HKSAR v. LEE PUI TAK

CACC 105/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 105 OF 2008

(ON APPEAL FROM HCCC NO. 215 OF 2007)

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J U D G M E N T

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Hon Beeson J (giving the judgment of the Court):

1.  The applicant (D3) was convicted after trial in the High Court before Deputy Judge D Pang, of three counts of conspiracy to defraud (C1-C3) and one count of money laundering (C4), which related to the first three counts.  The applicant was sentenced to a total of 6 years’ imprisonment.  He sought leave to appeal against his conviction only.  On 5 December 2008 we dismissed his application and said we would hand down our reasons at a later date.  Our reasons follow.

2.  The prosecution alleged that the applicant, together with other persons, conspired to defraud various financial institutions by dishonestly causing and permitting those financial institutions to honour letters of credit/trust  receipts (LCs/TRs) issued by Yuen Hing Shing Steel Company Ltd (YHS) and China Profit Development Ltd (CP) in favour of a company, Extraway Trading Limited (Extraway) and to make payments under those documents to Extraway :

(i)  knowing that there were no genuine commercial transactions relating to those payments;

(ii)  knowing that the documents evidencing the supposed underlying commercial transactions were false; and

(iii)  by concealing the fact that Extraway was controlled and beneficially owned by Lau Ka-wai Stanley (Lau).

3.  The facts underlying the charges were straightforward.  Full Success was a holding company controlled by Lau, who was the guiding light of the LC fraud.  YHS and CP were subsidiaries of Full Success.  Between November 2002 and October 2005, YHS and CP applied to Delta Asia Credit Ltd, the Belgian Bank (as it then was) and the Hang Seng Bank Ltd for 28 LCs, ostensibly for the purchase of steel.  In each instance the beneficiary was Extraway.  Unbeknownst to the banks, Stanley Lau controlled and was the beneficial owner of Extraway.

4.  Extraway would submit the documents to negotiate the LCs to Banca Intesa S.P.A. (BCI), which would forward necessary documents to the issuing bank with a covering letter.  The documents would be ratified by the issuing banks and BCI would negotiate the LC, deduct charges and credit the net amount to Extraway.

5.  Extraway transferred the net amount to Top Winner Technology Ltd, which distributed the monies to companies related to Lau and to Lau himself.  Very substantial sums were obtained in this manner; in Charge 4, dealing with property known or reasonably believed to represent proceeds of an indictable offence, the sum particularised was HK$217,257,550.  The total actual loss to the banks was HK$189.9 million.

6.  The three defendants were portrayed as able and willing lieutenants of Lau, with the applicant playing a slightly lesser role than D1 or D2.  Lau did not face trial, having gone to the mainland in September 2005 and not returned.

7.  The applicant, who had had a banking career to that time, was employed by Lau as Financial Controller of YHS in December 2001.  Very soon after Lau asked him to become a director of Extraway with Poon Hon-wing (PW7), as his co-director.  Both Poon and the applicant were also listed as shareholders, but the applicant claimed he had not found that out until the date of trial.

8.  Poon was also employed by Lau to deal with his personal business.  Although Poon had misgivings about his appointment he was assured by Lau and the applicant that the arrangement was alright.  The applicant said he was told by Lau that Extraway was set up to encourage business and to facilitate the transfer of funds.

9.  In July 2003 the applicant was replaced as shareholder by a BVI company, Jusco, but Poon remained a shareholder until November 2005.

10.  The evidence relating to the fund flows for the LCs/TRs was the subject of agreement in extensive Admitted Facts.  Evidence at trial was given by those banking officers who had had dealings with YHS and its offshoots, including Extraway.

11.  The banking officers all gave evidence that if they had known that Extraway was connected with YHS, that factor would have precluded their honouring the LCs/TRs issued by YHS and CP to Extraway.

12.  The defence case was that the prosecution had not adduced any, or sufficient, evidence to prove any one of the particulars establishing the conspiracies.  The applicant, who elected to give evidence, said that Lau told him that Extraway was incorporated for the development of business and as a vehicle for the transfer of funds.  Essentially it was a device whereby Lau could obtain a higher price for steel from established customers of YHS in mainland China, by assuming the guise of another company.

13.  Lau, around the time of incorporation, asked the applicant to sign, in blank, a number of cheques and documents relating to Extraway and the applicant did so, because he trusted Lau who told him they were only needed in order to raise the selling price of steel.  The applicant claimed that from then on he had been oblivious to what was going on in the business of Extraway and he simply did as he was asked by Lau.

14.  The judge directed the jury that before finding this applicant guilty of any one of the conspiracy counts, they had to be satisfied of at least one of the three overt acts of fraud particularised in each of Counts 1-3.  Further, at least 5 of them had to be satisfied of any one particular, before they could find a particular defendant guilty.

15.  The Perfected Grounds of Appeal were as follows.

Ground 1

16.  Ground 1 alleged that the judge erred in failing to direct the jury that the assertions by the speaker the other party to telephone conversations with PW3 (the account manager for the then Belgian Bank) that the speaker was the applicant, was inadmissible hearsay and did not prove that the speaker was in truth the applicant.

Ground 2

17.  Ground 2 alleged that the judge erred in failing to direct the jury that before they could rely on the 3^rd particular of fraud to convict the applicant, they had to be sure that he knew that the banks regarded any connections between YHS and Extraway and whether Extraway was controlled and beneficially owned by Lau, as a relevant factor in deciding whether to honour LCs/TRsissued by YHS/CP to Extraway.

Grounds 3 and 4

18.  The basis of Grounds 3 and 4 was that because the convictions on Counts 1 to 3 were unsafe and unsatisfactory the conviction on count 4 was also unsafe and unsatisfactory, as it was a follow-up charge based on the success of Counts 1 to 3.

Consideration of Ground 1

19.  Mr M. K. Wong SC, who appeared for the applicant, submitted that as the judge had directed the jury that they need be sure of only one of the three particulars of fraud before they could convict, it was possible that the jury could have convicted the applicant solely on the basis of the 3^rd particular, that with others he had conspired to conceal that Extraway was controlled and beneficially owned by Lau.

20.  PW3, Pang Yuet-on, was the account manager of the Industrial and Commercial Bank of China, ICBC, a bank which had been the Belgian Bank at the time of the offences and who took over the account of YHS in about January 2003.  He began to familiarise himself with the company.  In particular he tried to find out about Extraway when he realised that YHS was issuing local LCs to it.

21.  He made enquiries of D2, as well as Lau and his brother, who led him to believe that Extraway was the agent of Jusco a company that PW3 believed, mistakenly, was a large Taiwanese steel firm.  PW3 found the names of the 2 directors of Extraway from a company search and thereafter had a number of conversations with a man he contacted at a telephone number he had found on the LC applications as Extraway’s collection and instruction which he believed was Extraway’s number.  In fact the telephone number was for a land line installed by YHS in its own office.  PW3 gave evidence about the telephone conversations between himself and a man who claimed and whom he believed to be, a director of Extraway, Lee Pui-tak, Alan Lee.  That was the name of the applicant.

22.  PW3 had never met or spoken to the applicant before these calls.  He tried to find out more about Extraway’s structure and business, desiring to pursue other business opportunities for his bank.  During the conversations the man he believed was Alan Lee, did not reveal that Extraway was controlled and beneficially owned by Lau.  Each time PW3 was told by “Alan Lee”, that the person in charge of the company was in the mainland and he would have to contact him to arrange a meeting.  Eventually PW3 abandoned his enquiries and after January 2005 made no further calls.  This was because Alan Lee had told him that because the Belgian Bank had become ICBC, it was not possible for Extraway, with its purported Kuomintang connections, to do business with it.

23.  The applicant denied in evidence that he had ever spoken to PW3 as a director of Extraway.  He confirmed that the name Lee Pui-tak was the same as his and there was no one else in the firm with the same name.  He claimed that the telephone in YHS was not one that allowed transfer of internal calls.

24.  The applicant denied that D1 had ever told him that PW3 was making enquiries about Extraway and its possible links to YHS, although they were working in the same office.  He agreed that what Lau had told him, differed significantly from what Lau had told D1 about the purpose of Extraway.  He agreed that by telling different stories, Lau was running a real risk that he and D1 might compare notes and discover the fraudulent LC operation.

25.  Mr Wong submitted that, in law, the assertions of the speaker that he was the applicant were not admissible to prove that he was the applicant.  Without a proper direction to that effect the jury could have relied on this inadmissible evidence to prove that the other speaker was the applicant and therefore conclude that the applicant had agreed to participate in the 3^rd particular of the fraud.

26.  Mr Wong submitted that the only evidence that the applicant had concealed Lau’s ownership and control of Extraway from the financial institutions was the evidence of these conversations.  He submitted that the judge did not direct the jury that this evidence was insufficient to prove that the applicant was the other party and that this omission was fatal to the prosecution case.

27.  In support of this point counsel relied on the timing of the jury’s deliberations and their question that was asked shortly before they returned their verdict.  The jury began their deliberations at 10:54 a.m. on 13 February 2008.  They continued deliberating until 08:04 p.m. and were sent out overnight.  At 10:15 a.m. on 14 February 2008, they produced a question:

“PW2, Cheung Fat-yuen testified.  When he asked D3 about the relationship between YHS and Extraway, what did Mr Cheung ask?  What answer was provided by D3?”.

28.  The judge discussed the question with counsel and directed the jury that PW2, Reginald Cheung, who headed a finance team for Delta Asia, had never asked D3 (i.e. the applicant) anything about the relationship and thus no answer was provided.  He reminded the jury briefly of relevant aspects of PW2’s evidence.  The jury retired to deliberate further and at about 11:41 a.m. on 14 February 2008 convicted the applicant of all 4 counts.

29.  Mr Wong submitted that this must mean that at the time the jury asked the question they could not decide on their verdicts.  He claimed that the question showed that the jury could not have convicted the applicant on either the 1^st or the 2^nd particulars of the fraud, because if they had, they could have convicted the applicant without asking the question.

30.  Mr Wong, in his written submission, had said the direction the judge gave was that once they were satisfied of any one of the three particulars of fraud they should convict, even if they were not satisfied about the other particulars.  This paraphrasing of the judge’s direction is not correct.  [See AB114 A-H and I-O].

31.  He contended that on the second day of deliberations the jury ‘must have been considering’ whether they could convict the applicant on the 3^rd particular of the fraud, when they asked their question.  That being so, he submitted, the jury ‘must have’ convicted the applicant, based on Alan Lee’s nondisclosure of the relationship between Lau and Extraway during the phone conversations.  As the evidence of PW3 was crucial to the applicant’s conviction this non-direction amounted to a material irregularity.

32.  The judge when summing up had alerted the jury to the question of the identity of the man PW3 spoke to.  First he warned them against speculating as to the reason why PW3 was making enquiries and then stated:

“ Subject to what you may think about the identity of this person on the phone – a question I will return to when dealing with D3 – everything that PW3 observed can only be considered in the context of whether there was a conspiracy between 1 January 2003 and 31 October 2005, that is the named date of the offence, leading to the nine LCs now represented in Charges 7 to 15.”

[AB129 O-R]

33.  At AB150 K-N the judge referred to the telephone calls.  He reminded the jury that although the applicant had agreed that he was the only person named Alan Lee in the company, he maintained that he had never spoken to anyone from ICDC, and that the phone in YHS was incapable of transferring calls internally.

34.  The judge then gave the following direction:

“Whether that is true, or whether someone in Yuen Hing Shing was hiding the phone and pretending to be D3 is for you to decide, members of the jury.  If you are not sure it was D3 whom PW3 spoke to, you can forget about this piece of evidence, pretend you have never heard of it, in your deliberation.  But if you are sure it was D3, then these telephone conversations can be used as evidence to determine whether there was a conspiracy and the parties involved, but you will have to look at all the other evidence as well, and not just concentrate on these phone calls.”

[AB150 O-S]

35.  Although the judge did not specifically advise the jury that because the man answered the phone as if he were Allen Lee, it was not proof that he was the named man, it was hardly necessary; he had warned them that they had to be sure of the identity before they could use the telephone conversations as any form of evidence.

36.  The jury knew that PW3 had never met or spoken to Alan Lee before the telephone calls.  The jury had also to consider the evidence given by the applicant on this point.  He denied that he had ever had any conversation with PW3 or with anyone from ICBC, but it was a matter for the jury whether they accepted this evidence as true, or possibly true.

37.  At the conclusion of his summing up the judge, in the absence of the jury, adverted to the telephone calls again.

“… Gentlemen, for the record, you will have noticed that, in the summing up of the evidence of D3, I have made certain directions in law as to how the jury should approach the telephone conversations PW3 had with someone claiming to be D3.  Now, that is all the directions I think I needed that fall within the ambit of acts in furtherance of a common purpose in this case.

If you have any contrary views you have to say so now.  I have asked you a number of times before and this is your last chance.  I’ll not wait here.  If there is anything you just tell me.

In the meantime is there anything you want to raise, Mr Wu, Mr Luk, Mr Wong?”

[AB155 J-M]

38.  None of the counsel so addressed indicated they wished to raise any matters.

39.  It appears that counsel for the applicant misunderstood the purpose of the prosecution in presenting the telephone calls as evidence.  The prosecution was neither relying on hearsay evidence to establish that the man PW3 spoke to was the applicant, nor was it seeking to use the content of the telephone conversations to prove the identity of the speaker.

40.  The prosecution put before the jury various items of circumstantial evidence from which they suggested the jury could draw the only reasonable inference i.e. that the man PW3 understood to be Lee Pui-tak, Alan, the man to whom he spoke, was the applicant.

41.  The Admitted Facts showed that Alan Lee was a name used by Lee Pui-tak on his name-card.  The telephone number PW3 called was YHS’s telephone number, installed at the YHS office.  No one else at the YHS office bore the same name as the applicant.  Although PW3 had not met the applicant or spoken to him, he had spoken to and presumably was familiar with, the voices of Stanley and Eddie Lau and D1 and D2.

42.  It is in that context that the direction of the judge at AB150 O-S was given.  He made it clear to the jury that the identity of the speaker was a matter about which they might have some doubt and that it was only if they were sure that the speaker was the applicant that they could consider the telephone calls in terms of the conspiracy as a whole.

43.  It was for the jury to examine and assess the circumstantial evidence and the conflicting evidence of the applicant.  It appears from their verdict that the jury roundly rejected the evidence of the applicant on this, as on other points.  The judge’s directions in context were entirely adequate to draw to the attention of the jury the simple and obvious point that the identity of the applicant could not be established by an express or implied assertion in a telephone conversation, that he was the Alan Lee whom PW3 wished to contact.

44.  By this argument, counsel for the applicant was endeavouring to go behind the jury’s verdict by purporting to interpret their question as revealing that they must have convicted the applicant solely on the basis of the 3^rd particular.

45.  At most the question meant that the jury wanted clarification, or a reminder of a particular piece of evidence; a clarification to which they were entitled, of which they were reminded accurately and on which evidence they were properly re-directed by the judge after he had discussed the matter with counsel.

46.  That the jury had been deliberating for a day before the question was asked and that their verdict was given a short time after it was answered, was irrelevant.  Certainly it did not permit of the interpretation attributed to it by the applicant’s counsel.

47.  Without being privy to their deliberations and short of cross-examining the jury members about why the question was asked and why it was asked at the time it was, it was not possible to ascribe reasons, or to guess the basis, for the question.  Nor in the absence of any indication that these were perverse or improper verdicts should this court spend time on such speculation.  The jury was directed properly on this matter.

48.  We dismiss this ground of appeal.

Ground 2

49.  Ground 2 was a complaint that the judge had failed to direct the jury that before they could be sure about the 3^rd particular, they had to be sure that the applicant knew that the banks considered the control and ownership of Extraway was a relevant factor in their decision to honour the LCs/TRs which YHS applied to issue to Extraway as beneficiary.

50.  Counsel contended that there was no evidence that the applicant was aware that the financial institutions mentioned in the conspiracy counts, would honour the LCs/TRs issued to Extraway only if satisfied the companies were not connected.

51.  If the applicant did not know that the banks regarded that as a relevant factor, argued Mr Wong then, even if the applicant had agreed to conceal the background of Extraway, he would not be guilty of conspiring to defraud the banks, because he could not have known that the concealment would prejudice their rights.  This was especially the case because Lau had told him that Extraway was set up to facilitate an increase in the price of steel.  So even if the applicant had agreed to conceal the information about control and beneficial ownership, it was possible that he had done so intending only to raise the price of steel and not to defraud the financial institutions.

52.  Further, Mr Wong submitted that the judge had failed to direct the jury that it was possible the applicant could have been concealing the background of Extraway intending to raise the price of steel, not with the intention of defrauding the banks.  This was another material irregularity which he argued made the applicant’s conviction unsafe.

53.  In evidence, the applicant told the court that he had worked as a relationship manager with Fortis bank, which had evolved as the Belgian Bank and after that as ICBC.

54.  In December 2001 he was appointed as Financial Controller of Full Success – a few days later, at the behest of Stanley Lau, he become a director of Extraway.  When asked to do so by Lau, he signed the consent form for his appointment as a director in blank and thereafter signed a large number of blank documents and blank cheques which, Lau told him, were required.  He was not told and did not ask the reason for that.

55.  Although he had never done anything like that before he did not think he was doing anything illegal, particularly as he always signed against the company chop on the blank documents.  He signed as he trusted Lau.

56.  The applicant agreed that he had spoken to PW2, Poon Hon-wing of Delta Asia about Extraway, but denied he had ever met or spoken to Hui Wai-lun (PW6), the proprietor of the United Accounting and Secretarial Services Company and Mason Secretarial Limited as Hui had claimed.  He did not know how Hui had obtained his personal particulars in order to form Extraway, but pointed out that he had supplied Lau with his ID card number and address when he began working.

57.  Despite his lengthy financial experience, the applicant claimed to be oblivious of anything that occurred behind the scenes over the 4 years he was involved as Financial Controller with YHS and he was unaware of any problem with the company until his own arrest in 2002.

58.  He explained that his relationship with Lau was based on his reaction to Lau’s authoritative and commanding manner – he was prepared to do anything he was told; despite his senior position in the company.  His banking experience meant that he would know how the companies were operated, but the applicant maintained that the reason Lau gave him about the purpose for which Extraway was set up, did not rouse his suspicions.

59.  He agreed that there had been a meeting as PW2 had described it, when Lau talked with him, D1 and D2 about Extraway being used to solve a YHS money problem, but said it did not occur to him that there was anything improper about that and he was unable to recall details of the discussion.  The judge, in effect directed the jury to ignore that evidence.

60.  Despite their close working relationship, the applicant said D1 had never told him that PW3 was making enquiries whether there was any connection between YHS and Extraway.  He knew that what Lau had told him about Extraway was completely different from what Lau had told D1; he agreed that this was a risky strategy by Lau, because possibly he and D1 would discuss the matter and thus become aware of what was going on.

61.  The applicant, in giving evidence, adopted the stance of a man who over a period of 4 years had not noticed the fraudulent LC activity, had no knowledge of what was going on in a company of which he was director and shareholder and, in addition, was so transfixed by the business acumen and the charisma of Lau that he did all that Lau asked him to do, without questioning it, or asking whether it was correct business practice.  He was aware that YHS was a well-known company and that Full Success, the holding company, was a successful small-scale property developer; that allayed any suspicions he might have.

62.  This pose sat ill with his working experience in the banking sector.  The jury could take that experience into account when assessing the prosecution evidence and that of the applicant.  It was possible to infer that the applicant would have been well aware that the banks issuing LCs would be anxious to ensure that there were no connections between applicant and beneficiary which might put the bank at risk.

63.  He would have been aware too that it was not standard business practice to rely solely on pre-signed documents and pre-signed cheque books for the operation of a business or a company.

64.  The evidence of PW2 of Delta Asia Ltd, if accepted, made it clear that the applicant knew a lot about the business of Extraway and that he was active in YHS matters.  It is inconceivable that Lau could have operated a substantial LC fraud for almost 4 years without the applicant, as Financial Controller, knowing of it or agreeing to it.

65.  Counsel complained that the judge had not directed the jury that if they decided the applicant was, or may have been, concealing the links between Lau and Extraway, it was possible that he did so intending to increase the price of steel, not to defraud the banks.

66.  Even if that were so, there was no reason why the agreement of the conspirators could not have encompassed both aims.  A desire to obtain higher steel prices did not preclude the conspirators from agreeing to obtain LCs/TRs for transactions for which there were no underlying goods.  It was for the jury to consider what, if any, agreement the conspirators had reached.  As the applicant had denied any such concealment or any knowledge of Extraway or its business, there is no reason why the judge should have directed in those terms at all.

67.  The judge did give two general directions to the jury as to the way they should treat the evidence of the applicant, emphasising the onus on the prosecution to prove its case and that any doubts they might have were to be resolved in favour of the applicant. [AB107 I-P]

68.  The judge listed those elements the jury had to be satisfied about before they could convict and he referred the jury back to the directions he had given earlier in his summing up on the law of conspiracy and on fraud – the jury having been given a detailed aide-memoire encapsulating those directions. [AB115 D-I]

69.  In our view the judge had covered the essential matters the jury had to be apprised of in respect of the applicant’s defence and the jury, having heard the evidence of the banking officers, could have been in no doubt about the importance the banks placed on the absence of connections between the applicant company, when it applied for a letter of credit and the beneficiary company to which it was issued.

70.  There was no substance in the second ground of appeal.

71.  We are satisfied that the applicant’s convictions were neither unsafe nor unsatisfactory.  The application is dismissed.