HKSAR v. CHENG LAP SUN PATRICK

CACC 296/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 296 OF 2000

(ON APPEAL FROM DCCC NO. 135 OF 2000)

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J U D G M E N T

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

The charges

1 The applicant was convicted on 4 July 2000 in the District Court by HH Judge Muttrie of nine charges of theft. He now seeks leave to appeal against those convictions.

2 Each charge arises from the presentation by the applicant of a cheque drawn on the bank account of his employer, a company called Asian Renown International Limited, which traded as Yee Luen Textile (International) Company. Evidence was adduced by the prosecutor that the presentation of each cheque was dishonest and unauthorised, in that the first six cheques, although signed by the authorised signatories, were blank as to payee and amount when the applicant found them, filled in the blanks, making them out to cash, presented the cheques, and caused the proceeds to be paid into his own bank account. In relation to the account on which these six cheques were drawn, the evidence was that there was a practice within the company whereby one of the founding directors was in the habit of signing cheques in blank, presumably trusting his accountants as well as the applicant, who at the material times was an assistant to the directors, to complete them as was necessary for genuine company transactions. As to the last three cheques, the evidence as to the state of the cheques, when signed by the authorised signatory, is unclear; in other words, whether they were otherwise altogether blank or not. But the applicant nonetheless presented them to the credit of his own account, when that was never the intention of the drawer of the cheques.

3 The first six cheques were drawn on Asian Renown's account with the Wing Hang Bank as follows: on 10 February 1988 (in the sum of $510,000); 19 March 1998 ($320,000); 11 May 1998 ($30,000); 16 June 1998 ($360,000); 5 August 1998 ($280,000); and 16 September 1998 ($700,000). The last three cheques were drawn on that company's account with the Bank of China: on 4 December 1998 ($400,000); 8 January 1999 ($150,000); and 4 February ($400,000) - a total therefore, for all nine cheques, of $3,420,000.

4 Each charge alleged theft contrary to section 9 of the Theft Ordinance, Cap. 210, and the particulars in each instance alleged that the applicant stole a chose in action, namely, a debt owed to Asian Renown International Limited by the bank upon whom the particular cheque had been drawn; and the amount of the debt was specified, being in each case the sum for which the cheque was drawn.

The judge's finding

5 The applicant pleaded not guilty to each charge. His defence was that he was authorised to present the cheques as drawn. He was thus authorised, he said, by the company's manager, a Mr Dai, who, according to the applicant, had said that an associated company on the Mainland needed cash with which to invest in Hong Kong, but that that company had no bank account in this jurisdiction; so the applicant was asked to make available his accounts for the cashing of cheques, which the applicant then did. This defence was disputed, and not believed. The judge found that the applicant engaged in a scheme far too elaborate to tally with the suggested authorisation; noted that false documents, clearly intended as a device to fool the company's auditors, were discovered at the applicant's home; and found that the applicant had, contrary to his evidence, not in fact repaid any of the sums to Mr Dai. He had kept the proceeds for himself. The judge concluded that there had been a debt in each case, and that the applicant had stolen the chose in action. So he convicted the applicant.

The Preddy point

6 Two grounds are advanced in support of this application. The first, as framed, states that the applicant, in none of the nine instances, obtained property belonging to the company. The ground thus drawn is quite misconceived, for the applicant was not charged with obtaining the chose in action, the property of the company. Had that been the charge, then the decision in R v Preddy [1996] AC 815, which motivates this ground of application, would have assisted him. Instead, the applicant was charged with appropriating choses in action. The appropriation was the presentation of the cheque in each case so as to effect the diminution of the credit balance of the company with the bank. In the circumstances, the applicant took the credit balance for his own use. In doing so, he assumed the right as the owner of the credit balance to do with it as he wished. That was an assumption of the right of the owner of that balance, and was therefore an appropriation. The judge found that that appropriation was dishonest, against which finding of dishonesty there is, in this application, no challenge. It follows that the finding that the applicant is guilty of theft is not impeachable. It is unnecessary in this judgment to rehearse the authorities and their effect and to explain why, contrary to the applicant's contention, Preddy does not apply to a situation such as this. The relevant principles have recently been explained by this court in HKSAR v Wong Cho Sum [2001] 3 HKC 268.

The forgery point

7 Mr Whitehouse, on behalf of the applicant, persuaded that Wong Cho Sum, and the cases cited in that judgment, are against his attempt to put the offence of obtaining a chose in action in the same bracket as the offence of theft of a chose in action, seeks however to distinguish the present case on the following footing: that in the case of each charge, the cheque presented was forged in that at least the entry as to payee or form of payment, namely, cash, was entered by the applicant without authority. That being so, he says, the bank balance was not affected in any way; the bank was in fact indebted to the company in the same amount before presentation of the cheques as after because, he contends, the company, the victim of the fraud, had only to point to the forgery to have had its bank credit restored.

8 Assuming, for the moment, that what happened in fact constituted forgery, and even assuming in Mr Whitehouse's favour, for present purposes, that the banks had no authority to honour these cheques (although one notes that the cheques were all in fact signed by authorised signatories), the point argued is not good. That is because there has nonetheless been an appropriation, namely, the assumption by the applicant of the rights of the owner to cause a diminution in the balance. The balance was in fact diminished. To say that it might, or would be, restored by the bank is to recognise that there was something to restore; that the credit was not at the moment of appropriation the same as it had been before, and that it was the act of appropriation, and none other, that required an act of restoration, if indeed there was to be one. Nor would it avail an applicant to say, although this applicant did not in this case say it, that he thought that the bank would in due course restore the balance, for by virtue of section 7(1) of the Ordinance, such a person is treated as having the intention permanently to deprive the owner of the chose in action if his intention is to treat the thing as his own to dispose of regardless of the other's rights.

9 The point which Mr Whitehouse seeks to argue is precisely the same point canvassed before the Privy Council in Chan Man-sin v Attorney General of Hong Kong [1988] 1 All ER 1, and was a point rejected. Their Lordships concluded, at page 4, by stating that they were

"... entirely satisfied that the transactions initiated and carried through by the appellant constituted an assumption of the rights of the owner and, consequently, an appropriation. It is unnecessary, for present purposes, to determine whether that occurred on presentation of the forged cheques or when the transactions were completed by the making of consequential entries in the bank accounts of the companies and the appellant or his business respectively. It is, in their Lordships' view, entirely immaterial that the end result of the transaction may be a legal nullity for it is not possible to read into s 4(1) of the ordinance any requirement that the assumption of rights there envisaged should have a legally efficacious result."

Addressing the correct issues

10 Mr Whitehouse added an argument to the effect that the judge did not address the correct legal issues. He did not have in mind, so the argument runs, issues relevant to choses in action in connection with bank credits. We do not agree. The Reasons for Verdict open with express reference to the subject of the theft, namely, the choses in action, which are identified there as the debts owed by the bank to the account holder and, later, the judge specifically addresses the question of appropriation and dishonesty, as well as the question whether there were overdraft facilities when the cheques were honoured. It is obvious that the judge had well in mind the pertinent legal issues.

11 This disposes of the first ground of this application.

Overdraft evidence

12 The remaining ground concerns charges 2 and 9 only. When the cheques particularised by these two charges were presented, there were insufficient funds in the respective accounts to cover them. Nonetheless, the bank honoured them. It is said by Mr Whitehouse that there was no evidence to show that there was at these times an overdraft facility in favour of the company in respect of either account. If Mr Whitehouse is correct about the state of the evidence, then the convictions in respect of these two charges cannot stand, for the law is that a claim against a bank by a customer, which claim constitutes the thing or chose in action, is available only so long as the account is in credit, or so long as there is an enforceable overdraft arrangement. Where however there is no such arrangement, or where the agreed overdraft limit is exceeded, there is then no relationship of debtor and creditor since the bank is then under no obligation to honour the cheque. See: R v Kohn (1979) 69 Cr.App.R. 395.

13 The applicant's evidence was that there was no overdraft facility with the banks, though accounts did from time to time go into overdraft. There were before the trial judge a number of affirmations made by bank officers. The affirmation of the Wing Hang Bank officer was that the bank would only honour a cheque if there were sufficient funds to meet it, or if an overdraft limit had not been reached. The judge noted that in May 1998 alone there was an overdrawn balance in respect of the Wing Hang account of over $23,000, yet cheques continued to be honoured. In the light of this evidence the judge concluded that there must, at the time of presentation of the cheque, which is the subject of charge 2, have been an overdraft facility in excess of the amount of the cheque.

14 What we see in relation to charge 2 is that presentation of the cheque for $320,000 on 19 March put the balance into overdraft to the tune of $84,781, but that the very next day the balance went into credit by reason of a payment in the sum of just under $800,000. The credit balances in the account were on most days during this period in the region of between about $50,000 and $1.25 million. In May the balance decreased, and from 21 May to 31 May the balance was always in overdraft but never to a great amount, and there were quite a number of cheques which were nonetheless honoured. Whether these facts alone, namely, the meeting of cheques of relatively small amounts would, in the light of the history of the account, lead to an irresistible inference that there was an agreed overdraft facility, it is not, in the case of charge 2, necessary to say. However, given this evidence in the light of the explicit testimony of the bank officer that the bank would not meet cheques unless there was a credit balance or a sufficient overdraft facility, testimony that was not challenged save to the extent of the applicant's oral testimony, testimony the creditworthiness of which the judge held in low regard, the inference was an inference which the judge was entitled to draw as the only reasonable inference from that part of the primary evidence which he accepted. So, in so far as charge 2 is concerned, this ground of the application also fails.

15 In relation to charge 9 the judge had this to say:

"The Bank of China account can be seen to have gone in and out of overdraft for as much as $400,000 dollars. I simply cannot imagine a bank allowing this kind of overdraft without a proper agreement to run overdraft facility. Again, I find that there must have been an overdraft facilility and I do not believe the defendant when he says that there was none."

16 Mr Whitehouse contends that that was not the only reasonable inference for the judge to draw. Mr Lee, for the respondent, suggests that the fact of an overdraft facility is a fact which can properly be inferred from a course of dealing; and he cites, in support of that proposition, the decision in Cumming v Shand (1860) 5 H&N 95. That was a civil action in which a bank had refused to honour a cheque drawn by the plaintiff in the sum of ￡199, when there was a balance in his account of ￡200, but only such a balance if a sum advanced by the bank on a bill of exchange, drawn upon the plaintiff, was not treated as an amount placed to the plaintiff's debit. The question was whether the course of dealing between plaintiff and bank was "on the footing that the plaintiff was to be allowed to draw against the cash part of his account and that the sums guaranteed by the plaintiff's broker to repay the sum advanced by the bank when the goods were sold were not to be brought into account against the plaintiff; or whether the bank was merely in the habit of indulging the plaintiff by allowing him to overdraw his account" (page 96). If the latter, then there was no indebtedness by the bank in respect of the overdrawn amount. This case illustrates no more than that facts may show an agreement of a kind which the bank is obliged to honour, and that that agreement may be inferred from a course of dealing. The question in relation to charge 9 is whether the facts showed, as the only reasonable inference, such an agreement in the case of the Bank of China account.

17 The Bank of China account was opened in November 1997. We have the bank statements for the period 3 December 1998 to 13 February 1999. The cheque in question in charge 9 was presented on 4 February 1999. The bank officer's affirmation is silent about any overdraft facility or about the bank's practice in this regard. During this period, the account was very active, with substantial deposits almost daily, though with more frequent withdrawals, quite a few of which were also substantial, every day. The statements for the period show that the account was very regularly overdrawn, going back and forth between credit and overdraft, with the overdrawn amount up to sums such as $464,000. Is it an irresistible inference, as the judge said, that there must have been a proper arrangement for an overdraft facility?

18 Our attention has been drawn to a feature of this account, which is that on each and every occasion - and the occasions were regular - on which the account went out of credit balance, there was the very next day a payment into, or more accurately a crediting of, the account by a sum greater than the amount of the previous day's overdraft. It seems to us to be an irresistible inference from the regularity of this occurrence, and from the amounts involved, and from the period over which this was happening, that the one thing that the bank was not doing was granting a mere indulgence to the company when cheques were presented for large amounts, on some hope or loose understanding that the company would make good the deficit. Even if there had once been an indulgence or perhaps twice, by the time of the February cheque which is the subject to charge 9, it must have been the case that there was in place an overdraft facility, or an agreement by which the bank would honour cheques upon a concomitant promise that amounts overdrawn would be made good within a given time after the overdraft was incurred, or that they had a cheque in hand from the company which would cover the amount of the cheque to be honoured. Whichever arrangement it was, there would thus have been created a contractual arrangement giving rise to a chose in action in favour of the company in respect of cheques thus presented, namely, an obligation by the bank to honour the cheques. We are satisfied therefore that the judge correctly decided that such was the only reasonable inference. That being so, the conviction in relation to charge 9 holds good.

19 We must emphasize that whilst, in the particular circumstances of this case, the inferences could properly be drawn, there will of course be cases where, in the absence of clear evidence about the actual agreement between customer and bank, the evidence might not lead to such an inference as the only reasonable one. Arguments such as those presented in relation to these two charges ought never to be necessary, if only the prosecuting authorities were to adduce clear primary evidence of the arrangements between customer and bank, rather than leave it to the court to see whether proper inferences can be drawn from the other evidence.

Conclusion

20 For the reasons we have given, the application for leave to appeal against convictions in this case is not well based, and it is accordingly dismissed.