HKSAR v. CHEUNG KA YAN

HCMA 620/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 620 OF 2008

(ON APPEAL FROM KCCC 1096 OF 2008)

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J U D G M E N T

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1.  The appellant who was charged with two charges of fraud contrary to section 16A of the Theft Ordinance, Cap. 210 appeals against his conviction on the 1^st charge of fraud and his conviction of attempted fraud on the 2^nd charge.

2.  The background to these charges was a decision by the Incorporated Owners of Fung Cheung House, a building in Wan Fung Street, Wong Tai Sin (“the Incorporated Owners”) to replace two metal gates, one at the entrance to the staircase of the building, the other at the entrance to the lift lobby.

3.  Ample Construction Company Limited (“Ample”) submitted separate written quotations prepared and signed by the appellant, the director of Ample dealing with the matter, for the supply and installation of the metal gates which were to be made of “316 stainless steel”.  The quotations were signed and accepted on behalf of the Incorporated Owners.

4.  Gates were subsequently installed in both places.  The magistrate found the gate that was the subject of charge 1 was not of grade 316 stainless steel but grade 304 stainless steel.  He could not be satisfied the gate that is the subject of charge 2 was not 316 stainless steel, but was satisfied that the appellant believed that it was grade 304 steel.  Grade 304 stainless steel is of poorer quality, is less resistant to rust and, on the appellant’s own admission, was 40% cheaper than grade 316 stainless steel.

5.  The prosecution case was not that the appellant had deliberately caused doors of inferior steel to be ordered and installed at the building.  What was alleged was that he had come to know or believe on an inspection visit to the building after the installation of the gates but before the Incorporated Owners had been invoiced or had paid the 2^nd instalment of the purchase price that the gates were made of grade 304 steel.  It was alleged that he had then dishonestly concealed this fact from the Incorporated Owners who had subsequently paid the balance of the purchase price for the gates less a 5% retention fee.

6.  There was evidence before the court that the owners would not have paid the sums demanded if they had known the true situation.

7.  One charge related to the metal gate at the front entrance, the other charge to the metal gate at the entrance to the lift lobby.  The dates referred to in the charges, namely “on or about 14 December 2006” and “on or about 21 December 2006” correspond to the dates the payments were made by the Incorporated Owners.

8.  In a video recorded interview on 14 May 2007, the appellant stated that Ample had sub-contracted the supply of the two gates to a company called Gorgeous Marble Engineering Limited (“Gorgeous”).  He alleged that the price he had quoted to the Incorporated Owners was based on the price he had already being quoted by Gorgeous to supply gates of grade 316 stainless steel with a mark-up.  He had been told by Gorgeous that they had engaged a steel gate company to make the gates.

9.  He stated that it was only in October 2006, several weeks after the gates were installed, that he became aware that the gates were made of grade 304 steel when he saw the marking “304” when visiting the building.  He had then called Gorgeous to complain.  The answer he was given was that Gorgeous had also been unaware that the gates were made of grade 304 steel.

10.  It was common ground that Ample had contracted to pay for the gates in three instalments, initially 30%, then 65% with the final 5% being retained for one year to cover defects.

11.  The two invoices for the 1^st instalment of 30% were dated 6 September 2006.  The two invoices for the 2^nd instalment of 65% were dated 19 October 2006.  There is no dispute that the defendant knew or believed the gates were of grade 304 steel before the second set of invoices was sent to the Incorporated Owners.  The prosecution did not allege that the appellant had made any express representation to the Incorporated Owners that the gates were grade 316 steel.  It is accepted by Mr Polson for the appellant that “deceit” for the purpose of the offence of fraud can consist of a dishonest omission to refer to a relevant matter.

12.  Mr Polson challenges the correctness of the magistrate’s findings on two matters :

(1)  his finding that the gates to which charge 1 refers were not of grade 316 steel; and

(2)  his finding that the appellant was dishonest.

The grade of steel

13.  Mr Polson fairly concedes that the 1^st issue is a subsidiary one, as he accepts that since the appellant admitted that he believed that both gates were of grade 304 steel the appellant would, in the event of the prosecution failing to prove that the gate in charge 1 was of grade 304 steel, be guilty of attempted fraud.

14.  He argues that in the absence of examination by an expert the prosecution could not have established that the gate in charge 1 was of grade 304 steel.

15.  The magistrate did not reach his findings regarding the grade of steel of the metal gates on the basis of the observation of the “304” markings but on the basis of the evidence PW4, the proprietress of Hung Yip Metal Products Company, who gave evidence of having ordered the gate to which charge 1 refers.  It does not appear she gave evidence regarding the gate in charge 2.  She said that, having received an order for the gates to be made of grade 304 steel, she placed an order for a gate made of such steel with a factory in the Mainland.  She gave evidence of the difference in price between grade 316 and grade 304 steel.  The magistrate reached a finding that the gate was of 304 steel on two bases :

(1)  that a product is normally made in accordance with the order; and

(2)  that it would be fanciful to suggest that the gate had been made of 316 stainless steel when the cost of that grade of steel was higher than grade 304 steel.

This appears to me to have been an eminently sensible basis for concluding, in the absence of any contrary evidence, that the gate to which charge 1 relates was made of grade 304 rather than grade 316 steel.  I find nothing in this ground of appeal.

Dishonesty

16.  The principal issue in this appeal is whether there was sufficient evidence to show that the appellant had acted dishonestly and had the intention to defraud.  Alternatively, it is said that there was evidence favourable to the appellant to which the magistrate attached insufficient weight.

17.  It is accepted that the magistrate applied the correct (Ghosh) test in determining the issue of dishonesty.  The magistrate found that according to the ordinary standard of reasonable and honest people what the defendant had done was dishonest and that the defendant himself must have realised that what he was doing was, by those standards, dishonest.  The question is whether there was sufficient evidence for him to come to that conclusion.

18.  Mr Polson concedes that the appellant’s conduct fell short of the standard one would expect from a good contractor and that he should have informed the Incorporated Owners that the gates that had been installed were of grade 304 steel.  He argues however that the appellant’s conduct fell short of amounting to dishonesty.

19.  Mr Polson has referred this court to a number of aspects of the evidence in this case.  They include the evidence that it was the appellant who had suggested the use of grade 316 steel, that it was not the appellant who had placed the order for a gate made of grade 304 steel, that he had remonstrated with the sub-contractor and withheld 20% of the purchase price from him in case the gates should rust, that he had performed additional work for the Incorporated Owners for which he would not otherwise be paid, that the majority of the residents found the work quite good, and that there have been no complaints from the committee of the Incorporated Owners who had later re-engaged him to perform further work.

20.  Having considered these features of the evidence, I am nonetheless satisfied that there was sufficient evidence for the magistrate to infer dishonesty and an intention to defraud on the part of the appellant and that he was right to do so.

21.  Even though it was the appellant who suggested to the Incorporated Owners that the gates be of grade 316 steel, the appellant stated in his record of interview that the Incorporated Owners or their management company had insisted that the gates should be durable so that they would not rust easily (Ex. P22 counter 22).  The appellant admitted that the reason he recommended grade 316 steel was because it was more durable and its resistance to corrosion was higher (Ex. P22 counter 336) and that grade 304 steel was more vulnerable to acidic substances (Ex. P22 counter 498).

22.  I do not believe that he would have recommended steel that was 40% more expensive than grade 304 steel unless it was significantly more durable.  That he himself regarded the use of grade 316 steel as being significant is demonstrated by his description of his reaction when he discovered that the gates were of grade 304 steel.  He said that he immediately called Wong Kwok Ki of Gorgeous to complain (counter 384).  He described himself as “very angry” (counter 400) and later as “very very angry” (counter 568).  He said that he was dissatisfied with Wong Kwok Ki’s explanation (counter 398).  He himself agreed that the Incorporated Owners suffered a loss as a result of the provision of gates of grade 304 steel rather than grade 316 (counter 479) although he later attempted to suggest that it was not so (counter 540).  Clearly the Incorporated Owners had been supplied gates of inferior quality.

23.  Despite what he clearly regarded as a significant discrepancy between what he had contracted to supply to the Incorporated Owners and what he had in fact supplied, he deliberately omitted to inform the Incorporated Owners and caused them to be invoiced on the basis of a price for gates made of substantially more expensive steel.

24.  The honest course of action would have been to inform them of what had occurred and let them decide whether to accept the grade 304 steel gates and if so, at what price.

25.  When asked at (Ex. P22 counter 451) why he had not informed the Incorporated Owners, he gave three reasons.  The first reason was in itself evidence of dishonesty, namely that he did not want to reveal that he had been negligent and was concerned to preserve his reputation.  The second reason, namely to avoid the inconvenience to the Incorporated Owners of replacing the gates, was something that he would have known was for the Incorporated Owners to decide.  The third reason that he was prepared to replace the gates in the unlikely event of them becoming rusty might have some validity if it had stood alone and he had believed that there was so little difference between the two grades of steel that the Incorporated Owners would not be interested or concerned.  This was not so.  Not only did he regard the matter of sufficient importance that he felt the need to conceal it in order to preserve his company’s reputation, but he admitted (Ex. 23 counter 149) that he thought the Incorporated Owners would have pursued the matter if they had known cheaper material was used.

26.  The fact that he had done some work for the Incorporated Owners beyond that stipulated in the contract for which he would not be paid could also not provide an honest justification for failing to disclose that the gates supplied were of inferior steel, because he admitted (Ex. P22 counter 442) that only a small amount of money was involved, and that he had performed the extra work without charge to secure further business from the Incorporated Owners and indeed had verbally agreed not to charge them for the work.

27.  I see no force in the argument that the fact that the majority of the residents of the building found the work “quite good” somehow negates dishonesty on the applicant’s part.  I agree with Mr Lai’s submission that the fact that those residents showed approval of the gates does not mean that they would have consented to pay the price for grade 316 stainless steel when they were receiving cheaper and less corrosion resistant steel especially if they had known that the appellant had concealed or failed to disclose the material facts to them.

28.  While there were circumstances mitigating the appellant’s culpability in this case which the magistrate clearly took into account in view of the sentence he passed, I am satisfied that he was correct to find that the appellant had acted dishonestly.

29.  I dismiss the appeal against conviction.