THE QUEEN v. JOHN MAO KAI-YUAN

IN THE COURT OF APPEAL

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JUDGMENT

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Li, V.-P.:

1. The applicant was convicted on his own plea of one count of conspiracy to defraud. The indictment alleged against him was that between September 1977 and 17th September 1982 he conspired with six named persons to defraud financial institutions in Hong Kong by dishonestly causing or permitting US dollars drafts drawn by the applicant himself on bank accounts of various American banks to be presented knowing that the drafts were not good and valid orders for payment of the amounts stated therein.

2. The admitted facts disclosed that the applicant at the relevant period was a managing director of the Yee Fong Hong which was a holding company of a large group of other subsidiaries including some Panamanian shipping companies. He came across financial difficulty in the years 1975/76. Thereupon he devised a method to obtain credit without security. His modus operandi was to use the accounts of one or more of the Panamanian companies which had bank accounts with some of the bankers in the United States and to draw cheques on such accounts. He then sold the cheques to one of the finance houses in Hong Kong for Hong Kong dollars. Those involved were the Hang Lung Bank, the Overseas Trust Bank and the Dollar Credit Financing Ltd. Making use of the time gap before any of the bankers in Hong Kong could present the US dollar cheque in America for payment, he quickly employed the Hong Kong dollars, the proceeds of the discounted cheques, to buy a banker's draft to pay into the bank account in America of the Panamanian company concerned. In this way he could make at least the bulk of the funds obtained by virtue of drawing that US dollar cheque available to meet the American cheque when presented for payment. There was a time gap involved of about 5 - 6 days. Within those 5 - 6 days he repeated the performance by discounting more US dollar cheque, buying more US banker's drafts to be paid into the US banks and in no time the whole process snowballed.

3. He started to do that in 1977. By the first week in September 1982 the amount that was found to be involved in one week was US$153 million. Investigation was afoot and it was found that due to this cheque kiting all these cheques amounting to US$153 million were dishonoured. The banks who discounted the cheques for the applicant suffered the loss. He was sentenced for this offence to 3 years imprisonment and he now applies for leave to appeal against sentence.

4. In the court below these facts were admitted. There was a long and eloquent plea in mitigation on his behalf. I shall not repeat every details of it. Suffice it to say that everything that could be said on his behalf was very well put, if I may say so, by counsel. The trial judge, having heard the pleas in mitigation, said as follows:

"Many mitigating factors have been put forward. I am not going to mention them all. I just wish to mention three because I consider that these are three matters of greatest significance in this case. Firstly, that he returned in order to surrender and face his punishment. Secondly, that he pleaded guilty. And thirdly that he assisted the investigating officers and continues to assist them despite what happens to him in this case. There is no doubt in a case like this that his assistance to the investigating officers - I am told that the absence of his assistance would not cause the cases to collapse but there is no doubt about it that a person like him - his assistance can help those of the investigating officers and apparently he has done so.

 

        Nevertheless none of these matters detract from the gravity of the offence itself. They do not mitigate the offence but what they do is mitigate the punishment and there is no tariff or scale upon which mitigation is reduced for these matters. In this case I consider it appropriate to reduce what could have been a sentence of 7 years to a sentence of 3 years. "

In support of this application the grounds that had been set out before the trial judge have been revived and again very eloquently put to us. It is alleged that the judge erred in principle in that he gave no and no sufficient consideration to some of the factors which mitigated the offence as well as the sentence; the punishment. It was said that the judge had not given sufficient consideration to the degree of the appellant's culpability in the offence in that the appellant did not obtain a lump sum benefit from the kiting operation as did others. At different times during the run of the cycles the appellant had injected funds into it. Thirdly, the fact that the sum needed to continue with the kiting cycle was mainly and substantially increased by sums being siphoned off the cycles by individuals other than the appellant. It was thus a kind of loan sharking operation in which the appellant was caught.

5. We have considered these as the trial judge had considered them. Admittedly what caused the cheque kiting in the first instance was a business collapse and financial difficulties experienced by the applicant in 1975/76. There was the crisis of the oil price at the time. There was a labour dispute in which his business was involved. But that did not detract from the fact that in order to try to save his business he contrived a dishonest scheme in conjunction with the others. Admittedly he, from time to time, injected money into this operation to no avail. There was no evidence that he had any lump sum or cash benefit deriving from this operation. It is also the evidence that other people had siphoned away money, and were able to benefit from this operation. However, the charge was that of a conspiracy, an agreement to do something illegal. The applicant was instrumental to these people being able to benefit themselves and to defraud the finance houses at large and indirectly members of the public. He was trying to save a business which was, if we understand correctly, a family business. He, in the course of the operation albeit at a price, had the advantage of getting credit without giving security for all five years. It was said that at a certain time, while the operation was going, he tried to terminate the cheque kiting operation by applying for term loans which were denied him. An honest and proper businessman, having no sufficient assets to meet his liability, could well have applied to the court to have the companies wound up or have applied for a Receiving Order. That was not his way.

6. Another ground was that he was a person of previous good character. He had tried his very best to assist the investigating officers even before and after he pleaded guilty. The judge in the course of passing sentence said that:

"When one is considering sentence of course, as Mr. Sanguinetti points out, one considers that the maximum should be reserved for the worst cases, not for the worst case, for the worst 'cases'. There never is a worst cases. It is always possible to envisage a worst case. No person could think up a state of facts and say that is the worst case that can be envisaged because one could very quickly add another factor that would make an even worse case.

 

        If this man had not pleaded guilty, I would have sentenced him to 7 years imprisonment. I would have sentenced him to the maximum available. "

7. Another ground of appeal was that the learned judge was wrong in assessing sentence on this applicant. He adopted the principle of maximum sentence of 7 years. However, he did not give sufficient consideration to the man's previous good character that would entitle him to a discount. The case of Markus ⁽¹⁾ was cited to us. At page 656 the Chief Justice said:

"The court takes account of the fact that the sentence imposed in this case was seven years, which was the maximum sentence permissible under the statute. It is difficult to say that the sentence was excessive having regard to the vast fraud with which this defendant was concerned, but we are impressed by the fact that it is unusual to give a man of previous good character the maximum statutory sentence; and furthermore, we think that this man is entitled to some credit for having stayed behind and faced the music when everybody else left. "

8. It was argued that the applicant fitted the description very well. There he was a man of previous good character. But the conspiracy lasted 5 years between 1977 to 1982. Prior to 1977 he was a person of good character.

9. It was said that while his associates in this ill-conceived plan so far escaped penalty, he returned to Hong Kong, pleaded guilty and faced the music himself. However, the trial judge in the court below did mention that there were many mitigating factors that had been put forward. He only chose three of the greatest significance. It does not mean that the judge did not take the other mitigating factors into consideration, namely that he was a man of previous good character, that he was remorseful enough to return to Hong Kong and face the punishment, that he was actively assisting the police and in the course of so assisting, he had been threatened while he was inside the prison. Special protection would have to be afforded to him and he was prepared to give evidence against these people of and when they were brought up to trial.

10. We have also observed that in taking various matters into consideration, the judge did give him a substantial discount. A question was asked in the course of counsel's address that had his previous good character been taken into consideration, as counsel would wish the court to do, what would have been the appropriate sentence had he pleaded not guilty in the circumstances. Counsel quite properly replied that would be anything between 5 to 6 years, and he said well it was 6 years. In that event, even if the judge were to consider 6 years as the maximum sentence he would have given the applicant a 50% discount for his return to Hong Kong, for his assistance to the investigating officers, for his plea of guilty and for the other mitigating factors that he was trying to save a family firm which was on the verge of financial collapse. It remains a very serious offence involving over US$135 million. Taking all into consideration, despite the very eloquent and compassionate plea on his behalf by counsel, this court cannot fault the sentencing judge for awarding him 3 years imprisonment. Accordingly the application for leave to appeal against sentence is refused.

(1) (1974) 3 W.L.R.645