HKSAR v. MA KA CHUN, SIMON

CACC263/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 263 OF 2007

(ON APPEAL FROM DCCC981 OF 2006)

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REASONS  FOR  JUDGMENT

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Suffiad J (giving the judgment of the Court) :

Ma Ka Chun Simon (D2)

1. The applicant, being the 2^nd defendant at trial, (“D2”) was convicted on 23 July 2007 after trial before District Judge Geiser for one charge of conspiracy to defraud and sentenced to 30 months imprisonment.

2. In the trial below, D2 was jointly charged with D1, D3 and D4.  The charge also named as a co-conspirator, one Cheng Chi Ngai, who was not a defendant before the court as he is still at large and could not be found.

3. After trial, D1 D2 and D3 were all convicted of the charge by the judge while D4 was acquitted.

4. D2 sought leave to appeal both conviction and sentence. 

5. After hearing Mr Plowman SC, leading counsel for D2, and Mr Shiu on behalf of the respondent, we refused leave to D2 in respect of his appeal against conviction, but granted leave to D2 in respect of his appeal against sentence and treating the application for leave as the appeal, allowed his appeal against sentence, setting aside the sentence of 30 months imprisonment imposed by the judge and substituting a sentence of 2 years’ imprisonment.

6. We further indicated that we would give our reasons later which we now do.

THE PROSECUTION’S CASE

7. The charge of conspiracy charged the defendants jointly with Cheng Chi Ngai to have conspired to defraud New York Life Insurance Worldwide Ltd (“New York Life”).  Four particulars of the offence were given.

8. It was the prosecution’s case that Cheng Chi Ngai was the central figure in the conspiracy.

9. Cheng Chi Ngai had incorporated an insurance brokerage company by the name of Anderson Financial Strategy (Far East) Associates Ltd (“Anderson”) on 7 August 2002.  The directors of Anderson was the mother and wife of Cheng Chi Ngai but neither of them took part in the running or operation of Anderson.  There is no dispute that Cheng Chi Ngai was the “boss” who operated Anderson.

10. Anderson conducted its business at Flat 201, 2^nd floor, Wing Yue Building, 60-64 Des Voeux Road West, being rented office premises.  However, since October 2003, Anderson stopped paying rent for its office premises and ceased operation shortly thereafter.

11. On 22 August 2002, shortly after its incorporation, Anderson registered with the Hong Kong Federation of Insurers as an insurance agency, at the same time registering D1 as its responsible officer.

12. On the same day, Anderson signed an agency agreement with New York Life for selling long-term life insurance.  A supplementary agreement was signed between them on 1 September 2002.

13. One term flowing from the combined effect of the agency agreement and supplementary agreement signed between Anderson and New York Life was for New York Life to pay Anderson commission at a maximum rate of 138 per cent of the annualized premium in advance for Anderson’s agency service conditional upon Anderson being able to sell policies totalling a specified value.

14. It was agreed evidence in this case that :

(a) between October 2002 and September 2003, 789 clients were introduced through Anderson to take out insurance policies placed with New York Life;

(b) New York Life received $12,665,678.26 as premium for the 789 clients; and

(c) Between October 2002 and September 2003, all the 789 policies lapsed save for one.

15. There was also evidence that in the same period of the first year for the 789 policies, New York Life had paid totally $17,331,842.23 by way of commission to Anderson.  As a result, New York Life sustained a loss of $4,666,145.97.

16. It was the prosecution’s case that D1, D2, D3, D4 conspired together with Cheng Chi Ngai to defraud New York Life by selling insurance policies underwritten by New York Life either to people who were not genuinely interested in taking out such insurance policies and only agreed to take out such insurance policies on the offering of free premiums or, in some cases, delivered to New York Life applications for policies from people who had never made them.  As a result, the prosecution said that Anderson was able to receive the advance payment of commission (at least for the first year) arising out of the sale of the policies.

17. Evidence was adduced by the prosecution from a senior manager in the internal audit department of New York Life, Mr Chan Tak Wai, that by February 2004, when he joined New York Life, 788 of the 789 policies issued by New York Life pursuant to the agency agreement with Anderson had already lapsed.  As a result New York Life decided to report the matter to the police.

18. Mr Chan also gave evidence that the agency agreement with Anderson makes reference to the Hong Kong Federation of Insurer’s code of practice which prohibits the payment or offering to pay any rebate of premium, commission or other incentive not specified in the policy as an inducement to any prospective long-term policyholder.

19. In this respect, Mr Chan’s evidence was that as a matter of principal, New York Life would not allow Anderson or the agent to pay for any premium on behalf of any proposer.  The proposer could pay the premium directly by cash or by cheque, to Anderson or directly to New York Life, but the money must come from the proposer.  If paid by a third party, for example, the agent, it would require full disclosure.  No such disclosure was given to any of the policies and no variation was sought for any of them by Anderson.

20. Mr Chan also gave evidence that New York Life, when it appointed Anderson as agent, expected Anderson to comply with the code of conduct.  Had New York Life known that the premiums were to be paid by the agent, it would not have approved of the agreement.  Moreover, New York Life would not have paid the advance commission had it known that the premiums were paid by the agent.

21. Another witness, Shum Ki Cheong, the compliance manager of the Hong Kong Federation of Insurers, gave evidence that insurance agents in Hong Kong have to be registered with his organization and only registered agents can conduct insurance business in Hong Kong.  To register, the agent would be required to pass certain examinations.

22. Mr Shum also confirmed in evidence that the principles and practice of insurance would include the code of practice so that any agent would have to be aware of its provisions and, in particular, when selling long-term life policies, the prohibition of free premium or of the agent paying the premium.  He also gave evidence that if the agent paid the first-year premium for the insured without the knowledge and consent of its principal, this conduct could be considered as breaching the code.

23. Evidence specifically pertaining to D2 in this case was that as a registered agent of Anderson, he had introduced PW20, PW21, PW22, PW23, and PW24 to take up long term life insurance policies with New York Life.  The policies pertaining to these five witnesses were issued by New York Life but the payment of premiums after the first year were not kept up and all five of these policies lapsed.

24. PW23, So Cheong Wing gave evidence that he worked in ICBC Asia in November 2002 and was a colleague of D2 there.  At that time, D2 introduced him to Anderson for the purpose of taking up a long term life insurance policy from New York Life.  In so doing D2 had told him that D2 had a “friend” who was an insurance agent and who had not reached his quota, so he asked PW23 to take out a policy with this friend.  Initially, PW23 declined saying he already had insurance.  However, when D2 told him he did not have to pay the premium, PW23 then agreed to the proposal.  PW23 also said that had it not been free of charge, he would not have signed the application.

25. The other witnesses introduced by D2 to take out long-term insurance with New York Life stated similarly that either D2 told them that they did not have to pay the premium, or that they were never asked to pay premium for the policies.

26. There was also evidence that a company related to Anderson, by the name of Andy Fox Management Strategy Company Limited (“Andy Fox”), was incorporated in January 2003 with the mother of Cheng Chi Ngai being one of its directors and the D3 as its other director.  It was not disputed that Cheng Chi Ngai was the actual boss of Andy Fox.

27. The evidence also showed that at the material time there was a flow of funds from Anderson to Andy Fox of some $6.5 million.  This money then went to the four defendants and Cheng Chi Ngai, with D2 receiving $40,000 of it.

28. In his two video-recorded interviews under caution, D2 admitted to having introduced 10 odd persons to buy insurance from Cheng Chi Ngai, the manager of Anderson.  D2 also said that before joining ICBC Asia in 1998, he had worked in the field of insurance as an insurance agent for about a year between 1996 and 1997with companies such as Winterthur, Manual Life and Eagle Star.  In early 1998 he joined ICBC Asia and worked there until his arrest on 22 September 2005.

29. There was also evidence from the prosecution that D2 passed the Insurance Intermediaries Qualifying Examination on 19 July 2001 and was qualified as an insurance intermediary for long-term insurance.

THE DEFENCE CASE

30. D2 elected not to give evidence at trial nor did he call any witness.

31. The stance taken by D2 was that he was not a party to the conspiracy charged and that the evidence adduced by the prosecution was insufficient to prove that he was a party to such conspiracy.

FINDINGS BY THE JUDGE

32. The findings by the judge relating to D2 are contained in paragraphs 74 to 77 inclusive of his Reasons for Verdict.

33. In summary, the judge found that D2 was a registered agent of Anderson and had passed his qualifying examinations both in the principles and practice of insurance and also long-term insurance.  D2 had also worked in the insurance field prior to joining Anderson and was first registered as an agent in 1996.

34. On the evidence relating to applications for insurance with New York Life, D2 was responsible for introducing five such applications and in each of those cases, the policy was offered by D2 free of premium for the first year to the applicants.

35. The judge found that as a registered agent having passed the appropriate examinations, D2 would have been aware of the code of practice and would have been aware that it was a breach of the code to offer free premiums.  This, coupled with D2’s position in Anderson led the judge to infer that D2 was well aware of the rate of the commission that was payable from New York Life to Anderson, namely, 138 percent.  In this respect the judge said at paragraph 76 :

“This is an obvious point but it is worth repeating.  What agent does not know the commission that he is entitled to charge?  Why were these policies being offered free for the first year in breach of the regulations?  The answer is plain: in order to obtain the staggeringly high commission rate from New York Life.”

36. The judge went on to find that D2’s receipt of the $40,000 from Andy Fox, although D2 did not work for Andy Fox, further supported the fact that Andy Fox was no more than an extension of Anderson.

37. The judge made the finding at paragraph 86 of his Reasons for Verdict that both D1 and D2 were agents of New York Life but had ignored their duty to their principal.

38. The judge was satisfied that the introduction of potential clients to New York Life by way of offering free policies for the first year with knowledge of the staggeringly high commission rates were acts and declarations in furtherance of a common design between D1, D2 and D3 to defraud New York Life.

39. In the circumstances, the judge was satisfied beyond reasonable doubt that D1, D2 and D3 together with Cheng Chi Ngai entered into a conspiratorial agreement to defraud New York Life by dishonestly making the representations to New York Life alleged by the prosecution thereby inducing New York Life to pay Anderson commission in advance.

40. The judge accordingly convicted D1, D2 and D3 of the charge.

D2’S GROUNDS OF APPEAL AGAINST CONVICTION

41. Two grounds of appeal have been advanced by D2 against his conviction in the Perfected Grounds of Appeal.

Ground 1

42. Ground 1 complained that the judge failed to direct himself as to knowledge on the part of D2 which was necessary to prove that D2 was a member of the conspiracy charged, in particular knowledge as to the fourth particular in the charge.

43. The charge was framed in the following terms:

“Statement of Offence

Conspiracy to defraud, contrary to Common Law and section 159C (6) of the Crimes Ordinance, Cap.200.

Particulars of Offence

Wat Ka Cheuk, Ma Ka Chun, Simon, Ip Ming Tak and Lam Peter, between the 22^nd day of August 2002 and the 30^th day of October 2003, in Hong Kong, conspired together and with Cheng Chi Ngai, to defraud New York Life Insurance Worldwide Limited (‘New York Life’) by dishonestly:

(i)  representing to New York Life that premiums paid under policies recommended by Anderson  Financial Management Strategy (Far East) Associates Limited (‘Anderson’) to New York Life were paid by the proposed policy holders;

(ii)  representing to New York Life that the said proposed policy holders were genuine buyers of such insurance policies underwritten by New York Life;

(iii)  inducing New York Life to offer policies to the said proposed policy holders; and

(iv)  inducing New York Life to pay Anderson commissions in advance in connection with the said policies.”

44. It was submitted by Mr Plowman on D2’s behalf that the conspiracy to defraud New York Life alleged by the prosecution was to do the four acts particularized in (i) to (iv) of the particulars of offence and that the essence or object of the conspiracy was to induce New York Life to pay very high rates of advance commission to Anderson by the first three acts particularized.

45. There is no dispute that D2 did commit the acts pursuant to Particulars (i), (ii) and (iii).

46. It was submitted that the real issue is whether D2 had knowledge of Particular (iv) being the ultimate object of the conspiracy charged, since knowledge by D2 of the commission paying arrangement between Anderson and New York Life is necessary to a finding that D2 was a party to the conspiracy.

47. This was because that arrangement for commission between New York Life and Anderson, whereby New York Life would pay advance commission worth more than the first year’s premiums received by New York Life was the basis upon which New York Life would suffer economic loss or be put at risk of economic loss.

48. It was further submitted that the acts committed by D2, namely introducing clients to Anderson to apply for insurance policies from New York Life without paying for the premiums, are not by themselves evidence of knowledge of the commission payment arrangement.

49. There was no evidence to prove that D2 knew about the Agency Agreement or the Supplemental Agreement between New York Life and Anderson.  In his cautioned interview D2 said he had never seen those documents and there was no evidence from the prosecution to contradict what he said.

50. It was also submitted that the judge was wrong to have inferred that D2 knew of the commission payment arrangement between New York Life and Anderson.  When making this inference, the judge gave two reasons, D2’s knowledge that what was done was in breach of the code of conduct by offering insurance premium free, and his position in Anderson.  It was submitted that the first reason given by the judge only went to the acts particularized in Particulars (i), (ii) and (iii) in the charge.  As for the second reason, D2’s position in Anderson, being only a sub-agent, rather than an employee of Anderson, could not give rise to knowledge on his part of the commission arrangement between Anderson and New York Life.

51. It was submitted that the judge had confused the commission arrangement between D2 and Anderson with the commission arrangement between Anderson and New York Life when the judge asked himself the rhetorical question “What insurance agent does not know the commission he is entitled to charge?”

Ground 2

52. The complaint in Ground 2 was that there was no direct evidence showing D2 to have an agreement with any of the co-conspirators to commit the four acts particularized in the charge, and that the judge failed to identify any primary facts from which such inference could properly be drawn.

53. It was submitted that the only adverse findings the judge made against D2 were that :

(a)   D2 was a registered insurance agent;

(b)  D2 had passed the appropriate examinations;

(c)   D2 had worked for other insurance companies;

(d)  D2 was aware of the code of practice for long-term life policies;

(e)   D2 would have been aware of the prohibition against offering free premiums;

(f)    D2’s position with Anderson; and

(g)   D2 receipt of $40,000 from Andy Fox.

54. It was submitted that these findings were insufficient to give rise to an irresistible inference that D2 was a party to the conspiracy charged namely to induce New York Life to pay commission to Anderson.

55. It was further submitted by Mr Plowman that there is no evidence that D2 had introduced the clients in his capacity as a sub-agent of Anderson.  In this respect, Mr Plowman points out firstly, that the name of D2 does not appear on any of the five applications, whereas Clause 6.6 of the Agreement between New York Life and Anderson makes it a condition that the name and identification of the agent must appear on the applications before the agent can claim commission.  Secondly, Mr Plowman refers to the evidence of PW23 to the effect that D2, in getting PW23 to take out an insurance policy, told him that D2 was helping a “friend” who could not meet the quota.  Thirdly, Mr Plowman submitted that there was no evidence as to the purpose for which the $40,000 was paid to D2 by Andy Fox.

THE RESPONDENT’S RESPONSE

56. In relation to Ground 1 of the appeal, Mr Shiu for the respondent took issue with the contention that the essence or object of the conspiracy was confined to Particular (iv), namely inducing New York Life into paying high rates of advance commission to Anderson.

57. The respondent submitted that object of the conspiracy was to defraud New York Life into issuing long-term insurance policies based on bogus applications thereby causing New York Life to suffer economic loss or to put its economic interests at risk.  One instance of such loss was the payment of commission by New York Life which should not have been paid at all, since the applications for the policies were bogus in that none of the applicants were required to pay premiums.

58. Particular (iv) was but one of the ways in which New York Life suffered an economic loss and therefore was one element of the conspiracy charged.

59. In inducing those applicants to take up policies with New York Life without their having to pay premiums, D2 would have known that the issuance of such policies would result in commission having to be paid by New York Life and therefore being put at risk of economic loss.  That would be sufficient to constitute the offence charged even if D2 did not know of the rates and terms of the commission arrangement between Anderson and New York Life.

60. However, given all the circumstances of the case and the primary finding of the judge, it was a proper inference which the judge drew that D2 must have known of a commission arrangement between Anderson and New York Life as there can be no good explanation for his actions without such knowledge.

CONCLUSION

61. In regard to Ground 1, we note that Particular (iv) merely states “inducing New York Life to pay Anderson commissions in advance in connection with the said policies”.  There is no mention in that particular as to the high rate of commission.

62. D2 did not dispute having committed Particulars (i), (ii) and (iii) and did not dispute that those acts were committed by him dishonestly.

63. Given the circumstances of this case, we are unable to accept the submission advanced on D2’s behalf in this appeal.

64. As a registered insurance agent, as well as a sub-agent of Anderson, D2 must know that once each of the five policies applied for by him on behalf of PW20, PW21, PW22, PW23 and PW24 was accepted by New York Life and an insurance policy issued thereof, New York Life would necessarily have had to pay commission to Anderson.

65. Once therefore D2 accepted that he had committed the acts in Particulars (i) (ii) and (iii), Particular (iv) inevitably followed as night follows day.  In such circumstances, we do not consider that the judge can be faulted for drawing the inference that D2, in doing what he did, must have known of the commission paying arrangements between New York Life and Anderson.

66. In this connection we accept the submission put forward by the respondent and this ground fails.

67. As for Ground 2, once the premise is reached that the judge cannot be faulted in drawing an inference that D2 must have known of the commission payment arrangements pertaining between Anderson and New York Life, it falls away.

68. Moreover, D1, D2 and D3 were all doing the same acts, namely getting persons to apply for long-term policies from New York Life through Anderson, with the promise to the applicants of not having to pay the premium for such policies.  D1, D2 and D3 all benefited financially albeit in different amounts from such doings.

69. As for the submission by Mr Plowman relating to the capacity in which D2 acted, we take the view that Clause 6.6 of the Agreement between New York Life and Anderson cannot assist D2 for the simple reason that in that Agreement, the word “Agent” is defined as being Anderson.  In any event, because that Agreement (as well the Supplemental Agreement) being between New York Life and Anderson, it cannot govern the payment of commission by Anderson to one of its sub-agent.

70. In relation to the submission that the evidence of PW23 was to the effect that D2 was merely helping out a “friend” to meet the friend’s quota, there is evidence before the judge from the witness statement of PW22 (which was read into evidence under Section 65B of the Criminal Procedure Ordinance) that D2 told PW23 “to purchase insurance from him (i.e. D2) so he could meet the quota.  In light of that evidence which was not disputed at trial, the judge was entitled to come to the finding that D2 acted in his capacity as a sub-agent of Anderson when introducing the five applicants to apply for long-term insurance from New York Life.  In those circumstances, the only reasonable inference which the judge could draw from the payment of the $40,000 to D2 from Andy Fox was that this payment arose from D2 introducing the clients that he did, particularly when there was evidence to show that money was channeled to Andy Fox from Anderson.

71. Given the circumstances, the judge could not be faulted for coming to the conclusion that D1, D2 and D3 were all parties to the conspiracy charged.

72. Accordingly, for the reasons given, leave was refused for the appeal against conviction.

APPEAL AGAINST SENTENCE

73. The appeal against sentence is mounted on three bases :

(a)   lack of a proper basis for sentencing;

(b)  no breach of trust involved; and

(c)   failing to differentiate between D2 and the other two defendants.

74. The judge had sentenced all three defendants on the same basis namely that all three of them had introduced clients to take up bogus insurance policies with New York Life thereby defrauding New York Life.

75. In submitting that the judge lacked a proper basis for sentencing, it was argued that the judge did not make clear whether he was sentencing on the basis of the 44 sample life policy applications produced in evidence or on the basis of the 789 policies issued by New York Life.  If it was on the 789 policies issued, then the judge was in error because the remaining 745 policies were not produced in evidence.

76. We can see no merit in this ground since the Agreed Facts and agreed evidence made it absolutely clear (without the necessity of producing the remaining 745 policies) that 789 clients had been introduced by Anderson resulting in 789 policies being taken out by New York Life.

77. In those circumstances, the judge could only properly have sentenced the defendants on the 789 policies taken out, all but one of which lapsed in the first year.

78. As for the second complaint that there was no evidence that D2 introduced the five clients to Anderson in his capacity as a sub-agent of Anderson since at the time he was working with Belgium Bank (the previous name of ICBC Asia), was not employed by Anderson, and had told PW23 that he was doing a favour for a “friend” and D2’s name did not appear on any of the five policy applications, this has already been dealt with in D2’s appeal against conviction.  For the same reasons already given, we see no merit in this argument.

79. Turning now to the third complaint which is that the judge failed to make a distinction between D2 on the one hand with D1 and D3 on the other hand.

80. Whilst we accept that this was a conspiracy charge and the acts of each of the individual conspirator become the acts of all the conspirators in the conspiracy itself, we also accept the submission put forward by Mr Plowman that D2,  based on the testimony of witnesses, was only shown to have introduced five clients to New York Life for long-term policies (although by his own admission under caution he introduced 11 or 12 clients) compared with the 789 policies issued by New York Life through Anderson.  D2 also received only $40,000 from Andy Fox which is merely a fraction of what was received by the other co-conspirators.

81. That is consistent with the fact that during the period of the conspiracy charged, D2 had a full time job with the Belgium Bank (later named ICBC Asia) and was for most of that time not present in the office rented by Anderson.

82. In the absence of any evidence showing that D2 was aware of the scale upon which the whole conspiracy was carried out by the other defendants, we consider that the judge ought, with respect, to have made some distinction between D2 and the other defendants when sentencing D2.

83. In making that distinction, we take into consideration that although the character of the acts done by D2 was no different from what was done by the other conspirators, namely, introducing applications for long-term policies on a promise of free premiums, the number of applications and the benefit received by D2 were considerably less.  He was, in other words, a comparatively small player in a conspiracy of some considerable magnitude.

84. For these reasons, we reduced his sentence from 30 months to 2 years’ imprisonment.