HKSAR v.YIP YIU WING

DCCC892/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 892 OF 2000

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Reasons for Ruling

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The Defendant faced 23 counts of the same offence. All the alleged offences are the same except as to date, number and amount in the particulars. Typically, the first count reads:-

"False accounting, contrary to section 19 (1) (a) of the Theft Ordinance, Cap. 210.

Particulars of Offence

Yip Yiu-wing, on or about the 5th day of May 1998, in Hong Kong, dishonestly with a view to gain for himself or another or with intent to cause loss to another, falsified a document made or required for an accounting purpose, namely, a statement of Hoi Yu Transportation Company Number 98002 and dated 5 May 1998, by making or concurring in the making of an entry thereon which was or may have been misleading, false or deceptive in a material particular in that it purported to show that Hoi Yu Transportation Company rendered services to Hong Kong Convenience Stores Limited for April 1998 and that $47,550.00 Hong Kong currency was payable to Hoi Yu Transportation Company for the services so rendered."

2. The wording of section 19 of the Theft Ordinance, Cap. 210 is as follows:-

"19. False accounting

(1) Where a person dishonestly, with a view to gain for himself or another or with intent to cause loss to another-

(a) destroys, defaces, conceals or falsifies any account or any record or document made or required for any accounting purpose; or

(b) in furnishing information for any purpose produces or makes use of any account, or any such record or document as aforesaid, which to his knowledge is or may be misleading, false or deceptive in a material particular.

he shall be guilty of an offence and shall be liable on conviction upon indictment to imprisonment for 10 years. (Amended 46 of 1986 s.4)

(2) For the purposes of this section a person who makes or concurs in making in an account, record or document an entry which is or may be misleading, false or deceptive in a material particular, or who omits or concurs in omitting a material particular from an account, record or document, is to be treated as falsifying the account, record or document.

(3) For the purposes of this section, "record"(紀錄) includes a reocrd dept by means of a computer."

3. The prosecution called a number of witnesses. The totality of the evidence for the prosecution does generally bear out the substance in the summary of facts prepared by the prosecution:-

"(1) Since 1991, the defendant has been the Franchisee of 7-Eleven Convenience Store (ECS) located at G39, Block 2, Ground Floor, DB Plaza, Discovery Bay, Lantau Island which was under control of Hong Kong Convenience Stores Limited (HKCSL). The said store was allocated a unique number "319" (hereafter referred to Store 319) by HKCSL. The business of ECS was under the control and management of HKCSL until it was taken over by Diary Farm Co., Ltd. (DFCL) on 1.4.1999.

(2) The Defendant was responsible for the daily operation and management of the store. According to the Store Franchise Agreement, HKCSL receives 61% of the gross profit on defendant's store. Under normal practice, HKCSL was responsible for delivery of goods to individual franchise stores in the territory except those located on the outlying islands. Since Store 319 is located in Lantau Island, HKCSL allowed Defendant to arrange his own transportation for delivery of goods from Hong Kong Island to Discovery Bay. HKCSL also allowed Defendant to take 3.9% from the total costs of goods transported to his store to cover the transportation expenses.

(3) All along the Defendant engaged Hoi Yu Transportation Limited (HYTL) for delivery of goods from Hong Kong Island to Store 319. Every month, HYTL would bill Store 319 for the service of transportation provided in the previous month and the Defendant would issue bank cheques to HYTL for payment.

(4) In either late 1997 or early 1998 Miss Chin Sau, Area Manager of DFCL, informed the Defendant that HKCSL would settle all transportation fees directly with the transportation companies concerned.

(5) As a result of this new arrangement regarding the payment of transportation fees the defendant discussed with Miss CHUNG Siu-ching, the General Manager of HYTL, as to whether the latter was prepared to "inflate" the transportation fees for the goods delivered to store 319 and to pass onto the defendant to difference between the actual fees and the "inflated" ones. Miss Chung refused to 'inflate" the fees. The defendant then asked if he could set up a company of his own which would then bill HKCSL for the transportation services provided by HYTL. The defendant obtained Miss Chung's permission to use HYTL's address as the defendant's company's correspondence address. The company eventually set up in December 1997 by the defendant was called Hoi Yu Transportation Company (HYTC). Since then HYTL continued to send invoices to the defendant who would then "inflate" the charges on them and bill, using HYTC invoices, HKCSL and, later, DFCL. After HKCSL/DFCL had settled the HYTC invoices the defendant would then pay HYTL for the actual transportation fees incurred.

(6) In the period between May 1998 and March 2000 inclusive, the defendant submitted a total of 23 HYTC invoices (subject matters of charges 1-23) to HKCSL/DFCL each containing "overstated charges" and got paid a total of HK$1,037,414.00 whereas the actual fees for the same period payable to HYTL was HK$724,206.00.

(7) On 7.4.2000, the Defendant was arrested at his residence. During the house search, a company chop and letter heads bearing the name of HYTC were seized. The Defendant then made verbal admission, under caution, that he operated HYTC for the purpose of claiming transportation fee from this Franchiser.

(8) When interviewed under caution, the Defendant admitted that he operated HYTC in order to claim transportation fees. He explained that initially, the franchiser paid him 3.9% on the cost of goods for settling the transportation fees which was around $500 per pallet of goods. In fact, he paid HYTL $360 per pallet of goods. Later the franchiser directly settled the transportation fee with the transportation company. The Defendant claimed that he discussed the new arrangement for payment with Madam CHUNG Siu-ching, the General Manager of HYTL and CHUNG preferred to deal with him directly. As a result, he set up HYTC and issued monthly invoices of HYTC for claiming transportation fee from the Franchiser. He "overstated" the cost from $360 per pallet of goods to $500 per pallet and pocketed the price difference. The total amount involved was $313,208."

4. In addition, it emerged from witnesses called by the prosecution that, I should add as undisputed facts,

"(9) HKCSL/DFCL had at all times a contractual duty or liability to have goods delivered to the inside of each individual franchise stores. And, at all material times HKCSL/DFCL knew that HYTL (the outside transportation company) only delivered the goods to the outside of Store 319. Thus the defendant had to arrange at extra cost to check and move the goods into the inside of Store 319 on each occasion.

(10) The charges of HYTL for delivery of goods to the outside of Store 319 at $360 per pallet is not disputed as being too high, too low or unreasonable. After HYTL billed the defendant for their charges, the defendant in turn billed HKCSL/DFCL at $500 per pallet which rate included the extra cost of having goods moved into the inside of Store 319. There is no evidence from the prosecution to show that the difference in the rates, i.e. $500 - $460 = $140 per pallet was excessive or unreasonable. In fact, the manager and manageress of HYTL who gave evidence for the prosecution indicated that $140 per pallet for arranging goods to be checked and moved into the inside of Store 319 would be fair.

(11) HKCSL/DFCL at all material times allowed the defendant freedom to choose the transportation contractor and agree the rate chargeable by the contractor. This was so even after HKCSL/DFCL started to pay the transportation contractor directly."

5. Pausing here, leaving aside the question of whether $140 per pallet for extra costs is fair, since as a matter of contract and admission by HKCSL/DFCL the defendant was entitled to charge (and HKCSL/DFCL was liable to pay) a higher rate, the fact that the defendant did charge a higher rate is not prima facie "misleading, false or deceptive" or "dishonest". The burden of proof being on the prosecution, the prosecution must adduce evidence to show that the higher rate charged was a falsification within the meaning of section 19 (1) (a) of the Theft Ordinance, Cap. 210. Otherwise every shop which charges higher prices is prima facie liable to prosecution. However, there was no such evidence at all. In fact, independent witnesses for the prosecution tended to justify the higher rate charged by the defendant. Prejudicial words like "inflated" and "over-stated" in the prosecution's Summary of Facts are not borne out by evidence called by the prosecution.

6. Moreover, after the ICAC received report of the alleged offences and after HKCSL/DFCL management became aware of the allegations that the defendant had "over-stated" the costs, HYTL (the outside transportation) issued invoices to HKCSL/DFCL charging $500 (instead of $360) per pallet and HKCSL/DFCL paid all those invoices. When the manageress of HYTL called as witness for the prosecution stated in evidence that the later invoices charging $500 per pallet covered both HYTL's own usual charges at the rate of $360 per pallet and rebate to the defendant $140 per pallet for the defendant arranging goods to be moved into inside Store 319, there is no suggestion from the prosecution at all that these later invoices issued by HYTL were "misleading, false or deceptive" or "dishonest". This being the case, the prosecution cannot expect the court to apply double standards.

7. Although the charges were preferred under section 19 (1) (a) of the Theft Ordinance, Cap. 210 which requires proof of misleading, false or deceptive entry, the prosecution never made it clear until close of its case what were "the entries" that were said to be misleading, false or deceptive. After closing the prosecution case, Mr. Leung contended that it was the letterhead on the HYTC invoices issued by the defendant that was "misleading, false or deceptive". Now, entry plainly means some sort of particulars entered or to be entered into a document. It is at least arguable that a letterhead cannot be treated as an entry. Nevertheless, one can analyse further assuming that a letterhead is an entry.

8. The only way that it can be said that the letterhead of HYTC invoices was misleading, false or deceptive is that it might mislead HKCSL/DFCL into believing that the invoices were issued by HYTL rather than by HYTC. Indeed the names of HYTL and HYTC are similar and HYTL and HYTC put the same address and telephone number in their letterheads. However, the designs of the letterheads, particularly the logos, were quite conspicuously different. No reasonable jury, properly directed, would fail to see from the letterheads that HYTL and HYTC were distinct.

9. Even if HYTC letterheads were likely to mislead or deceive people into believing that they were HYTL letterheads, "dishonestly" is an essential and separate ingredient for offences under section 19 (1) (a) of the Theft Ordinance, Cap. 210. What was the dishonesty in this case? Evidence from the prosecution said that HKCSL/DFCL wanted to pay the transportation company direct. All this means is that HKCSL/DFCL would not pay more than the actual transportation costs involved. There is nothing to prevent one transportation company from sub-contracting part of the work or hiring different casual laborers on each occasion. HYTC of the defendant patently had to arrange for the transportation of goods into inside Store 319. The evidence from the prosecution indicated that the invoices from HYTC of the defendant represented the total transportation costs billed by HYTL and transportation costs incurred by HYTC. HYTC was not invoicing more than what the defendant was entitled to claim; nor was HKCSL/DFCL invoiced for more than its contractual liability to pay. There was no dishonesty at all in the ordinary (legal) sense of the word.

10. In the premises, on both limbs of Galbraith, I ruled that there was no case to answer on all charges. The defendant was released without further ado.

11. Mr. Lam for the defendant indicated that the defendant seeks costs. I have deferred decision on that issue pending further submission.