HKSAR v. LEUNG CHUN-HEI

CACC 222/2021

[2023] HKCA 223

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 222 OF 2021

(ON APPEAL FROM DCCC NO. 361 OF 2021)

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REASONS FOR JUDGMENT

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Hon Anthea Pang JA (giving the Reasons for Judgment of the Court):

Introduction

1.  The appellant pleaded guilty to one count of fraud[1] and was sentenced to 56 months’ imprisonment by HH Judge A.N. Tse Ching in the District Court (“the judge”) on 29 September 2021. On 21 June 2022, leave was granted to the appellant to appeal against his sentence[2] in respect of ground 1 (as amended) and ground 3. At the conclusion of the hearing on 16 February 2023, we allowed the appeal and replaced the sentence of 56 months with a term of 40 months, saying that we would give our reasons in due course. This we now do.

Summary of Facts

2.  The appellant was the Senior Sales Manager of Philips Lighting (“Philips”), a company specialized in selling lighting products, and was responsible for handling customers’ orders. At the time, Philips had two sales channels, the Original Equipment Manufacturer Channel (“OEM Channel”) and the Trade Channel. The appellant was authorised to negotiate prices with the customers provided that the agreed prices did not fall below the minimum prices set by Philips, namely the Asia Limited Prices (“ALP”). For prices below the ALP, the appellant was required to seek approval from other managers.

3.  The appellant’s wife, Madam Suen (they got married in November 2011), was the sole shareholder-cum-director of Supreme Profits International Limited (“Supreme”) which was incorporated on 25 September 2006. In about 2006 or 2007, upon the appellant's introduction, Supreme became an OEM customer. Thereafter, Supreme purchased most of its products from Philips for re-sale to others.

4.  Between 4 February 2016 and 5 November 2018[3], Supreme placed 3,848 purchase orders with Philips for a total invoiced amount of HK$106,828,365.

5.  Between January 2017 and August 2018, the appellant had, on three occasions, sought approval to sell Philips' products to Supreme at prices lower than the ALP. The discount involved was HK$343,864.

6.  Further, in about 2014, the appellant told the management that the prices offered to its OEM customers were not competitive and suggested that OEM customers should also be entitled to use the promotion fund in the Trade Channel to which suggestion Philips eventually agreed. The mechanism was that when the customers met certain sales targets, they were entitled, in relation to future transactions, to use the promotion fund to settle part of the payments with Philips.

7.  From February 2016 to November 2018, a total sum of HK$11,775,199 generated from the promotion funds in the OEM and Trade Channels was used by Supreme. Upon the judge’s enquiry, the prosecution later confirmed that HK$9,338,327 out of the said sum was generated from the Trade Channel.

8.  The summary of facts further stated that had Philips known about the appellant's relationship with Supreme, it would have assigned other staff members to handle the transactions and would not have agreed to the appellant's suggestion to use the promotion fund in the Trade Channel to subsidise OEM customers.

Reasons for Sentence

9.  In mitigation, the defence suggested that the benefit to the appellant was unquantifiable but the judge rejected the submission. She found that, at the very least, Supreme was not entitled to use the promotion fund in the Trade Channel if the appellant had not made the suggestion. The judge was of the view that the appellant’s conduct was tantamount to theft involving a breach of trust and relying on HKSAR v Lam Wing On[4], she considered the sentencing guidelines in HKSAR v Cheung Mee Kiu[5]and HKSAR v Ng Kwok Wing[6] (“the Guidelines”) to be applicable, commenting that even if the Guidelines were not so applicable, they could be used as a reference.

10.  Having considered all the relevant circumstances, the judge adopted a starting point of 7 years. Apart from the guilty plea, she did not find the mitigation to be of any force and she passed a term of 56 months.

Grounds of appeal

Ground 1

11.  Ground 1 averred that the judge erred in treating the HK$9.3m discount as the loss suffered by Philips, or alternatively, as the benefit obtained by the appellant[7] and thereby erred in proceeding to sentence the appellant based on this amount.

12.  Mr Paul Leung for the appellant argued that the Guidelines were premised on the amount of loss or the amount stolen but, in the present case, there was no cogent evidence to support the finding that the HK$9.3m was a loss to Philips or a benefit to the appellant because:

(a)  firstly, the HK$9.3m was neither an amount particularised in the charge, nor a fact contained in the summary of facts. It was a figure given by the prosecution upon the judge’s persistent enquiry in the course of mitigation;

(b)  the operation of the Trade Channel promotion fund did not support the finding. Supreme had to meet the sales targets set and approved by Philips before the fund could be utilised and the fund could only be used to settle payments for future purchases made with Philips. In the process, additional revenues or profits were generated for Philips and therefore, Philips did not suffer any loss. The arrangement was most likely mutually beneficial;

(c)  unlike other fraud cases involving a conflict of interest and the grant of contracts to the defendant’s related companies wherein the victim company/employer had to make payment out, it was Supreme making payments to Philips; and

(d)  in gist, what the appellant gained by deceit was the continued opportunity to handle Supreme’s orders and there was no evidence that had Philips known about the situation, it would not have conducted any business with Supreme (Philips’ largest OEM customer).

13.  In addition, Mr Leung submitted that insufficient regard was paid to the following mitigating factors:

(a)  the appellant had complied with the internal approval procedures in quoting prices and extending the Trade Channel promotion fund to OEM customers;

(b)  Supreme only obtained “credit notes” and no money was taken away from Philips;

(c)  no evidence that Philips suffered any adverse effect from the appellant’s wrong-doing; and

(d)  mitigation letters from the appellant’s former colleagues revealed, among other things, that Philips had routinely offered rebates and discounts to its customers, and these offers were not unilaterally decided or approved by the appellant.

Ground 3

14.  Ground 3 averred that the sentence was manifestly excessive. Mr Leung’s submission was that since Philips suffered no actual loss but just a risk of loss, the court should follow the UK Sentencing Council’s approach in sentencing cases of fraud involving only a risk of loss[8] and move down to the corresponding band in the next category.

Discussion

The cases cited

HKSAR v Cheung Mee Kiu[9]

Charges & the original sentence(s)	•  2 charges of conspiracy to steal, 2 charges of theft, 1 charge of conspiracy to defraud. •  A term of 4 years and 4 months upon plea.
Facts	•  Cheung, an owner of a jewellery company, pawned jewellery entrusted to her from the suppliers and her customers. The conspiracy to defraud related to Cheung’s pawning jewellery which she had ordered from the suppliers with post-dated cheques that were dishonoured. The total value of the goods pawned was marginally under HK$10m with some items recovered.
Remarks	•  The application for leave to appeal against sentence was refused. •  The sentences were said to have closely followed the guidelines in R v Clark[10]. •  Applying the R v Clark guidelines and when considering the overall picture, a starting point of at least 7½ years would have been appropriate. •  The principles laid down in Clark were said to remain applicable in Hong Kong but the Clark bands were converted into Hong Kong dollar bands “to be adopted in future cases of a similar nature”.

SJ v Andrew Marc Dank & Lam Ching Queenie[11]

Charges & the original sentence(s)	•  A total of 33 charges, 31 of which were fraud. •  Dank pleaded guilty to 17 charges and Lam was convicted of all 33 charges after trial. Both were sentenced to CSO. The SJ sought a review of the sentences.
Facts	•  Dank was the director and majority shareholder of New Age and Lam was the company’s merchandising manager. •  In 1999, New Age was appointed to manage the affairs of REL and Dank was authorised to operate REL’s bank accounts. Dank, assisted by Lam, then set up 6 companies as “mirror companies”, with names identical to the genuine suppliers of goods to REL and they operated a mark-up scheme whereby the invoices submitted for settlement were higher than the price of the goods actually supplied. Dank drew the difference between the two amounts and credited the sum to the mirror companies. Between June 1999 and August 2001, the total amount thus misappropriated was about 0.64m and the amount dishonestly obtained by Dank in relation to the charges to which he had pleaded guilty was HK$0.35m. •  Each of the fraud charges was directed to a specific false representation of the amount due on a particular invoice.
Remarks	•  In the analysis conducted by Stock JA, as he then was, he started off by saying that, “In breach of trust cases, of which this is one, the guidelines are those referred to in R v Clark (1998) 2 Cr App Rep 137 as adopted in Hong Kong: HKSAR v Cheung Mee-kiu [2006] 4 HKLRD 776.”[12] •  Taking into account the absence of loss (since payment had been made by Dank as a result of litigation commenced by the victim company) but that there was a special degree of trust reposed in Dank as well as other aggravating factors, a starting point of 2½ years would be appropriate. As for Lam, a starting point of 21 months was considered appropriate.

HKSAR v Ng Kwok Wing[13]

Charges & the original sentence(s)	•  3 charges of theft and 2 charges of attempted theft. •  4 years upon plea.
Facts	•  Ng and his co-accused, Lai, were co-habitees. On each of the occasions relating to the charges, Lai, shortly after starting to work as an accounts clerk, disappeared from the company, taking with her the company cheques which were then drawn in favour of Ng. •  A total sum of HK$2m was involved.
Remarks	•  Revised the Cheung guidelines involving HK$3m to HK$15m from 5 to 9 years to 5 to 10 years; and that involving HK$1m to HK$3m from 3 to 4 years to 3 to 5 years. •  Applying the revised guidelines, the stolen amount of HK$2m would fall within the band of 3 o 5 years which would attract an initial starting point of 4 years. However, as the offences were committed pursuant to a joint enterprise with premeditation, involving three different victim companies and as Ng had not been deterred by the sentences passed in respect of his previous dishonesty-related convictions, the starting point had to be enhanced to reflect these aggravating factors. •  The final starting point for Ng should be 5 years and 3 months.

HKSAR v Chong Hung Shek[14]

Charges & the original sentence(s)	•  3 charges of fraud. •  8 years for each charge, all concurrent.
Facts	•  Chong was a conveyancing clerk in a law firm and he admitted misappropriating a total of HK$35m of the clients’ money over a period of 3 years but the final actual loss was HK$10m.
Remarks	•  The court considered that the amount of the fraud which was particularised in the charge, instead of the actual loss suffered by the clients, should be the basis for deciding the sentencing band in the Guidelines. The actual loss is simply a matter of mitigation. •  The total sentence, on appeal, remained one of 8 years but different individual starting points were adopted for the charges.

HKSAR v Lam Wing On[15]

Charges & the original sentence(s)	•  2 charges of fraud. •  Convicted upon trial: 5 years for charge 1; 6 years and 8 months for charge 2, to run concurrently.
Facts	•  Lam was in charge of RHK and TRHK’s procurement of facilities. Between 2007 and 2014, Skytech, a company owned by Lam’s father, was awarded a number of contracts for the provision of facilities to RHK and TRHK, resulting in over HK$19m being paid by RHK and TRHK to Skytech. Subsequently, Skytech made payments of HK$11.5m to Lam and persons associated with him. •  In contrast, Skytech only paid HK$3.1m to the suppliers who were actually responsible for providing the services or goods to RHK and TRHK.
Remarks	•  Although the court accepted that RHK and TRHK might need to engage a company similar to Skytech when obtaining services from the suppliers and might therefore need to make payments to that company, the judge was entitled to assess the benefit as the payments made to Lam and persons related to him. •  The court considered that reference could be made to the Guidelines although the present case did not relate to theft but involved fraud committed by a person in a position of trust. •  The application for leave to appeal against conviction and sentence was refused.

15.  In summary, the following could be discerned from the above cases:

(1)  Irrespective of whether the charge was one of theft, fraud, or conspiracy to defraud, the Guidelines were invariably referred to when the defendant was shown to be in a position of trust.

(2)  Where an amount has been particularised in the charge, that sum, instead of the actual loss, would form the basis, amongst other things, for the determination of the applicable band.

(3)  The actual loss, if less than the particularised amount, might, depending on the circumstances, constitute a mitigating factor.

(4)  The amount involved is only one of the factors to be taken into account when determining the sentence.

16.  In respect of point (4), we should mention that in Clark[16], Rose LJ, referred to Barrick[17] where Lord Lane C.J. said:

“The type of case with which we are concerned is where a person in a position of trust, for example, an accountant, solicitor, bank employee or postman, has used that privileged and trusted position to defraud his partners or clients or employers or the general public of sizeable sums of money. …

…

In general a term of immediate imprisonment is inevitable, save in very exceptional circumstances or where the amount of money obtained is small. Despite the great punishment that offenders of this sort bring upon themselves, the Court should nevertheless pass a sufficiently substantial term of imprisonment to mark publicly the gravity of the offence. The sum involved is obviously not the only factor to be considered, but it may in many cases provide a useful guide. …

…

The following are some of the matters to which the court will no doubt wish to pay regard in determining what the proper level of sentence should be: (i) the quality and degree of trust reposed in the offender including his rank; (ii) the period over which the fraud or the thefts have been perpetrated; (iii) the use to which the money or property dishonestly taken was put; (iv) the effect upon the victim; (v) the impact of the offences on the public and public confidence; (vi) the effect on fellow-employers or partners; (vii) the effect on the offender himself; (viii) his own history; (ix) those matters of mitigation special to himself such as illness; being placed under great strain by excessive responsibility or the like; where, as sometimes happens, there has been a long delay, say over two years, between his being confronted with his dishonesty by his professional body or the police and the start of his trial; finally, any help given by him to the police.”

The present case

17.  The above sentencing factors are, no doubt, of relevance when considering whether the term imposed on the appellant was or was not manifestly excessive, in particular, whether the judge erred in adopting the HK$9.3m subsidy as the “stolen amount” for pitching the applicable band.

18.  Since reference was repeatedly made in this case to the subsidy of HK$9.3m, it would be of assistance to trace how this sum came about and perhaps, we should begin with an examination of the particulars of the charge which read:

“	2nd Charge
Statement of Offence
Fraud, contrary to section 16A(1) of the Theft Ordinance, Cap. 210.
Particulars of Offence

LEUNG Chun-hei, between the 1st day of February 2016 and the 7th day of November 2018, both dates inclusive, in Hong Kong, by deceit, namely, by concealing from or failing to disclose to Philips Lighting Hong Kong Limited (“Philips Lighting”) his wife SUEN Chung-yan’s interest in Supreme Profits International Limited (“Supreme”) whilst the said LEUNG Chun-hei was an employee of the said Philips Lighting and was under a duty to make full disclosure of any existing or potential conflict of interest to the said Philips Lighting, and with intent to defraud, induced the said Philips Lighting to continue to authorize the said LEUNG Chun-hei to handle the orders placed by the said Supreme with the said Philips Lighting, which resulted in benefit to the said Supreme or in prejudice or a substantial risk of prejudice to the said Philips Lighting.”

19.  It is immediately apparent from the charge that no specific sum was particularised and the prosecution’s allegation was in general terms: the fraud “… resulted in benefit to the said Supreme or in prejudice or a substantial risk of prejudice to the said Philips Lighting.”

20.  That said, it was, of course, never suggested that the appellant’s conduct did not constitute the offence of fraud but only that the amount involved in the fraud, according to the prosecution, could not be readily ascertained and therefore no specific sum was provided in the particulars.

21.  In fact, such position of the prosecution was made clear to the judge when the prosecution submitted that they did not see the need to separate the amount of subsidy used in the OEM Channel and that in the Trade Channel: “If Philips know the conflict of interest, first of all, it would assign another staff to deal with the matter. Because …”[18]

22.  Unfortunately, prosecuting counsel was unable to continue with that submission because the judge told counsel that it would make a difference to her and she would like to be assisted on this to which prosecuting counsel then replied that they would obtain a figure from the company. That was what the prosecution did and when the court next convened, the judge was told that the discount obtained from the Trade Channel was HK$9.3m.[19]

23.  It is also pertinent to note that in mitigation, leading counsel for the appellant urged upon the judge that:

“…there is no evidence in my respectful submission of any quantifiable loss to Philips. None…”[20]

“… In relation to the subsidies and the discount, this process, complex process they have gone through, they calculated on a commercial basis and on the…”[21]

“… there is no evidence that Supreme based on commercial consideration was not entitled to those subsidies or discount but for the fact that the defendant had now failed to declare his interest. That is my respectful submission.”[22]

“…Your Honour, there is vast world of difference with our present case and that case, a whole world of difference. Direct benefit, money passed to Skytech and its family, presuming the only purpose for Skytech setup was to expunge money in order to pay to the defendant’s family.

It is not such a case here. It is a commercial decision made by Philips and I think it is quite clear that Philips -- I mean, Supreme was the biggest customer, Philips must have earned millions of dollars, hundreds of millions perhaps from OEM transactions. So we should emphasise that.”[23]

24.  Pausing here, we wish to make this first point. Although the judge said in the Reasons for Sentence that, “The benefit obtained by the defendant under the Trade Channel alone is over HK$9.3 million.”[24], as set out in the judgment when granting leave,

“21. … Miss Chan accepted that the HK$9.3 million in the Trade Channel did not just vanish and became “money stolen” from Philips. Instead, the HK$9.3 million, when used by Supreme, had generated other rounds of business, resulting in more revenues for Philips. …”[25]

25.  Next, although Miss Chan for the respondent argued before us that if the HK$9.3m was not used by Supreme, it would go back to Philips’ profit ledger and Philips would therefore have earned this sum, the submission ignored the fact that when the subsidy was used by Supreme, more purchase orders would have been placed with Philips, thus bringing in more revenues.

26.  In short, this is not a straight-forward case wherein the amount stolen or the benefit pocketed by the defendant or his associates could readily be ascertained. In fact, based on the summary of facts, during the period covered by the charge, the total invoiced amount of the purchase orders placed by Supreme was about HK$106m. In other words, Supreme had to spend over HK$100m on goods purchased from Philips before Supreme was allowed to use the HK$9.3m in the Trade Channel, which would represent a discount of about 10% on the amount spent by Supreme. This percentage, one might think, was not an unusually high discount in the commercial world but whatever that might be, the important feature is that this discount was not freely given and Supreme had to earn it by first meeting the sales target.

27.  Once it is accepted that the HK$9.3m could not be directly taken as “money stolen” or “benefit obtained” but rather, that it was a sum “calculated on a commercial basis” as put by leading counsel for the appellant at the mitigation stage, then care should be exercised when making reference to the Guidelines. As highlighted above, it should also be borne in mind that the amount involved is but just one of the factors to be taken into account when sentencing an offender in a position of trust.

28.  In our view, although the HK$9.3m might merely be a pointer of the scale of the fraud instead of the “actual loss” suffered by Philips, this case had the following aggravating features:

(1)  Soon after Supreme was incorporated, upon the appellant’s introduction, Supreme became the customer of Philips’ OEM Channel. The inference that there was pre-planning involved and that the appellant intended to use his position in Philips to facilitate Supreme’s operation could readily be drawn.

(2)  The appellant was the Senior Sales Manager authorised to act for Philips in negotiating prices with Supreme – a clear case of conflict of interest albeit that extra approval would need to be obtained if the agreed prices were to fall below the minimum set by Philips.

(3)  Given that the appellant was responsible for negotiating prices with customers in the OEM and Trade Channels, any suggestion from him concerning Philips’ competitiveness in terms of pricing must have carried some, if not huge, weight when put forth to Philips.

(4)  Yet, without disclosing his connection with Supreme, the appellant took the initiative to suggest to Philips that in order to maintain their competitiveness, approval should be given to the OEM customers, including Supreme, to use the promotion fund in the Trade Channel.

(5)  It goes without saying, and it was part of the summary of facts that, had Philips known of the appellant’s relationship with Supreme, Philips would not have agreed to the appellant’s suggestion to use the promotion fund in the Trade Channel to subsidise OEM customers, including Supreme.

(6)  The fraud relating to the charge was practised over a period of 2½ years.

29.  Given the above, especially the degree of trust reposed in the appellant and the other matters identified, we took the view that a starting point of 5 years would be appropriate. Since the appellant pleaded guilty at the earliest opportunity, he should be entitled to the full one-third reduction, thus reducing his sentence to 40 months. In respect of the matters which were said not to have received the judge’s sufficient attention, we did not see any force in the argument. We agreed with the judge that the only relevant mitigating factor in this case was the appellant’s plea.

30.  Lastly, as we considered that the cases cited to us already provided sufficient guidance in determining the appropriate sentence in this case, we refused to adopt Mr Leung’s suggestion to make reference to the UK Sentencing Council’s approach, not to mention that the maximum sentence for fraud in the UK is 10 years whereas that in Hong Kong is 14 years.

Conclusion

31.  For the reasons given, we allowed the appellant’s appeal against sentence and replaced the original term with a sentence of 40 months.