HKSAR v. CHEUNG HING MAN AND ANOTHER

[English Translation – 英譯本]

CACC 91/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 91 OF 2008

(ON APPEAL FROM DCCC NO. 22 OF 2007)

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REASONS FOR JUDGMENT

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

Appeal allowed

1. The two appellants were charged with 8 counts of fraud and were convicted after trial before Deputy District Judge Merinda Chow. The 1^st appellant was sentenced to imprisonment for 4 years and 3 months and the 2^nd appellant imprisonment for 4 years and 6 months.

2. The two appellants applied for leave to appeal against their convictions and sentences. After hearing, we granted leave to appeal against convictions and, treating the hearing of the applications as the hearing of the appeal proper, allowed their appeal and quashed their convictions. At the same time, we refused the respondent’s application for a re-trial. We now set out the reasons for our judgment.

Particulars of charges

3. The particulars of the 8 charges were that, between 28 November 2002 and 30 December 2002, the two appellants deceived the Bank of China (hereinafter “BoC”) on 8 separate occasions. They falsely represented to BoC that there were genuine transactions underlying the letters of credit issued by BoC upon applications by one Harbour Best Development Limited (hereinafter “Harbour Best”), and induced BoC to make payments under the said letters of credit, which resulted in benefit to the 1^st appellant and/or Harbour Best or in prejudice or a substantial risk of prejudice to BoC.

Agreed facts

4. On the facts to which the parties had agreed, the 1^st appellant owned and controlled a number of companies, among which Harbour Best and one Focus Developments Limited (hereinafter “Focus”) were relevant to the present case.

5. The 2^nd appellant was one of the partners of one Chi Shing Industrial Investment Development Company (hereinafter “Chi Shing”). Her husband Wong Kam Shing (王金成) was the other partner of Chi Shing.

6. Harbour Best held a bills facilities account with Yien Yieh Commercial Bank which was under the BoC Group. The 1^st appellant was the sole authorized signatory of the account and could use the account to apply for letters of credit.

7. Harbour Best applied to BoC for 8 letters of credit in favour of Chi Shing on 8 different days between 28 November 2002 and 27 December 2002.

8. Harbour Best submitted 8 applications for letters of credit to BoC and arranged for the relevant cargo receipts. Believing that there were genuine sale and purchase transactions between Harbour Best and Chi Shing, BoC issued 8 letters of credit to Chi Shing.

9. Chi Shing presented the invoices, cargo receipts signed by Harbour Best and 8 letters of credit to BoC in support of Chi Shing’s applications for the release of monies under the 8 letters of credit. The 2^nd appellant issued 8 sight drafts to BoC and requested BoC to release monies to Chi Shing pursuant to the 8 letters of credit.

10. The content of one of the cargo receipts signed by Harbour Best is shown below. With the exception of the transaction details, all the cargo receipts were in identical terms.

We hereby certify that the under-mentioned goods have been received in good order and condition on 09 December, 2002 from Chi Shing Ind’l Inv’t Development Co. which under the Documentary Credit No. B-28-U-XA390 in trust for Bank of China (Hong Kong) Limited.

Description of Goods & Quantity:

155,000 HKS of PC Material

Value of Goods:

HKD1,120,000.00 (**Say Total Hong Kong Dollars One Million One Hundred Twenty Thousand Only.**)

[signed by the 1^st appellant.]

11. Accepting that there were substantial transactions between Harbour Best and Chi Shing and acting on the letters of credit and sight drafts presented by Chi Shing, BoC deposited 8 sums representing payments for the goods into Chi Shing’s bank account on various dates. Whenever Chi Shing received a payment, it immediately transferred the money to a bank account opened in the name of Focus and controlled by the 1^st appellant. Subsequently, all the relevant payments were either deposited, in one go or by numerous instalments, into other bank accounts of Harbour Best or Focus or other corporate accounts controlled by the 1^st appellant, or withdrawn in cash by someone.

12. According to the bank affidavits provided by the staff of BoC, had BoC known that there was no substantial transaction between the buyer and the seller, BoC would not have approved and issued the 8 letters of credit or released the payments for goods, in order to avoid unnecessary losses.

13. The above are the relevant agreed facts. The two appellants exercised their right of silence in the course of the investigation.

Evidence from the Social Welfare Department

14. The prosecution called two staff members of the Social Welfare Department (hereinafter “SWD”) to give evidence at trial. Their evidence showed that the 2^nd appellant and her husband Wong Kam Shing had in the past made numerous applications to SWD for Comprehensive Social Security Assistance. The application form submitted by the 2^nd appellant to SWD on 14 October 2004 showed that she had neither declared that she ran her own company and had income, nor had disclosed her ownership of Chi Shing or the said 8 transactions. When verifying the 2^nd appellant’s assets, the staff of SWD found that she and her husband Wong Kam Shing were the directors of 4 companies and hence requested an explanation from her. She replied to SWD that she and her husband acted as “nominal directors” of a number of companies upon requests of their relatives and friends, but they had never received any remuneration or benefit from those companies, and those companies had not been in any substantial operation since their incorporation.

Prosecution’s stance

15. The respondent at trial took the stance that no substantial transaction of sale and purchase of raw plastic materials had been conducted between Harbour Best and Chi Shing. According to the written opening submissions of Counsel for the respondent, the business of Harbour Best included the manufacture of CDs. Harbour Best all along purchased from a supplier in Taiwan raw plastic materials for making CDs. However, according to the information in the letters of credit, the 1^st appellant claimed to BoC that he had purchased 8 batches of raw plastic materials from Chi Shing. And tracing the movement of the funds under the 8 letters of credit, all the funds used by Harbour Best for the purchases would ultimately be deposited into bank accounts opened in the name of Harbour Best or bank accounts opened in the names of companies controlled by the 1^st appellant.  

Defence of the 1^st appellant

16. Judge Chow ruled that the prosecution had established a prima facie case against the two appellants who then had a case to answer. The 1^st appellant elected to give evidence.

17. The 1^st appellant claimed that he also owned another company called Top Fortune Enterprises Limited (hereinafter “Top Fortune”), the business of which comprised the production of drama series, copyright distribution and the manufacture of VCDs. He said that Wong Kam Shing had suggested to him that he should set up a factory to produce PC pellets directly in order to supply the same to companies under his group for the manufacture of VCDs. As a result, he set up Top Fortune to produce the relevant materials. Subsequently, as it turned out that the materials required by the VCD manufacturing factory only took up one-third of the materials produced by Top Fortune, the remaining two-thirds, for which no buyer could be found, were stockpiled in the factory premises. The 1^st appellant then sought to sell the batch of materials through Chi Shing in order to get out of financial trouble. The 1^st appellant’s evidence on the said transactions can be summarized as follows:

(1) The 1^st appellant sold the goods to Harbour Best.

(2) The transactions involved in the present case were the sale of goods by one of the companies in his group to an associated company, namely by Top Fortune to Harbour Best, and Chi Shing received the goods on behalf of Harbour Best. He said, “Chi Shing was my agent for the sale of this product …”.

(3) The 1^st appellant purchased goods from Top Fortune through Harbour Best because only Harbour Best had a credit facilities agreement with the bank. He obtained cash by means of Harbour Best’s letters of credit and then used the money to meet the production cost.

(4) It was out of sympathy that the 1^st appellant invited Wong Kam Shing and the 2^nd appellant to work for him. The work that Wong Kam Shing and the 2^nd appellant did required no special skill.

(5) The 1^st appellant said that if the goods were sold directly by Top Fortune to Harbour Best, “it might be perceived as being similar to insider dealing as I felt it was not too good”.

The 2^nd appellant

18. The 2^nd appellant elected not to give evidence but relied on the 1^st appellant’s evidence as her defence.

Judge Chow’s verdict

19. Judge Chow had this to say in her Reasons for Verdict:

“40. As mentioned above, I find that the eight transactions were false and there were no genuine transactions, and this was equivalent to acting dishonestly. The 2^nd defendant [i.e. the 2^nd appellant] assisted Harbour Best in obtaining letters of credit for $9.36 million knowing that it was improper to do so. The only inference that can be drawn is that she did not disclose the eight letters of credit so that it would not bring her trouble.”

“41. Having analysed the facts of the case, I do not accept the evidence given by the 1^st defendant [i.e. the 1^st appellant]. I find that the eight transactions were false and were for the purpose of obtaining $9.36 million in cash at a low interest rate by making use of the existing credit facilities that the 1^st defendant had with the bank.”

Reasons for verdict

20. The most fundamental issue in the present case is whether the eight transactions were false. Judge Chow answered the question in the affirmative and held that no substantial transaction existed in the case. Her Reasons for Verdict showed that she did not accept that Chi Shing was an agent. She gave the following reasons for her verdict:

(1) The 1^st appellant, on the one hand, said that he set up Top Fortune in order to reduce cost, but on the other hand, he employed Wong Kam Shing for a sum of $20,000 and, in addition, paid to Chi Shing additional service fees in respect of the said transactions. The two were contradictory. [Paragraph 28]

(2) Chi Shing was the beneficiary on the letters of credit and was the nominal seller. Without paying a cent, Chi Shing, in the capacity of the owner of the goods, claimed to BoC that it was the owner of the goods under the 8 letters of credit. There was no evidence to show that Chi Shing was the owner of the 8 batches of goods or had title to those goods. Similarly, there was no evidence to show that Chi Shing had either entered into a purchase agreement with Top Fortune or entered into a contract of sale with Harbour Best. [Paragraph 29]

(3) The 1^st appellant admitted that the goods concerned were never delivered to Chi Shing and that all the raw materials were still in the warehouse owned by the 1^st appellant. [Paragraph 30]

(4) Given the 1^st appellant’s admission that the goods were never delivered to Chi Shing, how could Chi Shing have delivered the goods? Chi Shing could not claim to be the owner of the 8 batches of goods as it had paid nothing to Top Fortune to purchase those goods. [Paragraph 35]

Our views

21. With respect, we do not think that the reasons given by Judge Chow could support her finding that there had never been any substantial transaction between the two parties. Her finding apparently rested on her non-acceptance of the appellant’s claim that Chi Shing was an agent. In our judgment, the finding on the question of whether or not Chi Shing was an agent was wrong.

22. Under the law of contract, an agent can represent his principal in conducting a transaction with another party, and is free to choose to disclose or not to disclose who the principal is. Judge Chow ruled that there was no evidence to show that Chi Shing was the owner of the goods or had title to the goods because she had wrongly taken into consideration some irrelevant factors. If Chi Shing was an agent of Top Fortune in selling the goods, it did not have to become the owner of the goods before it could conduct any transaction with Harbour Best. If Chi Shing was an agent, whether it had paid for the purchase of the goods was not a relevant factor either.

23. It is true that there was no written agreement in respect of the transactions in the present case. However, neither a contract between an agent and the principal nor a contract for the sale and purchase of goods between an agent and another party is required by law to be in writing in order to take effect.

24. Furthermore, even if the said goods had not been removed from the warehouse where they were originally stored, it did not mean that there was no substantial transaction between the parties. Under the law of contract, physical delivery of goods by the seller to the buyer is not a prerequisite to the completion of a sale and purchase transaction. In the present case, on the 1^st appellant’s evidence, the relevant goods did exist and he had taken stock for the purpose of the said transactions.

25. The only basis left of Judge Chow’s decision was that the 1^st appellant on the one hand averred that he intended to cut cost but on the other hand incurred additional expenditure. This, however, only concerned the credibility of the 1^st appellant’s evidence. In our view, this point did not substantively answer the question of whether Chi Shing acted as an agent in the said transactions.     On the contrary, the other grounds that Judge Chow relied upon to dismiss what the 1^st appellant said were plainly wrong. In our judgment, what the 1^st appellant said about agency was not groundless. This being the case, Judge Chow’s ruling that Chi Shing was not an agent, and then her ruling that no genuine transaction existed in the case, were both unsafe.

26. Since the prosecution’s cases against the 1^st and 2^nd appellants rested on the same basis, Judge Chow’s finding that there was no substantial transaction in the case had a direct impact on the convictions of both appellants.

Declaration made by the 2^nd appellant in her application for public assistance

27. In her Reasons for Verdict, Judge Chow made mention of the evidence from SWD but did not state clearly whether she relied on it. At trial, the 2^nd appellant objected to the prosecution adducing such evidence, but Judge Chow ruled that the evidence was admissible. As the staff of SWD had not inquired of the 2^nd appellant about Chi Shing, the 2^nd appellant did not disclose to the staff the operation of Chi Shing. We do not think that the evidence from SWD could support the charges in the present case.

28. Mr. Lee, SC, submits on behalf of the 2^nd appellant that the prejudicial effect of the relevant evidence on the 2^nd appellant far outweighed its probative value. In light of our judgment that Judge Chow had failed to resolve the core question in the present case, it is not necessary for us to discuss the said submission any further.

Proviso

29. One of the matters being discussed at the appeal hearing was whether the verdict could be upheld by applying the proviso. The discussion turned on this question: even if Chi Shing was an agent, did the transaction in question still fail to constitute a substantial transaction from an objective point of view or from BoC’s point of view? However, there was no evidence from BoC in the case, and more importantly, the said discussion had nothing to do with the basis on which the prosecution at trial sought to hold the two appellants culpable. At trial, the prosecution completely denied any involvement of an agent in the transactions, and it was not the prosecution’s case that no genuine transaction existed even if Chi Shing was an agent. A defendant to a criminal prosecution will run his defence against the basis put forward by the prosecution in respect of the defendant’s culpability. If the prosecution wishes to rely on some other basis for holding the defendant culpable, it is incumbent upon the prosecution to make such a request to the court at trial so that the defence can respond as appropriate. In the present case, it is true that the prosecution could not possibly rely on the agency basis when the trial commenced because it came to be aware of the agency issue only when the appellant gave evidence. However, in any event, after the 1^st appellant had given evidence in his defence, the prosecution still only relied on the basis that Chi Shing was not an agent in support of the argument that there was no substantial transaction between the two parties. To allow the prosecution to proceed with the hearing on another basis at this stage would be extremely unfair to the defence. Mr. Lee, Senior Assistant Director of Public Prosecutions for the respondent, has, in our view fairly and correctly, informed us that the prosecution will not on this basis invite us to apply the proviso.

Appeal allowed

30. For the above reasons, we allow the appeal of the two appellants.

Re-trial

31. Mr. Lee has applied for re-trial.

32. At trial, after the 1^st appellant had given evidence and explanations in respect of the charges, Counsel for the respondent at trial indicated to Judge Chow that she might apply to adduce rebuttal evidence, including evidence on BoC’s stance towards the 1^st appellant regarding the transactions. It can be seen from the transcript that Counsel did not indicate specifically that she would take actual action regarding the application. Judge Chow therefore did not specifically rule on this point; she merely asked the parties whether they would make closing submissions if she refused the application. Closing submissions from both parties did not follow instantly but were adjourned by Judge Chow to another day. Had Counsel for the respondent indeed intended to adduce rebuttal evidence, she could still have adduced it at the resumed hearing. But she had not done so.

33. In our judgment, having been made aware of the appellants’ defence, the respondent did have the opportunity to indicate to the court that the appellants were culpable on the relevant basis and to apply to adduce new evidence in support of its stance; but it did not take the opportunity to do so. An order for re-trial would in effect allow the respondent to bring a new prosecution on another basis. This, in our view, would be unfair to the appellants. We therefore refuse the application for re-trial.

Costs order

34. Mr. Lok, SC for the 1^st appellant has applied for costs of the appeal on behalf of the 1^st appellant. The 2^nd appellant has made a similar application. As Mr. Lee has raised no objection to the applications, we order that both appellants be awarded costs of the appeal.

35. We refuse the 2^nd appellant’s application for costs of the trial for the following reason. The prosecution had adduced prima facie evidence against the 2^nd appellant in respect of the fraudulent acts in which she was involved. She had elected to remain silent during the investigation in respect of her conduct in dealing with the 8 letters of credit. She certainly had the right of silence, but her attitude had brought suspicion upon herself. For this reason, notwithstanding the quashing of her conviction, we exercise our discretion and refuse to award the 2^nd appellant costs of the trial.