R v. CHAN KANG TO

IN THE COURT OF APPEAL

1995, No. 513
(Criminal)

- Headnote -

Conspiracy to defraud - The particulars in the charge alleged a conspiratorial agreement to defraud "such persons as might pay money to [a brokerage company] for investment in foreign exchange transactions by falsely representing that [the company] was operating a [computer] program trading system ...." - There were 50 substantive charges of obtaining property by deception, contrary to s17(1) Theft Ordinance, Cap 210 said to be 'alternative' to the conspiracy charge - On the face of the indictment these were not alternative charges - Evidence led by the prosecution went far beyond the scope of the conspiratorial agreement - Judge failed to direct the jury regarding the ingredients of the conspiracy as averred - Appeal allowed, conviction quashed.

Observations by Court of Appeal:

* On the function of particulars in a conspiracy count: The bare expression "to defraud" is not self-explanatory, as might be with words like "to steal". Fraudulent conduct can take an infinite variety of forms. The expression "to defraud" is not a passport to a limitless field of criminality.

* The offence charged on the indictment should represent the whole of the criminality as averred: This in turn defines the scope of the evidence which the prosecutor can properly lead.

* Conspirators do not put their heads together and say "Let us act to the prejudice of other persons' rights". That is the language of legal analysis, not the vocabulary of fraudsters. On the face of the indictment the conspiratorial agreement was shadowy and incomplete.

IN THE COURT OF APPEAL

1995, No. 513
(Criminal)

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J U D G M E N T

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Litton, V.-P. (giving the judgment of the Court):

Introduction

1. EGI International was, as far as appearances went, a brokerage firm dealing in foreign exchange transactions on behalf of Hong Kong customers. Its offices were located in Exchange Square, a prestigious office block in Central. It employed a large number of account executives, most of whom were highly educated persons, some with degrees from well-known Universities overseas: including post-graduate degrees in business management.

2. The story begins in about 1987 when the appellant, having returned to Hong Kong some two years before - after graduating from Southhampton University with a degree in computer studies - met a person called Leung Kai-man (known as K.K. Leung). K.K. Leung was then operating a firm called Evergreen Equities, a dealer in foreign exchange transactions. The appellant was appointed the dealing manager, responsible for dealing-room operations and settlements, reporting directly to K.K. Leung. Evergreen Equities also employed a number of account executives, among them a person called Candice Teng Chen-yu: a woman whose academic qualifications included a Master's degree in Business Administration. In 1989 Evergreen Equities was wound up and the entire team then went over to EGI International. The appellant remained the dealing manager. It was what he did in that capacity that he came eventually, in May 1995, to face an indictment in the High Court (before Ryan J and a jury) containing 51 counts: One of conspiracy to defraud, contrary to common law, and 50 counts (alternative to count 1) of obtaining property by deception, contrary to s17(1) of the Theft Ordinance, Cap 210. The trial lasted from 8 May to 24 July 1995 when he was convicted of count 1, the conspiracy count, sentenced to 8 years' imprisonment with a fine of $10 million and an additional one years' imprisonment in default of payment.

The conspiracy charge

3. Count 1 reads:

"	1st Count
	STATEMENT OF OFFENCE

Conspiracy to defraud, contrary to Common Law and Interpretation and General Clauses Ordinance, Chapter 1.

PARTICULARS OF OFFENCE

CHAN Kang-to, on divers days between September 1990 and the 20th day of July, 1993, in Hong Kong, conspired together with LEUNG Kai-man and HO Sheung-lin, to defraud such persons as might pay money to EGI International for investment in Foreign Exchange transactions ("Forex") by dishonestly falsely representing to such persons that the said EGI International was operating a program trading system to effect forex transactions."

4. By "program trading system" the prosecution meant computer program trading and that was how the matter was throughout understood.

5. Ho Sheung-lin, the third member of the conspiracy, was K.K. Leung's wife, the registered proprietor of EGI International.

6. The allegation of dishonesty - the only allegation - is that the three conspirators had agreed to defraud customers by falsely representing to them that EGI International was operating a computer program trading system for foreign exchange transactions. The expression "to defraud" is very wide: It means an intention to practise a fraud on another or to act to the prejudice of another person's rights: see The Queen v. Wai Yu-tsang [1992] 1 HKCLR 26 at 30. In count 1 there is no averment as to what the conspirators were to do with the money paid to EGI International "for investment in foreign exchange transactions". The bare expression "to defraud" is not self-explanatory, as might be with words like "to steal". Fraudulent conduct can take an infinite variety of forms. It is difficult to see, from the particulars as averred, wherein lies the criminality of the charge: Assuming that the plot as averred were carried out, and customers did pay money to EGI International "for investment in Foreign Exchange transactions" as alleged, how were their economic interests to be prejudiced, or the conspirators to benefit? There could hardly be a conspiracy to defraud without either of those ingredients being present. A conspiratorial agreement to tell lies to others, without more, is not a conspiracy to defraud. What was the point of the scheme, if it did not include an intent in some way to prejudice other persons' interests and to benefit the conspirators, directly or indirectly? It is no answer to the point to say: But the very concept of fraud is to act to the prejudice of another person's rights. Conspirators do not put their heads together and say: "Let us act to the prejudice of other persons' rights". That is the language of legal analysis, not the vocabulary of fraudsters. On the face of the indictment the conspiratorial agreement is shadowy and incomplete, but it was on count 1, and count 1 alone, that the appellant was convicted and sentenced.

7. Before the hearing of the appeal, clarification was sought from the prosecution as to what precisely was said to have been agreed between the appellant, K.K. Leung and Ho Sheung-lin which constituted the conspiratorial agreement on which the appellant was convicted and sentenced. The answer was as follows:-

" What the Crown was alleging was agreed between the appellant, LEUNG Kai-man (K K Leung) and HO Sheung-lin was that they agreed to dishonestly cause the prospective clients of EGI to invest money in that company, for forex trading, as a result of false representations being made to those prospective clients about the computer program trading system operating at EGI. The fraud that is practised on the prospective clients is that false representation made to them about the computer program trading system operating at EGI.

Crown submits the position of the defendant as an employee of EGI is not relevant to the question of whether or not he agreed with the named co-conspirators to carry out the criminal enterprise.

Further the defendant was much more than just an employee of EGI. He was one of the chief persons in EGI and had been connected with the named co-conspirator K.K. Leung since 1987."

8. In short, stripping away the surplusage, this confirms the very narrow scope of the conspiratorial agreement as averred in count 1: Customers were to be defrauded by inducing them to place money with EGI International by the false representation that the company operated a computer trading system. Full-stop. What if the system - without the aid of computers - resulted in gains for the customers? The mere falsity of the representation, and reliance upon it by the customers, was clearly not enough to achieve the object of the plot.

9. If the case had been presented to the jury on the basis of the bare averments in count 1, they might well have wondered why the three conspirators should have concocted such an odd scheme. Fraudsters normally conspire for some benefit. And if there was in fact a hidden agenda - for example, if two of the three conspirators (say, K.K. Leung and his wife) - without the agreement of the appellant, had actually intended something much more sinister - say to steal all the money invested by the customers - but the appellant never shared in this intent, surely, the jury might well have said to themselves: "There was certainly a conspiracy to defraud between K.K. Leung and his wife, but the appellant was not a party to it." And if it be said that the appellant also intended to steal - that theft of the money was indeed part of the plot - it was not averred in count 1.

10. It is as well to recall at this point what the English Court of Appeal has said about the need for particulars in these cases. In Landy [1981]72 Cr.App.R. 237 at 244 Lawton LJ reminded the legal profession of something that should not have needed reminding: that defendants and trial judges were entitled to know precisely and on the face of the indictment itself the nature of the prosecution's case. Presumably, the prosecutor in this case had heeded Lawton LJ's dictum in Landy and had, with his eyes open, decided to confine the averment of conspiracy to the narrow scope as appears in count 1.

The alternative counts

11. As mentioned earlier, the indictment contained 50 additional counts, all of obtaining property by deception, all said to be alternative to count 1. At the commencement of the trial, before the case was opened to the jury, the defence sought a ruling that the prosecution should elect to proceed on the substantive counts, or the conspiracy count, but not both. The prosecutor justified the joinder in this way:

"MR TURNBULL: And the Crown's submission on the justification of the joinder is quite simple. On a reading of the facts, it is conceivable the jury could come to the conclusion that there was no conspiracy and in fact this defendant acted alone in the representations that the Crown says were made to various clients of the company - EGI. Now if that view was taken of the facts, that would justify the substantive counts. They are just examples of carrying out the conspiracy.

Alternatively, it may be that they come to the view that he didn't act alone, and that in fact he was in league with the head of the firm or the head of the firm's wife who are mentioned in the indictment. Now if that view were taken of the facts, of course, the conspiracy count stands as it does. So it is quite simple. Both are open to the jury on the evidence that we will call, and it is for that reason that the counts are put in the alternative as shown in the indictment and we say it justifies all being put to the jury."

12. The judge accepted this submission and allowed counts 2 to 51 to remain on the indictment as alternatives. When he came to summing-up to the jury, the judge said:

"So, as I say, there is very little difference, in reality, between the first charge and the substantive charges when it comes to what elements the Crown have to prove. The big difference is that in the first charge it is a conspiracy where the defendant is alleged to have conspired and acted together with K.K. LEUNG and Madam HO, whereas in these charges the Crown is saying, really, that the defendant was acting alone in the matter."

13. This is extremely odd. Counts 2 to 50 charged the appellant with obtaining property by deception. Take counts 43 and 45 as examples, relating to Candice Teng Chen-yu (a senior accounts executive who, by June 1993 had been with EGI International for many years, and had been with Evergreen Equities before that). She was the victim in counts 43, 46 to 50.

"	43rd Count
	(alternative to the 1st Count) STATEMENT OF OFFENCE

Obtaining property by deception, contrary to section 17(1) Theft Ordinance, Cap 210.

PARTICULARS OF OFFENCE

CHAN Kang-to, on or about the 16th day of June 1993, in Hong Kong, dishonestly obtained from TENG Chen-yu a sum of $210,052.09 Hong Kong dollars with the intention of permanently depriving the said TENG Chen-yu thereof by deception, that is by falsely representing that EGI International was operating a program trading system to effect forex transactions.

	45th Count
	(alternative to the 1st Count) STATEMENT OF OFFENCE

Obtaining property by deception, contrary to section 17(1) Theft Ordinance, Cap 210.

PARTICULARS OF OFFENCE

CHAN Kang-to, on or about the 6th day of July 1993, in Hong Kong, dishonestly obtained from TENG Chen-yu a cheque No. 020372 and dated 6th of July 1993 in the sum of $1,020,000.00 Hong Kong dollars drawn on TENG Chen-yu's account with the Hong Kong and Shanghai Bank with the intention of permanently depriving the said TENG Chen-yu thereof by deception, that is by falsely representing that EGI International was operating a program trading system to effect forex transactions."

14. As can be seen, the core of the offence in count 45 was the obtaining of a cheque from Candice Teng Chen-yu by deception. Many other counts in the indictment also averred the obtaining of cheques from other persons by means of the same false representation. But the obtaining of cheques, with the intention of depriving the victim permanently of them, was not particularised as part of the scheme in count 1. How was count 45, and many other similar counts, alternative to count 1? When the point was put to Mr Turnbull at the hearing of the appeal, his answer, far from clarifying the issue, obscured it further. He said that the count merely alleged the obtaining of the cheque by deception - "the bit of paper", not the proceeds of the cheque - so it needed no particularising in count 1. The defendant, Mr Turnbull said, could have asked for particulars of count 1. This is no answer to the point. It is never the function of particulars to enlarge upon a charge: rather, it is the reverse: to pin the prosecution down to the particular case the defendant has to meet. The offence charged on the indictment should represent the whole of the criminality as averred. This in turn defines the scope of the evidence which the prosecutor can properly lead.

15. The point goes further. As can be seen from count 43, the core of the offence there is not the obtaining of "a bit of paper" by deception, intending to deprive the victim permanently of it; it is the obtaining of a considerable sum of money. How this was an alternative count to the conspiracy charge is difficult to understand, unless it be said that by the use of the expression "to defraud" in count 1, the prosecution meant to aver, and must necessarily be understood to aver, that the conspirators intended to steal the money paid by the customers for investment in foreign exchange transactions. If that was the plot, why not say so in plain terms?

The evidence led by the prosecution

16. There is, intrinsically, something very odd about the evidence - or at least part of it - led by the prosecutor at the trial. The allegation of falsehood focussed on the alleged "computer program trading system". By such system, it was said, losses on customers' accounts could be limited to 2%. The prosecution led evidence to show that no such programme existed at the EGI International offices.

17. Take again the case of Candice Teng Chen-yu: she was, it will be recalled, an account executive, well-qualified, highly experienced, having been in the industry since 1988, said to be the victim in counts 43, 46 to 50. Her account with EGI International was actively traded, by means of an authorisation given to the appellant. Each time trading was done - always day-trades in the spot market, confined to Deutschmark and Yen - an account statement was produced, showing the net gain or loss, and the balance in the account. The account statements before the court go back to January 1992. There are earlier ones we have not seen. Candice Teng said in evidence she started trading in September 1990. Up to the dates in counts 43, 46-50 (June-July 1993) scores of such transactions had been effected, with supporting statements to show the result. Because the trades were generally successful, the credit balance gradually built up. In consequence, she had, from time to time, withdrawn sums from her account. On any common-sense view of the case if she had been induced into increasing her stake in June - July 1993 as averred in counts 43, 46-50 by paying further sums into her account, it would at least partly have been because of the apparent success shown in the statements over many years rather than representations made about the "system" back in 1990 when she first started to trade.

18. Clearly, the statements operated as a considerable inducement. Most of the victims referred to in counts 2 to 50 who testified at the trial spoke of being shown statements with good trading results. But were there, in reality, any transactions at all between September 1990 and July 1993 on any of these accounts? Were these statements fictitious from beginning to end? Having regard to the limited scope of the conspiratorial agreement as averred in count 1, this question was not strictly relevant. But this did not deter the prosecution from leading evidence to suggest there was none - that the whole operation, of trading on customers' accounts in overseas foreign exchange markets, was a charade. And, in cross-examining the appellant when he came to testify at the trial, it was specifically put by the prosecutor that he knew no trading was going on. In other words, that the account statements produced for customers' accounts, to the appellant's knowledge, were false.

19. The plot then, upon this supposition, became a far wider and much more sinister conspiracy than that averred in count 1: The deception was not simply the lies told about the programme trading system as averred. Not only was there no computer programme trading: there was no trading of any kind: the accounting statements were totally sham. The deception was then the deception practised by producing to customers and potential customers totally fictitious accounts, showing day-trades in Deutschmark and Yen which in reality never took place. To widen the averment of criminality in this way might have been permissible in the past when an indictment for fraudulent conspiracy normally contained wrap-up words like "and by divers other false and fraudulent devices" (a practice condemned by the Court of Appeal in Landy at p244). This has no place in a modern indictment. Nor can the practice be re-introduced in a disguised form, by the use of the amorphous expression "to defraud" as if it were a passport to a limitless field of criminality.

20. Not surprisingly, in these circumstances, the judge found himself in the greatest difficulty when he came to sum up the case to the jury.

The summing-up

21. At one point the judge said:

" You will need also to be satisfied that the Crown have proved to you beyond a reasonable doubt that the defendant with KK LEUNG, and/or Madam HO, dishonestly made false representations as part of a conspiracy to defraud; that is that they acted in that way knowing that it would or that it might involve economic loss, or the risk of economic loss, to the investors in EGI, to those persons who had put their money with EGI having been influenced by the false representation that had been made to them about the computer programme for foreign exchange transactions.

Those then are the elements of the charge that the Crown have to establish ...."

22. Be it noted: The judge referred to the making of false representations as part of the conspiracy. What was the other part? By the averment in count 1, there was nothing further to the plot.

23. Later on in the summing-up the judge said:

" It is also the Crown case that the evidence establishes that they, and probably Madam HO, were parties to this conspiracy with the intent to defraud the investors in EGI, that they were doing things which they knew would or might involve those investors in economic loss or the risk of economic loss - and of course the Crown say that is precisely what happened, that the money was taken, withdrawn systematically by Madam HO from the account of EGI International. You have heard that these withdrawals were done in the presence of a man whom I think you won't have any difficulty in concluding was her husband KK LEUNG. The figures were quite massive, I think you will recall that something like 178 million was withdrawn from EGI's account by Madam HO in the time of conspiracy, 1st September to 10th July, 1993 and that from their own account was also drawn 70 million-odd during that period and no-one knows where that money has gone.

The Crown say that the only inference that can be drawn from all of the evidence and those withdrawals is that the money was stolen by KK LEUNG and Madam HO and the Crown say that the defendant was also a party to it. That will be a matter for you to decide."

Risk of economic loss

24. In referring to the risk of economic loss in the above passage the judge might have had in mind cases such as R. v. Allsop [1976] 64 Cr.App.R.29 and The Queen v. Wai Yu-tsang [supra]. In Allsop the fraudulent scheme was to submit false particulars to a hire-purchase company to induce the company to accept applications for hire-purchase facilities and to pay out money for cars which it would not have paid if it had known the true facts. The scheme, in essence, was to induce the company by supplying it with false information to accept risks it would not, or might not, have taken if it had known the true facts. In Wai Yu-tsang the fraudulent scheme was to conceal in the accounts of Hang Lung Bank the dishonouring of US$124 million worth of cheques which had been drawn by a finance company and purchased by the Bank as part of a cheque kiting operation. The finance company had no assets. The amount of the cheques purchased exceeded the entire capital of the Bank. The fraudulent scheme had put the economic interests of the Bank its shareholder creditors and depositors at risk. The scope of the criminality is clear in both cases. In both cases the fraudulent scheme exposed others to the risk of economic loss.

25. In the context of the present case, it is difficult to see where the concept of risk came into the picture. If the prosecution case had been this: (i) The system of trading operated by EGI International had, to the knowledge of the conspirators, simply relied on human judgment or luck: in other words, a highly risky business; (ii) to conceal the risky nature of the business the conspirators concocted a fraudulent scheme, to generate commission income for the company, putting the customers to the risk of economic loss, by pretending that it operated a computer programme trading system which eliminated, or largely eliminated, human error. If that had been the Crown case it would at least have been intelligible as a conspiracy to defraud, putting the customers to the risk of economic loss. But, such a scheme was not averred - and, as a matter of common-sense, such a scheme would not have worked for very long: soon, the risk would have materialized and the losses on the customers' accounts would have been apparent on the statements.

26. So, what precisely did the judge have in mind when, in the summing-up, he introduced the concept of risk? If the scheme was to have money "withdrawn systematically by Madam Ho" (as the judge said was the Crown case) then the scheme involved no risk as such: it involved a certainty: sooner or later the money deposited by the customers was going to be stolen by Madam Ho. If that indeed were the scheme the appellant is said to have taken part in with K.K. Leung and Madam Ho, then it had little to do with computer trading programmes: the conspiratorial agreement would have been far wider: the core of the conspiracy would have been to create the illusion of a brokerage firm, established in expensive office premises, successfully trading on clients' accounts over a long period, building up healthy credit balances on those accounts - balances which the clients could withdraw at will - the illusion, perhaps, enhanced by the representation that the success was due to computer programme trading. The underlying intention, of course, was to run away with all the money when the moment was ripe. Such a conspiracy was never averred. And if that had been the Crown case, it would have raised other problems. The conspiracy was said to have spanned many years: from September 1990 to July 1993. Is it really to be suggested that, during all that time, the three conspirators managed to pull the wool over the eyes of all the account executives: including highly sophisticated and experienced personnel like Candice Teng Chen-yu?

27. As Mr Turnbull explained to us at the beginning of the appeal, the fraudulent scheme was "to dishonestly cause the prospective clients of EGI to invest money in that company, for forex trading, as a result of false representations being made to those clients about the computer program trading system operating at EGI." There was, according to Mr Turnbull, nothing more to the conspiratorial agreement than that. We need not pause to consider whether, in law, that amounts to a conspiracy to defraud. The fact is that, at the end of the day, that simple case was never put to the jury.

Conclusion

28. The judge ought, at an early stage of the proceedings, to have pinned the prosecutor down to a precise statement of the conspiracy - as we have attempted to do before the hearing of the appeal. He should have then ensured that the evidence led by the prosecutor was confined to the four-corners of the charges. Finally, he should have summed-up within those confines. But none of that was done. In the result, the proceedings totally lost focus and it is simply not possible to say, at the end of the day, what the appellant has been convicted of. As mentioned earlier, if the conspiracy as averred in count 1- and no more - had been put to the jury, they might well have wondered why the appellant was being charged at all.

29. There were gross irregularities at the trial. The appeal must be allowed and the conviction quashed.