in respect of that defendant there is, as far as we are aware, only one instance where the prosecutor has overtly relied upon the co-conspirators rule.  He did so when dealing with the case he put against David Wong (D6 at trial) when he said :

“Upon return to the office [after the meeting of 10 July 2003] [PW5][32] immediately jotted down in his notebook what was said at the meeting about the circular arrangement (P146B - corroboration of PW5 and co-conspirators rule applies) PW5 explained the arrangement to [Tsang] and showed him his notebook record. [Wong] sent some documents to PW5 printed them out and then deleted those records from his computer because the plan was that the overseas company lending money to Logistic China was not to be a real transaction and the loan which would come from Upbest who created the fund flow would go back to Upbest (Exhibit 309 – bank transactions – corroboration of PW5)”[33] (Emphasis added).

107.  So we see – at least from that example – that where prosecuting counsel intended a document to be used as merely corroborative of a witness, he said so and where he intended it to be used by application of the co-conspirators rule, he said so and this is the only occasion drawn to our attention in which he said so.

108.  Mr Bruce, for the first and second applicants, has drawn our attention to the manner in which counsel for those applicants addressed the matter in his closing submissions, from which submissions, we note, there was an absence of any suggestion of prejudice at the manner in which the prosecutor had left the matter.  And the context in which the issue of the rule was raised is significant, for it sheds light also on the passage in the Reasons for Verdict upon which this ground of appeal has concentrated.  What counsel said – in writing, we note (so it was not some swiftly considered oral articulation) – having referred to the essence of the rule itself, was as follows:

“It follows that under this rule, an act in furtherance of one conspiracy is not admissible for the purpose to prove anything with respect to another alleged conspiracy. In the analysis of the evidence, this court must be mindful of the basis of the admissibility of a piece of evidence so as to determine the approach to the value of such evidence. Interestingly, when asked by the court to identify which piece of evidence would be subject to this rule, the prosecution fails to give any list, but cite as an example one single page out of PW5 Steve Au Yeung’s notebook. It will be argued that this particular extract is of extremely limited use.”[34] (Emphasis added).

109.  It would seem that counsel’s concern, or prime concern, was to persuade the Court that evidence admissible under the rule to prove the first phase criminal conduct (covered by charges 1 and 2) should not impermissibly be used in proof of the second phase criminal conduct (covered by charges 3 and 4).

110.  The same limited concern was expressed by the counsel acting for David Wong that “[a]cts and declarations by co-conspirator in furtherance of the conspiracy named in the 3rd charge, which are admissible against those indicted in the 3rd charge, is not evidence admissible against other defendants named in the 4th charge for the same reason matters within the knowledge of certain co-conspirators named in the 1st, 2nd and 3rd conspiracies, cannot be imputed upon other defendants just because they are jointly charged in the 4th conspiracy.”[35]

111.  It is against that background that we find the relevant passage in the Reasons for Verdict, in the second paragraph under the heading “Consideration of the Case”, in the first of which paragraphs the judge has – in the sort of phraseology one often sees in introductory paragraphs – alluded to the fact that he has had regard to submissions by counsel. He then goes on:

“Learned counsel for D1 and D2 said in his submission that whilst it is a general rule of law that the acts and declarations of one conspirator which is made in furtherance of the common design is admissible evidence as an exception to hearsay against another conspirator, an act in furtherance of one conspiracy is not admissible for the purpose to prove anything in respect to another alleged conspiracy. In consideration, I am mindful of the basis of the admissibility of each piece of evidence. With this in mind, I take into account all evidence which is relevant to the offence under consideration and is not rendered inadmissible by any rule of exclusion.”[36] (Emphasis added)

112.  It seems that what the judge was there noting was the care which counsel had invited the court to take not to utilise evidence relevant to one conspiracy as evidence relevant to another.  But what is clear is that this passage is far from the effect of the passage or passages articulated by the judge in the Vivien Fan case; and what is most important for the purpose of this ground of appeal in this case is the actual approach of the judge to the evidence against each defendant, the long and the short of which is so amply apparent from the Reasons for Verdict.  This is the central point, and it is the one which we now explain.

113.  The judge was careful to break his Reasons for Verdict into distinct parts dealing with the evidence to which he had regard against each applicant on each charge.

114.  We are not concerned any longer with Charge 1.  The analysis in relation to Charge 3[37] – a charge restricted to Tsang and Kwok – concentrates on the correspondence between Grand Field and the Stock Exchange from late 2002 until early April 2003; and the analysis is really quite straightforward in its effect.  It is that, as to the Grand Field replies to Stock Exchange queries, Tsang signed some of the letters, and Kwok signed the rest; the letters, by reason of their content, reek of prevarication and of dishonesty; the judge believed the testimony of Au Yeung that he explained the contents of each such letter when signed by Tsang and Kwok respectively; and each held a senior position in the company and Kwok was in charge of day-to-day management of it.  He addressed each letter in turn; who signed it; why, in his judgment, it was misleading or evasive.  He addressed specifically and in some detail the testimony of Au Yeung as it directly impacted upon Tsang and Kwok respectively; and he explained why he believed such evidence of Au Yeung (and of Ivan Wong) as he did believe as against these two applicants.  It is, in other words, clear beyond peradventure that, in coming to his conclusions in respect of Charge 3, the judge did not use against either Tsang or Kwok anything said or written by one of them in the absence of the other as against that other or otherwise utilise the co-conspirators’ rule against either.

115.  The approach of the judge to Charge 4 is even more obvious for its crystal clear compartmentalization of evidence directly implicating each defendant the subject of that charge.  He first analysed the evidence which he considered relevant to the charge.[38]  Then, having said in terms that “I now consider the case against each defendant in relation to this charge”[39] he proceeded to do precisely that, stating what evidence in the case of each led him to convict in relation to each[40].  It is plain from that testimony that he did not utilize the co-conspirator’s rule against any one of them.

116.  In relation to Tsang, proof of his direct participation in discussions aimed at a buy back, commencing with the Shenzhen meeting on the Saturday in March 3002 and his participation in the correspondence with the Stock Exchange was itself relevant to charge 4, since charge 4 was directed at the implementation of the bogus buy back and conduct once its pretence had been effected.  The judge recorded his earlier finding that Tsang had never intended to acquire an interest in the supposed project and his findings that the replies to the Stock Exchange were false.  None of this required reliance on the co-conspirator’s rule.  The judge noted the lack of commercial sense for Logistic China to engage in the buy back, of which lack of sense Tsang must surely have been aware; and the inherent improbability of a genuine repayment of a director’s loan to Tsang in July 2003.  In so far as something has been made on appeal of a note which Au Yeung drew for himself during the meeting with David Wong and Kwok and Au Yeung on 10 July to illustrate the nature of the scheme described or suggested by David Wong at that meeting, there is no mention of the note as part of the judge’s reasoning but in so far as it was shown to Tsang by Au Yeung, that very fact – the showing of the note and Au Yeung’s accompanying explanation – was itself clearly relevant and admissible as against Tsang.

117.  In relation to the reasoning in Kwok’s case, it is noteworthy that the judge specifically put aside, as against her, evidence of what had been said in her absence at the Shenzhen meeting in March 2003[41].  What he found as fact as against her and utilized to come to his conclusion of guilt in her case on Charge 4 was itemised by him; this included the fact that she signed the cheque by which Grand Field through its subsidiary Ka Fong paid Tsang $32 million; that it was she who told  Au Yeung that the interest in the project would be sold to Logistic China; that it was she who told him to attend the meeting with Cheng and George Li; and the judge accepted the testimony of Au Yeung that she attended the meeting on 10 March for the purpose of which meeting she brought with her or gave to Au Yeung to bring a company kit of Logistic China (a significant fact, given that Logistic China was supposed to be a company purchasing from ‘ her’ company, Grand Field). Such were the factors that proved her guilt in the judge’s analysis; matters implicating her directly[42].

118.  As for Cheng, the judge addressed evidence that showed “D4’s direct involvement”[43] noting that he and his wife were the only signatories to the account upon which the cheques which funded the complex circulation of funds on 31 July were drawn; that he was a director of Upbest Finance; that he was present at the meeting at which George Li explained the circular fund arrangement.  There was no reliance in this analysis of anything said or done in Cheng’s absence.  Indeed one sees the pains taken by the judge to note the absence of particular defendants at meetings which may have been said to be relevant; for example in discussing the case of Cheng and Li, he notes that neither attended the Shenzhen meeting in March and he does so, a natural contextual reading suggests, in the context of discussing the testimony which he considers to sit against each defendant and which does not – he does not, in that instance, for example, go on to suggest that they are tainted evidentially by what was said at that meeting because what was said was said by co-conspirators in furtherance of the scheme[44].  There is to be noted also, in the same vein, his concluding paragraph in the analysis of inculpatory evidence against Cheng : “In reaching my decision, I have taken into account the evidence that there had been only one brief face-to-face meeting between D1 and D4 and D5, and no such meeting between D2 [Kwok] and them at all.  I have also taken into account the evidence of PW5 [Au Yeung] that he had ‘no direct dealings with [Cheng] at all’ ”[45].  This is hardly the approach of a judge applying the co-conspirators rule.

119.  In the case of George Li (D5), the judge was satisfied, based on the evidence of Au Yeung in so far as it spoke of his direct contacts with Li and on inferences to be drawn from correspondence which Li signed for intended onward transmission to the Stock Exchange, that Li must have known that Grand Field was engaged upon an exercise in concealment from the Stock Exchange of correct information.  The judge believed the testimony of Au Yeung about his conversations with Li after the Shenzhen meeting and the evidence of the meeting with Li and Cheng at which Li explained the circular “ arrangement”[46], most particularly that Li asked Au Yeung – in context, a damning question indeed – “whether there was a means in the account whereby the money could be returned to [Tsang] quickly and legitimately”[47]; and that it was Li who suggested that the opening of a bank account[48] ( the effect of which was to enable a swift operation of the circular fund flow);and that it was Li who told Au Yeung to visit David Wong[49].  This was all direct evidence relied upon by the judge; not evidence through the route of the rule at present in issue.

120.  In relation to David Wong, the judge particularised the evidence of Au Yeung upon which he relied, as it directly impacted upon David Wong; a particularisation prefaced by the phrase : “I can rely on the following evidence which I find is true:.”[50]  And the Reasons then go on to record findings of fact; for example, that Au Yeung held a meeting with David Wong attended by Kwok from the content of which meeting he drew certain inferences which are recorded in the Reasons.  He then noted that David Wong was the director of ITASL and that ITASL was closely connected (not in some purely business transactional sense suggested in argument before us) with the (many) companies concerned in the fund flow, save for Logistic China and Ka Fong, and the judge drew inferences from those facts.  Again, this was evidence directly implicating David Wong.

121.  We have entered upon some considerable detail as to the structure of the judge’s Reasons for Verdict and his particularisation in the case of each applicant of the evidence upon which he relied and upon which his adverse conclusion as to guilt on each charge was based, in order to highlight the significant difference between the judge’s approach in this case and the approach of the judge in the Vivien Fan case.

122.  We are, in the circumstances explained, satisfied that this ground should fail.

Charge 3 : Conclusion

123.  The discussion thus far exhausts our analysis of the grounds of appeal advanced on behalf of the first and second applicants, Tsang and Kwok, in relation to the conviction on Charge 3.

124.  For the reasons provided, we have concluded that none of the grounds succeeds.  Accordingly, the applications of the first and second applicant for leave to appeal against the conviction on Charge 3 are each dismissed.

Charge 4 and the co-conspiracy argument

125.  The co-conspiracy argument touches, of course, not only upon Charge 3 but upon Charge 4 also; and we have explained why it is that we see no merit in that ground.

The proceeds of an indictable offence ?

126.  It will be recalled that Charge 4 alleged a conspiracy to deal with property known or believed to represent proceeds of an indictable offence contrary to section 25 of the Organized and Serious Crimes Ordinance, Cap 455 (OSCO) and sections 159A and 159C of the Crimes Ordinance, Cap 200; and the particulars asserted were that between 1 March 2003 and 31 July 2003 the applicants Tsang, Kwok, Cheng, Li and David Wong “knowing or having reasonable grounds to believe that property, namely $32 million Hong Kong currency, in whole or in part directly or indirectly represented proceeds of an indictable offence, conspired together and with Au Yeung Keung, Steve, to deal with the said property.”

127.  What were the proceeds to which this charge related and in respect of which the applicants were convicted and, assuming that that was identified, were they proceeds to which section 25 of OSCO applies?  That was the core issue argued on behalf of all applicants.

128.  The grounds of appeal in relation to this issue are varied, although they are much to the same effect:

(1) For the first and second applicants it was put that (a) “charge 4 was insufficiently particularised as to which act of dealing on [sic] property said to be the proceeds of an indictable offence was the subject of the charge” and (b) “there was a material irregularity in the course of the trial…, alternatively the conviction should be set aside on the ground … [that] the learned trial judge failed to identify how as a matter of law the dealing amounted to a dealing in the proceeds of an indictable offence.”  There is a further ground, which we do not understand, that the conviction should be set aside on the ground that “charge 4 was the conspiracy averred was duplex.”

(2) On behalf of Cheng (D4), it was put that the judge erred in law in finding that the $32 million particularised in Charge 4 could amount to “proceeds of the indictable offence” as defined by s 2(6) of OSCO; and that in particular that the statutory provisions are directed at “property which is criminal property at the time of dealing with it [and not at] property which was originally legitimate but became criminal only as a result of having been used as a vehicle to commit a fraud”; which we understand to suggest that property which is itself the vehicle by which to commit the indictable offence in question is not properly categorised as the proceeds of an indictable offence.

(3) The ground articulated on behalf of Li is to much the same effect as that advanced for Cheng; and

(4) For David Wong, the contention is that in relation to the elements of the offence with the charge failed to apply the principles required by the decision in HKSAR v Wan Yet Kwai.[51]  To this decision we must return.

The statutory provisions

129.  Section 25(1) of the Ordinance provides that :

“(1) Subject to section 25A, a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence, he deals with that property.”

130.  Section 25A to which reference is there made is of no relevance to this case.

131.  Subsection (1) above refers to a “person’s proceeds of an indictable offence”.  For the meaning attributed by the statute to that concept, we turn to section 2(6)(a):

“For the purposes of this Ordinance –

(a) a person’s proceeds of an offence are –

(i) any payments or other rewards received by him at any time … in connection with the commission of that offence;

(ii) any property derived or realised, directly or indirectly, by him from any of the payments or other rewards; and

(iii) any pecuniary advantage obtained in connection with the commission of that offence;”

132.  Other provisions which may be relevant in this case are :

(1)  Section 2 in its definition of “dealing”, namely that “ ‘dealing’ in relation to property referred to in section 25 includes –

“(a) receiving or acquiring the property;

(b) …

(c) disposing of or converting the property;

(d) … .”

(2) Section 2(8) states that:

“For the purposes of this Ordinance, a person who has at any time … received any payment or other reward in connection with the commission of an offence or an organized crime has benefited from that offence or organized crime, as the case may be.”

This provision is likely to be prayed in aid in applications for confiscation orders under section 8 for which purpose a court is required to determine whether a person has “benefited” from a specified offence.

(3) Section 2(9) provides that:

“References in this Ordinance to property received in connection with the commission of an offence or organized crime include a reference to property received both in that connection and in some other connection.”

The particulars point

133.  This point, advanced in the grounds drafted by counsel for the first and second applicants alone, that there were no particulars as to which act of dealing was the subject of Charge 4 is another point advanced from that quarter with no scintilla of merit.  The short answer to it is that the manner in which the prosecution put it – in other words the particularisation of its case – is to be found in the written opening by the prosecutor at trial.

134.  In that opening, the asserted facts underlying Charge 3 were explained and it was said that on 31 July 2003 “there was a bank transfer which, on the face of it, showed that a sum of HK$32 million had been provided by Logistic China to Ka Fong as consideration for the acquisition of the interest in the [joint-venture]” whereas in reality Logistic China was financing nothing.  Counsel went on to assert that “Au Yeung received a deposit slip from [George Li] showing that HK$32 million had been deposited into the bank account of Ka Fong with the Wing Hang Bank Limited.  Au Yeung subsequently faxed the deposit slip to the [Stock Exchange] as proof of payment from Logistic China.”[52]  This was the deception exercised upon the Stock Exchange and formed the, or a, central plank of Charge 3.  The presentation of the deposit slip was the last, or almost the last, act in the hope of carrying the deception to its conclusion. “In order to maintain the concealment [of the fact that there had been no genuine acquisition of a joint-venture to develop a gas pipeline],” counsel continued in his written opening, “ [Tsang, Kwok and Au Yeung] invented a way to convince [the Stock Exchange] and any other interested parties that Grand Field had genuinely sold its interest in the [joint-venture] for HK$32 million. (Charge 3).”[53] (original emphasis).

135.  Counsel asserted that Cheng, Li and David Wong knew of the dishonest purpose to which, through the use of the $32 million, Tsang and Kwok had committed themselves and “that the sum of $32 million was being laundered to cover up [the] fact [that the disposal of the joint venture was not genuine.. ”[54]; and then this:

“In respect of Charge 4 the underlying indictable offence is the conspiracy to defraud, the subject of Charge 3. The $32 million Ka Fong ultimately received from Logistic China and paid into D1’s bank account (the cheque having been signed by D2) were the proceeds of that conspiracy. D1 dealt with the proceeds by receiving it through his personal bank account. It was D1’s proceeds as it was a payment received by him in connection with the conspiracy to defraud by falsely representing that there was a genuine disposal of the joint venture to develop and construct a gas pipeline in Chongqing.”[55]

And there was then annexed the chart showing the flow of funds.

136.  To complete the picture, we note that the subject matter was revisited in prosecuting counsel’s written closing submissions in which he said that although it was not alleged that Cheng and Li were parties to the Charge 3 conspiracy, “the prosecution case is that pursuant to their own agreement they knew or had reasonable grounds to believe that a sum of money to be advanced by Upbest was for the purpose of falsely representing to the regulator and investors that Grand Field had genuinely sold out their interest in the joint-venture to Logistic China.  They at least had reasonable grounds to believe the money would be tainted in that way when it was paid by Logistic China to Ka Fong… to purportedly buy out Grand Field’s interest in the joint-venture.  It is submitted the evidence is sufficient to establish that the defendants [by which he was referring to them all] believed the sum of $32 million was not to be a legitimate payment by Logistic China to Grand Field but was to be used to dishonestly represent that Grand Field had genuinely disposed of their interest in the joint venture.  With that belief they agreed that [Tsang] would deal with the money in a manner designed to return the entire sum to Upbest.”[56]  (emphasis added).

137.  We note as well that there was an express acknowledgment[57] at the end of the trial by counsel then acting for Tsang and Kwok that the crime alleged as the predicate crime had been particularised both in opening as well as in closing.  We have been taken to no complaints at trial on behalf of any of the applicants about a lack of understanding as to what the allegation was that was made by Charge 4.

138.  Whether the facts asserted by prosecuting counsel were proved and whether those facts, if proved, constituted an offence contrary to section 25 of OSCO, is a matter worthy of argument and is the issue to which we next turn; but how it can seriously be suggested by leading counsel that there was some flaw in particularity is, to us, a mystery.

The judge’s understanding

139.  At several stages of the Reasons for Verdict, the judge articulated his understanding of the way in which the prosecution was putting its case; for example :

(a) that the “sum representing the consideration for the [bogus sell-back transaction] would go to [Tsang] who would then transfer it to another party so that the money would go back to Upbest Finance.  The prosecution alleged that each defendant named in Charge 4 was a party to this conspiracy.”[58]

(b) “D1 would receive the $32 million after the fund had been used to so deceive the Stock Exchange and he would then deal with these proceeds of an offence so that the fund would eventually return to Upbest Finance.”[59]

(c) “ … the prosecution made clear that the underlying indictable offence is the conspiracy to defraud which is the subject of Charge 3.  The $32 [sic] were proceeds of this offence since it was payment to D1 in connection with an indictable offence, after having been used to defraud the Stock Exchange and the shareholders of Grand Field.  D1 dealt with the proceeds by receiving them through his personal bank account and then disposing of them…  The prosecution case is that each of the defendants concerned had agreed that a course of conduct should be pursued so that D1 would deal with the fund as mentioned and each of them had either the knowledge or reasonable grounds to believe that the sum would be tainted for being used for the purpose of falsely representing that Grand Field had genuinely sold out their interest in the joint venture.  They did not believe the sum was a legitimate payment that each of them had at least reasonable grounds to believe that this buying and selling was not genuine and the sum of money was to be used to cover up that fact. …  The defence argued vigorously that the money was not the proceeds of an indictable offence.  The crux of the argument is that the offence in section 25(1) concerns laundering of the proceeds of crime; if the money comes from a legitimate source, the offence is not committed.  The sum is at most only a vehicle to commit an offence.  Therefore it is not the proceeds of an offence.”[60]

The judge’s finding

140.  The judge’s finding as to the nature of the conspiracy is articulated by him in various parts of the Reasons for Verdict.  So, for example:

(1)“I find that in the meeting with [Au Yeung] D5 did say in the presence of D4 that a sum of money would be arranged for Logistic China which would in turn pass the money to Grand Field.  The sum would be given back to D1 who would through some media return the money to the party who gave the money to Logistic China.

“In all the circumstances, I am satisfied that there existed a circular flow of funds designed to ensure the $32 million paid out by Upbest Finance reached D1 after the payment for the purported buying back and then substantially return to Upbest Finance.”[61]

(2) In discussing the case of George Li, he states:

“I am sure that the whole of the evidence supports the only reasonable inference that D5 had agreed with others, including D1 and D2, to deal with the property, namely, the $32 million, knowing that it would represent the proceeds of an indictable offence since he knew full well that the arrangement was for D1 to receive the money after it had been used to defraud the Stock Exchange and then dispose of it as arranged.”[62]

The issue of law

141.  The essence of the argument of this limb of the appeal is to the effect that section 25(1) is not directed at property which is the vehicle by which a crime is to be or has been committed and that the sum of $32 million at the flow of which, it is said, Charge 4 is directed was the vehicle, the tool, with which the asserted indictable offence was committed and not its proceeds.  Further – perhaps a variation on the theme – it is argued that section 25 targets illicit property or property obtained illicitly, and not property the source of which is legitimate and that in this case the source of the $32 million was from Upbest with no suggestion or evidence that the funds originating from Upbest which then flowed a number of rivers and tributaries back to the source, was an illegitimate source.

142.  Counsel sought support for their argument in decisions of the Court of Appeal of England and Wales, which we do not intend to traverse save to point out that their statutory and factual contexts were different from that of the case before us.  But by way of illustration, we mention R v Geary[63] which was concerned with the meaning of section 328(1) of the Proceeds of Crime Act 2002 which makes it an offence for a person to enter into or become concerned in an arrangement which he knows or suspects facilitated the acquisition, retention, use or control of criminal property by or on behalf of another person.  “Criminal property” is defined by the statute as property which constitutes a person’s benefit from criminal conduct[64].  The question was whether, on the account put forward by the accused himself, he was guilty of the offence.  His account was that he was given money by a friend H, money wholly untainted by crime, who wanted to hide the money from Mrs H in order to reduce the amount which H would have to pay in divorce proceedings.  The Court held that the section referred to an arrangement which related to property which was already criminal property at the time when the arrangement began to operate on it and not to property which was originally legitimate but became criminal only as a result of carrying out the arrangement[65].

143.  This is the principle which counsel seek to draw from the statutory provision under consideration and through that provision to apply the facts of this case, contending that the property in the present case was originally legitimate and only became criminal, on the basis of the prosecution case, as a result of the dealing in it; it was not the proceeds of a crime at the time it was transferred from account to account.

144.  In support of this argument counsel also prays in aid the comment of Hartmann JA in HKSAR v Wan Yet Kwai[66] that : “Section 25(1) looks to the source of identified property not to its intended use.”[67]

145.  The argument does not in our judgment, on the facts of this case, hold good.

146.  The answer to the argument that the section is not directed at property used as the vehicle of an offence but at its proceeds – even assuming that on a proper construction of the provision that is so – is that the property at which Charge 4 was directed (as particularised by the prosecutor and determined by the judge to be the fact) was property already used for the commission of an indictable offence; namely the deceit which was or – if one applies the language appropriate to conspiracy – which was to be, practised upon the Stock Exchange and the shareholders.

147.  For the purpose of an analysis of criminal liability there was nothing illogical in the prosecutor asserting and the judge finding two stages to the exercise upon which the conspirators determined:

(1)  The first stage was the production of property (the funds) to effect a criminal purpose.  That criminal purpose was to deceive others into believing that Logistic China had entered upon a genuine agreement to buy Grand Field’s share in Sino Richest and, eventually, had actually bought it.  To that end, a purchase had to appear to take place and for that purpose money was to pass (and did in the event pass) from Logistic China to Ka Fong (a Grand Field company).  Once a communication was made to the Stock Exchange and / or to the shareholders that the agreement was made and the sale concluded – a communication which was a false representation – a substantive indictable offence will have been committed.

(2)  The second stage was to ensure the return of the funds to their original provider.  That return was not part of the false representation which constituted the substantive offence to which we have just referred.  It was and was intended to be a movement of funds after the main event.  True it is that the intricate route adopted for the property to reach its original source was itself deceptive but that was a design to cover tracks of an offence already committed.

148.  The point we seek to make becomes clearer perhaps by postulating the same facts but with a difference in timing and with the insertion of one or two personalities who do not feature in the actual story before us.  If one were to assume that the funds had not passed from Ka Fong to Tsang on 31 July but rather six months later and then a few months after that via, say, X, Y and Z back to Upbest, they knowing that they were being used as conduits to ferry back property that had been used in connection with the indictable offence committed about one year earlier, the unsuitability of Geary as an analogy becomes, in our opinion, clear.  Then it is easier to see why, in our example, X, Y and Z may correctly be described as dealing with the proceeds of an offence already committed.

149.  But that depends on the definition of “proceeds of an offence”.

150.  It will be recalled that “a person’s proceeds of an offence” is defined by section 2(6) of the Ordinance as any payment or other reward received by him in connection with the commission of that offence; or any pecuniary advantage obtained in connection with the commission of that offence.

151.  It is clear, so it seems to us, that if the crediting of the funds passing though the accounts of Ka Fong and Tsang and then on through the accounts of the other companies in the convoluted chain are properly classified as “payments” contemplated by section 2(6), then on the facts of this case they are payments “in connection with” the indictable offence asserted by Charge 3.

152.  Counsel have made something of the juxtaposition of “payments” and “other rewards” in subsection 2(6), suggesting thereby that the payment contemplated by the subsection must, to make sense of the word “other”, be in the nature of a reward; and that the crediting of Tsang’s account may not properly be labeled as a reward and is therefore outwith the contemplation of the Ordinance.

153.  This proposition sits ill with the decision of the Court of Appeal of England and Wales in R v Gertrude Osei[68] and of this Court in R v Lo Chak Man and another[69].

154.  Osei was concerned with confiscation proceedings under the Drug Trafficking Offences Act 1986, which required a court to which an application was made to determine whether a respondent to the application had benefited from drug trafficking.  For the purposes of the Act “a person who has at any time… received any payment or other reward in connection with drug trafficking carried on by him or another has benefited from drug trafficking.”[70] (Emphasis added).  In that case the respondent had been given cash not as a reward for carrying drugs into the UK but in order to satisfy immigration officers, if necessary, that she had sufficient funds to enter and stay in the country for the period she requested; so it was argued that the cash was not a benefit contemplated by the statutory provision.  The Court rejected the argument, saying:

“ ‘ Payment’ means payment. It means any payment. The dichotomy is between a payment which may be by way of reward or may be in some other way in connection with drug trafficking or some other form of reward. An obvious instance of another form of reward is an air ticket paid for by the person who is arranging the trip with the intention that the courier shall get a free holiday in the United Kingdom and, in return, carry the drugs. That is the sort of matter which comes under “other.” But “payment” is to include not merely a payment which is going to be a profit or fee, so to speak, for the courier, but also a payment such as that which was envisaged in what this appellant originally said to the customs and in what she said through her counsel to the court below; that is to say a payment to enable her to have money in her possession which would persuade the immigration authorities to allow her to enter the country so that she could bring in the drugs.”[71]

155.  Lo Chak Man was concerned with a count of assisting another to retain the benefits of the proceeds of drug trafficking to which s 25(1) of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405, applies.  Section 4(1) of that Ordinance provides that “any payment or other rewards received by a person at any time… in connection with drug trafficking carried on by him or another are his proceeds of drug trafficking … .”  The Court there endorsed the approach adopted in Osei saying that :

“To confine the words ‘other payments’ in s 4(1)(a) to payments in the nature of rewards, commissions etc to the drug trafficker would seriously weaken its effect; it would be extremely difficult to determine what are rewards and what are not in the hands of the drug trafficker.”[72]

156.  We are invited to say that Osei and Lo Chak Man were wrongly decided and should therefore not be followed and in support of that proposition reliance is placed on a passage in the judgment in R v Allpress[73].  That was a decision of a five-judge Court of Appeal convened to consider the effect of confiscation legislation in money laundering cases where monies had passed through conduits; in most of the five cases under review, the conduits were couriers of cash on behalf of drugs traffickers and the question was whether the conduits could properly be said to have themselves benefited in respect to the monies passing through their hands. In relation to the Drug Trafficking Act 1994 which referred to the receipt of “any payment or other reward in connection with drug trafficking”[74], the Court said[75] – and this is the passage relied upon – :

“The phrase ‘payment or other reward’ implies that the payment must be in the nature of a reward in order to fall within the relevant section, and that is consistent with the rationale of the confiscation scheme explained by the House of Lords [ in R v May[76]].”

157.  It is not, in our judgment, necessary to decide whether the reasoning in Allpress casts doubt on the correctness of the decision in Lo Chak Man.  Allpress was a decision taken in the context of confiscation legislation and in the further context of whether a mere courier or custodian of property who is rewarded by a specific fee and has no interest in the property may be said to enjoy a benefit in respect of it. In this latter regard their Lordships referred[77] to a passage in May in which the House of Lords had said:

“D ordinarily obtains property if in law he owns it … which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. … Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property of the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers.”[78]

158.  It may, we suggest, “be otherwise with money launderers” because money launderers are likely, on the facts, to enjoy a power in law of disposition or control.  So it was with one of the appellants in Allpress, the appellant named Morris.  He was a solicitor with whom a fraudster arranged for money derived from a fraud to be paid into the firm’s client account in the names of different clients.  Disbursements were made from the account for the benefit of the fraudster and the appellant was convicted of assisting him to retain the benefit of criminal conduct.  It was argued that he had received no personal benefit and was merely a trustee of the funds.[79]  The Court rejected this submission stating that:

“The account was an account of Morris and his partners with their bank. Payment of monies into that account gave rise to a thing in action in favour of Morris (jointly with his partners). The starting point … is that this was therefore his property. In Sharma[80] the defendant caused the proceeds of a fraud in which he was engaged to be paid into a company account of which he was the sole signatory. It was held that the money in the account was money held for his benefit as the sole signatory on the account, and that decision was approved by the House of Lords in May (at [34]). In this case the account was not only in the name of the firm of which Morris was a partner, so that he had a thing in action against the bank, but he also had in fact sole operational control over the account.”[81]

159.  The same may validly be said in relation to the payments into the accounts of Ka Fong and of Tsang.  Mr Marash SC for the respondent submits, correctly in our view, that Tsang was not a mere nominee or trustee of the funds he received; he possessed a chose in action whilst the sum of $32 million was in his account.  Whether this is classified as a payment or a pecuniary advantage matters not since the latter is also a person’s proceeds as defined by section 2(6) of the Ordinance.

160.  Wan Yet Kwai upon which counsel placed so much reliance and to which we have earlier referred[82] makes no difference to this analysis and it is not necessary to determine the correctness of the passage relied upon for it addresses a situation in which there is no clear basis upon which to assume or reasonably suspect an antecedent offence; and, in any event, it is noteworthy that the comments relied upon were made without any reference to section 2(6) of the Ordinance or to Lo Chak Man.

161.  Mr Marash properly drew our attention to a suggested error of fact by the trial judge; an error not relied upon in any of the grounds of appeal.  It concerns the timing of the notification to the Stock Exchange as against the transfer of the funds out of Tsang’s bank account.  He tells us that the monies went out of Tsang’s account prior to the receipt by the Stock Exchange of the payment in slip (or a faxed copy thereof).  The movement of the funds took place all in one day (31 July) whereas the Stock Exchange received notification the following day, 1 August.  Given that the predicate offence was a conspiracy which envisaged the movement of funds to certain recipients in order to effect a deception, we are satisfied that the routing of funds beyond those recipients constituted payments in connection with that predicate offence; and that the detail to which Mr Marash has drawn our attention does not affect the validity of the convictions on Charge 4.

162.  We accordingly conclude that the ground of appeal which argues that no offence of conspiracy contrary to section 25(1) of the Ordinance is disclosed, is a ground which does not succeed.

Tsang and Kwok : Conclusion

163.  The analysis thus far exhausts the grounds of appeal in relation to Tsang and Kwok as far as concerns charge 4; and it follows from that analysis that the challenge to their conviction in relation to Charge 4 fails.

Cheng: the attack on the findings of fact

164.  A substantial part of the appeal on behalf of Cheng (D4) was devoted to an attack on the weight placed by the judge on the evidence of Au Yeung; to the suggestion that in finding that Cheng was party to the Charge 4 conspiracy he failed to take into account relevant considerations; and to the further contention that inferences which the judge drew as against Cheng were not the only reasonable inferences to draw.

165.  We have already made reference to some of the findings by the judge in relation to Cheng[83].  The key findings[84] were these:

(1)  He was a director of Upbest Finance.

(2)  He and his wife were the sole signatories to that company’s account.

(3)  The six cheques which he signed on 31 July, which are the cheques which funded the circular flow of money to Logistic China and back to Upbest totalled $45.74 million.  $45.74 million went out and $45.4 million came back.

(4)  It was not conceivable, said the judge, that Cheng did not know the purpose for which such a large sum was flowing out at his hand.

(5)  Cheng was present at the meeting on the Monday in March 2003 when the sell-back was discussed.  “We need more time,” he said in relation to the proposal.

(6)  He was present at the subsequent meeting when George Li described the circular flow of money.  “Despite [the fact that] there is no evidence that [Cheng] had said anything at all in the meeting, he was present throughout.  In all the circumstances, the purpose of his presence in the meeting was obvious.  D4 and D5 were acting in concert.  This is the only reasonable inference to be drawn.”[85]

(7)  He accepted the testimony of Au Yeung about the essence of these two meetings; the testimony of Au Yeung was supported by what in fact subsequently transpired.

166.  It is to be noted that Cheng did not testify nor adduce any evidence on his behalf.

167.  We wish first to mention and dispense with a few points advanced in argument that should never have been advanced and we do so, once again, to illustrate the type of argument which patently (and regularly in criminal appeals) wastes time:

(1) It was contended that the judge made an error which “infected the whole of the judge’s reasoning”, namely, that he said[86] that: “Charge 4 is a charge of conspiracy to defraud to deal with property known or believed to represent proceeds of an indictable offence.”  The emphasis is in the original submission.[87]  The point advanced is that Charge 4 was a charge of conspiracy to deal, not a conspiracy to defraud.  This is a most unattractive point since it takes an obvious slip in one paragraph of a lengthy judgment wholly out of context of the rest of the Reasons for Verdict, the full context of which make it as obvious as can possibly be that the judge knew full well that he was addressing a charge of conspiracy to deal with property known or believed to represent proceeds of an indictable offence.[88]  To suggest that he thought otherwise is disingenuous; and to suggest that the error “infected the whole of the judge’s reasoning” is nonsense.

(2) It was said that the judge did not consider, amongst other factors, the evidence of Au Yeung that he had had “no direct dealings with [Cheng] at all.”  The submission found itself, again, in the written submissions[89].  It is not accurate.  Au Yeung did not say that.  What he accepted was the proposition put to him in cross-examination that he had had virtually no direct dealings with Cheng; a somewhat material difference given his testimony that he attended two (important) meetings at which Cheng was present.

168.  We do not intend again to traverse the attack on the judge’s findings in relation to the credibility, in relevant parts, of Au Yeung.  We see nothing impeachable in the judge’s treatment of the testimony of Au Yeung in so far as it affected Cheng.

169.  A lengthy argument was advanced to the effect of that the finding by the route of irresistible inference, that Cheng was guilty of Charge 4 was erroneous in that there were competing inferences.

170.  One such competing inference is said to arise from Au Yeung’s (supposed) evidence that he had no direct dealings with Cheng: with this erroneous statement of the effect of Au Yeung’s testimony, we have already dealt.  Another is that Cheng was not named as a co-conspirator in Charge 3.  How this assists this applicant is impossible to discern, for the sole question is what admissible and reliable evidence there was to implicate him on Charge 4.

171.  In support of the same ground of appeal (the attack on inferences drawn by the judge), it is said that the judge did not take into account “that there was no motive or incentive on the part of [Cheng] in agreeing to the fund flow arrangement.”[90]  There was no need for the prosecution to isolate and prove a motive or incentive and it is not accurate to assert, as if it were a proven fact, that there was in fact no motive or incentive.

172.  One error of fact by the judge is established.  He said that Upbest Finance (of which this applicant was a director) was “the financial adviser of Grand Field and played the role of dealing with the Stock Exchange.”[91]  That was incorrect, since it was Upbest Securities that played that role.  Viewed in the round, we are satisfied that that error of fact is insignificant.

173.  We are, in the event, satisfied that (save in respect of the one fact to which we have just alluded) the judge was entitled to come to the findings of fact which he did and to draw the inferences against Cheng which he drew.

174.  Accordingly, Cheng’s appeal is dismissed.

George Li

The particulars: past and future tenses

175.  Although not articulated as a ground of appeal, there is a point made in submissions on behalf of Li as well as on behalf of Cheng that the particulars of offence under Charge 4 assert that the defendants “knowing or having reasonable grounds to believe that property, namely $32 million … in whole or in part directly or indirectly represented proceeds of an indictable offence conspired … to deal with the said property.”  We add the emphasis to highlight the past tense.  In other words, the particulars suggest that at the time of conspiracy the property was already the proceeds of an indictable offence; whereas the evidence, if accepted, was a conspiracy to deal with property which, at the time of dealing with it, would be the proceeds of an indictable offence.

176.  The point would have traction if matters had been left at that.  But the prosecution made it crystal clear at the outset what it was alleging; and did so again at the end; and it is obvious from the trial transcript as a whole that no-one was under any illusion as to the case that they had to meet[92].  The function of particulars “is to give such exact and reasonable information to the accused respecting the charge against him as will enable him to establish fully his defence” as well as to enable the trial court to address the real issues in the case[93].  So where the original particulars of the offence are clarified, whether by further written or oral particulars, in such a way that the accused knows precisely the case advanced against him and the case which he has to meet and is not prejudiced by the nature or timing of such clarification, there can be no justifiable complaint.

The findings of fact

177.  The remaining grounds of appeal advanced on Li’s behalf constitute an attack on the findings, first of the credibility of Au Yeung in his assertions which impacted upon the culpability of Li; and then on the inferences which the judge drew from findings of primary facts.

178.  We do not propose to go through each of the many findings which are the subject of these remaining grounds.  We have already addressed the judge’s careful analysis of the Au Yeung’s credibility and the reasons he provided for accepting some of his evidence and not other parts[94].  It is a sensible and down to earth analysis by which he provides telling reasons for accepting aspects of that evidence which are inculpatory of this applicant as well as of others.  To take but one example as it touches upon Li: when addressing one of the meetings attended by Li, Au Yeung said that Li advised against Ivan Wong as the person to whom the project should be re-sold, since Ivan Wong was, according to Li (in this account), not trustworthy.  The judge remarked[95] that there appeared to him to be no reason why such a comment should be fabricated.  In other words, it was a meaningless matter to make up; and so it had the ring of truth.  Appellate advocates occasionally complain – sometimes justifiably – of a statement by a tribunal that it believes a witness, without giving any meat to the basis of the belief.  Yet what we find in this particular case is a judgment peppered with the whys and wherefores of belief and disbelief and we see no flaw in the reasons provided.

179.  As to the findings of fact and the inferences drawn, the appeal has taken on something of the nature of a retrial.  We have examined each impugned finding and we do not agree with the complaints made.  We will take a handful of examples.

180.  The judge held that Au Yeung gave Li all the correspondence which Grand Field had had with the Stock Exchange in late 2002 and the first third of 2003 and he inferred that the nature of that correspondence was such that anyone of Li’s background would readily have realised therefrom that Grand Field “had something important to conceal.”[96]

181.  The suggestion is that there was no evidential basis for the judge’s finding that Li must have had all the correspondence.  This suggestion is partly based on some contradictory evidence of Au Yeung on the issue.  But the judge did not rely for his conclusion solely on Au Yeung’s testimony.  He addressed the common sense of the matter, for it was common ground that Li had drafted some of the later letters from Grand Field to the Stock Exchange and given that fact and reference to the earlier correspondence in an email from Au Yeung to Li, it was but a matter of common sense that Li would have wanted to see all previous correspondence, even if not initially volunteered by Au Yeung.  In any event, we note from the Reasons for Verdict[97] that “it had been put by [the] defence acting for D5 [to Au Yeung] that what he [Au Yeung] had sent [to Li] were only Exhibit P29 to P36.”  That was correspondence with the Stock Exchange from 13 December 2002 to 13 March 2003.  Well if that much was accepted, it makes, in our judgment, no difference to the validity of the inference drawn by the judge: for example, the letter of 13 March 2003[98] (by which time on any view, Li had already been engaged in drafting or perusing a draft of a public announcement by Grand Field and of replies to the Stock Exchange[99]) refers to representations that Sino Richest was not aware of the reason for the joint-venture partner’s failure to make the requisite asset injection and yet neither Sino Richest nor joint-venture partner regarded the other as in breach of the contract – strange suggestions in themselves.  The discrete contention by counsel that even if Li was provided with all the correspondence “none of that would have caused D5 to have any suspicion about whether the Chongqing project was ‘genuine’ or otherwise”[100] is quite untenable.

182.  One suggestion made in argument appears to have been that the provision of the sum of $32 million by Upbest Securities was made in the ordinary course of its business, a factor to which the judge is said to have paid insufficient regard.  If it were the case that the monies were advanced in the normal course of business, one is bound to wonder – the circular flow apart – why it was that neither Li nor anyone else from Upbest ever met anyone from Logistic China for whose benefit the advance was intended.

183.  The evidence accepted by the judge against Li amounted to a strong case against him entirely apart from the correspondence in which he was involved.  The evidence of the meetings attended by Li was damning, once accepted: the Monday meeting in March 2003when the sell-back was discussed and a further meeting in the course of which Li gave advice about the circular arrangement including the desirability of key parties using accounts at the same bank.

Li : Conclusion

184.  We have concluded that none of the grounds of appeal in Li’s case can succeed and his appeal shall be dismissed.

David Wong

185.  Apart from arguments in respect of Wong’s case along the same lines as on behalf of the others, as to the treatment of Au Yeung’s testimony; the inappropriateness as a matter of law of the 4th Charge; and the treatment of the co-conspirator’s rule, there were, naturally, fact-sensitive grounds peculiar to Wong’s case.

186.  Although Wong did not himself testify, the inference which the trial judge was asked to draw in his case in his favour – either as an obvious inference or, if not, a reasonable possible inference – was that he was acting as a tax advisor and that the subject matter of his conversation with Au Yeung on 10 July 2003, in Kwok’s presence, was how best to arrange the proposed buy back by Logistic China as to be tax efficient from the point of view of stamp duty, profits tax and inheritance tax.  Save for one piece of evidence – crucial if truthful and accurate – from Au Yeung, there was no issue about what Wong had said at the meeting of 10 July.  That one piece of evidence was Au Yueng’s testimony that Wong had said that the money received by Delta Fund LLC from Tsang[101] would be paid by Delta back to the company that had provided funds to Logistic China[102].  Everything that Au Yeung said about Wong’s comments at that meeting was, it is contended, entirely consistent with tax avoidance advice which did not require Wong to know anything about a circular movement of funds or the purpose of it.  Mr Shum, for Wong, argued, however, that, given the expressed misgivings of the judge about material parts of Au Yeung’s evidence generally, it was highly dangerous to conclude that Au Yeung was telling the truth or was reliable in his recollection about that one piece of evidence which was not accepted by Wong as accurate – a piece of evidence which Mr Shum conveniently referred to as “the missing link”.

187.  Part of the Reasons for Verdict was devoted to an analysis of the testimony of a Mr Benny Kwok.  Mr Kwok is a forensic expert with expertise in forensic accountancy and financial analysis.  The effect of his testimony is that the advice given by Wong at the meeting on 10 July 2003 was consistent with ordinary tax planning prevalent in the accountancy and tax planning fields.  His integrity and expertise was fully accepted by the judge.  The judge found however that Mr Kwok did not have the benefit of all relevant information but, more relevantly for present purposes, that the need for a tax avoidance scheme was not inconsistent with the prosecution case since the fraudulent scheme suggested by the prosecutor would itself create liability to taxes because documentation and entries which had to be created in order to give effect to the scheme would represent the conclusion of transactions which would attract tax.  So what, at the end of the day, the judge found in this regard was that the nature of the advice provided by Wong on 10 July did not of itself run contrary to the prosecution allegations.[103]

188.  Such attacks as were made grounds of appeal in the written submissions in relation to the judge’s treatment of Mr Kwok’s testimony were not pressed by Mr Shum in his oral submissions.  His concern in relation to the testimony was, rather, to emphasise that Mr Kwok’s evidence lent credence to the notion that Wong was doing no more than providing legitimate tax planning advice, the provision and terms of which did not necessarily require or connote any knowledge on Wong’s part of any illegality or of the missing link.

189.  Wong was a managing director and shareholder of ITASL and was also an independent non-executive director of the Upbest Group.

190.  The case against Wong stemmed from the oral testimony of Au Yeung; as well as the fact that the circular flow ran through a large number of companies all of which, save for Logistic China and Ka Fong, were under Wong’s control.

191.  It will be remembered that Au Yeung testified that in March 2003, at a meeting with Cheng and George Li, the circular flow of funds arrangement was explained to him, an arrangement that involved monies to Logistic China and others going through accounts at the Wing Hang Bank.  No individual from Logistic China ever presented himself at these meetings, or at the meeting of 10 July: this much is not contested.  Au Yeung’s evidence was that before the meeting on 10 July, Kwok had provided him with Logistic China’s company kit, a kit which he, Au Yeung took with him to the meeting with Wong on 10 July.

192.  His evidence was that on 10 July 2003 Li telephoned him and told him to go to meet Wong.  He went together with Mdm Kwok.  This is what he said in his evidence about what transpired at that meeting[104] :

“A. I entered and saw Mr David Wong. And David Wong was a pretty tall male. He was very talkative. At the beginning he introduced himself as a tax consultant. And he also told about his past record in respect of helping his clients to evade estate tax.

COURT: Maybe “avoid”…

A. (Witness answers in English) Not “evade”, “avoid”.

Q. Go on.

A. (Interpreted evidence continues) After he had introduced himself and after he had talked about his past successful track records, he talked about the arrangement.

Q. Tell us what he said.

A. He said there was an overseas company had [great][105] faith on the future development of Logistic China. Logistic China issued promissory note to this overseas company as a security for this overseas company to lend money to Logistic China. After Logistic China had received the money, the money would be used to pay Grand Field for the $32 million consideration. After Grand Field group had received this sum of money Grand Field would then pay the current account payable to the directors -- amount due to the director, in other words. After Mr Tsang had received the money Mr Tsang would use the money in overseas investments, would invest in a Delta Inc., and this Delta Inc. may be a fund management company, in all, it was his investment. And the Delta Inc. company would pay the money as investment to the original lending overseas company to Logistic China. as to Mr Tsang paying money to Delta Inc. for overseas investment. At that time David Wong gave me a booklet…

MR EGAN: Give him what?

MR CALLAGHAN: A booklet.

A. Pamphlet. Saying that if anybody ever asked about it and Mr Tsang was having overseas investment and this is the relevant information on that overseas investment.

Q. Yes, go on.

A. Then it was also mentioned and asked that Logistic China paid Grand Field – he asked about our selling the share interest of Sino Richest to the original shareholder to Chintex Gas. He asked what the balance sheet of Chintex Gas Company showed. I said that this company had negative assets. Then he gave us a tax suggestion, not to buy the equity interest of Sino Richest with $32 million. Logistic China would transfer $72 million of assignment of debt of Chintex to Logistic China. This assignment Logistic China would pay 32 million to Grand Field. There was a big advantage in such arrangement. Such arrangement could avoid the stamp duty for the $32 million consideration in the shares transfer because the consideration would be converted from $32 million to $1 and the consideration would be replaced by assignment of debt.

Q. Yes. Anything else?

A. That’s all.

Q. How was this to be done – who was going to do it, in other words?

A. As far as the documentation for the assignment of debt was concerned it was the service to be provided by David Wong as a tax consultant, so it was his duty and he would charge for that, HK$40,000. And this $40,000 would be less than the relevant stamp duty for the $32 million consideration.

Q. What happened then?

A. Then we left his office.  Before long David Wong sent his documents for the preparation of assignment of debt to me and also sent me the correspondence of Logistic China for the overseas investments of Mr Tsang.  I printed out those documents for Logistic China and Mr Tsang.  Before David Wong sent me those documents, when I returned to the office I met Mr Tsang.  On that occasion after I had gone to the office of David Wong, upon my return to my office immediately I jotted down in my notebook what David Wong said about the circular arrangement.”

193.  The “missing link” or contested part (though not contested by any oral evidence from Wong) emerges in the one sentence from Au Yeung that alleged that Wong had said that : “ … the Delta Inc company would pay the money as investment to the original lending overseas company to Logistic China.”

194.  The deed of assignment of debt[106] was dated 31 July 2003 and stated that for a consideration of $32 million, Grand Field assigned to Logistic China a debt of $72 million owed to Grand Field by Chintex. Bank records at the Wing Hang Bank show that on 31 July 2003, $32 million was deposited into Ka Fong’s account and withdrawn on the same day.  On 15 July 2003 the assignment of debt was noted in the accounts of Grand Field[107].

195.  Mr Shum has summarized Wong’s “case”[108] as follows:  that the loop – the flow of funds to and through Logistic China, then on through Grand Field to Tsang – was to end with a foreign investment by Tsang into a foreign company or fund.  That would save Tsang estate duty.  There was no question, as far as Wong knew, of the monies going back to Upbest.  We pause to say in this regard that the judge noted that Benny Kwok did not ever appear to have been advised that the funds originated not from some “overseas company with great faith in the future development of Logistic China” but with Upbest[109].  What was then proposed, on Wong’s “case” was that, since a payment of $32 million for the purchase of shares would attract significant stamp duty, there would instead be an assignment to Logistic China of the debt of $72 million owed by Chintex to Tsang (a director’s loan); the consideration for that assignment would be $32 million whereas the consideration for the purchase of shares would be a mere $1.  And the use of promissory note financing to Logistic China to fund its payment for the assignment was a perfectly feasible and legitimate method of tax planning.  However, if, it was implicitly conceded, Wong knew full well that there was no question of a foreign investment by Tsang and that all that was intended was a circular arrangement returning the funds to their original provider, the “case” would not hold water.

196.  Thus it was that the prosecution case against Wong rested, according to this submission, upon the reliability of Au Yeung’s testimony that Wong had said and recognised that Delta Fund LLC would not invest the funds on Tsang’s behalf or pass them on for investment abroad but rather would ensure, or be a complicit part of a chain to ensure, the return of the funds to Upbest.  And noting the judge’s self-direction that he would rely only on those parts of Au Yeung’s evidence that was supported by credible and reliable evidence or was impeccably logical and highly consistent with common sense such that in all the circumstances it must be true[110], Mr Shum, in an able argument, suggested that there was nothing in Au Yeung’s evidence on the “missing link” issue that fulfilled those criteria; adding that the possibility of an error of recollection by Au Yeung was hardly to be discounted given the length of time between the event in question and the date of testimony and given also that Au Yeung had already had discussions with Li and Cheng about the circular arrangement and it was all too easy for Au Yeung wrongly to have assumed that Wong had mentioned the monies going back to the original source.

197.  The difficulty in Mr Shum’s path is that the testimony of Au Yeung is not all that there was in the evidence as it affected Wong.  There was cogent evidence that each and every one of the companies in the cheque firing exercise, save for Ka Fong, Logistic China and Upbest (of the last of which, though, Wong was a director), were under the effective control of Wong or if not, that in any event Wong had effective control of their bank accounts.

198.  The judge had before him the unchallenged statement of Raymond Chan Siu-wing who, between August 1992 and 31 December 2002, worked as a consultant for ITASL and he said in that statement that from time to time Wong would ask him to set up some companies and that Wong would then find people to act as nominee directors of those companies.  Wong instructed Chan to prepare the company registration and bank account opening documents and give them to the nominee directors for their signatures and Wong specifically instructed Chan to open the relevant accounts with the Wing Hang Bank.  Wong would also instruct the majority of the nominee directors to pre-sign blank cheques which were then given to Chan.  Wong would then provide Chan with directions to transfer various sums of money between different companies.  Each time it was mainly Upbest Finance which acted as a fund provider and the ultimate payee.  Amongst the companies to which such arrangements attached were Nimrod Finance Limited; Pyramid Fund Limited; Portfolio Securities LLC – companies set up by Chan on Wong’s instructions; Delta Fund LLC; Clover Securities LLC; Tonga Group Holding Ltd, one of the nominee directors of whom was the ex-husband of ITASL’s receptionists; Positive Mind Enterprise Ltd; Charmford Investments Ltd; Jetpower Finance Ltd; and Amazing Rich Group Ltd – companies whose bank accounts with Wing Hang Bank were opened with the assistance of Chan on Wong’s instructions.

199.  This evidence fits with other testimony to which the judge referred in his Reasons for Verdict[111].  So, for example, a Mr Bill Murray was the authorised representative of the Hong Kong branch of Nimrod Finance and was entirely unaware of the cheque of $22 million received by Nimrod from Upbest or of the cheque of $22 million from Nimrod to Pyramid Fund.  His evidence was that he had pre-signed a lot of cheques at the request of Wong and office staff, including cheques for Clover Securities for use whilst he, Mr Murray, was out of Hong Kong.  A Mr Horne was a member of Portfolio Securities, IT Global Fund LLC and Delta Fund which companies each had an account with Wing Hang Bank and in respect of which he was the authorised signatory.  He too had signed blank cheques at the request of Raymond Chan who told him that the companies were quite active in stock market trading and it was convenient to pre-sign cheques for him to operate business.  Mr Horne had no reason to believe that something untoward was afoot and we should state that there is no suggestion that either Mr Murray or Mr Horne were aware of any illegality.  There was evidence also from a Mr Lao who said in his witness statement that Wong had invited him to be a director of Tonga Group and to be the signatory or a signatory of its bank account and he had signed a few books of blank cheques on that account.  There was similar evidence from a Mr W. K. Wong in relation to Charmford Investment.

200.  All this evidence the judge noted.  The judge recognised that the evidence suggested that Wong only came into the picture at a very late stage[112].  He reminded himself of his reservations as to the credibility and reliability of the testimony of Au Yeung[113].  But he was satisfied that the meeting of 10 July between Wong and Au Yeung – with Kwok in attendance – took place and taking into account the actual circular fund flow and “the association between the corporations involved in the fund flow and ITASL” he was, he said, “sure [that] the whole of the relevant evidence supports the only reasonable inference that [the] funds circular arrangement was the design of D6 and was put into effect by him.  This was within his expertise, and the obvious inference is that this was the reason why D5 asked [Au Yeung] to approach him.  He had the know-how and the tools for implementing the scheme.”[114]  He was satisfied that Wong must, therefore, have entered into an agreement with Cheng and Li to put the arrangement in place[115].

201.  One sees a number of indicia which supported the testimony of Au Yeung that Wong knew full well of the circular arrangement ending up with Upbest, the original provider of the funds to Logistic China:

(1) Wong was himself closely connected with Upbest;

(2) The testimony of Au Yeung that Wong launched into a discussion with Au Yeung in Kwok’s presence of a proposed financial arrangement and flow of funds, without Au Yeung or Mdm Kwok providing him with any request for advice, was not evidence that was challenged.  Nor was Au Yeung challenged when he said that Wong had commented that “there was an overseas company which had great faith in the future development of Logistic China”.  There are two points in this regard validly made by Mr Marash for the respondent – the first is that one can safely assume that someone had already provided information to Wong in respect of which he was then tendering proposals.  The second is that Wong must have known that none of the companies which provided or through which funds were provided to Logistic China had any interest whatsoever in Logistic China: the men who were directors of Nimrod, Pyramid and Portfolio knew nothing of the cheques or the proposed loan.  What Wong was doing, as the judge well recognized, was stating how the matter was to be presented for outside consumption – in the same vein that he offered to these visitors a pamphlet about Delta Fund LLC for the consumption of anyone who asked about the supposed investment in Delta Fund.

(3) There was never an investment in Delta Fund; as Wong quite obviously knew. The sum of $32 million went straight out, on a pre-signed cheque left in the custody of ITASL, to Clover Securities, another company whose account was in the control of Wong.

(4) The cheques signed by Cheng all went in favour of companies whose bank accounts were controlled by Wong.

(5) The uncontested banking evidence demonstrated that but for the original injections from Upbest that day none of the companies through whose accounts the monies flowed on 31 July 2003 was in a position to meet the individual cheques.

(6) Wong prepared a deed of assignment to which Logistic China, the lender, was a party; yet there was no suggestion that Wong ever met anyone from Logistic China.

202.  So it was indicia of this kind that the judge utilized – correctly in our view – as lending cogent support to the testimony of Au Yeung as to the content of the conversation with Wong on 10 July 2003.  What the judge said in his conclusion as to Wong’s culpability is, in our opinion, well supported by the evidence and the clear inferences to be drawn from it:

“There is no direct evidence as to how much D6 knew exactly about the situation in particular in relation to Grand Field. However, his meeting with [Au Yeung] was clear indication that he was aware that the matter was a major concern of Grand Field. He must also be aware that [Tsang] was a party was to receive the money. He must also be aware that Logistic China and Grand Field or one of its subsidiaries would be involved in the fund flow. Since D1, Grand Field and Logistic China were the only parties involved in the fund flow which had no association with ITASL, the inference must be that D6 knew that the arrangement was for the purpose of them. Further, since each of them was to transfer the whole fund out as soon as it was received, an obvious purpose which one must reasonably contemplate in the circumstances was that the fund flow was to pretend a real transaction to be taking place between Logistic China, Grand Field and [Tsang].”[116]

203.  We conclude therefore that Wong’s appeal must fail.

Result

204.  We grant each applicant leave to appeal against each conviction and treat the hearing of the application as the appeal.

205.  In relation to Charge 1, the appeals of Tsang and Kwok are each allowed, the convictions of each on that charge, and sentences imposed in respect of those convictions, are set aside.

206.  In relation to Charge 3; the appeals of Tsang and Kwok against conviction are dismissed.

207.  In relation to Charge 4, the appeal of each of the appellants (Tsang, Kwok, Cheng, Li and Wong) against conviction is dismissed.

Sentence

208.  We have earlier referred to the sentences imposed as being, on their face, significantly inadequate[117].

209.  Had we the power in relation to Cheng, Li and Wong, we would have considered whether to increase the sentences imposed in their cases for the offence reflected by Charge 4; although we would have taken as a material factor in mitigation the particularly long delay between the hearing of this appeal and the delivery of this judgment, a delay which lies at the hands of the author of this judgment.  But it would appear that, given the absence of an appeal on their part against sentence, there is no statutory provision which permits us to exercise such a power, even if we were minded to do so.

210.  However, the terms of section 83B of the Criminal Procedure Ordinance, Cap 221 confer power upon the Court to adjust sentence when on appeal against conviction on an indictment containing two or more counts, the Court allows the appeal in respect of part of the indictment.  The use of this power now arises for consideration in the case of Tsang and Kwok in that the conviction on Charge 1 has been quashed, leaving in that the convictions on Charges 3 and 4.

211.  In relation to Charge 1 the judge sentenced Tsang to 26 months’ imprisonment; on Charge 3 to 11 months’ imprisonment; and on Charge 4 to 11 months’ imprisonment.  He ordered the sentences on Charges 3 and 4 to run concurrently with each other but 6 months of those terms to run consecutively to the sentence on Charge 1 making a total of 32 months’ imprisonment.  In Kwok’s case the sentences were 2 years; 12 months; and 12 months respectively, with 6 months of the total sentences in relation to Charges 3 and 4 to run consecutively to the 2 years on Charge 1, making in her case a total of 30 months’ imprisonment.

212.  Since Charge 1 has now fallen away, it remains to consider the sentences in relation to Charges 3 and 4 in respect of Tsang and Kwok; in particular what the appropriate total sentence is for those two offences.  As to this, we will hear counsel on their behalf as soon as is practicable.

[1] Reasons for Verdict, para 242

[2] ibid para 280

[3] ibid para 289

[4] ibid para 290

[5] ibid para 288

[6] ibid para 291

[7] ibid para 281

[8] ibid para 299

[9] ibid para 379

[10] ibid para 386

[11] ibid para 433

[12] ibid para 443

[13] ibid paras 530, 542, 544

[14] ibid paras 555, 556

[15] ibid paras 648, 649

[16] ibid para 421

[17] ibid para 242

[18] ibid para 270

[19] see para 60 above

[20] Reasons for Verdict para 308

[21] ibid para 433

[22] ibid para 778

[23] ibid paras 383 to 384

[24] Evidence of Ivan Wong, transcript pages 657-659

[25] Reasons for Verdict para 321

[26] ibid para 323

[27] ibid paras 328-329. See too paras 399 – 401 et seq

[28] Written submissions paras 305 to 307

[29] [2012] 3 HKC 72. See also, for the procedural background to the complaints in that appeal the judgment of Wright J in HKSAR v Habibullah Abdul Rahman & others [2010] 4 HKC 301 paras 687 et seq.

[30] The same counsel it so happens as prosecuted at first instance in the Vivien Fan case.

[31] Written closing submissions para 19

[32] The note says “D6” but this is obviously an error

[33] Page 57 of the prosecutor’s written closing submissions

[34] See paras 26 and 27 written submissions for Tsang and Kwok; 11 January 2010; and oral submissions at pp 1551-1552 appeal bundle transcript

[35]Transcript p 1705

[36] Reasons for Verdict para 358

[37] ibid paras 495 to 552 inclusive

[38] ibid para 572 et seq

[39] ibid para 647; see also para 653

[40] As for Tsang, from paras 648 to 652 ( but see also his analysis of the testimony of Au Yeung as it affected Tsang in relation to this charge: paras 575 et seq); and para 676; Kwok from paras 654 to 664; George Li (D5) from paras 710 to 745; Charles Cheng (D4) from paras 746 to 761; and David Wong ( D6) from paras 762to 782

[41] Reasons for Verdict para 657

[42] ibid, in particular at paras 657 to 661; 676 and 768.

[43] ibid para 746

[44] ibid para 725

[45] ibid para 761

[46] ibid para 730

[47] ibid para 731

[48] ibid para 732

[49] ibid para 735

[50] ibid para 767

[51] CACC 372 of 2008, 5 May 2009, unreported

[52] Written opening para 48

[53]ibid para 50

[54]ibid paras 51 and 52

[55] ibid para 53

[56]Submissions paras 91 -92

[57] Para 196 written closing submission for Tsang and Kwok

[58] Reasons for Verdict para 23

[59] ibid para 57

[60] ibid paras 556- 558

[61] Ibid paras 704 and 705

[62] ibid para 744

[63] [2011] 1 WLR 1634

[64] Section 340. The relevant statutory provisions may be found at p 1637, paras 10 and 11 of the report.

[65] Geary at para 19

[66] CACC 372 of 2008, 5 May 2009, unreported

[67] ibid para 26

[68] (1988) 10 Cr App R (S) 289

[69] Cr App 744 of 1995, 7 November 1996, unreported

[70] (1988) 10 Cr App R (S) at 292

[71] ibid at 293

[72] See pp 15 (for the reference to Osei) and pp 20 and 21 (for the citation and its context).

[73] [2009] 2 Cr App R (S) 58 (p.399)

[74] Section 2 (3); para 52 ( page 417) of the judgment

[75] At para 58 (page 418)

[76] [2008] 1 AC 1028

[77] Allpress at para 36 (p 413)

[78] May at para [48(6)]; page 1045

[79] See the headnote at para H6

[80] Sharma ( Ajay Kumar) [ 2006]  EWCA Crim 16; [2006] 2 Cr App R (S) 63(p.416)

[81] Allpress at [85] (page 423)

[82] para [144] above

[83] Para [118] above

[84] Reasons for Verdict paras 746 to 761 inclusive

[85] ibid para 753

[86] Reasons for Verdict para 5

[87] Written submissions for Cheng paras 72 and 73

[88] See for example his heading (above para 553 of the Reasons for Verdict ) to the discussion of Charge 4 which describes the charge correctly in those very terms.

[89] para 62 (1) (ii),

[90] ibid para 63

[91]Reasons for it Verdict para 711

[92] See above paras 133 - 138

[93] See R v CGE Co (1974) 17 CCC (2d) 433 at 443, cited in Judicial Discretion and Criminal Litigation Pattenden 2^nd ed., p 40

[94] paras 84 – 94 above

[95] Reasons for Verdict para 299

[96] ibid. paras 294-296 and 715-716

[97] ibid para 294

[98] Exhibit P 37

[99]On the evidence accepted by the judge, Li had a hand in the contents of the public announcement of 27 February 2003; in the reply to the Stock Exchange dated 19 March 2003; and the reply dated 8 April 2003

[100] Written submission para 66

[101] See the Appendix to this judgment

[102] See Au Yeung’s testimony at pp 1176 -1178 of the transcript

[103]See Reasons for Verdict paras 613 - 647

[104] Transcript pp 1176R – 1178F

[105] The transcript says “breached” but it seems clear that the word in fact articulated by the witness was “great”.

[106] Exhibit P 126

[107] Exhibit D6-5

[108] We have placed the word “case” in quotation marks to emphasise that Wong gave no evidence so, in that sense, there was no case. His case at most was that, but for the missing link evidence, the evidence adduced as to Wong’s role was consistent with the conduct of an adviser propounding an innocent and lawful tax avoidance scheme

[109] Reasons for Verdict para 628

[110] ibid para 308

[111] Paras 666 - 695

[112] ibid para 763

[113] ibid 764 -766

[114]ibid para 773

[115] ibid para 774.  See also paras 777 - 782

[116] ibid para 778

[117] Para 73 above