HKSAR v. CHAN NAI KEUNG AND OTHERS

CACC 284/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 284 OF 2006

(ON APPEAL FROM DCCC NO. 593 of 2005)

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REASONS  FOR  JUDGMENT

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Stuart-Moore,VP (giving the reasons for judgment of the Court):

Background

1.  The appellants, Chan Nai-keung (D1), Chiang Pak-yeung (D2) and Lee Kwok-on (D6), respectively, were tried in the District Court before Deputy Judge Symon Wong.

2.  On 9 June 2006, D1 and D2 were convicted on five charges (3, 5, 7, 9 and 10) of conspiracy to defraud, contrary to Common Law and punishable under section 159C(6) of the Crimes Ordinance, Cap. 200.  On 7 July 2006, each was sentenced to a total of 6 years’ imprisonment.  Compensation orders were also made against them.

3.  D6 was convicted on charge 7 and also on charge 8 (dealing with property known or believed to represent the proceeds of an indictable offence) and sentenced to a total of 4 years and 3 months’ imprisonment.

4.  In the case of each appellant, there were applications before us for leave to appeal against conviction and sentence.  This included an application in respect of the compensation orders made against D1 and D2.

5.  During the hearing, we indicated that leave would be granted and that the hearing would be treated as the appeal so far as D6 was concerned on conviction.  In his case, we quashed his conviction for conspiracy to defraud (charge 7) but upheld his conviction on charge 8.  We also gave D6 leave on the 8^th charge to appeal against a sentence of 4 years’ imprisonment and, treating the hearing as the appeal, we reduced this to 30 months’ imprisonment.

6.  D1 and D2’s applications in regard to conviction were dismissed.  However, they were given leave in respect of sentence and, treating the hearing as the appeal in each case, we quashed the orders made against them for compensation.  We also indicated that we would reduce the sentences they had received on the individual charges on which they were convicted but that their overall term of imprisonment would remain the same.

7.  We stated that we would later give the reasons for our conclusions and we provide these now.

8.  The trial, occupying about five weeks, was concerned with five entirely separate, though very similar, transactions spread over about twelve months between 1 January 2004 and 20 January 2005 which the prosecution alleged were fraudulent.  The charges involved a total of $5,931,698.

9.  The first of the charges, in chronological sequence (charge 10) involved the use of what purported to be a loan agreement and the remainder (charges 3, 5, 7 and 9) involved false standby letters of credit.  Charge 8, involving D6 only, related to the laundering of the proceeds of the conspiracy in count 7.

Prosecution’s case

10.  The case for the prosecution was that by virtue of D1 and D2’s professional status as proprietor and law clerk, respectively, in a firm of solicitors known as Messrs Paul Chan & Co. (‘the law firm’), a dishonest scheme was successfully implemented involving a number of other persons and companies based in Hong Kong to defraud Mainland businessmen.  When the victims of these frauds realised that something was amiss, an approach to the law firm would be met by the response that it was not a matter for the law firm and that the issue lay between the Mainland victims and the Hong Kong companies with which they had dealt.  However, when attempts were made to locate the individuals who had purported to act in good faith on behalf of the Hong Kong companies, they were difficult to trace.  Reports were then made to the police.

11.  The charge sheet referred to six defendants (including D1, D2 and D6).  Lui Chung-yee (D4) absconded while on bail.  Albert Lee Tai-sang (D3), who is named in the particulars of the 10^th charge, pleaded guilty at the outset of the trial to charges 5 and 9 and other charges against him were left on the file.  Lee Chi-wing (D5), pleaded guilty to charges 1 to 6 and agreed to give evidence for the prosecution.

12.  Others to whom reference is made in the conspiracies to defraud were Chan Man-chun (PW1) who pleaded guilty in the Magistrates’ Court and gave evidence for the prosecution in the District Court trial and Stanley Wong, probably the mastermind behind the scheme, who is yet to be arrested.

13.  The information D5 was able to provide on the 1^st charge in which, originally, he alone was charged revealed for the first time D1 and D2’s complicity in that offence.  The charge sheet was duly amended to include a 10^th charge which was more or less in identical language to the 1^st charge.  This reads:

“10th Charge (against D1 and D2)
Statement of Offence
Conspiracy to defraud, contrary to Common Law and punishable under section 159C(6) of the Crimes Ordinance, Cap. 200.
Particulars of Offence
Chan Nai-keung [D1] and Chiang Pak-yeung [D2], between the 1st day of January 2004 and the 20th day of March 2004, both dates inclusive, in Hong Kong, conspired together and with Lee Chi-wing [D5], Lee Tai-sang, Albert [D3], a person known as Stanley Wong and other persons unknown, to defraud Hebei Province San Bao Communications Ltd (‘San Bao’) by dishonestly:
(a)	falsely representing that International Finance Trading Co (‘International Finance’) was in a position to and did agree to lend a sum of Ұ80,000,000.00 Renminbi to San Bao;
(b)	causing San Bao to enter into a loan agreement with International Finance which required San Bao to deposit a sum of stake money for the agreement;
(c)	causing San Bao to deposit $471,698.00 Hong Kong currency with Messrs Paul Chan & Co, a firm of solicitors, as the stake money; and
(d)	causing San Bao to lose the stake money.”

14.  The allegation in the 10^th charge, adopting some of the summary provided by Mr Alex Lee for the respondent, was that a Mainland company, ‘San Bao’, was induced by a Hong Kong syndicate headed by Stanley Wong to enter into what purported to be a loan agreement under which San Bao would borrow RMB 80 million from ‘International Finance’ to enable San Bao to acquire the management rights of a toll motorway in the Mainland.  One of the terms of the agreement was that a deposit of RMB 500,000 (HK$471,698) would be made by San Bao with the law firm as stake money, this being part of the handling fee for the loan.  The agreement also provided that the stake money would be forfeited if San Bao failed to provide proof of its appointment to manage the motorway.

15.  The whole arrangement, unbeknown to the representatives of San Bao, was a scam which was designed to lay claim to the stake money soon after San Bao had paid it on about 12 March 2004.  The pretext used to explain the release of the stake money from the law firm by D1 and D2 on 20 March 2004 to D5, who was purportedly acting as the representative of International Finance, was that a cashier order in the sum of US$9,639,000, purportedly issued by Citibank in favour of the law firm, had been made available by International Finance and that the Mainland company had failed to prove that it had the management rights within the time limited imposed.

16.  Not surprisingly, Li Ruling (PW2), on behalf of San Bao, made a complaint about the proposed release of the stake money within minutes of being notified that this was likely to happen.  He was told by D1 that the money had already been released.  However, from the timing on the fax sent to San Bao by the law firm giving notice of its intention to release the stake money, it is apparent that D5 had not by that stage cashed the law firm’s cheque.  This occurred about forty minutes later.

17.  The four other fraudulent transactions alleged by the prosecution, represented by charges 3, 5, 7 and 9, followed a similar pattern and each offence involved D1, D2, D3 and Chan Man-chun (PW1), an accomplice witness who gave evidence under immunity.  In addition, Stanley Wong was involved in three of these transactions, each involving standby letters of credit (charges 3, 5 and 7); D5 was involved in the first two (charges 3 and 5) and also in dealing in the proceeds of the 3^rd and the 5^th charges (charges 4 and 6); D6, as we have indicated already, was involved only in the third of these transactions (charge 7) and dealing in its proceeds (charge 8).

18.  In each of these transactions, as with count 10, the fraudsters allegedly used a company name as a front to enter into what appeared to be legitimate agreements with Mainland companies.  On these occasions, they falsely represented that standby letters of credit would be arranged.  In each case, an agreement would be signed at the law firm which also acted as the stakeholder of a sum of money deposited by each of the victim companies.  The stake money was supposedly to be used as part of the handling fee which the Mainland companies had agreed to pay.

19.  The agreements in each of these charges provided, amongst other things, that after the issue of a standby letter of credit, a copy of it would be faxed to the Mainland company and the relevant fax transmission slip as well as a copy of the standby letter of credit would be sent to the law firm.  Each agreement provided that if no objection was received from the Mainland company within a specified period of time after it had received the faxed copy, the law firm would then release the stake money to the Hong Kong company being used by the conspirators as a front.

20.  However, in each instance, after the agreement had been signed, the conspirators arranged for a receipt to be obtained at a PCCW shop in order to pretend that standby letters of credit and covering letters had been faxed to the Mainland companies.  The fraudsters then provided the law firm with a copy of the false standby letters of credit and a letter from the ‘front’ company in Hong Kong purporting to show that the standby letter of credit had been issued and faxed to the Mainland company.  D1 and D2, who were allegedly aware of the falsity of the entire scheme, would then release the stake money to the fraudsters and later receive a share of the proceeds.

21.  We need only set out, by way of example, one of the charges involving the purported arrangements in regard to standby letters of credit in order to illustrate the crucial elements in the prosecution’s case.  The particulars of charge 7, involving all of the appellants, were as follows:

“	Chan Nai-keung [D1], Chiang Pak-yeung [D2], Lee Tai-sang, Albert [Lee] [D3] and Lee Kwok-on [D6], between the 1st day of July 2004 and the 13th day of August 2004, both dates inclusive, in Hong Kong, conspired together and with Chan Man-chun, Andy [PW1], a person known as Stanley Wong and other persons unknown, to defraud Xinyu Dongya Xieye Co Ltd (‘Xinyu’) by dishonestly:
	(a)	falsely representing that Leading Group Investment Enterprise Co (‘Leading Group’) was in a position to and did agree to arrange a standby letter of credit in the amount of $5,000,000.00 United States currency for the use of Xinyu;
	(b)	causing Xinyu to enter into an agreement with Leading Group which required Xinyu to deposit a sum of stake money for the agreement;
	(c)	causing Xinyu to deposit $1,170,000.00 Hong Kong currency with Messrs Paul Chan & Co, a firm of solicitors, as the stake money; and
	(d)	causing Xinyu to lose the stake money by means of a copy of a false standby letter of credit and a copy of a false cashier order.”

22.  Charge 9 differed only in that D4 was allegedly also involved with D1, D2, D3 and PW1.  Two other conspirators, named as Lam Chun and Zhong Pei-hong, were additionally identified in this charge.  They, like PW1, pleaded guilty in the Magistrates’ Court.

Defence case

23.  D1 and D2 did not give evidence or call witnesses on their behalf at trial.

24.  D6, on the other hand, testified that he had set up a company, ‘Leading Group’, and had signed a number of documents at the request of a friend he had met in prison, known to him as ‘Ah Kau’.  His assertion that it had never occurred to him that he had been acting unlawfully by setting up a company, signing the documents and cashing a cheque for $1,170,000 million (the subject of charges 7 and 8) lay at the root of his defence.

D1’s ground of appeal

25.  Mr Andrew Raffell, on D1’s behalf, very sensibly decided not to pursue a number of the grounds of appeal settled by counsel originally instructed.  We have to say, however, that the ground which he opted to pursue equally had no merit whatever.

26.  It was submitted that the judge had:

“	… wrongly relied on hearsay evidence from PW1, D5 and statements made during conversations between the other defendants to establish the guilt of [D1].  Such statements were not made in furtherance of the conspiracy and, as such, should not have been relied upon”.

27.  Significantly, Mr Raffell was unable to cite a single example taken from any of the 1,121 pages of transcripts before us of any hearsay incorrectly taken into account by the judge in the reasons given by the judge for convicting D1.  All that he was able to say was that because the judge had been less than specific in the evidence he had used in finding D1 guilty, it might be that hearsay was wrongly applied in the process.  The passage relied upon for this assertion was a statement by the judge in his Reasons for Verdict to the following effect:

“

161.

I have heard evidence, for example, from PW1, telling me that Stanley Wong, D3 or/and D4 had told him about the roles that D1 and D2 played in certain offences in this trial. Those evidence of a statement may or may not be hearsay. A number of exceptions to the hearsay rule exists, one of which is the co-conspirator’s rule, where any party to a conspiracy or joint enterprise has made an oral or documentary out-of-court statement in furtherance of the conspiracy or joint enterprise which implicates a co-accused. The statement is admissible against both its maker and the parties to the joint enterprise or conspiracy. The rationale for this hearsay exception is because of an implied agency relationship in which the statements of each member are considered binding on all the rest.”

28.  Mr Raffell accepted that, at face value, this passage correctly set out the law but he asserted that it made it impossible to know which parts of this category of evidence the judge had decided were in furtherance of the conspiracy.  However, the judge went on to say:

“	162.	As to how the court deals with a case of conspiracy and a question made in the course of or furtherance of the offence which implicates an absent party, it was said in HKSAR v Cheng Sui Wa ([2003] 4 HKC 571) that:
		‘	A trial judge alone should determine the sufficiency of the independent evidence. The question is, initially, one of the admissibility of evidence of acts and declarations occurring outside the presence of an individual accused and for that reason a question for the trial judge. If he determines that the evidence of the acts and declarations of others is admissible to prove the participation of the accused, it is anomalous that the jury should, in effect, be required to determine the same question for themselves.’”

29.  There was in D1’s case, a considerable body of evidence, independent of the co-conspirator’s rule, which powerfully revealed his participation in the conspiracies alleged against him.  In this regard, Mr Raffell’s contention had been that D1’s acts and involvement could have been merely those of an honest solicitor acting within his capacity as a legal adviser and certainly, to the Mainland victims of this scam, that is precisely what he appeared to be doing.  However, an illustration early in the sequence of events showed that this could not be so.  This was described in the Reasons for Verdict (page 54).  After the loan agreement referred to in the 10^th charge had been signed on 6 March 2004 in the presence of the San Bao representatives from the Mainland, D5 and Stanley Wong later returned to the law firm.  This, according to D5, was because D1 and D2 were “concerned whether the stake money would actually be paid by San Bao.  Stanley Wong and D5 had to reassure D1 and D2 that things would work out as planned”.

30.  A second example taken by the judge related to events on 20 March 2004 (again with reference to the 10^th charge) when D5 had been told by Stanley Wong to go to the law firm to sign some documents.  There, he saw D2 preparing two letters (Exhibits P23 and P25) which were letters “purportedly issued by International Finance asserting that San Bao [was] unable to meet the terms of the San Bao Agreement and demanding the law firm to release the stake money to D5”.  Then, whilst waiting for these letters to be completed, the judge went on to relate (page 55) how D5 had, “out of curiosity, asked D1 to have a look at the cashier’s order … in the sum of … US$9.639 million which represented the amount of the loan to be provided to San Bao.  D1 took out a copy of the cashier’s order and said to D5 that ‘it’ – meaning the cashier’s order – ‘justifies him to release the stake money’”.  The judge concluded, on this topic, by saying:

“	… Later on that morning, D5 signed the documents … that were prepared by D2, and judging from the evidence of PW2, this particular time frame, more specifically after 11.01 am, D1 must already have spoken to PW2 [of San Bao] over the phone. D1 must have been aware that PW2 was protesting the release of the stake money.
	22.	Nonetheless, a cheque representing the stake money was issued by the Law Firm and made payable to D5. It was cashed by 11.44 that morning. D5 then carried the money, that is $471,698, to a nearby café where the 2nd defendant and Stanley Wong were waiting. The fruit of this scam was divided up. D2 took away over $100,000 and D5 received $47,000, which respectively represented 30 and 10 per cent of the stake money.
	23.	If I accept the evidence of D5, which I have just touched on, there is ample evidence establishing guilty knowledge on the part of D1 and D2. D1 has actively taken part in a meeting between D5, D1 and Stanley Wong, which was held in the conference room of the Law Firm before the San Bao Agreement was signed. D1 had pointed out the significance of clause 7 of the San Bao Agreement. It was purposely inserted with the intention of deceiving San Bao. It gives the Law Firm the ostensible right to release the money to International Finance.  As to D2, his active involvement in preparing the letters issued by International Finance, a personal collection of over $100,000 cash from D5, by D2, of course.  This is strong evidence to establish guilt.”

31.  The same kind of point as the judge was making in regard to the first fraud in the series, reflected in charge 10, could be made with regard to each of the frauds which followed.  It is unnecessary to go into detail.  The barest outline suffices.

32.  The events of 20 March 2004 were followed on 22 March 2004 by San Bao requesting, by means of a faxed letter to the law firm, the return of the stake money (the subject of charge 10).  PW2 was then sent a fax from the law firm claiming that the law firm had no involvement in the dispute between San Bao and International Finance, the shell company set up as a front to enable the fraudsters to achieve their object.  Yet, on the next day, 23 March 2004, a further agreement, which was the subject of the conspiracy in charge 3, was signed at the law firm’s office.  D1 acted as a witness and D2 explained the agreement to the Mainland representative (PW4).  This was followed by the stake money being deposited with the law firm by PW4 on the Mainland company’s behalf after D1 and D2 had assured him that the money would only be released if PW4 received the standby letter of credit or the bank had confirmed its existence.

33.  Next day, 24 March 2004, a letter from International Finance to the law firm purported to confirm that a standby letter of credit had been issued and faxed to Dongguan Hengsheng (the victim Mainland company in charge 3).  The stake money was released on 27 March 2004.  On 29 March 2004, when PW4 telephoned to find out the progress of the standby letter of credit, D2 told him that the stake money had been released.  This was followed by a fax sent to PW4 of a copy of what purported to be the standby letter of credit.  PW4 made enquiries at his bank and discovered that this had not been received.  He then wrote a letter of complaint to the law firm about the release of the stake money.

34.  On the next day, 30 March 2004, the stake money amounting to $2,652,000, the subject of charge 5, was deposited at the law firm by the representative (PW5) of Tianjin Huanya, the victim Mainland company.

35.  While the law firm continued to deal with the complaints sent in by PW4, the stake money handed over by PW5 was released on 7 April 2004.  PW5 made a report to the police and, on 5 May 2004, both D1 and D2 gave statements to the police.  D2 had earlier given a statement on 26 April 2004 and later, on 8 September 2004, he did so again.  Despite the involvement of the police, this series of frauds continued in virtually identical fashion.

36.  In regard to the fraud reflected in the 7^th charge, the stake money of $1.17 million (handed to the law firm on 3 August 2004) was released on 13 August 2004.  When the representative (PW6) of the victim Mainland company, ‘Xinyu Donya’ came to the law firm to clarify the situation, D2 turned him away.

37.  Similar events took place in respect of the 9^th charge when the stake money, again amounting to $1.17 million, deposited on this occasion by the representative of Binzhou Yaji on 18 January 2005, was released on 20 January 2005.  This was the same day as D1 and D2 were arrested by ICAC officers following a short period during which some of those involved in this scam had been kept under observation.

38.  These events all occurred within a relatively short period of time and overlapped to an extent with each other.  It goes almost without saying that if D1 and D2 had not themselves been party to these fraudulent activities, all involving more or less the same people, with Stanley Wong, PW1, D3 and D5 regularly featuring, it is not remotely credible that they would have released the stake monies once a complaint had been made about the release of the first amount.

39.  The evidence against D1 was overwhelming and accordingly we dismissed his application in regard to conviction.

D2’s grounds of appeal

40.  D2 was not legally represented so far as his application for leave to appeal against conviction was concerned.  He set out in writing, at considerable length, his grounds of appeal.  Much of this document dealt with evidential matters and made assertions about various aspects of the role he had played suggesting that no inference of guilt could be drawn against him from the accounts given by prosecution witnesses.

41.  D2 pointed out that he had not been involved in the negotiation or drafting of agreements; he stated that PW1 and D5 had played a greater role in these offences than they had admitted; he asserted that PW1 had actually admitted telling lies to others involved in these frauds so that he could receive a larger share of the proceeds; he spoke of doubts about what had been described as a “celebration” party in Shenzhen at which he had been seen in attendance after the release of the proceeds relating to the 3^rd charge; he drew attention to a number of discrepancies in the evidence; he emphasised a number of aspects of the evidence as being inherently improbable; he criticised the judge for allowing conversations monitored by the ICAC into the evidence; and he explained how PW1 and Stanley Wong had caused him to write down some of the things which were in his handwriting on documents material to these frauds.

42.  D2 had nothing to add to any of his grounds during these proceedings.  We have already set out much of the case against D2 when dealing with the facts in D1’s case and it is apparent that they each faced evidence of a similar kind.

43.  There was no merit in any of D2’s grounds and the evidence against him was extremely strong.  Accordingly, in his case also, the application for leave to appeal against conviction was dismissed.

D6’s ground of appeal

44.  It was submitted by Mr David Ma, adopting the perfected grounds of appeal lodged on D6’s behalf, that D6’s conviction on the conspiracy in charge 7 was unsafe and unsatisfactory.  The basis of this contention was that the judge had been provided with insufficient evidence on which safely to draw an inference that D6 had conspired with others to defraud.  It was submitted that such documentary evidence as there was, connecting D6 to the fraudulent activities of others, had to be viewed in the light of evidence that D6 did not understand English.  This ground was expanded upon in Mr Ma’s written argument in such a way as to cover also the conviction on charge 8 for laundering the proceeds of the conspiracy in count 7.

45.  It was abundantly plain to us that such evidence as there was to support the allegation against D6 on the 7^th charge was very weak.  It was summarised in three paragraphs by Mr Lee when seeking to support the conviction.  In short, he said that PW1 had told a “middleman” called ‘Ben’ that he (PW1) was trying to find someone who, for a fifteen per cent reward, was needed to set up a shell company (‘Leading Group’) to deceive Mainlanders.  On 13 August 2004, D6 cashed a cheque drawn on the law firm’s account after the stake money held on the Mainland company’s behalf was released by the law firm to D6.

46.  The judge’s Reasons for Verdict, in respect of the role played by D6 in charges 7 and 8, stated the following:

“	167.	As to D6 – a very poor actor, I may add, but without knowing that you are a very poor actor - who faces Charges 7 and 8. A number of documents which are seized as exhibits and in the name of D6. For instance, an application to open the account with Tom Business Group for secretarial service to be provided to Leading Group. A photocopy of D6’s Hong Kong ID card is enclosed with this application, which forms part of Exhibit P93.
	168.	In addition, there are a number of documents which bear the signatures of D6. To name a few of these material documents for illustration, they are letters issued by Leading Group informing the Law Firm that the Stand-by LC has been faxed to Xinyu (Exhibit P84) and requesting the Law Firm to release the stake money (Exhibit P88). The documents which I just mentioned cover the period from the time when Leading Group is formed to the time when the Law Firm is asked to release the money. The existence of these documents, together with the evidence of PW1 are the basis for irresistible inference to be drawn that D6 is fully aware that he was conspiring with others to deceive Xinyu. When D6 cashed the cheque in the sum of $1.17 million on 13 August 2004, he must have the requisite knowledge that the money represents the proceeds of an indictable offence. I have thoroughly considered each and every single element of each of the offences, namely, conspiring with others to defraud dishonestly by:
		(a)	falsely representing to the victim companies that the lender is able to lend or arrange a Stand-by LC in the promised sum;
		(b)	causing the victim companies to enter into an agreement with the lender which requires a deposit as stake money;
		(c)	causing the victim companies to deposit the stake money with a solicitor firm, and in the case of Charge 10, causing the victim companies to lose the stake moneys; and
		(d)	causing the victim companies to lose the stake money by means of a copy of a false Stand-by LC.”

47.  The main complaint against the reasons given by the judge for convicting on the 7^th and 8^th counts was that they failed to take into account the evidence given by PW1 that D6 had had no contact with the Mainland company or others directly involved in the fraud until D6 collected the cheque from the law firm.  The nearest D6 had come to any prior contact with the fraudsters was when he met someone known to him as ‘Ah Kau’ who he later admitted he also knew as ‘Ben’.  Furthermore, PW1 testified that a false letter of authority, purporting to be signed in English by D6, was made and used by Stanley Wong for the purposes of dealing with the Mainland victim company (‘Xinyu’) in D6’s absence.

48.  Whilst it is plain that D6 played some role in the events which led to the success of the fraud, it was clear, in our opinion, that this was equally consistent with involvement in laundering the proceeds of the fraud which, with respect to the judge, appears to have been a possibility which was overlooked.

49.  The judge said that he convicted D6 on the 8^th count, but gave no reasons at all, adding only, somewhat enigmatically:

“

As to Charge 8, the elements of dealing with property known or believed to represent proceeds of an indictable offence, and as regards the element of dishonesty, the two-step test in Ghosh applies.  Defendants, would it not be better to have honest failure than corrupt success?” (Appeal bundle p. 97)

50.  However, earlier in his Reasons for Verdict, the judge had dealt with the evidence given by PW1 and had remarked:

“	… PW1, in the meantime, was to continue looking for D6 and Ben.  The importance of D6 is that in the event that the money is received it is the responsibility of the frontman, who is D6, and the shell company, which is Leading Group, to collect the proceeds.” (Appeal bundle p. 73)

Once again, this was consistent with D6’s role possibly being confined to the allegation in count 8.

51.  There was, in fact, an abundance of evidence against D6, which we do not need to repeat, regarding the allegation of laundering the proceeds.  In addition to his activities in setting up a company and cashing the cheque he had taken from the law firm, D6 had admitted in cross-examination that ‘Ah Kau’, on whom he had heaped the blame, was also called ‘Ben’.  As the judge said:

“	… It proved fatal to the credibility of D6.  When D6 realised his mistake he tried to patch it up, but the harder he tried the more obvious it became that D6 was lying both in court and when he was video-interviewed;” (Appeal bundle p. 78)

52.  Significantly, in the present context, D6 had provided an explanation in his interview with ICAC officers (page 198) for ‘Ah Kau’ asking him to register a company.  This was that ‘Ah Kau’ “wanted to save the trouble of paying taxes”.  D6 went on to say that this was done by him because sometimes Ah Kau “gave [him] a helping hand”.  At the very least, Mr Lee submitted, D6 was acting in the belief that the proceeds he was helping to launder related to a tax fraud.

53.  There was no evidence, in our opinion, on which the judge (as he stated in paragraph 168 of the Reasons for Verdict in the passage cited at paragraph 46 above) could safely draw an “irresistible inference … that D6 [was] fully aware that he was conspiring with others” in charge 7.  There was, however, overwhelming evidence of his involvement in the 8^th count.

54.  Accordingly, his appeal against conviction on the 7^th charge was allowed and his conviction, and the sentence imposed for it, were quashed.

Sentence

D1 and D2’s custodial sentences

55.  We turn now to the appeals against sentence made by each of the appellants.

56.  D1 and D2 were each sentenced to 5 years’ imprisonment on charges 3, 5, 7, 9 and 10.  However, the judge ordered that 3 months of each sentence on charges 3, 5, 7 and 9 should be served consecutively to the sentence on charge 10 (the earliest offence in time).  This resulted in sentences for D1 and D2 of 6 years’ imprisonment in all.  We will deal separately with an additional order made against D1 and D2 in respect of compensation.

57.  As we indicated at the conclusion of the hearing on 29 January 2008, whilst we were satisfied that D1 and D2’s sentences of 6 years were appropriate in their totality, we were not satisfied that the individual sentences making up that total were correct.

58.  There were a number of features of the case which aggravated the offences for the purposes of sentencing.  First, these offences were committed when D1 and D2, as solicitor and solicitor’s law clerk respectively, held a position of trust in regard to all of the Mainland victims of this scam.  Secondly, the offences were persistent and they involved a total of $5,931,698.  It is particularly apparent from the ‘Chronology of Significant Events’, helpfully prepared by Mr Lee for the respondent, that despite the complaints which quickly came in from the victims when they discovered that the stake monies had been released ahead of time, D1 and D2 were not in the least deterred from continuing their dishonest conduct.  Even after the involvement of police on 26 April 2004, 5 May 2004 and 8 September 2004 when D2 made statements and after D1 had done so on 5 May 2004, the frauds continued, as reflected in charges 7 and 9.

59.  Where, however, the judge was, with respect, in error was in passing sentences on the individual charges which far exceeded the guidelines in R v Barrick [1985] 81 Cr App R 78, as updated in R v Clark [1998] 2 Cr App R 137 to which the judge had specifically referred when sentencing.

60.  The Clark guidelines issued by the English Court of Appeal have since been utilised, with the provision of a currency conversion rate suitable for Hong Kong, in HKSAR v Cheung Mee-kiu [2006] 4 HKLRD 776 at 781.  Burrell J, giving the judgment, said:

“	Future cases
	22.	The principles laid down in R v Clark (1998) 2 Cr App Rep 137 remain applicable in Hong Kong.  However in order to avoid the unsatisfactory result of the bands changing with fluctuating exchange rates, we take this opportunity to convert the Clark bands into Hong Kong dollar bands to be adopted in future cases of a similar nature.  We set the following guidelines:
		(a)	over $15 million — 10 years or more;
		(b)	$3 million to $15 million — 5 to 9 years;
		(c)	$1 million to $ 3 million —  3 to 4 years;
		(d)	$250,000 to $1 million — 2 to 3 years;
		(e)	less than $250,000 — less than 2 years.”

Whilst the guideline sentencing bands, based on the conversion rate in HKSAR v Cheung Mee-kiu were given on 23 November 2006, which was well after sentence was imposed in the present case, they differ from the Clark guidelines only in that they provide a useful guide to the approach to be taken in Hong Kong when undertaking a currency conversion from British pounds.  The tariff bands in Clark have remained unaffected in all other respects since 27 November 1997 when the judgment in that case was given and they have long since been adopted in Hong Kong.

61.  Even allowing for the difference in the conversion rate at the time of the commission of these offences, we consider that the appropriate sentences on counts 3 and 10, involving sums of $468,000 and $471,698 respectively, would be 2 years’ imprisonment on each; on charge 5, which involved $2,652,000, we consider that a sentence of 4 years’ imprisonment would be appropriate; and on charges 7 and 9, each involving $1,170,000, we consider a sentence of 3 years on each to be appropriate.  As such, all of the individual sentences imposed by the judge on these charges were, in our view, manifestly excessive.

62.  Accordingly, the sentences of 5 years’ imprisonment on all charges for both appellants are quashed and we substitute the sentences which we have indicated were appropriate in regard to each of the charges.  We shall further order that the 2-year sentences on charges 3 and 10 should be served concurrently to each other.  The 4-year sentence on charge 5 and the 3-year sentences on charges 7 and 9 will run concurrently to each other but these will be consecutive to the sentences on charges 1 and 2, making 6 years’ imprisonment in all.

63.  The appeals, so far as the sentences of imprisonment imposed on D1 and D2 are concerned, are allowed to the extent we have indicated.  In the final analysis, however, the totality of their sentences remains the same.

64.  It is unfortunate that we have had to undertake the sentencing exercise afresh.  We have on numerous previous occasions indicated that a correct sentence should always be imposed for each individual offence where there are a multiplicity of offences before the court.  The error in the approach taken by the judge in the present case is best demonstrated by the fact that D1 and D2 each received precisely the same sentence on charges 3 and 10 (involving a loss to the victim of $468,000 and $471,698 respectively) as they received on charge 5 involving a loss to the victim which was more than five times greater ($2,652,000).

65.  Each offence required a sentence which properly reflected the criminality involved in its commission.  Regrettably, this was not achieved in this case.  It is clear also, despite a reference by the judge to the guidelines in Barrick and Clark, that whilst he achieved an appropriate totality in the end, all of the individual sentences were out of line with the guidelines provided in those authorities.

Compensation orders against D1 and D2

66.  We turn next to the compensation orders made by the judge in favour of the named victim companies in charges 3, 5, 7 and 10.  No compensation was involved on charge 9 as such loss as there may have been was immediately recovered following the arrests carried out by ICAC officers.  The actual losses involved in the four counts on which compensation was being considered amounted at most to $4,761,698.

67.  The judge accepted that the proceeds actually received by D1 and D2 amounted to “thirty per cent from each of the frauds practised”.  From this, it may be safely assumed that the remaining seventy per cent of the proceeds went to other members of this fraudulent syndicate.

68.  Whilst, in theory, the judge might have ordered D1 and D2 each to pay as much as a half share of the full amount lost by the Mainland companies, in practice this might well be regarded as unfair when so many others were involved in the scam with them.  Another way of looking at this issue is that as thirty per cent of the full loss was $1,428,509, D1 and D2 could each have been ordered to pay a half of their joint gain, in which case they would each have been liable to pay $714,254.50.  In the event, the judge did not adopt either of these approaches.

69.  As the question of compensation had very properly been raised prior 7 July 2006 when sentencing was due to take place, D1 and D2 had each supplied the judge with an affirmation indicating he did not have sufficient means to pay compensation.  In this regard, the judge stated as follows:

“	14.	I turn now to the question of compensation. I have carefully considered the Affirmations of Means filed by the 1st to the 3rd defendants. Citing what you, the 1st defendant said: ‘I further declare that since my arrest by the ICAC in early 2005, the income from my practice had dropped drastically and continually.’ You then went on to tell me that you have no financial resources left. You have been in practice as a solicitor for over 20 years. You were arrested in early 2005. Even your business has sharply declined for about one and a half years until today. You have not accounted for your income prior to your arrest. I reject your assertion that you have exhausted your savings.
	15.	The 2nd defendant has told me that he is holding several bank accounts, all of which have minimal balances. You have not mentioned a single word about real property. I do not find your affirmation credible.
		……
	17.	In considering whether to make a compensation order, I have full regard to section 73 of the Criminal Procedure Ordinance and the principles as laid down in Miller [1976] and Lau Chi Tak [1984]. I consider a compensation order ought to be made in the present case.
	18.	The 1st and the 2nd defendants are ordered to pay, through the court, the following, forthwith:
		(a)	a sum of $471,698, [to] the victim of Charge 10;
		(b)	a sum of $468,000 to the victim of Charge 3;
		(c)	a sum of $2,652,000 to the victim of Charge 5; and
		(d)	a sum of $1.17 million to the victim of Charge 7.”

70.  Mr Lee responsibly conceded that for all the reasons ably and concisely set out on D2’s behalf by Mrs Lisa Remedios, the orders made for compensation could not be supported.

71.  Whilst we have little doubt that the judge was well-intentioned in making these orders, in the sense that this was an expeditious way of disposing of any civil litigation which might otherwise result from this case, some of the principles in R v Miller [1979] 68 Cr App R 56 at 57 and 58, to which the judge had referred, sadly were not followed.  Pain J, giving the judgment in that case, said:

“

The principles which we feel ought to be followed are these: (1) a compensation order is not an alternative to a sentence; that is old law laid down in Lovett (1870) 11 Cox’s C.C. 602. (2) A compensation order in terms of money should be made only where the legal position is quite clear-that again is longstanding law. (3) In making a compensation order the Court must have regard to the means of the defendant. That arises from the provisions of section 1 (4) of the Criminal Justice Act 1972 * and that is where there is a new departure. (4) The compensation order must be precise. It must be related to an offence in respect of which the defendant has been convicted or to an offence which he has asked to have taken into account. It must specify the amount and if there is to be payment by instalments it must specify the instalments-only if this is done can the loser’s rights at Civil Law be adequately protected. (5) The compensation order must not be oppressive. The Court has to bear in mind that a prisoner who has just been discharged from jail is very often short of money. He must not be tempted to commit further offences to provide cash in order to bring his compensation order up to date. That matter is dealt with in the decision of Oddy [(1974) 59 Cr App R 66]; [1974] 1 W.L.R. 1212. (6) On the other hand there may be good moral grounds for making a compensation order including the order for payment by instalments to remind the defendant of the evil he has done. That derives from the decision of this Court in Bradburn (1973) 57 Cr.App.R. 948. This, we think, may apply particularly in the case where a non-custodial penalty is imposed and the compensation which is appropriate is a sum which is not too great. (7) Finally, a compensation order must be realistic. An order for payment by instalments over a long period is to be avoided and the authority on that is Daly (1973) 58 Cr.App.R. 333; [1974] 1 W.L.R. 133.” [Emphasis added]

72.  In the present case, Mrs Remedios took issue with the order made by the judge on four grounds.

73.  First, the judge’s order made D1 and D2 each liable, jointly and severally, for the full sum lost in these frauds.  In this sense, neither D1 nor D2 was made aware, as each was entitled to be, of the exact limits of the order made against them as individuals.  The order lacked such precision and, in theory at least, awarded compensation to the victim companies of twice the amount of their losses.

74.  The second and third points raised were that the judge erred when rejecting what was set out in D2’s affirmation about his means and when finding that D2 had the ability to pay compensation.  The respondent conceded that there was no proper basis for rejecting the affirmation or for a finding that D2 had the means to pay compensation.  Indeed, all the indications were to the contrary.  Amongst other things, it had been stated in mitigation that D2 had sold his house some years earlier and had given the proceeds to his ex-wife following his divorce so that she and their daughter could emigrate to England.  No Newton hearing was held and no argument was raised in the court below to suggest that the mitigation was anything other than truthful.

75.  The last point was that no time limits were ever given to D2 within which compensation should be paid.  Instead, the judge had merely stated that it should be paid “forthwith” which was wholly unrealistic and oppressive.

76.  Mr Raffell adopted the same arguments which were accepted by the respondent as being more or less equally applicable to D1.

77.  Plainly, in our view, the compensation orders could not, for the reasons provided, be supported.

78.  Accordingly, we quashed the orders for compensation and, on this basis also, the appeals of D1 and D2 against sentence were allowed.

D6’s sentence on charge 8

79.  In the case of D6, we have quashed his conviction on the 7^th charge leaving his appeal against sentence on charge 8 which once again, unfortunately, provided an illustration of a sentence which did not properly reflect the criminality involved in the offence.

80.  D6’s role was confined to count 8.  This involved the laundering of $1,170,000 million.  His role was a relatively minor one having been used as a ‘front’ man by those far more deeply involved in this series of frauds.  Whilst he could not claim that he had a clear record as D1 and D2 could, D6’s previous offences were of an entirely different nature and were mainly, as the judge stated, connected with the management of vice establishments.

81.  Despite his role on the relative fringes of this criminal course of conduct which had taken twenty-five days to unfold before the judge, D6 received a sentence of 4 years’ imprisonment on charges 7 and 8, with 3 months of the sentence on charge 8 ordered to run consecutively.  Now that count 7 has been quashed, the appeal relates only to the 4-year sentence on count 8 which we were satisfied was manifestly excessive.

82.  Accordingly, as we informed D6 at the time his appeal was allowed, his 4-year sentence on count 8 would be quashed and we substituted a term of 30 months’ imprisonment.  For the avoidance of doubt, this sentence is to run concurrently with the sentences D6 is presently serving arising from other proceedings in various Magistrates’ Courts.