HKSAR v. HO WING CHEONG AND OTHERS

CACC 283/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. CACC 283 OF 2007

(ON APPEAL FROM HCCC NO. 10 OF 2006)

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BETWEEN

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JUDGMENT AND REASONS FOR JUDGMENT

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

These appeals

1.  There are presently before the Court applications for leave to appeal on behalf of the 1^st and 2^nd defendants; the 4^th defendant herein, Connie Kwok Shuk-wah (‘D4’) abandoned her application for leave to appeal against sentence by Notice dated 28 October 2009.

2.  The 1^st defendant, Ho Wing-cheong (‘D1’) and the 2^nd defendant, Chan Wing-kui (‘D2’), were prosecuted, together with D4, on charges of conspiracy to defraud in HCCC 10 of 2006, the trial before Mr Justice Lunn and a jury commencing on 23 April 2007.

3.  D1 and D2 were convicted on 16 August 2007 and sentenced on 20 August 2007, along with D4 (who on 14 May 2007, the 15^th day of the trial, had entered a plea of guilty to the charges against her).

4.  D1 now makes an application for leave to appeal against sentence only, whilst D2 now makes an application for leave to appeal against both conviction and sentence.

5.  At the conclusion of the argument upon D2’s application for leave to appeal against conviction, this application was dismissed. The reasons for such dismissal are set out in this judgment.

6.  As to the two applications, by D1 and D2, for leave to appeal against sentence, the Court reserved its decisions thereon, and these decisions also form part of this judgment.

The prosecution case

7.  The case against D1 and D2 focused upon their alleged fraudulent activity in connection with the listing on the Hong Kong Stock Exchange of a company known as Fu Cheong International Holdings Ltd (‘Fu Cheong’), the holding company of the Fu Cheong group, which was listed on the Exchange on 27 March 2002.

8.  In order to apply and be qualified for listing on the Stock Exchange, Fu Cheong had to submit audited records to the Listing Committee of the Exchange which demonstrated, inter alia, that the net profit accrued in the most recent financial year prior to listing was not less than HK$20 million, and was an aggregate of not less than HK$30 million in the preceding two years, with the total net profit required having to be not less than HK$50 million for the 3 years prior to listing, the so‑called “track record period”.

9.  In outline, the case presented by the prosecution at the trial was that D1 well knew that Fu Cheong could not meet such listing requirements, and set about ‘cooking the books’ in order to make it appear that this was the case. This in turn necessitated making up false sales and purchase transactions, such transactions appearing to be funded by false letters of credit opened in favour of Fu Cheong group companies, which such ‘sales’ then would be recorded in the accounts of Fu Cheong.

10.  The profits as thus falsely inflated were accounted for in the books of Fu Cheong, they were included in the annual reports of Fu Cheong prior to listing, and the directors of Fu Cheong, including D1 and D4, signed off on the Listing Prospectus, thereby representing that the information contained therein was true and accurate. As a result, the signed Prospectus, together with the audited accounts submitting the inflated sales turnover and profits figures for the financial years 1998 to 2000, were submitted to the Stock Exchange, resulting in Fu Cheong’s successful listing on 27 March 2002.

11.  Pursuant to this plan D1 had engaged a professional accountant, D3, as financial adviser to assist in and to effect this fraudulent listing operation, whilst D4 was recruited as the assistant to D3 to attend to the myriad details necessary in order to fabricate false invoices and sales vouchers. In fact, many of the ‘customers’ of Fu Cheong were or had been genuine customers, but the value of the genuine transactions was in reality far smaller, hence individual customer’s payment records falsely were inflated; in order to maintain the appropriate 27-29% profit margin in the books of account, cost of sales in turn had to be increased along with an increase in sales turnover.

12.  D2 was the Financial Controller of Fu Cheong, who had come into the company well after the fraudulent conspiracy had begun, and who ostensibly had presided over the continuation of this fraudulent scheme.

13.  The heart of the Fu Cheong group was a company called Fortune (Conductive Carbon) PCB Factory Co Ltd (‘Fortune’), a manufacturer of printed circuit boards. It was this company, together with another BVI shell company, Good News Development Ltd, which purportedly were used as the beneficiaries of the false letters of credit, which had no genuine transactions underpinning them. Effectively, therefore, this was a ‘money-go-round’, with the monies flowing into the Fu Cheong group flowing out again, or ‘rerouted’, by cheques drawn in favour of the applicant for these false credits, Yue Fung International Holdings Limited (‘Yue Fung’), or the subsidiaries thereof; in addition to assisting Yue Fung, a prime purpose of such credits was the fraudulent inflation of the turnover and profit figures of Fu Cheong for the financial years in question, and hence ostensible satisfaction of the Stock Exchange listing requirements.

14.  The charges as thus laid against D1 and D2 dealt with these two specific areas of criminal activity, namely the falsifying of the financial situation of Fu Cheong, without which the proposed listing would fail to attain the Stock Exchange listing criteria, and second, the creation and utilization of false L/C’s.

15.  This case – referred to throughout this appeal simply as ‘the Fu Cheong case’ – was the last in a trio of prosecutions for the like criminal activity.

16.  The first such prosecution took place in the District Court in DCCC 703 of 2005 before Deputy Judge Dufton, and concerned a company known as Yue Fung International Holdings Ltd (‘the Yue Fung case’); the second such trial took place in the High Court before Tong J in HCCC 134 of 2004 and concerned a company known as Gold Wo International Holdings Ltd (‘the Gold Wo case’).

17.  These two earlier cases are referred to in this judgment in context of the arguments as put forward in terms of the appeals against sentence which now are before this court.

18.  For immediate purposes, suffice to say that there was a striking commonality of method used to obtain Stock Exchange listings both for Yue Fung and Gold Wo, and also a like commonality of personnel involved: the 3^rd and 4^th defendants as originally indicted in the present case also had been defendants in the Gold Wo case, and each was serving a sentence of imprisonment imposed in Gold Wo at the time of their remand in this matter, with D1 in the present case being named a co-conspirator (albeit not charged as such) in the Yue Fung case.

19.  At the commencement of the trial in this Fu Cheong case, there were 4 defendants before the court, namely D1 and D2 – whose appeals solely are the subject of this judgment – together with D4 (whose application for leave to appeal now has been abandoned), and D3, Li Wing-kei, whose trial subsequently was severed from that of the other defendants on 30 May 2007.

20.  D3 thereafter stood trial separately, once again before Lunn J and a jury; this 42 day trial commenced on 10 December 2007, with D3, the professional accountant who allegedly was the architect of the manipulation of the Fu Cheong accounts, being convicted on 19 February 2008, at which time he was sentenced. Initially the application by D3 for leave to appeal against both conviction and sentence had been fixed to be heard during the same hearing as the appeals of D1 and D2, but in the event D3’s appeal was adjourned to a date to be fixed, before the same court, in order for D3 to supplement and to expand upon his handwritten grounds of appeal.

The indictment against D1 and D2

21.  D1, the Chairman of Fu Cheong and the founder of the Fu Cheong group, and a director of all the companies therein, was charged with all 4 counts on the indictment, each of which was factually linked (albeit they are not in temporal sequence), whilst D2, the Financial Controller of Fu Cheong, was charged with Counts 1, 2 and 4.

22.  Count 1 charged D1 to D4 inclusive with conspiracy to defraud the Stock Exchange of Hong Kong in the period between 1 February 2001 and 27 March 2002 [the listing date of Fu Cheong] by dishonestly misrepresenting sales invoices and records to inflate the turnover and profits figures of Fu Cheong for the financial years 1998, 1999, and 2000 to satisfy listing requirements.

23.  The ‘shape’ of the indictment, therefore, was that the fraudulent activity in terms of the listing process and the annual report published by Fu Cheong in April 2002 shortly after listing became the subject of Counts 1 and 2, whilst the false letters of credit were the subject of Counts 3 and 4. Something of the ‘flavour’ of this case, and of its constituent counts, can be gleaned from the observations of the learned trial judge upon sentencing.

24.  In respect of Count 1 Lunn J noted that the conspirators had laboured long and hard to produce the false accounts, taking advantage in the process of the underlying L/C fraud, the monetary flows pursuant to which served to justify the turnover and profit figures put forward to the Stock Exchange in support of the Fu Cheong listing application. This action, Lunn J observed, not only had deceived the auditors, Ernst & Young, but also the listing division of the Stock Exchange, despite the system of regulatory checks and balances as then was in place; in addition members of the public had been tricked into subscribing for shares, the integrity of the system thus had been challenged, and the object of the conspiracy achieved.

25.  As to Count 2, the judge noted that the false picture presented in the prospectus of Fu Cheong was maintained by the equally false picture as had been presented in the Annual Report of that company published on 22 April 2002 for the Financial Year ending December 2001, in which turnover had been exaggerated by HK$50 million and profits by HK$15 million; thus it followed that the dishonest conduct reflected in Count 1 necessarily was linked to that in Count 2.

26.  Regarding Count 3, the L/C fraud was identified as having been instigated by D1, and operated by PW1, Ms Yu Shu-lin, upon D1’s instructions; moreover, as Lunn J noted, it was D1 who had ordered the acquisition of Good News Development Co Ltd, and had directed division of the funds stemming from the false L/C’s when ‘reversion’ of such funds, to the L/C’s applicant, Yue Fung, or to its subsidiaries, had taken place, and that D1 also had used the bank account of Kent Industrial Ltd for the like purpose, despite having maintained that he had had no knowledge of that company. The learned judge further took into account that D1 had accepted that the letters of credit were false, and that there were no underlying transactions, and he also accepted that ultimately there had been no actual loss to the banks, albeit the intrinsic criminality lay in the risk of economic loss of lesser sums at any given time.

27.  In terms of Count 4, namely the single L/C fraud, the judge observed that the time-scale overlapped Count 3 by 2 weeks, and similarly there had been no actual banking loss.

Conviction and sentence of D1 and D2

28.  After a trial lasting some 76 days, D1 was convicted of all 4 counts, and he was sentenced to a total of 9½ years imprisonment.

29.  In D1’s case, both Counts 1 and 2, attracted a starting point of 9 years’ imprisonment, on Count 3 a starting point of 4½ years’ imprisonment was adopted, and on Count 4 a starting point of 2 years’ imprisonment.

30.  However, Lunn J reduced the sentence on Counts 1 and 2 by 6 months to take account of the dual factors of delay and the conduct of the defence – thus rendering the sentence upon those counts 8½ years – and further ordered that 1 year of the sentence for Count 3 (the L/C fraud count) was to be served consecutively to the sentence in Count 1 (the listing fraud count); after ordering that the remaining sentences otherwise were to run concurrently, the totality of the sentence of imprisonment thereby imposed upon D1 was that of 9½ years.

31.  D2 was unanimously acquitted on Count 1, but by a majority was convicted upon Counts 2 and 4.

32.  As to sentence, on Count 2 Lunn J employed the same starting point of 9 years as he had applied to the case of D1, but similarly reduced the sentence by 6 months to take account of the like elements of delay and assistance to the prosecution, whilst upon Count 4 – the single L/C fraud count – a sentence of 2 years’ imprisonment was imposed, such sentence to run concurrently with that imposed on Count 2.

33.  Hence, the effective term of imprisonment imposed upon D2 was 8½ years.

34.  With regard to D3, after his separate trial he was convicted on Counts 1 and 2 and was sentenced to 9 years’ imprisonment on each, 1 year of which was to run consecutively to the existing sentence of 9 years imposed on him (after appeal under CACC 104 of 2007) in the earlier Gold Wo case, thereby making a total of 10 years’ imprisonment.

35.  As to D4, who no longer seeks to appeal, she was convicted on Counts 1 and 2 and was sentenced to 6 years 9 months on each count, such sentences to run concurrently.

D1’s appeal against sentence

36.  In mounting the application by D1 for leave to appeal against sentence, Mr Plowman SC submitted that the learned trial judge had erred in two ways:

first, in incorrectly ordering 1 year of the sentence for Count 3 (the L/C fraud count) to be served consecutively to the sentence in Count 1 (the listing fraud count); and

second, in failing to give sufficient credit for the two mitigating factors germane to D1 and D2 in this Fu Cheong case, namely (a) the delay of a total of 4 years and 4 months from the time of the defendants’ arrest by the ICAC (on 16 December 2002) until the beginning of the trial (on 23 April 2007) and (b) the efficient manner in which the trial had been conducted by the defence in this case, leading to a far shorter trial than had been the position in the earlier, and factually extremely similar, Gold Wo case (which had taken in excess of 120 days).

37.  We take these points in the order in which they were argued.

(i)  Partly Consecutive Sentence

38.  Mr Plowman made it clear at the outset that the thrust of his application was as to the totality of the sentence as had been imposed upon his client, and that he had no complaint as to the starting point of 9 years as selected by the learned judge in relation to Counts 1 and 2.

39.  However, he argued that in all the circumstances of this case to order that 1 year of the sentence of 4½ years on Count 3 (the L/C fraud count) was to be served consecutively with the sentence on Count 1 (the listing fraud count) – the better to reflect, as the learned judge expressed it, “the grave culpability of the 1^st defendant” – was in error, and that the respective sentences upon each count should have been made wholly concurrent.

40.  The justification for this submission, argued Mr Plowman, was that the L/C fraud as covered by Counts 3 and 4 was sufficiently related to the listing fraud as covered by Counts 1 and 2 to amount to a “single transaction”.

41.  Mr Plowman noted that in the earlier Gold Wo case the relationship between the like L/C fraud counts and the listing fraud counts essentially was the same as in this Fu Cheong case, in that the false L/C applications were used to inflate the turnover and profit figures in the listing application made by Gold Wo to the Hong Kong Stock Exchange, and yet in Gold Wo solely concurrent sentences had been imposed on the two sets of counts, and thus that the same position ought to have enured in the present case.

42.  He went further. The instant case, he suggested, was a fortiori given that there were serious aggravating factors in Gold Wo which clearly were not present in Fu Cheong – namely, the existence of a new L/C fraud post-dating the listing of Gold Wo, and a further count relating to the theft of listing proceeds, albeit Mr Plowman fairly acknowledged that when appeals against sentence in the Gold Wo case had proceeded to the Court of Appeal, their Lordships in that court had commented (without ordering any increase in sentence) that the sentence in relation to the theft of the listing proceeds should have been made partly consecutive to the sentences imposed upon the other counts: see HKSAR v Fu Chu Kan & ors, Criminal Appeal No 104 of 2007, (unrep), judgment dated 24 July 2009 (at paragraph 225).

43.  Nevertheless Mr Plowman submitted that that which the learned trial judge should have done in order to arrive at the appropriate sentence for D1 in the present case, and in particular to reflect that defendant’s “grave culpability”, was to have reduced the sentences imposed on the other defendants to reflect the lesser culpability on their part, as opposed to increasing the totality of D1’s sentence by imposing a partially consecutive sentence upon one count.

44.  We are, with respect, unconvinced by this submission, and we reject it.

45.  We do not accept leading counsel’s persuasive attempt to elide the criminal behaviour charged in Counts 1 and 2 with that in Counts 3 and 4 as, in effect, constituting a ‘single transaction’; whilst it is true that the L/C fraud within the latter two counts was by its nature a necessary element within and a precursor to the listing fraud – since without the letter of credit money flows the Stock Exchange listing criteria could not have been demonstrated to have been met – nevertheless these clearly were differing species of the venal behaviour which contributed, materially and separately, to the fraud purported to be exercised upon the Listing Committee of the Hong Kong Stock Exchange.

46.  Nor do we agree with the submission that the preceding Gold Wo case – wherein consecutive sentences were not imposed – should effectively act as ‘sentencing arbiter’ for the Fu Cheong case.

47.  The sentences in the Gold Wo case were passed by a different judge in a different trial, and so long as this Court is satisfied that the sentences imposed in this case were not in error, the sentences passed in another case are of no avail to the applicant. Furthermore, and in particular, the Court of Appeal in the Gold Wo case (op cit., at paragraph 225) indicated that in its view the sentences passed on the main protagonist were “on the side of leniency”.

48.  In our view it certainly was open to the learned trial judge in the exercise of his discretion to make the sentence imposed on Count 3 partly consecutive to that imposed upon Counts 1 and 2, and we are able to discern no proper basis to interfere with this approach.

49.  The letter of credit fraud the subject of Count 3 was prolonged and, in purely monetary terms, a massive one – albeit in the event no banking loss was occasioned – and necessarily preceded the matters the subject of Counts 1 and 2, and in our judgment the acts and dishonesty represented by Count 3 were sufficiently different as to justify the approach of the learned trial judge.

50.  Accordingly, the ‘partly consecutive’ element within Mr Plowman’s sentencing argument fails, and in our judgment fails clearly.

(ii)  Discount for delay and the conduct of the defence

51.  Under this sub-head Mr Plowman had two strings to his bow.

52.  In respect of the delay that had occurred in bringing this matter to trial leading counsel pointed out that the learned trial judge himself had accepted that first, undoubtedly there had been a delay of 4 years and 4 months from the time of D1’s arrest until the commencement of this trial; second, that whilst the instant case was complex and had involved voluminous documentation, the expert accountant’s report had been completed as early as April 2004, some 16 months after arrest, and that therefore there was a period of some 3 years delay which was “unexplained”; and third, if and in so far as the delay had been caused by the involvement of D3 and D4 in the Gold Wo case – which trial was ongoing between March 2005 to March 2007 – such delay, as Lunn J had recognized, was not the fault of D1.

53.  In this connection Mr Plowman prayed in aid the case of HKSAR v Chan Boon Ning, CAAR 1 of 2002 (unrep), Judgment dated 16 March 2004, wherein upon a review of sentence application the Court of Appeal had considered that a delay of around 2½ years between the defendant’s first arrest and the start of committal proceedings was not the fault of the defendant and had held that in itself this merited a 1 year reduction from a starting point of 9 years’ imprisonment.

54.  Counsel submitted that the circumstances of the present case were comparable with those in Chan Boon Ning, and that the situation wherein the prosecution in Fu Cheong did not bring committal proceedings until January 2006, with the trial not commencing until April 2007, one month after the completion of the Gold Wo case, and in which latter case D1 had had “no involvement”, merited a similar course, and that on this ground alone the sentence discount should have been greater than the 6 months accorded.

55.  As to the argument relating to the conduct of the defence, Mr Plowman noted that this Fu Cheong case initially had been set down for 100 days, and yet was completed in 76 days, and that even from a perusal of the appeal bundle index it was clear that there were 12 sets of admitted facts totalling some 450 pages, and that the trial judge had been sufficiently satisfied with the sensible manner in which the trial had been conducted for this aspect to warrant making some discount.

56.  This situation, said Mr Plowman, strikingly contrasted with that in the Gold Wo case, which had taken 2 years from start to finish, and wherein the Court of Appeal had described the approach of the defence in Gold Wo as “to admit almost nothing and put the prosecution to proof of its case”, thereby requiring the calling of fully 84 witnesses, whose evidence had not been challenged “in any real sense”.

57.  It therefore followed, Mr Plowman submitted, that the cumulative (and factually undifferentiated) reduction of 6 months as attributed by the learned trial judge to these twin factors of delay and the conduct of the defence patently was insufficient, and thus that the application for leave to appeal against sentence should be allowed upon this basis alone.

58.  At first blush this element of Mr Plowman’s argument elicited greater interest; there is no doubt but that the element of undue delay in bringing a suspect to trial is considered as a mitigating factor, as indeed Lunn J recognized.

59.  Mrs Campbell-Moffat, who appeared for the Respondent both at the trial below and in this court, did not shrink from the fact that there had been delay in getting this Fu Cheong case to trial; as she rightly observed, the chronology of events spoke for itself, and she accepted the proposition that in principle the issue of delay was something for the sentencing court legitimately to take into account.

60.  However, she made the point that with three essentially similar trials taking place in sequence, wherein the like falsification and methodology had been used in both the earlier Yue Fung and the Gold Wo cases, and wherein (as was well known to D1) D3 in the instant case also had been central to the scheme operated by those companies, as well as in assisting D1 in Fu Cheong, and wherein D1 had been named as a co‑conspirator in Yue Fung (albeit he had been charged only in the present case), in the circumstances it was, she said, a bit rich for D1 now to climb on the ‘delay bandwagon’ and to complain that insufficient regard had been given by the trial judge to the delay as had occurred in this instance when, at least in the Yue Fong case, D1 had been named as part and parcel of the conspiracy therein at issue.

61.  Whilst the idea of fraudulent listing first had come into being through the Yue Fung group, and had been introduced by the Lee brothers of Yue Fung to D1, the Chairman and Managing Director of Fu Cheong who had employed the like fraudulent scheme, it was clear, submitted Mrs Campbell-Moffat, that D1 willingly had attached himself to the idea and to the underlying L/C fraud, which had assisted not only his own group but that of Yue Fung – to which the fraudulent L/C monies ultimately had been re‑directed.

62.  It followed, she continued, that there had been “a lot of balls in the air” for the prosecution to deal with in order to get these three complex commercial frauds to trial, and as matters had worked out the Fu Cheong case, and the indictment therein as preferred against D1, was the third and last in the sequence of inter-dependent prosecutions arising from the very conspiracy to which D1 himself conspicuously had been privy.

63.  She argued that D1 had been arrested and interviewed on 16 December 2002, charged on 6 December 2004, and committed on 6 January 2006, his trial commencing on 23 April 2007. He had been interviewed in respect of a number of companies, including his involvement with Yue Fung, and she suggested that had he been appropriately full and frank in these interviews, it was entirely possible that the length of time required to investigate these three listing frauds would have been less; moreover, the Fu Cheong matter could not have been brought to trial before Gold Wo, but was listed for hearing immediately thereafter, so that D1 then had been required to wait about one year.

64.  Accordingly, whilst accepting that some degree of mitigation legitimately could be put forward on behalf of D1 on the ground of delay, Mrs Campbell-Moffat stressed that in the prevailing factual matrix this element should not be overplayed, not least when the converse argument was that the trial sequence as had been adopted had permitted him to retain his freedom for longer than his fellow conspirators who were tried earlier than he.

65.  We consider that there is some merit in this submission, and that the inter-dependence of these three prosecutions, and of the relationship between D1 and the Lee brothers of Yue Fung – and, for that matter, with the Fu family of Gold Wo, which had listed in April 2001, and wherein the modus operandi and the accountancy expertise of D3 had been utilized to like effect in both the earlier cases – constitutes a not insignificant factor in evaluation of the ‘delay issue’ in terms of the sentencing of D1, and in our judgment is an element which in these particular circumstances should not be accorded undue weight.

66.  As to the argument relating to the conduct of the defence case, and the submission that this assisted the relative brevity of the Fu Cheong trial in comparison with that of Gold Wo, and further that a considerable amount of documentation had been agreed, upon this aspect the submission by counsel on behalf of the Respondent struck a less accommodating note.

67.  In this regard Mrs Campbell-Moffat pointed out that the defence case on behalf of D1 solely was based on the issue of dishonesty: D1 had relied upon his humble beginnings and lack of professional qualification, and the assertion that he had been entitled to rely upon other professionals in conducting the business of Fortune, especially in relation to the proposed listing; in this regard he had relied upon the expertise of D3 and D4, the latter having been introduced by D3 to the company, and who had undertaken the mundane exercise of administering the creation of all necessary fraudulent documentation and posting all relevant false information to the general ledger of the company, to which end she had been supported by the company accounts section on the mainland.

68.  Accordingly, counsel argued, whilst D1 had accepted the fact of manipulation of the Fu Cheong accounts, he nonetheless had put the prosecution to proof of the fact that the purchases of the ‘goods’ the subject of the fraudulent letters of credit were illusory or inflated (because the records as maintained by witnesses were incomplete).

69.  The consequence of this uncompromising stance, said Mrs Campbell-Moffat, was that whilst D1 had made interview admissions in respect of the letters of credit, nevertheless he had maintained that the sales were true, and accordingly the prosecution had had to call some 11 witnesses who had been customers of Fortune, who had testified that the invoices generated by Fortune in respect of the purported sales of goods to them did not reflect the actual transactions; and that this process had required the production of literally thousands of company documents.

70.  In this context counsel for the Respondent noted that in terms of the false L/C transactions some 30 sample L/C ‘transactions’ amounting to HK$79,557,609.50 had been selected, although the totality of the alleged Yue Fung ‘sales’ to Fu Cheong had amounted to HK$236,885,000 between Fu Cheong financial years 1999-2000, and that there had been additional ‘sales’ in the shorter period within the 2001 financial year. So that even with the ‘sample’ counts, there had been a huge amount of documentation which had been required formally to be proved.

71.  Accordingly, Mrs Campbell-Moffat submitted, whilst there were in place sets of admitted facts, plus a considerable amount of non‑contested bank documentation underpinning the fraudulent credits – which, counsel commented, hardly could be gainsaid – when placed in correct perspective the conduct of the defence of D1 could not be regarded with the rosy hue with which his leading counsel now had sought to invest it; in fact, said Mrs Campbell-Moffat crisply, whilst “some assistance” admittedly had come from D1 during the course of the trial, this was “not a great deal” and was a factor which should not be overplayed.

72.  It is against this background that we are asked to essay a judgment as to whether, as Mr Plowman has asserted, in reducing upon counts 1 and 2 the starting point of 9 years by but 6 months, the learned trial judge not only had given insufficient allowance for the twin elements of delay and trial assistance, but also that he was in error in failing to factually differentiate between these aspects, and thus to indicate the degree of diminution attracted by each element.

73.  As a matter of principle an appellate court should be slow to interfere with the forensic judgment of the trial judge who, after a trial of some 70 odd days, and having clearly taken all the circumstances into account, has arrived at the conclusion that a reduction of 6 months is merited for the twin aspects of delay and trial assistance. It is the trial judge who has the quintessential ‘feel’ for the case over which he has presided – in this instance, we are minded to observe, with an obviously precise and meticulous hand – and it is not for us to second-guess the position unless the judge plainly can be demonstrated to have been in error, which manifestly is not the case here.

74.  Indeed there is room for the view that the sentence passed on D1 upon Counts 1 and 2 was on the low side, given the obvious venality of a serious conspiracy which depended for its success upon a drawing into the net of subordinates who were to effect the mechanics of falsely inflating the accounting figures for Fu Cheong, and thus to mislead the Listing Committee of the Stock Exchange, and hence the investing public.

75.  In our view it requires to be emphasized yet again that fraudulent and calculated activities such as this, the effect of which is potentially to put the integrity of the Hong Kong open market system at risk, in addition to opening the possibility of potentially huge profits to the conspirators upon a successful public flotation, demands an appropriately deterrent sentence.

76.  In HKSAR v Fu Chu Kan & ors, op cit, the ‘Gold Wo case’, the appellate court as differently constituted (albeit with two members of the present court) observed, at para 225, that the like fraud to that in the instant case had disclosed “a prolonged culture of dishonesty”, that the appellate court in that case was “satisfied that the sentences imposed [upon D1] were not a day too long”, that, if anything, had they been longer the court would not have been minded to upset them, and that one of the offences in that case indeed merited a partly-consecutive sentence.

77.  Within the context of the appeal of D1 in the present case, this court wishes to repeat those sentiments, and, it must follow, the court now has little hesitation in rejecting the present appeal against sentence. Accordingly, we decline to hold that the sentence of 9½ years as ultimately imposed upon D1 may be characterized as “manifestly excessive”, or that the learned judge had erred in principle in ordering partially consecutive sentences.

Order

78.  The application by D1 for leave to appeal against sentence is dismissed.

D2’s appeal against conviction and sentence

79.  On behalf of D2 Mr Macrae SC sought to disturb both the conviction of, and the sentence imposed upon, his client.

(a)  Against conviction

80.  Initially Mr Macrae had wished to argue two discrete points upon his client’s application for leave to appeal against conviction:

First, that which came to be referred to as the “whitening out” cheque stubs issue, and the directions as made by the trial judge pursuant thereto; and second, that the learned judge had been in error in accepting Mr Simon Blade as an independent expert witness notwithstanding defence objections.

81.  In the event, after opening his client’s appeal, but upon further reflection, Mr Macrae made it clear that he did not pursue the ‘expert evidence’ ground, and formally withdrew it from our consideration.

82.  We think that he was correct to do so, not least since we took the view that not only had Lunn J fully considered all the earlier objections raised by defence counsel, and had exercised his judicial discretion regarding the independence of Mr Blade, and hence as to the issue of the admissibility of his expert evidence, but also that the defence of D2 at trial had not sought to contradict the evidence of Mr Blade in terms of the ample and detailed evidence as to the L/C fraud and the resultant inflated sales and purchases, but, to the contrary, was a defence which had concentrated solely upon the fact that D2 – who had joined Fu Cheong as Financial Controller relatively late in the day, and in the event well after the fraudulent conspiracy was under way – had had no knowledge of what was going on; it followed therefore that the expert evidence of Mr Blade had not gone to the ultimate issue in the case against him, which was whether D2 knowingly had participated in the conspiracy.

83.  Be that as it may. Having withdrawn this ground of appeal, and with it the interesting issue, which Mr Macrae wished to preserve for argument in a future appropriate case, as to whether the independence of an expert witness in a criminal trial is to be characterized as a matter of admissibility or simply as one of weight – regarding which Mr Macrae made it clear that his submission was to have been that “the pendulum now had swung” in favour of admissibility – leading counsel then was left with his remaining evidential point in terms of D2’s application for leave to appeal against conviction.

The “whitening out” of the cheque stubs

84.  This was an application with which, at the conclusion of argument thereon, this court stated that it had not found favour, and had failed; accordingly it then was ordered that the application by D2 for leave to appeal against conviction was dismissed.

85.  We now give our reasons for so deciding.

86.  It may be useful to provide some context in terms of a point which, if we may say so, on this appeal has assumed a disproportionate profile when regarded in terms of the evidence as a whole.

87.  In its case against D2, the prosecution had relied heavily on the evidence of Miss Yu (PW1), not only in relation to Count 4, but also as to D2’s knowledge as to the constituent acts within Counts 1 and 2.

88.  In fact, Miss Yu had been involved in the false letter of credit transactions before D2 had joined Fu Cheong as Financial Controller; we have been told that her first remittance transfer had come as early as August 1999 when she had made entries in a bank book for cheques which had been drawn in favour of companies known as ‘Blooming Sky’ and ‘Win Concept’, which she had described as in reality repayments back to the parent company Yue Fung, which had been the applicant for the false credits.

89.  The case for D2 at trial was that he had assumed control of the accounts department of Fu Cheong only in October 2001, well after Ernst & Young had commenced their audit of the company, that he was occupied with other duties and that the proposed listing of Fu Cheong was the responsibility of D4, and that he had not been told by Miss Yu of the false letters of credit issued by Yue Fung in favour of Fortune, that he had not taken up that issue with D1 in July 2001, and accordingly that he had made no false representations to the auditors.

90.  However, in the course of her evidence in chief, Miss Yu had said that she had spoken to D2 about “Yue Fung’s transfer transactions”, that D2 was clear about that from the available documents, and further that:

“He would be clear [as to the Yue Fung transfer arrangements] because the bankbook indicated these things.  He also saw the stubs of the chequebooks, because they bore my writings of transfer.  That’s why when the auditors came, he put white paint on the chequebook stubs to cover up the word “Yue Fung”.  Firstly I gave all the stubs of the cheque book to Albert Chan [D2]…”

91.  We are told by Mrs Campbell-Moffat that when Miss Yu first had made reference to the ‘whitening out’ of the name ‘Yue Fung’ on the cheque book stubs, this evidence had been wholly unanticipated, since Miss Yu never had mentioned such ‘whitening out’ in any of her 4 previous statements to the ICAC, and therefore at the time Mrs Campbell-Moffat did not follow-up this reference in completing Miss Yu’s evidence in chief, not least since she then had no idea what further responses might be forthcoming on the subject.

92.  This matter of detail equally must have come as a surprise to D2’s counsel at trial, Mr Harris; nevertheless he had elected to cross‑examine Miss Yu on the matter, and in reply to his questions Miss Yu stated that whilst the auditors had asked her for the cheque stubs that “Albert Chan took them away first” and that “When I gave the cheque stubs to Albert Chan, the writings on the stubs were very clear. When I got them back, Yue Fung’s accounts were painted…”, although Miss Yu specifically had accepted that she “did not see [Mr Chan put whitener on the cheque] with my eyes”, but “the time I got them back, they were altered already” and that “whenever there was information concerning Yue Fung, that one was painted.”

93.  This then is the forensic origin of the ‘whitening out’ point of which Mr Macrae now complains.

94.  Mr Macrae observed that Miss Yu never was asked by Mrs Campbell-Moffat to look at any cheque stubs in her evidence, and that neither was German Chung Yuk-nan (PW12), a relatively low-level staff accountant with Ernst & Young who had taken part in Fu Cheong’s audit, ever shown any such ‘whitened out’ stubs. Moreover, German Chung had not given any evidence of having had any conversation with D2 about this matter, and that Catherine Yuen, the Ernst & Young audit field manager, who had been looking at the accounting records for the whole of the Yue Chung group, and who for the purpose of listing had been looking at 2 distinct ‘stub periods’ (that is, between 1 January and 31 March 2001, and between 1 April and 30 September 2001), never had been asked about the ‘whitening out’ of the cheque stubs, nor had she been shown any such stubs, although in cross-examination she had accepted, on a purely hypothetical basis, that if someone had ‘whitened out’ an entry on a cheque stub, this would have caused “alarm bells…to go off in the mind of an auditor”.

95.  In fact, said Mr Macrae, the only way in which these ‘whitened out’ stubs physically had been produced and formally put into evidence was during the cross-examination of his client, D2, when the stubs had been shown to D2 by prosecuting counsel; this is true, albeit, consequent upon inquiries from this court during this hearing, it is apparent that at trial the physical stubs in question ultimately had been located, and also that they had been made available to the defence, prior to the end of the prosecution case.

96.  During argument Mr Macrae also placed considerable emphasis upon the manner in which this ‘whitening out’ issue had been dealt with by the learned trial judge in his summing up to the jury, when the judge had introduced the matter thus:

“First of all, the cross examination of the 2^nd defendant.  You will recall, as you have been reminded – Mr Harris called it ‘the rabbit being pulled out of the hat’ – that it was at the end of his cross-examination that Mr Chan was confronted with what eventually became five cheque stubs, and they are five books of the Hong Kong cheque stubs…”

and that during the summing up Lunn J had referred to the whitened out cheque stubs “on no less than 10 occasions”, and specifically had referred to D2’s answers in response to his cross-examination on the issue.

97.  Leading counsel also observed that when the jury had asked a follow up question of the learned trial judge on 16 August 2007, after the completion of his summing up, to the effect that in the consideration of Count 1, which referred to the provision of financial information relating to three financial years 1998 to 2000, whether the jury also should take into consideration the 2001 information within the Listing Prospectus, the judge had not followed the initial consensus of all counsel regarding the advisability of omitting any reference to the ‘whitening out’, and in his reply to this question had referred to this issue in the following manner:

“…in considering Count 1 you must not take into consideration the information in the prospectus that relates to 2001.  Similarly, you must not take into account in considering that count other documents in which information relating to 2001 was submitted.  Accordingly, for example, in considering the case against the 2^nddefendant on this count you must not have regard to the evidence relating to the whitened-out cheque stubs and his related explanation to Mr German Chung of Ernst & Young.  In considering the particulars of Count 1, you must disregard documents or the parts of documents that refer to 2001.” (emphasis added)

98.  Against this backdrop, Mr Macrae advanced the following sequential argument in his appeal against D2’s conviction:

First, that there was no or no sufficient evidence to entitle the jury to draw the inference that D2 was responsible for the whitening out of the cheque stubs;

Second, that if this be wrong, the way in which the issue had emerged “from nothing into a substantive matter” was in itself a ‘material irregularity’ in this trial because it may have, or appears to have, materially affected the way in which the defence of his client, D2, was conducted; and

Third, the resultant over-emphasis that had been given to this matter, not only in the summing up but specifically as the result of the learned judge’s response to the jury’s question, “more than anything focused the jury on the ‘whitening out’ point.”

99.  In expanding on these arguments in his written submission, Mr Macrae submitted that in light of the fact that the ‘whitening out’ of the cheque stubs was not one of the pieces of evidence relied upon by the prosecution in opening its case, and if (as was the case) Miss Yu’s “belated evidence” could not say that it had been D2 who had ‘whitened out’ the words ‘Yue Fung’ on the stubs, then there was no proper basis for adverting to this piece of evidence, and that the way in which the learned trial judge had directed the jury would have given the impression that the jury could not consider Miss Yu’s conclusion as to who had done this, but that the jury nevertheless could infer something to the detriment of D2 from the process of these cheque stubs changing hands between Miss Yu, D2 and Ernst & Young.

100.  Thus, Mr Macrae concluded, there had been a material irregularity in the conduct of the trial when the jury by implication were invited to consider the ‘whitening out’ evidence in relation to Count 2 when there had been no proper evidential basis for so doing, and that by drawing attention to the ‘whitened out’ cheque stubs in response to the jury’s question when it was inappropriate and unnecessary to do so – and, it must be said, against the initial instincts of prosecution and defence counsel – the learned judge would have caused the jury to infer that this was evidence which ultimately had assumed “elephantine importance” and which therefore could be used to support other counts, even though the jury were directed that it could not be used in relation to Count 1.

101.  In response, the central thesis of Mrs Campbell-Moffat was that this was an issue which had been opportunistically overplayed, and that when viewed against the totality of the evidence, it did not deserve the importance now attributed to it upon this appeal.

102.  True it was, she said, that the issue had emerged in the somewhat piecemeal (and surprising) manner that it had when Miss Yu essentially had “blurted it out” in her evidence in chief, and true it was that Mr Harris, then acting for D2, understandably had been concerned as to what then had been said.

103.  The consequence, said Mrs Campbell-Moffat, was that the prosecution took the matter no further with Miss Yu. Counsel explained that steps immediately were taken to retrieve these ‘whitened out’ cheque stubs from amongst the vast amount of unused material in order that they could be considered by the prosecution and disclosed to the defence, and because it was likely to take some considerable time to find them from amongst the literally hundreds of cheque book stubs which had been seized by the ICAC from Yue Fung, she had undertaken to counsel for D2 not to raise the issue further with PW1 until these documents became available; as a result, the matter was not taken further by prosecuting counsel in chief.

104.  Nonetheless, she said, Mr Harris, who them had not had sight of the ‘whitened out’ stubs, elected to question Miss Yu about the matter when it had been open to him to avoid the topic pending location of these stubs and, if necessary, to follow up on the matter when this had been achieved, and to ask for Miss Yu to be recalled. And in any event, Mrs Campbell-Moffat argued, to say that this sequence of events adversely had affected D2 during the prosecution case was pushing the envelope somewhat, since the stubs in question indeed were located and handed over to the defence prior to the closing of the prosecution case.

105.  However, the crucial point about this whole issue, she suggested, and the aspect which served to place it in its correct context, was that neither prosecuting nor defence counsel nor the learned trial judge had realized until well after Miss Yu’s evidence, and indeed until after the ‘whitened out’ stubs had been located and produced, that there was a link between the ‘whitened out’ stubs and the ‘blank cheque stubs’ which were referred to in the Ernst & Young audit file, and that these documents, albeit differently described, in fact were one and the same.

106.  Whilst “this particular penny had not dropped”, nevertheless what was important at that stage, said Mrs Campbell-Moffat, was that it was known – and was in evidence before the jury and in the flow charts – that Miss Yu had had her own (somewhat idiosyncratic) accounting cross‑referencing system, and that the ‘blank’ stubs, later identified as those very stubs which she had said had been ‘whitened out’, had been marked with an ‘N’ in the Fu Cheong general ledger, which notation was meant to indicate that the cheques in question had been made payable to Yue Fung (or its associated companies) as part of the reversion of the monies which had come into Fu Cheong (and had been recorded in its books as such) as part and parcel of the L/C fraud, and thereafter had been remitted to origin.

107.  The prosecution’s case therefore, at the stage prior to ascertainment of the ‘link’ between the blank stubs and the ‘whitened out’ stubs, was that D2 had known of the ‘blank’ cheques, in that in July 2001 he had answered queries raised by Ernst & Young in this respect, and thus that he must have known that they referenced payments to Yue Fung, since he had had to investigate the matter in order to identify to whom the cheques had been paid in order to respond to the auditor’s specific query on the issue.

108.  Thus, the unexpected reference by Miss Yu to the ‘whitened out’ stubs (under which opaque ‘whitening’ clearly could be seen the legend ‘Yue Fung’) had been no more than a reference, albeit under different description, to the stubs hitherto characterized simply as ‘blank’, and of the existence of which everyone fully had been aware, and therefore this further descriptive reference, when correctly understood, had been, to use Mrs Campbell-Moffat’s pithy phrase, “simply icing on the cake”.

109.  In any event, she said, it was difficult to discern precisely how D2 had been prejudiced by this admittedly odd forensic development.

110.  In his examination in chief D2 had denied that he had been given the cheque stubs by Miss Yu or that he had ‘whitened’ them out, baldly stating that her testimony was simply untrue.

111.  Thereafter under cross-examination, Mrs Campbell-Moffat noted that D2 had maintained that he had not been the person primarily questioned by Ernst & Young, but that he had been asked some questions and had tried to answer them, and it was at that stage that the prosecution had put to D2 the evidence given by Miss Yu, and further had adduced some of the ‘whitened out’ cheque book stubs.

112.  In response, D2 had denied being provided with these stubs by Miss Yu when he first had joined Fu Cheong, and stated that he could not remember whether he had seen them in their original form between April and July 2001. He further had denied providing the stubs in ‘whitened out’ form to the auditors in June/July 2001, and suggested that this had been done by Miss Yu, nor did he recall being asked by Ernst & Young about these cheque stubs, nor did he remember about a note made by himself that said “the client has kept a record of payment of each supplier”, or for that matter about looking at these cheque stubs, although he thought he must have asked Connie Kwok [D4] about it at the time.

113.  As for the evidence of German Chung [PW 12], the relatively low level Ernst & Young auditor, Mrs Campbell-Moffat said that under cross-examination of that witness the case as put on behalf of D2 was that PW12 had gone to see Connie Kwok [D4] in relation to queries about the ‘first stub period’ (January to March 2001), but that in relation to the ‘second stub period’ (April to September 2001) he had been to see D2; in fact, counsel for D2 had taken Mr German Chung to a file note made in June 2001 relating to a conversation with D2 regarding the “repayment pattern” to Fu Cheong customers, and noted that it had not been suggested to German Chung by his counsel that D2 had not provided this information to him, but simply that D2 would have received that information from someone else, and thereafter had passed it on to Ernst & Young.

114.  However, she pointed out that later in that same cross‑examination the issue of the cheque stubs had been raised once again on behalf of D2, with reference to the auditor checking the stubs for verification of the payee, and that a note of a conversation, again taking place between PW12 and D2 in July 2001, stated that “no payee name was recorded in the cheque stub”, but that the explanation which had been forthcoming was that separate confirmations as to payment had been sent to each supplier for the January to March 2001 period, and that this response had been recorded in terms by German Chung as “satisfactory; need no further investigation”; and once again, counsel said, at trial this conversation had been accepted by D2’s counsel as having taken place.

115.  Accordingly, argued Mrs Campbell-Moffat, it was clear on the evidence that D2 had been in discussion with staff of the auditor about the ‘N’ cheques; equally it was clear that no mention at this stage had been made of the ‘whitening out’ of the cheque stubs as at that point in the trial no connection had been made between cheque stubs with no payee written thereon and cheque stubs with a payee which had been ‘whitened out’ – as clearly could be seen from the transcript of the re-examination of German Chung.

116.  At the conclusion of the spirited argument on this matter, it seemed to us that this curious procedural development, whereby, until the stubs in issue were located, it had remained unappreciated by anybody that the reference by Ernst & Young to “blank” stubs must have been, and indeed was, a reference to the like stubs as “whitened out”, was not a matter which could be demonstrated to have enured to the detriment of D2 in the conduct of his defence – and in particular in terms of his election to go into the witness box.

117.  It is tolerably clear that his case throughout was that he had been given the relevant cheque stubs by Miss Connie Kwok [D4], and that any information which he might have had about these ‘blank’ stubs containing no payee on their face had been passed by him to the auditors after making inquiries of Connie Kwok, whilst of course he later specifically had denied that he personally had ‘whitened’ them out.

118.  In substance, all that seems to have occurred, albeit in odd sequence, was that whilst earlier in the trial the focus had been on the so‑called ‘blank’ stubs, subsequently the referable terminology had switched to these stubs as being ‘whitened out’, but nevertheless the realization that ‘blank = whitened out’ was by the end of the trial perfectly obvious to the judge, counsel, and to the jury, and that, whilst initially not apparent, ultimately there had been no confusion or misunderstanding on this issue.

119.  We therefore came to the view that the complaint as mounted about this aspect of the case was, at bottom, a good deal about substantively not very much, notwithstanding the elegance and persuasiveness of Mr Macrae’s treatment of this topic.

120.  Nor did we consider that the directions of the learned trial judge are susceptible to criticism on the point, or that his further direction to the jury, in response to their specific question, had gone outside permissible bounds; in this regard the judge appropriately had emphasized to the jury that in considering the case against D2 in respect of Count 1 that they were to disregard the evidence relating to the ‘whitened out’ cheque stubs, and D2’s related explanation to German Chung, and clearly the jury had complied with this instruction, given that D2 was acquitted on Count 1.

121.  In addition, in his summing up Lunn J had made it crystal clear to the jury that in considering the evidence relating to the ‘whitened out’ cheque stubs that they specifically were to disregard the conclusion of Miss Yu to the effect that this had been done by D2 – “because she did not see it happen” – but that otherwise on this matter they could have regard to her evidence surrounding the sequence of events as they had unfolded with regard to these cheque stubs.

122.  Accordingly, when placed in its proper perspective this court did not accept Mr Macrae’s bold proposition that the ‘whitened stubs’ issue could be characterized as a ‘material irregularity’, nor did this court accept his further submission that there was no sufficient evidence to entitle a jury to draw an inference that it was D2 who had been responsible for ‘whitening out’ these stubs, or that undue or inappropriate or prejudicial emphasis was accorded to the matter by the learned trial judge in his directions to the jury.

123.  Hence, this court’s decision at the culmination of argument formally to dismiss D2’s application for leave to appeal against conviction.

(b)  Against sentence

124.  In moving his application for leave to appeal against the sentence of 8½ years passed on D2 on Count 2, in our view Mr Macrae was on more fertile ground.

125.  Whilst acknowledging that the criminality inherent in the offence of conspiracy to defraud will always be ‘case specific’, he strongly submitted that in light of the evidence against D2, such sentence was manifestly excessive.

126.  Mr Macrae drew the attention of the court to the Reasons for Sentence of the learned trial judge, who had assessed the culpability and role played by D2 in the following terms:

“In the course of those audits, it is clear that you, Mr. Chan, had increasing contact with the auditors in responding to their inquiries as auditors, You misled them.  For example, you responded to the inquiry made by Mr German Chung of Ernst & Young of why it was that various cheque stubs in the chequebooks of Fortune for the period 1 January to 31 March 2001 were blank as to payee.  You said that the company kept a record of payment of each supplier.

Records of payments said to be made to suppliers were made available to the auditors. ………………………………………….

Clearly, the jury has accepted the evidence of Ms YU that when the auditors requested those cheque book stubs, you asked for them first, and that when they were returned to her a little whole later by Ernst & Young, the payee’s name written there had been white-ed out.  Five such books of cheque stubs of Fortune’s account with the HongKong Bank were adduced into evidence.  No doubt they drew the inference that you were the person who had white-ed out those cheque stubs.

The significance of the cheque stubs is that, beneath the whiting out was written the name Yue Fung.  Cheques with numbers matching those of the cheque stubs had been used in the reversion of monies to Yue Fung from the transfer letters of credit.  The payee was in fact Blooming Sky and the sums of money in aggregate well over $10 million.

Equally clearly, the jury accepted the evidence of Miss YU that you had come to know of the transfer letters of credit soon after your arrival at Fu Cheong because she told you about them, and you inspected the account books and the cheque stubs.”

127.  Leading counsel submitted that in thus sentencing D2, and by assessing a starting point of 9 years, and thereafter (as with the sentencing of D1) in reducing that period by 6 months to acknowledge the twin factors of delay and trial assistance, Lunn J had failed to give adequate consideration to strong mitigating factors which manifestly were not present in the case of D1, albeit the sentence imposed on his client upon Count 2 was the same as that which had been passed on D1 upon the like count.

128.  Mr Macrae stressed that in this case there was a very considerable difference between the relative criminality of D2 and D1. Whilst D1 had been the initiator of the fraudulent scheme, D2, although enjoying the title of ‘Financial Controller’, was a salaried employee at all times, and had joined Fu Cheong and had become involved with the then ongoing conspiracy at a much later stage. In fact, said Mr Macrae, it was not until 18 April 2001 at the earliest that D2 could have been involved in any wrongdoing at all – since it was only at that date that he had joined Fu Cheong – and that by the time he came into the picture, the plan to list already had been hatched, and the related fraudulent arrangements were well under way.

129.  He noted that it was common ground, based on the evidence, that D2 had not benefited personally from the offences other than to retain his employment, as indeed the learned judge had accepted, noting that D2 was never a shareholder or director of any of the companies involved and was but an employee, earning some $23,000 per month.

130.  Notwithstanding that the learned judge had taken the view that there was no distinction of substance to be drawn between conduct in respect of either count, Mr Macrae argued that plainly there was a significant difference in relative gravity between the offences in Counts 1 and 2, the former being the achievement of listing a public company, and the latter being perpetuation of the falsehood that was contained in the former.

131.  In relation to Count 2 he submitted that there was no evidence of D2’s direct involvement in supplying anybody with information concerning false invoices, and indeed the learned judge had accepted that the book-keeping ‘adjustments’ as had been made had been concluded before D2’s employment within Fu Cheong; moreover, the role played by D2 had been “far less” compared with the other defendants at the trial, and that he had had nothing to do with the inception of the letters of credit fraud; as the judge correctly had observed: “the letters of credit arrangement [was] in place for years before he joined the company.”

132.  Mr Macrae therefore suggested that in approaching the question of ‘starting point’, the learned judge had erred in failing to draw any cogent distinction between the roles played by D1 and D2, and thus that the starting point of 9 years was inherently flawed, and in the circumstances should have been significantly less.

133.  As to the issue of delay, counsel pointed out that there had been a delay of 4 years and 4 months from the time of the arrest of D2 until the commencement of his trial on 23 April 2007; he had been charged 2 years after his arrest with his co-conspirators on 6 December 2004, and had been committed for trial on 6 January 2006. In this regard, said Mr Macrae, the learned trial judge had accepted that there had been no explanation for the delay of 3 years 1 month from the time of arrest until the date of committal for trial, although he had surmised that “one probable factor” had been that the trial of Ms Connie Kwok (D4 in the present case) and others in the Gold Wo case which had begun in March 2005, and which was not completed until March 2007. Nevertheless, although Lunn J had stated that this was not the fault of D1 and D2, the learned judge had given a 6 month’s discount both to D1 and D2 for the twin reasons of delay and “some measure for the way in which the defence was conducted”, which counsel asserted was insufficient in the circumstances of this case, not least since Mr Macrae drew the attention of the court to the case of R v Pektar (Rafiq) [2003] EWCA 2668, wherein there had been a delay of nearly 3½ years, and on that factor alone the English Court of Appeal had allowed a discount of 6 months from the sentence imposed.

134.  In this regard, one of the further matters which should be considered in terms of the present application by D2 for leave to appeal against sentence, Mr Macrae submitted, was that between the time of his arrest and the time he was brought to trial, D2 had continued to advance his accountancy studies, becoming qualified as a certified public accountant in 2005, and that the trial judge had ordered that the certificate of conviction together with the indictment and a transcript of reasons for sentence should be served on the Hong Kong Institute of Public Accountants, with the inevitable result that D2 now would become disqualified from the practice for which he had tried so diligently to become qualified during the undoubtedly mentally harrowing period in which he had been awaiting trial.

135.  Finally, leading counsel asked the court not to overlook the fact that it was accepted that the banks had suffered no loss in terms of the false letters of credit as issued and processed, with payments made thereunder, and that this factor also should go into the discretionary ‘mix’, and that in all the circumstances the overall sentence as imposed upon D2 was manifestly excessive and wrong in principle.

136.  In response on the issue of sentence, Mrs Campbell-Moffat made no formal concession, but fairly acknowledged that the factual matrix surrounding D1 was very different from that relating to D2.

137.  She said that the prosecution case against D2 was that he had come to the dishonest scheme “late in the day” on 18 April 2001, and indeed that he had been “lured” into it by D1. Nor had there been any evidence to suggest that D2 was introduced into Fu Cheong to assist with the false accounting in the same manner as D3 or D4, and that, as in fact the learned trial judge had accepted, it was probable that by the time of D2’s entry onto the scene the majority of the false accounting had been completed although, given that Ernst & Young had remained in the offices of Fu Cheong until July 2001, it was possible that part of the fraudulent exercise had remained ongoing in respect of the first and second ‘stub periods’.

138.  Mrs Campbell-Moffat noted that PW1, Miss Yu, had been insistent that D2 had seen all of the relevant books and records, and that she had told him of the fraudulent L/C’s as soon as he had been employed, albeit it had been her evidence that D2 had acted to bring the L/C fraud to an end in July 2001 with the “final adjustment” evidenced by the L/C fraud within Count 4; it also had been clear from the Ernst & Young audit files, counsel said, that D2 had been involved in answering questions from the audit staff concerning both ‘stub periods’, although far fewer in respect of the first such period, and that such responses to the queries as raised had indicated an understanding of the use of the ‘fund flow’ within the false accounts.

139.  This was particularly so in respect of the ‘blank’ or ‘whitened out’ cheques stubs about which D2 had been asked during the audit by PW12, German Chung, and that it was the prosecution case that very obviously D2 had dissembled when stating that he had been involved elsewhere at this time, and that he had paid little or no attention to such details. In any event, she said, as Financial Controller of Fu Cheong, and having looked at the books of account and overseen the introduction of a computerized system of accounts, D2 could not have failed to notice the false fund flow even if Miss Yu had not told him about it; even giving him the benefit of the doubt, she asserted, whilst D2 may not have carried out the actual falsification exercise, nevertheless he actively had disguised it from the auditors, and he also knew that the content of the Prospectus and Annual Report were false.

140.  Having said that, however, Mrs Campbell-Moffat was ready to accept that D2 had had no benefit from this scheme save for his salary of HK$23,000 per month – in fact, he was the only defendant not to have benefited substantially from the fraud, unlike D1, D3 or D4 – nor, of course, had he been a shareholder or director of any of the companies, in contrast to D1 and D4.

141.  She also was minded to accept that Count 2 represented the perpetuation of the fraudulent scheme carried out by D1, D3 and D4, and that his role had not been active participation in the creation of the fraudulent accounts but rather the covering-up of the fraud when taxed about it by the auditors. Thus, the role played by D2 could be characterized as “considerably less” than that of D1, and arguably less than that of D3 and D4, and counsel therefore accepted that it had been open to the learned trial judge to have distinguished between the culpability of D2 in respect of Count 2 from the culpability of D1, D3 and D4. Mrs Campbell-Moffat went on to observe that although D2 had made extensive admissions in the Admitted Facts, he had not accepted any manipulation of the accounts, or that he had been aware of such, and thus the prosecution had been put to proof in that respect.

142.  However, in terms of the element of delay, counsel for the Respondent did accept that D2 did not stand in the same shoes as D1, given that D2 had not been named as a co-conspirator in either of the frauds that were the subject of the preceding two trials, he had not assisted Yue Fung nor had inherited the idea of the scheme from that company, and that the delay between the date of arrest on 16 December 2002 and the commencement of the trial on 27 April 2007 was due to the complex nature of the Yue Fung, Gold Wo and Fu Cheong schemes – albeit that D2 had had no connection with anything save for the Fu Cheong fraud. She further accepted that no credit appeared to have been given to D2 by Lunn J to the fact that Count 4 (that is, the single fraudulent L/C count for which D2 had received 2 years’ imprisonment to run concurrently with Count 2) appeared to have arisen out of the desire of D2 finally to terminate the fraudulent fund flow.

143.  The issue of the sentence imposed upon D2 has caused us concern.

144.  In our view there is a signal difference in the respective degree of criminality between D1 and D2 which is not reflected in the like sentence imposed on these two accused upon Count 2, and in this regard we are minded to accede to the argument of Mr Macrae, an argument with which, at bottom, Mrs Campbell-Moffat does not cavil. It must not be overlooked that D2 was acquitted upon Count 1, in our view the more serious of the two charges; that D1 initiated the entire fraudulent scheme; that D2 came in relatively late in the piece, after the original scheme had been implemented; and that D2 derived no personal financial benefit from the offence over and above his salary. This is not to belittle the gravity of the offences committed by D2. It is, however, to say that in our opinion the differences in culpability between the two defendants has not received adequate recognition in the sentences imposed by the learned judge, whose conduct of this complicated case otherwise was conspicuous in its attention to detail and grasp of the difficult issues involved.

145.  Accordingly, we have come to the conclusion that the application on behalf of D2 for leave to appeal against sentence should be favourably regarded; as to the collateral matters of delay and conduct of the defence, we are inclined to the view that in the particular circumstances the ‘delay factor’ enures more to the benefit of D2 than was the case with D1.

146.  In the second in the three cases concerned with listing/LC frauds, HKSAR v Fu Chu Kan & ors, CACC 104 of 2007 – otherwise referred to as ‘the Gold Wo case’ – a similar discrepancy in sentence was considered by the Court of Appeal, in which two members of the present court were presiding. In that case Stock VP was dealing with a discrepancy in the sentence therein passed upon D1 (whose application for leave to appeal against sentence was dismissed) and upon the other defendants, and (at paragraph 227) this point was expressed thus:

“The single matter that has concerned us in relation to the other appellants is whether, given the sentences in fact imposed upon D1, the judge has reflected in the sentences on the others a sufficient distinction in the roles they played and in the positions they occupied when compared with D1.”

In fact, in the Gold Wo case the sentence of D3 – who also is D3 in the instant case, and who is described in the appellate judgment in Gold Wo as “the operational strategist”, which is the position he also adopted in the present Fu Cheong fraud – was reduced on two counts by 1 year, from 10 to 9 years imprisonment.

147.  For our part we echo the sentiments as to principle as earlier expressed by Stock VP, albeit in the instant case the gulf in wrongdoing between D1, the progenitor and architect of the Fu Cheong fraud, and D2, the lately-arriving Financial Controller of that company, is by far the more marked, and in our view is deserving of a significantly greater reduction than that which was accorded to D3 in Gold Wo.

148.  Given the starting point adopted by the learned judge in this case with regard to D1, in our judgment an appropriate starting point in relation to Count 2 as it stood against D2 was one of 7 years imprisonment. Moreover, taking into account the particular circumstances of his case, we would accord to him a reduction of 9 months for the delay and conduct of defence factors, thus resulting in a sentence of 6 years 3 months imprisonment.

Order

149.  Accordingly we grant D2 leave to appeal against sentence, treat the hearing of the application as the appeal, set aside the sentence of 8½ years on Count 2, and substitute therefor a sentence of imprisonment of 6 years 3 months. The sentence of 2 years passed upon D2 upon Count 4 is to remain undisturbed, and we order it to run concurrently with the term as now imposed upon Count 2, thereby making a total of 6 years 3 months imprisonment.

Finally

150.  We further direct that a copy of this judgment is to be served upon D3, who currently remains in prison serving the sentence imposed on him in the Gold Wo case, and whose application for leave to appeal against both conviction and sentence, as earlier indicated, initially was scheduled for hearing at the same time as the applications of D1 and D2 herein, but whose appeal currently stands adjourned to a date to be fixed.