HKSAR v. CHEN XUN

CACC412/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 412 OF 2008

(ON APPEAL FROM DCCC 227 OF 2008)

---------------------

BETWEEN

----------------------

--------------------------------------------------------

REASONS  FOR  JUDGMENT

--------------------------------------------------------

Lunn J (giving the Reasons for Judgment of the Court) :

1.  On 21 October 2009 the Court refused the application made on behalf of the applicant for leave to appeal against his conviction on 19 November 2008 after trial by Deputy District Judge Johnny Chan of five charges of conspiracy to defraud, indicating that we would give our reasons for so doing in due course. This we do now.

THE CHARGES

2.  Each of the five charges stipulated that the applicant had conspired with the same named co-conspirators to defraud various banks by dishonestly :

(i)  causing  (charge 1) Senox Investment Limited (“Senox”); (charges 2, 3 and 4) Group Yield Enterprises Limited ( “Group Yield”) and (charge 5) Go On Yue Fung Food Industry Limited ( “Go On”) to apply for the issue of letters of credit in favour of Max Rise Industrial Limited (“Max Rise”) to finance what in fact were non-existent commercial transactions;

(ii)  procuring those banks to issue the respective letters of credit by submitting or causing to be submitted false documentation purporting to evidence the underlying commercial transactions; and

(iii)  causing to be submitted to the advising bank the respective letters of credit and supporting false documentation, deceiving the latter bank into releasing monies to Max Rise.

3.  The co-conspirators named in each of the five charges were Lau Ka Ping, Hu Shu Xian and Chuk Kin Yeuk. Lau Ka Ping, who was the 2^nd defendant at trial, pleaded guilty on arraignment to Charges 1 and 5 and gave evidence for the prosecution in the trial of the applicant. The judge ordered the remaining three charges that he faced to lie on the court file, not to be proceeded with without his leave or that of the Court of Appeal. The overall period of the alleged conspiracies was from 1 August 1994 to 30 November 1996. In all, 50 letters of credit were issued to a total value of over $265 million. All monies due to the banks under the letters of credit were settled.

THE TRIAL

The issue at trial

4.  The issue at trial was whether or not the applicant knew of the false and dishonest basis on which the applications were made for the issue of the various letters of credit and was a party to the conspiracies to defraud alleged against him in the five charges.

The prosecution case

5.  In addition to voluminous Admitted Facts, Bankers’ Affirmations and a video record of interview of the applicant conducted of him by officers of ICAC following his arrest on 26 March 2007 the prosecution adduced oral evidence from nine witnesses, six of whom (Ms May Wong Wai Ying, Ms Carrie Chu Lai Ha, Mr Albert Lam Chi Hung, Mr Cheng Chun Yim, Mr Yau Shing and the erstwhile second defendant Mr Lau Ka Ping) gave evidence under conditional immunity from prosecution. It was the thrust of the prosecution case, that the object of all five conspiracies was to obtain monies from the various banks for the benefit of one or more of three companies, namely Group Yield, Senox and Go On : in the case of Group Yield and Senox to fund their investment in projects in the Mainland, in the case of Go On to prevent its failure and in the case of all three companies to repay earlier letters of credit as they became due.

The applicant’s interest in Group Yield, Senox and Go On

6.  At all material times the applicant held 40% of the shares of Group Yield, whereas Mr Chuk and Mr Hu each held 30% of the shares. The three of them were the only directors of the company throughout that period. In the period 1993–1995 the applicant and Mr Lau Ka Ping held one share each of the only two shares issued by Senox. In 1996, although they continued to hold those shares, Senox Holdings Limited held 9,998 shares of the company. They were the only directors of the company in 1993–1994 and 1996. In 1995, they were joined by two other directors. The applicant and Mr Lau Ka Ping were directors of Go On at all material times. From 1994 at all material times Senox held 20% of the shares of Go on whereas Hui Zhou City Yin Hai Economic Development Corporation held 40% of the shares.

Group Yield : applications for letters of credit

7.  Ms May Wong Wai Ying and Ms Carrie Chu Lai Ha, the accounts clerk and a clerk respectively in Group Yield throughout the period of the alleged conspiracies, described their respective roles in making applications to banks for the issue of letters of credit, the making of false supporting documentation, the receipt of monies into the bank accounts of the stipulated beneficiary and its subsequent distribution to other companies.

8.  Ms May Wong was employed as the accounts clerk of Group Yield from 1991. She said that while Group Yield received some rental income from investment properties in Hong Kong its main business was in investment projects in the Mainland. From the outset, part of her duties involved drafting applications in which Group Yield was the applicant for the issue of a letter of credit. At first, the stipulated beneficiary was Sing Hing, but when its owner Mr Chan Lam asked for a loan from Group Yield, because of concerns that he would not return the monies paid under the letters of credit to Group Yield, another company, Max Rise was stipulated as the beneficiary of the letters of credit. That came about after she discussed the matter with the applicant and the other directors of Group Yield, namely Mr Hu and Mr Chuk. Mr Hu supplied the name of Max Rise. Monies paid to Max Rise were returned to Group Yield and used to repay other letters of credit that had become due. She was provided with signed blank cheques on the account of Max Rise in order to make those repayments. Later, payments were made from Max Rise to either or both Senox and Go On, as well as repayments to Group Yield. The goods described as the subject of the transactions were fictional. The first of such applications by Group Yield for the issue of letters of credit in favour of Max Rise that she identified was dated 5 September 1994.

Senox : applications for letters of credit

9.  There came a time when Mr Lau told her in a telephone conversation of difficulty that Senox had in repaying a letter of credit that had become due, following which he asked for her help to obtain funds in the same way as Group Yield, namely by letter of credit. She conveyed that request by telephone to the applicant and was told to proceed as requested. In cross-examination, she denied a suggestion that there had been no such conversation. She accepted that she had not mentioned this matter to officers of ICAC in her interviews and explained that that was so because she had not been asked about the matter.

10.  Thereafter, she and Ms Carrie Yu processed applications in the name of Senox for the issue of letters of credit by Kincheng Bank, in which Max Rise was named as the beneficiary. In order to do so, she was provided with blank applications for letters of credit and other documents signed over the chop of Senox. Four applications for letters of credit dated August to December 1994 were signed by the applicant, as were two of the related trust receipts. The printed text of those six documents was in English and Chinese characters. Ms Carrie Yu invented the description of the fictional goods described in the documentation. The first in time of the applications for the issue of a letter of credit that she identified as being part of that process was dated 5 August 1994.

11.  In all, thirteen applications for the issue of letters of credit to a total value of over $90 million were made successfully in that way, the last two of which in chronological sequence were made in November 1996. Both of those applications bore the signature of the applicant and Mr Lau, as did two related cargo receipts made on the letterhead of Senox. Those documents had been received with the signatures in place on the chop impression of Senox. The applications for the issue of letters of credit were in the printed bilingual form, but blank as to the detail of the transaction. The cargo receipts were merely blank signed pages of the letterhead of Senox. Ms Carrie Chu filled in the details.

Go On : applications for letters of credit

12.  Ms May Wong said that she had made similar applications for the issue of letters of credit on behalf of Go On at the request of Mr Lau, who told her of the availability of a new credit line for that company. She complied with the request because Senox was a shareholder and the applicant a boss of Go On. Beginning with an application dated 26 August 1994 and ending with an application dated 23 March 1996, eleven such letters of credit were issued by Kincheng Bank to a total value of over $38 million. The four applications made in August and October 1994 bore the signatures of both the applicant and Mr Yau Shing on the printed bilingual forms when she received them. Details of the money amount and the supposed goods were added by Ms Carrie Chu.

13.  Ms May Wong said that none of the transactions described in the total of 50 letters of credit between the three companies and Max Rise related to either real goods or real transactions.

14.  Ms May Wong said that the letter of credit scheme and the payments made in consequence were recorded in the books of account of Group Yield as debits and credits in the ‘TR loan account’. The balance sheet set out how much money was owed under each letter of credit. She discussed with the applicant the due date for repayment of the letters of credit. Also, these entries were reflected in the audited accounts, a copy of which was given to the applicant for the first audit, namely for the year 1994–95.

15.  Ms Carrie Chu confirmed that she had inserted the detail, including the description of the goods, contained in the pre-signed blank applications for the issue of letters of credit for the three companies, which details she had invented. Similarly, she had inserted the detail to be found on related documentation such as cargo receipts and invoices. To disguise the reality she deliberately used different fonts for the type print on documents supposedly originating from the beneficiary, Max Rise, from those used by the applicant companies.

16.  Mr Lau Ka Ping said that he had come to know the applicant in 1987, in commercial transactions in the Mainland when he was a banker with the Bank of China. He and the applicant set up Senox in 1992. They each held one of the two issued shares. Senox had very little capital and they intended it be funded in its investment in Mainland projects through raising loans from banks. Mr Lau said Senox obtained letter of credit facilities from Kincheng Bank. However, it was not intended that Senox trade in goods, rather it was intended to use the facility to raise cash for use in its investment projects. Whilst he and the applicant discussed the business of Senox the applicant informed him that Group Yield had had been using this method of finance to raise cash for itself.

17.  Subsequently, Mr Lau requested Ms May Wong to assist Senox to make applications for the issue of letters of credit. He told her that he had discussed the matter with the applicant. For her part, Ms May Wong said that she would have to consult the applicant. Then, Ms May Wong set the mechanics of the scheme in operation. He and other authorised signatories at Senox signed documentation as required by Ms May Wong. There were never any transactions in goods between Senox and Max Rise, which company he did not even know. The monies obtained from the banks by the operation of the letter of credit scheme were distributed at Ms May Wong’s discretion between Senox, Group Yield and Go On depending on the financial needs of the three companies. He was comfortable with that arrangement because Senox’s facilities with the bank were guaranteed by guarantors arranged by the applicant.

18.  After Mr Yau Shing had been employed by Senox, and on his advice, Senox had invested in Go On, in which company he knew the applicant to have an investment. The investment proved to be a problem and on the advice of Mr Cheng Chun Yim, who had joined Senox and replaced Mr Yau Shing in Go On, the business was brought to a halt. However, Mr Lau said that he and the applicant agreed to keep Go On’s credit facilities active in order that repayments due on existing credit facilities could be met through the issue of letters of credit. They had discussions about how to handle the monies raised by letters of credit issued by the three companies and how to make repayments.

19.  Although Mr Lau identified his signature on the applications for the issue of letters of credit and related documents from both Senox and Go On he said that he was unable to recall the circumstances in which he had come to append his signature to the documents.

20.  Mr Albert Lam Chi Hung, the account’s officer at Senox from 1993 to 1997, gave evidence confirming Ms May Wong and Ms Carrie Chu’s evidence of the dealings between Senox and Group Yield in respect of applications for the issue of letters of credit by Senox. On the instructions of one of his bosses he obtained applications for letters of credit, blank papers on the letterhead of Senox and other documentation signed by two of the directors on the chop impression of the company. He did so in bundles of documents. Then, he forwarded the material to Ms May Wong at Group Yield to deal with all the matters, save for authorising the bank to debit Senox’s account for repayment of monies due from respective letters of credit. Senox did not buy any goods from Max Rise.

21.  Mr Yau Shing said that he was employed by Senox in 1992. His duties included looking after the finance and operations of Go On and reporting to Mr Lau. He described Go On as short of funds, typically in a position where it had used up most of its available credit. In 1994, he was replaced by Mr Cheng Chun Yim, after which he was assigned duties on projects of Senox in the Mainland. He accepted that he had signed four applications for the issue of letters of credit in the name of Go On in favour of Max Rise dated August and October 1994. The co-signatory was the applicant. Notwithstanding the fact that he had never heard of Max Rise, he had signed because a more senior colleague had asked him to sign, two signatories were required and, in particular, because the applicant’s signature appeared on the document. Although initially he testified that the details of the transactions were recorded on the applications at the time he signed, later he said that he was not sure if that was the case. He thought that prior to the date recorded on the applications he had left to work in the Mainland.

22.  Mr Cheng Chun Yim said that he was employed by Senox from mid-March 1994 to mid-March 1996. Initially, he was responsible for an investment made by Senox in Go On, which operated a mushroom factory in Yuen Long. It was an unsuccessful business and it was closed down in around August 1994. Its employees were made redundant and its premises rented out. In the latter part of his employment, he managed another mushroom factory near Xiamen on the Mainland. In 1994, he became a signatory of accounts of Go On and Senox with Kincheng Bank. He signed blank letters of application for letters of credit for both Senox and Go On and on otherwise blank pieces of paper bearing the letterhead of Senox at the request of his colleagues. However, he knew nothing of their use on behalf of either Senox or Go On in successful applications for the issue of letters of credit in favour of Max Rise, the former in July 1996 after he had left both companies and the latter in 1995 after Go On had been closed down. Equally, he did not know of Max Rise.

23.  Mr Cheng said that the Senox document entitled, “Estimate on the use of funds, January-December 1996” was a document that had been provided to him for use in discussions at a meeting of directors of Senox. He thought that all four of the directors, including the applicant, had been present at the meeting. If they had not all been present, the meeting would not have taken place. It was his impression that all four of them had a copy of the document. He agreed that the document included “Kincheng Bank T/R interest” under the title “interest expenses”. The amount estimated for the year was $7.4 million.

The defence case

24.  The applicant testified at his trial, at which stage he was 75 years of age. He said that he does not speak English. In the period 1984 to 1990, he had been an officer of the Foreign Trade and Economic Committee of Dongguan province, in which post he was required to bring in business and funding. He came to know Mr Lau in 1988 as a banker providing funding for a business being set up in Dongguan.

Group Yield : credit facilities

25.  In 1991, Group Yield was set up as a “window company” for Huizhou City. The applicant was the managing director, Hu Shu Xian the general manager and Chuk Kin Yeuk his deputy. The applicant accepted that he was a signatory to documentation that led to the grant of letter of credit facilities from Kincheng Bank of $20 million to Group Yield in 1992. He wanted the company to be granted those facilities. Although he was a signatory to documentation that resulted in the increase of those facilities, in April 1994 and April 1995 to $33 million and $40 million respectively, he had no idea why that was done. He signed the documentation because he was asked to do so. Although he continued to sign documentation in that manner in 1996, and remained a shareholder and director of the company even in 1997, since 1994 his involvement in the management of Group Yield dropped to the “lowest” level. Hu Shu Xian was more involved in the management.

26.  Similarly, the applicant accepted that he was a signatory to applications in May 1993 to the Guangdong Provincial Bank for letter of credit facilities of $20 million. As requested, he had signed documentation in June 1995 submitted to increase that facility to $25 million. He did not understand the documents. He did not know what trading business Group Yield did in June 1995 and had no idea why the facility was increased.

Senox : credit facilities

27.  In 1992, he and Mr Lau set up Senox, a company in which each of them held one of the two issued shares. He and Mr Lau had signed documentation in April 1994 used to obtain letter of credit facilities at Kincheng Bank for Senox, which facilities had been increased in July 1995 to $74.4 million. The applicant said that he could not read the documents, which were all in English, and had signed them at Mr Lau’s request. He did not know if Senox was a trading company at that time and did not know that the letters of credit were related to the buying and selling of goods. Further, he did not know that the proceeds obtained from the use of letters of credit by Senox, Group Yield and Go On found their way into the accounts of the other two companies respectively. Only Mr Lau knew that.

Go On : credit facilities

28.  The applicant acknowledged that he and Mr Lau were both directors of Go On and that he was aware that funds had been raised by Mr Lau for that company. He did not know who was responsible for doing that or how much money was raised. He did not know of any business dealings between Max Rise, on the one hand, and Group Yield, Go On and Senox on the other hand. He did not know if Group Yield traded in goods within Hong Kong.

Group Yield : applications for letters of credit

29.  Whilst the applicant accepted that he knew Chan Lam to be the cousin of Chuk Kin Yeuk, he did not know if he was in charge of Sing Hing. He denied that he and Chan Lam had taught Ms May Wong the procedure by which applications were to be made for letters of credit to be issued at the request of Group Yield in favour of Sing Hing in respect of goods that did not exist. However, he said that he had agreed to a request, conveyed via Ms May Wong from Chan Lam, that a letter of credit be opened in his favour. He did not know if there were goods in respect of this letter of credit.

Senox : applications for letters of credit

30.  The applicant accepted that he had asked Mr Lau to borrow money on behalf of Senox. He did so because Mr Lau had connections with banks. For his part, his role was to obtain guarantors of the credit facilities from the Mainland. He denied that Ms May Wong had sought and received his confirmation that she assist Mr Lau and Senox to apply for the issue of letters of credit in the same way as Group Yield, that is where in fact there was no sale of goods. He denied having told Mr Lau of that arrangement in Group Yield.

31.  The applicant accepted that his signature was to be found on six applications for the issue of letters of credit made by Senox, four of which were dated in the period August to December 1994 and two of which were dated in November 1996. Similarly, he accepted that his signatures were to be found on two of the related cargo receipts. Other than the printed text on the forms, the applications for the issue of letters of credit were blank at the time that he signed a number of such documents. He did not remember if the typed text on the cargo receipts, which were on documents bearing the letterhead of Senox, was on the documents when he signed. The latter applications, in November 1996, came after he had separated from Mr Lau in March 1996. He denied that he knew from the bilingual text on the application forms that these were applications for letters of credit. He did not understand that. He did not know that the applications were to be made in respect of non-existent goods.

Go On : applications for letters of credit

32.  Similarly, the applicant accepted that his signature was to be found on four applications for the issue of letters of credit made in the name of Go On in the period August and October 1994. Mr Lau had told him to sign a pile of documents, telling him that it was for borrowing money. He did not know how much money was to be borrowed. Again, other than the printed text the documents were blank as to other details. No one had told him that letters of credit would be used to borrow money nor was he told that there were no real business transactions between the companies. He accepted that the words “Application for Letter of Credit” appeared at the head of those documents, but claimed that he had not read that information. He merely signed his name against a cross mark that had been affixed on the document.

33.  Having been shown a document, which he accepted he had signed, dated 22 July 1994 between Senox and Huizhou City Yin Hai Economic Development which recorded the fact that both parties as investors in Go On had decided earlier to terminate production, the applicant agreed that the dates on applications for the issue of letters of credit by Go On that bore his signature post-dated the cessation of Go On’s business. Once again he said that although the document was bilingual in its printed text he did not know the nature of the documents that he had signed.

34.  Whilst the applicant accepted that he was the “common denominator” amongst the directors and shareholders of Senox, Group Yield and Go On, he said that the accounts of the three companies were the responsibility of others : Mr Lau for Senox; Hu Ka Ping for Group Yield and ultimately Cheng Chun Yim for Go On. The role of the directors was merely to sign documents as required. The planning of funding and the responsibility to ensure that there were funds available for repayments was in the hands of Mr Lau. The applicant’s role was to obtain guarantors for credit facilities from the Mainland if there were difficulties.

35.  The applicant said that not only had he not been shown the Senox document entitled “Estimate on the use of funds—January to December 1996” but also he did not know that it existed. Furthermore, he said that Ms May Wong did not show him any records of accounts in respect of Group Yield.

THE REASONS FOR VERDICT

Witnesses giving evidence under conditional immunity

36.  The judge stated in terms that he was aware that six of the nine witnesses called to give oral testimony for the Prosecution had done so under a conditional immunity from prosecution. Of those circumstances, he stated :

“They may have their own interest to serve in their testimony.”

Of the particular circumstances of Mr Lau (to whom he referred to as “D2” and the applicant as “D1”), he noted :

“In the case of D2, he has pleaded guilty to the 1st and the 5th charge and is yet to be sentenced.”

37.  Of Mr Lau’s decision to give evidence for the prosecution, the judge found :

“I am sure that the possibility that D2 may get a further reduction of sentence on top of pleas was an important factor affecting D2’s decision to give evidence for the prosecution.  I do not think D2 gave evidence for the prosecution just because he now realises what he did was wrong and he regrets that.”

Senox : letter of credit facilities

38.  Having warned himself of the specific interest that Mr Lau had in giving testimony for the prosecution, nevertheless the judge went on to accept his testimony. He found that the purpose of Senox opening letter of credit facilities with the bank was to obtain cash on the basis of bogus transactions. Of the choice of that mechanism for obtaining cash, he found :

“I accept D2’s evidence that it was more difficult to obtain loans, overdraft facility to invest in business projects when compared with trade financing by LCs.”

39.  Of the circumstances in which that decision had been taken, he found :

“I accept D2’s evidence that it was D1 who told D2 that Group Yield was doing the same and May Wong would help Senox in preparing the LC documents.”

In support of that finding, he pointed to the evidence of both Ms May Wong and Mr Lau that the latter had called the former to ask her to initiate applications for letters of credit based on bogus transactions for Senox.  Since Mr Lau was not otherwise connected with Group Yield in any way, he found that he would not have done that had he not been provided with that information by the applicant.

Go On : applications for the issue of letters of credit

40.  The judge accepted the evidence of Mr Lau as to the circumstances in which applications for letters of credit had been made on behalf of Go On after it had ceased its business in July 1994. He found :

“D1 and D2 made the decision that they had to keep the credit facilities of Go On active.  Money had to be injected into Go On so that it could make repayments.”

The use of the proceeds of letters of credit

41.  Of the fact that monies obtained by a letter of credit issued at the initiative of one of the three companies was often distributed to one or other of the other two companies the judge went on to find :

“D2 suggested that they should use the existing letters used by Group Yield to obtain cash for Go On. D1 had no objection to what D2 proposed.  An agreement was put into effect.

I accept D2’s evidence that he had discussed with D1 as to how to handle the LC credit of Group Yield, Senox and Go On and how to raise money for repayment.  In my judgment, D2’s evidence in this regard explains why proceeds of the company would find its way into the bank accounts of other company or companies.”

42.  Although the judge accepted Ms May Wong as “an honest and reliable witness on the whole”, he did not accept her testimony that in processing the applications for the issue of letters of credit to Group Yield, in which reliance was placed on fictitious contracts for the sale of goods supported by false documentation, she did not know that what she did was wrong. In particular he found :

“She could not have failed to realise that what she did was fraudulent nature.

By claiming she did not know what she did was wrong, she was just trying to minimise her culpability in the LC scam”

43.  Of the use of Sing Hing, as the stipulated beneficiary of letters of credit issued to Group Yield, the judge accepted Ms May Wong’s evidence that it was Chan Lap who had taught her how to implement the scheme of processing letters of credit based on fictitious contracts for the sale of goods. However, he went on to find :

“I also accept May Wong’s evidence that she needed permission from her boss before she prepared the false LC documents from Sing Hing. D2 was not her boss.  May Wong had obtained permission from D1 before she prepared the LC applications in relation to Sing Hing.”

44.  Of the replacement of Sing Hing by Max Rise, as the beneficiary of letters of credit issued to Group Yield, the judge accepted the evidence of Ms May Wong and found :

“Chan Lam came and asked for a loan.  May Wong was worried, and she reported to D1, Hu and Chuk. Hu then found Max Rise to replace Sing Hing.”

45.  The judge accepted the evidence of Ms May Wong as to the bogus nature of the transactions described in the letters of credit issued to Group Yield in favour of Max Rise, noting that her account of how the descriptions of the goods in the applications were either copied from earlier transactions involving Sing Hing or simply invented was supported by Ms Carrie Chu. In particular, he found :

“I accept May Wong’s evidence that, for the LCs shown to her in court, there were in fact no business transactions.”

Furthermore, the judge accepted the evidence of Mr Albert Lam that there were no real transactions between Senox and Max Rise and that, having obtained the signatures of the applicant and Mr Lau on blank documentation, he had forwarded them to Ms May Wong to process the applications.

46.  Of the circumstances in which Ms May Wong had become involved in processing applications for letters of credit for Senox in favour of Max Rise, the judge found :

“D2 called her and asked her to do the same thing to Senox as it was done for Group Yield.  May Wong knew D2 was D1’s partner in Senox and she called D1 and got his approval.”

47.  Of Ms May Wong’s role in processing applications for letters of credit on behalf of Go On, the judge found :

“ It was D2 who asked May Wong to make the LC applications for Go On.”

48.  Of the movement of the proceeds of letters of credit raised by one company into the accounts of one or other of the other two companies the judge accepted the evidence of Ms May Wong that :

“… they were deposited into the account of Group Yield, Senox or Go On, depending on the due date of the previous LC.  I find that there is a ring of truth in her evidence that she would call D1, Hu and D2 and inform them of the problem whenever there was insufficient money.”

49.  The judge accepted Ms May Wong’s evidence that the applicant had been provided with a copy of the accounts of Group Yield which contained a balance sheet setting out how much was owed under each LC. He noted her evidence that these were included in the audited accounts and concluded :

“I accept May Wong’s evidence that the first audited accounts were clearly shown to D1.”

Her evidence was that the first audit was around 1994/1995.

The applicant’s evidence

50.  In rejecting the applicant’s testimony of, “… his lack of knowledge about the bogus LC applications and lack of involvement in the applications and dealing with the proceeds” the judge found the applicant to be a “dishonest and unreliable witness”.

51.  Of the issue of the applicant’s understanding of the nature of a letter of credit transaction, the judge found :

“... that D1 has understated his knowledge about the operations of the LC.  With his experience at the Foreign Trade and economic committee of Dongguan, he must have some basic understanding about LC that involve payment for trading of goods between companies.”

52.  In rejecting the applicant’s testimony that, although some of the applications for the issue of letters of credit that he had signed were bilingual documents headed “Application for a Letter of Credit” that stipulated the need for the presentation of documents evidencing the transaction, including shipping documents, the judge said of the applicant’s explanation, that he simply signed the document when asked to do so and did not pay attention to the printed words in Chinese, that it was most unconvincing and found :

“D1 would have no difficulty in noting that the documents were applications for LC.”

53.  Also, the judge noted that the applicant had accepted that in 1992 he was not only a signatory to a successful application by Group Yield for the grant of a letter of credit facility to a limit of $20 million but also he knew of and wanted that facility to be obtained.

54.  Of the evidence that the applicant had signed applications for the issue of letters of credit on forms that were blank other than for the printed text, the judge said :

“The fact that a document was signed blank does not necessarily mean that the signatory had no idea about the nature of the document that he signed.  The evidence shows that after it was agreed that LCs would be applied for by Group Yield, Senox and Go On, May Wong would prepare the documents using the document signed blank by the authorised signatories of the companies concerned.”

55.  In rejecting the applicant’s evidence that, although he had asked Mr Lau to arrange the borrowing of funds by Senox, he did not know how that had been achieved the judge said :

“For the LCs of Senox, I find that D1 and D2 had discussed about ways to obtain cash through LCs for Senox.  I find that D1 had told D2 at the time that Group Yield had been using LCs to obtain cash.  I find also that D1 and D2 decided that they should ask May Wong to prepare the documents for Senox. From the evidence, it is quite clear that the LC transactions that D1 and D2 had in mind were bogus in nature in that the underlying transaction did not exist and false documents would be submitted to the banks to obtain money.”

56.  Of the applications for the issue of letters of credit made in the name of Go On, the judge found :

“… as it had ceased business at the relevant time when D1 and D2 decided that LCs would be opened for Go On, the LCs that they had in mind must also be bogus in nature.”

57.  Having found that the applicant was “the major shareholder and person in charge of a Group Yield” the judge observed that its employees included Ms May Wong and Ms Carrie Chu, who handled not only the applications for the issue of letters of credit but also the subsequent circulation of the proceeds between the three companies. Of the significance to be attached to that evidence, the judge found :

“May Wong and Carrie Chu would not do it for Senox or Go On because of DThey would only act under instructions from their bosses.  Of the three directors of Group Yield, only D1 had business interests in Senox and Go On.  On the evidence before me, I am satisfied that it was D1 who instructed May Wong to help Senox apply for LCs. “

58.  In finding the applicant guilty of all five of the charges of conspiracy to defraud, the judge said :

“In the present case, there is direct evidence from D2, which I accept as true and reliable, that he agreed with D1 to obtain money for Senox and Go On by means of bogus LCs.  There is also evidence from May Wong and D2 which I accept as true and reliable, that D1 was aware of the bogus LC applications being made by Group Yield to obtain cash for the company.”

GROUNDS OF APPEAL AGAINST CONVICTION

59.  On its face the Grounds of Appeal against conviction settled by Mr Boyton on behalf of the applicant contained a single ground, namely that “there exists a lurking doubt as to the validity of the convictions”. However, what are described as ‘Particulars’, set out in support of the single ground of appeal, identify several discrete issues. In his Written Argument in support of the Grounds of Appeal, Mr Boyton abandoned the issue that had been taken in respect of the approach taken by the judge to the ingredient in all five charges of dishonesty. It had been contended in Particulars 7–9 that the judge had applied incorrectly the approach to the determination of the issue of dishonesty articulated in the judgment of the Court of Appeal of England and Wales in R v Ghosh [1982] QB 1053 at 1064. In particular, that in respect of the second limb he failed to have regard to the fact that the applicant was a resident of the Mainland, that the banks held property as security for the grant of letter of credit facilities and evidence from Mr Lau that many “China funded companies” raised funds on letters of credit where, in fact, no goods existed. There was no merit in the criticism, which Mr Boyton was correct to abandon.

60.  Mr Boyton did advance submissions in support of the contention identified in the Particulars of the Grounds of Appeal that the judge had erred in his approach to the evidence of those witnesses who gave evidence under an immunity from prosecution. In the Particulars it was asserted that :

“… the learned trial judge, should have warned himself as to his reliance solely on the parts of the evidence of an immunized witness that was prejudicial to an accused.  This was particularly so when, in order to secure the said convictions, the learned judge (1) rejected that aspect of the witness’s testimony that was favourable to the Applicant; and (2) that the said evidence favourable to the Applicant was in her pre-trial statement and was considered by the prosecution prior to immunizing the said witness.”

61.  Mr Boyton acknowledged that section 60(1) of the Criminal Procedure Ordinance, Cap. 221 abrogated any requirement for the judge to give himself a warning about convicting an accused on the uncorroborated evidence of a person merely because that person was an alleged accomplice of the accused. He submitted that the approach to be taken by a trial judge since that legislative change of the law was to be found in the guidance given in the judgment of the Court of Appeal of England and Wales in R v Makanjuola [1995] 2 Cr.App.R. 469 at 473 A–F. He reminded this court that the guidance set out in the judgment of the Lord Chief Justice, Lord Taylor had been cited with approval by the Court of Appeal in HKSAR v Leung Chi Keung [1997] HKLRD 549 at 549. The warning, if any, to be given by the trial judge lay within his discretion.

62.  Mr Boyton accepted that the judge had stated in terms that the witnesses were testifying under an immunity from prosecution, from which he also accepted that it was to be inferred that he realised that they were accomplices of the applicant in an offence or offences for which he stood trial. However, the nub of Mr Boyton’s complaint is that :

“the trial judge did not warn himself of stepping back to look for ‘supporting’ evidence.”

In the result, Mr Boyton submitted that the judge ought to have dismissed all of Ms May Wong’s evidence as unreliable :

“because of the 10 year gap, which she admitted had affected her memory; and her earlier statements that contradict her testimony.”

63.  It was contended in the Particulars of the Grounds of Appeal, in the context of the judge’s rejection of the applicant’s evidence, that he had wrongly inferred or assumed that the applicant would have been exposed to the use of letter of credit funding in Dongguan, whilst employed at the Foreign Trade and Economic Committee of Dongguan. He invited the court to note that the applicant had ceased that employment in 1990, at which date, he suggested, the use of letters of credit on the Mainland was less widespread than it became later.

64.  Of Mr Lau Ka Ping’s evidence, whilst it was accepted that alone it “may be sufficient to convict the applicant”, it was submitted that none of the other prosecution witnesses “ ‘support’ D2’s assertions”. Although it found no place in the ‘Particulars’ of the Grounds of Appeal, in his Written Argument Mr Boyton contended that, in considering the credibility of Mr Lau, the judge erred in accepting his inability to explain the transactions contained on the three pages of accounts, exhibit D2, presented to him in cross-examination. The judge had stated :

“I do not think D2’s failure to explain the figures in exhibit D2 render his evidence incredible and/or unreliable.”

65.  In her evidence, in a short passage in cross-examination, Ms May Wong had said that she had made the entries as a record of a current account that existed between Group Yield and Best Sure, a company of Mr Lau. Prior to being shown the document, Ms May Wong had been asked if large amounts of money were transferred between the two companies and replied, “ No, not large amounts of money. I don’t quite remember clearly, but I remember it was not a large sum of money.” Having been shown the document, Ms May Wong testified that it described loans and repayments between the entities. She agreed that some of them involved large sums of money.

66.  For his part, in cross-examination Mr Lau said that Best Sure was one of his businesses through which he had loaned monies belonging to a friend to Senox. He said that he had not seen exhibit D2 before and did not know it existed. He had no impression of its contents.

67.  Mr Boyton submitted that a possibility existed that Ms May Wong and Mr Lau were concerned with “secret loans out of Group Yield and have failed to disclose the truth.”

THE SUBMISSIONS OF THE RESPONDENT

68.  On behalf of the respondent Mr Alex Lee invited the court to have regard to the evidence as a whole rather than examining the testimony of Ms May Wong and Mr Lau Ka Ping in isolation. He submitted that there was strong circumstantial evidence to support their testimony. Although three companies, Group Yield, Senox and Go On were involved in applying for letters of credit, he pointed out that Ms May Wong and Ms Carrie Chu were employees of Group Yield only. Mr Lau had no position at all in Group Yield. It was to be expected that they would act on the instructions or permission of their boss, the applicant, rather than Mr Lau. Although over $265 million was raised through letters of credit by the three companies, the court was reminded of the evidence that they were small companies with only a few number of employees. It was no difficult task for the applicant to keep himself informed of the activities of those companies in those circumstances. None of the companies was a trading company. Go On had ceased business prior to the application for the letters of credit the subject of Charge 5.

69.  Mr Lee submitted that not only did the judge warn himself of the fact that the immunised witnesses may have had their own interests to take into account when giving testimony but also he subjected the evidence to a careful analysis and gave reasons for his acceptance or rejection of their testimony.

70.  Of Ms May Wong’s assertion to ICAC in her out-of-court statement that it was Mr Lau Ka Ping who had initiated the bogus letter of credit transactions, whereas in her oral testimony she had said that had begun with Sing Hing, he pointed out that the judge had found that in her account to officers ICAC :

“… she was focusing on the companies related to DBut for the very first time that May Wong involved in the LC scam, it was Chan Lam of Sing Hing, who showed her how to do it.”

71.  Of Ms May Wong’s assertion in testimony that it did not occur to her that what she was doing in initiating and processing the applications for letters of credit in favour of Max Rise was wrong, Mr Lee pointed out that the judge rejected that testimony and found that “… she was trying to minimise her culpability in the LC scam”. Of her confirmation in her evidence of her statement to ICAC said she believed that in doing what he did the applicant “did it in full compliance with the law”, Mr Lee pointed out that the judge had determined that one of the reasons she gave that testimony was to support the stance that she had taken in her evidence that she did not know that what she herself had done was wrong.

72.  Of exhibit D2, the accounting records of a current account existing between Group Yield and Best Sure, Mr Lee submitted that the judge was entitled to find that Mr Lau Ka Ping’s failure to explain the figures there contained did not “render his evidence incredible and/or unreliable.” As the judge found, although Ms May Wong said that she prepared the document, there was no evidence that she provided it to Mr Lau Ka Ping. It was his evidence that he had never seen it before. Mr Lee submitted that Mr Boyton’s suggestion in his written argument that the possibility existed that Ms May Wong and Mr Lau Ka Ping were or may have been “hiding something”, namely that they “were making secret loans out of Group Yield” was highly speculative and not supported by evidence.

A CONSIDERATION OF THE SUBMISSIONS

LAW

73.  The position of a trial judge, following the abrogation of any requirement to give a warning about convicting the accused on the uncorroborated evidence of a person merely because a person is an alleged accomplice, is set out succinctly in the summary provided by Lord Taylor LCJ in the judgment of the Court of Appeal of England and Wales in Makanjuola (page 473A–C) :

“2.  It is a matter for the judge’s discretion what, if any warning, he considers appropriate in respect of such a witness as indeed in respect of any other witness in whatever type of case.  Whether he chooses to give a warning and on what terms will depend on the circumstances of the case, the issues raised and the content and quality of the witness’s evidence.

3.  In some cases, it may be appropriate for the judge to warn the jury to exercise caution before acting upon the unsupported evidence of a witness.  This will not be so simply because a witness is the complainant of a sexual offence nor will it necessarily be so because the witness is alleged to be an accomplice.  There will need to be an evidential basis for suggesting that the evidence of a witness may be unreliable.  An evidential basis does not include mere suggestions by cross-examining counsel.”

74.  In the judgment of the Court of Appeal in Chu Ip Pui delivered by Mortimer JA, as he was then, suggestions were made as to the purpose of the abrogation of the requirement, namely that it was (page 552C–D) :

“… to free the decision maker of the technical-and mostly judge-made-rules of the common law on corroboration thereby to permit the judge or jury to concentrate upon the weight to be given accomplices having regard to such supporting evidence or circumstances as may be proved.  Accomplices have not by this reform suddenly become more credible or less dangerous as witnesses, but the approach is now left to the discretion of the judge.  It is necessary that such discretion is unfettered so that he can achieve a fair trial.”

75.  It is readily apparent from an examination of the judge’s Reasons for Verdict that he was alert to the dangers inherent in evidence received from an array of witnesses who had been provided with conditional immunities from prosecution and who testified to their roles in initiating and/or processing the applications for the letters of credit that lay at the heart of the conspiracies to defraud that were the subject of the five charges. Equally, it is clear that, having subjected their testimony to close scrutiny, he gave a detailed explanation of his reasons for accepting or rejecting their testimony. Furthermore, it is apparent that he examined their evidence not in isolation, but in the context of all the evidence, including the powerful circumstantial evidence.

76.  Understandably, the judge paid close attention to the evidence of Ms May Wong and Mr Lau Ka Ping. His rejection of Ms May Wong’s evidence that it did not occur to her, in initiating and processing the letter of credit applications in which there were no goods, that she was doing wrong is readily understandable in view of the undisputed evidence that for some years she and Ms Carrie Chu had invented the goods that were described as being the subject of sale between the parties and had fabricated supporting documentation. Indeed, it would have been astonishing if any other finding had been made.

77.  The judge’s acceptance of Ms May Wong’s explanation in testimony of the statement that she had made out-of-court to ICAC, in which she had said that Mr Lau Ka Ping had initiated “the LCs without business dealings”, is to be viewed in the context of his finding that she was there focusing on companies related to Mr Lau.

78.  In cross-examination, Ms May Wong agreed that in March 2007 whilst being conveyed to ICAC headquarters, having been invited by officers of ICAC to assist in their enquiries in respect of letters of credit raised between Group Yield and Max Rise, she had told the ICAC officer that there were “no business dealings in connection to the LCs concerned”. She agreed that in answer to the question then posed as to who had initiated that conduct she had identified Mr Lau and gone on to assert that there was no actual business between Group Yield and Senox and Go On and that the LCs had been used merely to transfer funds.

79.  Similarly, she agreed that, after having been cautioned, she had corrected her assertion in respect of Mr Lau and Max Rise, contending “It should be Hu Shu Xian who taught me that. Lau Ka Ping should be connected with the LCs issued with another company.” However, when asked to confirm that Mr Lau had initiated the use of LCs where there were no “business dealings” between the parties she said that in a statement to ICAC of 11 July she had corrected that assertion informing them, “... for the first LC, it was Mr Chan Lam of Sing Hing who came to Wing Ming Street to teach me how to do it.” She was sure of that. At that time Senox did not have an LC credit line. Since she did not work for Mr Chan Lam she had obtained instructions from her boss, the applicant, not Mr Lau.

80.  In re-examination, Ms May Wong said of the commencement of applications for letters of credit by Group Yield in favour of Sing Hing that both the applicant and Mr Chan Lam had come to tell her to open such letters of credit. There were no actual business dealings between the parties.

81.  Similarly, the judge examined with care Ms May Wong’s explanation of her statements to ICAC as to the issue of the applicant’s knowledge of the operation of the bogus letter of credit scheme. She agreed in cross-examination that she had said in her first record of interview of the applicant, “Theoretically, he would know it.” She accepted that there was an assumption that she made. However, when it was suggested to her that she was, “just guessing” she responded by repeatedly saying, “I feel that he knew it.” In re-examination, she explained that response by saying that the applicant had called her on many occasions telling her that there was a new credit line and that the money could be used. In the result, the judge accepted that evidence.

82.  There is no merit in the criticism made of the judge’s acceptance of the explanations given by Ms May Wong in her testimony for conflicts or apparent conflicts with that testimony and her earlier out-of-court statements. Similarly, he was entitled to accept some of her evidence and reject other parts. His analysis in his Reasons for Verdict leading to those findings was exhaustive and logical.

The rejection of the applicant’s testimony

83.  The judge’s rejection of the applicant’s testimony in respect of his lack of knowledge of not only the nature of letters of credit but also their use as alleged in the various conspiracies was based on his consideration of all the evidence. It was in approaching the matter chronologically that he began with his observation that in light of his employment in Dongguan the applicant must have some “basic understanding” that “letters of credit involved payment for trading of goods between companies”. Clearly, that was a finding that he was entitled to make. Of greater significance, was his reference to the fact that the applicant was a party to the applications made by Group Yield for the grant of letter of credit facilities from banks and the fact that he had signed a number of successful applications for letters of credit on bilingual application forms for both Senox and Go On, all the while claiming that he knew nothing about the nature of those facilities. Of course, the context to be given to that evidence was the testimony he accepted of both Ms May Wong and Mr Lau Ka Ping of their discussions with him over the use of the various letter of credit facilities.

Exhibit D2

84.  As noted earlier, the contention made by Mr Boyton in his Written Argument that exhibit D2, the three-page current account between Group Yield and Best Sure, namely that the possibility was that it reflected “secret loans out of Group Yield” arranged between Mr Lau and Ms May Wong is not identified in the Grounds of Appeal. Furthermore, it is not a matter that leading counsel who appeared for the applicant at his trial canvassed with either Ms May Wong or Mr Lau in the very brief cross-examination of those witnesses in respect of this exhibit. In those circumstances, in particular having a regard to the fact that Ms May Wong did not testify that she had supplied it to Mr Lau, who denied ever having seen it, clearly the judge was entitled to regard Mr Lau’s inability to explain the transactions as of no significance in assessing his credibility.

CONCLUSION

85.  In the result, the court was satisfied that there was no merit whatsoever in any of the matters canvassed by Mr Boyton, on behalf of the applicant. Accordingly, the application for leave to appeal against conviction was refused.

COSTS

86.  The court acceded to the application made on behalf of the respondent and ordered the applicant to pay the respondent’s costs of the appeal, to be taxed if not agreed.