HKSAR v. KAWATE YUKIO

DCCC 755/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 755 OF 2014

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REASONS FOR VERDICT

1.  The defendant pleads not guilty to three charges of theft, contrary to section 9 of the Theft Ordinance[1].

Introduction

2.  Toho Rubber Limited (“Toho Rubber”), a Japanese company, was incorporated in 1954.  A subsidiary Toho Rubber (HK) Limited (“Toho HK”) was established in 1995, at which time Ueda Takaharu, the president of Toho Rubber, inherited the company from his father. 

3.  A factory was also set up in China for the production of spare parts for printers.  All orders received by Toho HK would be produced by the factory in China.  In July 2009 the defendant was employed as a General Manager to take charge of Toho HK and the factory in China. 

4.  Each month the Japan head office would approve the expenditure of Toho HK.  After approval money would be transferred from Japan to the bank account of Toho HK held with the Bank of China.  Cheques would then be prepared by Toho HK for signature by President Ueda.  The payee on some of the cheques would be left blank.  The charges relate to twenty-two blank payee cheques[2].

Prosecution case

5.  In summary the defendant was to take the blank payee cheques to the factory in China and give them to the manager of the factory.  The manager would then exchange the money into RMB and deposit the money into the bank account of the factory held with the Postal Savings Bank of China. 

6.  Around February 2013 the defendant told President Ueda about a project involving Russia.  President Ueda rejected the defendant’s proposal.  After considering what the defendant had said President Ueda began to suspect that the defendant may have embezzled company money.  In May 2013 President Ueda therefore instructed Mr Hirata, the head of the Executive Department of Toho Rubber and who was responsible for the books of account of Toho HK and the China factory, to check whether any money had been stolen from the company. 

7.  Investigation revealed that between June 2011 and May 2013 the defendant had cashed blank payee cheques intended for the factory instead of taking the cheques to China and giving them to the manager for exchanging into RMB and depositing in the factory account. When asked to explain what happened to the money the defendant said all the money had been used on behalf of Toho Rubber in connection with LED business. 

8.  The prosecution case is that the defendant dishonestly appropriated the money with the intention of permanently depriving Toho of the money.  The prosecution say that apart from a small amount of LED business approved by President Ueda in early 2011 the defendant was not authorised to conduct LED business and was not authorised to cash the blank payee cheques; no records were found by Toho Rubber accounting for how the defendant spent the money; and the defendant concealed his appropriation of the money by artificially inflating currency exchange losses in order to balance the books at the end of the financial year; and inappropriately recorded some of the cash obtained as temporary payments, which payments the defendant wrongly told the auditors were for repair and maintenance. 

9.  The prosecution rely on a series of letters signed by the defendant and audio conversations secretly recorded by President Ueda to show that the defendant apologised for using company money without authorisation; promised to repay the company and that invoices were fictitious. 

10.  The defendant failed to repay Toho Rubber.  On 11 March 2014 the defendant was arrested.  The prosecution also rely on statements made under caution and in a subsequent video interview that the defendant used company money without authorisation.

Defence case

11.  The defence case in summary is that there was no rule that blank payee cheques were to be taken to the China factory; all the cheques were used in connection with LED business for Toho; and that President Ueda approved the defendant using the cheques for the LED business.  The defence challenged the admissibility of the letters of apology and the secret audio recordings. 

Evidence

12.  The prosecution called five of six witnesses on the list of prosecution witnesses attached to the prosecution opening.  The witnesses, in the order they were called, were President Ueda (PW1)[3]; Hirata Kazuhiro (PW3); Funayama Tadashige (PW4), manager of the China factory responsible for production and quality control; Winnie Li Ching Fong (PW5), assistant manager of the Toho HK and Wakizaka Toshimitsu (PW2), who was responsible for overseeing the accounts of the overseas factories.

13.  Although called in a different order the prosecution opening having referred to the witnesses by their PW number, for ease of reference, the same number was adopted at trial.  The evidence of Angel Leung On Ki (PW6) was read pursuant to section 65B of the Criminal Procedure Ordinance[4]. One additional witness was called Lam Chong Hing (PW7) an accountant with CWCC Certified Public Accountants.    

14.  Evidence has also been admitted pursuant to section 65C of the Criminal Procedure Ordinance[5], including the employment of the defendant by Toho HK; bankers’ affirmations; the defendant’s reply under caution and a subsequent video recorded interview; photographs; and translations of witness statements read pursuant to section 65B of the Criminal Procedure Ordinance. 

15.  The prosecution and defence both prepared trial bundles.  I have had occasion to comment adversely on the preparation of the bundles, in particular that the documents are not in chronological order; documents are duplicated; and that certified translations were not always provided.  All the documentation in the bundles, particularly the defence bundle, were neither produced nor referred to in evidence resulting in the defence exhibits starting at exhibit D9[6].   

16.  To be noted is that some of the exhibits produced by the prosecution and the defence are the same[7]. This is largely the documentation supplied by the defendant when asked by Toho Rubber to explain what happened to the money.  The prosecution produced the documentation not to prove the truth of the documents but as part of the documentation submitted to Toho Rubber when enquiries were made of him about what happened to the money.  The defence on the other hand produced the documentation to support that the monies were in fact used for LED business.

17.  I will when referring to the documentation endeavour to refer to both the exhibit number and page reference in the trial bundles.

18.  The defendant elected to give evidence on both the special and general issues.  Henry Ha, a Certified Public Accountant gave expert evidence on the accounts of Toho Rubber. 

19.  I remind myself of the burden and standard of proof and that the burden is on the prosecution throughout.  The defendant has to prove nothing.  I direct myself that I must be sure of the guilt of the defendant before I can convict, each charge to be considered separately.  On the other hand if the court thinks that the defence evidence pointing to innocence is true or may be true, it would follow that the defence has raised sufficient doubt in the prosecution case and the defendant entitled to be acquitted.

20.  I remind myself that when drawing inferences from the evidence the inference must be the only reasonable inference to draw from the proved facts.  If from the facts proved there is a reasonable inference to draw against the defendant as well as one in his favour the adverse inference cannot be drawn.  

21.  I have carefully considered all the evidence and the submissions of Mr Sherry and Mr Richmond. 

Summary of the prosecution evidence

22.  I will first give a brief summary of the prosecution evidence and the defence evidence.

Blank payee cheques/the “rule”

23.  Each month Winnie[8]prepared a “fund budget schedule” of the expenditure that month for approval by the head office in Japan[9]. Some expenditure was fixed each month and some varied.  The defendant would give the details of the expenditure to Winnie so she could compile the “fund budget schedule”.   

24.  In cross-examination Winnie said the “fund budget schedule” was an excel document created in Japanese, which she would email to Mr Hirata in the head office.   Winnie did not produce or identify a copy of the “fund budget schedule”.  The fund budget schedules were first shown to and identified by Mr Wakizaka, who was the last witness to give evidence[10].

25.  Until Winnie gave evidence the prosecution and defence had proceeded on the basis that the table at prosecution bundle 1/44 (exhibit P6(1)) was the budget. Winnie explained this was a list of the cheques signed by President Ueda.  The list was based on the “fund budget schedule” and was compiled by Winnie after President Ueda signed the cheques. 

26.  After the head office approved the “fund budget schedule” money was transferred to the Hong Kong bank account.  Winnie would then draw up the cheques for signature by President Ueda.  President Ueda would visit the Hong Kong office and the China factory once a month during which time the defendant would give him the cheques to sign.  After the President signed the cheques they would be given back to Winnie. 

27.  The defendant could only use the cheques which had been approved by the head office and signed by the president.  President Ueda testified that there was almost no money the defendant could spend freely unless the information on which the head office gave approval was incorrect or a lie.    

28.  President Ueda signed some of the cheques with the payee left blank.  President Ueda testified that the defendant was to take the blank payee cheques to the China factory.  Winnie would first make a copy of the payee blank cheques and ask the defendant to acknowledge receipt of the cheques by signing copies[11]. 

29.  President Ueda and Mr Hirata both testified that these blank payee cheques were to go to the factory in China.  This was referred to by the witnesses as “the rule”.  In cross-examination President Ueda said only cheques for the China factory were signed with the payee left blank.

30.  The defendant was to give the cheques to Mr Funayama, the manager of the China factory, who would exchange the cheques for RMB.  Mr Funayama would then deposit the RMB in the Postal Savings Bank account which was held in his name and was used for the factory operating fund[12].

31.  Mr Funayama testified that each month he would usually receive from the defendant two or three blank cheques for the operating costs of the factory, each cheque in the sum of $200,000.  On some special occasions the cheque may be $210,000.  The defendant never gave Mr Funayama cash.  In March 2013 the defendant told Mr Funayama the operational fund was too large and that the monthly sum would be reduced to $400,000.

32.  President Ueda identified the twenty-two cheques subject of the charges.  President Ueda had signed the cheques between June 2011 and May 2013.  The payee of each cheque was left blank.  The cheques were handed to the defendant who acknowledged receipt by signing copies. 

33.  By referring to the bank statements contained in prosecution bundle 1 (exhibit P6) and the banker’s affirmation, exhibit P2, it can be seen that the cheques were cashed in Hong Kong and not taken to the factory in China and given to Mr Funayama.  

34.  Winnie testified that on five to seven occasions the defendant asked her to cash the blank payee cheques in Hong Kong because the exchange rate was better.  This was mostly for cheques in the sum of $200,000.  On one occasion when Winnie was busy Angel cashed the cheque for the defendant[13].

35.  The cash would then be given to the defendant.  On the instructions of the defendant Winnie booked these as temporary payments in a journal, which was also an excel document in Japanese.  Winnie did not know how the defendant actually used the cash.  In cross-examination Winnie said the journal was sent to the head office every month. 

36.  Winnie did not produce or identify a copy of the journal in which she made these entries.  Winnie said the journal was not the General Journal produced as part of exhibit P6 (prosecution bundle 1) for example at pages 52, 136 & 193.  Mr Wakizaka testified that during his investigation he copied the data of the General Journal from Winnie’s computer and then printed out extracts of the General Journal, some of which have been produced in court.                

LED business

37.  President Ueda testified that around 2010/2011 the defendant spoke to him about investment in LED business.  The defendant said he was the president of the Hong Kong LED association and was very knowledgeable about this business.  At that time LED was not used very much in Japan therefore President Ueda thought that it would be a good idea to do this business.  President Ueda therefore agreed to a small amount of business of JPY1-2 million.

38.  In cross-examination President Ueda agreed that the defendant’s plan was to purchase LED lights from mainland companies and sell them to existing customers of Toho Rubber including customers in Singapore, Vietnam and Malaysia.  The defendant was asked to present the proposal to the head office in Japan which he did in December 2010.  After the presentation President Ueda authorised the defendant to start the LED business.  President Ueda also visited three to four factories with the defendant to check the quality of the products.   

39.  When President Ueda was shown the blank payee cheques by Mr Richmond he disagreed that when he signed the cheques he knew they were for LED and repeated that blank payee cheques were for the China factory and that cheques for LED would have the name of the payee written on.   

40.  Around February 2013 the defendant proposed investing in LED telling President Ueda that there was a project valued at JPY50 billion to produce LED in China for the Russian market.  This led to President Ueda asking the defendant whether he was doing other business while working for Toho Rubber.  The defendant replied he was only managing production which did not take up very much of his time. 

41.  President Ueda declined the investment opportunity believing what the defendant said sounded like fraud.  President Ueda therefore told the defendant not to mention this again saying the defendant sounded like a swindler.  Mr Hirata testified that President Ueda told him he had rejected the Russian business but nevertheless asked him to research the matter because the business was big. 

42.  Over the next few months President Ueda thought about what the defendant had said and came to the conclusion that the defendant was embezzling money from the company.  In May 2013 President Ueda therefore asked Mr Hirata to check if any money had been stolen.

The investigation

43.  Mr Hirata testified that he checked an excel sheet on which was entered a Japanese classification temporary payments[14]. Mr Hirata found this was unusual and therefore asked Winnie to email him the list of cheques she prepared each month so that he could see what cheques had been used for these unknown payments.  Winnie emailed the lists, for example as seen at prosecution bundle 1/44[15], together with copies of the blank payee cheques and the bank statements.

44.  After checking the documents Mr Hirata discovered that the blank payee cheques intended for the factory in China had been cashed in Hong Kong and not taken to the factory by the defendant.  Mr Hirata discovered there was around 30 cheques which the defendant had not given to the factory. 

45.  Mr Hirata therefore checked to see whether in fact the cash had been handed to the factory.  Mr Hirata was unable to find where the cash had gone and explained this was because temporary payments was used where there was no receipt.

46.  In June Mr Hirata reported to President Ueda that blank payee cheques intended for the factory had gone missing over the last one and a half years.  President Ueda therefore instructed Mr Hirata to investigate where the money had gone. Mr Hirata therefore went to Toho HK on 8 July 2013.   

47.  Before Mr Hirata went to Hong Kong President Ueda spoke to the defendant in the China factory.  The defendant told the president that the money was based on the conversation they had in February about LED business and that he had used the money to buy LED things.  The defendant promised to repay the money but could not repay at that time.  Not knowing how much was missing President Ueda ended the conversation because he did not know whether the defendant was telling lies or telling the truth[16].

48.  During his visit to Hong Kong Mr Hirata asked the defendant to explain where the money went and provide receipts.  The defendant said he would co-operate and also told Mr Hirata about the Russia business saying that if they succeed in the business he can repay the money. 

49.  The defendant was unable to co-operate because of a traffic accident.  Mr Hirata therefore checked with Winnie who told him the defendant had requested the accountants to transfer the temporary payments to repair and maintenance.

50.  Before leaving Hong Kong Mr Hirata again asked the defendant for receipts.  In response, on 25 July 2013 the defendant emailed an excel sheet to President Ueda with cc copy to Mr Hirata, explaining how he had spent the money[17].    

51.  Mr Hirata checked the information against the temporary payments discovered in May but found they did not match.  Mr Hirata did not understand the explanation given by the defendant and thought the business mentioned was not the business of Toho.  Further, the defendant did not explain in the email about the money he was supposed to take to the factory. 

52.  Mr Hirata therefore informed the defendant that the amounts did not match and asked him to send material so that he could find out what those payments were.  On 28 August 2013 the defendant sent an email to President Ueda with cc copy to Mr Hirata giving a further account of the LED payments[18].  Mr Hirata was not satisfied with the information because there was still no explanation from the defendant about the money that should have been taken to the factory.  

53.  President Ueda also testified that in August he asked the defendant to send him a list of payments for LED business.  President Ueda discussed the table sent by the defendant with Mr Hirata.  Mr Hirata told the president that some of the things did not exist anywhere.  President Ueda said he recognised some of the facts were true but did not understand other things at all, which totalled $3,271,105.  President Ueda therefore instructed Mr Hirata to go to the factories in China to see if the payments were actually made.   

54.  In cross-examination Mr Richmond showed Mr Hirata a series of emails.   By email dated 31 July 2013 the defendant sent details of the LED payments to President Ueda[19]. Mr Hirata could not recall seeing this email[20]. By email dated 29 August 2013 Mr Hirata asked the defendant for further receipts[21]. The defendant sent receipts by email dated 2 September 2013[22]. 

Letters of apology

55.  After looking at the table President Ueda was of the view the defendant had embezzled company money.  President Ueda therefore telephoned the defendant telling him he had used this money illegally and asked him to write a letter of apology. During the telephone conversation the defendant said he made payments without permission.    

56.  Mr Hirata also testified that in discussions with President Ueda a decision was made to ask the defendant to write a letter of apology.  Mr Hirata therefore telephoned the defendant on the morning of 2 September 2013 asking the defendant to write a letter of apology. 

57.  The defendant asked Mr Hirata how to write the letter.  Without first informing the president Mr Hirata wrote a sample letter based on the emails sent by the defendant on 25 July and 28 August[23]. In cross-examination Mr Hirata identified the email sent at 12:15 on 2 September enclosing the sample, which was in excel format and typewritten[24]. 

58.  Later the same day the defendant sent the first letter of apology dated 2 September 2013[25]. The letter was handwritten and included that payments were made without observing normal procedure; without providing sufficient explanation and without obtaining approval from President Ueda and that the defendant promised to repay or recover the money as soon as possible.

59.  President Ueda was not satisfied with the content of the letter and immediately telephoned the defendant telling him it was different from the facts.  President Ueda asked the defendant to write the letter more accurately by including that he made fake slips and that the president did not give him permission from the beginning.  The defendant promised he would rewrite the letter in this way.  Mr Hirata testified that President Ueda asked the defendant to rewrite the letter in October.

The visits to factories in China

60.  Between 8-14 September 2013 Mr Hirata went to China to visit the factories of the suppliers mentioned in the emails sent by the defendant.  Mr Hirata visited Obosen; Beson; Jin Jin Nui; Nanbu; Yunzhang; and Yuanjing.  The result of the visits was that apart from one contract 20110721 with Nanbu, Mr Hirata was unable to verify any payments, having variously been told the companies had gonebankrupt or the receipts were not issued by them[26].  Mr Hirata also checked company records and could find no records of business with Yunzhang; Yuanjing and Dongguan Jia Hao.

The second letter of apology

61.  The defendant sent the second letter of apology[27], also dated 2 September 2013, by email dated 17 October 2013[28].  President Ueda was again dissatisfied with the content, which was almost the same as the first letter of apology and asked the defendant to rewrite the letter.  

62.  In cross-examination President Ueda was shown his email to the defendant asking the defendant to rewrite the letter and telling the defendant what to include otherwise the apology would not be regarded as sincere[29]. 

The third letter of apology

63.  The next day the defendant sent the third letter of apology[30]by email[31].  President Ueda was satisfied with the letter of apology which included fictitious invoices had been issued and that the defendant had covered up what had happened.   The defendant having promised to pay in a few weeks President Ueda waited to see if the defendant paid.

Letter of repayment

64.  The defendant said he would repay the money by cashing a standby LC issued by the buyer of the project.  In February 2014 President Ueda being concerned that Toho Rubber may be seen to be borrowing money asked the defendant to write a letter saying he was responsible for repaying $3,500,000.  President Ueda explained that the amount had increased because he had been waiting a long time for payment and therefore he rounded up the figure to take account of interest. 

65.  The defendant agreed to repay $3,500,000 and signed a letter ofrepayment[32].  In cross-examination President Ueda said he could not remember who drafted the letter for the defendant to sign.  When shown his witness statement in which he stated he drafted the letter and gave it to the defendant to sign, President Ueda again said he did not remember who wrote the letter and repeated the reason why this letter was drawn up and signed by the defendant.

Secret audio recordings

66.  President Ueda secretly recorded on his iPhone conversations he had with the defendant[33].  President Ueda subsequently handed his iPhone to Mr Wakizaka who converted the conversations to mp3 file format and burnt onto a CD-R disc which he gave to the police[34]. 

67.  President Ueda identified three conversations. President Ueda believed the first conversation was in October 2013 before the second letter of apology[35]; the second in November or December 2013[36]; and the third in February 2014 before the letter of repayment[37].  In cross-examination President Ueda explained why he decided to make the secret recordings.  President Ueda said he found the first letter of apology weird because the defendant had not included that he had cheated him.  President Ueda therefore thought it would be better to make a record of what the defendant said.  

68.  The prosecution rely on conversations between President Ueda and the defendant to show that the defendant, inter alia, told President Ueda that he acted without permission; paid deposits without permission and had cheated Toho out of tens of millions of yen through fictitious things; and that he was sorry[38]. 

Concealing the theft

69.  In May 2013 Mr Wakizaka was asked by President Ueda to investigate the accounts in Hong Kong with regard to some missing cheques.  Mr Wakizaka found out that certain cheques had been cashed at the bank but the money had not been taken to the factory in China. Mr Wakizaka therefore went to the Hong Kong office in November 2013 and January 2014. 

70.  Mr Wakizaka discovered a number of payments inappropriately recorded as temporary payments[39] which had been made the subject of an audit adjustment as repair and maintenance[40].  The prosecution say this is how the defendant concealed the theft of the money from some of the cheques. 

71.  Mr Wakizaka, further testified that the defendant also concealed the theft of the money from some of the cheques by artificially inflating the exchange loss to ensure that the accounts balanced at the end of the financial year. 

72.  Mr Wakizaka was referred to each cheque and testified that he could not find any supporting documents or records showing how the money was used by the defendant. 

Arrest of the defendant

73.  The defendant was arrested on 11 March 2014.  Under caution and in a video interview the defendant admitted he had used company money without approval and promised to repay[41].

Defence evidence

74.  In summary the defendant testified that he received the cash from the twenty-two cheques and used all the money in developing LED business for Toho for which he had the permission of President Ueda.

The LED proposal

75.  The defendant explained that Toho had a deficit due to fluctuation in the exchange rate of the yen by reason of which it was difficult for Toho to make a profit. The defendant therefore proposed that Toho sell LED products manufactured in China. 

76.  The defendant first proposed selling LED products in August 2010 when President Ueda visited the China factory.  President Ueda said the proposal was very good and asked the defendant for a written proposal. Over the next two months the defendant prepared the written proposal which he submitted to President Ueda around October/November 2010.  President Ueda was very clear about the proposal but because the product was a new product he asked the defendant to explain the proposal to the head office in Japan. 

77.  Prior to explaining the proposal to the head office the defendant purchased some samples for quality control and demonstration kits for use at the presentation.   The presentation was given on the 27 or 28 December.  President Ueda, Mr Hirata and salesmen were present.  The defendant was instructed by President Ueda to purchase five more demonstration kits.  When purchasing the kits the defendant told President Ueda he used the factory operating funds[42].

The decision to carry out LED business

78.  By March 2011 a decision was made to carry out LED business.  Between March and May 2011 the defendant together with President Ueda visited eight factories in Shenzhen.  No orders were however placed during these visits.  The first order was placed on 16 June 2011 when visiting the Obosen factory.  President Ueda was present at the time and told the defendant to place the order.  President Ueda suggested ordering 2000 units but the defendant said this was too many and only ordered 650[43].

Operating capital of the China factory

79.  The defendant agreed that the operating capital for the factory in China required the approval of the head office.  Each month Winnie would submit the details of the expenses for approval.  Following approval funds were transferred to the Hong Kong account, including the monies for the blank cheques.   

80.  At that time three blank cheques, each in the sum of $200,000, were usually applied for each month.  The defendant said there was no rule that these cheques could only be used for the China factory.  The defendant explained that sometimes money was left over.  

81.  The order placed on 16 June was the day after President Ueda had signed the blank cheques for that month.  The defendant had told President Ueda a deposit was needed and asked if one of the cheques could be used to pay the deposit. President Ueda agreed.

82.  President Ueda however did not specify that the funds could only be used for that order. The defendant understood President Ueda to be saying that the surplus funds could be used for LED deals.  

83.  The defendant also visited Malaysia and Singapore in September/October 2011 and Vietnam in August 2012.  As a result of these visits orders were placed for LED products.  President Ueda was aware of these visits because he approved the expenses of these trips[44].

The Russian project

84.  The defendant testified he became involved in a project for a Russian trading company.  The defendant said he was a member of the board of directors of the LED Association in Shenzhen.  The chairperson of the board asked the defendant to manage the production of a project worth €250,000,000 for one year with an option for a second year.

85.  The project was mainly for vehicle parts but included around €60,000,000 for the purchase of LED lights, with one million units being produced each month.  The defendant’s role was to make sure the units were produced every month. 

86.  The defendant explained by managing the project Toho would be able to buy LED lights at a cheaper price.  The defendant worked for free so that Toho could benefit.  The defendant first discussed the project with President Ueda in February 2011.  President Ueda agreed and told the defendant to discuss the details later.  Thereafter the defendant kept President Ueda informed about the progress of the Russian project.  

87.  Between 2011 and February 2013 payment was made by Toho for facilities and tools to enable production to take place.  The defendant explained Toho made these payments because the producer was a small scale company which did not have the relevant machines for quality control.  By buying the machines for the producer Toho would be able to buy the product at a cheaper price. 

88.  By February 2013 production had still not begun.  At this time payment was required for QC check however the funds of the Russian company had not arrived.  The defendant therefore asked President Ueda if it was alright for Toho to pay.  President Ueda said it was not OK for Toho to pay the deposit for other companies.[45]

The twenty-two blank payee cheques

89.  The defendant was then asked to explain how the money for each cheque was used. This was done by reference to the table attached to the first letter of apology[46].  The table is divided into three parts.  The defendant explained that Part A is for orders placed but no goods received; Part B related to the Russian project; and Part C was for orders where payment was made and goods received. 

90.  The defendant was taken through each cheque in the order particularised in the prosecution opening[47]. I will specifically refer to each cheque later when considering whether the cheques were used for or may have been used for LED business of Toho. 

91.  In summary the defendant testified that cheques 8, 9, 10, 11, 12, 13, 14, 15, 16 and 21 were used to make payments in connection with contracts listed under Part A; cheques 4, 5, 7 and 20 were payments made in connection with the Russian project; and cheques 1, 2, 3, 6, 12, 19 and 22 were payments made in connection with contracts listed under Part C.

92.  Some of the cheques were used in respect of only one contract whereas some were used for more than one contract and on occasions to refund advance payments made by the defendant.  The defendant testified that on most occasions prior to President Ueda signing the blank payee cheques he told the president that the cheques were to be used for LED business. 

93.  Cheques 17 & 18 were used to pay the balance of contracts No. S1-27[110614][48]in the sum of RMB 169,440 and contract 2011062301[49]in the sum of RMB 103,760, two separate contracts from those listed in the table attached to the first letter of apology.  The defendant testified that he told President Ueda both cheques were to be used to pay the balance of these two contracts.

94.  Contracts and receipts were produced for most but not all payments.  The defendant testified most of these receipts had been given to Mr Hirata when he visited the Hong Kong office in July 2013 and again by email in September 2013[50]. The defendant said copies of contracts and receipts had also been sent to Mr Kanai in the Japan head office at the time they were issued, however no emails were produced showing the documents had been sent to Mr Kanai.  The defendant also produced a series of invoices he had sent to Mr Hirata by email on 21 August 2013 relating to shipment of LED products to Toho Rubber, Japan; Asahi Seiko; Santa Hotel, Vietnam; Toho Malaysia; Toho Vietnam and Sum-Wa Techno, Singapore[51]. 

95.  In evidence the defendant mentioned for the first time that he kept in the Hong Kong office an LED file which contained records of the LED business and a small note book in which he kept details of payments.  No witness, including Winnie, was asked about the file or note book and neither the file nor notebook were produced. 

Voir Dire

96.  Before discussing the evidence, I will first give my reasons for ruling the three letters of apology (exhibits P7, P8 and P9); the letter of repayment (exhibit P10); and the three secret audio recordings (exhibit P31) admissible in evidence. 

97.  The defence objected to the admissibility of the three letters of apology and the letter of repayment on the grounds of threats and inducements as particularised in the written grounds of objection submitted by Mr Richmond on 18 June 2015[52].  The defence also objected to the admissibility of the three secret audio recordings on the grounds of threats and inducements as particularised in the written grounds of objection submitted by Mr Richmond on 7 April 2016[53]. 

98.  In summary the defendant signed the first letter of apology drafted by Mr Hirata, who was his superior in Toho because Mr Hirata told him if he signed the matter would be concluded; signed the second letter because President Ueda told him the first letter did not demonstrate genuine remorse and therefore ordered the defendant to write the letter again; signed the third letter after President Ueda sent the defendant an email telling the defendant what to include otherwise the letter would not be regarded as sincere; and signed the letter of repayment because he was told if he did not sign or repay the matter would be reported to the police. 

99.  The defendant agreed with President Ueda in the secretly recorded conversations because he understood the matter would then be concluded and that if he did not appear to agree with President Ueda he would be treated as insincere and be dismissed.

Prosecution evidence

100.  The prosecution relied on the evidence of President Ueda (PW1) and Mr Hirata (PW3).  President Ueda was recalled to produce the three secret audio recordings.  I have already partly summarised the evidence relating to the letters of apology; letter of repayment and the secretly recorded conversations when reviewing the prosecution evidence[54].

101.  In summary after the defendant sent the emails (exhibits P11 and P12)[55] President Ueda and Mr Hirata discussed the matter and decided to ask the defendant to write a letter of apology.  Mr Hirata therefore telephoned the defendant on the morning of the 2 September asking the defendant to write a letter of apology. 

102.  In cross-examination Mr Hirata agreed he told the defendant that it would be better if he submitted a letter of apology but disagreed that he told the defendant if he did the matter would be concluded.  In re-examination Mr Hirata explained that he said it was better for the defendant to write a letter of apology because in Japan if you do something wrong you write a letter of apology and by writing yourself means you admit your wrong.

103.  The defendant said he did not know what to write therefore Mr Hirata sent a sample by email (exhibit D16)[56], which was based on the emails and attachments sent by the defendant (exhibits P11 and P12).  Later the same day the defendant sent the letter of apology (exhibit P7)[57] which was handwritten and signed by the defendant by way of attachment to an email (exhibit D17)[58] addressed to President Ueda and copied to Mr Hirata.

104.  President Ueda was not satisfied with the content of the letter and immediately telephoned the defendant telling him it was different from the facts. President Ueda asked the defendant to write the letter more accurately by including that he made fake slips and that the president did not give him permission from the beginning.  The defendant promised he would rewrite the letter in this way. 

105.  In cross-examination President Ueda said that he did not know what was in the defendant’s mind when he wrote the first letter of apology and thought it would be better to make a record.  President Ueda therefore decided to secretly record meetings (exhibit P31) with the defendant on his iPhone. 

106.  The first audio recording (exhibit P31A(1))[59] was recorded during a meeting in early October in which President Ueda discussed the letter of apology and told the defendant what he thought should have been written in the letter[60].  The defendant promised to rewrite the letter. 

107.  The second letter of apology (exhibit P8)[61] handwritten by the defendant is also dated 2 September and was sent by email (exhibit D18)[62] on the morning of 17 October.  President Ueda was again not satisfied with the content describing the content as almost the same as the first letter. 

108.  President Ueda therefore asked the defendant to rewrite the letter.  In cross-examination President Ueda was shown an email in which he sets out what he wanted written in the letter otherwise the letter would not be treated as sincere including that the defendant created a voucher of advance payment which did not actually exist and that he ordered LED tubes from suppliers who then went bankrupt[63].

109.  On 18 October President Ueda received the third letter of apology (exhibit P9)[64] which was sent by email (exhibit D19)[65]. President Ueda was satisfied with the explanation written in the letter the defendant having written that he intentionally deceived the president.

110.  In the second secret recorded conversation (exhibit P31A(2))[66] President Ueda discussed with the defendant what had happened.  This conversation was in either November or December 2013 after the third letter of apology. 

111.  In the letters the defendant promised to repay the money therefore President Ueda decided to wait for repayment.  The defendant said he would cash a standby LC to repay Toho.  Concerned that Toho may be seen to be borrowing the money President Ueda, wanting to ensure the defendant was personally responsible for repayment and not Toho, asked the defendant to write a letter of repayment (exhibit P10)[67] saying he was responsible for repaying $3,500,000. 

112.  President Ueda explained that in a meeting held a few days before the letter of repayment was signed the defendant agreed to repay $3.5 million which amount included interest because of the time taken to repay.

113.  President Ueda did not know who typed the letter but thought it was the defendant.  In cross-examination President Ueda agreed that in his witness statement he told the police that he drafted the letter and asked the defendant to sign. President Ueda disagreed that he told the defendant if he did not sign the matter would be reported to the police.  When recalled President Ueda said he could not remember clearly whether he said he would report the matter to the police if the defendant did not agree to sign the letter or repay.  President Ueda said he might have said that but was not sure.

114.  The topic of the third secret recorded conversations (exhibit P31A (3))[68] was repayment and took place in February 2014 before the letter of repayment was signed. 

Defence evidence

115.  In summary in June 2013 President Ueda talked to the defendant about the suspense payments[69]. On 25 July 2013 the defendant by email (exhibit P11)[70] gave an explanation to the president together with a breakdown of the suspense payments.  In answer to the court the defendant said the email was his first written explanation about the matter.  The defendant sent a further email on 28 August 2013 (exhibit P12)[71] to the president which was copied to Mr Hirata.

116.  The defendant regarded Mr Hirata as his direct supervisor with whom he would discuss any major problems. In re-examination the defendant said that in Japanese business culture an employee cannot ignore the president.

2 September 2013

117.  On 2 September 2013 Mr Hirata, without first contacting the defendant, sent the email (exhibit D16)[72] asking the defendant to write out a letter of apology as per the attachment to the email.  The defendant wrote out the letter of apology which he sent by email to Mr Hirata.  In answer to the court the defendant said he had been unable to find this email.  

118.  Upon receipt of the email Mr Hirata telephoned the defendant saying some of the wordings was not sufficient.  Mr Hirata specified four matters to be added to the letter including that the defendant acted without permission.  Mr Hirata also asked the defendant to write the letter in a politer way. 

119.  The defendant followed the instructions of Mr Hirata and wrote the letter (exhibit P7)[73] which he sent by email (exhibit D17)[74].  Although the defendant agreed with only part of what was written, he wrote the letter because his superior Mr Hirata told him to write this way and everything would be over.  In answer to the court the defendant said he understood this to mean that if he wrote the letter in this way the matter would not be pursued and he would not be blamed further.

17 October 2013

120.  After the defendant sent the letter President Ueda telephoned the defendant telling him to rewrite the letter of apology.  President Ueda refused to tell the defendant why he needed to rewrite the letter. 

121.  The defendant explained that although he did not know what to write he could not disobey the instructions of the president and therefore wrote the letter in an even more polite way.  The letter (exhibit P8)[75] was sent by email (exhibit D18)[76].  The defendant also said that if he did not rewrite the letter there was a risk the matter would be reported to the police or that he may be fired, the president having dismissed a few dozen staff in the past. 

122.  President Ueda responded by sending the defendant an email the same day[77].  In the email the president instructs the defendant to write the letter again telling him what to include otherwise the letter would not be regarded as sincere.  The defendant followed the instructions of the president and rewrote the letter (exhibit P9)[78] which he sent by email (exhibit P19)[79]. The defendant followed the instructions of the president because if he did not he would be dismissed and he had heard that Toho were going to report the matter to the police. 

Letter of repayment (exhibit P10)[80]

123.  The defendant said he should have first seen the letter of repayment on the morning of 14 February 2014 when the president passed the letter to him in the factory in Shenzhen.  President Ueda told the defendant to sign the letter.  At the same time the president told the defendant that he knew very well what would happen if he did not sign.  The defendant understood this to mean that if he did not sign Toho would report the matter to the police.  The defendant having no choice signed the letter. 

Audio recordings (exhibit P31)

124.  The defendant believed the first conversation (exhibit P31A(1))[81] should have been recorded after the first letter of apology (exhibit P7) and before the second letter of apology (exhibit P8).  The defendant testified that he could not refute what the president was saying and therefore agreed with the president throughout the interview because if he did not agree he would be fired. 

125.  The second conversation (exhibit P31A(2))[82] should have been in November or December 2013 and the third conversation (exhibit P31A(3))[83] in February 2014.  The conversations concerned how the defendant was to make repayment.  The defendant said he agreed to repay $3.27 million because this was his job regarding LED business and that from October 2013 the president had often told him if he did not repay he would make a report to the police. 

Ruling

126.  I carefully considered all the evidence and the submissions of Mr Sherry and Mr Richmond[84]. The issue to determine was essentially one of credibility.  I was satisfied so I was sure President Ueda and Mr Hirata did not threaten or induce the defendant in any way as alleged or otherwise.  I had no hesitation in rejecting the defendant’s allegations, in particular that he wrote the letters because he had no choice and was told the matter would be concluded if he wrote the letters.

First letter of apology (exhibit P7)

127.  I had no hesitation in rejecting the defendant’s evidence that the email (exhibit D16) was sent to him without forewarning him he was required to write a letter of apology.  I found inherently improbable the letter of apology would be sent without any forewarning to the defendant. 

128.  I accepted the evidence of Mr Hirata that he telephoned the defendant to ask him to write a letter of apology whereupon the defendant asked him what to write. In response Mr Hirata sent by email (exhibit D16) a sample based on the emails and attachments sent earlier by the defendant (exhibits P11 and P12).  

129.  I rejected the defendant’s evidence that after receiving the email from Mr Hirata he sent the handwritten letter by email to Mr Hirata, an email the defendant could not find, after which Mr Hirata telephoned the defendant telling him to write the letter again to include four other matters and to write the letter in a politer way. 

130.  In the emails (exhibits P11 and P12) the defendant sought to explain what happened. In answer to the court the defendant said the email (exhibit P11) was the first written explanation he gave about the matter.  In this email the defendant apologises; says he acted on his own decision and promises to take responsibility to deal with the money.  The first letter of apology although worded slightly differently is in all material respects the same, in particular the defendant says he acted without approval from President Ueda; apologises and promises to repay. 

131.  Further the defendant not only wrote out the letter of apology in his own handwriting but also changed and added some words to the sample sent by Mr Hirata[85].  As the defendant said in the first audio recording (exhibit P31A(1)) he arranged the words and added a bit[86]. I was satisfied the letter was written voluntarily.

Audio recording (exhibit P31A (1))

132.  The audio recording far from showing the defendant was simply agreeing with President Ueda because he was the president, shows the defendant trying to put forward his side of the story and disagreeing when President Ueda called him sneaky[87]; saying he wrote what he did[88]; disagrees he wrote the letter on purpose[89]and that he did intend to explain[90]. Further, in his evidence the defendant stressed that he told the president there were invoices.  This was at counter 75 where the full sentence was inaudible and led to the president’s response at counter 76 “It’s not fictitious?”  I was satisfied the defendant spoke freely and voluntarily.

Second letter of apology (exhibit P8)

133.  I rejected the defendant’s evidence that President Ueda called him to rewrite the letter of apology but did not explain why.  I do not find credible no reason would be given by President Ueda.  The content of the second letter of apology (exhibit P8) being in all respects the same as the first letter of apology, I was satisfied the letter was written voluntarily and that nothing was said to induce the defendant to write the letter again.    

Third letter of apology (exhibit P9)

134.  The third letter of apology is the first time ‘fictitious’ is included in a letter.  The first audio recording had also referred to fictitious[91].  Although President Ueda asked that this be included in the letter I am satisfied the defendant did this voluntarily and not that he had no choice.  I rejected the defendant’s evidence that he agreed with the president because he could not resist the president and that if he did he would be dismissed.

Audio recording (exhibit P31A (2))

135.  The second audio recording again far from showing the defendant was simply agreeing with President Ueda shows the defendant explaining at length how the money was to be repaid/recovered and about the LED business.  Further at times the defendant insists he was not lying[92]; he was not fishy[93]; he had no intention to be cunning[94]and President Ueda rather than threatening the defendant was all along trying to help him by not taking the matter to court[95]and believe in the defendant[96]. I was satisfied the defendant spoke freely and voluntarily.

Audio recording (exhibit P31A (3))

136.  In the third audio recording the defendant primarily is explaining what has been done to recover the money and why the money has not been recovered so far.  Towards the end of the conversation the defendant says that without doubt he had tried to repay the money; nothing is wrong; he would act quickly; and also retrieve the goods[97]. I was satisfied the defendant spoke freely and voluntarily.

Letter of repayment (exhibit P10)

137.  The letter of repayment was signed on 14 February 2014.  All along from the first email (exhibit P11) the defendant had agreed to repay or recover the money.  I accept President Ueda’s evidence as to the reason why the defendant was asked to sign this letter, which is the same reason given in the third audio conversation[98]. I was satisfied the defendant signed the letter voluntarily.

138.  In reaching my findings I carefully considered the submission of Mr Richmond that the fact the defendant was not dismissed and allowed to recover the money was inconsistent with a confession having been made.  If such a confession was made it was inconceivable the defendant would not be dismissed[99].  I had no hesitation in rejecting this submission.  I accepted the evidence of President Ueda that if he dismissed the defendant then he could not recover any of the money and that he believed the defendant could not take any more money. 

139.  Having carefully considered all the evidence and the submissions made I found I was satisfied beyond reasonable doubt that the three letters of apology were each written and signed by the defendant voluntarily; the letter of repayment was signed by the defendant voluntarily; and the defendant freely and voluntarily spoke during the three audio conversations, each letter and audio conversation being considered separately.

140.  Applying the principles established in HKSAR v Lam Tat-ming[100]I found no grounds to exercise my discretion to exclude from evidence any of the letters or audio conversations on the grounds of unfairness.

141.  The written grounds of objection also stated that the defence objected to the admissibility of an oral statement attributed to the defendant on the grounds that the words alleged were not said. 

142.  The prosecution opening stated this oral statement was made on the 10 June 2013[101].  In evidence Mr Ueda said that in July the defendant had told him he had used the money for LED business and promised to repay and that during a telephone call in August the defendant had apologised for making payment without permission. 

143.  No allegation was made that the statement, if said, was said involuntary.  Whether or not the statement was made by the defendant was therefore a matter of fact. President Ueda testified that no threats or inducements were made at the time the defendant uttered these words.  I was satisfied that the statement, if said, was said voluntarily.

Discussion

LED business

144.  President Ueda testified that save for a small amount of business of JPY1-2 million the defendant was not authorised by Toho Rubber to conduct LED business. 

145.  In cross-examination President Ueda said he remembered the purchase of 500 pieces but did not remember how payment was made.  When shown the contract between Toho HK and Kam Kam Ngau Lighting Technology for the purchase of 1000 pieces[102], President Ueda said that he had never seen this contract before but confirmed Toho purchased a total of 1000 pieces.

146.  President Ueda was next shown the contract with Obosen for the purchase of 1200 pieces[103], a contract which President Ueda also said he had never seen.  President Ueda repeated he had only purchased 1000 pieces, 500 pieces at the beginning and 500 more after a gap of one year.  President Ueda did not know why the two contracts both in the month of June 2011 totalled 2,200 pieces. 

147.  The deposits for these two contracts were paid by telegraphic transfer from Toho HK’s account with the Bank of Tokyo-Mitsubishi UFJ[104].  In cross-examination President Ueda said payment was made without his approval.  Mr Hirata said that he approved the payments. 

148.  Approval having been given for payment by telegraphic transfer there can be no doubt the two contracts were approved by Toho Rubber, even if President Ueda had not seen the contracts.   These two contracts alone show that Toho Rubber approved LED business greater than the JPY1-2 million President Ueda said he approved.

149.  The evidence before the court also points to the defendant seeking approval for LED business throughout the period June 2011 – January 2013.  Winnie’s list of cheques show cheques totalling over $2,500,000 were designated for LED for the months of July 2011[105]; August 2011[106]; September 2011[107]; October 2011[108]; November 2011[109]; December 2011[110]; January 2012[111]; April 2012[112]; June 2012[113]; July 2012[114]; August 2012[115]; December 2012[116]; and January 2013[117].

150.  The fund budget schedules for the months of July 2011[118] and August 2011[119] specifically refer to LED.  In other months the cheques for LED are listed under special expenditure with the notation refer to mail. 

151.  The prosecution has not sought to adduce in evidence what was included in the mail and therefore approved under special expenditure.  The only evidence is from Winnie that her list of cheques was based on what she had entered in the fund budget schedule when seeking approval from the head office in Japan[120]. 

152.  On this evidence, even if President Ueda did not approve other LED business, it would appear that on a regular basis the defendant was seeking approval from the head office in Japan for LED business. 

153.  I find inherently improbable that if the defendant did not have approval to continue LED business throughout this period, he would be seeking approval for LED business.  This is particularly so when considering Winnie’s evidence, in answer to court questions, that the requirements from Japan were very strict and President Ueda’s evidence that each month he would check the profit and loss with the defendant[121].

154.  This is not the only evidence which shows Toho Rubber was aware of LED business. The General Journal records LED fee prepaid for the months of June & July 2012[122]; and November & December 2012[123].

155.  Winnie testified she was aware of LED business but did not know the details.  As noted earlier President Ueda said he recognised some of the facts in the table presented by the defendant were true but did not understand how the total $3,271,105 was reached[124]. President Ueda was never asked what he recognised as true.

156.  Mr Wakizaka was satisfied that the street lights referred to in the contract between Toho HK and Shenzhen City South Technology Company Limited dated 21 July 2011 were delivered to Toho’s Vietnam factory[125].  Mr Oda, who worked in the Vietnam Factory, emailed to Mr Wakizaka invoices and receipts from the Vietnamese customs.  Mr Wakizaka found that these documents, albeit in a different format, were consistent with the contract[126]. 

157.  In addition, in cross-examination Mr Hirata agreed that an assistant was sent to the Hong Kong office to assist Mr Kawate in the LED business.  Mr Hirata says this was in September 2013 before he visited the factories in China.  In answer to the court Mr Hirata said the assistant was called Kawabata; that he was in charge of LED sales and to look for suppliers and that he and the president made the decision to send Mr Kawabata to the Hong Kong office.  

158.  I find inherently improbable that if Toho Rubber had never given approval for anything other than a small amount of LED business an assistant would be sent to the Hong Kong office to be in charge of LED sales and to look for suppliers.  

159.  I also find inherently improbable if President Ueda only authorised a small amount of LED business he would find the need to visit three to four factories to check on the quality of the products. 

160.  On the evidence I find that the defendant may have been authorised to conduct LED business over and above the small amount specifically approved by President Ueda.

Blank payee cheques

161.  Closely related to whether the defendant was authorised to conduct LED business is whether there was a rule that all blank payee cheques were to be taken to the China factory.  The defence case is there was no such rule and that the defendant was authorised to use blank payee cheques for LED business. 

162.  I accept the evidence that the cheques, usually in the sum of $200,000, designated in the fund budget schedule as for the factory and in Winnie’s list of cheques as operating capital for the factory, were to be taken to the factory and handed over to Mr Funayama who would arrange exchange to RMB and deposit in the Postal Savings Bank account. 

163.  Only cheques 1, 2, 3, 5, 6, 7, 13, 14, 15, 16 and 22 were designated in the fund budget schedule as for the factory and in Winnie’s list of cheques as operating capital for the factory.  The remaining cheques issued between July 2011 and January 2013 were variously designated by Winnie for tax; company formation; fluorescent tubes for Malaysia; year-end party expenses; and LED.  As already seen in the fund budget schedule these cheques were usually entered under special expenditure with the notation refer to mail[127]. 

164.  In cross-examination President Ueda said that apart from the $200,000 cheques for the factory he did not think any other payments were made with blank payee cheques.   Winnie on the other hand testified that because the suppliers of LED were from the Mainland the payee was also left blank.

165.  Mr Richmond showed President Ueda cheques, not subject of the charges, where the payee was left blank and for which payment was not designated for the factory. Specifically, Mr Richmond showed President Ueda cheque number 004886 in the sum of $108,800[128]. The cheque was designated as LED in Winnie’s list of cheques[129].  President Ueda said he was unaware of this and said that the payment was for the factory because the name of the payee was blank.   

166.  Similarly cheque number 004914 in the sum of $192,000[130]was designated as LED Deposit (15%) in Winnie’s list of cheques[131].  President Ueda said he did not know the cheque had been designated for LED and believed this was for factory expenses.  President Ueda explained LED expenses had to be by cheques with the payee’s name and that he signed the cheques believing they had been checked by the Japan office.  

167.  President Ueda was also shown cheque number 004912 in the sum of $175,000[132]which was designated as purchasing expenses for LED in Winnie’s list of cheques[133].  In the fund budget schedule[134] the cheque was included in special expenditure[135].   President Ueda said he did not remember this cheque was for LED.

168.  Mr Richmond also showed President Ueda cheques, subject of the charges, where the payee was left blank and for which payment was also not designated for the factory, for example cheques 852224 and 852225 (cheques 17 and 18) in the sums of $205,000 and $126,000.  Both cheques were designated in Winnie’s list of cheques for LED together with the names of the suppliers[136].  In the fund budget schedule both cheques are included in special expenditure for LED[137].  President Ueda said these cheques were blank because they were to be exchanged to RMB and that the payee would often be left blank where the payment was in RMB.

169.  In respect of all the blank payee cheques not designated for the factory, as noted earlier, the prosecution has not sought to adduce in evidence what was approved under special expenditure[138]. The only evidence is from Winnie that her list of cheques was based on what she had entered in the fund budget schedule when seeking approval from the head office in Japan.  Winnie was not shown the fund budget schedules.  

170.  In addition, the fact that the defendant was cashing these cheques was known to the head office in Japan.  Mr Hirata agreed in cross-examination that the bank statements were sent each month to the head office in Japan.  I do not find credible Mr Hirata’s explanation given in cross-examination that before the investigation he was not aware the cheques had been cashed because he could only read Japanese and therefore did not know what the acronym in the bank statements CSH meant[139].

171.  Further, Winnie testified that when she cashed cheques for the defendant and gave him the money she recorded this as a temporary payment in a journal.  The journal was an excel document in Japanese which Winnie sent to Mr Hirata each month[140].  In cross-examination Mr Hirata said that it was their mistake for not paying attention to these payments.  I do not find this explanation credible[141].    

172.  On this evidence, I find I am not satisfied there was a rule all blank payee cheques were to be taken to the factory. 

173.  That the defendant may have been authorised to conduct LED business throughout the period of the charges greatly undermines the fundamental basis on which the prosecution case is brought, namely that the defendant was not authorised to do LED business and to cash blank payee cheques for LED business. 

Exchange loss difference

174.  The prosecution case is that the defendant fabricated the exchange loss difference to cover up the theft of the money from cheques 5, 6, 7, 13, 14, 15 and 16 all in the sum of $200,000 together with cheque 4 in the sum of $75,000.

175.  In summary Toho (HK) used accounting software called MYOB.  MYOB adopted the double entry accounting system whereby debit always equals credit.   Therefore, when entering a transaction in MYOB there must be both a debit and credit entry otherwise the transaction will be rejected. 

176.  When a cheque was issued intended for the factory the ledger account for the bank under code 1-2321 (BOC – HKD) was credited and the ledger account under code 1-9999 (Transaction Account – Factory) was debited.  When the cheque was received by the factory the ledger account for the bank under code 1-2392 (Postal in China) was debited and the ledger account under code 2-9999 (Transaction Account – Factory) was credited.    

177.  Toho did not use a multi-currency ledger and therefore all transactions involving foreign currency, for example when cheques were taken to the factory and exchanged into RMB, were converted into Hong Kong dollars resulting in either exchange gain or exchange loss.  The exchange difference whether a gain or loss would be calculated at the year end.

178.  Mr Wakizaka discovered for the years ending April 2012; April 2013 and April 2014 that some cheques intended for the factory had only a debit entry under 1-9999 and no corresponding credit entry for 2-9999.  This meant that at the end of the year the books would not balance. 

179.  Account code 1-9999 shows a debit for the cheques 4, 5, 6, 7, 13, 14, 15 and 16.  The defendant having cashed the cheques and not taken the money to the factory there is no credit entry for 2-9999. 

180.  In the year ending April 2012 Mr Wakizaka identified seven cheques which were not taken to the factory totalling $991,000[142]. Of these seven cheques the defendant has only been charged in respect of two: cheque Nos. 004911 (cheque 4) & 852247 (cheque 5).  For the year ending April 2013 Mr Wakizaka identified six cheques which were not taken to the factory totalling $1,100,000[143]. Of these six cheques the defendant has been charged in respect of five: cheque Nos. 063738 (cheque 6), 063755 (cheque 7), 004758 (cheque 13), 121456 (cheque 14) & 121470 (cheque 15).  Cheque no. 121485 (cheque 16) was entered for year ending April 2014[144].

181.  To achieve the balance for the years ending April 2012 and April 2013 Mr Wakizaka says that the defendant fabricated the exchange loss (Account code 9-1140) by artificially inflating the exchange loss thereby concealing the fact that the defendant had kept the money from the cheques. 

182.  In re-examination, to enable the court to understand how the accounts were balanced for the year ending April 2012, Mr Sherry prepared a calculation sheet (marked “D” for identification) which was shown to and agreed by Mr Wakizaka. 

183.  Mr Wakizaka then wrote out a calculation (exhibit P24) showing the figures entered in the accounts (in black)[145] and what those figures would have been (in green) if the cheques had all been given to the factory.  Two controlling accounts were used: “Transaction Account - Factory” (Account codes 1-9999 & 2-9999) and “Transaction Account - HK” (Account codes 1-9988 & 2-9988) together with “Exchange Loss” (Account code 9-1140).

184.  The defence called Mr Ha, a certified public accountant, who prepared two reports[146].  In his first report and in evidence Mr Ha disagreed with the methodology used by Mr Wakizaka in explaining how the defendant had balanced the books[147]. 

185.  Mr Ha did not however check whether Mr Wakizaka’s calculation showing how the books were balanced at the year-end was in fact correct.  At the request of the court Mr Ha prepared a further report and concluded that Mr Wakizaka’s calculation was correct and that the accounts were balanced by overbooking the exchange loss[148].

186.  In evidence Mr Ha explained that if the error had been noticed before the year end correction could have been made at that time.  No correction having been made the balance was achieved in this way at the year end.

187.  There being agreement between Mr Wakizaka and Mr Ha as to how the books were balanced at the end of the financial year the question remains why were the books balanced in this way? The prosecution case is because the defendant had embezzled the money the exchange loss was fabricated to cover up his embezzlement. 

188.  Although Mr Ha in his second report states “It would seem to everyone’s satisfaction that the amount embezzled had been proved by the Summarised Calculation Statement (MFI-D)”[149], I am satisfied taking Mr Ha’s evidence as a whole and the full content of the second report he was not saying the defendant had embezzled money by balancing the books in this way.  All he was saying is the amount said to be embezzled was reconciled in this way[150].

189.  Mr Wakizaka testified that the defendant was the only person who could balance the books in this way.  There was however no evidence who made the 1-9999 entries in the MYOB.  Winnie was not asked who was responsible for entering the data into the MYOB; whether any errors or discrepancies were discovered in the accounts and what was the procedure for balancing the books at the year end. 

190.  Common sense points to Toho HK making the debit entry 1-9999 when a cheque was issued for the factory and that on receipt of the money the factory would make the credit entry 2-9999. 

191.  If the defendant entered 1-9999 he would know at the time the books were not going to balance because the money was not going to the factory.  If Winnie or other staff of Toho (HK) made the entries the defendant would surely be aware of this and therefore again know at the time the books would not balance.

192.  I find inherently improbable if the defendant was stealing the money he would wait until the year end to correct the error in the accounts and allow this to continue from year to year thereby risking someone discovering what he was doing.  Having carefully considered all the evidence, in particular that throughout the period the defendant was seeking approval for LED business, I am not satisfied the only inference to draw from balancing the books in this way is that the defendant was fabricating the exchange loss to cover up embezzlement.   

Repair and Maintenance

193.  The prosecution case is that in respect of the other cheques the defendant concealed his embezzlement of company funds by inappropriately recording the payments as temporary payments[151].Winnie testified she recorded the payments as temporary payments on the instructions of the defendant.  Winnie did not however know how the defendant actually used the money but said they should be for the LED project. 

194.  Mr Lam, the accountant of CWCC, testified that he requested further information about eight temporary payments in the sum of $1,593,469, including a breakdown of the figure; who took the money and the purpose of taking the money. 

195.  In response Winnie, on the instructions of the defendant, emailed six contracts to Mr Lam[152]. The defendant requested that the payments be adjusted as repair and maintenance.  In cross-examination Mr Lam said that he eventually agreed with the adjustment because Winnie explained that all the lights in the factory will be replaced with the LED lights in the contracts[153]. 

196.  Mr Wakizaka testified that the amount of money for repair and maintenance, $1,211,300, was substantial and that if the headquarters in Japan knew of this in advance they would have handled payment as normal expenditure.  Mr Wakizaka said the way these payments were handled was inappropriate because he had never heard of such a way of handling in Japan.

197.  In cross-examination the defendant disagreed these payments were inappropriately recorded as temporary payments and that he requested CWCC to adjust the payments as repair and maintenance in order to conceal he had kept the proceeds of the cheques[154].

198.  In re-examination the defendant explained that the contracts, except contract 20120325, were for lights for use in Toho’s factories therefore he turned them into repair and maintenance.  Contract 20120325 was for a client in Singapore who placed an order for lights[155]. In answer to the court the defendant said this contract was not for repair and maintenance.  The defendant explained that this was the last stage of the calculation and because it was an expenditure he asked CWCC if it was possible to mix the contract up together with the other contracts. 

199.  One of the contracts 20110721 was for the purchase of lights for delivery to Vietnam[156].  This is the contract referred to earlier where Mr Wakizaka was satisfied the lights had been delivered to Toho’s Vietnam factory[157]. Mr Wakizaka was however unable to verify the other five contracts.

200.  Although in answer to the court the defendant said that one contract was not for repair and maintenance, having carefully considered all the evidence, in particular that Mr Wakizaka verified one contract was genuine and the defendant sought approval for LED throughout most of the period, I am left with a doubt that the recording of these payments as temporary payments and adjusted as repair and maintenance was to conceal embezzlement.

The twenty-two blank payee cheques

201.  With these findings in mind I turn to consider the individual cheques to determine whether the prosecution have proved the defendant dishonestly appropriated the cash from each of the cheques with the intention of permanently depriving Toho of the money or whether the defendant used or may have used the cash for LED business for Toho.

202.  The twenty-two blank payee cheques can be divided into two categories. First, the cheques in the sum of $200,000 which were specifically designated in the fund budget schedule as for the factory and in Winnie’s list of cheques as operating capital for the factory.  These are cheques 1, 2, 3, 5, 6, 7, 13, 14, 15, 16 and 22.  Second, the remaining cheques which were variously designated by Winnie for tax; company formation; fluorescent tubes for Malaysia; year-end party expenses and LED and were entered in the fund budget schedule under special expenditure. 

The $200,000 cheques (cheques 1, 2, 3, 5, 6, 7, 13, 14, 15, 16 and 22)

Cheque No 004838 (cheque 2).

203.  Cheque 2 was cashed by the defendant on 18 August 2011.  The defendant testified that the cheque was used to pay the balance of contract 20110601 (Part C) in the sum of RMB 42,800 ($53,500) [158] and identified the receipt dated 18 August 2011 in prosecution bundle 4/662 as the receipt issued to him [159].

204.  The balance of the cheque in the sum of $146,500 (RMB 117,200) was used to pay part of contract 20110721 (Part C)[160]. The defendant identified the receipt dated 18 August 2011 in prosecution bundle 4/669 as the receipt issued to him[161].

205.  Contract 20110601 was with Obosen dated 1 June 2011.  Delivery was to Vietnam[162].  Mr Hirata testified that when he visited the address of Obosen no company name was found and that he was told by a guard that Obosen went bankrupt in mid-2012.  As noted already this evidence was hearsay[163]. In cross-examination Mr Wakizaka disagreed the cheque was used to make this payment because there was no record on the cash ledger showing the payment and therefore Mr Wakizaka did not know if the money was used for the company.

206.  Contract 20110721 was with Shenzhen City South Technology Company Limited dated 21 July 2011[164]. This is the contract Mr Wakizaka verified with the Vietnam factory to be genuine[165]. Mr Hirata also visited the factory where he met a Mr Wong.  Mr Hirata showed Mr Wong the contract and receipts.  Mr Wong also verified the contract and receipts but declined to verify other receipts shown to him by Mr Hirata[166]. 

Discussion

207.  In Winnie’s list of cheques, cheque no. 004841 (item 8) in the sum of $120,000 was designated as Vietnam LED[167]and in the fund budget schedule as special expenditure LED $120,000[168].  The bank statement shows this cheque was deposited in the same account as two cheques for $200,000 designated as operating capital for the factory[169].  These three cheques were received by the factory[170]. There is no evidence before the court what the cheque for $120,000 was actually used for. 

208.  The factory having received three cheques as budgeted albeit one was in the sum of $120,000 and not $200,000 and approval having been sought for LED Vietnam, I find on the evidence I cannot rule out that cheque 2, albeit the wrong cheque, may have been used for LED.  

Cheque No 004857 (cheque 3).

209.  Cheque 3 was cashed by the defendant on 16 September 2011.  The defendant testified that the cheque was used to pay the balance of contract 20110721 (Part C) in the sum of RMB 44,800 ($56,000)[171]. The defendant identified the receipt dated 23 September 2011 in prosecution bundle 4/669 as the receipt issued to him[172].

210.  The balance of the cheque in the sum of $144,000 (RMB 115,200) was used to pay part of contract 20110905 (Part C)[173]. The defendant identified the receipt dated 23 September 2011 in prosecution bundle 4/683 as the receipt issued to him[174].

211.  As seen with cheque 2 contract 20110721 was with Shenzhen City South Technology Company Limited dated 21 July 2011 and was verified by both Mr Hirata and Mr Wakizaka[175].  Contract 20110905 was with Obosen dated 5 September 2011. 

212.  Mr Wakizaka testified that he could not find any evidence of how the $200,000 was used.  In cross-examination Mr Wakizaka agreed the cheque was used to make these payments. 

213.  In respect of a number of cheques Mr Wakizaka also agreed they may have been used to make payments under the contracts produced by the defendant.  Later in cross-examination Mr Wakizaka explained that he was only agreeing that the calculation matched the amounts of the contract and not that the monies were actually paid on behalf of Toho.  This Mr Wakizaka said was because he could not find any record of purchase or increase in stock in the warehouse.  

Discussion

214.  In Winnie’s list of cheques there are four cheques in the sum of $200,000.  Three are designated operating capital for the factory (including cheque 3) and one cheque no. 004860 (item 8) for Vietnam LED[176]. In the fund budget schedule there is specific reference to special expenditure of $200,000 for Vietnam[177].

215.  The bank statement shows that three of the four cheques including the cheque designated for Vietnam LED were deposited in the same account on the same day[178].  These three cheques were received by the factory[179]. There is however no evidence before the court what the cheque designated for Vietnam was actually used for. 

216.  The factory having received three cheques in the sum of $200,000 as budgeted and approval having been given for $200,000 to be used for Vietnam LED, I find on the evidence I cannot rule out that cheque 3, albeit the wrong cheque, may have been used for LED. 

Cheque No 063755 (cheque 7).

217.  Cheque 7 was cashed by the defendant on 7 September 2012.  The defendant testified that the cheque was used to make two payments to Jia Hao and Shenzhenshi Yuanjing in respect of the Russia project (Part B).

218.  The defendant produced the receipts dated 12 October 2012 and 8 October 2012[180].  In cross-examination the defendant explained that the receipts did not bear the names of the companies which issued the receipts because the receipts were issued by subcontractors[181].

219.  Mr Hirata visited Yuanjing having found the address on the internet only to be told by a guard that the company went bankrupt in 2010[182].  Mr Hirata did not have time to visit Jia Hao.  Mr Hirata could not find any records of business with Jia Hao or Yuanjing. 

220.  Mr Wakizaka testified that there were no records that the China factory had received the monies or how the monies were used.  In cross-examination Mr Wakizaka said he could not agree the cheque was used to make the two payments because he did not know how the money had been used. 

Discussion

221.  In Winnie’s list of cheques there are again four cheques in the sum of $200,000. Three are designated operating capital (including cheque 7)  for the factory and one cheque no. 063765 (item 8) for other expenses including LED reserves[183].  In the fund budget schedule this cheque is included with item 9 on Winnie’s list as special expenditure with the notation from mail[184].

222.  The bank statement shows that three of the four cheques including the cheque for LED reserves were deposited in the same account on the same day[185].  These three cheques were received by the factory[186]. There is however no evidence before the court what the cheque designated for LED reserves was actually used for. 

223.  Notwithstanding the receipts were not in the names of Jia Hao and Yuanjing taking into account that the factory had received three cheques in the sum of $200,000 as budgeted and approval had been sought for $200,000 to be used in part for LED, I find on the evidence I cannot rule out that the cheque, albeit the wrong cheque, may have been used for LED. 

Cheque No 063738 (cheque 6).

224.  Cheque 6 was cashed by the defendant on 9 August 2012.  The defendant testified that the cheque was used to make four payments from Part C in the sums of $25,410 (RMB 20,328) in respect of contract 2012083001 with Obosen; $79,688 (RMB 63,750) to Shenzhenshi Yunzhang; $91,444 (RMB 73,155) to Shenzhenshi Jin Jin Niu and $3,875 (US$500) to Shenzhenshi Zhue Yue Ren.  The defendant produced receipts and delivery notes all dated September 2012[187].  No contracts were however produced or identified.

225.  Mr Wakizaka testified that there were no records that the China factory had received the monies or how the monies were used.  In cross-examination Mr Wakizaka said he could not agree the cheque was used to make these four payments. 

226.  Mr Hirata testified that he showed the delivery note dated 12 September 2012 for RMB 63,750[188] to Mr Ching, an ex-employee of Shenzhen Yunzhang, who told him the receipt was not issued by their company because the company went bankrupt in July 2012[189].  Mr Hirata also could not find any records of this transaction.   

Discussion

227.  In Winnie’s list of cheques there are again four cheques in the sum of $200,000. Three are designated operating capital for the factory (including cheque 6) and one cheque no. 063761 (item 9) for other expenses including LED[190].  In the fund budget schedule this cheque is included with item 8 on Winnie’s list as special expenditure with the notation from mail[191].

228.  The bank statement shows that three of the four cheques including the cheque for LED were deposited into bank accounts but not the same account or on the same day.  The cheque for LED was deposited on 22 August 2012[192].  These three cheques were received by the factory[193]. There is however no evidence before the court what the cheque designated for LED expenses was actually used for. 

229.  No contracts having been produced raises suspicion as to whether the payments were for LED.  The factory however having received three cheques in the sum of $200,000 as budgeted and approval having been sought for $200,000 to be used in part for LED expenses, I find on the evidence I cannot rule out that the cheque, albeit the wrong cheque, may have been used for LED. 

Cheque No 063713 (cheque 22) (charge 2).

230.  Cheque 22 was cashed by the defendant on 9 July 2012.  The defendant testified that after cashing the cheque the cash was put in the safe as petty cash.  The defendant then took out $180,000 which he exchanged into RMB of which he used RMB 124,100 ($155,125) to pay Obosen under contract 2023062101 (Part C). 

231.  The defendant identified the entry in the General Journal showing the payment of RMB 124,100 being the balance of LED purchase[194]; the cash expenditure slip dated 13 July 2012 and the receipt dated 11 July 2012 issued by Obosen[195].  The contract was not identified or produced.

232.  In cross-examination the defendant explained he did not pay attention to the receipt and therefore did not notice the receipt was dated earlier than when he exchanged the money into RMB.  The defendant also explained that the balance of the RMB and the balance of the cheque in the sum of $20,000 were kept in the safe. 

233.  Mr Wakizaka testified that he was told by Mr Funayama that there was no record of the China factory receiving the goods particularised in the receipt and that he had not seen the goods.  Mr Funayama was not however shown the receipt or asked about any of the contracts produced by the defendant.  In cross-examination Mr Wakizaka disagreed that this payment was made on behalf of Toho[196].

Discussion

234.  In Winnie’s list of cheques there are again four cheques in the sum of $200,000. Three are designated operating capital for the factory (including cheque 22) and one cheque no. 063720 (item 8) for LED expenses[197].  In the fund budget schedule cheque no. 063720 is included with items 9 & 10 on Winnie’s list as special expenditure with the notation from mail[198].  Item 10, cheque no. 063722 in the sum of $100,000, was also designated for LED in Winnie’s list[199].

235.  The bank statement shows that three of the four cheques including cheque no. 063720 for LED were deposited into bank accounts but not the same account or on the same day.  Cheque no. 063720 for LED was deposited on 25 July 2012[200].  These three cheques were received by the factory[201]. Cheque no. 063722 in the sum of $100,000 was cashed on 26 July 2012[202] and received by the factory[203]. There is however no evidence before the court what the two cheques designated for LED were actually used for.

236.  The factory having received three cheques in the sum of $200,000 as budgeted; approval having been sought for $200,000 to be used for LED expenses and $100,000 for LED and the payment of RMB 124,100 recorded in the General Journal as a temporary payment with the heading ‘Balance of LED purchase’[204], I find notwithstanding there was no contract and the receipt is dated two days prior to the cash expenditure slip, that I cannot rule out cheque 22, albeit the wrong cheque, may have been used in part for LED. 

Cheque No 852247 (cheque 5).

237.  Cheque 5 was cashed by the defendant on 6 January 2012.  The defendant testified that the cheque was used to pay Jia Hao on 6 April 2012 for the purchase of equipment for LED in respect of the Russia project (Part B)[205].  The defendant produced the receipt dated 6 April issued by Jia Hao[206].

238.  In cross-examination the defendant said he was unable to tell why he held onto the cash for three months saying this was very rare.  The defendant thought that he paid in January and that he may have lost the receipt or that he never received a receipt.  In April on discovering there was no receipt the defendant asked for another receipt.

239.  Mr Wakizaka testified he could not find any information or receipts substantiating the use of this money.  

Discussion

240.  In Winnie’s list of cheques, cheque no. 852253 (item 13) in the sum of $100,000 was designated for tax, year-end party and LED[207].  In the fund budget schedule this cheque is included with items 8 & 12 on Winnie’s list as special expenditure with the notation refer to mail[208]. 

241.  The bank statement shows this cheque was cleared on 30 January 2012[209] and received by the factory on the same day[210]. There is however no evidence before the court what the cheque was actually used for.

242.  Approval having been sought for LED albeit not for $200,000, I find notwithstanding the defendant says he only made payment in April, three months after the cheque was cashed, I cannot rule out that the cheque may have been used for LED. 

Cheque Nos 004758; 121456; 121470 & 121485 (cheques 13, 14, 15 & 16).

243.  Cheques 13, 14, 15 & 16 were cashed by the defendant on 8 February; 13 March; 3 May[211] and 24 May 2013.  The defendant testified that all four cheques were used for payments under Part A.  

244.  Specifically, cheque 13 was used to make the third payment in the sum of RMB 117,000 ($150,000) made under contract 20121110[212] with Obosen and cheque 15 was used to make the fourth payment under the contract in the sum of RMB 135,000 ($173,077). 

245.  The defendant explained that the money from cheque 13 was kept in the safe until payment was made.  The defendant produced the receipts dated 26 April 2013 and 10 May 2013 issued by Obosen[213]. In cross-examination the defendant said that the balance of $50,000 from cheque 13 was left in the safe and that the balance of $26,923 from cheque 15 was used on 15 June 2013 in part payment of the second payment under contract 20130114 (Part A) with Shenzhenshi Beson[214]. The defendant said that he had also given this receipt to Mr Hirata in July 2013.      

246.  Specifically, cheque 14 was used to make the second payment in the sum of $153,888 made under contract 20120926 also with Obosen (Part A)[215]. No receipt was produced.  In cross-examination the defendant said that he believed he gave a copy of the receipt to Mr Hirata when he visited the Hong Kong office in July 2013 and that the balance of the cheque was also kept in the safe as LED money and not as petty cash.

247.  Specifically, cheque 16 was used to make the third and fourth payments under contract 20121214 with Shenzhen City South Technology[216] in the sums of $70,000 (RMB 54,600) and $115,641 (RMB 90,200).  The defendant produced the receipts dated 10 May and 27 May 2013[217]. 

248.  The defendant explained that he made the third payment in advance and reimbursed himself from the cheque.  In cross-examination the defendant explained the payment was made in advance at the request of Nanbu.  Earlier in evidence when cross-examined about cheques 2 and 3 the defendant had explained that because the president only visited Hong Kong once a month to sign the cheques the need sometimes arose for payment to be made in advance for example when goods were delivered.  The defendant therefore made these payments in advance[218]. 

249.  The defendant explained in cross-examination that the balance of the cheque in the sum of $14,359 was used together with the balance of various cheques including 13, 14 and 15 to make the second payment under contract 20130114 (Part A).   

250.  In respect of these cheques Mr Wakizaka testified he was told by Mr Hirata that the companies no longer existed; was told that the China factory had not received any goods and he could not find any other records.  Mr Wakizaka was therefore unable to agree the cheques were used to make these payments. 

251.  Mr Funayama testified the defendant told him that the operating capital was too much and would therefore be reduced each month from $600,000 to $400,000 (i.e. from three cheques to two cheques).  Mr Funayama believed this started in March 2013.   

Discussion

252.  There is no reference to LED in Winnie’s list of cheques [219] or in the fund budget schedules, there being no special expenditure in these months[220].   All the cheques were designated as operating capital for the factory. 

253.  No approval having been sought for LED raises a good deal of suspicion, in particular in regard to cheques 14, 15 and 16 for which approval was still sought for operating capital of the factory despite the fact the defendant had already told Mr Funayama that the operating capital of the factory would be reduced to $400,000. 

254.  On the other hand, if the defendant was going to steal the money one would hardly expect the defendant to tell Mr Funayama that he is reducing the operating capital[221].

255.  Notwithstanding the suspicious circumstances surrounding these four cheques taking into account that the defendant may have been carrying out LED business with the approval of Toho since June 2011 and that he told Mr Funayama in advance the operating capital would be reduced, I am left with a doubt whether or not the defendant may also have used these four cheques for LED. 

Cheque No 852203 (cheque 1).

256.  Cheque 1 was cashed by the defendant on 16 June 2011.  The defendant testified that the cheque was used to pay the deposit for contract 20110601 (Part C) with Obosen[222] and identified the receipt dated 16 June 2011 in prosecution bundle 4/662 as the receipt issued to him[223].

257.  Mr Wakizaka testified he was unable to find any documents to substantiate where the money went.

Discussion

258.  There is no reference to LED in Winnie’s list of cheques [224] or in the fund budget schedule, there being no special expenditure that month[225].  No approval having been sought for LED again raises suspicion this cheque was not used for LED. 

259.  This contract is dated June 2011 the same time as the contracts subject of cheques 17 and 18, which contracts the prosecution accept were genuine and which I discuss next.  The balance of the contract was the subject of cheque 2, discussed earlier[226].

260.  Notwithstanding approval was not sought for LED in June 2011 taking into account LED business was carried out in June 2011 and the finding that cheque 2 may have been used for the same contract, a contract Mr Wakizaka found to be genuine, I am left with a doubt whether or not the defendant may also have used this cheque for LED. 

The other cheques (cheques 4, 8, 9, 10, 11, 12, 17, 18, 19, 20 and 21)

Cheques 852224 ($205,000) (cheque 17) & 852225 ($126,000) (cheque 18)

261.  Cheques 17 and 18 were cashed by the defendant on 13 July and 19 July 2011.  The defendant testified that cheque 17 was used to pay the balance of contract No. S1-27[110614] with Obosen [227] and cheque 18 was used to pay the balance of contract 2011062301 with Jin Jin Niu [228].  Neither contract is listed in Part A or Part C of the table in prosecution bundle 1/1 (exhibit P7)[229].  No receipts were identified or produced. 

262.  Mr Hirata testified that he had seen LED products from Jin Jin Niu in Japan; that Toho had bought something from Jin Jin Niu; between June and October 2011 a few LED lights were supplied to a company called Asahi Seiko, a subsidiary of Toho[230]; and that he approved the telegraphic transfer for the payment of the deposit[231].  Mr Hirata was however unable to find any evidence of any more money being paid to Jin Jin Niu.   

263.  Mr Wakizaka testified that he was unable to find any records of where the money went.  In cross-examination Mr Wakizaka disagreed these cheques were used to pay the balance of the two contracts because the amounts when exchanged to RMB were different. 

Discussion

264.  In Winnie’s list of cheques both cheques are designated for LED with the names of the suppliers Obosen and Jin Jin Niu[232]and in the fund budget schedule as special expenditure for LED[233].  The prosecution accept these two contracts were approved by Toho Rubber, Mr Hirata having approved payment of the deposits by telegraphic transfer[234].  

265.  Notwithstanding Mr Wakizaka could not find where the money had gone and no receipts have been produced, the evidence points to approval to pay these sums.  Mr Wakizaka’s disagreement the cheques were not used depends very much on the exchange rate used for RMB.  The exchange rate of .8 used by Mr Richmond during cross-examination did not equal to the amounts paid.  Exchange rates of .827 and .823 would however be very close to the balance remaining after payment of the deposits. 

266.  Although one might expect the balance to have also been paid by telegraphic transfer, the prosecution having accepted these to be genuine contracts one would equally expect Obosen and Jin Jin Niu to have demanded payment if the balance had not been paid.  There is no evidence before the court that either Obosen or Jin Jin Niu demanded payment of the outstanding balance.  Equally there is no evidence payment was made other than by these two cheques.

267.  I find on the evidence I cannot rule out that these two cheques may have been used to pay the balance of the two contracts. 

Cheques 004726 ($95,000) (cheque 9) & 004746 ($86,000) (cheque 10).

268.  The cheques were cashed by the defendant on 11 December and 21 December 2012[235].  The defendant testified that cheque no. 004726 was used to make the first payment for the purchase of LED fluorescent tubes under contract 20121214 with Shenzhen City South Technology[236] in the sum of RMB 76,000 (Part A) and cheque no. 004746 was used to make the second payment under the contract in the sum of RMB 68,800.  The defendant produced the contract and the receipts[237].

269.  Mr Wakizaka testified that he was told by Mr Funayama that there was no stock in the China factory. As noted earlier Mr Funayama was not shown any receipt or asked about any of the contracts produced by the defendant[238].

Discussion

270.  In Winnie’s list cheque no. 004726 (item 10) was designated as ‘expenses for environmental bureau regarding the company formation’[239].  Cheque no. 004746 is wrongly numbered as 004730 in Winnie’s list[240]. The bank statement shows cheque 004730 was in the sum of $6,150[241].  Cheque 004730 (item 13) was designated ‘florescent tubes for Malaysia, spotlight’[242]. 

271.  In the fund budget schedule the two cheques are included with items 11 & 12 on Winnie’s list as special expenditure with the notation from mail[243].  In the General Journal the payments are recorded as temporary payments with the heading ‘LED Fee Prepaid’[244]and cash expenditure slips show ‘Cash advance for LED’[245]. 

272.  I also note that cheque no. 004728 in the sum of $93,600 designated in Winnie’s list (item 12), as street lights for Vietnam, was also cashed but is not the subject of any charge[246]. There is no evidence before the court that this cheque was not used other than for street lights in Vietnam.

273.  Notwithstanding approval was not sought for LED in respect of cheque 004726, taking into account all the evidence including both payments were recorded in the General Journal as LED fee prepaid; the cash expenditure slips disclosed advance payment for LED and approval was sought for LED for cheque 004728, I find on the evidence I cannot rule out that both cheques may have been used for LED. 

Cheques 004727 ($82,000) (cheque 11) & 004750 ($95,000) (cheque 12).

274.  The cheques were cashed by the defendant on 14 January and 29 January 2013[247].  The defendant testified that cheque no. 004727 was used in part payment of the deposit of $150,000 (RMB 120,150) for contract 20130114 (Part A) with Shenzhenshi Beson and cheque no. 004750 was used to reimburse himself for paying in advance the balance of the deposit in the sum of $68,000.  The defendant produced contract 20130114[248]. No receipt was produced. 

275.  In cross-examination the defendant said the cash expenditure slip dated 14 January in the sum of $82,000[249]and showing cash advance for the expenses of company formation was not connected to contract 20130114 and that he had made a mistake when saying cheque 004727 was used in part payment of the deposit for contract 20130114.  Without access to accounting documents the defendant was unable to say what the $82,000 was used for. 

276.  In re-examination the defendant said that the cash expenditure slip in the sum of $150,000[250], also dated 14 January, showing cash advance for purchasing LED corresponded to the payment of the deposit of $150,000 (RMB 120,150) for contract 20130114 (Part A)[251].  The defendant repeated that without the relevant records he was unable to say what the $82,000 was used for.  The defendant believed the money was related to the companies in China but may also have been possible he reimbursed himself for advance payments made on behalf of Toho[252].

277.  The balance of cheque no. 004750 in the sum of $27,000 was used to reimburse himself for making two payments under Part C, each of $13,500 on 6 December 2012 and 8 January 2013 in respect of contract 20121206 with Obosen.  No contract or receipt was produced. 

278.  In cross-examination the defendant said that he had received $95,000 prior to the cashing of cheque 12 as evidenced by the cash expenditure slip for 28 January 2013[253]. The $95,000 from the cheque was placed in petty cash and used to pay for petty cash items such as transport fees and stationery.

279.  Mr Hirata testified that when he visited the address of Beson he was told the company went bankrupt in the first half of 2012.  Mr Wakizaka disagreed the cheques were used for LED because there were no receipts and he could not therefore verify the expenditure. 

Discussion

280.  In Winnie’s list cheque no. 004727 (item 11) was designated as ‘Tax on business income. Year-end party expenses’[254]. In the fund budget schedule this cheque is included with items 10, 12 & 13 on Winnie’s list as special expenditure with the notation from mail[255].  As seen when discussing cheques 9 & 10, item 12 (cheque 004728) was designated as street lights for Vietnam, which cheque was cashed and for which there is no evidence what the cheque was actually used for[256].

281.  In Winnie’s list cheque no. 004750 (item 15), was designated ‘purchase of LED parts (Malaysia temporary)’[257]. In the fund budget schedule this cheque is included with items 13 & 14 on Winnie’s list as other expenditure with the notation from mail[258]. 

282.  In the General Journal payments for $82,000 dated 14 January 2013 and $95,000 dated 25 January 2013 are recorded as temporary payments with the heading ‘Set up the company of factory’[259]. Similarly cash expenditure slips dated 14 January and 28 (20) January 2013 also show cash advance for the expenses of company formation[260].

283.  Notwithstanding approval was not sought for LED in respect of cheque 004727; no receipts were produced and the less than clear explanations given by the defendant for the use of these two cheques, which raises a good deal of suspicion, taking into account all the evidence including that approval was sought for LED in respect of cheque no. 004750 and at the same time approval was sought for LED in respect of another cheque no. 004728, I am left with a doubt as to whether or not these two cheques may also have been used for LED. 

Cheque No 004749 ($150,000) (cheque 21).

284.  The cheque was cashed by the defendant on 25 January 2013[261].  The defendant testified that after the cheque was cashed he thought he put the money back in the safe as petty cash.  Later in his evidence the defendant said that he used the cash to reimburse himself for LED payments he had made[262].  No particulars were given and no receipts were produced in support of these payments.

285.  In answer to the court the defendant said he reimbursed himself for the payments of $100,000 made on 10 November 2012 in respect of contract 20121110 (Part A) and $42,250 made on 11 December 2012 (Part C).  The defendant said there should have been receipts which would have been sent to Mr Hirata[263]. 

286.  Mr Wakizaka disagreed the cheque was used for LED because the only document that could be found was a cash expenditure slip dated 14 January 2013 also in the sum of $150,000[264]. No proof could be found that the money was spent on LED.  

Discussion

287.  In Winnie’s list the cheque (item 14) was designated facilities inspection, company registration and expenses for document certification[265].  In the fund budget schedule this cheque is included with items 13 & 15 on Winnie’s list as other expenditure with the notation from mail[266]. 

288.  The cash expenditure slip found by Mr Wakizaka states ‘Cash advance for purchasing LED’.  The same entry is found in the General Journal where the payment is recorded as debit temporary payment and credit petty cash with the heading ‘LED Fee Prepaid’[267].

289.  Notwithstanding no contracts or receipts were produced and the less than clear explanation given by the defendant for the use of this cheque, which raises a good deal of suspicion, taking into account all the evidence, including that the General Journal and cash expenditure slip in the same month, albeit earlier than the cashing of the cheque, show payment of $150,000 for LED, I find on the evidence I cannot rule out that this cheque may have been used for LED. 

Cheque No 004911 ($75,000) (cheque 4).

290.  The cheque was cashed by the defendant on 16 December 2011[268].  The defendant testified that the cheque was used to reimburse himself for advance payment of $70,000 he made to Yuanjing on 14 November 2011 in respect of the Russia project (Part B).  In cross-examination the defendant said the balance of $5,000 was placed in the safe. 

291.  The defendant produced the receipt issued by Yuanjing[269].  In cross-examination the defendant explained that the receipt did not bear the name Yuanjing because the receipt was issued by a subcontractor of Yuanjing[270]. 

292.  In Winnie’s list the cheque (item 8) was designated ‘Tax on the increased value by the sales of scrap’[271]. Mr Wakizaka testified the tax was paid by petty cash in the China factory and that there was a record but this was mixed up with other items.  No record was produced. 

Discussion

293.  In Winnie’s list cheque no. 004912 (item 9) was designated ‘Purchasing expenses for LED 1.2m + 2.4 m Deposit’[272]. In the fund budget schedule this cheque is included with item 8 on Winnie’s list as special expenditure with the notation refer to mail[273].  Cheque no. 004912 was also cashed but is not the subject of any charge[274].  There is no evidence before the court what this cheque was actually used for.  

294.  Notwithstanding the receipt was not in the name of Yuanjing and that the defendant needed to make advance payment, which raises a good deal of suspicion, taking into account that approval had been sought at the same time for LED, albeit in respect of a different cheque, I find I cannot rule out that this cheque may also have been used for LED. 

Cheque No 063812 ($212,500) (cheque 19).

295.  The cheque was cashed by the defendant on 19 April 2012[275].  The defendant testified that the cheque was used to pay for contract 20120325 (Part C) for the purchase of LED light tubes from Shenzhenshi Beson[276].  The defendant identified a copy of the contract and the receipt in the prosecution bundle 4/713-724 (exhibit P22).  As noted earlier this is the contract submitted to CWCC for adjustment as repair and maintenance which the defendant said was for a customer in Singapore and not for repair and maintenance[277].

296.  The receipt is dated 11 April 2012 prior to the cheque being cashed.  The defendant explained this was because goods were often delivered first at which time a receipt would be issued although payment had not been settled, the defendant asking the seller to wait for payment until after President Ueda signed the cheques.  In cross-examination the defendant repeated this explanation and also said it was possible he had advanced the money first. 

297.  Mr Wakizaka disagreed this cheque was used for LED because the records only showed money being given to the defendant and therefore he did not know what the money was spent on.  In cross-examination when shown the contract and receipt Mr Wakizaka disagreed the receipt for RMB 170,000 was in respect of the cheque for $212,500.  

Discussion

298.  In Winnie’s list the cheque for $212,500 (item 9) is wrongly numbered as 063813[278] which was a cheque for $200,000 and was also cashed on 19 April 2012, the same day as cheque no. 063812[279]. The General Journal shows both cheques were given to the defendant and recorded as temporary payments[280]. Cheque no. 063813 is not the subject of any charge.

299.  In Winnie’s list cheque no. 063812 (item 8) was designated ‘LED for Malaysia’ and cheque no. 063813 was designated for various expenses including tax on business income and retirement benefit.  Whilst Winnie clearly mixed up the two cheque numbers there is no evidence whether she also mixed up what the cheques were to be used for.  In the fund budget schedule the two cheques are listed as special expenditure with the notation from mail[281].

300.  Notwithstanding the receipt predates the cashing of the cheque taking into account approval had been sought for LED for Malaysia in respect of one of the cheques, I find on the evidence I cannot rule out that cheque no. 063812 may have been used for LED. 

Cheque No 063766 ($194,500) (cheque 8).

301.  The cheque was cashed by the defendant on 26 September 2012[282].  The defendant testified that the cheque was used to pay the 50% deposit in the sum of RMB 121,000 ($152,460) for contract 20120926 (Part A).  The contract was signed on 26 September 2012 with Obosen in the sum of RMB 242,000 for the purchase of LED fluorescent tubes.  The balance of the cheque $42,040 was kept in the safe in the Hong Kong office[283]. No evidence was however given as to how the balance was used.  The defendant produced the contract[284]and a cash expenditure slip showing payment of $152,460[285] but no receipt. 

302.  The defendant was referred to a cash expenditure slip dated 10 September 2012 in the sum of RMB 28,540[286]. The defendant explained he used this money for LED expenses but did not remember from which cheque the money came from.  In cross-examination the defendant said the cash expenditure slip was not related to cheque no. 063766 and repeated the balance was in the safe as petty cash[287].

303.  Mr Wakizaka testified that he was told by Mr Funayama that the China factory had not received the LED lights referred to in the two cash expenditure slips. Again as noted earlier Mr Funayama was not shown any receipts or asked about any of the contracts produced by the defendant[288].  Likewise, Mr Funayama was not shown this cash expenditure slip.  In cross-examination Mr Wakizaka disagreed the cheque was used to pay the 50% deposit of the contract because the cash expenditure slip referred to 70%.

Discussion

304.  In Winnie’s list the cheque (item 9), is designated ‘contribution for handicapped, tax on the increased value from scraps, tax on business income’[289].  In the fund budget schedule this cheque is included with item 8 on Winnie’s list as special expenditure with the notation from mail[290]. As seen when discussing cheque 7, item 8 was designated for various expenses including LED reserves[291].

305.  In cross-examination the defendant said that the money from the cheque was paid into petty cash.  In the prosecutions closing submissions it is stated that it is unknown where cheque 8 was booked[292]. Mr Ha, the defence expert, pointed out that the General Journal showed the cheque had been booked to petty cash[293]. This extract of the General Journal was not produced by the prosecution as part of their case.  The General Journal also shows that the $152,460 was booked as a temporary payment for LED. 

306.  Although approval was not sought for LED and no receipt was produced for payment of $152,460, taking into account all the evidence, including that at the time the defendant did apply for approval for LED in respect of another cheque and the General Journal and cash expenditure slip show payment for LED, I find on the evidence I cannot rule out that the cheque may have been used for LED. 

307.  In reaching this finding I have considered Mr Wakizaka’s evidence that he disagreed the payment of $152,460 was for contract 20120926 because the deposit paid was 70% and not 50% as per the contract.  Similar criticisms were made during cross-examination of the defendant in respect of other cheques where payment was not in accordance with the contract terms. 

308.  In respect of the contracts relating to cheques 17 and 18, contracts which the prosecution accept were genuine, the payment of the deposits by telegraphic transfers were for more than the amounts specified in the contracts[294].  The fact payments were not made in strict accordance with contract terms, whilst suspicious, do not cause me to doubt the findings that the cheques may have been used for LED.

309.  I am also not satisfied that the prosecution have proved that the defendant stole the balance from petty cash.

Cheque No 121310 ($100,000) (cheque 20).

310.  The cheque was cashed by the defendant on 8 November 2012[295].  The defendant testified that the cheque was used to pay Jia Hao on 12 November 2012 in respect of the Russia project (Part B)[296]. Part B states the date as 2011.  The defendant explained that he may have input the wrong year when preparing the table. 

311.  The defendant produced the receipt[297]. The receipt does not bear the name Jia Hao.  The defendant explained that this was one of two companies entrusted to produce LED bulbs and therefore by looking at the table (Part B) he could tell this payment was by Jia Hao.  

312.  The General Journal records the cheque as ‘Check to cash’ on 8 November.  The same sum is then withdrawn on 10 November from petty cash as a temporary payment for the factory[298]. A cash expenditure slip written by the defendant also dated 10 November 2012 recorded the payment as a suspense payment for expenses related to changing to independent funds[299]. In Winnie’s list  the cheque (item 9) was designated ‘Expenses for environmental bureau, expenses for company formation’[300]. 

313.  The defendant testified that at the time President Ueda signed the cheque he told the president the funds would be used for purchase of LED equipment.  In cross-examination the defendant explained that at the time the budget was submitted he requested funds for company formation.  The defendant took the money out of petty cash on 10 November and took the money to China but was told the money was not needed yet therefore he used the money for LED. 

314.  Mr Wakizaka testified that he was told by the factory the funds had not been received and that he could not find anything to prove the money was spent as recorded on the cash expenditure slip.  In cross-examination Mr Wakizaka disagreed the receipt related to payment of Part B because there was no name of the issuer of the receipt. 

Discussion

315.  The only document referring to LED is the receipt produced by the defendant.  No approval was sought for LED and the company documents produced show the purpose of the cheque was not for LED.  This raises much suspicion this cheque was not used for LED.

316.  The defendant’s own evidence is contradictory.  In chief he says he told the president the cheque would be used for LED whereas in cross-examination he said he decided to use the money for LED after taking the money to China when he was told the money for company formation was not needed at that time.  Also if the defendant told the president the funds would be used for LED when he signed the cheque the cash expenditure slip should have recorded payment for LED and not expenses related to changing to independent funds. 

317.  On the other hand, having carefully considered all the evidence, including that since June 2011 the defendant may have been carrying out LED business with the approval of Toho and that in respect of all the other cheques I find I cannot rule out the cheques may have been used for LED or have a doubt whether the cheques may have been used for LED, I am left with a doubt whether this cheque may also have been used for LED.

Letters of apology, audio recordings and statements to the police

318.  In reaching my verdict I have carefully considered the content of the letters of apology, the audio recordings and the statements made to the police.  The prosecution place reliance on the letters of apology, audio recordings and statements to the police to show the defendant acted without permission; promised to repay the money; and that vouchers for cash advance were fictitious. 

Letters of apology

319.  In the first letter of apology (exhibit P7) the defendant wrote that the purchase of LED fluorescent tubes was conducted without observing normal procedures; without providing sufficient explanation and without obtaining approval from President Ueda and promised to repay or recover the money as soon as possible[301].

320.  Prior to the first letter of apology the defendant had written to the president explaining what had happened (exhibits P11 and P12).  In the email dated 25 July 2013 (exhibit P11)[302], the first explanation given by the defendant, the defendant apologized for doing such a thing on his own decision.  This was however qualified by saying that he thought he was securing another steady profit at the Toho Hong Kong office.  In the email the defendant also promised to take responsibility to deal with the money. 

321.  The second letter of apology (exhibit P8) was written in very similar terms to the first letter of apology, the defendant again writing the purchase of LED fluorescent tubes was conducted neither with permission nor by following normal procedures and without providing sufficient explanation and obtaining approval from President Ueda.  The defendant again promised to repay or recover the money as soon as possible[303].

322.  In the third letter of apology (exhibit P9) the defendant wrote that fictitious vouchers for cash advance had been issued and that he had covered up that companies had gone bankrupt resulting in a huge loss[304].  The defendant also signed the letter of repayment (exhibit P10) saying cheques had been issued under fictitious terms and without permission[305].

Audio recordings[306]

Audio recording (exhibit P31A(1))[307]

323.  In the first audio recording the defendant apologises for not obtaining the president’s permission (see counter 5).

324.  President Ueda tells the defendant to include in the letter of apology that he obtained money fictitiously (see counters 22-26)[308]. In response the defendant said that he wrote what he did (see counters 27-29). Towards the end of the conversation the defendant appears to agree with the president that he made the president sign cheques by giving him a fictitious story (see counters 72-85).  The defendant explained that at counter 75 he told the president all had receipts but this was not audible on the tape.  This the defendant said was what led to the response by the president at counter 76 “It’s not fictitious?”[309].

Audio recordings (exhibit P31A(2) [310] and P31A(3))[311]

325.  Both conversations largely concern how the defendant was going to repay Toho.  In the second audio recording the defendant also appears to be acknowledging there were fictitious things (see counters 45-46).  This is followed by the defendant saying he is not lying (see counter 48).  At the end of the conversation the president says the defendant made fiction and did things without letting him know and that writing letters of apology made him look cunning.  The defendant replied he had no such intention and was always speaking seriously (see counters 419-426).

326.  Towards the end of the third audio recording President Ueda again mentions the defendant using company money without his permission.  The conversation continues as to whether any of the money was used for Toho.  The defendant said he used part for the company.  President Ueda queries this saying some are fictitious.  When President Ueda says he thought the defendant had been trying to repay the defendant says without a doubt he had been trying and that there was nothing wrong (see counters 206-249).

Arrest

327.  Admitted in evidence are statements made by the defendant under caution[312].  The defendant told the police, inter alia, that he had been trying to repay the amount he had used and that he had used the amount on his own account which had become unrecoverable[313].

328.  Admitted in evidence is a video interview[314] in which the defendant says he used $3.7 million without company approval[315] and that he obtained the money from cheques signed by the president which he exchanged to Renminbi and paid the suppliers[316].  The defendant exercised his right and remained silent when asked further questions.  At the end of the interview when asked if there was anything he wished to add the defendant said he was sorry for causing so much trouble to the police; he would like to talk to the president; and he would like to pay back[317]. 

329.  Mr Richmond did not ask the defendant any questions about what he said to the police on arrest and in the video interview.  Nor was the defendant cross-examined about what he said.  In answer to the court the defendant said that he did not recall what he said to the police; that in the video interview people said a lot of things so he just said “yes, yes, yes”; and that he told the police he had approval.  When the court pointed out that was not what he told the police the defendant said that approval should have been stated; that he had completely forgotten the maters that took place at that time and that his feeling was he did say the president gave him approval.  

330.  I do not find this evidence credible.  However, having carefully considered all the evidence I find that whilst the defendant may not have had the specific permission of the president, the evidence points to the defendant seeking approval from Toho throughout most of the period subject of the charges. 

331.  As seen from company documents, such as the fund budget schedule; the General Journal and Winnie’s list of cheques, Toho was apparently made aware that the defendant was doing LED business throughout this period.  In these circumstances I am not satisfied I can attach weight to the statements made by the defendant that he acted without permission to show the defendant dishonestly appropriated the money from the cheques.

332.  Although Toho found little evidence of genuine contracts the prosecution accepts that the contracts subject of cheques 17 and 18 are genuine.  Mr Wakizaka also found evidence that a contract for delivery to Vietnam was genuine[318].  Whilst these contracts are in June and July 2011, at the beginning of LED dealings, I am not satisfied weight can be attached to admissions made that cheques were issued under fictitious terms.

333.  In this regard I note that on the evidence the first oral and written reference to fictitious came from President Ueda and not the defendant[319].  I also note President Ueda’s evidence that he recognised some of the facts in the table presented by the defendant were true but did not understand how the total $3,271,105 was reached[320]. President Ueda did not tell the court what he recognised was true. 

Suspicion

334.  As set out in my verdict there is a good deal of suspicion. 

335.  Further, the business dealings described by the defendant, in particular the Russian project and the nurturing of smaller companies which had not produced LED before, are equally suspicious. 

336.  The prosecution submit that even if this is true then the defendant was on a folly of his own, which he pursued at the expense of and risk to Toho and is a clear example of the defendant assuming the rights of Toho over the chose in action and dishonestly using the credit balance for his own[321]. 

337.  This submission is also based on the premise that the defendant acted without approval.  Having found that the defendant appeared on a regular basis to have sought approval for LED and that from the business records Toho was seemingly aware of this business[322], albeit the president and Toho may not have known exactly how the defendant was carrying out the LED business, for all the reasons set out in my verdict I find I am left with a doubt that the defendant dishonestly appropriated the money from the cheques with the intention of permanently depriving Toho of the money. 

338.  Suspicion is not enough to prove a criminal charge.  The benefit of the doubt is given to the defendant and he is acquitted of the charges.