HKSAR v. YIP KIM PO AND ANOTHER

FAMC No. 12 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 12 OF 2013 (CRIMINAL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACC NO. 353 OF 2010)

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REASONS FOR DETERMINATION

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Mr Justice Fok PJ:

1.  We dismissed this application for leave to appeal without calling on the respondent, indicating we would give our reasons for doing so in due course, which we now do.

Background

2.  The applicants (A1 and A2) were convicted after trial before HH Judge Browne of six offences arising out of two schemes which the prosecution alleged were frauds perpetrated on the subsidiaries of Ocean Grand Holdings Limited (OGH), a listed company.

3.  There were two frauds, which can be summarised relatively briefly.  In the first, it was alleged that A1, A2 and the 3^rd defendant conspired together to procure Ocean Grand Development Company Limited (OGD) to enter into a contract to purchase items of machinery from Greatson Corporation Limited (Greatson) for HK$153 million.  It was the prosecution case that this contract was bogus and that, instead, cheaper machinery of inferior quality was purchased for about HK$39 million.  This was charge 1 (against A1 and A2).

4.  The transaction was disclosable under the Stock Exchange Listing Rules and, on 4 November 2005, OGH published an announcement stating that Greatson was an independent third party and that the transaction was conducted at arm’s length.  Subsequently, on 21 November 2005, OGH issued a circular to its shareholders repeating this representation.  It was the prosecution case that A1, A2 and the 3^rd defendant knew that the announcement and circular were false in that Greatson was a shell company which had been set up for the purposes of channelling funds from OGH and that the 4^th defendant, its sole director and account signatory, was merely a nominee recruited by A2’s friend Chung Ngai Man (PW40) and the 3^rd defendant.  These were charges 2 (against A1 and A2) and 4 (against A1).

5.  A sum of HK$136.7 million was paid by the OGH group to Greatson purportedly pursuant to the contract.  It was the prosecution case that HK$121.2 million of that sum was paid to other companies whose directors were connected to A1 and A2 and used for purposes unconnected with the contract and otherwise than for the benefit of OGH.  It was the prosecution case that A2 and the 3^rd defendant conspired with PW40 (who testified under immunity) to deal with HK$24,967,000 of this sum, knowing or having reasonable grounds to believe it to represent the proceeds of an indictable offence.  This was charge 5 (against A2).

6.  In the second fraud, it was alleged that Kenlap PGC Manufacturer Company Limited, a company within the OGH group, ostensibly entered into contracts with Long Asset Limited (Long Asset) and Fong Long (Oversea) Industrial Limited (Fong Long) respectively to purchase fine wire drawing machines and winding machines for a total price of about HK$28.2 million.  Although Kenlap PGC paid a total of HK$14.59 million as deposits purportedly under those contracts, including HK$7,014,016 to Long Asset, almost all the money paid by Kenlap PGC was immediately paid back to it or a subsidiary by various persons connected with A1 or via a company purchased on behalf of OGH.  The payments were falsely recorded in Kenlap PGC’s accounts as income from sales of metal salts.

7.  However, on the 3^rd defendant’s arrangement, Long Asset and Fong Long purchased the machines required by Kenlap PGC from another company at a price of HK$6.68 million.  It was the prosecution case that A1 and the 3^rd defendant entered into a fraudulent and dishonest scheme whereby Kenlap PGC was caused to purchase items of machinery at a price far beyond their true value and that monies were purportedly paid to Long Asset and Fong Long under the bogus contracts with Kenlap PGC against its economic interests and those of its shareholders.  This was charge 14 (against A1).

8.  A2 was the director and one of the account signatories of Kenlap PGC. She and A1 signed the bank transfer application to effect payment of HK$7,014,016 from Kenlap PGC to Long Asset pursuant to the bogus contract.  It was the prosecution case that she conspired with PW40 and the 6^th defendant to deal with the sum paid to Long Asset, having reasonable grounds to believe that it represented the proceeds of an indictable offence.  This was charge 17 (against A2).

9.  On conviction, A1 and A2 were respectively sentenced to 7 years’ and 6 years’ imprisonment.  Their applications for leave to appeal against conviction were dismissed by the Court of Appeal on 15 November 2012, with the reasons being given in a judgment dated 7 March 2013.  A2’s application for leave to appeal against sentence was dismissed in the judgment dated 7 March 2013.

No points of law of great and general importance

10.  The applicants sought an order from the Court of Appeal certifying that two points of law of great and general importance were involved in its decision.  On 19 June 2013, the Court of Appeal refused that application which the applicants renewed to this Court under section 32(3) of the Hong Kong Court of Final Appeal Ordinance (Cap.484).

11.  The two points of law said to be of great and general importance are framed as the following two questions:

(1) In considering a charge of conspiracy to defraud, what are the circumstances in which the criminal courts are entitled to treat corporate contractual arrangements as a sham and to pierce the corporate veil for the purpose of determining that a contract is to be characterised as bogus or dishonest?

(2) Whether, for the purposes of determining whether a defendant is guilty of an offence under section 25 of the Organised and Serious Crimes Ordinance (Cap.455), the court ought to find that it is necessary to prove an awareness of the particular funds charged and their specific provenance, rather than a general awareness that any funds might be tainted by criminal activity?

12.  The first question is, on its own terms, self-evidently and necessarily fact-sensitive.  As the Court of Appeal said in its judgment refusing a certificate under section 32(2) of the Ordinance:

“9. In respect of the first question, we are of the view that there is nothing new in the issue it raises, nor does it raise an issue of great and general importance. The complaint which is said to lead to the proposed question is really a factual one that the trial judge and this Court did not explain why, on the evidence, they regarded a superficially valid contract as a sham so as to permit the piercing of the corporate veil. With respect, such an argument is totally divorced from the reality of the facts of this particular case. It is perfectly obvious from a reading of the trial judge’s findings (as well as the reasoning of this Court) why the contracts were rightly considered a sham and why both applicants knew them to be so. It could fairly be said that that was ultimately the main issue at the trial (and the appeal) so far as the two applicants were concerned.”

13.  We agree. The applicants’ argument seems to proceed on the hypothesis that the contractual arrangements which the Judge and Court of Appeal found to be sham arrangements nevertheless gave rise to legally enforceable contracts. But this is not the case and so the argument is based on a false premise.  To the contrary, on the Judge’s findings, those contracts were never intended to create binding legal obligations and were manufactured simply to create a façade behind which to defraud OGH and Kenlap PGC respectively by means of the alternative contracts which were the actual commercial arrangements under which the machinery was purchased more cheaply.  There was no piercing of the corporate veil because there were no enforceable contractual rights and liabilities under the bogus contracts to be distinguished from any rights and liabilities of any shareholder of any company.  In those circumstances, the question posed simply does not arise.

14.  Likewise, as to the second question, the Court of Appeal held:

“10. As for the second proposed question, we cannot see how such a question remotely arises in the circumstances of the evidence against the second applicant. In our summary of the case on the second conspiracy, we noted at para 16 of our judgment that in purported pursuance of the contracts, Kenlap PGC paid HK$7,014,016 to Long Asset and HK$7,580,520 to Fong Long; and at para 4 that the second applicant was a director of Kenlap PGC and, together with the first applicant, one of its two signatories. The telegraphic transfer in the above amount from Kenlap PGC to Long Asset was signed by both applicants on 28 March 2006, as was the cheque of the same day in the above amount from Kenlap PGC to Fong Long. The second applicant did not give evidence about these substantial payments, which she had authorised.

11. That being the evidence, together with the testimony of PW40 (which in this regard was accepted by the trial judge) as to how he had obtained, at the second applicant’s instigation, the assistance of D6 (the sole director and shareholder of Long Asset) and subsequently supplied D6’s contact details to the second applicant, we cannot see any factual foundation for the point which is sought to be certified.”

15.  Again, we agree with the Court of Appeal.  The question is said to apply to the case of A2, who was not implicated in the second conspiracy to defraud (involving Kenlap PGC), but simply does not arise on the facts of this case.

Substantial and grave injustice not shown

16.  The remaining basis of the application for leave to appeal to this Court was the substantial and grave injustice limb of section 32(2) of the Ordinance.  For leave to be granted under this limb, it must be shown that there has been a departure from accepted norms which is so serious as to constitute a substantial and grave injustice.[1] It is well-established that this is a high hurdle and cases where leave will be granted under this limb will be rare and exceptional.[2]

17.  In the present case, the applicants contended that the Court of Appeal departed from accepted legal norms in that: (i) the prosecution did not prove all the elements of the offences of conspiracy to defraud beyond reasonable doubt; (ii) A2 was convicted of Charge 17 absent any proper consideration of the evidence said to prove beyond reasonable doubt that the offence was committed; (iii) there was a lack of sufficient primary evidence to establish guilt on the part of A1 and A2; (iv) the circumstantial evidence against A1 in respect of the two conspiracies was not such as to lead to an irresistible inference of guilt; and (v) the court failed to exercise an appropriate degree of caution in accepting aspects of an immunized witness’ evidence in finding A2 guilty of the first conspiracy.

18.  However, the evidence of the applicants’ guilt on the charges they faced was ample and compelling and we are satisfied there is no merit in the contention that their convictions involved substantial and grave injustice.  In particular:

(1) As to (i), the Judge set out the basis on which he was satisfied the evidence established that the fraudulent contracts were sham transactions[3] and it is clear that these were the dishonest means by which the frauds were perpetrated.

(2) As to (ii), despite the fact she was not alleged to be party to the second conspiracy, we are satisfied that there was ample evidence for the Judge and Court of Appeal to conclude that A2 was aware that the bank account of Long Asset was used to channel funds illegally obtained from OGH.[4]

(3) As to (iii), we do not accept there is any proper basis for the contention that the Court of Appeal disposed of the appeal on the assumption the Judge’s findings were correct and without a consideration of whether the evidence supported those findings.  There is nothing in the section of the Court of Appeal’s judgment entitled “The adequacy of the judge’s reasons”[5] to support this contention.

(4) As to (iv), there is no basis for this complaint since it is clear the Judge was well aware of the proper approach to circumstantial evidence[6] and the Court of Appeal likewise examined the soundness of the inferences drawn by the Judge.[7]

(5) Finally, as to (v), it was a matter for the Judge to determine the credibility of the immunized witness (PW40) and this was addressed comprehensively in the Reasons for Verdict.[8] Although Mr Grossman SC placed particular emphasis in his oral submissions on the Judge’s treatment of PW40’s evidence, the Court of Appeal did not accept that there was any failure by the Judge in respect of his treatment of that evidence[9] and nor do we.  We are satisfied that, contrary to the submissions advanced, the Judge did explain his reasons for accepting the evidence of PW40 that was inculpatory of A2 notwithstanding his rejection of other aspects of PW40’s testimony.[10]  Since it was not demonstrated the Judge was plainly wrong in his findings of credibility, there was no basis for the Court of Appeal to interfere.[11]

19.  For these reasons, we dismissed the application before us.

The Reasons for Verdict

20.  We wish to add a comment on the Reasons for Verdict in the present case, although this does not in any way affect our conclusion that the application for leave to appeal was without merit.

21.  The Reasons for Verdict in the present case run to 1,753 paragraphs spanning 465 pages.  The length of the Reasons is partly explained by the fact that the trial was lengthy, lasting over one calendar year, and there was clearly a large volume of evidence and material put before the Judge but also, mainly, by the fact that the Judge set out at length all of the evidence fully and repeatedly in relation to each applicant on each charge.  The Court of Appeal described them as “all-embracing and undistilled” and “convex” and pointed out that their sheer length made for “considerable difficulties for the appeal courts and any other newcomer to the case in trying to unravel the relevant evidence and identify the real issues at trial”.  As the Court of Appeal aptly put it:

“An unduly lengthy set of Reasons also creates problems for the judge himself in focusing on the essential issues at trial so as to explain, clearly, concisely and expediently, why he came to the decision he did.”[12]

22.  We agree and would also endorse the comment of the Court of Appeal that reasons of this length are not to be encouraged.  Whilst a judge should keep a record of the evidence and submissions, it is not the function of a judgment to be that record.  Instead, the primary purpose of a judgment is: to identify the ultimate issues in the case; to set out, qualitatively by reference to the evidence that is accepted or rejected, the primary facts which the judge finds; to relate those findings to the factual issues in the case; to show how any inference has been drawn; to make the necessary findings of fact; to identify and apply the appropriate legal principles; and, ultimately, to make the appropriate dispositive orders.

23.  A judge has a duty to give adequate reasons for a judicial decision.  It is quite unnecessary for those reasons to recite and repeat at length all of the evidence in a case, rather than a summary of the salient parts of that evidence.  Insofar as judges may be concerned lest their judgments be criticised for not setting out all the evidence, they should be guided by and take comfort from the fact that, in approaching appeals against judge’s findings of fact, appellate courts will give due weight to the observations of Lord Hoffmann in the following two cases.

24.  First, in Biogen Inc v Medeva Plc [1997] RPC 1 at p.45 (cited in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §41), where he said:

“The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.”

25.  Secondly, in Piglowska v Piglowski [1999] 1 WLR 1360, where he said, at p.1372:

“The exigencies of daily courtroom life are such that reasons for judgment will always be capable of having been better expressed. This is particularly true of an unreserved judgment such as the judge gave in this case but also of a reserved judgment based upon notes, such as was given by the district judge. These reasons should be read on the assumption that, unless he has demonstrated the contrary, the judge knew how he should perform his functions and which matters he should take into account.”