HKSAR v. CHOI WAI-CHUEN

DCCC831/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 831 OF 2011

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Reasons for Sentence

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1.  The defendant appeared before me on 8 March 2012 facing two charges of fraud, contrary to section 16A of the Theft Ordinance, Cap.210.

2.  He pleaded guilty to the 1st charge but not guilty to the 2nd charge.  I was informed that the prosecution was content that the 2nd charge be left in the court file and not to be proceeded without the leave of the court. 

3.  The particulars of offence was that the defendant, a proprietor of a local company known as Lauren’s Workshop Packaging Company Limited (“Lauren”), had between 9 July 2007 and 19 May 2008 submitted to his bank, the Standard Chartered Bank (Hong Kong) Limited (“SCB”) false trading documents such as invoices and airway bills in connection with a French company known as Holinail S.A.S. (“Holinail”) to induce SCB to release funds to Lauren under a Receivables Purchases Agreement (“the Agreement”). 

4.  According to the Summary of Facts, which the defendant has admitted, the agreement is a type of accounts receivable financing whereby the seller sells its debts evidenced by its invoices that are outstanding to the bank in exchange for immediate access the funds.  It is commonly also known as “Invoice Factoring Facility”. 

5.  The Agreement was signed by the defendant on behalf of Lauren on 25 May 2007.  In effect, by the Agreement, Lauren thereby sold and SCB purchased all the accounts receivables owed by Holinail existing on 25 May 2007 or arising during the term of the Agreement and the ownership of the future accounts receivable owed by Holinail would vest in SCB. 

6.  Under the Agreement, in order to enjoy the invoice Factoring Facility, Lauren should submit documents such as invoices and delivery documents to SCB for processing.  In reliance on those documents, SCB would advance money to Lauren under the terms and conditions of the Agreement. Holinail would also settle the invoices by direct payment into the said account in SCB. 

7.  In total, between 9 September 2007 and 19 May 2008, in a period of slightly over 10 months, the defendant on behalf of Lauren had submitted to SCB: (a) 17 invoices; and (b) 16 airway bills in connection with Holinail to apply for credit facility.  In fact, all those were false trading documents purporting to show that there were business transactions between Holinail and Lauren and that Lauren had engaged the services of a Hong Kong Delivery Company (“HKDC”) to deliver the goods as described in the invoices to Holinail.

8.  A female purchase and logistic assistant of Holinail, later confirmed to the police that during the period, in fact there were only one business transaction with Lauren and they had settled the payment.  She also confirmed that Holinail never placed those orders with Lauren as described in the said 17 invoices or the said 16 airway bills.  She also denied never signing any letters seized from SCB purposing to have been signed by her on behalf of Holinail to Lauren.

9.  A staff of HKDC also confirmed to the police that 11 of the said 16 airway bills simply did not exist and the details of the remaining 5 did not match with HKDC business records.  Clearly, the defendant produced the forged documents as mentioned to the SCB with the intention of fraudulently   represented to SCB that there were business transactions between Lauren and Holinail.

10.  The acts by the defendant were to induce SCB to advance money under the Agreement.  According to the facts, SCB did release money to Lauren in a total of about US$2 million as a result and in the end, the defendant only managed to settle 10 out of the 17 invoices and SCB suffered an actual loss of US$825,539.63 (HK$6,439,209).

Criminal record and mitigation

11.  The defendant is now aged 41.  He is married and has a daughter which is now aged 10 studying primary 4.  His wife is aged 41. She is an insurance agent earning about $12,000 per month.  The defendant had only one previous criminal record of “driving whilst disqualified” and also “driving a motor vehicle on a road against third party risks” in 2003.  He was sentence to serve a Community Services Order and disqualified from driving for 12 months. 

12.  After finishing school at the aged of 17, the defendant started to become a salesperson in education merchandise.  According to the background report, he set up Lauren in 2005. Lauren had employed about 200 workers at his factory in Shenzhen PRC and there was also a Hong Kong office.  Lauren had been hard hit by the global economic recession at the end of 2007.  To make the matter worse, the Customs Department of Shenzhen had withheld his export freight and fined Lauren in the sum of RMB3.22 million, in the form of a ‘Risk Guarantee Fee’ in August 2008.

13.  The said freight was later released but it was only after the settlement of the fine in April 2009.  However, it was already too late and the buyer rejected to accept the late of delivery and demanded compensation.  Many other customers also attempted to cancel the orders with Lauren in the wake of the global economic recession. 

14.  All this has exerted tremendous economic pressure in the cash flow of Lauren.  The defendant therefore had to seek external loan to settle the expenses of the factory in the Mainland and also the office in Hong Kong.  I was also informed that the defendant’s father who was retired also has to turn in his life long saving of around $400,000 to help the defendant out.

15.  In 2009, the defendant was totally broke and he filed a Bankruptcy Order which has been granted by the court in August 2011.  The defendant later worked in the Mainland as a sales assistant, earning a modest income of about RMB7,000 per month, which would only match the subsistent level of his wife and his young daughter.

16.  In mitigation, the court is supplied with letters written by his wife, the younger sister and by the defendant himself.  Here, I am not going to refer in details the content of those letters.  Suffice to say that the defendant was described as a good husband, a filial son and also a very responsible father and employer.  I could see from his own letter that he is now very remorseful.  While they all appreciated that a period of immediate custodial sentence is unavoidable, they all wish the court to be as lenient as possible.

17.  Mr Philip Chau, counsel for the defendant, had reminded the court that this is not a case where the defendant obtained those funds to support his lavish spending or engaged in an extravagant life style.  He was genuinely hard hit by the economic conditions and he was just so desperate to save the company and also the livelihoods of all those workers working for him in the Mainland factory.  

Sentencing considerations

18.  I prefaced my consideration by pointing out that for all intent and purpose, I shall treat the defendant as a man of clear record as his only conviction was already some 9 years ago and it was totally unrelated to the present offence.

19.  This is yet another sad case, where a hard-working entrepreneur such as the defendant, foolishly took drastic and dishonest mean in a misguided attempt to salvage his own business, which has obviously been hard hit by the economic downturn across the region at the time.

20.  In sentencing, I have considered a current authority by the Court of Appeal on “Letter of Credit” (“L/C”) fraud:  HKSAR v Dai Chi Wai [2011] 4 HKLRD 529.  Although, strictly speaking, the present case is not concerning L/C fraud, I consider the legal principles stated therein are equally applicable to the present case.

“Legal principles

3. The Court of Appeal has stated clearly in a number of authorities that the use of false document to obtain a letter of credit from a bank is a serious offence. First, it undermines the reputation of Hong Kong as an international financial and banking centre. Modern commercial activities generally rely on a documentary system for loan and credit facilities. Under normal circumstances, a bank relies on the truthful documents from both sides as the basis for approving loans, issuing letters of credit and making payment. Hence, the court has to ensure that this type of commercial activity will not be made use of by criminals. Second, a bank relies upon the goods stated in the letter of credit as the security for the loan, so as to safeguard the bank from loss. If the commercial transaction so stated is in fact non-existent, the bank does not have sufficient security and has to bear an extremely high risk. Even if the bank is, ultimately, able to recover the loan and suffers no real loss, it does not in any way mean that the bank needs not face the economic risk arising from an applicant’s use of fraudulent documents to apply for the bank’s letter of credit. (See: R v Chan Kam-chuen [1995] 2 HKCLR 257; HKSAR v Kwong Shing-cheong (unrep., CACC555/2002, [2003] HKEC 701); HKSAR v Leo Yee Sang (unrep., CACC494/2005, [2005] HKEC 1158); HKSAR v Chu Wai San [2008] 4 HKLRD 18; HKSAR v Law Chi Man (unrep., CACC356/2006, [2007] HKEC 1770); Secretary for Justice v Grossmann [2008] 4 HKLRD 1 and HKSAR v Leung Wan Keung [2011] 2 HKLRD 914).

4. Although the Court of Appeal has not laid down any sentencing guidelines for “fraud” by using false documents to apply for a letter of credit, it has stated clearly that the court has to take into account factors including the amount of money involved, the number of banks deceived, the period over which the fraudulent act was committed, whether the banks had suffered any loss and the roles played by each of the defendants.”

21.  In this case, the amount involved is of course substantial.  The actual loss by the SCB is said to be over HK$6.4 million and the original risks are actually over HK$15 million.  The offences were just committed over a period of 8 months.

22.  The defendant has in no less than 17 occasions submitted false documents to deceive SCB.  He only not forged invoices but also delivery documents such as airway bills and even corresponding letters with Holinail.  The fraud was therefore carefully planned and premeditated. 

23.  In Dai Chi Wai (supra.), the Court of Appeal has also cited two of its own decision in 2004 and 2006 (at paragraph 5 and paragraph 6):-

“5. In the case of HKSAR v Law Chi Man CACC356/2006, in order to defraud the banks, the defendant specially established a company, altered monthly bank statements and provided fictitious information in relation to buyers, suppliers and factories. As a result, the banks suffered losses that amounted to HK$9.8 million. The Court of Appeal adopted a starting point of 4 years’ imprisonment for each of the offences of the defendant, making a total of 6 years’ imprisonment for the three offences.

6. In the case of HKSAR v Kwong Shing Cheong CACC494/2004, the defendant obtained 3 letters of credit using false documents and the amount involved was HK$7.8 million. The Court of Appeal considered a starting point of 3 years’ imprisonment too low.”

24.  Applying the above legal principles and consider the application of those principles in the present case, I consider that a starting point of 4 years is appropriate.  While I have sympathy of the aged old father of the defendant and the young daughter of the defendant, in a serious case such as the present, the Court of Appeal had repeatedly reminded the court that family circumstances has no part to play in mitigation.  The defendant should think of the consequences to the family before he committed the offence and to that extent, he is the author of his own misfortune.

25.  SCB suffered a great deal financially.  The defendant was not able to offer any restitution of any kind.  Therefore, in the usual circumstances, the only effective mitigation in defendant’s case was his decision to plea guilty, which normally would attract the customary one-third discount. 

26.  In the last occasion, Mr Ronald Mayne, counsel for the prosecution, however, has referred the court to the case of HKSAR v Hashimi Habib Halim CACC526/2001.  Relying on this authority, Mr Mayne submitted that the court might want to consider reducing the discount on account of the fact that one of the two overseas witnesses from France has already flown to Hong Kong before the trial and prepared to testify and thus it was still a late plea albeit, it was entered on the very first day of the trial. 

27.  The unusual circumstances existed in Hashimi Habib (supra.) boreclose resemblance to the present case.  In that case, the appellant pleaded guilty upon his arraignment before a Judge and a Jury in the Court of First Instance.  In sentencing, Madam Justice Beeson took the view that the usual mitigation of saving time and expense did not apply in full in the sense that although the time of the trial was saved, two of the three main witnesses had to be flown from Japan and Korea to give evidence and because the pleas were advised so late, it was too late to stop the witnesses flying to Hong Kong and thus a major cost of the trial was not avoided.  In the end, the learned Judge only gave a discount of 20% instead. 

28.  On appeal, the Court of Appeal agreed that the plea entered by the appellant in that case was indeed too late to avoid the necessity of the attendance of the witness from overseas and confirmed that the court was wholly justified in reducing the discount which would have been attracted to a timely plea.

29.  Mr Philip Chau did not seek to distinguish the circumstances described above with the present case.  He complained however that before the overseas witness from France was flown to Hong Kong, the prosecution never approached the defence to discuss the order of calling of witnesses and/or the possibility of preparing an admitted fact.

30.  In the last occasion, Mr Philip Chau has already confirmed that he had only received a firm instruction from the defendant to enter into plea bargaining with the prosecution one day before the arraignment. He has also properly conceded that given his instruction at that time, it is unlikely that he would simply agree the overseas witnesses’ statements in their entirety without the need of any cross-examination even if there was a discussion between the parties before the trial.      

31.  In my judgment, given the nature of this case, the two witnesses of Holinail from France form an essential part of the prosecution case against the defendant.  Unless and until there was clear indication from the defence that there would not be a necessity for trial, it is always the duty of prosecution to ensure that the witnesses would fly from France to Hong Kong to testify in time before the trial.   

32.  This situation is entirely foreseeable by the defence.  Therefore, it is a conscious decision on the part of the defence to leave it to the very last moment to engage into a discussion with the prosecution with regard to plea bargaining. 

33.  Thus it is all a matter of choice and consequence.  In my view, it does not lie in the mouth of the defence now to complain that they were not approached earlier by the prosecution.  In my view, it would not have made much difference to the fact that the witnesses were scheduled to fly to Hong Kong to testify.

34.  This case serves as a helpful reminder to a defendant and perhaps also to his/her legal adviser to consider this factor, namely, that in a case which involves overseas witness, any decision to plea guilty with the hope of receiving the customary one-third discount should be made in time so as to save the expenses and avoid the necessity of flying the witness to Hong Kong to testify.

35.  However, unlike Hashimi Habib (supra.), the present case concerns only one overseas witness who had flown to Hong Kong to testify.  Instead of the 20% discount adopted in that case, I will still give a 25% discount instead of the usual one-third discount. 

Order

36.  I shall adopt 48 months as a starting point, after giving a 25% discount, the defendant is sentenced to 36 months’ imprisonment.