HKSAR v. CHAN NAI TAK

CACC523/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 523 OF 2002

(ON APPEAL FROM DCCC NO. 288 OF 2002)

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REASONS FOR JUDGMENT

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Hon Ma CJHC (giving the judgment of the Court):

1. On 6 September 2002, the applicant, Chan Nai Tak, was convicted after trial before Deputy Judge Smout in the District Court on 11 counts of conspiracy to defraud. The applicant was jointly charged with two other defendants, Yuen Choi Fung and Chan Chi Kwong. Yuen and Chan were, respectively, the 1st and 3rd defendants at the trial and we will refer to them simply as D1 and D3. The applicant was the 4th defendant. The 11 charges were the 17th to 27th charges in the trial. The 1st to 16th charges involved only D1 and the second defendant in the proceedings, Tam Chi Wah (D2).

2. On 3 October 2002, Deputy Judge Smout sentenced the applicant to 19 months imprisonment for each charge, all sentences to run concurrently.

3. By a Notice of Appeal dated 15 October 2002, the applicant applied for leave to appeal against both conviction and sentence. The application for leave in relation to sentence was later abandoned on 7 May 2003 and subsequently dismissed. D1 and D3 also applied for leave to appeal against conviction but these applications have also been abandoned. There was therefore before us only the applicant's application for leave to appeal against conviction.

4. At the hearing of the appeal, Mr Kevin Egan appeared for the applicant, Mr Bernard Ryan (assisted by Mr Martin Hui) appeared for the respondent. At the conclusion of Mr Egan's submissions, we dismissed the application with reasons to follow.

The charges

5. All 11 charges with which the present application is concerned, related to what are commonly referred to as letter of credit frauds, that is, the obtaining of moneys from issuing banks under letters of credit issued in respect of bogus or non-existent commercial transactions.

6. The charges related to 11 local letters of credit which were issued by Hang Seng Bank on the application of a company called Bowick Industries Limited ("Bowick"). Bowick was a company whose shareholders and directors comprised D1 and her husband, Tam Chi Leung ("Tam"). Tam was named as one of the co-conspirators in the charges against the applicant and was probably the main perpetrator of the frauds. He has since absconded. The beneficiary under the relevant letters of credit was Delta Industrial Company Limited ("Delta") whose shareholders and directors were D3 and the applicant. Once the LC proceeds were received by Delta, cheques were then made out to Bowick for sums just less than the sums received under the letters of credit.

7. The nature of the conspiracy alleged against the applicant was that essentially he, together with D1 and D3 conspired with others (including Tam) to defraud Hang Seng Bank by using false documents under the letters of credit issued by Hang Seng Bank to enable Delta (as the beneficiary) to obtain payment thereunder. The relevant documents (being those required to be presented by the beneficiary under the letters of credit) were false in that they purported to evidence genuine commercial transactions when in fact such transactions were non-existent. The transactions covered by the 11 letters of credit purported to relate to sales of clock movements by Delta to Bowick. Among the relevant documents utilized under the letters of credit were invoices (evidencing sales from Delta to Bowick), collection orders (from Delta to its own bank to collect the proceeds from Hang Seng Bank under the relevant letters of credit) and sight drafts drawn by Delta on Hang Seng Bank to enable payment to be made to Delta's bank. Cheques were drawn by Delta to pay to Bowick sums which, as we have observed, were just less than the proceeds received under the letters of credit.

8. On the agreed facts, it is apparent that the applicant lent his signature to most of the invoices, collection orders, sight drafts and cheques we have referred to in the previous paragraph. Specifically, in relation to the 11 letters of credit which were the subject matter of the 11 charges, the applicant signed or co-signed:-

(1) the invoices on 10 occasions;

(2) the collection orders on 10 occasions;

(3) the sight drafts on 10 occasions; and

(4) the cheques to Bowick on 9 occasions.

9. The sums obtained under the letters of credit totalled over $7.5 million. The charges spanned a period from March 1996 to April 1998.

The Reasons for Verdict

10. D1, D3 and the applicant pleaded not guilty to the charges they faced. D2 pleaded guilty to 8 of the charges and became a prosecution witness. After a 9-day trial, the applicant was convicted of all 11 charges. Like D1 and D3, the applicant elected not to give evidence.

11. The following facts appear in the judge's Reasons for Verdict in relation to the applicant:-

(1) One of the witnesses who testified at trial for the prosecution was Wong Kwai Ying, Bowick's accountant from 1998 to 1999 and another of the co-conspirators. She was PW2. Although she did not come across Delta in the course of her work, she was able to say that during her time at Bowick, she did not see any goods receipts (referred to by the judge as GRNs) or purchase orders relating to any transactions between Bowick and Delta. She had no knowledge of any dealings between Delta and Bowick.

(2) Bowick's shipping clerk from 1994 to 2001, one Lee Sau Ying, also a co-conspirator (PW4) testified in relation to all letters of credit that she had been told by Tam that the relevant goods had already been shipped although she never saw any documents evidencing this. It was she who typed out the applications for the relevant letters of credit. The judge took the view that the effect of her evidence was that she had made up false particulars in those applications since the relevant transactions were non-existent.

(3) No business records of any transactions between Bowick and Delta were found by the ICAC at either the offices of Bowick or those of Delta during the investigations leading up to the arrest of the defendants. The reason given for the absence of documents in Delta was that they had been destroyed.

(4) The evidence of the sales and marketing manager of Bowick, one Jonathan Lee Chung Kit, was that he had no dealings with Delta during the time he was working for Bowick (from 1995 to 1997).

(5) One witness who was tendered for cross-examination by the prosecution was Cheung Ying Ping (PW5) ("Cheung"), formerly an accountant at Delta. Although she gave evidence to the effect that she believed the transactions underlying the letters of credit to be genuine, that Bowick did in fact sell goods to Delta and that the payments made by Delta to Bowick following the receipt of moneys under the 11 letters of credit were in fact used to offset debts due to Bowick for goods sold previously, the judge rejected her evidence. He was sceptical of the absence of documents to support such assertions.

(6) The judge therefore came to the conclusion that the transactions underlying the 11 letters of credit were bogus and rejected Cheung's claim that they were genuine.

(7) As for the involvement of the applicant, the judge noted the fact that he was a minority shareholder in Delta (while D3 held 1,260,000 shares out of 2,000,000 issued shares in 1996, increasing to 1,340,000 in 1998, the applicant only held 60,000). Nonetheless, he was a director of Delta together with D3 (this was admitted by the applicant) and he did sign those documents we have earlier referred to in paragraph 8 above. These documents were integral to the operation of the 11 letters of credit.

12. The judge was of the view that the irresistible, inescapable and only reasonable conclusion which could be reached was that D3 and the applicant were parties to the conspiracy in relation to the 11 letters of credit. He was satisfied beyond reasonable doubt that both knew that there were no genuine transactions underlying the letters of credit and that both defendants had acted dishonestly.

The present appeal

13. Mr Egan made the following submissions to argue that leave to appeal should be given and the convictions quashed:-

(1) There was simply insufficient evidence to draw a reasonable inference of guilt, in particular that the applicant knew of the dishonest scheme behind the 11 letters of credit.

(2) Indeed if anything, the evidence showed that the applicant had a minor role within Delta, he being no more in substance than a mere employee. His role certainly could not be compared to that of D3. This was an aspect that the judge had completely ignored or to which he had given insufficient weight.

(3) In relation to one specific charge (charge 27), the judge erred by admitting and taking into account the statements made by Tam (who it will be recalled has absconded) to PW2 to the effect that he had arranged for letters of credit to be issued in favour of Delta and for Delta in turn to pay Bowick the proceeds from such letters of credit.

(4) The judge had in fact reversed the burden of proof.

14. It is convenient to deal with the first two submissions together. In our view, forcefully as Mr Egan has argued the matter, we do not agree that the judge was wrong in any way:-

(1) The facts we have briefly referred to above amply gave rise to the inference that the applicant was guilty.

(2) He was both a shareholder and more important, a director of Delta. As far as is known, the only two directors of Delta at the material time were D3 and the applicant. No part of the evidence suggested that the applicant was merely a nominal director. Mr Egan stressed the fact that the applicant was very much a minority shareholder. This is correct, but the fact remains he was a shareholder and nothing suggested either that he was holding the shares in a nominal capacity.

(3) Mr Egan emphasized Cheung's evidence that the applicant was not regarded as one of the bosses at Delta and that he was merely regarded in substance as just another employee. He was not able to make drawings and he would report to D3. Cheques were signed by him as a matter of routine without much enquiry. Collection orders were prepared for his signature by a shipping clerk. The judge referred to all this in his Reasons for Verdict. Although Mr Egan attempted to demonstrate that the judge did not make any adverse findings regarding Cheung's evidence as to the applicant's minor role in Delta (indeed Mr Egan submitted that the judge did not analyze this evidence in any way), this is not quite right in our view. The judge did (in paragraph 76 of the Reasons for Verdict) say generally that he did not find Cheung to be a reliable witness. In any event, although Cheung's evidence, even if accepted, might show that the applicant was not as dominant or significant within Delta compared to D3, it does not go far enough to demonstrate that he was signing documents or carrying on any activity without realizing the significance of them. He was, after all, as the judge noted, in the office more often than D3. He was also in 1998 a salesman and therefore presumably aware of the existence (or non-existence) of sales transactions at Delta during that time. It is to be emphasized that the applicant signed or co-signed most of the important documents in relation to the 11 letters of credit. It will also be recalled that no documents were found in either Bowick's or Delta's offices to evidence the existence of the alleged transactions underlying the 11 letters of credit.

15. We now deal with the argument in relation to charge 27. Here, even without what was said by Tam to PW2, there was ample evidence to convict. We refer to the matters set out in the previous paragraph. It is also to be noted that in respect of the letter of credit which is the subject matter of this charge, the applicant signed the invoice purporting to evidence the sale of clock movements by Delta to Bowick, the collection order and the sight drafts as well as co-signing the cheque made out to Bowick.

16. As to the submission that the judge had reversed the burden of proof, there is nothing in this point. The judge referred to the burden and standard of proof in his Reasons for Verdict. He was fully aware of the need for the prosecution to prove its case and that the applicant was not obliged to prove anything. However, the absence of evidence to contradict the prosecution's evidence or any legitimate inferences arising therefrom was obviously something that the judge could take into account in his analysis and did not in our view represent the reversal of the burden of proof.