HKSAR v. CHEUNG KING

CACC 157/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 157 OF 2001

(ON APPEAL FROM DCCC 100 OF 2001)

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J U D G M E N T

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Stuart-Moore Ag CJHC (giving the judgment of the Court):

1. On 3 April 2001, the Applicant pleaded guilty in the District Court before Judge Z.E. Li to a charge of conspiracy to defraud. The judge adjourned sentencing until 26 April 2001 when he imposed a sentence of three years' imprisonment notwithstanding favourable probation and community service reports which had by then been prepared. The Applicant now seeks leave to appeal against her sentence.

2. The particulars of the charge were set out in the following terms:

"Cheung King, between the 1st day of June 1998 and the 31st day of August 1998, in Hong Kong, conspired with Cai Chun-sheng, Lo Sioe-chien and other persons unknown to defraud Societe Generale ("the Bank") by dishonestly:

(a) causing Guangnan (Holdings) Limited ("the Company") to apply and to utilize credit facilities from the Bank in the form of a Letter of Credit numbered DC/98/00380;

(b) submitting or causing to be submitted false documents to the Bank purportedly evidencing genuine underlying commercial transactions between the Company and Long Spark (H.K.) Development Limited;

(c) causing the Bank to grant the Company utilization of facilities under the said Letter of Credit; and

(d) causing the Bank to release a sum of $891,000.00 United States currency to Long Spark (H.K.) Development Limited under the said Letter of Credit."

3. In plain terms, this was a letter of credit fraud. The Applicant took a significant part in the submission of false documents to the Bank which, having placed reliance on them, released a sum equivalent to about HK$7,000,000 to Long Spark (H.K.) Development Limited ("Long Spark"). Long Spark was incorporated as a general trading company in June 1993, although since that time it had not engaged in any trading. The Applicant had been a director of Long Spark since July 1997 and was one of the authorised signatories on its company bank accounts.

4. In July 1998, Lo Sioe-chien, the financial manager of Join Wing, acting under the instructions of Cai Chun-sheng, one of the directors of Join Wing, asked the Applicant to assist in fabricating the paperwork for a sale-and-purchase transaction between Long Spark as the seller and Join Wing, via Guangnan, as the buyer. The Applicant was made aware that the purpose of the fictitious paper transaction was to enable Guangnan to apply for a letter of credit in favour of Long Spark, and Long Spark to obtain the amount specified in the letter of credit from the advising bank. The Applicant agreed to provide her assistance. She also agreed that she would, after Long Spark had received the money from the Bank, hand it over to Join Wing. In this way, Guangnan and Join Wing obtained cash flow in the sum specified in the letter of credit application out of the fictitious transaction.

5. Pursuant to this agreement, the Applicant signed what purported to be an invoice of Long Spark recording the sale of 6,000 metric tons of gas oil to Join Wing at a price of US$891,000. A fraudulent invoice was submitted to the Bank when Guangnan applied for a letter of credit in favour of Long Spark.

6. On 17 July 1998, the Bank issued a letter of credit in the amount of US$891,000 in favour of Long Spark. National Commercial Bank Limited was the advising bank. Subsequently the Applicant submitted the bogus invoice, a cargo receipt and a packing list to National Commercial Bank Limited for the purpose of obtaining release of the amount mentioned in the letter of credit.

7. Not surprisingly, the National Commercial Bank Limited and the Bank were misled by the Applicant's presentation of these bogus documents to believe that there had been a genuine sale-and-purchase transaction between Long Spark and Guangnan. The Bank therefore released the sum of US$890,945, reflecting a deduction for bank charges, to National Commercial Bank Limited which then transferred a corresponding sum into the bank account of Long Spark. The Applicant then procured the transfer of a corresponding sum from the account of Long Spark to Join Wing's account as she had been instructed to do.

8. In due course, US$891,000 was repaid in full from the account of Guangnan. The Bank had nevertheless been placed at substantial financial risk in issuing the letter of credit believing, as we have said, that there was, underlying the documents, a genuine and substantial commercial transaction.

9. On 15 August 2000, the Applicant was arrested by officers attached to the Independent Commission Against Corruption. The Applicant then admitted her role in the fraud.

Mitigation

10. In mitigation, the Applicant's counsel was able to inform the court that she was thirty-two years old at the time of the offence and had a clear record. She was married and had a daughter aged eight. The Applicant had pleaded guilty and earlier had been cooperative throughout with ICAC officers. No loss had ultimately been suffered by the Bank and the Applicant had derived no financial benefit from the offence.

The Application

11. It was submitted on the Applicant's behalf by Mr Plowman, SC (who did not appear in the court below), that the judge had fallen into error in a number of ways when passing sentence.

12. It was contended, in particular, that the judge had been wrong to categorise the Applicant's criminality as "comparable (for sentencing purposes) to a breach of trust case", and as being "the worst kind of documentary credit fraud". Mr Plowman also complained at the judge carrying out his own research in relation to "breach of trust" cases before the plea had been entered which, in consequence, led the judge to formulate the view that this was analogous to a breach of trust case. This, he submitted, caused the judge, in a sense, not to take into account some of the submissions which were being made on the Applicant's behalf in mitigation.

13. Mr Plowman criticised also the judge's adoption of a six-year starting point and his failure to provide reasons when deciding not to impose a community service order.

14. Mr Plowman went on to submit that the judge's approach to sentence was demonstrably flawed by an observation he had made in the course of the proceedings when he indicated that if the Applicant did not apply for bail during the remand period between plea and sentence, he would be able to consider imposing a suspended sentence. This, it was suggested, must have created in the Applicant's mind an expectation of a non-custodial sentence. We observe that whether this was a suspended sentence or a community service order is perhaps for these purposes unimportant.

15. Lastly, of the significant matters raised by Mr Plowman, he alleged that the judge had failed to take sufficiently into account some of the factors raised in mitigation.

16. We do not need to explore the criticisms Mr Plowman has made in great depth. Some of those criticisms were properly made. The judge had taken a most unusual approach to sentence.

17. In particular, although correctly and properly informed by counsel that there were, of course, no sentencing guideline cases to fraudulent behaviour of this specific kind, the judge nevertheless decided to adjourn sentencing for counsel to make further efforts to find helpful authorities which might assist him in arriving at a proper sentence. At the point when he adjourned, he said this:

"All right, maybe I'll urge you folks to make one more try in trying to get some cases, even if it's, you know, big cases, it doesn't matter. I better be sure about that. So I'll defer sentence." (Tr. p. 25)

And then, after suitable dates had been discussed with counsel, the judge went on to say:

"Thursday, 26 April 2001, 9.30. Background report, community service report, just to give it a try. Mr Kwok, shall I put your client in prison for the couple of weeks?

Mr Kwok (who also appears with Mr Plowman in these proceedings): Your Honour, of course I am not asking you to make up your mind at this stage but I will urge upon (you) there is still a possibility that you, at the end of the day, adopt what was recommended perhaps in the (community service report), and this is not a case where anyone will fear that the defendant would not turn up for the trial - for the sentence.

Court: No, no, I'm not worried about your client running away. You see, sometimes if you really think that a suspended sentence should be seriously considered, sometimes a judge can say, 'Well, she has heard the clang of the prison door and she's been there for a couple of weeks, or she's had her lesson.' That is only along that line but if you say so, then I'll just extend bail but there is a risk. All right, bail extended.

Mr Kwok: Could I take instructions?

Court: Never mind, bail extended on the same terms as before." (Tr. pp. 25-26)

18. We are bound to say that the idea of calling for probation or community service reports just to "give it a try" is not an approach we would wish to see repeated. Such reports should, of course, only be sought where a judge believes they may be of some practical value. In particular, the mitigation had raised no exceptional circumstances which could have justified suspending a prison sentence. In any event, we hardly need to say that the judge's remark to the effect that an offender could be deprived of her liberty for a few weeks if a suspended sentence was being "seriously considered", because she would then have "heard the clang of the prison door", was most inappropriate.

19. In our view, while the judge in the end correctly formulated the view that this was a case which was too serious for him not to impose an immediate prison sentence, it is quite impossible in the circumstances of this case to see any justification whatever for requesting community service reports. This being said, even if the judge had been in two minds about what the most appropriate sentence should be, it is plain from a reading of the whole of the transcript, before sentencing was adjourned, that the Applicant was at risk of going to prison, although whether she fully appreciated this is a matter to which we shall return in due course.

20. The judge spoke, in his sentencing remarks, of the offence as being "the worst kind of documentary credit fraud .... comparable to fraud cases involving breach of trust". He explained what he had meant by this in these terms:

"This is not the ordinary kind of fraud in the sense that simply there were dishonest alterations to documents by one party. In fact, it is two parties manufacturing a bogus transaction. In the practice of documentary credit, banks only rely on documents. In fact, banks are precluded from looking into the underlying transaction and so the way I see it is that the parties involved do owe a duty to the bank to present genuine transactions rather than bogus transactions for documentary credit. To put it another way, therefore, banks put a high degree of trust on those parties to the extent that the bank expects them to present documents of genuine transaction.

The reason I analysed the nature of this offence is this. I have been told, and I accept it, that both the prosecution and the defence agree that there are no guidelines for sentencing. That I can fully understand because fraud involving documentary credit may take many different shades, but then as the sentencing judge, I do not want to pass a sentence that is regarded as simply arbitrary or intuitive. I would like to have a certain degree of reference objectivity." (Tr. pp. 43-44)

21. The judge then went on to consider R v Barrick [1985] Cr App R 78 and R v Trevor Clark [1998] 2 Cr App R 137 which were considered in HKSAR v Wong Kay-din CAAR 7/1998, before he adopted a tariff in line with Trevor Clark.

22. Plainly, this was not a breach of trust case, as it is only fair to say the judge recognised, but we consider that the comparison with such a case probably came about because the judge had in mind that the system generally adopted in business for letters of credit largely depends, as it does in many commercial transactions, upon trust. However, this was not a case in which it was proper to apply a sentence in strict accordance, as the judge had done, with the guidelines for an offence involving a breach of trust. Additionally, the judge was not entitled to consider the tariffs laid down in Clark when those tariffs had not been approved in Hong Kong at the time when the offence we are considering was committed.

23. This being so, we propose to look at the matter afresh. The approach which should have been adopted towards offences of this kind is described in R v Chan Kam-chuen [1995] 2 HKCLR 257 which was put before the sentencing judge. All letter of credit frauds are very serious offences. Perhaps it suffices to read a part of the headnote, namely:

"The offences involved the circulation of false documents for the purposes of international trade. The system of documentary credits is the means whereby international trade has been conducted for hundreds of years. The system depends entirely upon trust. If false documents are circulated, some of which are in effect title to the goods themselves, the whole system falls apart. Offences of this nature are regarded as being very serious."

24. The judge, in his sentencing remarks, took into account the repayment of the whole amount obtained by this fraudulent activity, noting that ultimately no loss was suffered by the bank. It was this factor which appears to have persuaded him to reduce the sentence to three years from a starting point of six years. The judge, in other words, gave a 50% discount to the Applicant albeit she had had nothing to do with the repayment of the money which was obtained on the fraudulently obtained letter of credit.

25. We feel bound to observe that for a person in the Applicant's position, who the judge had correctly described as "small fry used by other people to make up all the documents in support of the bogus transaction", the sentence she ultimately received would have been appropriate even though it had been achieved by a route which was misconceived. We think in this case an appropriate starting point was four and a half years' imprisonment with a reduction of a third, to three years' imprisonment, having regard to the Applicant's plea and her general cooperation. However, in the light of the way in which the judge dealt with the adjournment, which might well have been perceived by the Applicant to have held out some hope to her of a non-custodial sentence, which should never have arisen in the first place, we propose to say that in these special circumstances a sentence of two years' imprisonment should now be passed upon the Applicant.

Conclusion

26. Accordingly, we shall give leave and, treating the hearing as the appeal, we allow the appeal to the extent that the sentence is reduced to two years' imprisonment.