HKSAR v. KWOK CHI KWAI AND ANOTHER

CACC 12/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 12 OF 2005

(ON APPEAL FROM HCCC NO. 309 OF 2002 & 320 OF 2003)

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J U D G M E N T

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Hon Stock JA (giving the judgment of the Court):

Introduction

1. These applicants for leave to appeal against conviction were tried in the High Court, a choice of venue that surprises us given that it was a complicated conspiracy to defraud in respect of which there was never a prospect of a sentence exceeding the maximum term that District Court judges are entitled to impose.  In the event the sentences imposed on these two applicants were two and a half years and three and a half years’ imprisonment respectively.  Nine jurors were empanelled and, day after day, from 4 October 2004 to 14 December 2004, they were compelled to hear testimony from a long string of lay witnesses and police officers and from several expert witnesses, and to speeches and to a summing-up that runs for 131 pages.  This was not an efficient way to try a case of this kind. 

2. There were four defendants at trial.  The first and second applicants were D1 and D4 respectively.  There was one count upon the indictment.  It alleged conspiracy to defraud contrary to common law and section 159C(6) of the Crimes Ordinance, Cap 200.  The particulars ran as follows:

“KWOK Chi-kwai, SHEE Yip-shing, CHAN Kei-suen and TAN Lam-chuan, between the 3^rd day of May 1999 and 20^th day of December 2000, in Hong Kong, conspired together and with other persons unknown, to defraud such persons who might be induced to invest money with Promail International (HK) Limited (“investors”), by dishonestly –

(a) falsely representing to those investors that if they invested $3,500.00 Hong Kong currency at regular intervals over a period of approximately 12 months, they would be paid returns on their investment in the third month and every month thereafter until 14 months had elapsed (approximately) from the date of their original investment;

(b) falsely representing that the profits of Promail International (HK) Limited were generated by genuine business; and

(c) inducing, causing or allowing such investors to invest money with Promail International (HK) Limited knowing that Promail International (HK) Limited could not meet the returns due to all investors as represented to those investors.”

3. Promail was incorporated on 1 March 1999 and operated from two business premises, and had a godown.  D1, D4 and D4’s wife were directors of Promail and D4 and his wife were also shareholders.  D4 was a signatory of Promail’s bank accounts and one of those accounts enjoyed an overdraft facility of $9 million secured against $10million provided by D4. 

The prosecution case

4. From towards the end of 1999 and in 2000 the company sold two plans called Plan A and Plan D.  The prosecution case was that these were in fact pyramid based schemes whereby members who joined were promised huge profits upon representations that there was a genuine business being run by Promail that generated funds from which these returns could be met.  In relation to plan D, upon which the prosecution relied, a new member would be required to pay $11,000 over four months and would receive bonuses from the 3rd to 14th months inclusive which would total $152,500, a net profit of $141,500, representing a return of 3322% per annum.  So, in the first and second months $3,500 would be paid by the member each month, with no rebate; but on the 3rd month, a rebate of $500 was due so that the member would have to pay in, not $3,500, but $3,000.  In month 4 a rebate was due of $2,500, so that only $1,000 was payable by the member, and so on until by the 8th month the rebate was $12,500 which was more than the total outlay of $11,000; and from that month onwards, until and including the 14th month of the plan, which was as long as a plan would run, the member received pure profit.  In addition to the rebate, members were each month given a sheet of coupons exchangeable for goods at certain well-known supermarkets.  In addition to that, members who introduced new members were entitled to 10% of the total expenditure incurred by the introduced member.  This was referred to as an introduction fee.  

5. It followed that in order to meet its obligation to plan holders (each member might hold more than one plan), Promail had to produce a promised profit per plan of $141,500, plus coupons to the value of $4,800, plus $42,000 (the 10% introduction fee).  The accepted evidence was that in order to secure the funds necessary to meet this obligation, assets had to grow 1.75 times, or 75%, per month or 82,500% per annum.  In the first month of its establishment, Promail had sold 575 plans.  In order to meet its obligations in relation to those plans, and assuming no other source of income, it would have to sell 1,006 (575 x 1.75) plans the following month, but then the demands of those 1,006 plans would require the sale of 1,761 plans the month after that; and so on exponentially, so that by the time one reached 24 months after the first 575 plans were sold, the target number of plans that would have to be sold was 322,880,000,000.  

6. Matters never reached that stage, for in December 2000 there was a police raid in consequence of which the entire operation was brought to a halt.  The target at that date was 474,378 plans.  In fact the target had been fulfilled up to about October 2000 but then sales fell off, so that by December 2000, only 33,386 plans were sold, well below the target needed; and by that date the liability incurred in respect of existing plans was almost $7 billion.  In an attempt to cater for the obvious shortfall that was arising, Promail needed new members to pay a greater sum ‘up front’, so an amendment to the scheme was made whereby $11,000 could be paid in the first month instead of over four months, and the rebate would then start to be paid in the second month.  Under this alternative, the return was 11,372% pa.  In addition to this, a member of plan D would for specific payment receive points, the accumulation of which would eventually entitle him to membership of plan A, the details of which plan need not concern us. 

7. The prosecution contention was that the only way in which these liabilities could conceivably be achieved was from selling new plans, the contributions to which would go to meeting the promised rebates; a scheme referred to at trial as “money covering money”.  

8. New members were introduced by existing members and they attended seminars where they were told that Promail operated communication, catering and property businesses and that they were involved in large scale supermarketing, clothing and food, and had affiliation arrangements with shops such as Fortress, Sogo, Wellcome, Park N Shop, and a jewellery shop.  From these companies, Promail obtained coupons to be distributed to members with which they could purchase goods at a discount.  The payments that Promail made, it said, came from its earnings as an agent for these products. 

9. According to the prosecution case, no one at the seminar was told of the 75% target growth that was needed each month to meet the rebate commitment.  It was accepted by the prosecution that Promail did earn some money from participating shops, but their case was that this was a minuscule amount compared to the sums engendered by the plan, and that there was in truth no underlying business that might give rise to anything conceivably approaching the income needed to meet rebate liabilities.  After the police raid, a considerable number of members attended Promail to claim their payouts, but were made each to sign a form which in effect stated that they had not been cheated.

10. A Treasury accountant gave evidence.  He examined the business’s documents and computer records.  He concluded that Promail was involved in the business of operating the two plans but had no other significant business operation.  He was cross-examined about some agreements which admittedly existed with affiliated companies but this did not affect his overall view of Promail’s activities.

11. Also called was a mathematician, Dr Tong.  He worked out what the profit percentage was that Promail had to achieve before it could pay the rebates.  He came to the conclusion that it would inevitably become impossible to meet the promised rebates.  The growth required was exponential and it stood to reason that even worldwide resources could not sustain it.

Thedefence stance

12. Neither of the applicants with whom we are concerned gave evidence.  D1 had been interviewed by the police on three occasions and the full transcripts of these interviews were placed before the jury.  It is not easy to follow what was being said, but the essence of it was a suggestion of an endless source of supply and demand, that would last so long as there were people on this earth.  Since a baby was born on this earth every eight seconds, business was never-ending.  Any type of commodity and service could fall within the company's operation, and its development was not confined to Hong Kong.  Clients had between 200 to 300 different products from which to choose, even at the very beginning of the company's operation.  There was no need for Promail itself to stock any large quantity of goods, because goods were represented by the coupons that were issued.  There was, he said, a plan afoot to issue medical treatment coupons, for example; and an intention to set up a retail management company to satisfy the needs of clients.  “Our target is the whole world,” he asserted.  There was an intention to set up a reserve fund to safeguard clients in respect of which professional advice had been sought.  It was not accepted that if the 75% per month target could not be met, there would be no funds from which to satisfy rebate expectations.  To cater for such an eventuality, there were “tactical arrangements” in mind by which the time for making the rebates could be rearranged.  The point was that the company did not pay rewards to everyone at the same time. 

13. When it was put to him that the amount received would eventually not be able to cover the expenses, he asserted that this was simply not so.  He was asked how was it proposed to ensure that the company would, infinitely, have sufficient sales.  The answer was that the company needed only to continue operating and developing, continuously to open new markets to satisfy the customer's needs.  All that was needed was a “factor and resources” and “time … Because everybody consumes every day, unless people of the whole world dies. … We definitely can fulfil our promises to our customers. … we might need time to reach the quantity and then make the corresponding rebate”.  It had never occurred to him, he said, that the 75% target would at some stage not be satisfied.  Then this question was put: “You mean you have not considered unfavourable factors?  Did you not consider if no new participants, there would be loss, ignoring the loss?  Who will suffer the loss if just promote, promote, promote until cannot go any further?”  His answer was: “I disagree with what you said just now.  We did consider how to deal with the units if it failed to achieve.  Emphasise we have a good arrangement: open new markets, reserving some units.  Basically, we have the ability to cause those unsold quota to be sold out within a short time.”

14. D4 did not give evidence.  There was, in his case, instead, produced an affirmation which had been filed in civil restraint proceedings; but it deposed only to some loans made from Promail Indonesia in January 2001 for distribution by the Hong Kong company to its members to meet liabilities that had arisen in consequence of the police action.  The suggestion is that this was relevant to the defence as showing the bona fide concern of Promail Hong Kong towards the interests of its members.

A suggested failure to summarise the defence case

15. The first ground of appeal is that Deputy High Court Judge Barnes failed adequately to summarise the defence case.  Given that the judge expended a considerable portion of her summing-up on taking the jury to the key passages from the interviews of D1, and given the further fact that leading counsel then acting for these applicants (not Mr Blanchflower SC who now appears) made no suggestion at any stage during or after this very long summing-up (there were several breaks during which counsel might have availed himself of this opportunity had he thought it warranted), and given that it is not easy to discern from the long closing speech on behalf of the applicants a key theme upon which the jury was invited to concentrate as constituting the defence – given these facts, there is something of an onus upon Mr Blanchflower to make good this complaint. 

16. He says that the judge ought to have pointed to indicia in the applicant's favour but did not; for example, that a trust fund had been established to cater for the possibility of Promail’s collapse; that there was insufficient evidence as to whether the computer system was operating efficiently; that certain profit was indeed generated from genuine businesses; that no one experienced any loss; that none had complained they had been deceived; that Promail had spent millions on coupons issued by retail businesses; that Promail had sponsored a number of community events, thereby indicating a company intending to be visible, rather than secretive; that Promail’s bank accounts housed considerable funds at the time of the police operation; and that the video interviews of D1 contained assertions on his part about his belief in the viability of the operation and denials by him that there was any intention to defraud.

17. Those are matters of detail, but he makes a more general point which is that the judge did not encapsulate the defence; that despite references peppered throughout the summing-up to statements made by the applicants, and to points made in cross-examination, she did not explain the suggested or possible significance of the statements or of the points made or of the issues in the case.  She said that certain items of evidence were in her view important, without explaining why they might be important.  The complaint is that there was no commentary on the evidence, no explanation of its suggested relevance, merely extensive regurgitation of testimony and principles of law.

18. As for the matters of detail, a reading of the summing-up displays page after page after page of the judge highlighting the exculpatory parts of the interviews given by D1 in which she refers to his portrayal of a self-assurance that the company would continue to operate come what may; of his references to the trust fund; and she referred also to points made in the applicant's favour by counsel for the defendants in the course of cross-examination.  She referred to the fact that the prosecution conceded that if investors were in fact told that this was a ‘money covering money’ situation whereby the 75% target could be met, there was no fraud.  The suggestion had been made by the prosecution that only lowly-educated people had been targeted, yet the judge pointed out that there was evidence of professional people who became members.  She drew attention also to evidence of inefficiencies in the computing system; and to the admitted fact that Promail had obtained discounts from merchants.  She referred to the fact that there were documents supporting the contention that the company had intended to acquire a paging operation saying: “If you find that Promail was, indeed, in the process of acquiring or developing new business, then you may wish to have regard to this when you consider [whether there was] no other significant business operating” as asserted by the Treasury accountant.  She referred in terms to the affirmation by D4.  We do not think it necessary to itemise each aspect of the defence case or each point made by the defence and referred to in the summing-up, for it suffices to say that she well identified the key answers given by the applicants in such statements as they had made and the points drawn out in their favour in cross-examination.

19. It is worth recalling what was said by Watkins LJ in R v Hiller and Farrar (1993) 97 Cr App R 349, 354:

       “It hardly needs to be re-stated that Farrar did not give evidence.  What the jury needed to be reminded of in his defence was relevant matter contained in pre-trial statements and interviews with the police – copies of those documents were in their hands – and possibly such assistance, if any, as counsel had been able to extract from the Crown’s witnesses in cross-examination. … We must make this clear yet again, namely that it is no part of the judge's duty to build up a defence for someone who has not chosen to give the jury the benefit of his version of material circumstances and events.  The judge's obligation is limited to reminding the jury, in summary form, of what the defendant is said to have stated as to those matters at some time or another pre-trial and what assistance, if any, the Crown’s witnesses have provided.”

That is precisely what the judge did in this case. 

20. We accept that there is absent from this summing-up a self-contained summary of the defence case in the manner that is often seen, which would run along the lines of saying that the defence assert in answer to the charge that such-and-such happened with a shortly summarised form of the testimony to which thedefence point in support of that contention.  And we accept that the judge did not, when she referred to evidence as important, suggest why it was, or may be, important; and that in both regards it would have been preferable had she done so.  Yet, having said that, that comment is made against the background not only of the fact that none of the accused gave evidence, but of the more pertinent fact, of which the judge was no doubt acutely aware, that one cannot be confident that the defences run, such as they were, were mutually consistent, one with the other.  On one view, the defence was that there were genuine products and businesses behind the scheme from the profit of which the rebates could be met.  On another view, the question of products was merely incidental and what was being said was that those members who joined were well aware from the outset what the whole scheme was really about, namely, the constant provision of funds by the recruitment of new members, money following money; a gambling escapade, in short, the risks of which were clear to participants, to none of whom deceptions had been offered.  In this regard, we asked Mr Blanchflower to point to any passage in the long closing speech for the defence at trial that might be said to have crystallized the defence; a question we asked because we had discerned none, and Mr Blanchflower accepted fairly that there was none.  What it amounts to then is that the judge is now being criticized for failing to do what the applicant’s own counsel could not, or did not, do.  And the criticism is made against the background of the fact that at no stage was it suggested to the judge that any material points in favour of the accused had been omitted.  Now, we know that such is our system that such an omission is not a bar to taking a point on appeal, but the failure to invite a correction is a factor that may, not must, be telling in an assessment as to whether there was in fact unfairness.  It was perfectly clear from this very long summing-up that the jury in this case was told that so far as the defence was concerned there had been no dishonesty and no intent to deceive, and that the test was not whether these defendants were mathematical experts, such as that called by the prosecution, but whether there had been deliberate deception and whether they themselves were aware of the suggested impossibility of infinitely meeting rebates.  There is in our judgment no proper basis in respect of this ground for upsetting the result.

The dishonesty directions

21. The second and more problematic issue concerns the judge's directions on the question of dishonesty.  The complaint that is made is that in relation to each of the applicants, the judge directed the jury that if they thought that the applicants might reasonably have thought that the scheme was viable, or that it worked, they were to be acquitted.  We will shortly have to set out the full context in which this direction was given but there can be no doubt but that on its face it constituted a misdirection.  The question was not whether a belief as to viability of the scheme was a reasonable belief, but rather whether it was a genuine or, an honest, belief.  The point is particularly relevant in this case because the evidence given that the scheme was ultimately doomed was that of a mathematician, an expert, but one of the matters for the jury’s decision was not whether inevitable failure was or would have been obvious to an expert or to a careful businessman but whether it was proved that it was in fact obvious to these particular applicants.  An unreasonable belief, if honestly held, sufficed to provide a defence, and the suggestion is that in this central regard the jury was led to believe otherwise.

22. The judge dealt with the central issues of law at the beginning and also at the end of the summing-up, with her summation of the evidence sandwiched in between.  At the very outset she told the jury that before they could convict any of the defendants they had to be sure that “there was, in fact, an agreement between two or more persons to commit the crime of [fraud]”, that the defendants whose case they were considering was a party to that agreement in the sense that he agreed with one or more of the other persons referred to in the indictment that the crime be committed, and that at the time of agreeing to it he intended that they should carry it out.  She explained that an intention to defraud simply meant an intention to practice a fraud on another and that it was sufficient “for the prosecution to prove that the conspirators had dishonestly agreed to bring about a state of affairs which they realised must deceive other or others into so acting or failing to act that the latter will suffer economic loss, or that economic interest will be put at risk.” (emphasis added).  So far, so good; and it must have been clear at this opening stage, to any juror, that no conviction could follow unless an intention to defraud was shown.

23. Shortly thereafter, she told them what the key issues were, namely, whether the representations particularized in the indictment were made and, if so, were false and, if so, whether they had been made dishonestly; for example, whether representations that the profits were generated by genuine business were false and, if so, whether they were made dishonestly.  “Did the defendants conspire together and with others unknown to defraud investors by dishonestly inducing, causing or allowing such investors to invest money with Promail, knowing that Promail could not meet the returns due to all investors as represented to those investors?”  “So,” she added, “you are, in fact, being asked to consider whether, in future, sometime in the future, there comes one day that Promail would not be able to meet this liability.”  The judge then dealt with a number of matters including the burden and standard of proof.  She proceeded then to deal in great detail – and we do not say this at all critically – with the testimony.  The summing-up was interrupted by the weekend and resumed on a Monday morning.

24. Not long after the resumption of the summing-up on the Monday morning, she referred to the testimony of the mathematician, Dr Tong.  She referred to his testimony that upon his calculation the whole scheme would very soon become impossible.  The following, according to the summing-up, was put to him:

“He was asked whether it is possible that people –

“It is like a circle, that people would keep on coming back to buy, keep on coming back to buy.  And then, if it continues, then the people - - Promail will be able to pay rebate to the members, and members again re-invest.  Then, even assuming no new members coming in, that can go on and on.”

He said, “No.  Of course not.”  He said it was very very simple.  His reason is:

“For each person paying $11,000.  At the end, he got back over $140,000.  So, where would Promail get the money to pay?  Promail either had to invest or to have more members buying new Plan Ds.  It's just not possible for this one person to keep on continuing doing that, because it would have a snowball effect.”

He was asked:

“Members do not receive $140,000 at one time.  They were spread out, different times, different sums, within the 14 cycle.  So, because of the time difference, could it be possible for one person, that he received the rebate and, after a period of time, he re-invested and that it would spin and spin by itself?”

His answer was, he said, “I think everybody knows.”  He actually said, “Your example is a good one.”  He said:

“If only one person keep on buying and getting rebate, he is getting more and more and buying more plans.  So, where did Promail get the money from to pay him?  Promail has to pay the rebate.  Since the member kept on re-investing kept on making money, this money has to come from Promail, come from somewhere.”

So, basically, he is saying that one person alone cannot keep on going forever.  Promail had to get the money from somewhere else.

Later, he said:

“It's an exponential growth.  So, very quickly, the worldwide resources cannot sustain it.” 

That is why he said this is not possible.” (appeal bundle, pp 120 –121).

25. Shortly thereafter, she referred to further evidence of this expert to the effect that one day the resources would finish and that it was “not just that the resources would be used up, but also that the liability are getting heavier and heavier.”

“He was asked:

‘You cannot tell with certainty regarding the growth of resources of this world?’

His answer was “Of course.  This is for the court to decide, which figure was reasonable.”  That is for you to decide whether the figures, it was reasonable to say that - - to decide about the growth of the resources.”

26. We need I think pause to take in this reference to reasonableness, to the expert’s assertion, as an expert, that the scheme was ultimately doomed and to the suggestion that whether counsel’s contrary suggestion (that reflected the suggestion made by D1 in his interview) that it could go on and on, because resources were infinite, was or was not reasonable, was one for the jury.

27. Having summarised the testimony of the mathematician, the trial judge turned finally, and at length, to the law.  She told them, again, that before they could convict any of the defendants they had to be sure that there was an agreement to commit the crime of fraud, that the defendant whose case they were considering was a party to that agreement in the sense that he had agreed that the crime should be committed, and that he intended that it should be carried out.  She repeated the direction that an intention to defraud meant an intention to practise a fraud on another, an intention to act to the prejudice of another’s right.  She then said that for the offence of conspiracy to defraud, it was sufficient for the prosecution to prove that the conspirators dishonestly agreed to bring about a state of affairs “which they realised must deceive other or others into so acting, or failing to act, that the latter will suffer economic loss, or their economic interest will be put at risk.”  She then went on to give the standard Ghosh direction:

“When considering whether any of the defendants had dishonestly so agreed, you have to apply the following tests: (1) was what the defendant agreed to do dishonest by the standard of reasonable and honest people?  Was what the defendant agreed to do dishonest by the standard of reasonable and honest people?  In this regard, you, the jury, must form your own judgment of what those standards are.  (2) must the defendant himself have realised that what he had agreed to do would be regarded as dishonest by reasonable and honest people?  Must the defendant himself have realised that what he had agreed to do would be regarded as dishonest by reasonable and honest people?  In deciding this, you must consider the defendant’s own state of mind at the time.  I will repeat these two steps.” (appeal bundle p 127).

She did so.  She added that if after taking into account all the evidence the jury was sure that the answer to both of these questions was “Yes”, then the element of dishonesty was proved, but if not sure, the element of dishonesty was not proved and the defendant was not guilty of the offence.

28. She reminded them of the particulars of the charge and of the evidence which was said by the prosecution to sustain them and she interspersed this analysis with points made by the defence.  Some time later (page 139) she returned to the evidence of Dr Tong:

“The principal evidence that the scheme could not work profitably in the long run came from an expert, the mathematician, Dr Tong.  In deciding whether you accept his evidence, you have to bear in mind that his calculation in relation to future liability was based on the figures retrieved by the computer expert." 

She reminded them of the evidence about the suggested unreliability of the computer system and then returned to the details of Dr Tong's calculations.  She said (page 141):

“By doing this exercise, Dr Tong was able to demonstrate by calculation how many new Plan Ds are required just to cope with the payment of the rebates on those Plan Ds already sold, assuming people continue to do according to the plans.

…

He said even with the continuous growth of the 1.75 times, very soon all the resources in the world cannot sustain it as it was an exponential growth.  It is on this basis that he said it was not possible for Promail to sustain or to go on and on.  He referred to his calculation when he said it was not possible.”

Then at pages 142 –143, this:

“If you accept Dr Tong's evidence, it means that someone who has the same expertise that he had would know that the scheme could not bring returns for all who ever invested.  Has it been proved to you beyond a reasonable doubt that any of the defendants had that same expertise?  If you think any of the defendants might reasonably have thought the scheme was viable, then the defendant should not be found guilty, because he could not be held to be a party to an agreement to defraud.”

29. She turned once more to the particulars of the charges.  She again told the jury that they had to decide whether they were sure on the evidence that there was an agreement to defraud people by making false representations “knowing that it was not possible for them to get the promised returns.”  She told the jury that suspicion was not enough, that they had to be really sure that the scheme “was so far beyond a suspiciously shady business venture that it did undoubtedly amount to deliberate fraud”.  Then she repeated that they could only convict if satisfied beyond reasonable doubt that the scheme was a deliberate fraud.

30. Then she reminded the jury (page 145) that in his interview with the police, D1 had provided very elaborate explanations with illustrations of how “this new spending concept of Promail run, and how there was no intention to defraud.  You would recall that he was so eager to explain that he would not stop, even when his legal representative requested and obtained consent for a break.  Do you think it possible that D1 honestly believed that such new spending concept works?  After all, he had been working for just over a year and there is no evidence that D1 possesses the expertise of a mathematician.”  That, we pause to remark, was the correct emphasis as to D1’s own state of mind.

31. She returned to the Ghosh test, this time in relation specifically to D1:

“In relation to the element of dishonesty, applying the two-fold test I have mentioned to you earlier this morning.  That is, was what D1 agreed to do dishonest by the standard of reasonable and honest people?  You form your judgment of what those standards are.  And, two, must D1 himself haverealised that what he had agreed to do would be regarded as dishonest by reasonable and honest people?  And in deciding this, you must consider the defendant's own state of mind at the time.  D1’s own state of mind at the time.

If, after taking into account all the evidence, you are sure that the answer to both of these questions, are ‘Yes’, then the element of dishonesty is proved.  If you're not sure, the element of dishonest is not proved.  And the defendant is not guilty of the offence.”

Again, so far so good, but the problem is in what immediately followed:

“If you think that D1 might reasonably have thought that the scheme was viable, then he should be found not guilty; because he could not be held to be a party to an agreement to defraud.

The question you have to ask yourself at the end of the day is, has the prosecution satisfied you beyond a reasonable doubt – that is making you sure – that D1 had dishonestly agreed with one or more persons, whether that person was named in the particulars or the name was unknown, to bring about to a state of affair which they realised must deceive investors into investing money with Promail by purchasing Plan D that at least some of the investors will suffer economic loss, or their economic interest will be put at risk?” (Emphasis added).

32. Then, in relation to D2, who was eventually acquitted, she made the same comment, namely, that if the jury thought that he “might reasonably have thought that the scheme was viable, then he should be found not guilty because he could not be held to be a party to an agreement to defraud.” (Emphasis added).

33. In relation to D3, who is not before us, she said:

“Applying the dishonesty test I told you, do you find the element of dishonesty proved?  If you think that D3 might reasonably have thought that the scheme was viable, then he should be found not guilty because he could not be held to be a party to an agreement to defraud.” (Emphasis added).

34. She returned then to D4 saying that he was the one who stood most to gain from the scheme and then this:

“Now, back to the test.  In applying the dishonesty test I told you, do you find that the element of dishonesty proved in respect of D4?  If you think that D4 might reasonably have thought the scheme was viable, it is a business venture, that it works, reasonably thought that it works, then he should not be found guilty because he could not be held to be a party to an agreement to defraud.” (Emphasis added).

35. One sees therefore how the impermissible direction became, unfortunately, a refrain; and that it was stated in direct connection with the suggested application of the dishonesty test.  It was also stated against the background of a question that had been posed in the context of the expert testimony, whether the jury themselves took the view that it was reasonable to say that the scheme could work ad infinitum.

36. Mr Coghlan seeks to address the passages about which complaint is made in a number of ways.  He first says that the directions must be read as a whole and that it is not permissible to ‘cherry-pick’ part of the directions without paying proper regard to the rest.  In this he is correct, which is why we have set out the passages of which complaint is made in their full context.  But his approach cuts both ways, in that it is not permissible to cherry-pick proper directions and ignore the misdirections.  No matter which way one looks at it, the fact is that on something like five occasions the judge has used a phrase that goes to the heart of an issue and that on its face suggests an objective test.  He says that what the judge obviously meant was that what the jury had to consider was whether there was a reasonable chance that the defendants had thought that the scheme was viable.  It is possible that that is what the judge meant, but that is not what she said.  Sometimes a phrase in a summing-up is given a meaning in appellate arguments that, whilst literally amenable to criticism, can self-evidently in context be assumed safely to have been understood in a way not amenable to criticism.  This is not such a case.  The meaning which Mr Coghlan would have us attribute to the phraseology is not in context an obviously intended meaning.  Then he suggests – perhaps as an alternative – that the direction was consistent with the requirement that the jury should find the defendant not guilty where there was a reasonable doubt.  This is entirely speculative and far from what was in fact said.

37. We are satisfied in the event that, whatever the trial judge intended, what she in fact said on these several occasions constituted a material misdirection.  It is likely that in place of the word ‘reasonable’ she intended to say ‘genuine’ or ‘real’, but that is not what she said.  One is bound to be left in the circumstances after such a long trial and in the face of such a conscientious summing-up with a degree of doubt as to whether the phrase of which complaint is made was indeed understood in a manner that was impermissible, given the number of occasions on which the correct objective test was stated and given further that had the sense of the matter come across as it reads, one would have expected highly experienced counsel on both sides to sit up and express concern.  The truth is that the matter struck no one as odd at the time; on none of the five occasions upon which the error was made.  But that is not, in the circumstances, conclusive.

The proviso

38. The question therefore arises of the proviso to section 83 of the Criminal Procedure Ordinance, Cap 221 that we are invited by Mr Coghlan to apply.  It is as well to state the test.  An appeal may be dismissed if, notwithstanding that we have determined a point in an appellant’s favour, we are satisfied that there has been no miscarriage of justice.  We have to be sure that no miscarriage has actually occurred.  The question to be asked is whether the jury would inevitably have come to the same conclusion had it been properly directed.  The burden of showing that lies on the prosecution.

39. With that test in mind, we note that the misdirection went to a central issue in the case, namely, the mens rea of the applicants, and we note also that the verdict was a majority verdict of 8 – 1.  It will be a rare case in which a misdirection going to a central issue will result other than in success for an appellant; but it is not inevitably so.  Whether it is so or not depends on a rational assessment of the issues in the particular case and on what can safely – not speculatively – be said of the route to the verdict in fact returned. 

40. The evidence in this case was in our judgment overwhelming.  These applicants were actively engaged in this operation and it must have been obvious to anyone thus engaged what the true position was as to whether there were any investments underpinning it that had any prospect of providing the truly enormous returns that were promised.  The connections with companies such as the supermarkets were not investments that were going to provide returns; they were merely the vehicle by which coupons could be made available to the members who subscribed to Promail’s plans; and those coupons were in fact gifts to the members, one of the rewards for joining the scheme.  The charge, the particulars of which were explained to the jury on several occasions, asserted that there had been false representations, one of which was that the profits were generated by genuine business.  Time and again, the judge told the jury that they would have to consider whether that representation was false, and only if so whether it was a representation that was made dishonestly; and the judge also told the jury that one of the questions that they had to ask was whether the investors were made aware of the risks if there was no genuine business.  There was testimony from lay witnesses, one after another, that they were given to understand that the company had long term investments from which rebates would be given (see, for example, page 42H appeal bundle); that the company was a trading company doing import and export business; that the profits came from two sources, obtaining products at low prices and second investments (page 46C); that they would not have joined had they been told that the profits did not come from investment (page 46R); that they had been told that the business was kitchenware for the Royal Family in Brunei; that they were not told that money would come from newcomers to old; and the recordings of the seminars showed that those attending were told that the company had businesses and that the company was a distribution sales company with investments abroad and in shops and property.  The recordings of the seminars also show - and it was not suggested otherwise at trial – that at the seminars, prospective members were never told that this was merely a ‘money covering money’ scheme.  Now, in this key regard, the judge told the jury, at page 134, to consider the evidence to ‘see if the lecturers had represented that Promail was making profits from a genuine business of acting as a middleman.  If you are satisfied that Promail did so represent to the investors that the profits … came from this genuine business of acting as a middleman, was that representation false?’  She asked them too to consider whether members were in fact told ‘about the money covering money scheme’(page 137Q).

41. The misdirection with which we have been concerned was one directed at the question whether there was a belief that the scheme was viable.  But it is apparent from the way in which the case was put in the summing-up, as well as from the fact that the jury was told by the prosecution that if the members had been informed that this was a money following money scheme, no offence was made out, that no conviction could follow unless the jury was first satisfied that there was no genuine underlying business, that prospective members were expressly told otherwise, and that they were not told at the outset that this was a money following money scheme in which their returns could only be guaranteed if there was a growth at the rate of 75% or thereabouts a month.  The guilty verdict means, in the light of the way the matter was put by the prosecutor and judge in this particular case, that the jury had concluded all those three factors against the applicants.  In other words, it must be the case that the jury had found, regardless at that stage of the findings of the issue of mens rea, that there was no underlying business to speak of, that the prospective members were told otherwise, and that they were not told of the growth needed, a growth that depended merely on securing an endless and exponential source of new membership.  Mr Blanchflower was compelled to concede that once those findings were made, there was little left in terms of deducing the necessary mens rea.  Absent subjective dishonesty, why would these misrepresentations have been advanced so actively, and why was the truth not told about the true nature of the scheme?  In reality therefore, it becomes artificial to suggest that but for the misdirection the jury might, perhaps, have come to a different verdict.  We have concluded therefore that this is a proper case for the application of the proviso.

Conclusion

42. In the result, we grant the applicants leave to appeal against the convictions and treat the hearing of the applications as the appeals, but applying the proviso to section 83(1) of the Criminal Procedure Ordinance, we dismiss the appeals.