HKSAR v. LIU KIT MAN

CACC 216/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 216 OF 2015

(ON APPEAL FROM DCCC 817 OF 2014)

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

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

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

REASONS FOR DECISION

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

INTRODUCTION

1.  The applicant was tried in the District Court on a charge sheet containing a charge of Fraud, contrary to section 16A of the Theft Ordinance, Cap 210 and a charge of agent using a document with intent to deceive his principal, contrary to section 9(3) of the Prevention of the Bribery Ordinance, Cap 201.  On 3 June 2015 he was convicted of the first charge and acquitted of the second charge by District Judge Casewell (“the judge”). On the same day he was sentenced by the judge to a period of 2 years’ imprisonment in respect of the first charge

2.  The applicant has filed an application for leave to appeal against both his conviction and sentence and in support of this application has filed initial grounds of appeal.  He now applies for bail pending the hearing of his appeals.  At the hearing of the application I refused it and said I would hand down my reasons for so doing at a later date and this I now do. 

THE TRIAL

The prosecution case

3.  The charge of fraud alleged that between 4 August 2008 and 11 January 2012:

“… by deceit, namely, by concealing from and failing to disclose to Kabushikigaisha Limited of his interests in Hong Kong Infix Design Co Limited whilst he was a Chief Executive Officer cum Director of the said Kabushikigaisha Limited, and was under a duty to make full disclosure of any existing or potential conflict with the said Kabushikigaisha Limited or its subsidiaries’ interests, and with intent to defraud, induced the said Kabushikigaisha Limited or its subsidiaries to engage Shanghai Infix Design Consulting Company Limited, to provide design works to 18 restaurants of the said Kabushikigaisha Limited or its subsidiaries pursuant to 13 contracts signed by the said Hong Kong Infix Design Co Limited, which resulted in benefit to the said Hong Kong Infix Design Co Limited or in prejudice or a substantial risk of prejudice to the said Kabushikigaisha Limited or its subsidiaries.”

4.  In a nutshell the prosecution case was that the applicant was the CEO and a director of Kabushikigaisha Limited (“Kabu”) and also a shareholder of Hong Kong Infix Design Co Limited (“Hong Kong Infix”).  In the period covered by the charge he recommended to an authorizing director of Kabu, for that person’s approval, the engagement of Hong Kong Infix to provide renovation and designs services to Kabu which operated a number of Japanese restaurants in Hong Kong.  At no stage did he reveal to this authorizing director of Kabu that he was a part owner of Hong Kong Infix.  The issue in the case was described by the judge as follows:

“The defendant admits the facts, the contracts and the failure to declare his interest in Hong Kong Infix. Defendant says he had no intent to defraud and that he was not acting dishonestly. The issue at trial is whether the defendant was acting dishonestly in relation to contracts between Kabu and Hong Kong Infix.”

5.  As a result of the trial proceeding on such a narrow issue the bulk of the evidence was not in dispute.  This was how the judge described it:

“Most of the prosecution evidence was not in dispute. The defendant’s interest in Hong Kong Infix was not disputed. It was not disputed that the DOIs[1] and representations contained no reference to his interest in Hong Kong Infix. The details of all the contracts with and payments to Hong Kong Infix were agreed as were the banking records relating to the transactions.

What was disputed was the extent of the knowledge possessed by the other directors of the defendant’s interest in Hong Kong Infix that the defendant said had not been concealed, that he had only actually been required to disclose his interest in other food and beverage or restaurant contracts that were in competition with Kabu.”

6.  The prosecution case depended mainly upon the evidence of Mr Simon Wong who was a director of Kabu and 10% part owner of it through a company called Draconis Investment Limited. 70% of Kabu was owned by the Lucky House Group Management Limited (“LHG”).  Other owners were the applicant (10%) and Grace Ko (“PW2”) (10%).  Mr Wong testified that it was effectively himself, Grace Ko, and the applicant who managed Kabu. They were all directors of Kabu and the applicant became CEO in 2010. 

7.  In respect of the design contracts for all restaurants Mr Wong said that the applicant, as CEO and as a Japanese speaking person, negotiated the prices with the designer.  He said that the applicant would sign the contract and then it would be sent to his, Mr Wong’s, office to be approved and signed by him.  He said he trusted the applicant and never discussed the prices of the contracts with any person from Hong Kong Infix. 

8.  Mr Wong testified that all directors knew they had to disclose conflicts of interest in respect of third party transactions and make declarations of interests.  He said this was particularly necessary in respect of the applicant because the applicant had his own business contacts and also because he worked full time as the CEO of Kabu.  He said that had he been aware of the applicant’s interest in Hong Kong Infix then he would have sought quotations from other suppliers so that he could make a comparison with the prices being quoted by Hong Kong Infix.

9.  He said that he only became aware of the applicant’s interest in Hong Kong Infix at the beginning of 2012 when other directors suspected that the applicant had outside private businesses.  He said that they arranged a meeting with the other shareholders and the applicant attended this meeting to clarify if he had any other private businesses.  At this meeting the applicant clearly stated that he had not and he resigned as CEO with immediate effect. 

10.  Mr Wong then said that he had to take up the applicant’s duties and in doing so he came aware of the applicant’s interest in Hong Kong Infix.  The applicant subsequently confirmed this in the meeting in March 2012 and this meeting was covertly recorded and transcript of the recording was placed before the court.

11.  The other shareholders Miss Grace Ko, Peter Liu (“PW3”), and Mr Chan (“PW6”) confirmed Mr Wong’s account.  There was also evidence from the accounting department of LHG about the way in which the third party interests had been declared.

The defence case

12.  The applicant gave evidence and testified that he worked for a Japanese restaurant chain by the name of “Watami” and in 2001 there was a joint venture to open a series of their restaurants in Hong Kong and in the Mainland.  When the applicant was in Shanghai he met Mr Ogawa who was in charge of Shanghai Infix, a designer of Japanese restaurants.  He employed Shanghai Infix’s services when he opened a Watami restaurant in that city.  The applicant wished to introduce Mr Ogawa to the Hong Kong Watami Group but it was too difficult to get a Mainland company to open in Hong Kong so it was agreed to establish a new Hong Kong company.  The applicant held 30% of the shares of this Hong Kong company which became known as Hong Kong Infix. 

13.  The applicant testified that Simon Wong and Albert Li who was CEO of LNG wished to use Hong Kong Infix in the design of a restaurant to be run by Kabu.  At this time the applicant said he told Albert Li that he had shares in the company of Hong Kong Infix. 

14.  The applicant said he was aware of the obligation to make declarations of interests and did so.  These were prepared by others and although he signed these documents he never read them.  He said that he asked Simon Wong and Peter Liu which interests he had to declare and was clearly told by them that he should declare all the restaurant related businesses that were in competition with Kabu.  He said he was required to provide a list of restaurants that were in competition with Kabu.

15.  The defence also called people who had worked for the applicant.  One was a senior human resources officer at the All Global Group, a company owned by the applicant which held his 10% share in Kabu.  This person said that the applicant’s interest in Hong Kong Infix was well known to her.  Another, Miss Cecilia So, who became DW4, said that both Simon Wong and Grace Ko should be aware of the applicant’s interest in Hong Kong Infix.  She worked for the All Global Group and knew of his interest.  Hong Kong Infix had operated out of the same office as All Global in Mongkok but did not transfer to Kowloon Bay when the applicant’s food and beverage business moved there.  She said that the senior staff would have weekly meetings which Simon Wong and Grace Ko attended.  At one meeting she said Simon Wong asked the question of whether the boss of Hong Kong Infix was known and she replied that the applicant had a share. Then, in cross-examination she said it was not her who made this statement but an area manager who answered Mr Wong’s question.

THE REASONS FOR VERDICT

16.  The judge examined the legal issue that he had to address in his verdict and focused on the elements of deceit and dishonesty that the prosecution had to prove.  He described the issue he had to address, as presented to him by the applicant, as follows:

“The defence succinctly set out the issue as follows: have the prosecution proved beyond reasonable doubt that the defendant, by deceit and with intent to defraud, failed to disclose his 30 per cent interest in Hong Kong Infix which carried out the design work in conjunction with Shanghai Infix on the 18 Kabu restaurants pursuant to the 13 relevant contracts. If the court finds itself in the position that it cannot be sure of this issue then the defendant must get the benefit of that doubt.”

17.  The judge then went on to resolve factual disputes which were whether or not the applicant had ever disclosed his interest in Hong Kong Infix to the LHG CEO, Albert Li; whether the fourth defence witness, Miss Cecilia So, was correct in saying that Mr Simon Wong knew of the applicant’s involvement in Hong Kong Infix; and finally whether Mr Wong or anyone else had told the applicant that he need only declare business interests of his that related to food and beverage businesses in competition with Kabu restaurants.  For reasons which he set out in his Reasons for Verdict the judge believed Mr Simon Wong and disbelieved the applicant.  He found that DW4, whose evidence he rejected, did not make Mr Wong or Grace Ko aware of the applicant’s interest in Hong Kong Infix and that they did not know of that interests until early December 2012.  He rejected the applicant’s evidence that he only had to declare business interests in a competing food and beverage business and found that he was aware of the conflict of interest that existed in the 13 design contracts between Kabu and Hong Kong Infix.

THE GROUNDS OF APPEAL

18.  The initial grounds of appeal contain four grounds of appeal, three relating to the appeal against conviction and one relating the appeal against sentence. 

19.  The first ground of appeal relating to the application for leave to appeal against conviction is that the judge failed to consider whether the deceit by the applicant had in fact induced Kabu to enter into the relevant contracts with Hong KongInfix.  The second ground of appeal is that the judge failed to adequately analyse and give adequate reasons for rejecting the evidence of the applicant.  The third ground of appeal is the judge similarly failed to properly evaluate the evidence of the main prosecution witness Mr Simon Wong, PW1. 

20.  The fourth ground of appeal, concerning the application for leave to appeal against sentence complains that the sentence is manifestly excessive because: (i) the applicant had a clear record; (ii) the applicant was an established businessman; (iii) all 13 contracts performed for Kabu were properly performed; (iv) the reason Hong Kong Infix was selected was because its designs were superior and its price was fair; (v) Kabu suffered no loss from the performance of the 13 contracts; (vi) consequently there was no victim in this case; and (vii) the applicant’s entrepreneurial enterprise had benefited Hong Kong.

THE BAIL APPLICATION

21.  The written submission filed by the applicant in support of his bail application focused on the merits of the first two grounds of appeal and also relied upon an assertion that the applicant would have served a significant part of his sentence by the time his appeal will be determined.  His earliest release date is October 2016.  At the hearing of the application the court indicated to counsel for the applicant, Mr Duncan SC that the applicant’s appeal could be heard before the end of this year.  There is, therefore, no time element to the bail application and it falls to be determined solely on the merits of the grounds of appeal and an assessment of whether those grounds are likely to succeed.  In light of this development Mr Duncan did not rely on his second ground of appeal for the purposes of this application. 

DISCUSSION

22.  Mr Duncan concedes that his first ground of appeal was not raised by defence counsel at trial but nonetheless argues that as it is an element of the offence it had to be addressed by the judge.  He submits that Mr Wong should have been asked whether, at the time of the negotiation, he gave any consideration at all to whether the applicant had an interest in Hong Kong Infix.  However, that question not having been asked, he argues there is no direct evidence on this element of inducement and whether the omission by the applicant to inform Mr Wong of his interest influenced Mr Wong’s decision to approve and authorise the engagement of Hong Kong Infix can only be determined by inference.  Mr Duncan further submits that whether such an inference can be drawn was not a question addressed by counsel and the court and, he says, on the facts of this case it cannot be said that it is the only reasonable inference to be drawn.

23.  I am not persuaded that this is a ground of appeal that is likely to succeed.  The omission of the applicant to inform Mr Wong of his interest in Hong Kong Infix must be placed in context.  The context is that of a CEO of a company seeking the approval of a fellow director who has responsibility for authorising the expenditure of monies by the company.  Also part of the context is that the company has a corporate governance culture that requires the applicant and their directors to make formal written declarations of interest they have in other businesses so that conflicts of interest can be avoided.

24.  It can be said that the actions of the applicant had the effect of leaving Simon Wong with the false impression that his recommendation to engage Hong Kong Infix was an objective recommendation formed independently by him in his capacity as CEO. It can be further said that, in the context I have described, there was implicit in his action in making the recommendation, without making a disclosure of his interest, a representation by the applicant that his recommendation was made at arm’s length with no personal interest by him in this third party transaction. Finally, it can be said that in this context decision makers would make their decisions on the assumption that company requirements have been complied with, such as declarations of interests, and that such assumptions inform and underly the decisions they make.  Furthermore, there was evidence from Mr Wong which it could be said suggests that he regarded such a representation being implicit in the applicant’s failure to disclose his personal interest.  This is his evidence that he would have acted otherwise had he known of the applicant’s interest. I do not regard the first ground of appeal as likely to have a high chance of success.

25.  As Mr Duncan does not, at this hearing, rely on the second ground of appeal it is not necessary for me to address it.

CONCLUSION

26.  For these reasons I refused the application for bail.

[1] DOI is an acronym for “Declaration of Interest” which was a document each director had to complete in respect of businesses in which they had an interest.