HKSAR v. WAN CHARN LEUNG

CACC 194/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 194 OF 2002

(ON APPEAL FROM DCCC NO. 133 OF 2002)

____________________________________

____________________________

________________

J U D G M E N T

________________

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

Background

1. This is an application for leave to appeal against conviction and sentence. The applicant was convicted by Deputy Judge Mackintosh in the District Court on 29 April 2002 and sentenced the following day to nine months' imprisonment. He was the Business Manager of the Trade Finance Department employed by the Bank of East Asia ("the Bank"), and had responsibility for a number of corporate accounts, one of which was that of a company called Gain Source Industrial Limited ("Gain Source"). One of his functions was to prepare credit memoranda upon review of customers' credit facilities. Gain Source enjoyed a credit facility which, by 1998, was in the sum of $11 million. That facility was reviewed annually but, in mid-1999, a couple of months after the annual review for that year, there was a special review of Gain Source's facility, and the applicant recommended each of the changes for which Gain Source had applied.

2. On or about 3 June 1999, the applicant was given a cheque by Gain Source in the sum of $500,000 and it is the acceptance by him of this payment which lies at the heart of the charge of which he was convicted.

The charge

3. The charge alleged that the applicant, as an agent of the Bank of East Asia Ltd, accepted that amount as an inducement to or reward for or otherwise on account of, showing or having shown favour to Gain Source in relation to his principal's affairs or business, namely, the granting and/or review of credit facilities to Gain Source.

The evidence

4. The cheque of $500,000 was given to the applicant by Lam Hing-bong of Gain Source who, as PW1, gave evidence at the trial under an immunity from prosecution. It was paid as a loan, and the applicant gave to Lam Hing-bong a post-dated cheque drawn on his, that is, the applicant's, account, although in due course that cheque was not honoured. The sum was repaid by cheques drawn on another account held with the Bank of East Asia by a company called Wang Yip Material and Engineering Limited; again, an account under the applicant's management. The $500,000 paid to the applicant by PW1 had been paid into the account of that company's director, a Mr. Lam Chuen.

5. None of these facts was in dispute; and it was common ground that the applicant did not have permission from the Bank to accept the loan. Indeed, to do so was contrary to the Bank's Code of Conduct. It was the prosecution's case that the cheque was given to the applicant as an inducement for him to show favour.

6. The applicant did not give evidence at his trial; but the defence offered through cross-examination was that Gain Source, or PW1, had provided the money to the applicant as a loan quite unconnected with the review of Gain Source's credit facilities; and that he, the applicant, was not in any event in a position to perform the alleged favour.

7. The procedure for review of credit facilities of corporate customers required the preparation of a credit memorandum with all relevant history and new relevant information, as well as supporting documentation. It was for the applicant in the first instance to say whether he recommended or did not recommend a renewal of a facility, or an increase or decrease, as the case may be. The memorandum was then passed to an officer higher up the line, in the present case a Mr. Robert Au Sui-chee, and the credit memorandum then went on, with Mr Au's endorsement, to the Credit Department and, finally, to a body called the Credit Committee.

8. In January 1998, Gain Source's credit facility stood at $11 million; and that was renewed in March 1999. On 21 June 1999 there was created a credit memorandum for a special review arising from an application by Gain Source in three respects:

(1) an increase in the facility to $14 million;

(2) an improvement in the company's credit rating from 05 to 04; and

(3) a decrease by 0.5% in the interest rate upon an instalment loan.

9. All these applications were recommended for approval by the applicant and also by Mr Au. But the Credit Department, whilst accepting the application for an increase in the facility, disagreed with the recommendation for a credit upgrading, and also with the recommendation for a decrease in the loan interest rate. Only the recommendation for an increase in the credit facility was then passed to the Committee, which approved that recommendation.

10. The prosecution's case was that there was a clear link between the money advanced by Lam to the applicant, and the role which the applicant played in advancing the credit applications. Shortly before the delivery of the cheque for $500,000 to the applicant, there had been a meeting, a lunch, in May 1999, attended by Lam, by the applicant, by Mr Au and by another bank employee - Mr Au being the applicant's immediate superior at work. What happened at the lunch, in particular who it was who raised the issue of a review of facilities, was the subject of conflicting evidence, but the judge preferred the evidence of Mr Au. What the judge found was that, at the lunch, Lam raised the issue of his credit facilities, and suggested that he wanted a reduced interest rate and an increase of the facility itself.

11. PW1's evidence was that, on 3 June, he took a telephone call from the applicant. The applicant had, according to this evidence, twice previously sought loans from Mr Lam, but these requests had been refused. On 3 June, the applicant asked for a loan of $500,000 saying that there was a friend, whom he did not then identify - and indeed whom he never identified to Mr Lam - who was in urgent need and that he, the applicant, was not in a position to lend the money because his funds were held in a forward account, but that he, the applicant, would repay the loan in two months. The two then met at Lam's office and the cheque for $500,000 was handed to the applicant with the payee left blank. The applicant gave Lam a post-dated cheque for presentation on or after 10 August. That cheque was thereafter presented but not met, and in August and September the applicant gave two cheques drawn on Lam Chuen's account. These cheques were met. The loans were interest free. No steps at any time were taken by Lam (PW1) to check the applicant's story, or any of its details.

The judge's findings

12. The trial judge found that the payment to the applicant was a loan to the applicant, and that it constituted an advantage which the applicant had solicited. He noted the close proximity of dates - the May lunch meeting; the date of the loan (3 June); the date 7 June on which Gain Source forwarded the documents to the Bank in support of its application for a review; and the date 21 June on which the applicant recommended approval of the requests. He noted also the difference in this review, involving as it did not just an increase in the facility, but also an upgrading of Gain Source's status and, further, the request for a decrease in the loan interest rate. The judge accepted that success of these applications did not depend solely upon the applicant; that others senior to him were destined to be involved in the decision-making process. Yet the fact was that the applicant was a key person, without whose recommendation nothing went further. The judge took the view that there was no honest reason in the circumstances for Lam to have made such a large unsecured loan to his account manager, and said that "the only possible inference is that the two events, the loan and the recommendation by the [applicant] for the change to Gain Source's credit facilities as originally drafted in the credit memo, are connected", an inference, according to the judge, which was supported by the timing and the sequence of events and the recommendation by the applicant. The judge was satisfied that this was a favour shown by the applicant in relation to the Bank's affairs, and that the advantage was an inducement to show favour and was also one given and accepted otherwise on account of showing favour. The applicant had not shown any lawful authority or reasonable excuse for his conduct and, in the circumstances, the charge was made out. So the judge convicted the applicant.

Accepting the advantage

13. The first ground of appeal is an attack on the judge's finding that the applicant's conduct amounted to an acceptance by him of the advantage. The advantage, it is said, such as it was, was not accepted by the applicant, but by the friend for whom the loan was proffered. That friend was, according to the cross-examination, for there was no evidence about it, Mr Lam Chuen. The cheque for $500,000 was blank. It was paid into Lam Chuen's account, and paid back from Lam Chuen's company's account. The cheque which the applicant gave to Mr Lam, that is PW1, on 3 June as security was, so the argument goes, merely a guarantee for Lam Chuen's payment.

14. The point is, with respect, not a good one, either as a matter of statutory construction, or in factual context.

15. Section 2(2)(c) of the Prevention of Bribery Ordinance, Cap 201 provides that:

"For the purposes of this Ordinance, a person accepts an advantage if he, or any other person acting on his behalf, directly or indirectly takes, receives or obtains, or agrees to take, receive or obtain any advantage, whether for himself or for any other person."

16. Quite apart from this statutory provision, which resolves this particular point, the evidence is such that, even if the loan was meant to find its way to a friend of the applicant, there could be no conclusion other than that the applicant himself accepted this advantage within the meaning and spirit of the statutory prohibition. The evidence of PW1 was that he was not even told the name of the friend. There was no evidence from the applicant at all. It is clear from PW1's evidence that repayment was promised by the applicant, and none other, to PW1, and that the lender did not care whether the money was to find its way to a friend of the applicant or not. All he was concerned about was to retrieve the loan when it fell for repayment. PW1 even said in his evidence that: "Since he [the applicant] borrowed money from me firstly he was supposed to give me a cheque as a sort of a guarantee of payment." In all the circumstances, it is quite unrealistic to suggest that this was an advantage that the applicant did not accept. If he accepted it for himself, he accepted it. If he accepted it for another, it remains the fact that he accepted it. There was some suggestion in the course of argument before us that whether a loan does or does not constitute an advantage depends on the circumstances in which it is given. That, with respect, cannot be. Section 2 says that a loan is an advantage, and that is all there is to it.

"Or otherwise on account of"

17. Ground 2, and the arguments in support of it, are not entirely easy to follow. The ground as drawn is that the judge erred in finding that the element of "inducement or otherwise on account of" had been proved in that:

(a) the prosecution case was solely of an inducement;

(b) "otherwise or on account of" concerns only a general sweetener which was not the prosecution case; and

(c) there was no evidence of the sum having been either given or accepted as a favour.

18. What happened at trial was that the prosecutor had informed counsel for the applicant that the basis of its case was that the loan was accepted as an inducement to show favour, and that the prosecution was not relying on the element of "reward for or otherwise on account of". The judge made clear to counsel that he was not bound by such an indication but, rather, he was bound by the charge as drawn and by the evidence. With this we agree, and we note that the charge was never amended. The judge, we further note, gave counsel the opportunity of further cross-examination, if that is what counsel wanted.

19. In the event, we fail to see how this development impacts on the case because, as the judge said in his judgment, it mattered little in the light of his conclusions. His conclusion is to be seen at paragraph 45 of the Reasons for Verdict, where he says that the date of the loan was in advance of the recommendation in the credit memorandum and that: "The advantage was therefore an inducement to show favour. But it was also an advantage given and accepted otherwise on account of showing favour." In other words, the latter finding was a finding quite unnecessary to support the conviction, but was made nonetheless.

The loan and the inducement

20. The suggestion next is that there was no evidence to show that the sum was given or accepted by the applicant as an inducement. The argument is that the evidence showed that the requests at the lunch, the May lunch, for various changes in the facilities was made by Lam, PW1, not to the applicant but to Mr Au, PW2; that the question of the change in interest rate related not to the interest rate for general credit facilities but rather in respect of certain mortgage repayments; and that the evidence about regrading was to the effect that regrading would only be relevant to future reviews of credit facilities - the suggestion being that the forthcoming review would not be affected.

21. The point that Mr Au, PW2, was at the lunch and that a request was made to him as if somehow it was not also made to the others and to the Bank at large, is to make too fine a dissection of events. The fact that Mr Lam may at the lunch have addressed his request to the most senior person present from the Bank is not a fact to be viewed technically or in isolation. One has, we think, to view what happened as a matter of reality. The reality is this. The applicant was the business manager whose job it was to maintain contact with PW1, to promote business with him for the Bank, and it was the applicant who met PW1 two or three times a year for that purpose. He was the person with immediate responsibility for Gain Source's account, and he was the first line of control when it came to credit related applications. There can be no question but that by reason of that position and his contact with PW1, a client whom he, the applicant, knew better than any other bank employee and with whom he maintained a purely business relationship, he enjoyed a position of influence in relation to questions of credit for that customer. He attended the meeting in May, and he attended that meeting as a key figure, and he made positive recommendations shortly after. Some of those recommendations were subsequently not supported. Now, in those circumstances, the argument that a request directed by PW1 to PW2, albeit in the company of the applicant, somehow negates a case of an advantage accepted by the applicant is, with respect, not tenable.

22. Nor are we persuaded by the argument in relation to the regrading or upgrading that it was only related to future credit exercises. Regrading is part and parcel of the grant and review of credit facilities, and that it is the subject matter of the charge. Mr Wong SC, for the applicant, says that because the upgrading or regrading related to the future, it could only be relevant to an assertion of an advantage given "otherwise on account of" and not as an inducement. If there is anything in that contention, which we doubt, then so be it, for the judge found that that aspect was also proved.

23. Then the applicant relies on the evidence of Lam, PW1, to the effect that as far as he, Lam, was concerned, there was no connection between the loan and the application for the various credit changes; and that the judge could not therefore infer an intention on the part of the applicant to accept the loan as an advantage. The judge was, however, hardly obliged to accept PW1's word on the matter, and he quite evidently did not believe that witness on this, as in respect of other regards. What the judge found was this:

"42. I find that there was no honest reason for PW1 to have made such a large, unsecured loan to his account manager. I have already rejected his reasons for so doing and there is no other reason on the evidence before me. The only possible inference is that the two events, the loan and the recommendation by the defendant for the change to Gain Source's credit facilities as originally drafted in the credit memo, are connected. This inference is supported by the timing and the sequence, i.e., the close proximity of the loan and the recommendation and by the common link of the defendant as recipient of the loan and as the account manager at the bank.

43. Favour was shown by the defendant towards PW1 and his company by the recommendation for increased facilities, including regrading and interest reduction, so soon after an annual review. This favour was plainly in relation to the bank's affairs or business, i.e. the granting and/or review of credit facilities. The existence of checks and balances which might make it difficult to guarantee the achievement of the ultimate aim is not the point. PW2's acceptance of the proposition that the defendant could not show favour to a customer was given in this context. Section 11(1) of the Prevention of Bribery Ordinance has application here.

44. I am satisfied that this was a corrupt act by the defendant. He did it dishonestly and in direct breach of his terms of service as outlined in particular in exhibit 3, the bank's code of conduct. It is obvious that bank employees such as the defendant are under a duty at all times to avoid any conflict of interest and to avoid showing any favour to the client as a result of any advantage given by the client."

24. Section 11(1) to which the judge has referred provides as follows:

(1) If, in any proceedings for an offence under any section in this Part, it is proved that the accused accepted any advantage, believing or suspecting or having grounds to believe or suspect that the advantage was given as an inducement to or reward for or otherwise on account of his doing or forbearing to do, or having done or forborne to do, any act referred to in that section, it shall be no defence that -

(a) he did not actually have the power, right or opportunity so to do or forbear;

(b) he accepted the advantage without intending so to do or forbear; or

(c) he did not in fact so do or forbear.

25. On the evidence presented, and in the absence of evidence from the applicant, it was clearly open to the judge to find a connection between the loan and the applicant's role as manager of Gain Source's account and the provision of facilities to Gain Source. As a matter of common sense, and in the absence of evidence from the applicant, one does not envisage the manager of an account going to a customer, one whom he only knows in that capacity, just before a review of credit of a large amount and just before a decision whether the bank is to upgrade the client's status, and asking that client for a loan of $500,000, without the manager knowing full well that the client, in acceding to the request for the loan, is doing so in the expectation of the manager looking favourably on the relationship itself, and on the conduct of future business, which includes the special review then immediately pending.

26. The sense of the matter was encapsulated thus in Li Defan & Anor v HKSAR [2002] 1 HKLRD 527 at 540 by Lord Hoffmann NPJ:

"The prosecution had no direct evidence as to why the money had been paid. None of their witnesses was able to prove that Mr Li had done anything unusual in relation to the SHIL loan. But the prosecution relied upon the fact that the parties appeared to have an exclusively business relationship, arising out of Mr Li's employment by the Bank of China, that he was in a position to ensure that the loan application did not progress as smoothly as it did and the common observation that people do not usually pay large sums of money to business acquaintances without expecting something in return. They invited the inference that the payment was an inducement or reward, if not for doing something specially favourable to Mr Fan, then at least for forbearing to do anything unfavourable. The evidence plainly called for some explanation of why the money had been paid and the appellants, in offering explanations to ICAC, were well aware of this. In the circumstances I consider that the judge, having rejected those explanations as a pack of lies, was perfectly entitled to regard the failure of the accused to give any explanation on oath as strengthening the inference to be drawn from the prosecution case."

We note in this case that the judge did not go so far as to draw any inference from that failure.

Drawing the inference

27. Grounds 3 and 4 are similar in effect. They are, in essence, that the judge erred in concluding that the only reasonable inference to draw was that the loan had been proffered as an inducement to show favour; and, further, in concluding, as he did, that favour was in fact shown. There was no favour shown, says the applicant, for the evidence was that with the presentation of proper supporting documentation, the credit facilities were bound to be increased; that no one ever said to Lam, PW1, that his applications would favourably be reviewed and that Mr Au knew full well of the applications, and was there to monitor their merits; that the applicant was not in the circumstances, which included review by committees higher up the line, in a position to effect any benefit to which the applicant was not in any event entitled; and that there was in the circumstances no justification for the conclusion of a causal link between the loan, and the credit review and the grant of the applications to the extent that they were ultimately successful.

28. It is, as we see from section 11(1), not necessary for the prosecution to prove that favour had in fact been shown, and no defence to show that the power to effect the benefit was limited. In this case, the applicant had twice before asked his customer for a loan, but had twice been refused. Here he chose to ask yet again, at a point where fresh and non-routine credit requests were made. He was, as we say, the first line of control. He wrote a memorandum recommending acceptance of all the applications, whereas only one of the three was ultimately approved; and all this at a time when the customer's interests were under active scrutiny by the Bank in relation to an account under the direct control of the applicant. We do not in the circumstances think that the judge erred in finding a causal link, or in drawing the inference which he drew.

The finding of dishonesty

29. The fifth ground is that the judge erred in finding that the applicant had been dishonest. It is said that the judge, in the passage we have earlier recited, was wrong to rely on breach of the Code as establishing dishonesty. We do not see merit in this ground either. The judge was not saying that breach of the Code was the only indication of dishonesty. It was but one matter of which the applicant must have been aware, and the fact that the applicant was acting, as he must have been acting, in knowing disregard of the Code, whilst by no means conclusive of the charge, was a pointer to the fact that the applicant must have known that what he was doing was not proper. But the finding of dishonesty was a conclusion coming at the end of a rehearsal of all the evidence, and was the judge's shorthand way of repeating his finding that there was a link between the acceptance of the loan, and the applicant's role as manager and as a person who had a say in the grant or refusal of facilities; and that the applicant knew that to be the case.

Conviction: Result

30. The sixth ground is that the conviction was unsafe and unsatisfactory. It relies on the other grounds in combination, and also on the premise, so it is put, that we should find that there is a lurking doubt. We see no foundation on which to overturn the judgment of the District Court judge on the lurking doubt basis; and the grounds, many of which are in like vein, do not garner strength by their combination.

31. Accordingly, the application for leave to appeal against conviction is dismissed.

Sentence

32. The judge rejected the suggestion which was made to him and which in essence is repeated to us today, that the applicant's offence was technical. He said this:

"This offence is by no means the most serious of its kind on the facts but it is not exceptional.

You knew that PW1 wanted additional credit facilities from your employers at the Bank of East Asia (BEA). You wanted, for reasons which you have not made clear, to borrow money off him. You had tried twice but failed to persuade him to lend you money. What you did was to take advantage of his wish for enhanced facilities, 3 months after the last annual review, by asking him again to lend you money; and, I have no doubt, in exchange for the loan, you agreed to promote his application and to enhance it by adding the request for upgrading. There must have been such an arrangement between you." (Tr p 23)

33. He then took the view that, nonetheless, this was an offence at the lower end of the scale because there was in existence a check and balance system in the Bank; that the facilities which were granted were in the event properly granted; that the loan was repaid; and there was no fraud perpetuated upon the Bank.

"On the other hand," said the judge, "BEA had [a] strict code of practice which you chose to breach. You were trusted to act in [an] entirely proper and professional manner as regards the Bank's affairs but you let your employers down. All such financial institutions rely on their staff to act honestly with regard to their business. You have failed to live up to that trust. This was not a mere technical breach of the law against corrupt transactions even though it was not the worst case." (Tr p 24)

34. The applicant was a person of previous good character, a highly educated man. The sentence imposed was one of nine months' imprisonment.

35. Complaint is first made that the judge was not able to accept that the applicant derived no gain from the offence. What the judge said in that regard was that:

"You certainly gained the interest-free use of $500,000 for three months or so even if it was in the hands of another."

36. It is argued that the judge was obliged to take a view of the facts that was the most favourable that could be taken. We do not accept that there is in general such a requirement. See HKSAR v Yee Yiu-sam, CACC 530 OF 2001, 22 July 2002 (unreported) at paragraph [37]. In any event we agree with the judge's conclusion. It is the common sense conclusion that there was at the least a financial benefit derived, even if it was in the hands of another.

37. There are other points of detail which are taken, but we do not see that they have any impact upon the gravamen of the applicant's conduct which was a breach of trust, and corrupt conduct as a bank employee.

38. There is then a repetition of the suggestion that the crime was technical, this on the footing that the applicant could have little real impact on the success of the applications. The reliance on the supposed technicality of the offence is born of the statement in Secretary for Justice v KWAN Chi-cheong & others, CAAR 1 of 1999, 30 June 1999 (unreported); that:

"... even the first offender charged with an offence of corruption under the Ordinance, unless it is merely a technical breach, must usually expect a deterrent sentence. This will almost invariably involve a sentence of immediate imprisonment."

39. This offence, with which we are concerned, was not an offence the commission of which can properly be described as technical. The applicant knowingly accepted an advantage which he knew he should not be accepting. As was said in Kwan Chi-cheong, the Ordinance is in its effect intended to be draconian and a punishment that fails to deter will produce all the wrong signals. Mr Wong has said today that no one was worse off because there was no loss to the Bank. The very point, however, is that someone was worse off. The integrity of banks is worse off. The trust reposed in bankers is damaged by every such corrupt act whether it is large scale or small. And it is the need to ensure total honesty and cleanliness in the conduct of banking and public affairs that calls for the firm approach by the courts.

40. We do not in the circumstances think that the sentence was manifestly excessive, or wrong in principle, and, accordingly, the application for leave to appeal against sentence is also dismissed.