HKSAR v. CHENG KELLY KIT YIN

CAC C 445/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 445 OF 2013

(ON APPEAL FROM DCCC NO. 153 OF 2010)

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BETWEEN

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JUDGMENT

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Hon Barma JA (giving the Judgment of the Court):

1.  This was an application by the Applicant, Kelly Cheng Kit-Yin for leave to appeal against the sentence of a total of 21 months’ imprisonment imposed upon her (on 4 December 2013) in respect of her earlier conviction (on 21 October 2013) on 11 charges of conspiracy to defraud upon her plea of guilty before Judge J Chan in the District Court.

2.  The charges on which the Applicant was convicted arose out of eleven letters of credit (“L/C”), issued by four different banks over a period of some five months between September 2001 and January 2002 on the application of a company called Wing Fai Construction Limited (“Wing Fai”), a subsidiary of a Hong Kong listed company, China Rich Holdings Limited (“China Rich”).  The Applicant was, at the material times, a director of Wing Fai.  She was also an executive director of China Rich, and was that company’s Deputy Chairman and Chief Financial Officer.  The total sum involved was about HK$31.238 million.

3.  The L/Cs were issued in respect of transactions that were represented to involve the purchase of perishable construction materials (asphalt, concrete mix and steel bars).  In fact, all of the underlying transactions were fictitious, and the goods in question, which were pledged to the banks as part of their securities for the sums advanced under the L/Cs, did not exist.  The banks were, however, secured by charges over fixed deposits, which were duly registered at the Companies Registry, and had the additional security of a guarantee provided by China Rich, which was throughout in a sound financial position, and able to honour its obligations thereunder, having net assets of over HK$600 million. In the event, the amounts advanced under the L/Cs were all repaid to the bank in accordance with the terms of the facilities under which the L/Cs were issued, prior to the discovery of the fraud, so that the banks did not suffer any loss as a result of issuing the L/Cs.

4.  The frauds were discovered by Wing Fai’s liquidators after it went into liquidation.  The liquidators reported the frauds to the police in June 2004.  However, the Applicant was not charged until December 2009, some eight years after the events in question.  Thereafter, there were further delays before the Applicant was eventually arraigned in October 2013, when she pleaded guilty.  These further delays arose out of two unsuccessful stay applications and an unsuccessful application for judicial review by the Applicant (and some of the other defendants with whom she was charged).

5.  The first stay application was based on allegations that the liquidators had acted with improper motives in making the complaint (it being suggested that the criminal process was being utilised to place pressure on the Applicant to settle related civil proceedings), and also on alleged delay in bringing charges against the Applicant which were said to have the result of adversely affecting the possibility of a fair trial.  This application was heard and disposed of in May and June 2012.

6.  The second stay application, which was founded on allegations of abuse of process, arose out of the search by the police of the office of an officer in the Department of Justice, who had been a witness in the first stay application, leading to the discovery that various documents relevant to the first stay application (which were not disclosed during that application) had been deleted from the department’s computers shortly prior to his giving evidence.  This application was heard and disposed of between July and September 2012.  It was followed by the judicial review proceedings in December 2012, which were brought on the basis that the decision to refuse the second stay was Wednesbury unreasonable.  Leave to bring such proceedings was refused in January 2013, leading to an appeal against the refusal of leave, which could not be heard until September 2013, when it was dismissed.  However, the trial was not delayed to accommodate the judicial review proceedings.

7.  The Applicant was charged together with four other defendants – these were Carmen Cheng, her daughter (the 2^nd defendant), Ip Kin-man, an employee in the accounts department of Wing Fai (the 3^rd defendant), Tsui Man-tuen, also an employee in the accounts department of Wing Fai (the 4^th defendant) and Lo Wah, who was also employed by Wing Fai (the 5^th defendant).   There were a total of 13 charges: Charges 1 to 11 were for conspiracy to defraud (one charge in relation to each of the L/Cs), Charges 12 and 13 were for money-laundering in respect of the proceeds of the frauds.  The Applicant was charged under Charges 1 to 11, on all of which she was convicted on her plea of guilty.  The charges against the 2^nd defendant were dismissed (no evidence being offered against her), while the 3^rd defendant was charged with and convicted of Charges 1 to 10 and 12 after trial, the 4^th defendant was charged with and pleaded guilty to Charge 11, and the 5^th defendant was charged with Charges 11 and 13, being acquitted on Charge 11 but convicted of Charge 13 after trial.

8.  As we have noted, the Applicant was sentenced to a total of 21 months’ imprisonment.  The sentence was arrived at by taking as the starting point for each offence a sentence of 3 years’ imprisonment, allowing a one-third discount for the Applicant’s pleas of guilty, and then allowing a further reduction of 3 months to take account of the positive good character of the Applicant, who had been actively involved in charitable works for some years, both before and after her arrest.  The sentences of 21 months’ imprisonment on each charge were ordered to be served concurrently, having regard to the totality principle.  The third defendant was sentenced to 24 months’ imprisonment on each of the charges against her, to be served concurrently, while the 4^th and 5^th defendants were respectively sentenced to 16 and 18 months’ imprisonment on the charges on which they were convicted.

9.  Before us, the Applicant was represented by Mr Grounds and Mr Beel, both of whom appeared for her in the proceedings below.  Mr Grounds made four main points in support of the application:

(1) First, he submitted that the sentence passed on the Applicant was manifestly excessive, and/or wrong in principle, and that this was a case in which a suspended sentence should have been considered and imposed instead of a sentence of imprisonment, principally on the basis that the offences here did not involve any risk of economic loss to the banks (let alone actual economic loss), so that the case should be regarded as one involving at worst only non-economic loss.  As such, the case was less serious than other L/C fraud cases, in which banks suffered losses, or were exposed to a real risk of that happening, and should have been recognised by the Judge to be exceptional, so as to justify the imposition of a suspended sentence.  Further, said Mr Grounds, the Judge had erred in finding that the Applicant must have derived indirect financial benefit from the frauds.

(2) He next complained that the discount of 3 months the Judge gave for the Applicant’s positive good character was manifestly inadequate, when she also had a clear record, and that the inadequacy of the discount was apparent from the fact that the same discount was afforded to the 3^rd and 5^th defendants,following their conviction after trial, to take account of their previously clear records, although they (unlike the Applicant) were not of positive good character.

(3) Mr Grounds’ third complaint was that the Judge had erred in failing to allow any further discount for the delay in the bringing of charges against the Applicant, and in particular that it was an error on the Judge’s part to treat such delay as being in effect offset by the delay thereafter caused by the Applicant’s stay and judicial review applications which we have described above.  In this connection, Mr Grounds stressed that the delay complained of by the Applicant was in respect of the period prior to her being charged, which the Judge had found to have been to the disadvantage of the Applicant, and for which he would otherwise (but for the applications which she had made) have afforded her a further 4 months reduction in sentence, as is apparent from paragraph 97 of the Reasons for Sentence.

(4) Finally, Mr Grounds complained that the Applicant had been prejudiced by the change of the trial judge for administrative reasons shortly before trial, in that the Judge was not as familiar with the case as the Judge Douglas Yau, who had been dealing with the matter from an early stage, and who had heard the Applicant’s two stay applications.  The suggestion was that the Judge’s unfamiliarity with the details of the stay applications meant that he failed to appreciate fully the issues raised in them, and that this may have led him to think that the complaint of delay in the investigative process was not well founded.

10.  In response, Ms Lai submitted that:

(1) Although the banks in this case did not in fact suffer any losses, and were apparently at little risk of doing so, it could not be said that the banks were not at any risk of loss at all, particularly since the financial condition of China Rich (the guarantor in respect of the L/C facilities) could have changed adversely unexpectedly, so as to expose the banks to some risk of loss.  Further, the Judge had proceeded on the basis that this was a case involving non-economic loss – the prejudice to the banks’ rights to decide whether or not to enter into the L/C transactions at all – had they known the truth, i.e. that there were no underlying transactions or goods, they would not have agreed to provide financing by way of the L/Cs – and in doing so, had treated the case as being less serious, a matter which was reflected in the starting point he adopted for sentencing.  She also reminded the court of the damage to the system of trade finance that is caused by frauds of this sort.

(2) As to the Applicant’s positive good character, she submitted that this was not a matter that was so exceptional as to justify a suspended sentence, and that the discount of 3 months afforded in respect of it was entirely adequate.

(3) As to the delay in investigation, Ms Lai appeared to acknowledge that there was some force in the suggestion that delay brought about by the Applicants’ own applications would not negate the effect of delay in the investigative and prosecutorial process, but submitted that this was, at the end of the day a matter for the Judge to assess in an overall way, and that he was entitled to take the approach that he did.

(4) Finally, Ms Lai submitted that no real prejudice had arisen from the change of trial judge at a relatively late stage of the proceedings.

11.  Care should be taken with the phrase “non-economic loss” so as not to confuse it with the situation where economic interests are potentially prejudiced but no loss in fact results.  In the context of conspiracy to defraud, the term “non-economic loss” is designed for cases where non-economic interests are or are likely to be prejudiced: see Mo Yuk-ping v HKSAR (2007) 10 HKCFAR 372 at para 52 and R v Scott [1975] AC 819 at 839 D-E.

12.  In this case, there was, in the event, no actual financial loss to the banks (not even temporary loss arising from delays in repayment), and there was no realistic prospect of any such loss, having regard to the strength of the security provided to the banks in the form of the charges over cash deposits and the parent company guarantee provided by China Rich, whose financial position was such that there was no real doubt as to its ability to honour its commitments thereunder.  Therefore such risk of economic loss as existed was in truth theoretical, a fact which the Judge clearly recognised, said as much and in substance proceeded on the basis that the fraud gave rise to no realistic risk of loss and insofar as he said that he would sentence on the basis that only non-economic loss was caused, we shall assume that he meant that the banks were persuaded by the deceits to act contrary to how they would have acted but for those deceits (see paragraphs 69,77 and 78 of the Reasons for Sentence).

13.  To our mind, the question is whether, given the absence of any economic loss or real risk of it, and in the circumstances of the case as a whole, the starting point was manifestly excessive, or that the Judge had erred in principle in concluding that this was not an appropriate case for the imposition of a suspended sentence.  The absence of any realistic risk of loss to the victim is clearly a relevant factor for purposes of sentence, as the Judge recognised. However, we do not think it is of itself a factor which dictates that a suspended sentence should be imposed.  It is a factor to be taken into account as part of the whole factual matrix.  In this case, that factual matrix includes the following matters:

(1) The Applicant, who held a senior position in the company applying for the L/Cs, was the person who gave the instructions on the basis of which the frauds were carried out.

(2) The case was not a one-off, or single, minor incident – the frauds were practised on four different banks on 11 separate occasions over a period of five months, and involved substantial amounts.

(3) There were no exceptional circumstances relating to the reason for the commission of the crimes, which involved stark and outright dishonesty on repeated occasions.

(4) The fact that there was little or no real risk of economic or financial loss to the banks involved in this case does not detract from the damage that is caused to the faith and trust that is necessary for the proper functioning of the system of trade financing, of which L/Cs are an integral and important part, a matter which has been repeatedly stated by the courts.

14.  Taking these factors into account, it is, in our judgment, unrealistic to suggest that the starting point adopted here, of three years’ imprisonment for each offence with a view to making an order that the sentences should run concurrently, was manifestly excessive.  In our view, it was not excessive at all, and we therefore do not think that there is any merit in the first point advanced by Mr Grounds.

15.  As for Mr Grounds’ second point, in respect of the discount accorded for the positive good character of the Applicant, the contention here is that positive good character is necessarily worthy of more credit than merely a clear record, and that it was therefore wrong in principle for the Judge to have given the same discount to the Applicant in respect of her positive good character as was given in respect of the clear record of the 3rd and 5th defendants.

16.  Although this submission has some initial plausibility, we are satisfied, on reflection, that there was no error here.  The normal rule, as it has developed, is that the one third discount for a plea of guilty is the discount to be afforded even to those with a clear record.  Thus, in the normal course of events, having been afforded the full one third discount on sentence for pleading guilty, the Applicant could not have expected any further discount in respect of her clear record.  But for her positive good character, she would not have obtained the further 3 month reduction given by the Judge.  Thus, because of her positive good character, she was afforded a total discount on her sentence of more than one-third, providing proper recognition of her good character.  In comparison, the only other defendant who pleaded guilty (the 4^th defendant) received no such additional discount, being of clear record only and not of positive good character in addition.

17.  We are, however, satisfied that there is merit in Mr Grounds’ third point, and that the Judge erred in his logic in refusing to give effect to what he accepted (in paragraph 97 of the Reasons for Sentence) to have been a period of unjustifiable delay in the prosecutorial process, which endured to the disadvantage of the Applicant.  The Judge justified the refusal to allow any reduction in sentence despite such delay on the grounds that the delay caused by the Applicant’s stay and judicial review applications “cancelled out” the effect of the delay up to her first appearance in court.  But this was, we think neither logical nor fair, because any delay that might have been attributable to the applications for stays and judicial review on the Applicant’s part would not detract from or negate the independent and prior delay caused by the prosecution – had there been no such delay, the case would have been dealt with sooner, even allowing for the unsuccessful applications that were made.  While it would, of course, not be right to give credit (or full credit) for any delay in respect of which the Applicant was in part to blame, this is not what happened here – the Judge was apparently of the view that the delays on the part of the prosecution, during a period when the Applicant caused no delay at all, were such as would justify a reduction in sentence of four months.  That being so, we do not consider that the fact that further delay may thereafter have been caused by the course adopted by the Applicant is a matter which cures or can be regarded as cancelling out the earlier and separate delay which lies at the door of the prosecution.

18.  That said, it may well be questionable whether an accused who takes a series of unsuccessful preliminary points before pleading guilty should be entitled to as much as the full normal one-third discount which the Judge accorded to the Applicant in this case.  The main rationale behind the discount for a plea of guilty is the saving of court time, which is not achieved (or at least not as fully achieved) where time is taken up with unmeritorious preliminary points or satellite litigation.  In those situations, it is questionable whether the full discount of one-third should be awarded (by contrast, unsuccessful applications in the form of Newton hearing do normally result in a discount of less than one-third for a subsequent plea of guilty).

19.  However, the respondent in this appeal has not complained that the Judge erred in according to the Applicant the full one-third discount for her plea of guilty, which we understand was made on the first occasion when she was asked to plead to the charges against her.  Having regard to that, and to the very unusual circumstances giving rise to the stay applications (and in particular the second one, based as it was on apparent destruction of evidence by an officer of the Department of Justice), we do not think that it would be right for us to interfere, as against the Applicant, with the full one-third discount given to her in this case.

20.  Thus, it does seem to us that the Judge fell into error in failing to accord to the Applicant the further discount of 4 months which he was otherwise minded to give her on account of the prosecutorial delay, for the reasons which we have explained above.

21.  Finally, in respect of Mr Ground’s fourth point, we do not think that the late change of trial judge, while regrettable but apparently unavoidable for administrative reasons (we understand that the original judge had another trial of some complexity fixed before him at the same time that this matter was eventually fixed for hearing), has in fact caused any real prejudice to the Applicant. The complaint was relied upon in support of the argument raised by his third point, on which the Applicant has succeeded.  This point therefore adds nothing further.

22.  In the result, the only point on which the Applicant succeeds is in relation to the Judge’s “cancelling out” of the four months discount for delay on the prosecution’s part which he was otherwise minded to give her.  We therefore allow the appeal to that extent, and would restore the further four months’ discount to her sentence.

23.  Accordingly, the application for leave to appeal is granted, and treating the hearing of that application as the appeal, we allow the appeal, set aside the sentences of 21 months’ imprisonment on each charge, substitute therefore sentences of 17 months’ imprisonment on each charge, and order them to run concurrently, with the result that the Applicant is to serve a total sentence of 17 months’ imprisonment.