HKSAR v. SHARMA NIPUN

CACC 41/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 41 OF 2017

(ON APPEAL FROM DCCC NO 665 OF 2016)

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J U D G M E N T

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1.  On 17 November 2016, the applicant was convicted of two charges of fraud, contrary to section 16A of the Theft Ordinance, Cap 210, following his pleas of guilty before HH Judge Josiah Lam (“the judge”). After hearing mitigation on 17 November 2016 and 20 January 2017, the judge on 1 February 2017 sentenced the applicant to a total term of 44 months’ (or 3 years and 8 months’) imprisonment.

2.  By way of a Form XI Notice of application for leave to appeal filed on 22 February 2017, the applicant sought leave to appeal against his sentence.

3.  Unusually perhaps, both parties are represented before me by their respective counsel at trial; the applicant by Mr Tracy, and the respondent by Ms Ko.

Facts admitted by the applicant

4.  The offences in question concerned three Hong Kong registered companies, for which the applicant was responsible and which held themselves out as trading in electronic products.  The three companies were (i) Fook Choi International Company (“Fook Choi”), (ii) Super Speed Limited (“Super Speed”) and (iii) Marshel Exports Limited (“Marshel Exports”).

5.  The applicant was at all material times a shareholder/director and the sole decision-maker of Super Speed and Marshel Exports, and the sole authorized signatory for their respective bank accounts.

6.  All three companies had no independent business or correspondence address and used the applicant’s home address as their registered address.  In addition, Fook Choi had not declared any income throughout the time of its operation in Hong Kong.

7.  Certain events of significance, as admitted by the applicant when he pleaded guilty, may be summarised in the table below:

Date	Event
Since 2007	The applicant signed various facility letters on behalf of Super Speed and Marshel Exports applying for miscellaneous loans (also known as invoice loans) from the Bank of Baroda (“the Bank”) purportedly to finance their respective purchases of DVDs and mobile telephones from Fook Choi.  Both companies pledged properties for security and the applicant entered into personal guarantees.
21 April 2011 to 28 September 2012	The Bank approved Super Speed’s 49 loan applications, resulting in US$6,027,903.01 (the subject matter of Charge 1) being deposited into Fook Choi’s bank account. The Bank also approved Marshel Exports’   73 loan applications, resulting in US$8,742,322.25 (the subject matter of Charge 2) being deposited into Fook Choi’s bank account.
August 2012	Winding‑up petitions were presented against Super Speed and Marshel Exports by their creditors for debts totalling more than US$0.4 million.
October 2012	Super Speed and Marshel Exports had accumulated indebtedness of HK$14.8 million and HK$8.6 million respectively, hence were wound up by court order. Super Speed and Marshel Exports owed the Bank US$1.092 million and US$1.655 million respectively.
July 2013	The applicant was arrested by the police.  Thereafter, he was placed on police bail.
July 2014	The applicant absconded from police bail.
March 2016	The applicant was re‑arrested.

8.  Under caution, the applicant said that:

(i) He took part in Super Speed’s operation by sourcing supplies from China; looking after the warehouse; and liaising with clients;

(ii) He opened an account at the Bank for Marshel Exports’ invoice loan applications. He would read the statements of the Bank account.  Throughout 2011 to 2012, Marshel Exports’ business was “very bad”, with monthly income amounting only to between HK$2,000 and HK$3,000;

(iii) He knew that Super Speed and Marshel Exports had applied for invoice loans from the Bank.  In particular, he had applied for those in respect of Marshel Exports;

(iv) Whilst he had no knowledge of Fook Choi, Super Speed and Marshel Exports “might have had” some business with Fook Choi; and

(v) The application forms for the loan applications “might have been signed” by him.

9.  In relation to the loan applications, the applicant’s purported signatures appeared on some of the loan application forms (28 of those submitted by Super Speed and 36 of those submitted by Marshel Exports). It was conceded that when the relevant application forms were submitted to the Bank, the applicant was present in Hong Kong.  It was also admitted that the Bank would not have approved the loan applications had it known that (a) any submitted document contained false material; (b) the purported underlying transaction did not exist; (c) the supplier was a connected company with the applicant; or (d) the loans were channelled from the supplier back to the applicant.

10.  As regards to the bank accounts of the three companies, Fook Choi’s bank account was concerned almost exclusively with the invoice loans.  The relevant amounts, once deposited into Fook Choi’s bank account, were withdrawn and then deposited into the bank accounts of the other two companies and further used by the applicant for the repayment of outstanding loans.  In the process, the applicant received HK$842,500 from Super Speed into his personal bank account.

Mitigation

11.  At the hearing on 17 November 2016, the judge noted that an important question then yet to be resolved was whether “at any stage …, was the outstanding amount still owed to the bank exceeding the amount of securities placed with the Bank?”[1]. The hearing was adjourned so that counsel could provide an answer to that question.

12.  At the resumed hearing on 20 January 2017, the following matters were clarified:

(a) The outstanding loan amount was HK$9.6 million[2], the defence accepting that the figure was “around 9 million”[3];

(b) There was “a reasonable prospect but not a certain thing that [the outstanding amount] would be recovered”[4]; and

(c) Fook Choi, which had been registered in December 2010, was not originally set up for the purpose of perpetrating anything illegal.  The applicant, however, made use of it later to facilitate the false claims[5].

13.  Also submitted to the court, by the prosecution, were various documents relating to the fraudulent loan applications[6]; and, by the defence, a bundle of over 200 pages of documents[7], comprising facility agreements between the Bank and Super Speed, and between the Bank and Marshel Exports, during the period 2007 to 2011.

14.  The applicant was 43 years of age; he was married and had two daughters who were aged 14 and 17 years of age respectively[8]; and he had received education in India up to high school level[9].

15.  The defence accepted that any delay in prosecuting the matter was not a mitigating factor[10].

16.  When directly asked by the judge for his suggestion as to the appropriate starting point for sentence, Mr Tracy responded[11]:

“Yes. Your Honour, I’ve thought about this very anxiously, your Honour, because in cases where there are fairly close guidelines like burglary or very strict guidelines like drugs, obviously defence counsel can get up and say what the correct sentence ought to be. Defence counsel can’t say what the correct sentence ought to be where sentencing is more at large as it has to be in fraud cases, and I’m reluctant to select a figure in case it should embarrass anybody else in case this case goes elsewhere in the hands of other counsel.

All I’m saying I think I would say it is it -- obviously, you have to have a starting point of more than 20 months in the case of Anthony Fan, and I would say that because of the circumstances of the offence, the remorse, the recovery, a prospect unquantifiable of a full recovery, the starting point ought to be significantly less than in the case of Agnes Yu Lai Lai.  And I really don’t want to take it further than that, your Honour, and...”

17.  I would observe that in HKSAR v Yu Lai Lai Agnes, the applicant had been sentenced after trial to 6 years and 8 months’ imprisonment in respect of a charge of fraud, pursuant to which the applicant, a company director, induced a bank to grant export loans to her company amounting to HK$15,424,000 (the remaining loss to the bank being over HK$15 million).  The Court considered that the starting point should have been 6 years’ imprisonment, taking into account , in particular, that the applicant was the prime mover in a fraud committed against a single bank over an eight‑week period, resulting in a sizeable loss to the bank[12].  The Court noted that the case did not involve a breach of trust.

Reasons for Sentence

18.  In passing sentence, the judge noted that the outstanding balance to be recovered (assuming it could be recovered in full) by the Bank had been reduced from HK$21.43 million to about HK$9 million.  Nevertheless, he observed that the Court in HKSAR v Ho Ka Keung (No 2)[13]had said that actual loss was only relevant “to a minimal extent”.  He went on to say that “the gravamen of these fraudulent trade loan applications lies in the defendant’s abuse of the loan system and breach of trust”[14] (my emphasis).  It is the italicised words of this latter statement which have prompted Mr Tracy’s main ground of complaint in this application.

19.  The judge then considered the number of fraudulent loan applications (122), the total amount of the loans (HK$115.2 million) and the length of time over which the offences were perpetrated (17 months).

20.  In the result, the judge adopted a starting point of 4 years’ imprisonment in respect of Charge 1, and 4½ years’ imprisonment in respect of Charge 2.  He considered that the overall starting point in respect of both charges should have been 5½ years’ imprisonment.  Affording the applicant a one‑third discount for his guilty pleas to both charges, the judge further ordered that 8 months of the sentence on Charge 1 should run consecutively to the resulting 3‑year sentence on Charge 2, thus making a total term of 3 years and 8 months’ imprisonment.

Ground of appeal

21.  Mr Tracy has advanced a principal ground of appeal, namely that the judge wrongly treated the applicant’s “breach of trust” as an aggravating feature to enhance sentence.  Before me this morning, he has further advanced submissions that by reference to similar cases of fraud, the overall starting point adopted by the judge was manifestly excessive.

22.  In his submissions, counsel submitted that whilst there was nothing to suggest any breach of trust on the applicant’s part in the Summary of Facts, or in the documents adduced by the parties at the sentencing hearing, the judge evidently came to an erroneous determination without giving counsel an opportunity to address him on the issue beforehand.

23.  Mr Tracy submitted that where the fraud, as in this case, was related to the abuse of the export loan system, it necessarily involved dishonesty.  That said, a mere relationship between a business customer and his bank, where the former deceived the latter, would be insufficient to constitute a relationship from which a breach of trust could arise.

Respondent’s submissions

24.  In opposing leave to appeal, Ms Ko, on behalf of the respondent, argued that, although the judge referred to the phrase “breach of trust”, it was clear that he did not sentence the applicant in accordance with the “breach of trust” guidelines in HKSAR v Cheung Mee Kiu[15], subsequently revised in HKSAR v Ng Kwok Wing[16], otherwise the starting point would not have been as low as 5½ years’ imprisonment.  Indeed, it would have been at least 7½ years’ imprisonment for a loss of HK$9 million, and considerably higher for a fraud involving 122 fraudulent loan applications to the value of HK$115.2 million.

25.  Ms Ko contended that the judge’s sentencing approach was consistent with that approved in HKSAR v Yao William[17], where the relevant sentencing considerations in respect of a commercial fraud included (i) the impact which the fraud was likely to have on the integrity of the loan system; and (ii) the size of the potential risk to which the victim bank had been exposed.  In light of the seriousness of the present fraud, she submitted that the ultimate sentence of 3 years and 8 months’ imprisonment could not be said to be manifestly excessive.

26.  Ms Ko further invited the Court to have regard to two additional authorities, namely HKSAR v Yuen Kwok Kee[18] and HKSAR v Kwok Shiu To[19], relating to the propriety of a court granting a full one‑third discount to an defendant who had jumped bail for a substantial period of time.  She submitted that the discount should have been significantly less.

Consideration

27.  I do not accept that when the judge referred to “breach of trust” in the statement impugned by Mr Tracy, he was suggesting or implying that the applicant had committed an offence whose seriousness was aggravated by his breach of trust in the classic sense in which that term is used in sentencing practice.  Having just referred to the case of Yu Lai Lai Agnes, which involved a similar fraud on a bank by the director of a company applying for loans, it would have been surprising if the judge had meant that the applicant in the present case committed a breach of trust in its classic sense, when the Court in Yu Lai Lai Agnes expressly held that that applicant had not: see para’s 41‑42.  Furthermore, the judge made specific reference to certain contrasting features in the facts in HKSAR v Law Chi Man Kenneth[20], a case which had been referred to by the Court in Yu Lai Lai Agnes.  Yet Law Chi Man Kenneth was not a breach of trust case in its classic sense either.  It seems to me that when the judge used the term “breach of trust” in his Reasons for Sentence, he was using it in its wider, general sense to describe the abuse of a system of documentary credit, which was necessarily reliant on the trust between the bank and its customer.

28.  Furthermore, if the judge was really saying that the applicant had committed a breach of trust in its classic sense, leading to a fraud on the Bank of HK$115.2 million and an ultimate loss of HK$9 million, he would not have been considering an overall starting point of 5½ years’ imprisonment.  As Ms Ko correctly pointed out, the starting point would in those circumstances have been considerably higher under the guidelines laid down by the Court in Cheung Mee Kiu and, later, Ng Kwok Wing.

29.  However, whatever the judge’s turn of phrase, the Court of Appeal will ultimately have to consider whether the sentence of 3 years and 8 months’ imprisonment after plea was manifestly excessive or wrong in principle for the particular criminality concerned.  I regret I am not persuaded that there is a reasonably arguable ground of appeal that the overall starting point or the resulting sentence after plea was manifestly excessive, when seen against comparable sentences in this sphere of criminal sentencing. As the Court in Yu Lai Lai Agnes observed, at para 43:

“Every set of facts is different and that is particularly so in cases of fraud. Therefore, recourse to other decided cases where different sentences were passed on different permutations of fact may not be a very useful exercise other than to give a general idea of the range of sentences applicable and the factors which may be taken into account in assessing where the defendant/applicant falls within that range.”

30.  Mr Tracy argues that in the present case the applicant acted alone, there was only one bank involved and a single course of conduct was undertaken, using companies which were not set up with the purpose of defrauding the Bank.  On the other hand, of course, the facts established that the fraud, of which the applicant could be said to be the prime mover, was perpetrated over some 17 months, the total amount of the loans obtained by the applicant’s fraud were more than HK$115 million and the outstanding loss remains at HK$9 million.

31.  I do not consider that there is a reasonably arguable ground of appeal in this case that the sentence passed on the applicant was either manifestly excessive or wrong in principle.  I say that without recourse to the further argument of Ms Ko that the applicant had absconded and was not entitled to a full one‑third discount for his plea.  The most recent, and most definitive, pronouncement of the Court of Appeal on this matter, which was delivered a year before the applicant was sentenced in this case, suggests that he was not in fact entitled to a full one-third discount for what was not a “timely plea”: see HKSAR v Lo Kam Fai[21].

32.  It is true that on 20 January 2017 during mitigation, Mr Tracy argued that the applicant’s admitted absconding for 1 year and 8 months was to some extent counter-balanced by the delay in charging the applicant[22]. However, this was a complex case involving 122 fraudulent loan applications, which only came to light during winding‑up proceedings, and to which the applicant did not exactly make fulsome admissions when arrested and cautioned. Inevitably, the case would have taken time to understand and prepare, and the applicant cannot obviously rely on any element of delay from the time he absconded.  The applicant was perhaps fortunate that the judge did not reduce the discount afforded to him for his plea, in view of his absconding.

Conclusion

33.  Accordingly, the application must be refused. The applicant is duly advised that he has the right to renew his application for leave to appeal to the Court of Appeal, but he is also warned of the consequences of so doing, which may include a direction for any loss of time spent in custody pending his appeal, if the Court of Appeal were to come to the view that there was no justification for the renewal of his application.