HKSAR v. CHENG KWOK KI TOMY

CACC 283/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 283 OF 2003

(ON APPEAL FROM DCCC NO. 72 of 2003)

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J U D G M E N T

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Stuart-Moore, VP (giving the judgment of the Court):

Background

1.  On 11 June 2003, the applicant was convicted by Judge Line in the District Court, following a trial lasting only 3½ days, on 4 charges (9, 10, 12 and 13) of procuring the making of an entry in a record of a bank by deception, contrary to section 18D of the Theft Ordinance, Cap. 210.  He now seeks leave to appeal against each of these convictions which were effectively letter of credit (L/C) frauds.  The judge acquitted the applicant of complicity in the offences reflected in 9 other charges on the basis, so far as charges 1 to 8 were concerned, that he may not have been aware of the nature of those frauds and, as to charge 11, on the basis that the applicant had signed none of the L/C documentation which related to that transaction.

2.  In essence, it was the applicant’s case in these proceedings that he ought to have been acquitted on all the charges as he had not acted dishonestly and had lacked any knowledge of the frauds throughout the period of time between 10 May 2000 and 8 October 2001 covered by the charge sheet.

Prosecution’s case

3.  It was the prosecution’s case that the applicant was a party to a scheme whereby 13 L/Cs were applied for which were purportedly to finance the purchase of goods whereas, in reality, there were no goods in existence.  In each case, the party which was supposedly the ‘vendor’ (beneficiary), having received the purchase price, would then, within one or two days, repay the proceeds to the parties described as the ‘purchasers’ which had applied for the L/Cs.  The beneficiary under the first 8 L/Cs was Richgold Limited and, for the remainder, the beneficiary was King Wing Trading Company.  As the judge’s Reasons for Verdict rightly observe:

“The gravamen of the conduct has been to borrow from the banks without the security of the goods in the context of short term trade.  The exposure of the banks involved was covered by charges on real property.

There is an undisputed background to the case which I shall summarise by saying that the defendant and a man called Lui Yiu Kwan had been in the leather business together since 1976.  They traded as partners in a firm called Superior Trading Company and in 1988 they formed and ran together Superior International Co Ltd.  They also formed a company on the Mainland to run a factory there processing leather and producing finished products.  The Hong Kong companies bought lamb skins and sent them to the Mainland for processing.  The letters of credit in question purported to finance such purchases.”  (Appeal bundle p. 58)

4.  As the judge also indicated, for the kind of fraud alleged in this case, there will need to be collusion between, on the one hand, the applicants for letters of credit and, on the other, the beneficiaries.  The applicant was a director and equal shareholder with Lui Yiu-kwan (Lui) of Superior (International) Trading Company Limited (“Superior International”) and an equal partner with Lui in a firm known as Superior Trading Company (“Superior Trading”).  Superior International and Superior Trading operated from the same premises on the 7^th floor of Kam Fai Commercial Building at 31-35, Sa Po Road, Kowloon City and were supposedly the purchasers of leather goods under the L/Cs.  On the ground floor in the same building, the applicant and his wife also operated a café under the business name, Superior Catering Service Company.  The prosecution established that the applicant had been a director of Richgold Limited between May 2000 and March 2001, that the registered address of King Wing Trading Company was at the same address as the applicant’s café at Sa Po Road and that the police discovered the company chops of both Richgold Limited and King Wing Trading Company inside the premises of Superior International.

5.  The applicant and Lui ran Superior International and Superior Trading, employing Ho Siu-wai (PW1) to keep the books and Tsang Lai-kuen (PW2) as a clerk.  There was also an amah, Chan Wai-kai (PW3), who largely worked in the Mainland.  The size of the operation led the judge to comment that “in a small operation such as this, with an office with two ladies, a technician who came back and forward and two bosses, there can have been very limited scope for secrecy, even if such had ever been intended”.  At all relevant times, the applicant and Lui were the only authorised signatories on the Superior Trading Company’s current account and they, together with PW1, were the authorised signatories on the bank bills account used for the L/Cs.  The same arrangement applied to the accounts for Superior International.

6.  Lui, who is named as a co-conspirator in some of the charges against the applicant, was eventually located by the authorities in the Mainland.  He pleaded guilty to eight of the charges preferred against him in separate proceedings before Deputy Judge Patrick Li on 18 December 2004.

Defence

7.  The judge described the applicant’s defence as twofold.  The first limb of the defence was that the payments made by the beneficiaries (Richgold Limited and King Wing Trading Company) were because they owed money to Superior International and Superior Trading’s associated company in the Mainland.  Perhaps the more significant element in the defence was the second limb which involved an assertion on the part of the applicant that he had in effect withdrawn from involvement with the leather business since 1998 when he started out in catering.  However, he said that as Mr Lui was based mainly in the Mainland, he merely signed documents as a formality in the belief that the documents truly reflected the transactions to which they referred.

8.  The judge had little difficulty in rejecting both aspects of the defence.  As to the first, there was not a single document which supported the contention that 13 million dollars worth of leather, the total sum involved in the 13 L/Cs, coming from overseas into Hong Kong before it was inspected and then taken over the Mainland border, ever existed.

9.  As to the 2^nd aspect of the defence, the judge said:

“My judgment of the credibility of the defendant’s story leads me to find that he deliberately sought to hide his true relationship with the Superior companies.  Whilst I accept that after 1997 he played a much diminished role I rejected his assertion that his divorce from the affairs of those companies was what he claimed.

Thus I looked to see what an ordinary interest in the affairs of the companies would reveal to a man in his position.  Based on the defendant’s own assertions about the turnover of the leather business, the figure for the year ending 31^st March 2001 was less than the $40-50 million he estimated to be the case for 1998.  The amounts on the letters of credit in the charges amounts to some 13 million over an 18-month period.  Thus at least a fifth of the trade was bogus. …  It defies common sense to suggest that the defendant paid no attention to the company affairs when he was so financially involved.  The inference that he must, at the very least, have come to know at some stage about the bogus business and the illegitimate credit from the bank is overwhelming.  (Appeal bundle p. 64)

10.  The judge later went on to explain why he acquitted on the majority of the charges and only convicted on 4 of them where the applicant had signed some of the documents needed to achieve the frauds, saying:

“It may have been the case that the partners put their heads together at the outset and agreed upon the fraud, but the evidence here does not make me sure of that.  Indeed, the prosecution put the case in a way that suggested that the defendant must have come to know the true situation from all the circumstances.  It is thus that it may reasonably have been the case that early on the defendant may have signed material documents without knowing of the fraud.  So one needs to find a time by which one can say for sure that he must then have known.

In May of 2001 the beneficiary changed from Richgold Ltd to King Wing Trading Co.  A Mr Yu was a responsible officer of the former and the sole proprietor of the latter.  It was with Mr Yu that the defendant agreed to have King Wing use his café for its new business address.  There is thus at this time an added closeness between applicant and beneficiary directly involving the defendant.  Also by this time the fraud had been running for a year and had involved eight transactions.  Also by this time the company would have passed through its accounting year’s close on the 31^st March 2001.  By this time I was sure that the defendant knew the nature of the fraud.

Given my findings it may seem that this is an over generous date too far down the path.  I am conscious of that but I consider safety and certainty lie in such generosity.  Such a course is no indication of a lack of force in the points I have canvassed.  I think a jury would have been generous in a like way in the circumstances of this case and that fortifies my conclusion.”  (Appeal bundle pp. 65-66)

The application

11.  The applicant has dispensed with the legal representation he had until recently when a single ground of appeal, drafted by Senior Counsel, was to have been advanced.  This suggested that the convictions were unsafe because the judge should not have concluded that the applicant must have come to know about the illegality of the transactions with the banks “when the beneficiary of the letters of credit changed from Richgold to King Wing”.  The ground of appeal then attacked the basis on which the judge had reached his findings, alleging that none of the reasons he provided was of sufficient weight, taken alone or in combination, to have led to proof to the standard required in criminal proceedings.

12.  However, in a careful appraisal of the evidence the judge noted that, while the applicant, a high-ranking auxiliary police officer, had no burden upon him to prove anything, his entire behaviour-pattern was consistent with a person who was aware that the records and documents, which would have vouched for the existence of the goods described in the L/Cs, did not exist.  One possible reason for this, which the judge also considered, was that the applicant was endeavouring to cover up for Lui but this was explored and eliminated as a possibility during the applicant’s testimony.  The judge then examined the alleged lack of awareness on the part of the applicant about the activities of Superior International and Superior Trading, which the applicant had consistently maintained, against his personal liabilities in the event that the “Superior companies” failed.  It was part of the background to the case that the financial exposure of the banks involved in the L/Cs was covered by charges on real property.  Focusing on this, the judge said:

“The central thrust of the defendant’s case was that despite being a director, despite being a major shareholder, despite signing documents for the bank vouching for important matters, he had no interest in the company such that he could remain ignorant of the fraud and believe in the bona fides of the letters of credit and belief in the claimed set off.  The claim to the lack of interest on the scale claimed was one I found to be unworthy of belief.  It was the fact that his extensive holdings in real property were all secured to the banks.  This included his home, which appeared to be the major security.  It was the fact that the overdrafts at the material times were running up to their limits.  Whether this was due to desperate times or the commercial zeal of Mr Lui to maximize business, there was exposure.  His wealth was intimately bound up with the fortunes of the Superior companies.  Against this background the claim that his knowledge of the business was limited to Mr Lui mentioning a few times that business was OK was not one I believed.  The defendant had access to the company offices and accounts and records.  He had available to him all those matters that his duty as a director must reveal.  He had every reason to keep himself aware of the affairs of the Superior companies.  I have no doubt that he trusted his partner as he claimed but trust in these circumstances does not cancel out curiosity, interest or the natural desire to be aware of matters that could so closely affect his life, his well-being and the security of his home.

The prosecutor made the point that the claimed circumstances of his quitting the leather business did not ring true as the companies were still making money.  The defendant spoke of his failing business enterprises on the Mainland and no succour from the leather business, which made, according to him, a profit of about a million in both 1997 and 1998.  Leather had been his career for twenty-five years.  The sudden claimed clean break was argued to be unrealistic, especially when taken with the considerable and continuing volume of documents that the defendant was signing on behalf of the companies.  The police recovered some 334 of them.  These were good points for the prosecution.

If it was the case that the defendant was in effect no more than a rubber stamp and signed what Ms Ho or Ms Tang put before him why did he not just tell Ms Ho to sign for the company?  She was entitled to do so.  It seems to me to be an inevitable conclusion that the bosses did not want that to happen.  That reveals the usual business situation where the bosses want to keep control.  The defendant did not explain why he did not tell Ms Ho that she must know more about the matter than he did and to sign it herself and stop bothering him in his new and different business.  His surmise that she chose him to sign out of respect was so thin as to deserve no real weight.  The choice of the defendant as signatory was an indication of control by a boss and control suggests knowledge.” (Appeal bundle pp. 63-64)

13.  In a helpful summary of the evidence provided on behalf of the respondent by Mr William Tam, who also prosecuted in the court below, it is apparent that the combined sum of the proceeds paid to King Wing in charges 9, 10, 12 and 13 amounted to about $2,958,000 and that in every case these proceeds were refunded to Superior International or Superior Trading within one or two days.  All of these L/C applications, with the exception of the application in charge 13, were signed by the applicant himself and, on the 13^th charge, the applicant had signed the cargo receipt.  The proceeds from these L/Cs were received in the space of just under 5 months between 23 May and 9 October 2001.

14.  In other grounds of appeal prepared by the applicant, three principal points were made. 

15.  Firstly, the applicant submitted that the judge made an agreement with counsel to approach the charges “globally”.  We take this allegation to mean that, contrary to law, the judge agreed not to examine the evidence on each charge before deciding whether or not it had been proved.  It is plain, however, that this is at the very least a misunderstanding on the part of the applicant.  He has been supplied with a copy of the transcript of proceedings and he is well able to understand English having, at the start of the trial immediately after arraignment, dispensed with the services of the interpreter.  It was just before arraignment that the judge indicated to counsel that as each deception in the 13 charges was in identical terms it would perhaps be sufficient, after the first two charges had been read out in full, for the remainder to be abbreviated save as to the date, the amount and the bank accounts referred to in each of the particulars.  The judge’s words to trial counsel were:

“… when we put the thing, if we say to the interpreter she can, after the first two counts, … just say ‘by reason of the same deception’.  Happy with that?”  (Appeal bundle p. 79)

Counsel sensibly agreed that he was content with this arrangement.

16.  It is plain, not only from the transcript but also from the manner in which the judge dealt individually with the charges in his Reasons for Verdict, convicting on four and acquitting on nine, that no agreement of the kind alleged by the applicant ever took place.

17.  The second of the applicant’s complaints was that the court record of proceedings was incomplete in that it omitted, he suggested, an indication by the judge, given after the applicant had testified, that it would be difficult for him to believe the applicant’s testimony without some documentation to support it.

18.  Even if we were to assume, contrary to the transcript, that something along those lines was said, it would not have been an unreasonable response for the judge to have made in order to enable the applicant who had the benefit of legal representation to provide some support for what he had said.  His was, after all, a somewhat stark and fundamental allegation to the effect that he had had no more to do with the leather business after 1998 having been so engaged since 1976.  Some support for this was to be expected without which it amounted to a mere statement and without more, little weight was likely to be given to it.  If the judge made the comment, it was a fair intimation on his part of which, in fact, the applicant then availed himself.  This, in turn, benefited him as, in the event, the applicant did provide evidence in relation to his tax affairs with which the judge expressly dealt in the applicant’s favour when giving his Reasons for Verdict.  The judge said:

“It was at the instigation of the bench that the defence went off and searched through the unused material.  There was evidence that the police had been to the Superior companies’ offices three times and removed papers and exhibits.  The exercise produced the personal tax returns of the defendant for the years ending in 1992 to 2000.  Prior to 1998 they showed that he declared for the purposes of salaries tax income from the Superior Trading Co.  After this time there is no such declaration.  This was powerful evidence supporting his claim to a change in his relationship with this company.  There was also support for the claim in the evidence of the other witnesses who spoke to the change and to the setting up and running of the catering business.  I thus acted on the basis that the defendant had withdrawn in large measure from the running of the Superior companies.  The vital question was how far that withdrawal went and what was his state of knowledge at the time of any specific charge.”  (Appeal bundle pp. 61-62)

19.  Perhaps the applicant’s complaint represents a misunderstanding on his part arising from the following remarks made by the judge:

“I really don’t say what I’m going to say now in the sense of mischief.  I’m not trying to trick either him or you out.  I understand what he’s said so far but he’s left an awful lot of things undealt with.  It may that’s a deliberate decision by you and that’s the way you think it’s best to dealt with it, or it may be that you haven’t thought about some things, which it would help him to deal with.” (Appeal bundle p. 167)

20.  The third allegation also encompasses the first two complaints and suggests that, after the final speeches, the judge said to the applicant: “you are an intelligent man, I can’t let you go”.  However, the transcript provides the true version of what was said to the applicant, as follows:

“… I’m going to adjourn now till 9.30 on Wednesday and it’s not play-acting by me to say I haven’t made up my mind yet, I haven’t.  There’s obviously a risk because of that, that it might go against you.  You’re an intelligent man and you appreciate that.  I’ll renew your bail because I trust you to come, you’d be a fool not to.  Because if you did deliberately absent yourself, I’d just carry on in your absence and I’d carry on, and if there was a conviction, I’d sentence in your absence too.  So I trust you with bail, please be ready to resume 9.30 on Wednesday.”  (Appeal bundle p. 267)

It is difficult to describe this as a misunderstanding on the applicant’s part but we shall nevertheless treat it as if it was.

21.  However, the wider complaint which is included in this ground, affecting also the previous grounds, amounts to a suggestion that someone must have tampered with the court records, seemingly because the applicant’s version of events is not borne out by them.  The applicant has indicated that he asked the police to investigate the matter on 28 April 2005.  He informed us in his written submission that, on 13 August 2005, the police stated that there was “insufficient evidence to support the allegation of any criminal act in the matter” and the applicant added that the police would “not deny that the record had not been tampered with.”

22.  The applicant went on to say that as there was nothing more he could do, he asked a member of the Legislative Council to assist.  A letter was then written on his behalf to the police to find out what had been the investigative process but he has not as yet received a reply.  He asked us not to conclude these proceedings or to reject his argument until it was known whether any tampering with the record had taken place.  At considerable length today, he has persisted in his application for an adjournment further to prepare his case.

23.  We did not accede to the applicant’s request for an adjournment.  This application is already very stale, the applicant having first lodged notice of his intention to appeal on 4 July 2003, and the history of this matter reveals a number of previous adjournments at the applicant’s request.  On two occasions he has dispensed with his legal advisers, including two Senior Counsel, just prior to fixed hearing dates.  Furthermore, there is nothing in any of the complaints made by the applicant which could be assisted by the unlikely discovery that a word or even a sentence had been omitted from the transcript either inadvertently or deliberately.  As to the first complaint, as we have already indicated it is abundantly apparent that the judge did not, whatever the applicant may have thought he said, agree to treat the charges “globally”.  As to the second complaint, the adjournment at trial to find some supporting documentation worked to the applicant’s advantage.  Finally, as to the last ground, the applicant was given bail before the verdicts were announced on a later date.  He was, in other words, allowed to go, contrary to the applicant’s understanding of what the judge had said.

24.  We are satisfied that the judge, taking the approach he adopted to the evidence, was entitled to have decided in the way he did for all the reasons he expressed to which, on some of the more salient aspects, we have already referred.

Conclusion

25.  The application is dismissed.

26.  The respondent applied for costs.  Having heard the applicant as to his present financial situation, we awarded costs to the respondent limited to $20,000, to be taxed if not agreed.