[ENGLISH TRANSLATION - 英譯本]
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CRIMINAL APPEAL NO. 445 OF 2011
(ON APPEAL FROM DCCC 1035 OF 2009)
________________________
BETWEEN
HKSAR
Respondent
AND
CHOW YIU MAN RAYMOND (周耀民)
1st Applicant
MAH PAT Y. (馬仕賢)
2nd Applicant
________________________
Coram: Hon Cheung and Yuen JJA and Barnes J in Court
Dates of Hearing: 4-6 December 2012
Date of Judgment: 24 January 2013
JUDGMENT
Hon Cheung JA (giving the judgment of the Court):
Application for leave to appeal conviction
1. The 1st and 2nd applicants were respectively charged with eight counts of “conspiracy to defraud”, contrary to the common law and punishable under section 159C(6) of the Crimes Ordinance (Cap. 200 of the Laws of Hong Kong).
2. The 1st Charge was laid against the 1st and 2nd applicants, the 2nd to 7th Charges against the 1st applicant, and the 8th Charge against the 1st and 2nd applicants and the 3rd defendant in the same case.
3. The case was tried before District Judge Joseph Yau. Judge Yau found the 1st and 2nd applicants not guilty on the 1st Charge, but convicted them on the 2nd to 8th Charges that they respectively faced. The 3rd defendant was found not guilty on the 8th Charge. The 1st and 2nd applicants now seek leave to appeal their respective convictions.
Particulars of the charges
1st Charge
4. The 1st Charge alleged that the 1st and 2nd applicants conspired together with Chan Kam Tong (“PW1”) to fraudulently induce Singapore Exchange Limited (“SGX”) to approve the listing of Daka Designs Limited (“Daka Designs”) on SGX;
2nd to 7th Charges
5. The 2nd to 7th Charges alleged that the 1st applicant conspired together with PW1 to fraudulently induce and cause six banks to grant loans as detailed below:
1) 8 October 2003, KBC Bank N.V., $1,001,756.80 (2nd Charge);
2) 4 February 2004, Citibank, N.A., $460,000 (3rd Charge);
3) 4 February 2004, DBS Bank (Hong Kong) Limited, $650,000 (4th Charge);
4) 4 February 2004, Bank of China (Hong Kong) Limited, $396,000 (5th Charge);
5) 16 March 2005 and 24 May 2005, The Hongkong and Shanghai Banking Corporation Limited, $1,935,000 and $594,000 respectively (6th Charge); and
6) 24 March 2005, Hang Seng Bank, $2,481,800 (7th Charge).
8th Charge
6. The 8th Charge alleged that 1st and 2nd applicants and the 3rd defendant conspired together with Ho Ka Chun (“PW9”) to fraudulently inflate the turnover and profit figures of a subsidiary of Daka Designs, thereby misleading existing and potential shareholders of Daka Designs and SGX as to the true financial position of Daka Designs; preventing them from making an informed decision as to whether to invest or further invest in Daka Designs; and inducing SGX to believe that Daka Designs had complied with its obligation to publish a true and accurate annual report and thereby preventing SGX from taking any action against Daka Designs for its failure to so comply.
Prosecution case
Background
7. We have adopted the facts of the prosecution and defence cases as provided by Mr Martin Hui, SADPP and Ms Cecilia Chan, SPP for the respondent and the supplements thereto.
8. The 1st and 2nd applicants were directors and chief decision makers of Daka Development Limited (“DDL”). The 1st applicant was a chartered accountant responsible for the financial affairs of the company. The 2nd applicant was mainly responsible for creating and developing products. The 3rd defendant was an employee within the Daka Group.
9. At the material time, PW1 was a shareholder of T & K Industrial Company Limited (“T&K”), a company engaged in manufacturing and processing plastic components. Chan Mui Chun (“PW2”) was PW1’s wife and was a director of T&K, responsible for the accounting work of T&K.
10. PW9 and his wife were shareholders and directors of MHM Marketing Co. Ltd. (“MHM”).
11. Since 1996, T&K had supplied plastic components to DDL and performed processing work for DDL. Subsequently, DDL and PW1 jointly set up one Kentat Industrial Limited (“Kentat”) in Hong Kong. Kentat had a factory in Dongguan, which was called “Kentat Plastic, Metal & Electronics Factory” (transliteration) (“Kentat Factory”). This factory provided manufacturing services for DDL only.
12. In mid-2002, PW1 transferred all his 50% shareholding in Kentat to DDL, following which Kentat was renamed “Daka Industrial Limited” (“DIL”), and in August 2002 Kentat Factory was also renamed “Daka Manufacturing Limited” (“DML”). Subsequently, PW1 also became the corporate representative of DML, and DDL transferred 50% DIL shares back to PW1.
13. For the purpose of tax arrangement, DDL set up one Briga Group (Macao Commercial Offshore) Company Limited (“Briga”’) in Macao on 26 November 2002.
14. In 2003, the 1st and 2nd applicants planned to have their business listed on the Main Board of SGX. For this purpose, Daka Designs was set up in Burmuda on 5 March 2004. The 1st and 2nd applicants were, respectively, the Chief Executive Officer and Executive Chairman of Daka Designs. Both DDL and Briga subsequently became subsidiary companies of Daka Designs.
15. Subsequently Daka Designs applied for listing on SGX. The prospectus was issued on 2 July 2004, and Daka Designs was formally listed on the Main Board of SGX on 16 July.
16. In July 2005, SGX considered various acts of Daka Designs suspicious and therefore appointed KPMG (Singapore) (“KPMG”) as an independent accountant to carry out auditing and investigation on Daka Designs. In the end, Daka Designs was suspended from trading as from 15 January 2006.
1st Charge
17. Although Judge Yau has found the two applicants not guilty of the 1st Charge, we shall give a brief account of the facts of this charge so as to facilitate a more thorough understanding of the present case. The prosecution alleged that the 1st and 2nd applicants and PW1 had conspired, by means of a false transfer of shares (namely by transferring 32% of DIL shares from DDL to PW1, thereby reducing DDL’s shareholding in DIL to 18%), to dishonestlycause DIL to be converted from an associate company of DDL to an investee company, so that Daka Designs misrepresented the financial positions of Daka Designs and DDL when applying to SGX for listing, thereby induced SGX to approve the listing application of Daka Designs.
18. PW1 said that although he was the majority shareholder in DIL, he was only a shareholder in name and, in respect of any profit or loss of DIL, would not receive any bonus or assume any liability corresponding to his shareholding. He did not manage or operate DIL. The 1st and 2nd applicants and the 1st applicant’s wife remained the final decision makers of DIL and DML. All documents relating to DIL were signed by PW1 upon the 1st applicant’s request.
2nd to 7th Charges
19. The 2nd to 7th Charges were of the same nature and involved a modus operandi similar to cases of “letters of credit fraud”. As DDL urgently needed money to resolve cashflow problems, the 1st applicant requested PW1 to issue false commercial invoices which falsely claimed that T&K was seeking payment from DDL for goods purportedly produced for DDL, and DDL used those false invoices to apply to banks for loans. After loans had been granted by the banks, the monies were deposited into T&K’s bank account. Upon receiving these monies, PW1 immediately deposited them into DIL’s account, and eventually the 1st and 2nd applicants transferred these monies back to DDL’s accounts within a short period of time.
8th Charge
20. The prosecution case alleged that MHM, upon the 2nd applicant’s request, had placed a false “special order” with DDL in order to inflate the turnover and profit figures of Briga in the annual report of Daka Designs for the financial year ended 31 March 2004. The facts relied on by the prosecution to prove its case included:
20.1) MHM issued a “special order” to purchase goods for a sum of approximately $8,900,000 but was not obliged to pay a deposit or take delivery of the goods and was not required to bear the risk of that order.
20.2) PW9 was given a reward of $100,000 as a result.
20.3) In order to make the “special order” appear genuine, PW1 and PW2 provided money to PW9 for the purposes of paying the deposit and reducing the amount owed by MHM as appearing in the books of DDL by reason of the “special order”.
20.4) In order to have the profit of the “special order” included in the annual report of Daka Designs for the financial year ended 31 March 2004, before the auditors carried out the stocktaking exercise, DDL/Briga moved the finished and semi-finished materials under the “special order” from DML to the warehouse of T&K (PW1), and a “goods receipt acknowledgement” dated back to 31 March 2004 was prepared and handed to the auditors.
20.5) Subsequently, when MHM purchased goods from Briga with genuine orders, PW9 issued purchase orders and paid for the goods in accordance with the normal procedures. However, Briga had to treat them as delivery of goods under the “special order” in batches, and therefore an alphabet was added at the end of the invoice numbers of the commercial invoices of the “special order” for ease of identification.
20.6) In the end, in order to resolve the problems with the goods and accounting records, goods which on the face of the accounts had not been received by MHM had to be returned and refund by DDL had to be arranged.
20.7) During the KPMG investigation, the applicants requested PW9 to falsely represent that the unit price of $936 for the mosquito trap of model number FT66 was acceptable, and that the money given by the 2nd applicant to PW9 to pay the deposit of the “special order” and reduce the amount payable by MHM for the “special order” was lent to him by the 2nd applicant by way of personal loan.
Defence case
2nd to 7th Charges
21. The 1st applicant neither testified nor called any defence witness at trial. His case, as revealed by cross-examining the witnesses, was that the commercial invoices in relation to the 2nd to 7th Charges were all issued pursuant to genuine commercial transactions.
8th Charge
22. The 1st and 2nd applicants did not testify at trial. It can be discerned from their cross-examination of PW9 that their defence to the 8th Charge was that the “special order” was a normal commercial transaction. The 2nd applicant called one defence witness, namely Mr Ngai Tsang Kwong, who was the senior production materials control planner at DDL. Mr Ngai said that at the material time DDL did manufacture goods in relation to the “special order”.
Judge Yau’s reasons for verdict
1st Charge
23. Judge Yau found all prosecution witnesses veracious and reliable. He found that the shares transfer was false. Nevertheless, he held that the 1st Charge was not established because he accepted the evidence given by an expert witness Yam Tak Fai (“PW12”) that, no matter whether DIL was an “associate” or “investee” company, Daka Designs was neither required to disclose nor liable for the losses of DIL and DML, and therefore, from the perspective of Daka Designs, SGX, creditors of Daka Designs and potential investors, whether such false share transfer existed would not have made any difference.
24. Judge Yau held that although this false shares transfer gave rise to the misrepresentations of financial positions in the prospectus of Daka Designs, this was (in the Judge’s view) not a result envisaged by the conspiracy agreement between PW1 and the 1st applicant. The Judge found that their initial agreement, which was only intended to relieve Daka Designs of its duty to disclose the losses suffered by DIL and DML, did not constitute any criminal offence. Moreover, that agreement could not be extended to cover the final disclosure by Daka Designs of false financial positions in the prospectus. As far as the 2nd applicant was concerned, Judge Yau found there was not sufficient evidence to prove that he had knowledge of the agreement between the 1st applicant and PW1, and therefore the 2nd applicant was also found not guilty of the 1st Charge.
2nd to 7th Charges
25. Judge Yau accepted PW1’s evidence. The 1st applicant requested T&K to issue, in the absence of a genuine underlying commercial transaction, false commercial invoices purporting to seek payment for goods from DDL. The 1st applicant then successfully obtained loans from banks by using these commercial invoices. After the banks passed the loan monies to T&K, PW1 arranged for the monies to be returned to the 1st applicant.
8th Charge
26. Judge Yau accepted PW9’s evidence and found that the “special order” was a sham transaction set up for the sole purpose of inflating the turnover and profit figures of Daka Designs in the financial report for the year of 2004. He found that, by inflating these turnover and profit figures, the 1st and 2nd applicants intended to mislead SGX into believing that Daka Designs had complied with its obligation to publish a true and accurate annual report, and also intended to mislead existing and potential investors of Daka Designs so as to prevent them from making an informed decision as to whether to invest or further invest in Daka Designs.
Appeal by the 1st applicant
1) First ground of appeal (applicable to all charges)
1. Stay of proceedings
27. 1) At trial, the 1st applicant applied for a permanent stay of the proceedings in the present case on the ground that the ICAC had deliberately infringed his legal professional privilege (“LPP”), and such infringement so seriously affronted the court’s sense of justice and propriety as to justify an order staying the proceedings.
27.2) Judge Yau heard the application and dismissed it. As he then had to conduct the trial of the case, the reasons for his decision dismissing the application were not delivered until the conclusion of the trial.
27.3) After the prosecution and the 1st applicant made their final submissions on the application for stay, the 2nd applicant also applied for a stay of the proceedings on the same ground. Judge Yau allowed the 2nd applicant to make the application but also dismissed it in the end.
1.1 Background to the applications
27.4) The background against which the 1st and 2nd applicants alleged that the ICAC had infringed their LPP is as follows.
27.5) In December 2005, KPMG was appointed by SGX to carry out investigation on DDL and Daka Designs, the scope of which was similar to that covered by the criminal prosecution in the present case.
27.6) In the course of investigation, KPMG suggested interviewing five senior officers of DDL, including the 1st and 2nd applicants, the 3rd defendant and a former accounting employee of DDL, Miss Wong Yuet-ying, Judy (“Miss Wong”). In order to prepare for the interview with KPMG, these five senior officers met and sought legal advice from a female solicitor and a trainee solicitor at the office of Messrs. Sidley Austin (misspelt as “Sydney” Austin in the Reasons for Verdict of the trial) in Hong Kong.
27.7) Miss Wong testified at the trial of the present case as a witness under immunity. In one of the non-prejudicial statements (hereinafter “NPS”) taken from Miss Wong, the ICAC recorded what transpired at the meeting between the five of them and the lawyers.
27.8) Judge Yau briefly recounted the prosecution evidence involved in the application for stay:
“Prosecution evidence
12. The prosecution has called four witnesses. As mentioned above, PW1, Miss Wong Yuet-ying, Judy gave evidence under immunity from prosecution granted by the Secretary of Justice. On 24 September 2007, she was arrested by the ICAC for the present case and two records of interviews were taken from her under caution on the same day. Between 28 September and 14 December 2008, she was interviewed by the ICAC for ten times, as a result of which the NPS which forms the subject of this voir dire hearing was prepared.
13. According to PW1, in the course of the recording, the ICAC asked her questions and then she answered. PW1 agreed that the NPS referred to KPMG’s investigation on DDL and Daka Designs, and to the assistance rendered by Messrs. Sydney Austin to the three defendants in dealing with this investigation and writing a report for submission to KPMG. PW1 pointed out that she took the initiative to talk about the communication between the defendants and the law firm, and the ICAC officers neither asked her about it nor stopped her from talking about it.
14. The NPS mentioned that KPMG would like to interview certain people and some staff members of DDL and Daka Designs, who therefore sought legal advice before the interview. This legal consultation took place in March 2006, at which these people were received by a female solicitor and a female trainee solicitor called Rosa. The NPS recorded the course of this meeting and the gist of what the lawyers had said and the legal advice given. PW1 said in the court that she had talked about that on her own initiative but the ICAC officers had not stopped her. Upon being asked by the ICAC officers, she disclosed who had attended this legal conference.
15. PW1 said that the ICAC first showed her a draft NPS for her perusal and amendment, and subsequently on 14 December 2008 she signed the formal NPS which had been amended. PW1 pointed out that during all these interviews, the ICAC officers had not explained to her about LPP [i.e. legal professional privilege,], and she had not signed any document waiving this privilege.
16. PW2, ICAC Investigator Mr Sze Chiu-kwan, and PW3, Investigator Miss Ho Tsui-shan were the ICAC officers responsible for taking the NPS from PW1. PW3 was an assistant investigator at that time. PW2 was responsible for asking questions and taking notes, and PW3 showing relevant documents to PW1 for her as reference. PW3 was present at all the interviews; PW2 was absent from two of them and on those occasions PW3 interviewed PW1 by herself.
17. PW2 said that when taking the NPS, PW1 volunteered the relevant information about Messrs. Sydney Austin representing DDL and Daka Designs in answering KPMG’s questions. At that time the issue of LPP did not come to his mind because his training in this aspect focused on monitoring and surveillance.
18. PW2 noticed that some of what PW1 had said in the NPS differed from what she had said in the statement(s) given to KPMG in 2006 and the cautioned statements given to the ICAC in 2007. When PW2 sought clarification from PW1, PW1 said on her own initiative that she and others had met and obtained legal advice from a female lawyer and a female trainee solicitor at Messrs. Sydney Austin. PW2 admitted he had not mentioned in his witness statement that it was under such circumstances that PW2 [should be PW1] had talked about this legal conference.
19. PW3 said that it was after PW1 made mention of this legal conference that PW2 asked her when she went to the law firm. PW2 wrote down what PW1 said and the content of the legal advice in his notebook and later wrote them down in the NPS.
20. PW4, Miss Chu Mei-po, ICAC Senior Investigator, has been the officer-in-charge of the present case since November 2006. In the course of preparing the NPS, he [sic] did not ask PW2 and PW3 about the progress and content of the NPS. After completing the NPS, PW2 pointed out to PW4 that PW1 had talked in the NPS about meeting lawyers. PW2 did so because he noticed some problem might arise. In the end, neither she [sic] nor PW4 found anything wrong.
21. PW2 said he could no longer recall the exact wording he used when he told PW4 about the meeting with the lawyers. On this point, PW4 testified that PW2 had told her that the NPS involved LPP but PW1 had already waived this right.
22. PW2 testified that he, PW3 and PW4 had all read PW1’s NPS. He believed that another ICAC officer Kitty Lau had also read this NPS. After receiving the NPS, PW4 made a photocopy of it as a working copy and locked away the original. She admitted that she had discussed with her superior, ICAC Chief Investigator Kitty Lau, about the content of the NPS and the LPP which might be involved, and had told Kitty Lau that PW1 had waived such right. They did not discuss the LPP in respect of the other people who had attended this legal conference.”
1.2 Judge Yau’s decision
27.9) Judge Yau made the following decisions on the application for stay:
27.9)(1) The prosecution witnesses were all veracious and reliable and their evidence was accepted. Judge Yau found that it was while Miss Wong was clarifying the differences in her various statements that she, on her own initiative, talked about this legal conference and the legal advice given by the lawyers, and PW1 [should be PW2] had not expected her to do so. PW2 did not deliberately probe for details of this legal conference and the legal advice provided by the lawyers.
27.9)(2) PW2 wrote down the relevant legal advice in his notebook and recorded it in the NPS because at that time it did not occur to him that such legal advice was protected by LPP.
27.9)(3) It was absurd for PW2 to think that Miss Wong had waived her LPP because Miss Wong, as an ordinary civilian witness, would not possibly have understood the meaning, existence and significance of the privilege and, therefore, could not possibly have validly waived her privilege. Furthermore, apart from Miss Wong, other defendants also attended the conference and were also protected by LPP. Miss Wong was not in a position to waive their LPP on their behalf.
27.9)(4) Other ICAC officers neither realised that the LPP of Miss Wong and other defendants had been infringed, nor considered seeking legal advice in this regard. This reflected their ignorance of the relevant privilege, but it could not be an excuse for infringing the privilege.
27.9)(5) The act of the ICAC officers was a deliberate infringement of the defendants’ privilege.
27.9)(6) The way in which the ICAC officers dealt with the defendants’ rights could be described as extremely unsatisfactory or even deplorable. Nevertheless, the evidence very clearly showed that the ICAC had not made use of the privileged legal advice obtained for any improper purpose. That the ICAC obtained the legal advice was not the result of any plan or premeditation on their part.
27.9)(7) Except that the relevant legal advice was part of the NPS and that it was on the basis of the NPS that the ICAC considered whether to grant Miss Wong the capacity as a witness, there was no evidence that the ICAC had in any way made use of such privileged legal advice. PW2 said that the privileged information had no evidential value whatsoever, and therefore the information was neither here nor there when the ICAC considered whether Miss Wong would be used as a prosecution witness.
27.9)(8) The ICAC had all along been bona fide . They had never planned or deliberately set out to probe for such privileged information from Miss Wong, nor had they ever intended to make use of information obtained in infringement of the defendants’ LPP so as to gain any advantage or cause the defendants to be treated in an unfavourable and unfair way. In fact, the ICAC had in fact not gained any advantage therefrom and the defendants had not as a result been treated in an unfavourable and unfair way.
27.9)(9) The defendants were charged with very serious commercial offences with an international dimension, and public interest undoubtedly required a fair and open trial of the case. Although the ICAC had infringed the defendants’ rights, it was not so serious as to affront the court’s sense of justice and propriety and hence to call for an order staying the hearing permanently.
1.3 1st applicant’s arguments
27.10) Mr Joseph Tse SC leading Ms Doris Ho, Counsel for the 1st applicant, assert that Judge Yau’s refusal to stay the hearing involved erroneous findings of fact and misapplication of legal principles. In respect of the errors in findings of fact, the 1st applicant contends that his LPP had repeatedly been infringed for a number of reasons:
(1) poor legal knowledge of the ICAC officers;
(2) their reckless actions that followed;
(3) problems with their internal administration;
(4) their subsequent deliberate indifference to the problems that existed;
(5) their failure to seek legal advice;
(6) their failure in taking any precaution whatsoever to prevent or reduce any violation of the applicant’s LPP; and
(7) they even intended to use the information to benefit the prosecution and prejudice the applicant, and eventually succeeded in doing so.
27.11) The 1st applicant submits that the ICAC had deliberately and purposefully recorded the privileged contents disclosed by Miss Wong with the intention of using such information to benefit the prosecution by securing the agreement of the Department of Justice to accept Miss Wong as a prosecution witness. That being the case, the 1st applicant submits that it is difficult to understand why Judge Yau proceeded to hold that the ICAC’s approach in handling the NPS and the infringement of privilege were bona fide . Bona fide motive here did not refer to the ICAC’s purpose in infringing the rights, namely the purpose of investigation and obtaining evidence in combating crimes, because in all the relevant decided cases it was for the same purpose that law enforcement agencies had infringed the rights. Whether the act in question was bona fide is (it is submitted) to be answered by reference to that state of mind of the law enforcement agency in infringing the privilege. The 1st applicant submits that the ICAC had been mala fide .
2. Legal principles
2.1 Legal professional privilege
27.12) Article 35 of the Basic Law provides that “Hong Kong residents shall have the right to confidential legal advice”. This right is the LPP under the common law. It protects the confidentiality of bona fide communications between a lawyer and his client concerning legal advice or in relation to ongoing or contemplated litigation. The privilege entails the right to resist the compulsory disclosure of those communications and can only be waived by the person who enjoys the privilege. This right is described as a fundamental human right and the cornerstone of the administration of justice by the courts. The privilege is an “absolute right” in the sense that it is not liable to be violated by reason of the public interest in apprehending and prosecuting criminals, no matter how compelling such interest may be. See the judgment of the Court of Appeal in Citic Pacific Ltd v. Secretary for Justice [2012] 2 HKLRD 701.
2.2 Stay of criminal proceedings
Hong Kong case law
27.13) In HKSAR v Lee Ming Tee & Another (2001) 4 HKCFAR 133 at 148-151, the Court of Final Appeal explained the principles for staying criminal proceedings. The Court pointed out that a stay of criminal proceedings would only be justified in highly exceptional circumstances. A staymight be granted in the following circumstances:
(1) Notwithstanding the range of remedial measures available, a fair trial for the accused was impossible and it would be an abuse of process to proceed with the prosecution.
(2) In very rare cases, although the fairness of the trial was not in question, a stay might be granted because the circumstances involved an abuse of process which so offended the court’s sense of justice and propriety that the entire prosecution was tainted as an abuse of process. In such instances, the court was not exercising its jurisdiction to stay as a means of disciplining the public officials involved.
27.14) The Court of Final Appeal reiterated the relevant principles in HKSAR v. Lee Ming Tee and Securities and Futures Commission (2003) HKCFAR 336.
“182. In the light of the conclusions already reached, there is no basis for the grant of a permanent stay. It was not a case in which the respondent could not get a fair trial. Therefore if the case was to attract a stay, it had to come within the principle stated by Lord Steyn in R v. Latif [1996] 1 WLR 104 at 112G-H:
‘In this case the issue is whether, despite the fact that a fair trial was possible, the judge ought to have stayed the criminal proceedings on broader considerations of the integrity of the criminal justice system. The law is settled. Weighing countervailing considerations of policy and justice, it is for the judge in the exercise of his discretion to decide whether there has been an abuse of process, which amounts to an affront to the public conscience and requires the criminal proceedings to be stayed: Reg v. Horseferry Road Magistrates’ Court, Ex parte Bennett [1994] 1 AC 42.’
It is generally recognised that only in exceptional circumstances will a stay be granted when a fair trial is possible. An indication of what this means is conveyed by L’Heureux-Dubé J’s observations in R v. O’Connor at 277b-c:
‘... a stay of proceedings is only appropriate ‘in the clearest of cases’, where the prejudice to the accused’s right to make full answer and defence cannot be remedied or where irreparable prejudice would be caused to the integrity of the judicial system if the prosecution were continued.’
In the absence of a finding of ‘bad faith’, this standard will rarely, if ever be satisfied in a case where a fair trial is still possible. Even if there be a finding of ‘bad faith’, that finding would not necessarily conclude the matter.”
27.15) The Court of Appeal adopted the above legal principles in the following three cases involving infringement of LPP: Secretary for Justice v Shum Chiu [2008] 1 HKLRD 155, HKSAR v Wong Hung Ki [2011] 1 HKLRD 183 and HKSAR v Ko Kit CACC 65/2009.
27.16) The Court of Appeal pointed out in Shum Chiu that, in determining whether there had been a infringement of LPP which constituted an abuse of process, the court had to consider the following:
“56．…..
1) was the occasion one that prime facie was privileged;
2) if so, was the intrusion carried out with knowledge, or where the authority ought to have known, that the occasion was privileged;
3) if the occasion was privileged, was there nonetheless strong ground for believing that it was not protected by privilege;
4) If there was no strong ground, is there, even so, something in the reasons put forward by the law enforcement authority for the conduct that takes the situation out of one that would otherwise be condemned as an affront to the public conscience?
5) As to that last question, it is not possible, and it is not wise, to speculate what may suffice but we would suggest that ignorance of the right of privilege would not.”
27.17) In Ko Kit , the Court of Appeal had this to say:
“48. In deciding whether conduct goes sufficiently far as to amount to such an affront to the public conscience as to require that a court follow the exceptional course of granting a stay of proceedings, the motive or intent of the law enforcement agency concerned, it seems to us, must be a relevant and important consideration for the court. The recurrent theme throughout the cases to which we have been referred is the abhorrence felt by the court towards the calculated and cynical conduct of the various law enforcement agencies which set out with the settled intention of recording privileged communications.”
2.3 Evidence obtained in breach of constitutional rights
27.18) In HKSAR v Muhammad Riza Khan , FACC 13/2010, law enforcement officers had secretly recorded the conversation between the defendant and an undercover agent regarding the presence of dangerous drugs in a suitcase. In considering whether evidence obtained in violation of the accused’s constitutional right to privacy was admissible, the Court of Final Appeal adopted the following test:
“20. The test can be stated thus. Evidence obtained in breach of a defendant’s constitutional rights can nevertheless be received if, upon a careful examination of the circumstances, its reception (i) is conducive to a fair trial, (ii) is reconcilable with the respect due to the right or rights concerned, (iii) appears unlikely to encourage any future breaches of that, those or other rights. The risk-assessment called for under the third element will always be made by the courts, vigilantly of course, in the light of their up-to-date experience. Thus is achieved, consistently with the constitution, a proper balance between the interests of individual defendants and those of society as a whole. It cannot have been the framers’ intention – and is not the constitution’s effect – to stand in the way of such of balance being struck. Just as rationality and proportionality can justify an impact on a non-absolute constitutional right, so can they justify a discretion to receive evidence obtained in breach of a constitutional right. Under the test stated above, the discretion concerned is rational and proportionate. The factors to be taken into account in applying this test and the weight to be accorded to each such factor will depend on the circumstances of each case.”
2.4 English case law
27.19) In the English case of R v Grant [2005] 3 WLR 437, the accused applied for a stay of the trial on the ground that his LPP had been violated. The trial judge held that there was no evidence to prove that the accused had suffered any prejudice as a result of the conduct in question and dismissed the application. This was overturned by the Court of Appeal, which held that although the prosecution had not used the privileged conversation intercepted, deliberate violation of LPP enjoyed by the suspect was an affront to the integrity of the justice system which rendered the prosecution abusive, and this was not to be countenanced by the court.
27.20) In Warren v Attorney General for Jersey [2012] 1 AC 22 the Privy Council expressed disagreement with the views of the Court of Appeal in Grant . Lord Dyson JSC said at para 36 of the judgment:
“36. … the Board respectfully considers that the decision in R v Grant was wrong. The statement at para 54 suggests that the deliberate invasion of a suspected person’s right to legal professional privilege is to be assimilated to the abduction and entrapment cases where the balancing exercise will generally lead to a stay of the proceedings. The Board agrees that the deliberate invasion by the police of a suspect’s right to legalprofessional privilege is a serious affront to the integrity of the justice system which may often lead to the conclusion that the proceedings should be stayed. But the particular circumstances of each case must be considered and carefully weighed in the balance. It was obviously right to hold on the facts in R v Grant that the gravity of themisconduct was a factor which militated in favour of a stay. But as against that, the accused was charged with a most serious crime and, crucially, the misconduct caused no prejudice to the accused. This was not even a case where the ‘but for’ factor had a part to play. The misconduct had no influence on the proceedings at all. In these circumstances, surely the trial judge was entitled to decide in the exercise of his discretion to refuse a stay and the Court of Appeal should not have held that his decision was wrong.” (emphasis supplied)
27.21) Lord Dyson JSC pointed out at para 24 of the judgment that in performing the balancing exercise, the court took into account such factors as:
27.21)(1) the seriousness of the violation of the defendant’s rights;
27.21)(2) whether the police have acted in bad faith or maliciously or with an improper [motive];
27.21)(3) whether the misconduct was committed in circumstances of urgency, emergency or necessity;
27.21)(4) the availability or otherwiseof other sanctionsagainst the party responsible for the misconduct；
27.21)(5) the seriousness of the offence with which the defendant is charged.
27.22) In R v. Maxwell [2010] UKSC 48, the English Court of Appeal considered the issue of retrial in criminal cases. The defendant in that case was convicted of robbery and murder and sentenced to life imprisonment. The evidence against the accused came from a repeat offender who was also serving a prison sentence and who had in the past served a sentence of imprisonment with the accused. The defendant alleged that the police were planning to pay this repeat offender a large sum of money on his release from prison. Evidence showed that the police had been providing benefits to this repeat offender, which included monetary benefits, permitting him to consume drugs in front of them and not investigating or prosecuting his other violent conduct. Evidence showed that the police, prosecuting authority and counsel had concealed such information and misled the court. However, while serving his sentence, the defendant voluntarily admitted several times that he had committed the offences of which he had been convicted. The Court of Appeal quashed the convictions but ordered a retrial. The defendant’s appeal to the Supreme Court of England against the order for a retrial was dismissed.
27.23) On the question of whether there should be a retrial, the English Supreme Court considered the decided cases in which proceedings were stayed by reason of prosecutorial misconduct which constituted an abuse of process. Lord Dyson at para 21 of the judgment said that, where prosecutorial misconduct was raised as a reason for refusing a retrial, the court might treat the case as being analogous to an application for stay on the ground of prosecutorial misconduct; however, the two situations were not identical. Lord Dyson held the view that the question of “whether the interests of justice require a retrial” was broader than the question of “whether it is an abuse of process to allow a prosecution to proceed”.
3. Our views
3.1 Findings of fact
27.24) With respect, we do not agree with the 1st applicant’s submission that Judge Yau had made erroneous findings of fact. On the evidence given by the relevant prosecution witnesses, Judge Yau correctly found that the ICAC had been bona fide without deliberately probing for the privileged information from Miss Wong. We also do not agree that the ICAC had made use of such information in seeking legal advice from the Department of Justice as to whether Miss Wong was to be granted immunity as a witness to give evidence against the defendants in the present case. As the respondent has pointed out, the ICAC had already taken the NPS with Miss Wong by that time, which meant that they had already obtained the legal advice in this regard. As PW2 said that the privileged information had no evidential value at all, Judge Yau found that the information had no effect whatsoever on the ICAC’s assessment of whether Miss Wong would be used as a prosecution witness.
3.2 Findings on law
27.25) We agree that legal professional privilege is one of the cornerstones of the rule of law in Hong Kong. At the same time, however, the current law states clearly that a stay of criminal proceedings would only be justified in highly exceptional circumstances. The court has to balance all the relevant factors before coming to a decision. This principle does not go against the point previously made aboutLPP being an absolute right: the issue before us now is whether the infringement of LPP warrants a stay of the hearing, which is different from the need to infringe such privilege and disclose privileged communications on the ground of the public interest in apprehending and prosecuting criminals.
27.26) In the present case, we agree with Judge Yau’s ruling that the misconduct of the ICAC had not caused any prejudice to the 1st applicant. In applying for a stay, the 1st applicant did not rely on the first limb of the relevant legal principle, namely that he could not possibly have a fair trial, but instead relied on the second limb, namely that the conduct of the ICAC offended the court’s sense of justice and propriety, thereby rendering the prosecution abusive. As the Privy Council explained in Warren , an application under this second limb did not focus on protecting the accused from unfair treatment, a question which formed the subject matter of an application under the first limb only. Having said that, in considering whether the hearing was to be stayed, the Privy Council balanced various factors, including whether the conduct of the law enforcement officers had caused any prejudice to the accsued.
27.27) The 1st applicant submits that the factors to be considered by the court do not include whether the misconduct has caused any prejudice to the accused. The 1st appellant submits that, having successfully proved a deliberate violation of his LPP, the accused is not required to establish that he thereby suffered prejudice; instead, the law enforcement agency involved then bears the burden of proving the existence of compelling reasons to justify the violation. In HKSAR v Wong Hung Ki , the Hong Kong Court of Appeal, citing United States v Levy 577 F 2d 200 (1978), 209 and Grant , said that if there had been a deliberate violation of the applicant’s LPP, following which the law enforcement agency obtain such confidential information, it was not necessary for the applicant to establish that he had suffered prejudice. The 1st applicant submits that the New Zealand case of The Queen v Taylor Ivan Antonievic and others [2012] NZHC 2686 also supports his contention.
27.28) With respect, we do not agree. In Warren , the Privy Council did not rule out the factor that it was not necessary to consider the prejudicial effect of prosecutorial misconduct on the defendant. As Lord Kerr of Tonaghmore JSC explained in para 83 of the judgment in Warren , the balancing factors set out by Lord Dyson in the case were not exhaustive, although Lord Kerr took the view that in dealing with applications under the second limb, in order to avoid confusion, the court should not consider if the relevant conduct was prejudicial to the defendant. In any event, in Warren , Lord Dyson did, on the question of stay of hearing, consider whether the relevant conduct had been prejudicial to the defendant. Apart from Lord Kerr, the other judges did not take issue with Lord Dyson’s decision to consider the question of prejudice to the defendant. In our view, as the opinion of the English Court of Appeal in Grant has been overturned by the Privy Council in Warren , it is necessary to rectify the view expressed by the Hong Kong Court of Appeal in Wong Hung Ki . In Taylor the New Zealand court did not discuss this issue in depth. In our view, as a matter of principle, if the court is required to consider all relevant factors in determining whether or not to stay a hearing, then it ought to take into account, as one of those factors, whether the applicant has been prejudiced by reason of the relevant misconduct. Otherwise, the balancing exercise would be incomplete. We respectfully agree with the judgment in Warren in this regard.
27.29) In the present case, even if it is unnecessary to consider this factor, we are of the view that the circumstances of the case were not such as to warrant a stay of the hearing. The ICAC had not abused the process and thereby offended the court’s sense of justice and propriety so that the entire prosecution was tainted as an abuse of process. There was no affront to the public conscience.
37.30) We do not find it necessary to discuss Maxwell at length because the matters required to be dealt with in the present case have already been adequately discussed in other decided cases, and we have been able to come to a decision on the basis of those discussions.
27.31) The first ground of appeal is rejected.
The 2nd applicant’s position
27.32) The 2nd applicant also submits, as his ground of appeal, that Judge Yau had erroneously refused to grant a stay. It was only near the end of this appeal hearing that reliance on this ground of appeal was expressed on behalf of the 2nd applicant. The respondent did not object to the 2nd applicant joining in the application.
27.33) Although we have allowed the 2nd applicant to rely on this ground, we feel obliged to criticize such practice. The 2nd applicant’s legal team, having represented him at the trial, had sufficient time to consider if they should rely on the above ground in support of their application for leave to appeal. This kind of last-minute application is inappropriate and may even be described as unprofessional. In any event, for the same reasons, we also reject this ground of appeal put forward by the 2nd applicant.
2) Other grounds of appeal
2.1 Evidence on the 2nd to 7th Charges
28. 1) We will first outline the evidence in support of the 2nd to 7th Charges, which fall under four headings:
(1) PW1’s evidence;
(2) flow of capital;
(3) other corroborative evidence; and
(4) evidence from the banks.
2.1(1) PW1’s evidence
28.2) PW1, who gave evidence under immunity from prosecution, gave evidence that the 1st applicant had told him DDL was in need of money for cashflow and requested him to issue some false commercial invoices to seek payment for goods by DDL, although those invoices were in fact not based on any business dealings. When the 1st applicant needed such commercial invoices, he phoned PW1 and told him how much money he needed, and then PW1 personally prepared the relevant commercial invoices for the 1st applicant.
28.3) Upon receiving money from the banks, PW1 returned the money in full to DIL after deducting the bank handling charges.
28.4) According to PW1, the moulds that he referred to for charging payment in the false invoices included some uncharged extra moulds previously produced for DDL, some non-existing moulds, some genuine moulds with the letter “S” added to the end of the model numbers for ease of identification, models intended to be developed with the moulds not yet ready, existing moulds models (but no physical objects existed for these models), and alternative moulds currently in frequent use, etc.. PW1 explained clearly in his testimony how he identified and remembered each false invoice.
2.1(2) Flow of money
28.5) The flow of money in relation to the 2nd to 7th Charges has been set out in detail in Admitted Facts (1). It can be seen from Admitted Facts (1) that, each time DDL applied to a bank for a loan using false commercial invoices, and shortly after the loan had been granted by the bank and deposited into the account of T&K, T&K deposited the loan into DIL’s bank account by a cheque signed by PW2. The sum would then be quickly deposited back into DDL’s account by a cheque signed by the 1st or 2nd applicant. For the 3rd to 5th Charges, T&K transferred the loans involved into DIL’s account in one single deposit by a cheque for the amount of $1,500,000.
2.1(3) Other corroborative evidence
28.6) Apart from the above evidence, the prosecution also relied on PW2’s evidence as cooroborative evidence, in particular her evidence on how she dealt with the loans and the relevant documentary records. PW2 was able to identify from T&K’s books the monies relating to the 2nd to 7th Charges because the entries for those monies were different from those for other normal transactions. For normal transactions, each entry was accompanied by a commercial invoice number; for those loans she recorded the amounts in a different way, such as “loans (will be refund)”, “capital” or with no remarks at all. In respect of the entries with no remarks at all, PW2 explained that she had absolutely no idea how the monies should be recorded in the books, and therefore, in order to avoid confusion, no information was provided for these entries for identification purposes.
2.1(4) Evidence from the banks
28.7) The banks pointed out, had they known that the commercial invoices in support of the applications for loans were not issued pursuant to genuine commercial transactions, they would not have granted the loans. The loans and interests relating to all the charges have been returned to the banks in full.
3) Second and third grounds of appeal (applicable to the 2nd to 7th Charges)
3.1 Assessment of PW1’s integrity
29. 1) PW1 was the most essential witness in respect of the 2nd to 7th Charges. The 1st applicant submits that Judge Yau erred in finding this witness veracious and reliable because the Judge had only considered that PW1 did not have any motive to frame up the 1st applicant, that the two parties continued to have business dealings, and that, were PW1 not a person of integrity, it would be difficult to see how Briga group would have allowed T&K to continue to manufacture and process products for them. The 1st applicant submits that, having regarded the fact that PW1 had been granted immunity from prosecution as an indication that the offence must have been committed, Judge Yau shifted the onus of proof to the 1st applicant, asking him what motive there was for PW1 to frame him up. The 1st applicant submits that the point that both parties continued their business dealings because of PW1’s integrity was made by Judge Yau out of sheer conjecture, as there was no evidence pointing to the circumstances under which the two parties continued their business dealings or the reasons why they did so.
29.2) We agree that the assessment of the honesty or otherwise of a witness should not be based solely on whether he/she has the motive to frame up the defendant. Moreover, ongoing business dealings between the two parties should not be the only reason for finding the 1st applicant an honest or dishonest witness. However, in our view, apart from PW1’s evidence, there was also other evidence in support of the 2nd to 7th Charges, such as the flow of money and other corroborative evidence. Having considered the relevant evidence, Judge Yau found, in our view correctly, that PW1 was an honest witness. The reasons stated by Judge Yau were just two of the many reasons for his finding, and he had never shifted the onus of proof to the 1st applicant.
29.3) The 1st applicant also submits that Judge Yau had not taken into account that PW1’s evidence in respect of the 1st Charge had already been rebutted by the two accounting experts for the prosecution (PW12 and PW14). In the 1st Charge, PW1 alleged that the 1st applicant had told him that he would have an additional 32% of DIL shares transferred from DDL to him and that no disclosure was necessary in the company results if the shareholding of the subsidiary company was less than 20%. PW12 testified that according to the Equity Method of Accounting, even if there was no transfer of the 32% shares, DDL would still not be required to disclose the loss suffered by DIL in the financial report and prospectus. The two DDL audit documents produced to the court by PW14 showed that in the financial year preceding the transfer of the 32% shares, i.e. 2002, DDL had already ceased to bear DIL’s loss and had not disclosed DIL’s loss in its financial report. This was the very evidence which proved that DDL had already adopted the Equity Method of Accounting back in 2002. Being a chartered accountant and an officer responsible for corporate accounting and financial matters, the 1st applicant must, back in 2002, have been aware of such fact or the fact that DDL had already adopted the Equity Method of Accounting. Therefore, the conversation PW1 alleged to have had with the 1st applicant about the effect of the share transfer appeared to be self-contradictory.
29.4) Judge Yau found the 1st Charge not established for the following reasons:
“202. This gives rise to a question that I must consider: would the performance of the agreement between PW1 and the 1st defendant constitute an offence? Given that a company applying for listing is not required to disclose the loss of an associated company, then even if there was no such false share transfer, the non-disclosure of the loss of DIL and DML when Daka Designs applied for listing would not have contravened the listing rules or constituted any offence. For this reason, we must scrutinize the agreement between PW1 and the 1st defendant. In fact, what PW1 agreed with the 1st defendant to do was become the nominal majority shareholder of DIL in order to assist Daka Designs in getting listed in Singapore. The 1st defendant told PW1 that if DDL’s shareholding in DIL did not exceed 20%, DDL would not be required to disclose the loss of its subsidiary. The 1st defendant did not specify which subsidiary he was talking about, but it was beyond doubt that both he and the 1st defendant knew that it referred to DIL and DML. The ultimate objective of their agreement was to procure the successful listing of Daka Designs.
203. Their agreement was not to directly assist in the listing of Daka Designs by means of a false share transfer, but instead to procure the listing of Daka Designs by discharging Daka Designs’ obligation to disclose the losses of DIL and DML. Obviously, when the 1st defendant requested PW1 to effect this false share transfer, he did not know that Daka Designs was simply not required to disclose the losses of DIL and DML under the SGX listing regulations and the law of Singapore regardless of whether such transfer took place. Therefore, when PW1 and the 1st defendant reached the agreement, their intention was to discharge Daka Designs’ obligation to disclose the losses of DIL and DML so as to assist Daka Designs in getting listed. This intention could not possibly constitute a criminal offence. In other words, an agreement formed on such a basis and bearing such an objective could not possibly constitute a conspiracy which attracted criminal liability.”
29.5) In our view, whether the 1st applicant had said such things to PW1 is separate and distinct from whether the 1st Charge could be established. The 1st applicant had elected not to testify at trial. That he was an accountant by profession does not necessarily mean that he had not put forward the relevant suggestion to PW1 or that the two of them had not eventually reached the agreement. Under such circumstances, Judge Yau was entitled to draw an inference adverse to the 1st applicant. Whether PW1 was a veracious witness was purely a finding of fact. His testimony at trial lasted as long as 13 days. In order to successfully overturn Judge Yau’s findings on PW1’s credibility, the 1st applicant has to prove that Judge Yau’s assessment of PW1’s testimony was plainly wrong. Judge Yau had the benefit of listening to PW1 and observing his demeanour when he was giving evidence. We do not agree with the 1st applicant’s contention.
29.6) The 1st applicant also complains that Judge Yau had accepted PW1 as a veracious witness for the above two reasons and, harbouring such first impression, analyzed the evidence in respect of the 2nd to 7th Charges. The 1st applicant submits that Judge Yau should have considered the entire body of evidence in the case before assessing PW1’s veracity and credibility.
29.7) In our view, in assessing PW1’s testimony, Judge Yau had in fact applied the criteria suggested by the 1st applicant. The Judge said:
“255. As is the case with the 1st Charge, the prosecution relies heavily on PW1’s evidence in seeking to prove the 2nd to 7th Charges. As I have mentioned above, PW1 testified under immunity from prosecution granted by the Secretary for Justice and therefore I have approached his evidence with great caution. In dealing with the 1st Charge, I have found that PW1 was a veracious and reliable witness in relation to that charge. The 2nd to 7th Charges are separate charges. Therefore I have to deal with the credibility and reliability of PW1’s evidence in relation to these charges separately. PW1’s evidence in relation to these charges is, in my view, fair without a trace of exaggeration. Of course, there are a number of points that I have to specifically address .”
4) Fourth ground of appeal (applicable to the 2nd to 7th Charges)
4.1 Single conspiracy/separate conspiracies
30. 1) The 1st applicant submits that the 2nd to 7th Charges were founded upon one previous general conversation between the 1st applicant and PW1, but each of those charges was concerned with a separate conspiracy. The prosecution evidence supported only one global/overall conspiracy, and no evidence was adduced to establish a separate and distinct agreement between the 1st applicant and PW1 in respect of each charge. The 1st applicant argues that, at law, the prosecution bore the burden of proving that the 2nd to 7th Charges were all concerned with separate conspiracies, see The Queen v. Hung Hon Yee, CACC 271/1985. In that case, a number of defendants faced three charges which involved different periods, but part of the periods overlapped and each charge of conspiracy involved different defendants. The prosecution made it clear that the second and third counts of conspiracy were alternative to the first count of conspiracy. The ground of appeal was that the trial judge had failed to direct the jury adequately on whether the facts involved one single conspiracy or one or more than one conspiracies. The Court of Appeal accepted this argument. The respondent in the present case does not take issue with the principle laid down in Hung Hon Yee but submits that it does not apply to the present case.
30.2) We do not think that the decision in Hung Hon Yee is applicable in the present case. The six counts of conspiracy in the present case involved six different banks, and the amounts involved were all different. In our view, even if PW1 and the 1st applicant had all along relied on a previous general conversation in forming this conspiracy agreement, in the end they still had to discuss and agree upon the amount involved in the bogus transaction in respect of each charge, and therefore, each bogus transaction was a separate conspiracy agreement. We do not agree that Judge Yau had made his ruling on the basis of only one single conspiracy.
5) Fifth ground of appeal (applicable to 2nd Charge)
5.1 Whether the agreement was targeted at the bank
31. 1) The 1st applicant submits that PW1’s evidence failed to show that the agreement between the 1st applicant and PW1 was targeted at a bank or any type of institution. Judge Yau erred in finding PW1 must have known that the 1st applicant would use the invoices on the bank. Such a finding was at variance with PW1’s evidence which revealed nothing more than speculation on his part: “Should be, broading speaking, not enough money to spend, loan from bank first.” The earliest point of time at which PW1 was indeed aware that the relevant conduct would be carried out on banks was after he had the conversation with the 1st applicant, i.e. after T&K had received from the bank the money referred to in the 2nd Charge. The applicant contends that Judge Yau erred in law in finding that it was not necessary to show that the 1st applicant knew that the invoices were used against the banks and that it sufficed to show that he knew illegal conduct would be involved. The element of the offence charged was conspiracy to defraud the bank, not conspiracy to defraud any person.
31.2) On this issue, Judge Yau ruled as follows:
“279. … Undoubtedly, in the 2nd Charge, the T&K invoice numbered TK0307/03[prosecution exhibit P433(2359)] which was used by DDL in applying to the KBC Bank N.V. for the trust receipt loan of $1,001,756.80 was, as PW1 testified, a false invoice.
280. Although PW1 has already forgotten if he had issued this false invoice on the basis of the free extra moulds previously produced, PW1 did point out very clearly in his testimony that it was only upon the 1st defendant’s request that he had issued this invoice, because the 1st defendant had said that DDL needed money for cashflow. The 1st defendant said in his closing submission that PW1 agreed that he did not know the false invoice would be used in support of the application to the bank for invoice or trust receipt financing. In response, the prosecution stated that when the 1st defendant requested PW1 to issue the false invoice, what he said was, “not enough money to spend, loan from bank first”.
281． I must point out that PW1’s evidence is in fact this. In PW1’s testimony, after he said that he had issued the false invoice upon the 1st defendant’s request, the prosecuting counsel asked him, “For what did he ask you to issue it? That is to say, firstly, did he tell you what the purpose was?” PW1 answered, “Should be, broadly speaking, not enough money to spend, loan from bank first.” From this answer, it seems that this was what the 1st defendant had said to PW1. However, the way in which PW1 expressed it in court showed that he was not that clear or certain, and he did not clearly indicate whether that was actually what PW1 [sic] had said to him or whether that was what he thought.
282. However, I do not think this is important. Although PW1 did not clearly and expressly point out in his testimony that the 1st defendant had told him he would use the false invoice to apply to the bank for a loan, at the material time PW1 and the 1st defendant had had business dealings for quite a long period of time, and PW1, who was himself also a businessman, must have been aware that the 1st defendant was deliberately using the false invoice to apply to the bank for a loan in order to obtain the money he needed for cashflow. Even if PW1 in fact did not know or had never thought that the 1st defendant would do that, this would not serve to negate any conspiracy between PW1 and the 1st defendant. PW1 certainly knew that it was never lawful to raise funds by using a false invoice no matter what method was adopted and to which institution the application was made. Once PW1 agreed with the 1st defendant to do it, he made himself a party to a conspired illegal deal even though he did not know the details of the entire conspiracy. The illegal deal between them was to raise funds by using a false invoice.”
31.3) With respect, we do not agree with the 1st applicant’s argument. Judge Yau found — and this is a finding of fact — that it was only upon the 1st applicant’s request that PW1 had issued the false invoice. Even though it was not clearly indicated at the time of formation of the agreement that the 1st applicant would use the false invoice to obtain a loan from the bank, Judge Yau correctly found, on the basis that the two parties had had business dealings for quite a long period of time and PW1 himself was also a businessman, that he must have been aware that the 1st defendant would use the false invoice to apply to the bank for a loan so as to obtain funds for cashflow. This issue should be determined by applying common sense.
31.4) In any event, the 1st applicant’s defence was that the invoice in question was not false and was supported by a genuine commercial transaction. This being the case, it was not in issue whether there was clear indication at the time of the agreement that the bank was targeted at.
31.5) As the Court of Final Appeal pointed out in Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386, conspiracy to defraud was constituted by being a party to an agreement to use dishonest means:
(1) for the purpose of causing economic loss to, or putting at risk the economic interests of, another; or
(2) with the realization that the use of those means might cause such loss or put such interests at risk.
31.6) PW1’s understanding of the 1st applicant’s request to provide false invoices was neither absurd nor unreasonable. It must have been the 1st applicant’s intention to make use of the false invoices obtained to deceive third parties. Viewing the evidence in its entirety, such third parties were obviously the banks or financial institutions which accepted the false invoices and thereby granted loans. This was the effect of the relevant commercial documents. This conclusion could not be clearer. Therefore, the suggestion that the agreements concerned were not targeted at the banks is nitpicking.
6) Sixth ground of appeal (applicable to 8th Charge)
6.1 Background to the 8th Charge
32. To make it easier to understand this ground of appeal, we will briefly recount the evidence in respect of the 8th Charge before dealing with the ground of appeal itself.
6.1(1) PW9
32.1) PW9 gave evidence under immunity from prosecution. He said that since 1996, MHM had had business dealings with DDL and Briga which was established subsequently. He discussed with the 2nd applicant about the business dealings with both Briga and DDL.
32.2) In early 2004, the 2nd applicant requested him to place an order with DDL for goods to the value of $10,000,000, i.e. the “special order”. He did not know why the 2nd applicant made such request, but he thought that an order for goods of such value was unrealistic and excessive. On 12 January 2004, he sent an email to the 2nd applicant specifically addressing the matter (Exhibit P39). Exhibit P39 reads as follows:
“Pat [i.e. the 2nd applicant],
Let’s be realistic. Last year, we helped you out with early commitment of abt. 1.6 million worth of products. This year, you are talking abt. 10 million (not including FT66), isn’t it a bit too much? First of all, we could not afford a million dollars (10%) as deposit at this stage (as you know, we are always tight on cash during the winter seasons). Secondly, we doubt whether we could eventually have all goods delivered within this year?
As I said, we always tried our best to help you guys in achieving your goals and would be very pleased to see your success. However, we never really got the security in the distribution (probably not because of you). Once in a while, you would bring us headaches (PC02 with Gayna and IOs OEM last May etc.). We need fair treatment to commit this year’s early PO:
1. No risk for this PO (no deposit and no commitment to have all goods delivered within 2004)
2. Guaranteed option to buy 4% of the your 25% discounted share options to Softbank (i.e. abt. 1% of Daka’s total shares when listed) as we discussed last week
3. Five years exclusive distributorship of PCs, MCs and LGs & FTs in Hong Kong without conditions.
4. Rewarding rebate programs
Best regards,
Lewis [i.e. PW9]”
32.3) In gist, PW9 indicated in the email that MHM could not afford the 10% deposit of $10,000,000 and he put forward the conditions for early placement of the purchase order for $10,000,000 worth of goods, including that there was no need to assume any risk for the purchase order, that is to say, no requirement for a deposit and no liability for failure to have all goods delivered within one year. PW9 testified that the 2nd applicant had accepted this special condition in the email.
32.4) It can be seen from P39 that, while forwarding this email to the 1st applicant, the 2nd applicant simply referred to it as “This is from MHM” without making any elaboration.
32.5) Afterwards, on 11 February 2004, PW9 sent an email to the 2nd applicant (Exhibit P49), in which PW9 indicated clearly that although he sincerely hoped that the 2nd applicant’s Daka Designs would successfully get listed, he also hoped he could stay free from any trouble. PW9 indicated that, for the sake of enabling the 2nd applicant to meet the turnover target of the year and easing his financial burden, PW9 did not mind issuing purchase orders in advance or even making other payment arrangements so as to support the 2nd applicant. However, PW9 also put forward some conditions, suggesting that the 2nd applicant should sign an exclusive distributorship agreement with PW9 and disclose it in the prospectus of Daka Designs. PW9 also said that they would make their greatest efforts to sell the goods concerned but it did not involve any obligation or commitment.
32.6) In respect of this “special order”, PW9 said that he signed the purchase order for the $10,000,000 worth of goods with a view to helping a friend with whom he had an amicable business relationship and upon the understanding that there would be no need to make a commitment to buy those goods. He said that half of the goods in the purchase order were beyond reasonable limit because he was by no means sure if it was possible to sell that many goods.
32.7) Exhibits P56-P60 are purchase orders issued by MHM, all dated 20 January 2004. In his testimony, PW9 said that Exhibits P56-P60 were different versions of the purchase order drafted for this “special order”, the contents of which (including descriptions, quantities and prices) were set out as per the 2nd applicant’s request after PW9 contacted him. The price of goods under the last purchase order [P60] was approximately $8,900,000.
32.8) Exhibit P40 is a proforma invoice issued by Briga to MHM, dated 17 February 2004 and bearing the chop of MHM. Prosecution Exhibit P40 clearly shows that, for product LG22, the unit price was $85.8 and the total quantity ordered was 12,666, and hence this product involved an amount of $1,086,742.80; and for product FT66, the unit price as set out in P40 was $936, and the quantity ordered was 7,000, and in other words, the total amount involved was $6,552,000. These two new products involved a total amount of $7,638,742.80, which already accounted for 73% of the amount payable for the goods in the order.
32.9) PW9 did not think that the goods on this proforma invoice belonged to the inventory of MHM, nor did he think that MHM was required to make payment to settle this proforma invoice. In particular, PW9 pointed out that the price of the FT66 “mosquito trap” product as set out in P40, i.e. $936, was fixed by the 2nd applicant. PW9 said he would never purchase this item at a unit price of $936 because this would render it impossible to make any profit.
32.10) Exhibits P42, P43 and P44 [BIV0403003, BIV0403004 and BIV0403005] are three commercial invoices issued by Briga to MHM. Each invoice bore the chop of MHM and the signature of PW5 (the general manager of Briga).
32.11) PW5, while testifying in court, also recognized that the three commercial invoices had been signed by him. However, according to his evidence, purchase orders of MHM generally involved amounts ranging from a few thousand dollars to hundreds of thousands of dollars, and this “special order”’ was the first MHM order that he had ever seen which involved more than 10 million dollars.
32.12) PW9 recognized that the MHM chop on these three commercial invoices was affixed upon the request of DDL. He said that MHM had never paid for the goods stated in these invoices and had not taken delivery of them, because MHM simply did not need so many goods.
32.13) Exhibits P45, P46 and P47 (dated 23, 29 and 31 March 2004 respectively) were local delivery notes corresponding to Exhibits P42, P43 and P44 respectively, which apparently indicated that the goods of these three commercial invoices had been delivered to MHM. PW9 said that he signed these three delivery notes only upon the 2nd applicant’s request and that MHM had in fact never received the goods concerned.
32.14) Exhibit P64 is a “goods receipt acknowledgement” issued by Briga to MHM, dated 31 March 2004 and bearing PW9’s signature and the chop of MHM. This “goods receipt acknowledgement” listed the numbers of four invoices, including BIV0403003, BIV0403004 and BIV0403005 (i.e. the numbers of the three commercial invoices marked P42, P43 and P44), and a fourth one numbered BIV0403001.
32.15) PW9 said that before 31 March 2004 MHM had already received the goods to which BIV0403001 related. The goods to which the other invoice numbers related had never been received, seen or inspected.
32.16) PW5 also explained in his testimony the use of the “goods receipt acknowledgement”. He said that, after the goods ordered by a customer were produced, if the customer did not take the goods for the time being, the company might issue a “goods receipt acknowledgement” for the customer to sign, and immediately after it had been signed, the company would issue an invoice requesting the customer to make payment and would not wait until the customer actually took the goods.
6.1(2) Re ward of $100,000 given by the 1st applicant
32.17) PW9 said that throughout the whole incident, he was not required to commit to take delivery of the goods but had to sign documents such as purchase orders, proforma invoices, “goods receipt acknowledgements” and local delivery notes, which was causing him a lot of trouble. Therefore, the 1st or 2nd applicant had promised to give him $100,000 as reward upon successfully listing.
32.18) On 9 August 2004, a sum of $100,000 was transferred from the joint account of PW1 and PW2 with the HSBC to the joint account of PW9 and his wife with HSBC. PW9 said that this was the $100,000 reward that the 2nd applicant had given him. According PW1’s testimony, it was upon the 1st applicant’s instruction that he transferred the sum to PW9’s account.
6.1(3) Payment by the 2nd applicant of a deposit of $2,000,000 for the “special order”
32.19) The bank record showed that on 2 March 2004 the 2nd applicant transferred $2,000,000 to PW9’s account. On 5 March 2004, PW9 signed a cheque issued by MHM to Briga for the amount of $2,000,000. PW9 said that this cheque was for payment of deposit for the $10,000,000 worth of goods that the 2nd applicant had requested MHM to purchase in early 2004. The 2nd applicant had instructed PW9 to transfer the $2,000,000 to Briga, which was to be regarded as payment of the deposit for the goods.
32.20) PW11 (i.e. Miss Wong Yuet-ying, Judy), the accounts manageress of DDL, testified under immunity from prosecution. PW11 said that as early as 29 February 2004, the 1st applicant had already sent an email to her and other DDL staff telling them that within one week MHM would pay $2,000,000 as deposit for the “special order”.
32.21) Ho Tak-ling (“PW7”), an accounting staff member of DDL, said that he received a cheque for this amount on 5 March 2004, and as he did not yet have the three commercial invoices for the “special order”, he treated this sum of $2,000,000 as a temporary deposit.
6.1(4) Payment by the 2nd applicant of $1,000,000 for the goods under the “special order”
32.22) On 20 July 2004, the 2nd applicant deposited $1,000,000 into PW9’s account. On 23 July 2004, PW9 signed a cheque issued by MHM to Briga for the amount of $1,000,000. PW9 said that this sum of $1,000,000 was given to him by the 2nd applicant for the purpose of reducing the amount payable by MHM to Briga for the goods.
6.1(5) Payment by the 1st and 2nd applicants for the goods under the “special order”
32.23) On 18 March 2005, the 2nd applicant transferred $2,681,491 to PW9’s account. On the same day, the 1st applicant transferred $2,001,893 and $850,000 to PW9’s account. Eventually on 22 March 2005, PW9 transferred $2,960,530 to the account of DDL. On 22 March 2005, PW9 $2,572,854 transferred back to the 2nd applicant’s account.
32.24) Exhibit P107 included four emails sent by the 2nd applicant to PW9 on 18 March 2005, telling PW9 that he would deposit HK$2,681,491 and HK$2,851,893 into PW9’s bank accounts and instructing PW9 to remit US$329,853 and HK$2,960,530 to Mayhem and Daka respectively. PW9 said that after receiving the sums, he did not make a remittance to Mayhem in the end but, as per the 2nd applicant’s instruction, he did return the money to the 2nd applicant by cheque on 22 March 2005.
32.25) PW7 said that he had made use of this sum of money to set off the payment for goods under the three invoices marked P42 to P44.
6.1.(6) Internal arrangements at DDL
32.26) PW11 was mainly responsible for the accounts of DDL, Kentat, DIL and DML. During her employment, the bosses of DDL were the 1st applicant, the 2nd applicant and the 1st applicant’s wife. The accounting staff at Daka Designs, including PW11, very often received instructions directly from the 1st applicant. When the company did not have a financial controller, PW11 even directly reported to and was accountable to the 1st applicant. The 1st applicant also personally attended meetings of the company in respect of accounting matters.
32.27) PW11 said that the 3rd defendant had told her that the goods under this “special order” would be sent out by 31 March 2004 and would therefore be recorded in the accounts for the year 2004 which ended on 31 March 2004. Furthermore, at a meeting held in March in relation to stocktaking, the 3rd defendant disclosed that the auditors would carry out stocktaking for Daka Designs in April 2004 and that the goods under the “special order” would be sold to the customer before 31 March 2004. He requested the relevant staff to input the information into the ATL computer system of Daka Designs to ensure that the sales under the “special order” would be completed by 31 March 2004.
32.28) In April 2004, the auditors RSM Nelson Wheeler went to DDL to carry out auditing work. As instructed by the 3rd defendant, PW11 had the finished products and semi-finished materials under the “special order” moved from DML to the warehouse of T&K (PW1) before the auditors carried out the stocktaking exercise on 8 April 2004. Afterwards, the 3rd defendant also reminded PW11 to prepare a “goods receipt acknowledgement” for the goods under the “special order”, have it backdated to 31 March 2004 and give it to RSM Nelson Wheeler (Exhibit P64). In respect of P64, PW11’s understanding was that the goods under the “special order” would be kept in the warehouse and delivered only when the customer asked for the goods.
6.1(7 ) Taking of delivery in reality
32.29) PW11 said that the goods under the “special order” were delivered to MHM in batches after 31 March 2004. However, as the goods had already been recorded as sold in the ATL system of Daka Designs, such delivery was, from an accounting perspective, no longer a sale but delivery of goods in batches. For these batches of goods, PW11 said that an alphabet was added to the end of the numbers of the commercial invoices to make them additional commercial invoices issued at the time of delivery. The numbers went from BIV0403003-5(A), BIV0403003‑5(B) all the way to BIV0403003-5(N), and these invoices were called “A, B, C, D …” invoices for short. The 3rd defendant also instructed PW11 that the money used by MHM to settle the “A, B, C, D …” invoices was to be used to reduce the amount payable for the goods under the “special order”.
32.30) PW9 also confirmed that between June 2004 and November 2005 he took delivery of the goods set out in a total of 14 commercial invoices bearing commercial invoice numbers from BIV0403003-5(A) to BIV0403003‑5(N), together with BIV0405067(A) and BIV0405067(B). The delivery notes also bore the company chop of MHM which was affixed upon receiving the goods. PW9 also followed the normal procedures and paid with cheques, the records of which could be found in MHM’s books. Moreover, the practice adopted for settlement of BIV0403003-5(A) to (G) was no different from that for previous normal transactions: the number of the corresponding commercial invoice to be settled was written on the reverse side of each cheque; each commercial invoice was settled by way of three cheques issued respectively for 40%, 30% and 30% of the stated price of the goods; and the dates of the cheques differed by one month.
6.1(8 ) Refund arrangements
32.31) In the end, as PW9 and the 1st and 2nd applicants all wanted to resolve the problems with the goods and the accounts in relation to P42, P43 and P44, it was decided that on the face of the accounts, the goods that MHM had not taken would be returned and DDL would be requested to make a refund. As MHM had not actually taken those goods, their return was done on paper only. After deducting the amount payable by MHM for other goods, DDL had to refund $3,685,750.12 to MHM.
32.32) PW9 said that, in respect of the goods to be returned, MHM had never taken delivery or made any payment, and there was no entry for those goods in MHM’s accounts. Therefore, in accepting a refund from DDL and returning the money concerned to the 1st and 2nd applicants, problems would arise in MHM’s accounts. With a view to resolving this problem, PW9 and the 1st and 2nd applicants discussed via email (Exhibit P118) how to deal with this matter.
32.33) Exhibit P118 was an email sent by PW9 to the 2nd applicant. Since the money paid to Briga by PW9 for the goods did not come from himself or MHM, and there was no such record in MHM’s accounts, they had to discuss how Briga was to refund the money to MHM and how PW9 was to return the money to the 1st and 2nd applicants. PW9 stated in the email that the 1st applicant had suggested having the money returned to PW9 himself. PW9 also suggested in the email a method of returning the refunded sum to the 1st and 2nd applicants. The 2nd applicant forwarded PW9’s email to the 1st applicant in a way similar to how P39 was forwarded by the 2nd applicant to the 1st applicant, i.e. the 2nd applicant simply put down “send by Lewis” as the subject without adding anything to the covering email.
32.34) Eventually, in order to avoid being suspected, PW9 remitted the money to his bank account in the UK, kept it there for one to two months, and then remitted half of the amount to the account of the 1st applicant’s daughter in the UK in accordance with the 1st applicant’s instruction. Subsequently, after some twists and turns, the other half of the money was transferred to the 2nd applicant’s account with the Citibank.
6.1(9) KPMG questioned PW9
32.35) In 2006, KPMG, who was responsible for investigating Daka Designs, had to question PW9, and the lawyers acting for Daka Designs provided to PW9 the questions that KPMG was going to ask. PW9 and the 1st and 2nd applicant met many times to discuss the questions that KPMG might raise and how to answer them. The 1st and 2nd applicants told PW9 how they would answer KPMG’s questions and expected PW9 to provide answers consistent with theirs. After discussion, PW9 falsely claimed in his answers that the unit price of $936 for the FT66 mosquito traps was acceptable, and that the money given by the 2nd applicant to PW9 for paying the deposit under the “special order” and reducing the amount payable for the goods under the “special order” was a personal loan from the 2nd applicant to him.
32.36) Regarding the FT66 mosquito traps, PW9 said that he had never made any purchase from DDL at the price of $936. Therefore, the statement he made to KPMG that he had purchased FT66 at the price of $936 was not true. PW9’s statement that the sums of $1,000,000, $2,000,000, $360,000 and $2,960,000 deposited into his bank account were monies he borrowed from the 2nd applicant was also not true and was an answer that he and the 1st and 2nd applicants came up with in their discussions. It was obvious that, in order to cover up the fact that the “special order” was a bogus commercial transaction, the 1st and 2nd applicants came to a consensus with PW9 to provide false answers to the questions that KPMG might ask.
6.1(10) 2004 annual report of Daka Designs
32.37) The financial report contained in the annual report submitted to SGX by Daka Designs for the year of 2004 showed that the turnover for that year was $152,095,000. This included the $8,900,000 business pursuant to the MHM “special order”.
32.38) PW12 (a partner of RSM) said that he noticed that the three invoices marked as Exhibits P42, P43 and P44 were all issued in late March and involved the same customer and substantial amounts of money, and he as an auditor would have harboured suspicions and made enquiries to ensure that the customer had taken delivery of the goods. The “goods receipt acknowledgement” marked as Exhibit P64 was proof of receipt by RSM of MHM’s confirmation that it had received the goods, and therefore the transactions underlying these three commercial invoices were all included in the DDL financial report for the year ended 31 March 2004. PW12 said that if MHM had not taken delivery of the goods, the total amount represented by these three commercial invoices, i.e. $8,976,619.55, should not have been included in the turnover for the year of 2004 and should have been removed from it.
6.1(11) Other witnesses
32.39) Tang Shuk-nei, Melissa (“PW14”) is an ICAC Chief Investigator and a forensic accountant. Having referred to RSM’s investigation on the accounts of Daka Designs, she concluded that in the Daka Designs annual report for the year 2004, the turnover of HK$152,095,000 and net profit of HK$20,002,000 had included the amounts represented by these three invoices and their corresponding net profit in the sum of HK$6,236,000.
32.40) Chay Yeow-mei, Lorraine (“PW13”) was Vice President of the Issuer Regulation Department of SGX. She indicated that if the volume of business stated as originating from MHM in the annual report of Daka Designs did not refer to genuine business, SGX would make a report to the relevant authority because SGX had been misled by Daka Designs which, by so doing, had contravened the relevant law. According to the SGX listing manual, the annual report of a listed company must contain sufficient information to enable people to understand the performance and financial conditions of the listed company and its subsidiaries. She said that the objective of the annual report was to provide sufficient information to enable investors and professionals to be aware of the operation, financial conditions and performance of the company and its subsidiaries, so that those people could fully understand and properly assess the value of the shares of that company. She stated that such a requirement was also intended to achieve the overriding objective as referred to in the listing manual, namely that of maintaining confidence in the market.
6.2 The 1st applicant’s argument on the 8th Charge
6.2(1) Weight accorded to P39 by Judge Yau
32.41) The 1st applicant contends that Judge Yau had given inappropriate weight to Exhibit P39 and held on that basis that the 1st applicant had taken part in the 8th Charge. PW9 liaised and discussed with the 2nd applicant in respect of the “special order” referred to in the 8th Charge. Exhibit P39 was the only evidence that Judge Yau had relied on in finding that during the conspiracy the 1st applicant had knowledge of the discussion between the 2nd applicant and PW9. All the other evidence relied on by Judge Yau in relation to the 1st applicant’s conduct was from the years 2005 and 2006 and, as such, was not sufficient to prove that the 1st applicant had taken part in the conspiracy in as early as 2004.
32.42) In our view, this issue should be dealt with by applying common sense. The two applicants were the directors and the most senior decision makers of DDL. The 1st applicant, a chartered accountant, was responsible for financial matters, and the 2nd applicant was mainly responsible for developing products. In the context of the present case, which is that Daka Designs inflated the turnover of the company by making use of the “special order” in question, the 1st applicant could not possibly have been kept in the dark without in any way taking part or being involved in the “special order” conspiracy.
32.43) Judge Yau made the following comments on Exhibit P39:
“508. In fact, the 1st defendant not only knew that there was such an order, but also knew about the conditions proposed by PW9, which were set out in an email that he sent to the 2nd defendant (Prosecution Exhibit P39). As stated above, the conditions in respect of this order were that MHM was not required to pay any deposit, was not obliged to take delivery of the goods within one year and did not have to assume any risk, and so on. PW9 confirmed in his evidence that he had sent such an email to the 2nd defendant, but in fact Exhibit P39 was not the very email that he had sent to the 2nd defendant directly. This was an email by which the 2nd defendant forwarded PW9’s email to a person called Raymond. Raymond is the 1st defendant’s Christian name. The 1st and 2nd defendants were the bosses of Daka group, and the email related to an order of Daka group, so undoubtedly, this Raymond must be the 1st defendant.
509. This email was very simple, containing only the email that PW9 had sent to the 2nd defendant. The 2nd defendant did not add a single word to it. The subject of email was simply stated as ‘This is from MHM’. All this clearly shows that the 2nd and 1st defendants had a mutual tacit understanding on this special order and this email, and no explanation was needed at all. Things could not have been more natural. The 1st and 2nd defendants were the bosses of Daka group and, as shown by the emails in the case, they had been working closely together and having a close relationship. They would definitely discuss the business and other matters of the company. Without doubt, the 1st defendant must have received this email and must have known the conditions put forward by PW9 in this email.”
32.44) We respectfully agree with what Judge Yau said. In our view, it was open to Judge Yau to draw, on the basis of Exhibit P39, the inference that the 1st applicant had participated in the conspiracy.
32.45) The 1st applicant submits that in considering Exhibit P39, Judge Yau had ignored the point that, on the relevant evidence, the subsequent arrangements of MHM and DDL did not completely follow the content of Exhibit P39. Such evidence included:
(1) MHM purchased FT66 goods. Exhibit P39 stated that the order did not cover FT66 goods.
(2) MHM paid a deposit to Briga. In Exhibit P39, PW9 requested that no deposit be paid.
(3) In respect of the goods under the “special order” and their delivery, in 2004 MHM signed two “goods receipt acknowledgements”, thereby assuming the risk regarding the title to the goods. Exhibit P39 stated, “No commitment to have all the goods delivered within 2004.”
(4) PW9 said that no consensus was reached in respect of the second condition (i.e. “guaranteed option”) that he put forward in Exhibit P39.
(5) For the third condition in Exhibit P39, i.e. “sole distributorship”, the prosecution had not proved the existence of such a contract.
(6) For the fourth condition in Exhibit P39 (i.e. “rebate”), PW9 confirmed that there was no discussion on the details at that time.
32.46) The 1st applicant argues that even if he had received Exhibit P39, the above matters showed that the content of Exhibit P39 did not come true, and neither the 1st applicant’s knowledge of any conspiracy nor his participation therein could be proved.
32.47) In our view, even if the conditions put forward by PW9 did not take full effect, it did not mean that the 1st applicant had not taken part in the conspiracy. Exhibit P39 was the response made by PW9 after knowing that the 2nd applicant requested him to provide the “special order”. Obviously, the two parties continued to discuss this matter thereafter.
32.48) Moreover, there is other evidence which serves to prove that the 1st applicant participated in the “special order”:
(1) PW11 said that she analyzed the “special order” of MHM at a later stage in accordance with the 1st applicant’s instruction.
(2) The general manager of Briga (PW5) said, in respect of the two “proforma invoices” issued by Briga to MHM (Prosecution Exhibits P40 and P41), that the 1st applicant told him that he had already received the purchase orders in relation to those two “proforma invoices” and that there were changes to the model numbers and quantities of the goods. In mid-2005, in the warehouse of T&K, PW5 saw the goods relating to the “special order”. The 1st applicant instructed him to look for buyers of these goods.
(3) The 1st applicant put up money for PW9 for the purpose of reducing the amount payable for the goods by MHM to Briga by reason of the “special order”. The evidence showed that, of the $2,900,000 that PW9 received, all except $100,000 came from the 1st applicant. The 1st applicant could not possibly have no knowledge of the purpose of such a large sum of money.
(4) The subsequent arrangements made by PW9 for returning the refunded money in respect of the “special order” to the 1st and 2nd applicants also support the conclusion that the 1st applicant had participated in the conspiracy. It can been seen from the email (Exhibit P118) that PW9 sent to the 2nd applicant that, as the money paid to Briga for the goods did not come from him or MHM and there was no record of it in MHM’s accounts, they had to decide how Briga was to refund the money paid for the goods to MHM and how PW9 was to return the money to the 1st and 2nd applicants. PW9 indicated in the email that the 1st applicant had suggested how the refunded money could be returned to the 1st and 2nd applicants. The 2nd applicant forwarded PW9’s email to the 1st applicant. Obviously, the 1st and 2nd applicants had a mutual tacit understanding as to how PW9 was to return the refunded money to them.
(5) In the end, an overseas account was used for the purpose of returning the refunded money to the 1st and 2nd applicants: part of the money to be returned to the 1st applicant was remitted by PW9 to an account of the 1st applicant’s daughter in the UK in accordance with the 1st applicant’s instruction.
(6) In August 2004, in a roundabout manner and through PW1, the 1st applicant provided $100,000 to PW9 as reward. Judge Yau briefly recounted the relevant evidence as follows:
“Reward of $100,000 and buying back Daka Designs shares
388. PW9 said, throughout the incident, he was not required to commit to take delivery of the goods but had to sign documents such as purchase orders, proforma invoices, goods receipt acknowledgements and delivery notes, which was causing him a lot of trouble, and therefore the 1st or 2nd defendant promised to give him $100,000 as reward upon successful listing. PW9 said that it was around [a wrong character in Chinese] February or May 2004, which was more or less the time he signed the $10,000,000 purchase orders, that he knew there would be this sum of $100,000. According to Admitted Facts (1), on 9 August 2004 a sum of $100,000 was transferred from the HSBC joint account of the PW1 and PW2 to the HSBC joint account of PW9 and his wife, Koo Geok-cheng. PW9 knew that this was the $100,000 reward that the 2nd defendant gave him.
389. PW9 pointed out he did not know PW1. In giving evidence, PW1 also said that he did not know PW1 [sic , for PW9] and that it was upon the 1st defendant’s instructions that he transferred the money to the HSBC joint account of PW9 and Koo Geok-cheng. …”
(7) In order to cover up the fact that the “special order” was a bogus commercial transaction, the 1st and 2nd applicants reached a consensus with PW9 to provide false answers to questions that KPMG might ask.
32.49) Although PW9’s return of the refund to the 1st and 2nd applicants and PW9’s discussion with the 1st and 2nd applicants about how to answer KPMG’s questions took place after 2 August 2004, i.e. after the period of conspiracy stated in the charge, all these events prove that the 1st and 2nd applicants and PW9 had used various methods to make the bogus commercial transactions appear genuine and had hidden the truth from KPMG afterwards. Judge Yau could rely on this evidence to conclude and hold that, during period of conspiracy stated in the charge, the 1st applicant had already known that the “special order” was a bogus transaction and had taken part in this conspiracy.
32.50) Regarding the arguments advanced by the 1st applicant, we find that in the present case there was ample evidence to support Judge Yau’s verdict that the 1st applicant was guilty of the 8th Charge. The 1st applicant also relies on the grounds of appeal advanced by the 2nd applicant against the 8th Charge. We will deal with them later in this judgment.
The 2nd applicant’s grounds of appeal
1.1) Summary of the grounds of appeal
33. 1) The grounds of appeal advanced by the 2nd applicant boil down to four points:
(1) In accepting PW9 as a veracious and reliable witness, Judge Yau failed to consider, properly or at all, that there were many inconsistencies in PW9’s testimony.
(2) Judge Yau erroneously attributed the inconsistencies in PW9’s testimony to his lack of seriousness and perfunctory attitude.
(3) Judge Yau erred in speculating that PW9’s attitude in giving evidence was caused by his relationship with the applicants.
(4) In holding that the “special order” was a bogus transaction, Judge Yau failed to consider, properly or at all, the relevant evidence.
1.2) Findings of fact
33.2) These four grounds are in fact all directed at the findings of fact made by Judge Yau. As stated above, the appellate court will overturn findings of fact made by the trial judge only if such findings are plainly wrong. At the trial, which lasted 80 working days, Judge Yau had ample opportunities to listen to PW9’s testimony and observe his demeanour. Moreover, the 8th Charge is supported not only by PW9’s testimony but also by other evidence. We do not consider that the 2nd applicant has put forward sufficient grounds of appeal in this respect. We now deal with the arguments advanced by the 2nd applicant in support of each of these four grounds of appeal in detail.
1.3) Detailed arguments
1.3)(1) Citibank account
33.3) The 2nd applicant submits that PW9 had denied having used his own bank account to carry out the two bank transactions in question to give to the 2nd applicant half of the money that Briga had refunded to MHM, and that PW9 had tried to shift the responsibilities to the 2nd applicant.
33.4) Initially PW9 insisted that the 2nd applicant was in control of his account with the Citibank. He said that when the account was opened, he gave the 2nd applicant the user name and password for online banking, and so the 2nd applicant was able to deal with the money through online banking. However, according to the agreed facts, the transactions in question were not carried out via the online banking service of the Citibank. Pursuant to the normal procedures, the Citibank would not approve transactions unless written authorization/instructions were in place and the relevant signatures were examined and verified.
33.5) In fact, according to the transcript of PW9’s testimony, although he had said in examination-in-chief that the 2nd applicant could use online banking in respect of the Citibank account, the following exchange took place between PW9 and Judge Yau in the course of examination-in-chief:
“Court: Had you authorized Mr Ma to use this account of yours? Or had you only given him the password and user name for use on the internet?
Answer: For this part, I cannot remember.”
33.6) Obviously, what he meant was that he could not remember if he had directly authorized the 2nd applicant to use the account or had merely given the password and user name to the 2nd applicant for use on the internet. Judge Yau did not err when he accepted PW9’s testimony that the bank transactions in question were conducted without his knowledge.
33.7) The 2nd applicant also alleges that PW9 had transferred the money away because he had been arrested by the ICAC and, as a suspect, did not want the ICAC to find out any money relating to the present case in his account. We agree with the respondent that this suggestion is illogical. At that time, PW9 had already been arrested by the ICAC and become a suspect, and any further movement of the money would only make himself even more suspicious in the eyes of the ICAC.
1.3)(2) Three delivery notes
33.8) PW9 said in examination-in-chief that the three delivery notes, namely Exhibits P45, P46 and P47, had been signed as per the 2nd applicant’s request. However, when being cross-examined, he said that he “cannot remember”.
33.9) The 2nd applicant submits that PW9’s testimony could not support the allegation that the 2nd applicant had requested or instructed him to sign the three delivery notes. The evidence given by PW9 on the source of the three delivery notes, the circumstances under which they were signed, whether they were to serve any purpose and so on, was extremely unclear and questionable. PW9 described that the 2nd applicant had requested him to sign the three delivery notes which he then returned to the 2nd applicant. However, the three delivery notes were eventually seized at PW9’s home by the ICAC, and PW9 indicated under cross-examination that he could not recall the circumstances under which he signed the delivery notes. The reasons why the three delivery notes were at PW9’s home are still unknown. In addition, there is no evidence showing that Exhibits P45, P46 and P47 served any purpose in relation to the “special order”, and there should not have been any delivery note in respect of the “special order” because the documents for the transfer of title to the goods in question were not the delivery notes but the “goods receipt acknowledgements”, i.e. Exhibits P64 and P66.
33.10) Judge Yau ruled that it was upon the 2nd applicant’s request that PW9 signed the three delivery notes. He found that it was not at all necessary for PW9 to make up P45, P46 and P47 out of the blue. This was a finding of fact. We do not think that the seizure of the delivery notes at PW9’s home is a reason for overturning Judge Yau’s ruling. We agree with the following observations made by Judge Yau in his judgment:
“442. In fact, it is very obvious that using false goods receipt acknowledgements in the special order was definitely more flexible than using false delivery notes because, in the former case, the goods would on record remain with Briga and it was not necessary to deliver the goods physically to MHM, and this would certainly make it more convenient for Briga to handle the paperwork and carry out the procedures when it made a decision on how to deal with these goods. ”
1.3)(3) Were the goods under the “special order” regarded as MHM’s inventory?
33.11) The 2nd applicant submits that Judge Yau erred in finding no contradiction between defence Exhibit D86, which showed that MHM had regarded the goods under the “special order” which were temporarily stored at DDL as its own inventory, and PW9’s testimony that MHM had never regarded them as inventory.
33.12) Defence Exhibit D86 was an email sent by Briga to MHM. It stated, “Kindly to update the stock inventory in our factory for the April 04 to March 05 program”. This email set out the inventory in the “special order”, and in the email there were some handwritten figures which appeared to refer to the quantity of goods that MHM had received. In this regard, Judge Yau held that:
“444. PW9’s testimony was very clear. He issued the purchase orders for the special order to Briga upon the 2nd defendant’s request, but he emphasized that MHM could choose whether and how to take delivery of the goods. This condition was also set out in the email sent by PW9 to the 2nd defendant, and so even if the production of these goods had been completed, they were not MHM’s inventory. Under such circumstances, it was natural for MHM to make a record of the goods received in the D86 email. This had nothing to do with whether MHM regarded these goods as inventory, nor could it constitute proof that MHM regarded these goods as its inventory. I fail to see any contradiction between the content of Defence Exhibit D86 and PW9’s evidence.”
33.13) We find nothing wrong with Judge Yau’s ruling in this regard.
33.14) We also agree with Judge Yau’s ruling that Defence Exhibit D85 supported PW9’s testimony. Judge Yau said:
“445. … In this exhibit, apart from the email in Defence Exhibit D86, there was also an email replying Briga in the name of PW9, which read as follows: ‘… noted and we certainly will work hard in trying to sell them.’ The prima facie meaning of these words tallies with PW9’s testimony that the goods under the special order were not MHM’s inventory and that MHM could choose whether and how to take delivery of the goods. Obviously, if MHM could sell more goods, then it could take more goods from Briga. This email told Briga that MHM would work hard to sell the goods for Briga. If these goods were MHM’s inventory, whether MHM could have them sold would not be Briga’s concern because they would already be the goods of MHM, and in that case, the content of this email would become meaningless to Briga.”
1.3)(4) Guarantee sales return
33.15) The 2nd applicant submits that in making the above ruling Judge Yau had forgotten PW9’s testimony that any goods under the “special order” that MHM was unable to sell could be returned to DDL by means of “guaranteed sales return”. The 2nd applicant submits it would certainly be Briga’s concern if MHM was unable to sell the goods because one of the conditions of the agreement between MHM and DDL was that MHM could return the goods to Briga, and it was not the case, as Judge Yau said, that those words proved that the goods were not MHM’s inventory.
33.16) We do not agree with this submission. In finding that this order was a bogus transaction, Judge Yau held as follows:
“464. Upon analysis of the evidence, there is no doubt that this was not a genuine commercial transaction but was a bogus transaction for some other purposes. As PW9 has pointed out, MHM was simply incapable of taking goods of as much as $10,000,000. So he sent an email to the 2nd defendant putting forward certain conditions (Prosecution Exhibit P39). In commercial transactions, it is usual and proper for the purchaser and seller to put forward their respective conditions. However, the first condition put forward by PW9 in the email was wholly unreasonable for normal transactions.
465. Under this condition, MHM was not required to pay any deposit or bear any risk of the order. It even stated clearly that MHM would not be liable even if it did not take delivery of the goods within one year. In other words, although MHM had issued purchase orders, it was not at all obliged to take delivery of the goods under the purchase orders. MHM would only take delivery of and pay for the goods as and when necessary, and it had no obligation whatsoever to take delivery of or pay for the goods under the purchase orders within one year. This was no different from a total absence of a purchase order issued by MHM to Briga, and MHM could deal with his transactions with Briga as if no purchase order had ever been issued. Such a condition is not one which any normal seller would possibly accept.
466. To Briga, this special order by MHM was devoid of any substance … .”
33.17) In our view, in considering if MHM had treated the goods under the “special order” as its inventory, one cannot just look at the condition of “guaranteed sales return”, but also has to take into account the fact that in the first place MHM was not required to pay any deposit or bear any risk with respect to the “special order”. Under such circumstances, the goods concerned could not possibly be MHM’s inventory.
1.3)(5) MHM’s enquiry about the inventory
33.18) The 2nd applicant also submits that PW9’s staff had enquired of DDL staff via email (Defence Exhibit D88) about the quantity of MHM inventory at DDL. PW9 admitted that he had knowledge of this email. He agreed that the ten items of goods listed in the email were ten of the goods included in the “proforma invoice” (Exhibit P40).
33.19) Judge Yau had this to say:
“446. … Although the email made mention of MHM’s inventory, PW9 said that he had forgotten if MHM had any stock kept by Briga or DDL other than the goods under the special order. In the absence of evidence as to whether the goods stated in this email were related to the special order, this email and PW9’s evidence are not contradictory to each other.”
33.20) The 2nd applicant points out that there was simply no evidence showing that, apart from the goods under the “special order”, there were other goods kept by DDL/Briga. PW9 also admitted that he knew staff members were enquiring about the quantity of the inventory for the goods covered by the “special order”.
33.21) On the evidence, the business dealings between MHM and Briga had all along involved a few specific types of goods. Therefore, there was nothing unusal for the ten types of goods listed in the email to be the same as the ten types of goods set out in Exhibit P40, and it does not mean that the goods referred to in the email must have been related to the goods under the “special order”.
1.3)(6) Return of FT66 goods
33.22) Judge Yau made the following ruling:
“451. … Eventually MHM returned to Briga not only the problematic products of model FT66 but also many other goods which involved a total amount of more than $5,000,000. It follows that PW9’s testimony that the quantity of goods under the special order was too much for MHM is honest and entirely reasonable.”
33.23) The 2nd applicant submits that, in making this ruling, Judge Yau had forgotten PW9’s evidence. Most of the goods that he eventually did not take and had to return to Briga were FT66. FT66 failed because there were problems with the design. Although PW9 said that the goods returned also included LG22 apart from FT 66, he clarified that most of the goods returned were FT66.
33.24) We do not think this submission can assist the 2nd applicant. It was in light of the circumstances of the return of goods that Judge Yau ruled that PW9’s testimony that the goods under the “special order” were too much for MHM was true and reasonable. However, this was not the sole reason for supporting PW9’s evidence. Judge Yau had also taken into account the following: the transactions between the two parties during 2002-2003 amounted only to approximately $3,000,000, whereas their business dealings in the year of 2003-2004 amounted to approximately $6,000,000. However, this was because, with the outbreak of SARS in 2003, MHM had to purchase more air purification products. Subsequently the epidemic came under control, and so PW9 simply did not have to purchase from Briga goods to the value of as much as $9,000,000 or so. It was also on this basis that Judge Yau found what PW9 had said reasonable.
1.3)(7) Defence Exhibit D87
33.25) In respect of Defence Exhibit D87, Judge Yau had this to say:
“452. PW9 did not admit that the 3rd defendant had informed him via Defence Exhibit D87 that delivery of the stock for the special order could be taken. According to the second agreed facts, Defence Exhibit D87 was seized from PW9’s home. It was a document faxed to MHM and read as follows: ‘Dear Lewis, please see attached is an updated status of our inventory on hand for special order. These inventory are ready and can be shipped at any time. If your want to have shipment, please contact me directly.’ PW9 said he could not recall having received this email. The email was dated 15 May 2005, and given the long lapse of time, it is not surprising that PW9 could no longer remember it. PW9 admitted that MHM had issued the purchase order to Briga upon the 2nd defendant’s request. PW9 also pointed out that MHM could take delivery of the goods for this purchase order, so it was not necessary for him to lie regarding whether or not the 3rd defendant had informed him by fax that delivery of the goods for the special order could be taken. What PW9 said is undoubtedly true. It is worth noting that in this email the goods concerned were described as ‘our inventory’ and not MHM’s inventory.”
33.26) The 2nd applicant suggests that the only factor that Judge Yau had to take into account was that in 2005 PW9 was informed via fax issued by the 3rd defendant that the goods under the “special order” were ready and MHM could take delivery of them at any time. Whether he remembered this fax now was not important.
33.27) We fail to understand the 2nd applicant’s argument because, as can be seen from the transcripts, what the 2nd applicant asked PW9 was whether he had any recollection of having received this fax.
1.3)(8) PW9’s evidence was unclear and inconsistent
33.28) Judge Yau made the following comments on PW9’s testimony:
“453. At the outset of his testimony, PW9 gave an impression of being not serious and his evidence appeared to be perfunctory. I do not consider it fair to criticize him for that because he was then testifying against his trading partners and friends. On the evidence, at the time of the present trial, MHM and Daka group were still having business dealings, and this would easily add to PW9’s sense of uneasiness when he gave evidence. It was therefore not surprising for PW9 to behave as he did. However, following the court’s explanation, PW9 became serious and smoothly completed giving his evidence. ”
33.29) The 2nd applicant submits that even after the explanation by the court, PW9 was still vague and self-contradictory in his evidence. We find that this is within the ambit of Judge Yau’s power to make findings of fact. There was also other evidence in the present case in support of what PW9 said.
1.3)(9) Detailed arguments on alleged problems with PW9’s testimony
1.3)(9)(i) Reward of $100,000
33.30) The 2nd applicant submits that PW9’s evidence on whether the $100,000 was a rebate or reward was inconsistent and vague. According to his evidence in examination-in-chief, at the early stage when he discussed the “special order” with the 2nd applicant, one of the conditions being discussed was a “rebate programme” which was also called “reward”. However, further down the course of the examination-in-chief, PW9 explained that the $100,000 that the 2nd applicant had given him was a “reward” because the “special order” had “troubled” him. Under cross-examination by the 1st applicant, PW9 said that the $100,000 was a condition which had already been discussed at an early stage — i.e. a “reward” upon the listing of DDL. While being cross-examined by the 2nd applicant, PW9 clarified that the discussion on the condition of “rewarding rebate programme” had not been concluded.
33.31) We see nothing in this submission. Obviously, PW9’s testimony had not mixed up the “rebate programme” and the $100,000 reward. He denied that the $100,000 given to him by the 2nd applicant was a reward to him for placing a one-off order for the goods for that year. This is a finding of facts.
1.3)(9)(ii) Value and quantity of the goods
33.32) The 2nd applicant submits that although PW9 claimed in examination-in-chief that the goods in the amount of $10,000,000 for the “special order” were too much and unrealistic, his evidence under cross-examination revealed the goods and the quantities that MHM had previously purchased from DDL, and it showed that the value and quantity of goods under the “special order” were also reasonable.
33.33) We do not agree. PW9 said that 30% to 40% of the goods under the “special order” were reasonable. According to Exhibit P40, the two types of new products that MHM purchased from Briga, namely LG22 and FT66, cost $7,638,742.80, which represented 73% of the total amount payable for the goods. Therefore, it was reasonable for PW9 to insist that the goods for this “special order” were too much.
1.3)(9)(iii) Sales agreement
33.34) The 2nd applicant submits that DDL had signed a distributorship sales agreement upon PW9’s request, and that PW9 had previously promised to try his best to sell goods to the value of $10,000,000 in 2004-2005.
33.35) PW9 sent an email to the 2nd applicant on 11 February 2004, requesting him to sign a distributorship agreement. He said that the agreement concerned was subsequently signed, but he could not remember if yet another agreement was signed thereafter. Therefore, this does not assist the 2nd applicant. In any event, we are of the view that the content of this email supported PW9’s suggestion that the quantity of goods under the “special order” was unreasonable. PW9 pointed out in the email that if they were to take out a letter of credit in the amount of $3,000,000 in favour of the other party, they would have to reinforce their collateral with the bank by putting in at least $2,000,000 as cash deposit and discharging the existing “trust receipt”. Taken as a whole, the content of the email clearly showed that PW9 was merely intending to assist the 2nd applicant, and this implied that he simply had no need to purchase so many goods. In addition, a distributorship agent agreement signed by the two parties on 25 February 2003 showed that the price fixed by the parties for FT66 at that time was $300, and the price of FT66 as set out in an appendix added in on 30 December 2003 was merely $351. However, the price tripled in the “special order”. All these served as evidence in support of what PW9 said.
1.3)(9)(iv) P articipation of PW9
33.36) The 2nd applicant argues that PW9 had all along taken part in the discussion on the variation of price and quantities of goods under the “special order” and these matters were not, as PW9 said in examination-in-chief, decided by DDL/the 2nd applicant.
33.37) As the respondent has pointed out, according to PW9’s testimony, he had not on his own initiative suggested varying the purchase orders but had merely given advice and suggestions on taking out certain types of goods and adding in certain goods when the other party suggested varying the purchase orders. We do not agree that the evidence referred to had undermined PW9’s veracity or credibility.
1.3)(9)(v) MHM took delivery of goods from the “special order”?
33.38) The 2nd applicant submits that, although PW9 said in examination-in-chief that he had no obligation regarding the goods under the “special order”, his testimony under cross-examination revealed that the goods of which MHM had taken delivery throughout 2004 and 2005 came from the “special order”. The 2nd applicant relies on a number of emails dispatched by MHM in support of his argument. The 2nd applicant submits that the answers given by PW9 in examination-in-chief were incorrect.
33.39) We agree that according to PW9’s evidence, although he said he had no recollection, he had not denied that the goods of which MHM had taken delivery came from the “special order”. However, in our view, of greater importance is that the way in which MHM took delivery of the goods served to support PW9’s suggestion that the “special order” was in fact a bogus transaction.
33.40) According to the evidence provided by PW11, one alphabet was added to the end of the invoice number of each commercial invoice for the “special order” so that the invoice became a commercial invoice issued by Briga upon delivery of goods, i.e. what have been referred to as “A, B, C, D …” invoices. Judge Yau briefly described how MHM paid for these invoices:
“393. PW9 said that MHM had only taken delivery of the goods relating to the 14 commercial invoices comprising Prosecution Exhibits P75-P102 and the corresponding 14 local delivery notes. Those invoices were numbered BIV04003-5(A) to BIV0403003-5(N), IV0405067(A) and IV0405067(B), and bore various dates between June 2004 and November 2005. These delivery notes all bore MHM’s company chop which was affixed by MHM upon receipt of the goods. PW9 paid by cheques and made records thereof in MHM’s accounts. Some of the cheques comprise Prosecution Exhibits P137 to P157. The invoice number of the commercial invoice to be settled by each particular cheque was written down on the reverse side of the cheque. The commercial invoices settled were BIV0403003-5(A) to BIV0403003-5(G). Each commercial invoice was settled by three cheques for, respectively, 40%, 30% and 30% of the amount payable for goods, and the dates of the three cheques were one month apart. PW9 also pointed out that the $240,000 cheque in Prosecution Exhibit P465 was also a cheque he had used to settle these commercial invoices.”
33.41) If PW9 had already paid the deposit and made payment for the goods of the “special order”, then he would not have made payment for goods upon taking delivery thereof. In addition, although the price of FT66 as stated in the “special order” was $936, according to the “A, B, C, D …” invoices, i.e. invoices in respect of genuine transactions, the price of FT66 was only about $429 or $409. This was also part of the other evidence which showed that the “special order” was not a genuine commercial transaction.
1.3)(10) Bogus transaction
1.3)(10)(i) No deposit no commitment
33.42) The 2nd applicant submits that Judge Yau incorrectly understood the concept of “no deposit no commitment” because he failed to consider the following evidence:
(1) MHM had previously taken delivery of goods of the succeeding year by means of one single order.
(2) In response to PW9’s concerns over the “special order”, the 2nd applicant lent him money for paying the deposit and agreed that the unsold goods could be returned by way of “guarantee sales return”, an arrangement which had been made in the past.
(3) In fact, the goods of which MHM took delivery in 2004-2005 also came from the “special order”.
(4) Except for FT66 and LG22, delivery of all other goods had been taken.
33.43) We do not agree. The unreasonable aspects of the transactions concerned have been mentioned above. Under the agreement between the parties, MHM had no obligation whatsoever to take delivery of the goods under the “special order”, however, Briga had to put on record that the production of the goods under the “special order” was completed before 31 March 2004, and the profits of the “special order” were included in the turnover of Daka Designs for 2003-2004. All these acts simply went against economic and management principles and would never be done in normal commercial transactions.
33.44) The 2nd applicant attempts to explain the existence of the concept of “no deposit no commitment” by reference to PW9’s concerns over the “special order”. The 2nd applicant submits that, as PW9 was concerned about the “special order”, the 2nd applicant lent him money to enable him to pay the deposit and also agreed that those goods which MHM was unable to sell could be returned by means of “guarantee sales return”.
33.45) In our view, this argument rather serves to strengthen the conclusion that the “special order” could not possibly be a normal transaction. MHM was not required to pay any deposit for the purchase orders it issued, and on the other hand, it was not obliged to sell those goods because the “guarantee sales return” allowed MHM to return any goods which it was unable to sell. This showed that MHM was not required to bear any risk at all in respect of this purchase order, and this was a commercial transaction which Judge Yau said could not possibly exist.
1.3)(10)(ii) Commercial invoices
33.46) The 2nd applicant submits that Judge Yau erroneously failed to consider that the “special order” as a whole involved five commercial invoices, namely BIV0403001 (D91), P42, P43, P44 and BIV0405005. It is submitted that PW9 had taken delivery of the goods set out in the first invoice (Exhibit D91) and paid for them, so there was no problem. The fifth invoice was not recorded in the accounts for the year of 03-04 [see P66] and hence did not affect the annual report of DDL for the fiscal year ended 31 March. In considering whether the “special order” was a genuine transaction, Judge Yau should have considered the “special order” in its entirety, including Exhibit D91 and BIV0405005, the two orders which did not have any problem and which had a significant bearing on the question of whether the transaction was genuine. Had the “special order” been bogus, it would not have been necessary for PW9 to take delivery of the goods set out in Exhibit D91 and pay for them, nor would it have been necessary to pay for the goods set out in BIV0405005 after 31 March 2004.
33.47) Judge Yau made the following ruling on Exhibit D91:
“474. … The defence also points out that MHM had recorded in its accounts the payments already made in settlement of commercial invoice BIV0403001 (i.e. Exhibit D91). This in fact does not contradict PW9’s testimony because PW9 did admit that MHM had in fact taken delivery of the goods set out in this commercial invoice and paid for them. It was at once natural and proper for MHM to record these items in its accounts.”
33.48) The particulars of these five commercial invoices are as follows:
Commercial Invoice Date Price
1．
2．
3．
4．
5．
33.49) We do not think that the 2nd applicant’s argument weakens the ruling made by Judge Yau. The respondent’s position was that the “special order” did not include the first and fifth invoices. However, even if the goods relating to these two invoices were part of the goods under the “special order”, it does not mean that the whole “special order” was genuine. The second, third and fourth invoices involved a total amount of $8,976,619.56, which constituted a major portion of the amount of $10,381,947.20 as stated in the “proforma invoice” issued by Briga (Exhibit P40) .
33.50) PW9 said that the goods in respect of the second, third and fourth invoices were not delivered to him. It was the 2nd applicant’s position that PW9 had “accepted” but not “taken delivery of” those goods. According to another “goods receipt acknowledgement” dated 31 March 2004, the goods referred to in the confirmation document that MHM issued to Briga were received on 31 March 2004 and the risks and ownership of the goods were passed to MHM on the same day:
“We hereby confirmed that the following goods are received by us and the risks and ownership of the goods are passed to us on 31 March 2004. In addition, we have inspected the quality and condition of these goods and we are satisfied with their standard.”
33.51) The goods involved in that document constituted 90% of those in the “special order”. If HMH was not required by the agreement between the two parties to assume any responsibility for the goods, it would simply not have been necessary for Briga to pass the goods on to HMH on 31 March 2004, and the reference to “risks” and “ownership” in the document would not have served any real purpose. This is precisely another reason for supporting Judge Yau’s ruling that the “special order” was a bogus transaction.
33.52) The 2nd applicant submits that Judge Yau said he “[was] not sure if production of all the goods under the ‘special order’ had been completed”. This conclusion is essentially in line with what defence said. It was only after 31 March 2004 that BIV0405005 was issued and recorded in the accounts. Had the “special order” been bogus, there would have been no need to wait until the goods had been produced before issuing BIV0405005 after 31 March 2004. Therefore, it was reasonable and consistent with the defence case that the production of the goods had not been wholly completed during the period specified by the prosecution. Furthermore, Judge Yau said that “it was neither possible nor necessary [for DDL] to have the production of the goods under the ‘special order’ completed by 31 March 2004” because, if the “special order” was a normal commercial transaction, MHM would only take delivery of the goods and pay for them in stages, and hence there would not be any urgent need for MHM to have the products under the “special order” completed by 31 March 2004. However, according to PW9’s testimony, the “special order” did not mark the first occasion on which MHM and DDL ordered goods for the whole year by way of one big order. MHM had in the past ordered goods for the coming year by placing one big order with DDL; besides, other conditions of or conditions that had been negotiated for the “special order”, namely the “rebate programme” and the “guaranteed sales return” by which unsold goods were returned, had also existed previously. As a matter of fact, the last invoice for the “special order”, namely BIV0405005, was issued after 31 March 2004, and this showed that DDL had not rushed to complete the production of the goods under the “special order” by 31 March 2004.
33.53) We do not agree. We have dealt with the relevant issues earlier on in this judgment. In his judgment Judge Yau thoroughly discussed the issue of whether the “special order” was a genuine transaction. We agree with Judge Yau’s ruling and his reasoning completely defeated the defence of “genuine transaction”.
“478. My conclusion is that Daka group had in fact proceeded to produce the goods for the special order. Although I am not sure if production of all the goods under the special order had been completed, I accept the defence evidence that a major portion of the goods under the special order had been produced. However, as the prosecution pointed out in the final submission, whether Daka group had finished the production of the goods for the special order is not the key issue in the present case. As I see it, the most important question is whether this special order was a bogus transaction that came into existence for the purpose of inflating the turnover of Daka Designs in the year of 2003-2004.
479. PW9’s testimony clearly pointed out that MHM had no obligation whatsoever to take delivery of the goods under the special order and that MHM would take delivery of the goods only as and when necessary. Under such circumstances, although Daka had the special order in its hands, it could not possibly proceed to produce the goods right away in the absence of MHM’s request to take delivery. It should be noted that in the course of production, Daka group had to put in a lot of manpower and resources. In case MHM had not requested to take delivery of the goods, Daka group would even have to find a place for storing them upon completion of their production. This is exactly what happened in the present case. On the evidence, Daka group had to borrow the premises of T&K to keep the goods which had been produced for the special order. Obviously, such hasty production went against economic and management principles and would never happen in normal commercial transactions.
480. Another important point is that, as long as MHM did not take delivery of the finished products under the special order, Daka would not be able to obtain payment for these goods, and a large quantity of such goods would hoard within Daka group, as a result of which a lot of money would be locked up, and this would naturally create an adverse effect on the cashflow of Daka group. Such an unreasonable practice would not possibly exist if the special order was a normal commercial transaction.
481. Even assuming MHM did have an obligation to take delivery of the goods under the special order, it was neither possible nor necessary for Daka group to have the production of the goods under the special order completed by 31 March 2004. According to PW9’s testimony, for the purchase orders that the 2nd defendant had requested MHM to issue, no matter whether the price was $10 million as initially suggested or $8.9 odd million as finally issued by MHM (Prosecution Exhibit P60), MHM was ordering goods needed for a whole year. The 2nd defendant must have been very well aware of this because what he had asked PW9 to do was place a big order for the coming year, and this was the established trading practice between MHM and Daka group. If this was an order in relation to a normal commercial transaction, MHM would only take delivery of the goods and pay for them in stages within one year. Of course, the 2nd defendant would also have understood this. Under such circumstances, Daka group had no need at all to hastily complete production of the goods under the special order by 31 March 2004, and should instead wait for instructions from MHM so as to avoid putting itself in the situation described above, i.e. unnecessarily having goods hoarded and capital locked up.
482. However, Daka group approached the matter by treating the production of these goods as having been completed by 31 March 2004. According to PW11’s testimony, at a meeting regarding stocktaking, the 3rd defendant disclosed that auditors would conduct stocktaking in April 2004 and pointed out that the goods under the special order would be sold to the customer before 31 March 2004. He requested the relevant staff, including PW11, to input the information to the ATL computerized accounting system of Daka group to ensure the sales of goods under the special order were completed by 31 March 2004. This precisely indicated that Daka group had to fully complete production of the goods under this special order before 31 March 2004.
483. As the court previously indicated, it simply did not make any sense to do so. The purpose of so doing was plainly to ensure that the $8,900,000 involved in the special order would be included in the turnover of Daka Designs for the year of 2004 which ended at 31 March 2004 and would be published in the annual report for that year. Eventually, PW5 issued three commercial invoices on 23 March 2004, 29 March 2004 and 31 March 2004 respectively (i.e. Prosecution Exhibits P42, P43 and P44) for the total amount of $8,976,619.56 as alleged in the charge. Briga also issued another commercial invoice (i.e. Defence Exhibit D91). PW9 said that prior to 31 March 2004, he had only received the goods set out in Defence Exhibit D91 but not those set out in the three invoices marked as Exhibits P42, P43 and P44.
484. Pursuant to the 3rd defendant’s instructions, subsequent to the stocktaking exercise in April 2004, PW11 prepared a goods receipt acknowledgement (i.e. Prosecution Exhibit P64) covering the goods set out in these four commercial invoices and had the acknowledgement backdated to 31 March 2004. Although MHM had not received the goods set out in three of these commercial invoices, PW9 still signed the goods receipt acknowledgement upon Daka group’s request. PW9 even said that he had neither seen nor inspected the goods set out in these three invoices. This could not possibly happen if the special order was a normal transaction. The effect of this goods receipt acknowledgement was to ensure that the transaction to which this bogus special order related could be included in the turnover of Daka Designs for the year of 2004 which ended at 31 March 2004.”
Conclusion
34. For the above reasons, the applications of the 1st and 2nd applicants are dismissed.
(Peter Cheung)
(Maria Yuen)
(Judianna Barnes)
Mr Martin Hui, SADPP and Ms Cecilia Chan, SPP of the Department of Justice, for the Respondent.
Mr Joseph Tse SC and Ms Doris Ho, instructed by Messrs Bennett Chan & Co. Solicitors, for the 1st Applicant.
Mr Eric Kwok SC and Ms Vivian Ho, instructed by Messrs Simon C W Yung & Co., for the 2nd Applicant.
Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. Edmund Cham, Solicitor.