HKSAR v. WONG WAI

IN THE COURT OF APPEAL

1997, No.265
(Criminal)

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J U D G M E N T

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Power, V.-P. (giving the judgment of the Court):

1. The applicant faced three charges - using a false instrument contrary to s.73 of the Crimes Ordinance ("the Ordinance"), possession of a false instrument contrary to s.75(1) of the Ordinance and possession of equipment for making a false instrument contrary to s.76(1) of the Ordinance. In the first, it was alleged that he, on 13th November 1996 at the Bank of East Asia, at 10 Des Voeux Road Central, together with Zhou Rui-xiong, used instruments namely, eight Certificates of Time Deposit of the China Construction Bank, Guangzhou Branch, numbered 960006-960011 (inclusive), 960016-960017 (inclusive) each with face value of $8,000,000 United States currency, and one Certificate of Time Deposit of the China Construction Bank, Guangzhou Branch, numbered 960015 with a face value of $10,000,000 United States currency, and five Certificates of the aforesaid Bank, confirming the issue of the said nine Certificates of Time Deposit, which were, and which he knew or believed to be false, with the intention of inducing somebody to accept them as genuine, and by reason of so accepting them to do or not to do some act to his own or any other person's prejudice. He pleaded not guilty to that charge and it is against his conviction thereon which he now appeals. He pleaded guilty to the other two charges and we are not concerned with them here.

2. Judge Gill in his Reasons for Verdict said:

"..... the defendant (applicant), one Zhou Rui-xiong (Zhou) and Zhou's wife, are shareholders and directors of a company called Ankon International Limited, registered in Hong Kong in March 1994. The defendant is also the secretary. The paid-up capital is $10,000. The defendant's share is 20 per cent of that. The company operates two bank accounts, having a total credit balance of under $2,000.

On 13 November 1996 the defendant, Zhou, and one Lau Chi-hung (Lau) met by arrangement senior officials of the Bank of East Asia. Zhou brought with him what purported to be nine certificates of time deposit (CTDs) issued by the China Construction Bank for a total of US$74 million. Six of these revealed the depositor to be Ankon; the remaining three were in favour of other parties. The bank officials were asked that the bank accept these CTDs for safe custody and, upon its acceptance, Lau would advance 35 per cent of their face value to Zhou. The bank would receive 1 per cent of their face value as a service charge.

The officials had cause to believe the CTDs, together with the accompanying certificates of confirmation from the bank, were not genuine. The parties were invited to release them to the bank for verification and the defendant and Zhou signed a prepared document headed, 'Request for Verification of Documents' for this purpose. Lau refused to sign. The meeting then terminated and the parties left."

3. It is pertinent here to set out the admitted facts which, insofar as they are relevant, were as follows:

"1st Charge

1. On 12th November 1996, a Mr. Lau Chi-hung (Suspect 1) telephoned to Mr. Law Siu-wing (PW1), a supervisor of the Securities Department of Bank of East Asia ('BEA') requesting to open a custodial account for the safe custody of a number of 'Certificates of Time Deposit' ('CTD'). An appointment was made to meet PW1 in the late afternoon on the same day at the office of BEA at 10 Des Voeux Road, Central, Hong Kong concerning the matter.

1. At about 4 p.m. the same day, Suspect 1 and a Mr. Zhou Rui-xiong (Suspect 2) went to the office of BEA where they were interviewed by PW1 and his colleague Mr. Leung Shun-wo (PW2) of BEA who were shown a CTD which appeared to be issued by The China Construction Bank of China Guangzhou Branch to Ankon International Limited ('Ankon'). Suspect 1 said that there would be a total of nine similar CTDs to be deposited and they all belonged to Suspect 2's company Ankon which was incorporated in Hong Kong on 3rd March 1994. Wong Wai (D) and Suspect 2 were both registered with the Companies Registry as directors and shareholders of Ankon (Exhibits 1 and 2A to 2E).

3. Suspect 1 claimed that should BEA accept the safe custody of the nine CTDs and issue an official receipt to confirm such deposit, he would lend 35% of the total face value of the CTDs to Suspect 2 and BEA would get 1% of the total face value as the service charge. Although BEA does not have such kind of account, PW1 requested Suspect 2 to allow the nine CTDs to be photocopied so that advice could be sought from BEA management.

4. After consulting the management of BEA, PW1 was told on the following day that the relevant CTDs were false. As instructed by BEA's legal adviser Mr. Collins Alan John (PW3), a further appointment was made with Suspect 1 and Suspect 2.

5. On 13th November 1996, Wong Wai ("D"), Suspect 1 and Suspect 2 together went to the office of BEA where they were interviewed by PW1-3. Suspect 2 presented to PW1-3 eight CTDs numbered 960006-960011, 960016-960017 each with face value of US$8,000,000 and one CTD numbered 960015 with a face value of US$10,000,000 (Exhibits 3-11) purported to be issued by the Guanzhou Branch of The China Construction Bank to Ankon. In addition, Suspect 2 produced another five certificates, in the name of the same bank, to authenticate the issue, and guarantee the conditions of the said nine CTDs (Exhibits 12-16). In this respect BEA requested the party to sign a 'Request for Verification of Document' (Exhibit 17) in order to confirm the handing over of the CTDs and certificates to BEA for verification. D and Suspect 2 signed Exhibit 17 and left BEA afterwards."

4. At trial there was clear evidence to establish that the documents were clumsy forgeries. The judge stated:

"It is pertinent to note that other items found in the course of the search of the defendant's home included further forged CTDs that purportedly issued from the Bank of China, other forged letters and documents and chops intended to manufacture false documents. The defendant has admitted possession of these, knowing them to be false, with intention to induce somebody to accept them as genuine with prejudice. This has given rise to his pleas of guilty to charges 2 and 3."

The judge reviewed the evidence of the applicant in which he said that although Ankon had done no business in Hong Kong, Zhou had a successful sister company in Guanzhou and that he had believed Zhou when he told him that he had CTDs and was seeking to raise capital on them and that, in consequence of this, he had introduced him to Lau. The applicant said that he only went to the Bank of East Asia as an interpreter and to protect the introduction fee which he expected he would get from Zhou for introducing him to Lau. He said that he had no suspicion as to the authenticity of the documents.

5. The trial judge found:

"First, as to the authenticity of the documents. It is certain beyond any doubt at all that they are all forgeries, amateurishly manufactured. In respect of this, I rely on the evidence of the bank officials and my own inspection.

Secondly, as to the defendant's knowledge. I am satisfied he knew. He has been a director and secretary of the company since its inception, of modest worth which, on his own admission, has done no trading. He participated in a meeting with senior bank officials in which nine CTDs, six of which being in favour of his company, were held out to be genuine, which stated that his company had, two months' prior, deposited US$40 million. He had at his home, amongst other admitted forgeries and instruments intended to make forgeries, a photocopy of one of the forged CTDs. It beggars belief that he did not know of their status."

There is no real challenge made to the correctness of these findings. The judge went on:

"Thirdly, as to the intention to induce somebody to accept them as genuine. I am satisfied the defendant had that. It is quite clear from the admitted facts that there was the intention for the Bank of East Asia to be induced to accept the CTDs. The defendant, being part of the joint enterprise, shared in this.

Finally, as to prejudice to be caused to the bank, or some other person, by reason of the CTDs being accepted as genuine. I am satisfied there would have been prejudice. The evidence adduced really does not shed any light as to the role the Bank of East Asia was to be asked to play. On the face of it, Lau was to advance funds to Zhou on the security of the CTDs. The bank was asked to do no more than accept them in safe custody as authentic documents. On the face of it then, had the transaction proceeded, it would not have been exposed to risk. That would have been a position solely reserved for Lau. But I am satisfied that Lau was part of the criminal enterprise. Although the nature of the bank's exposure has not been established, I am certain that there was an intention to defraud it. Common-sense dictates it would not have been invited to accept a service charge of 1 per cent of US$74 million for doing no more than holding on to documents. So, I draw the irresistible inference, there being no sensible alternative, that the bank would have acted to its prejudice had it accepted the CTDs as genuine.

Thus I am satisfied the Crown has proved all the necessary ingredients of the charge beyond reasonable doubt and the defendant is guilty."

6. It is this finding that is challenged in this appeal. It is submitted that there is no evidence to establish that the bank would, by reason of accepting the CTDs, have been acting to its own or any other person's prejudice.

7. Mr. Mullick, who appears for the Applicant, rightly submits that the prosecution to establish the commission of an offence under s.73 of the Ordinance must prove that the offender had the intention of inducing somebody to accept a document as genuine and, by reason of so accepting it, to do some act to his prejudice. He refers to the meaning of "prejudice" in s.70 and submits that the applicable part of that section is contained in s.70(1)(f) which reads as follows:

"An act intended to be induced is to a person's prejudice if, and only if, it is one which, if it occurs, will be the result of his having accepted a false instrument as genuine, in connection with his performance of any duty."

Mr. Mullick submits that the conviction is fatally flawed as the trial judge did not identify any prejudice which the bank or any other person would suffer. He suggested the judge made this plain when he said:

"Although the nature of the bank's exposure has not been established, I am certain that there was an intention to defraud it."

He submits that an unidentified intention to defraud is not enough to establish an offence. Frauds of this kind are normally not aimed primarily at the institution which issues the receipt but rather at a third party to whom the receipt will be shown in an endeavour to induce him to lend money. Be that as it may, was the judge correct in his finding that no intention to induce the bank to act to its prejudice could be identified?

8. We suggested to Mr. Mullick that the prejudice which the bank would suffer, and which it was intended that it should suffer, would lie in its issuing of a receipt stating that it held CTDs to the value of US$74m. We have no doubt that the issuing of such a receipt indicating that the bank held valid documents, when in fact they were false, would, on the ordinary meaning of the word, be a prejudice to the bank. Mr. Mullick submitted, however, referring to s.70, that a prejudice under the section only arose if the receipt was issued as a result of the bank's "having accepted the CTDs" as genuine in connection with "its performance of any duty" and that, as the bank was under no duty to accept the CTDs for safe keeping, the acts of the applicant and the other offenders could not constitute prejudice as defined. We do not agree. It was intended that the bank accept the CTDs and issue the receipt. If the bank had acted as the applicant and the other offenders intended that it should act it would have accepted the CTDs in the performance of a duty which, as they intended, it had at their inducement undertaken. We are satisfied that it was proved that the offenders used an instrument which they knew to be false with the intention of inducing the bank to accept it as genuine and, by reason of so accepting it, to issue a receipt acknowledging that they had safe custody of CTDs to the value of US$74m, and that this would have been an act to the bank's prejudice as that term is defined in s.70. The evidence did, therefore, establish an offence under s.73. The judge misdirected himself when he held that there was no evidence to establish the specific prejudice which the bank would suffer. There was such evidence and, it seems to us, had the judge properly directed himself, he must have convicted.

9. Application for leave to appeal against conviction on 1st charge is granted. We will hear counsel as to the application of the proviso.

10. After hearing counsel's submission, the proviso is applied and the conviction is to stand. Appeal is dismissed.

11. The applicant also applied for leave to appeal against sentence on the 2nd and 3rd charges. Since no arguable ground is submitted, application is dismissed.