HKSAR v. TSE TAT FUNG

CACC167/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 167 OF 2008

(ON APPEAL FROM DCCC NO. 350 OF 2006)

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BETWEEN

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JUDGMENT

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The Judgment of the Court (to which each member has contributed) :

1. The four applicants, to whom we will refer as the 2^nd defendant, the 3^rd defendant, the 4^th defendant and the 5^th defendant respectively, were each employed at various times as directors or managers of a publicly listed company in Hong Kong, Tse Sui Luen Jewellery (International) Limited (“TSL”).  They were convicted of various offences of conspiracy arising out of their, or their co-conspirators’, unlawful use of TSL funds.

The convictions

2. Each applicant was convicted of conspiring, between August 1996 and April 2003, to offer unauthorised advantages to employees of travel agents who brought customers to TSL’s jewellery showrooms (Charge 1).

3. Each was also convicted of conspiring between the same dates to falsely account for those payments in the records of TSL (Charge 2).

4. Additionally the 2^nd defendant, the 4^th defendant and the 5^th defendant were convicted of a further offence of conspiring, between 1 April 2003 and 19 April 2005, to offer unauthorised advantages to employees of travel agents (Charge 9) and of conspiring between the same dates to falsely account for those payments in the records of TSL (Charge 10).

5. The 2^nd defendant, the 3^rd defendant and the 5^th defendant were convicted also of an offence of conspiring to steal funds in the amount of $500,000 from TSL between February and July 2002 (Charge 11).

6. The 2^nd defendant and the 5^th defendant were convicted of a further offence of conspiring to steal funds in the amount of $882,952 from TSL between June and December 2002 (Charge 12).

7. The 2^nd defendant and the 3^rd defendant were also convicted of conspiring to steal funds in the amount of $1,821,954 from TSL between April and July 2002 (Charge 13).

8. Finally the 2^nd defendant and the 4^th defendant were convicted of conspiring between April 2003 and January 2005 to defraud officers of the Inland Revenue Department (“IRD”) by way of false representations concerning the nature of various payments made to companies incorporated in the British Virgin Islands (the “BVI companies”) in the course of the conspiracies the subject of Charges 1 and 2 (Charge 14).

9. All applicants seek leave to appeal their convictions.  Additionally the 5^th defendant seeks leave to appeal the sentences totalling four years and three months’ imprisonment imposed upon him.

The prosecution case

10. TSL was publicly listed in Hong Kong in 1978.  It was founded by Tse Sui Luen, who was the 1^st defendant at trial and who was the father of the 2^nd defendant.  He was the chairman of TSL until September 2000 when the 2^nd defendant replaced him.  Tse Sui Luen abandoned his application for leave to appeal against his convictions. 

Charge 1

11. Much of the prosecution case in respect of this charge, as well as the other charges, depended upon the evidence of immunised witnesses, particularly Raymond Leung, a director of TSL and Allen Cheung who had been a business controller of TSL until leaving the company so as to be better able to further the conspiracy the subject of Charge 1.  That conspiracy came about in the following way.

12. TSL’s management had, in the daily course of the company’s business of selling jewellery, made a practice of paying commissions to tour group guides so as to encourage them to bring their groups of tourists to TSL showrooms in Hong Kong where the company displayed its jewellery products for sale.  The turnover of TSL was greatly dependent upon purchases made by members of these tour groups.  These payments of commission to the tour guides were in many cases made with the knowledge and permission of the guides’ employers, the travel agencies, and so were lawful.  But in many cases the payments were made without such knowledge and consent, and so were unlawful.

13. Some time in 1996, the Independent Commission Against Corruption (“the ICAC”) had investigated similar unlawful practices in the tourist industry, much to the concern of the management of TSL.  It was decided that matters had to be arranged so as to distance TSL from the illegal advantages paid to the tour guides, which payments it was intended to continue.

14. For that purpose a scheme was agreed upon whereby a company, Worldwide Tour Marketing (Labuan) Berhad (“Worldwide”) incorporated in the British Virgin Islands, was set up in Malaysia and entered into a bogus agreement with a subsidiary of TSL, Bonaventure (International) Jewellery Limited (“Bonaventure”), to the effect that Worldwide would procure tourists to go to TSL’s jewellery showrooms and in return would receive commission payments based on the number of tourists who went to those showrooms.

15. In reality, matters continued as before, with Worldwide simply acting as an overseas vehicle to channel TSL funds intended to be used to pay advantages to tour guides in Hong Kong through its overseas bank account and then back to Hong Kong into the bank account of another BVI company from where it was withdrawn in cash by TSL staff and distributed as payments to the guides.  This scheme, using the company Worldwide, commenced in October 1996 and was set up and administered by Allen Cheung who had been a business controller of TSL before the commencement of the scheme and who had left TSL for the purpose of running Worldwide.  The overall scheme was managed by Raymond Leung who was the director of TSL responsible for the group’s operations.  Between October 1996 and early 2000, some $60 million had passed through Worldwide’s bank account as purported payments for the provision of tourists.

16. Around February 2000, there was a falling-out between Allen Cheung and his fellow conspirators, and it was decided by the latter to replace Worldwide with another BVI company called Brighouse Consultancy Limited (“Brighouse”), and a further bogus agreement to the same effect was entered into between that company and Bonaventure.

17. Brighouse operated a bank account in the Channel Islands and was run by Stephen Leung, who was the brother of Raymond Leung.

18. The scheme then continued using Brighouse as the purported offshore provider of tourist groups to TSL showrooms.  Other BVI companies were used to open bank accounts in Hong Kong, and money sent to Brighouse was immediately remitted to Hong Kong into the accounts of those companies from where the monies were withdrawn to provide corrupt payments to the tour group guides.  Between March 2000 and about April 2003, some $40 million purporting to be commission payments for the provision of tour groups to TSL’s showrooms had passed through Brighouse’s offshore bank account.

19. Some months previously concern had grown amongst the conspirators that the large sums of money being paid to Brighouse might attract attention, particularly that of KPMG, the auditors of the TSL group.  Accordingly in late May 2002, the conspirators had purportedly engaged another BVI company, Cinedell Holdings SA (“Cinedell”) to act in the same manner as Brighouse pursuant to a similar bogus agreement for the provision of tourists groups to TSL’s showrooms.  It was thought in this way the large sums of money being sent overseas would be shared between Brighouse and Cinedell and be less likely to attract attention.

20. Cinedell also operated a bank account in the Channel Islands and Stephen Leung operated that account.  Between June 2002 and April 2003, a total of nearly $10 million was paid as purported commission to Cinedell under the terms of its agreement with Bonaventure.

21. During the course of the scheme, the financial position of TSL had gradually worsened.  Its chairman (the 1^st defendant at trial) had been declared bankrupt in September 2000 and had been replaced as chairman by his son, the 2^nd defendant.   Anglo Chinese Corporated Finance Limited (“Anglo Chinese”), a corporate consultancy, was retained eventually to advise TSL on its negotiations with creditor banks and on the restructuring and refinancing of TSL and its group.

22. One of its directors was a Mr Dobby who, for these purposes, became a non-executive director of TSL.  Another director of Anglo Chinese was Christopher Howe.  In mid December 2002, the 2^nd defendant met with Christopher Howe and with another director of Anglo Chinese, Fred Leung, concerning the financial position of TSL.  In the course of their conversation the 2^nd defendant informed them of the various appropriations of TSL funds which became the subject of Charges 11 to 13, and also of the fact that TSL had paid commissions to tour guides through the use of offshore BVI companies.

23. It was arranged that the 2^nd defendant inform the board of TSL of that which he had revealed to Christopher Howe and Fred Leung.  That was done on 18 December 2002.

24. The following day the board of TSL met again and resolved, inter alia, to engage KPMG to review the structure by which commission payments were made to Brighouse and Cinedell and to review also the payments of money to the 2^nd defendant.  It was also resolved to accept the resignation of the 2^nd defendant as chairman of TSL and to appoint the 4^th defendant, who was an independent company consultant with experience in troubled companies, as a director and chief executive officer of TSL.

25. Subsequently, KPMG did conduct an examination of these matters including a review of the scheme of commission payments to the overseas companies, and its report was provided to TSL, initially in draft on 24 February 2003, and then in its final form on 28 February 2003.  That report unequivocally revealed the sham nature of the use of offshore BVI companies as the providers of tourists to TSL’s showrooms.

26. Accordingly, it was decided by the TSL board that the use of offshore BVI companies for these purported purposes must cease.  The scheme in this guise came to an end in early May 2003, the agreements between Bonaventure and Brighouse, and Bonaventure and Cinedell being terminated on 1 May 2003.

Charge 2

27. This conspiracy to falsely account simply arose out of the accounting documents generated by the conspiracy the subject of Charge 1, which were necessary to disguise the real nature of the scheme set up to circulate TSL funds through the offshore accounts of the BVI companies as commission payments.  The documents involved falsely represented the funds sent to Worldwide, Brighouse and Cinedell as payments for actual promotional services rendered by those companies when none had been provided.

Charge 9

28. Following the KPMG report and the decision to replace the earlier scheme’s use of offshore BVI companies it was decided that a new arrangement be entered into.  This arrangement involved the use of local promotional companies in lieu of the overseas BVI companies.  These companies were, to a greater or lesser extent, in the business of promotions.  They were Best Joint International Limited (“Best Joint”), Well Zen (Hong Kong) Limited (“Well Zen”) and Golden Speed Travel Service Limited (“Golden Speed”).  Each was controlled by a friend or associate of one or more of the management of TSL.  Promotional agreements were signed between these companies and Bonaventure under which promotion fees were to be paid to the three companies. 

29. Those amounts included sums which were intended to be, and were, passed on to tour guides as unlawful advantages.  The misconduct was the subject of the charge of conspiracy to offer advantages to agents.

30. The scheme ran for approximately two years concluding in April 2005 with the commencement of the ICAC investigation into the matters the subject of the charges.

Charge 10

31. Again, this conspiracy to falsely account arose out of the accounting documents generated by the conspiracy the subject of Charge 9.  Those documents disguised those parts of the fees paid to the three companies, Best Joint, Well Zen and Golden Speed, which were intended to be paid as unlawful advantages to tour guides, as being part of the genuine promotional fees those companies were owed.

Charge 11

32. According to the prosecution case, during the currency of the circulation of funds the subject of the 1^st count, a scheme was devised the simple purpose of which was the provision of $500,000 of TSL’s funds to the 1^st defendant.  This misconduct was the subject of the charge of conspiracy to steal.  The scheme was alleged to have been implemented by the 2^nd and 3^rd defendants with the cooperation of the 5^th defendant.

33. The 1^st defendant had been declared bankrupt in September 2000 and he immediately resigned as chairman of TSL.  He was replaced as chairman by the 2^nd defendant, but continued to work for TSL as a consultant and retained both an office and his secretary within TSL.

34. By about February 2002, the 1^st defendant urgently required money.  He approached the 3^rd defendant and she eventually suggested disguising a payment of $500,000 to the 1^st defendant as purported bonus payments to the 5^th defendant.  The 5^th defendant agreed to go along with the scheme.  This was done in and between February and July 2002, five cheques were issued of which four were made out to the 5^th defendant as payee and one made out to cash.  In the books of account of TSL the cheques were described as an advance of a bonus to the 5^th defendant.

35. Once cashed, the monies obtained from the cheques were paid to the 1^st defendant.  The 5^th defendant retained 15% of the monies to compensate him for his increased tax liability.

Charge 12

36. On this occasion, money was stolen from TSL and given to the 2^nd defendant.  This misconduct was the subject of another charge of conspiracy to steal.  In June 2002, the 2^nd defendant was in financial difficulties and needed money.  He discussed his problem with Raymond Leung and requested assistance in the way his father, the 1^st defendant, had been assisted, and was being assisted, by the conspiracy the subject of Charge 11.

37. Raymond Leung in turn discussed the 2^nd defendant’s request for money with the 5^th defendant and it was decided that, by increasing TSL’s payments to the business promotion company Best Joint, whose role has been mentioned in respect of the circulation of funds the subject of Charge 9, and with the consent of its controlling director, the additional amount paid could be given as cash payments to the 2^nd defendant.  This was done between June and December 2002.

38. The 2^nd defendant received a total of about $882,000 and the payments to the 2^nd defendant stopped only when he informed the board of TSL on 18 December 2002 of the various financial transgressions, including this scheme, in which he had participated.

Charge 13

39. Prior to the scheme the subject of Charge 12, the 2^nd defendant had been involved in another ongoing conspiracy to steal TSL funds; this time by way of bogus bonus payments to Paul Wong who had been the president of a subsidiary of TSL operating in the Mainland.

40. As president to the subsidiary, Paul Wong held some 7.5% of the shares in that company and, in addition to his salary, was entitled to a bonus calculated at a rate of 3.5% of the annual profit.

41. In July 2001, Paul Wong resigned his position.  When he did so, he said, he had no expectation of receiving a bonus.  However, as matters transpired, he received a sum of $78,000 as a discretionary bonus from TSL in October 2001 and a further discretionary bonus of $100,000 in March 2002.  He was told these payments had been made to reward him for his long years of service.

42. Between April and July 2002 a number of cash payments were given by the 5^th defendant to the 2^nd defendant, as well as one cash cheque.  These amounts totalled about $1,820,000 and were falsely accounted for in TSL’s records as further bonus payments to Paul Wong.  Paul Wong received none of these monies.

43. This transaction was also disclosed by the 2^nd defendant to the TSL board on 19 December 2002.

44. On that same day the 2^nd defendant contacted Paul Wong and attempted to have him agree that he was entitled to receive the “bonus” monies which had been purloined some five months earlier by the 2^nd defendant and share the money which had been obtained, but Wong refused to do so and subsequently faxed a letter to the 2^nd defendant confirming his refusal.

Charge 14

45. During the course of the circulation of funds which was the subject of Charge 1 TSL had received, on 1 November 2001, a letter from the IRD asking for documents substantiating the payment of commission to travel agents during the period 1993 to 1998.

46. TSL appointed Deloitte Touche Tomatsu (“Deloitte”) as its tax representative to liaise with the IRD, and a number of meetings between TSL staff, Deloitte and the IRD took place, during which the subject of payments to the overseas BV1 companies, Worldwide, Binghouse and Cinedell had arisen.

47. For the purpose of reducing the potential tax liability of TSL the IRD had to be satisfied that the payments to these overseas companies were payments for genuine promotional services rendered by those companies.  It was the prosecution’s case that from about April 2003 onwards the 2^nd defendant, the 4^th defendant and the 5^th defendant became aware of these negotiations and of the need to satisfy the IRD that the three BV1 companies had been paid for real services rendered.  From that time on false representations were made by TSL staff to both Deloitte and the IRD to the effect that TSL had paid genuine promotional fees to the overseas companies, Worldwide, Brighouse and Cinedell, and that those companies were independent from TSL and its management.  That misconduct was the subject of the charge of conspiracy to defraud officers of the Inland Revenue Department.

48. That is a broad outline of the prosecution case on each charge.  We will go into greater detail as to the evidential basis of each charge when dealing with the individual grounds of appeal.  At the end of the prosecution case no applicant gave evidence.

Grounds of appeal against conviction

49. A number of grounds of appeal have been advanced on behalf of each applicant.  They will be dealt with in detail in due course but they can for present purposes be summarised as follows :

The 2^nd defendant

50. Mr Alun Jones, QC with Mr Graham Harris and Mr Benson Tsoi of counsel complain :

(1)	that a number of important prosecution witnesses at trial were “coached” by ICAC officers so as to render their evidence either of no weight or inadmissible; and
(2)	that the judge adopted a flawed approach to the credibility of those witnesses.

These two grounds were common to the other applicants’ grounds of appeal.  Other grounds were initially advanced on behalf of the 2^nd defendant but were sensibly abandoned during the hearing.

The 3^rd defendant

51. Mr Martyn Richmond of counsel put forward a number of further specific grounds on behalf of the 3^rd defendant but again, for present purposes, they can be summarised as follows :

(1)	that the judge failed properly or sufficiently to consider the evidence which was capable of contradicting that of the prosecution witnesses on specific charges; and
(2)	that the judge had failed properly to consider matters which supported the case of the 3rd defendant.

The 4^th defendant

52. Mr Blanchflower, SC and Ms Alice Lee for the 4^th defendant also advanced a number of grounds specific to the 4^th defendant which can at this stage, be fairly summarised as follows :

(1)	that the judge wrongly found that the 4th defendant had read the KPMG report dated 28 February 2003 and was aware of its contents as to the nature and purpose of the offshore companies involved in the conspiracy the subject of Charge 1, and that the judge had relied on hearsay statements contained in the report as proof of their assertions; and
(2)	the judge failed to properly consider evidence contradicting that of Raymond Leung and other prosecution witnesses, which evidence supported the case of the 4th defendant, and had wrongly relied upon, in particular, the evidence of Raymond Leung against the 4th defendant.

The 5^th defendant

53. Mr Macrae, SC with Ms Maggie Wong of counsel also advanced grounds specific to the 5^th defendant which can be summarised as follows :

(1)	the judge failed to sufficiently consider the evidence which supported the case of the 5th defendant; and
(2)	that the prosecution had failed to disclose bank statements relating to the overseas companies involved in the circulation of funds the subject of Charge 1 and so prejudiced the case of the 5th defendant.

54. As we say there are two grounds common to all applicants, i.e. the allegation of “coaching” of prosecution witnesses and the assertion that the judge was otherwise wrong to accept the evidence of Raymond Leung in particular and of other prosecution witnesses.  We will deal with those two complaints before going on to consider the grounds of appeal specific to individual applicants.

The “coaching” of prosecution witnesses

55. Following the commencement of the ICAC investigation into the matters the subject of the charges, various individuals who were or had been part of the management or staff of TSL were interviewed.  Some who were involved in the offences were offered the opportunity to co-operate with the ICAC and the prosecuting authority and made non-prejudicial witness statements which encapsulated the evidence they eventually gave under immunity.

56. It was the case of each applicant that a number of the prosecution witnesses had been “coached” or “trained” in their evidence by ICAC officers.  The complaints of each applicant centre primarily on the alleged coaching of Raymond Leung and Allen Cheung but extend also to other prosecution witnesses, namely Elliot Yuen, Anita Wong and Paul Wong.

57. Raymond Leung, as we have said, was the director at TSL in charge of the groups operations.  Allen Cheung was the business controller at TSL until he left to set up Worldwide in 1996.  He later ran Well Zen.  Elliot Yuen was the chief executive officer of TSL until his departure from the company in 1998.  Anita Wong was director of finance of TSL from 1989 until her departure from the company in February 2000.  Paul Wong was the former president of the TSL group in the mainland.  All these witnesses gave evidence under immunity, except for Paul Wong who required none.  It is common ground that if the present complaint does not succeed in respect of Raymond Leung and Allen Cheung it cannot succeed in respect of the other witnesses as the allegations regarding the latter are neither so extensive nor of as substantial a nature as those concerning Raymond Leung and Allen Cheung.

58. The argument under this ground was put in these terms : the ICAC before and, on occasions, during the trial, had conducted a number of “memory refreshing” exercises with the four prosecution witnesses of such a duration and type as to amount to improper “coaching” of the witness in the giving of his or her evidence.  It was submitted that the “coaching” of these witnesses rendered their evidence of no weight and of a sort which the judge was obliged to ignore.  Raymond Leung went to the offices of the ICAC some 15 times between 15 May and 13 August 2007 for a total of more than 23 hours of memory refreshing exercises.  The last visit took place the day before the commencement of the trial.  He had made two very substantial non-prejudicial statements after April 2005, and another earlier shorter one.  The two substantial statements comprised a total of several hundred pages and dealt with more than 900 exhibits.

59. Allen Cheung had made 6 non-prejudicial statements totalling over 200 pages and dealing with more than 600 exhibits.  He had made 6 visits to the offices of the ICAC for the purposes of memory refreshing, and those visits totalled over 10 hours between 18 July to 3 October 2007, the last visit being during the trial some 5 days before he commenced his evidence.

60. Those were the two primary witnesses in respect of whom complaint was made of ICAC officers conducting memory refreshing exercises.  The same procedures held in respect of the other named witnesses were far less numerous and little specific complaint was made of the conduct of the ICAC officers in regard to them.

61. There were a number of references in the evidence as to what occurred on these occasions.  Perhaps the highlights of this evidence, so far as the applicants’ cases are concerned are contained in the passages we set out below and occurred during the cross-examination of Raymond Leung :

“Q.	In fact, I think you went over a series of memory-refreshing exercises that were conducted by the ICAC with you before this trial began, is that right?
A.	Right.
Q.	Can you explain to us how those exercises were conducted?
A.	They explained the content of the statement once to me.  Sometimes, I was asked to read the content by myself, just like a revision.
Q.	Yes, I don’t understand when you said they explained it to you.  Were they witnesses to these incidents?
A.	No, I don’t mean that.
Q.	Did you ask for them to explain to you what happened?
A.	Maybe I used a wrong word.  Instead of explaining it to me, they read it to me.  Since it was a statement, it’s not necessary to ask anyone to explain or to interpret it to me.
…
Q.	You said in your evidence that during the memory refreshing exercise, the ICAC officer would read your statements to you.
A.	Both methods were used.  Sometimes they read over the contents to me and sometimes I was asked to read it by myself.
…
Q.	Did they tell you why they were reading your statement to you?
A.	No explanation was offered to me, but I don’t see any difference if they didn’t read the statement to me and I read it by myself.
Q.	Did they read the whole statement or just certain paragraphs?
A.	No, they went through the whole statement.  For example, they read the paragraphs up to paragraph 20, then on the next occasion they started in paragraph 21.
Q.	Were they read very slowly to you?
A.	Normal speed, just like someone reading a book.
Q.	And after they read those paragraphs, would you discuss those paragraphs or what they had read with you?
A.	Sometimes something would be said, but I can’t recall what had been said.
…
Q.	So you would discuss what they had read to you.
A.	You may say so.
Q.	Is that a yes?
A.	Yes, but I can’t recall how many times.”

62. So far as the evidence of Allen Cheung is concerned :

“Q.	And did they tell you the purpose of why they wanted to meet you?
A.	Yes.
Q.	What did they say?
A.	The main contact was that since this case took place a long time ago they just did something like revising the homework – just like revising the homework, like refreshing the memory.
Q.	Can you just help us?  Can you try, as best you can, tell us what they told you or the gist of what they told you this purpose was.
A.	I think the most appropriate word to describe this situation is to have revision and revision.  On many occasions they firmly reminded me that they were not doing something to coach me to give evidence in court.
Q.	Well, tell us what happened during these six sessions that you met with Mr Chow.
A.	Overall speaking, I think nothing concrete had been discussed.  During the meetings, sometimes they would take out the questions written in the statements and they asked me if I remember them or not.  In fact, for most of the times during the meetings they were spent on talking something unrelated to the case, just like chit-chat.
…
A.	… What I mean is that they asked me the contents at particular paragraphs and they asked me if I recall the contents or not.
Q.	What, they summarised the paragraphs?
A.	Not summarising the contents to me.  They just asked me questions.
Q.	What sort of questions did they ask?
…
Q.	And were there times when he asked you questions on your statements and you didn’t remember what you had said?
A.	It did not happen that I did not recall the contents of the statement.  But I believe there were occasion, there was an occasion or occasions that there were some discrepancies of what I said when compared with the content of the statement.
Q.	And, what, to ensure that you adhered to what you said in your statement?
A.	I believe that is what he meant.”

63. The ICAC officer who conducted the memory refreshing exercises with both Raymond Leung and Allen Cheung was Senior Investigator Chow.  He was cross-examined at length as to what happened during the course of the sessions he conducted with both those witnesses.  Another investigator had also conducted memory refreshing exercises with Raymond Leung prior to Senior Investigator Chow but was not called as a witness.

64. The high points of Senior Investigator Chow’s evidence were, so far as the applicants’ arguments are concerned, as follows :

“Q.	But if these memory refreshing sessions were for Raymond Leung, what benefit would he get from you reading the statements?
A.	Because when we were inside the room, I read out the contents of the statement, and he could pay attention to my reading, then I got the feeling that it could strengthen his memory.
…
A.	The procedure was the following : upon reading one paragraph, I would discuss with him about the contents of the paragraph.
Q.	So you’d go through the statements paragraph by paragraph?
A.	Correct.
…
Q.	And would you, as I say through this process, have gone from the beginning to end reading over every paragraph?
A.	Right, basically.
Q.	And when you finished reading a paragraph, you said that you would then discuss that paragraph with Raymond Leung?
A.	Yes.
Q.	What would you discuss with him?
A.	To discuss what had been written down in the statement in the paragraph.
Q.	Did you ask him questions?
A.	No.
Q.	Did you summarize what he had said in the paragraph?
A.	Yes, I would be.
Q.	So you would be giving your summary of a particular paragraph to Raymond Leung and you would discuss it?
A.	But sometimes he provided me the summary of a particular paragraph.
Q.	And you would discuss it?
A.	Correct.
Q.	And then after this discussion, you would go on to read another paragraph and then give him your summary of that paragraph and then you would discuss that paragraph?
A.	Yes.
Q.	What I want to know is that through this process, the time that you spent with him Raymond Leung, were you able to go through, in particular, the second and third statements more than once?
A.	Just once.
…
Q.	And how long would the discussion take usually in relation to a paragraph or did it vary?
A.	I can’t tell exactly how long had been spent on discussion because it really depends on our speed and it depends on the contents appear in that paragraph.
A.	I did the memory-refreshing exercise with him.
Q.	Just describe what happened over those course of six days.
A.	Whenever he came we invited him to the office.  We did something as a warming up, like a chit-chat first.  Then we started by looking at the witness statements.  I made a summary of each paragraph to him first.  Then I had a discussion with him.  Basically it was done in this way.
Q.	Did you read those paragraphs aloud to him?
A.	I just read a small part of statement, about one to two paragraphs, but I can’t recall which one or two paragraphs.  I did not read the paragraphs as detailed as what I did with Raymond Leung.
Q.	So essentially this summarized each paragraph, and then you discussed it with Allen Cheung?
A.	Correct.
Q.	And did you repeat this over the course of the six days, repeating the review of these paragraphs and various statements?
A.	Yes.
…
Q.	Do you know how many times you went through his six statements over the course of those six sessions?  Did you go through this exercise once, twice, three times?
A.	For a certain part once only, but for some other parts twice.  But I can’t recall which particular parts.”
…
Q.	Now, is it correct that you conducted the memory-refreshing exercise of at least three witnesses because you wanted to ensure that they had memorized their statements?
A.	Yes, of course.
…
Q.	And you were coaching these witnesses, particular; PW1 and 2.
A.	I disagree.
Q.	In fact what you were engaged in was essentially an evidence rehearsal exercise.
A.	I disagree.”

65. During the trial there was no application made on behalf of any applicant (or by the 1^st defendant) that the evidence of Raymond Leung or Allen Cheung be excluded (or that of any other witnesses of whose evidence complaint was made).  The attack on their evidence was confined to the closing submissions made on behalf of the applicants and was to the effect that no weight should be placed on their evidence because of what had transpired during the memory refreshing exercises.  As we have said, it was alleged that these sessions amounted to improper “training” or “coaching” of the witnesses.

66. In his Reasons for Verdict the judge considered the evidence relating to the memory refreshing exercises.  At an early stage, indeed at the commencement of that part of his Reasons for Verdict dealing with the allegation of “coaching”, he concluded :

“515. The ICAC engaged in extensive memory refreshing exercises particularly with PW1 (Raymond Leung) and PW2 (Allen Cheung).  These exercises went beyond what is permitted.  I took this into account when considering their evidence.”

67. He went on to consider other matters intrinsic to the allegations of “coaching” and the law which was applicable.  In our view his implicit conclusion that this aspect of the evidence went to the weight to be attached to the prosecution witnesses’ evidence was correct.

68. The recent law relating to the preparation of witnesses for the giving of their evidence at trial is encapsulated in relatively few cases.  Mr Jones relied upon the case of R v Momodou (Henry) [2005] 1 WLR 3442.  That case concerned an outbreak of serious violence amongst the detainees at an immigration detention center in England.  The centre was operated by a private company.  During the course of the incident certain staff at the centre suffered quite traumatic experiences.  A criminal investigation was undertaken concerning those detainees involved in the violence, and, separately, a civil action was commenced by the private company operating the detention centre against the police authority responsible for the local area which, it was alleged, had responded inadequately.

69. The private management company arranged, for the purposes of its civil action against the police authority, that another company conduct a training course for the witnesses in the civil action (many of whom were to be witnesses in the criminal trial of various detainees).

70. The training course included sessions in groups of eight witnesses designed to give the witnesses an experience analogous to attending court and giving evidence.  A case study was prepared based on very similar facts to those of the incident about which the witnesses would eventually give evidence (although it was asserted that the case study had never been used).  Separately from the training sessions, two group meetings of the witnesses took place which were described by the medical officer conducting them as “debriefing” sessions for the witnesses concerning the violence at the detention centre.  The trial judge on those facts refused to order a stay of proceedings and the trial continued with the jury simply hearing evidence of the training and therapy sessions attended by the witnesses.  That exercise of the judge’s discretion became a subject of the appeal.

71. Judge LJ, in delivering the judgment of the Court of Appeal, said at p. 587h-j and 588a-c :

“… The witness should give his or her own evidence, so far as practicable uninfluenced by what anyone else has said, whether in formal discussions or informal conversations.  The rule reduces, indeed hopefully avoids any possibility, that one witness may tailor his evidence in the light of what anyone else said, and equally, avoids any unfounded perception that he may have done so.  These risks are inherent in witness training.  Even if the training takes place one-to-one with someone completely remote from the facts of the case itself, the witness may come, even unconsciously, to appreciate which aspects of his evidence are perhaps not quite consistent with what others are saying, or indeed not quite what is required of him.  An honest witness may alter the emphasis of his evidence to accommodate what he thinks may be a different, more accurate, or simply better remembered perception of events.  A dishonest witness will very rapidly calculate how his testimony may be ‘improved’.  These dangers are present in one-to-one witness training.  Where however the witness is jointly trained with other witnesses to the same events, the dangers dramatically increase.  Recollections change.  Memories are contaminated.  Witnesses may bring their respective accounts into what they believe to be better alignment with others.  They may be encouraged to do so, consciously or unconsciously.  They may collude deliberately.  They may be inadvertently contaminated.  Whether deliberately or inadvertently, the evidence may no longer be their own.  Although none of this is inevitable, the risk that training or coaching may adversely affect the accuracy of the evidence of the individual witness is constant.  So we repeat, witness training for criminal trials is prohibited.”

72. Nevertheless, in the event, the court concluded that, given the jury’s awareness of the training programme conducted in respect of some of the witnesses who gave evidence and the judge’s strong warning to the jury of the evidentiary dangers involved, the arrangements for training and the conduct of the therapy sessions had not undermined the safety of the conviction of the appellant.

73. The facts of Momodou’s case differ significantly from the facts in the present case, where no group discussion sessions took place.  Nevertheless the principle applies : the danger in discussing with a witness his evidence prior to trial is that the witness’s recollection of events will either consciously or unconsciously alter so as to accommodate what the witness perceives as a better, for whatever reason, version of events.  Obviously this is a matter of degree.  A brief discussion with a witness of his proposed evidence to clarify some point of ambiguity or uncertainty may be perfectly sensible and desirable in promoting the integrity and accuracy of the trial process.  On the other hand the repetitive “drilling” of a witness to a degree where his true recollection of events is supplanted by another version suggested to him by an interviewer or other party may be of a sort which justifies a judge giving the witness’s evidence no weight or in extreme cases exercising his discretion to exclude that evidence on the basis that it is more prejudicial than probative, or is, in some other way, such as to preclude the defendant from receiving a fair trial.

74. In HKSAR v Lee Wing Kan [2007] 3 HKC 368 the applicant, inter alia, complained that two witnesses who gave evidence under immunity had been “coached” in their evidence in a manner reminiscent of the allegations in the present applications.  The witnesses were separately invited to the offices of the ICAC and there were shown their statements and relevant exhibits.

75. The trial judge found :

“266. There was a need for them to read their statements and be shown the exhibits referred to in the statements for the purpose to help them remember things.  After each paragraph was read [the officer] would give a summary of each paragraph.  [He] explained because he was not the one who had taken the statements if there was any mistakes or the witness had remembered the contents wrongly he would consider taking a further statement.  In cross-examination [he] further explained that after reading a paragraph he would ask if there was anything the witness was not clear about but would not ask questions in relation to each and every paragraph.

…

269.   Whilst it may have been better [if the ICAC officer] did not summarise each paragraph to Mr Chan and Mr Ng, I am satisfied the ICAC have done nothing improper which amounts to coaching or training the witnesses or in anyway casts doubt on the reliability of Mr Chan and Mr Ng’s evidence.”

76. This court, differently constituted, in endorsing the trial judge’s comments said, at p. 392D-H :

“67.   It has long been permissible for witnesses to be allowed to refresh their memories from their statements prior to trial.  If it were otherwise, the trial process could be turned into an unnecessary test of memory.  Here, Mr Chan and Mr Ng were able to refresh their memories and, but for one factor, there could be no criticism of anything which occurred.  This sole factor was that there was a departure from a straightforward exercise in memory refreshing which occurred when the investigating officer decided to provide the witnesses with a summary of each paragraph in their statements.  One possible danger in the adoption of such a practice, as Mr McCoy pointed out, is that witnesses may feel compelled to agree with the summary given to them and to adopt it in their testimony later whether or not the phraseology used in the summary had been strictly accurate.  Another problem associated with any relaxation of the present rules in this regard is the difficulty which almost inevitably arises in drawing the line between what it may or may not be permissible for an officer attached to a law enforcement agency to discuss with a witness who has earlier made a statement and who wishes to refresh his or her memory before giving evidence at trial. …”

77. These comments were further endorsed by the determination of the Court of Final Appeal in Lee Wing Kan v HKSAR, FAMC28/2007 at paragraph 8.

78. It is worth repeating that there is no danger in a witness refreshing his memory from his witness statement or from any exhibit.  Indeed a witness who has had his or her real memory of events refreshed in this way furthers the purposes of justice and provides the raw material for a fairer trial.

79. The concern this court expressed in the passage of its judgment excerpted above is in accord with the principle in Momodou.  Any procedure which tends to subvert a witness’s real recollection of events and replace it with evidence based on a different source, whether it be what another person says, or perhaps what a document describes, is wholly wrong.  Investigating officers who take witnesses through their statement repetitively risk supplanting the witnesses’ real recollection with what is contained in the statement regardless of what their actual recollection may be, so that, when giving evidence, they repeat only what is contained in their statement.  In presenting a summary of the witness’s evidence to him in a manner which suggests to the witness that is what his evidence is expected to be, the same dangers exist.

80. In the present case Senior Investigator Chow summarised methodically, or had the witness summarise, each part of the statements the witness had made, and the judge was right to conclude in this case that the ICAC officers, and particularly Senior Investigator Chow’s conduct in this regard, went beyond what was proper.  There should have been no summarising of the contents of the witness statements.

81. Nevertheless, where a witness is shown some form of summary of his evidence prior to trial, that does not necessarily mean that his evidence is, as a matter of principle, to be excluded.  It is a question of weight.  That is because the facts of each case will vary enormously as to what was said to, or done with, the witness, and the danger of the witness’s true recollection of an event being substituted by some other version of that event will therefore be a matter of degree.

82. Obviously investigators are entitled to review a witness’s statement, and any exhibits referred to therein, with that witness for the purpose of allowing the witness to refresh his own recollection of events.  They are entitled to do such things as clarify the contents of the witness’s statement and seek to expand the detail of certain aspects of the statement.  They are entitled to ascertain the reliability of the witness’s recollection, and explore inconsistencies in the statement.  What they must not do is go further and put words into the witness’s mouth or subvert his true recollection with another version of events, whether by repetitive reading of the statement to the witness or by otherwise “influencing” the witness so as to attempt to ensure the witness will, in evidence, simply regurgitate the contents of his statement.  That is “coaching”.

83. Where an investigator does or may have gone beyond what is proper, whether deliberately or inadvertently, a court will have to assess the impact of his actions on the reliability of the witness’s evidence.  As we have said, simply because an investigator crosses the line in this regard to some degree does not necessarily mean the witness’s evidence must in principle be excluded.  It may be, for example, that the investigator’s excesses have demonstrably not resulted in the witness’s true recollection being undermined.  At the other extreme it may be that there is a likelihood that the witness’s own recollection of events is minimal and that he is simply in his evidence reciting the contents of his witness statement or of other documents shown to him by the investigator.

84. In the present case, by providing summaries of parts of the witnesses’ statements to them, Senior Investigator Chow went too far for the reasons stated in Lee Wing Kan.  But, as the judge in the present case implicitly concluded, it remained a question of weight as to what degree the improper procedures adopted undermined the reliability of the particular witnesses evidence.

85. The judge, in assessing the weight to attach to the evidence of the prosecution witnesses and particularly of Raymond Leung and Allan Cheung, was aware of the principles expressed in Momodou and Lee Wing Kan and his eventual acceptance (in large part) of the evidence of those witnesses cannot be criticised on this basis.

86. We should add this.  In Lee Wing Kan this court stated that the practice of providing summaries of their statements to witnesses should stop.  The judgment in Lee Wing Kan was handed down on 9 March 2007.  Yet that same practice was undertaken with Raymond Leung between 9 July 2007 and 6 August 2007; and it took place also with Allen Cheung between 1 July and 3 October 2007.  The trial proper commenced on 14 August 2007.

87. It was suggested that the ICAC investigators had deliberately continued the practice in the face of this court’s condemnation of it.  If that had been established we would have taken a serious view of matters.

88. However Mr Duncan, SC with Mr John Marray for the respondent provided us with ICAC documents which satisfied us that the comment in Lee Wing Kan was likely not brought to the attention of ICAC investigators by way of an operations order until June 2008, although the judgment itself and this court’s comments concerning the summarising of witness statements was apparently referred to a specific section within the ICAC by the Department of Justice shortly after the judgment was handed down.

89. In other words, for whatever reason, some 15 months went by from the date of the judgment in Lee Wing Kan to the date of the ICAC operations department alerting its investigators as to what was said in the judgment.  We have not been informed as to the reason for that delay, though it is plainly most undesirable that procedures within the ICAC were not changed more promptly.

90. It was suggested on behalf of the applicants that in those circumstances the actions of Senior Investigator Chow in summarising the witness statements of prosecution witnesses after the judgment in Lee Wing Kan was handed down was so flagrant and deliberate an abuse of the court’s process that this court should intervene and set aside the convictions supported by the evidence of, particularly, Raymond Leung and Allen Cheung.

91. We disagree.  First, as we say, it is in our view not established that the ICAC investigator deliberately ignored what was said in Lee Wing Kan and, second, as a matter of principle it is not part of this court’s role to exercise its jurisdiction for the purpose of disciplining investigatory or prosecuting authorities : see HKSAR v Lee Ming Tee & Another (2001) 1 HKLRD 599 at 615E-G.  On that basis this aspect of the applicant’s arguments falls away.

92. We conclude this ground by referring briefly to two other aspects of the argument advanced by Mr Jones and adopted by other counsel.

93. First, Mr Jones suggested that, regardless of what else transpired, the sheer number and length of the memory refreshing exercises, conducted with Raymond Leung and Allan Cheung were such as to amount to the “coaching” or “training” of those witnesses.  We agree that the length and number of these sessions gives initial cause for concern, but what was done in this regard must been seen in the context of the case as a whole.  The witnesses had made statements which dealt with events extending over many years.  Each witness had made lengthy statements, Raymond Leung’s totalling several hundred pages and dealing with about nine hundred exhibits; Allan Cheung’s statement being slightly less in volume but still referring to six hundred odd exhibits.

94. Given those circumstances, the number of memory refreshing sessions and their length does not of itself point to the “coaching” of the witnesses.  It was the evidence of Senior Investigator Chow that he read (or the witness read) each witness’s statement only once, although some parts may have been read twice.  As Mr Jones concedes, the reading of a witness’s statement to him or by him cannot, without more, amount to coaching.

95. Second, Mr Jones complained that “discussions” had taken place between Senior Investigator Chow and the witnesses as to what was contained in the witnesses statement.  It was accepted by Senior Investigator Chow that such discussions had taken place on a paragraph by paragraph basis during the reading of the statements.  There was no evidence at trial as to what the nature or content of these discussions were.  Somewhat surprisingly Senior Investigator Chow’s evidence was not taken further in this regard.  There was therefore no evidence that the subject matter of these discussions was objectionable in the sense of that which we have said above, and it cannot be that merely because a discussion took place between an investigator and a witness as to the contents of the witness’s statement that it must necessarily be inferred the witness’s real recollection of events was jeopardised or that he was being encouraged in some way to give evidence in terms other than his own recollection.

96. This common ground fails.  We turn now to the second ground common to all applicants.

The credibility of the prosecution witnesses

97. A number of witnesses gave evidence for the prosecution.  It is the judge’s approach to those who gave evidence under an immunity from prosecution which is complained of.  The principal such witness was Raymond Leung who gave his evidence under a full immunity, one that gave him a number of important benefits, not least of them being the ability to retain most of his ill-gotten gains.

98. Raymond Leung had from the beginning been at the centre of the conspiracies that were the subject of Charges 1 and 2 : first, the conspiracy to offer secret advantages to the employees of travel agencies and, second, in the execution of that conspiracy, the further conspiracy to commit false accounting.  In addition, he had been intimately involved in the criminal activity that was the subject matter of other charges.

99. While seeking to advance the interests of TSL by criminal means, Raymond Leung had taken the opportunity by illicit means to enrich himself and members of his family.

100. There is no doubt that during his time at TSL he had been prepared to lie without restraint if he believed that it would protect the interests of TSL or those of himself or his family.  When he came to give his evidence, inconsistencies emerged between his evidence and what he had said in his non-prejudicial witness statements.  Further inconsistencies appeared between his evidence and that of other witnesses testifying for the prosecution under immunity, particularly his own brother.  On behalf of the applicants, it was submitted that Raymond Leung was so flawed as a witness, so venal and dishonest, that it could not have been possible for the judge to accept anything of substance that he said as being true or accurate.  His evidence, it was submitted, should have been rejected in its entirety.

101. It is to be emphasised that the judge was under no illusions as to Raymond Leung’s history of venality and dishonesty.  He was also well aware of the matters which purported to undermine his value as a witness of the truth as a witness.  The judge warned himself on more than one occasion that he must approach the evidence of all the witnesses under immunity with caution but particularly the evidence of Raymond Leung.

102. By way of a warning to himself concerning all the witnesses who testified as accomplices, the judge said the following (para. 490) :

“A number of witnesses were named as co-conspirators in the charges and gave evidence under immunity.  Whilst I bore in mind s. 60 of the Criminal Procedure Ordinance, Cap 221, which abrogated the corroboration rule in respect of alleged accomplices, I treated their evidence with caution and warned myself of the danger of accepting their evidence without very strong supporting evidence.”

103. As to the evidence of Raymond Leung himself, the judge said that it had to be treated with “utmost caution” (para. 535).  Leung had many reasons to lie:

“537. PW1 [Raymond Leung] was never arrested.  He was treated differently from other suspects right from the start.  After accompanying the ICAC officers to their headquarters in April 2005.  PW1 and his girlfriend joined the “Witness Protection Program”.  They depended on the ICAC for protection and financial support.  He was allowed to retain funds and even deal in shares.

538.   Shortly after the visit to his home by the ICAC, he handed over to them $ 1 million.  No further proceeds of the offences were recovered.  The ICAC did not obtain bank statements relating to the overseas companies.

539.   PW1 acknowledged that he considered himself to be in very serious trouble when he was spoken to by the ICAC … He acknowledged that he would have to establish his usefulness to the ICAC before they would consider granting him an immunity.”

104. Expanding on this, the judge laid emphasis on the obvious fact that Raymond Leung had every reason to tailor his evidence.  In this regard, for example, he said (para. 491) :

“PW1 in particular figured prominently in many of the offence and had involved members of his family in his criminal enterprises.  His family members had also been given full immunities.  He and his family stood much to gain from co-operating with the ICAC.  There was overwhelming evidence of their involvement in criminal enterprises.  I was also satisfied that he was untruthful as to the extent of his gain from them and lied about other matters.”

105. The judge continued (para. 493) :

“I was aware that PW1 in particular must have been keen to show to the ICAC his value as a witness not only for his own benefit but also for the benefit of those he had brought into his criminal enterprises.”

106. As we have indicated, the judge understood that Raymond Leung was in a number of ways a dangerous witness.  In this regard, he said (para. 492) :

“I noted that he made a number of statements to the ICAC.  In respect of his cautioned statement in particular there were contradictions between that statement, his later non-prejudicial statements and his evidence in court.  He repeated a number of times when cross-examined about these inconsistencies that when he was first interviewed he had reservations as to what and how much he should reveal to the ICAC.”

107. Raymond Leung’s broader venality was recognised :

“512. The evidence of PW’s 1 and 2 in particular had to be examined very carefully as they were involved in criminal activity beyond the scope of the scheme as devised by the TSL management.  They clearly saw the scheme as an opportunity to make money for themselves and took full advantage of the situation.

513.   PW1 actively concealed the role of his family in the setting up and running of the scheme.”

108. However, concerning inconsistencies, while the judge accepted that there were a good many differences in recollection, he took into account, as he was entitled to do, that the witnesses had given evidence about matters which had occurred several years before trial, indeed several years before they had given their witness statements.  As such, recollections would be expected to differ.

109. Aside from general observations, the judge also took into account criticisms of Raymond Leung’s involvement in particular events.  One example would be the judge’s observations as to his involvement in the setting up and use of the BVI company, Cinedell : see para. 136 and following.

110. The citations that we have drawn from the judge’s Reasons for Verdict are not in any way exhaustive.  Indeed, there are four separate places in the Reasons for Verdict where the judge examined the qualities of Raymond Leung.  In particular, between paras. 535 and 566 the judge examined a number of issues which went to undermine Raymond Leung’s value as a witness of the truth.  These included the issue of the immunity given to him, his evidence concerning the setting up of Brighouse and Cindell, his involvement in dishonest transactions, his history of lying and the identification of inconsistencies in his evidence.

111. It cannot be said therefore that the judge paid mere lip service to the direction given to himself that he must approach Raymond Leung’s evidence with caution and that it was important, when considering his evidence, to identify supporting evidence.  In this latter respect, it is to be said that there was supporting evidence, albeit of varying kinds and varying cogency, to support much of Raymond Leung’s evidence, certain of this evidence being mentioned elsewhere in this judgment.

112. It is also to be remembered that the judge had the opportunity to consider the value of Raymond Leung’s evidence during an extensive cross-examination.  It was for the judge, as the finder of primary fact, to determine what weight, if any, he would give to Raymond Leung’s evidence in respect of any particular issue.  He was clearly of the view that, despite Raymond Leung’s shortcomings, both the truth and accuracy of his evidence could be relied upon in a broad range of matters.  We have no reason to think that the judge may have been wrong in coming to this conclusion in respect of Raymond Leung or indeed of any other immunised witness.  This general ground also fails.

113. As we have said earlier, only the two grounds common to all the applicants were advanced on behalf of the 2^nd defendant.  The first of those grounds, the allegation of “coaching” prosecution witnesses, while it has failed, was, in our view, reasonably arguable.

114. That being the case, the application of the 2^nd defendant for leave to appeal his conviction should be allowed and, treating the hearing of the application as the hearing of the appeal, his appeal is dismissed.

115. We would add that the applications of the 3^rd, 4^th and 5^th defendants for leave to appeal against conviction should, on the same basis, be allowed, the hearing of their applications being treated as the hearing of their appeals.

116. We now turn to the specific grounds of appeal advanced on behalf of the 3^rd, 4^th and 5^th defendants.

The 3^rd defendant’s individual grounds of appeal against conviction

117. The 3^rd defendant was convicted of four charges: Charges 1 and 2, Charge 11 and Charge 13.

118. When arrested, the 3^rd defendant made a series of cautioned statements to the ICAC which were admitted into evidence.  At trial, she did not give or call evidence but did rely upon her counsel’s cross-examination of the witnesses for the prosecution.

Overview of the evidence against the 3^rd defendant in respect of Charges 1 and 2

119. As we have said earlier, Charge 1 alleged a conspiracy that ran from August 1996 to April 2003 to offer unauthorised advantages – secret commissions – to employees of travel agents who brought customers to TSL’s jewellery showrooms.  Charge 2 alleged a collateral conspiracy to falsely account for the secret commissions.

120. The 3^rd defendant did not join TSL until the end of August 2000.  As to how she came to join the two conspiracies, the prosecution evidence accepted by the judge was to the following effect.

121. By August 2000, TSL was in such deep financial difficulties that it was forced to enter into a debt restructuring agreement with its creditor banks.  In terms of the agreement, two independent non-executive directors were appointed together with a new Finance Director.  The 3^rd defendant was headhunted to be the Finance Director.

122. As the new Finance Director, the 3^rd defendant’s principal duty was to rationalise TSL’s finances and, in doing so, to comply with the undertakings given by TSL in the debt restructuring agreement.  In this respect, as the judge noted, she was required to report on cash-flow on a monthly basis and to monitor unusual capital expenditure.  In short, the 3^rd defendant’s mandate was to get TSL’s finances into order.  By necessity, that would have involved an examination of existing systems or practices which resulted in a significant outlay of funds.  

123. Raymond Leung testified that in or about mid-September 2000, about two weeks after the 3^rd defendant had joined TSL, she invited him into her office, wishing to know more about the overseas commission payments.  According to Raymond Leung, the 2^nd defendant, Tommy Tse, happened to walk past the office at that time and joined them.

124. Raymond Leung testified that he spent about an hour explaining the nature of the scheme to both the 2^nd and 3^rd defendants.  He spoke of the 1996 ICAC investigation into the payment of commissions how the scheme came into being after that investigation.  He told them that Worldwide and then Brighouse, the two BVI companies, had been set up outside of Hong Kong so that payments, recorded in TSL’s books as commission payments, could be sent to them and channeled back to Hong Kong to accounts here, the funds being withdrawn from those accounts in cash and distributed in cash by way of commission to the employees of agencies, no receipts being required.

125. Raymond Leung testified that he also explained how it was that commission payments due to agency employees who brought tour groups to one of the TSL showrooms where gold jewellery only was sold were disguised as entertainment expenses payable to the 5^th defendant.

126. In summary, according to Raymond Leung, he informed both the 2^nd and 3^rd defendants why it had been necessary to disguise the payments of certain commissions and further described the commercial artifice constructed to give effect to that disguise.

127. According to Raymond Leung, neither the 2^nd defendant nor the 3^rd defendant objected to, or showed any concern in respect of, what he had told them.

128. It was put to Raymond Leung that this meeting had never taken place, that it was a fabrication by him.  This he denied.

129. It was Raymond Leung’s evidence that some eight months later, in May 2002, the 3^rd defendant, who was regularly signing the necessary payment requisitions to keep the scheme going, expressed her concern that Brighouse, then the single BVI company receiving the outward remittances from TSL and channeling them back to Hong Kong, was having to deal with too great a flow of funds as to her reasoning see para. 19 of this judgment.  The 3^rd defendant wanted one more BVI company to help handle the flow of money and suggested that Raymond Leung should consult with the 5^th defendant.  It was this instruction, said Raymond Leung, that led to him arranging for Cinedell, to be used as an additional receiver and onward transmitter of funds.

130. As to the use of Cinedell as a further off-shore vehicle, the evidence showed that on 31 May 2002 the 3^rd defendant initialled the minutes of a “paper” meeting of the board of directors of Bonaventure, a TSL subsidiary.  Those minutes resolved that Raymond Leung should execute a business promotion agreement with Cinedell almost identical to the so-called business promotion agreement which had been entered into with Brighouse.

131. As to the 3^rd defendant’s knowledge of, and participation in, the payment of monthly sums to Brighouse and Cinedell, it was noted that the 3^rd defendant was the main custodian of TSL’s finance and had a specific responsibility for monitoring cash flows.

132. There was evidence that the 3^rd defendant had signed requisitions in respect of payments to be made to Brighouse and Cinedell.

133. In addition, there was evidence that there were differences in the payment requisition system in respect of commissions.  For commissions A there was a daily report but for commissions B, the secret commissions, there was a monthly report.  The 3^rd defendant could not have failed to be aware of the difference.

134. Although the 3^rd defendant did not give evidence, the judge took into account that she had made cautioned statements to the ICAC.  In this regard, he said (paras. 877 and 878):

“877. In her record of interview with the ICAC, D3 said she was aware that the business promotion commission was known as “B chai”.  D3 said she had no idea how commission was actually paid out.  She said she was not sure if TSL had any BVI companies.  D3 said she had heard of Brighouse and Cinedell and that they handled “business promotion”.  D3 said she recalled Brighouse might have been a BVI company because the remittance was by way of telegraphic transfer, but she was not sure about Cinedell.  She said the IRD would definitely question the commission payments because the amounts were so large.

878.   D3 had participated in the KPMG forensic investigation and had been specifically asked questions about the commission system.  She said the report was submitted to the board [of TSL] who set up a sub-committee to deal with this matter “in a special way……….. because these things were quite shocking”.  The report quite clearly stated that the overseas companies were money transfer vehicles and quoted from [Raymond Leung’s] explanation as to the commission B payments. …”

Charges 1 and 2: the Reasons for Verdict

135. In convicting the 3^rd defendant, the judge accepted the evidence of Raymond Leung that in mid-September 2000 he explained the system of commission payments to the 2^nd and 3^rd defendants.  He rejected the submission that there had been no such meeting.

136. The 3^rd defendant’s statements made to the ICAC did not, raise a doubt in the judge’s mind.  As to what was said in those statements, he said (para. 878):

“I found D3’s responses to questions from the ICAC about the commission B system to be deliberately vague and evasive.  I was sure this was not because of the passage of time.”

137. Taking into account the totality of the evidence, including the fact that the 3^rd defendant was the custodian of TSL’s finance and was specifically required to monitor cash flows, he was sure that she was aware of and understood the true nature of the commission B scheme.  He was sure that she played an active role in the conspiracies that were the subject of Charges 1 and 2.

The grounds of appeal specific to Charges 1 and 2

138. A number of grounds were submitted.  The principal ground, however, the one that encompassed all others, was to the effect that the judge erred in placing reliance on the limited evidence put forward by the prosecution while placing little or no reliance on other evidence which went to the improbability of much of the prosecution evidence or which raised a reasonable doubt as to the 3^rd defendant’s knowing involvement in either conspiracy.

139. Raymond Leung’s evidence that about two weeks after the 3^rd defendant had joined TSL he had been asked by her for a briefing on the commission schemes was central to the prosecution case against the 3^rd defendant.  If there was such a briefing, as the judge found to be the case, then the 3^rd defendant could have been under no misapprehension as to the true role of the overseas BVI companies and as to the purpose of the circuitous movement of funds.  There would have been no need for Raymond Leung to state that the scheme was criminal.  On the facts revealed, the 3^rd defendant would have appreciated that there was no genuine business promotion arrangement between TSL and either Brighouse or later Cinedell.  These two companies were not receiving commissions on the basis set out in the business promotion agreements.  They were a sham, part of the process which enabled TSL to claim a tax benefit on the remittances sent out of Hong Kong while using the remittances sent back Hong Kong to pay secret commissions.

140. To a large extent, Mr Richmond’s submissions were focused on what he said was the judge’s failure to take into account evidence which went to show that Raymond Leung’s evidence as to the meeting was undermined by a number of improbabilities.

141. It was also submitted that, although the judge had warned himself elsewhere in his Reasons for Verdict, to look for evidence which supported Raymond Leung, he had failed to do so in this instance.

142. As to the criticism that the judge had relied on the unsupported testimony of Raymond Leung, there were, in our view, certain matters which arose out of, or were implicit in, the Reasons for Verdict which did lend support to the evidence of Raymond Leung, if only on the basis that it demonstrated that his evidence did not fly in the face of what was probable.    First, as the new Chief Financial Officer of TSL, it was the 3^rd defendant’s mandate to rationalise the finances of the company; as we have said earlier, to get them into order.  Second, since 1996 tens of millions of dollars had been paid to the overseas BVI companies pursuant to the so-called business promotion agreements.  This regular remittance of funds was a significant matter.  It was entirely predictable therefore that, relatively shortly after she had taken up her position, the 3^rd defendant would wish to be briefed on the issue of commission payments.  Because of his senior position in the company and his experience in respect of the management of the showrooms, it is unsurprising that she would have approached Raymond Leung.

143. As to the matter of improbabilities, it was submitted that the judge had failed to have due regard in particular to three inherent improbabilities :

(1)	that it was improbable that, without reservation, Raymond Leung would have explained the details of the sham scheme to the 3rd defendant who, in mid September 2000, was a newcomer to TSL and indeed a person specifically headhunted on the basis that she had an impeccable record and because of that, no doubt a person of absolute integrity;
(2)	that it was improbable that Raymond Leung would not already have briefed the 2nd defendant on the nature of the commission schemes, and
(3)	that it was equally improbable that, if Raymond Leung had seen fit to brief the 3rd defendant so soon after her arrival at TSL, that he would not also have briefed others in the company, for example, Laurence Lai who was later recruited to assist the 3rd defendant in managing the finances of the company.

144. As to the first submission, Mr Richmond argued that it was improbable that Raymond Leung would have explained what he must have known was a criminal scheme to the 3^rd defendant who after all was a newcomer to the company and came with an impeccable record.  In giving the briefing that he said he did, Raymond Leung would have been taking a considerable personal risk.  In addition to which the whole scheme stood to be exposed and dismantled.

145. In this regard, however, as the judge made plain, the commission scheme had not been the sole creation of Raymond Leung.  To the contrary, in creating the scheme in 1996, Raymond Leung had been part of a senior management team which included the then CEO and then financial controller.  Both of these witnesses testified that the 1^st defendant, the founder of TSL, had known of the team’s work and had attended the occasional meeting.  Nor were these meetings kept secret.  They were recorded in minutes and internal memoranda.  They were the subject of written resolutions.  It may be said that the scheme had therefore become integral to corporate policy.

146. There was also substantial evidence to show that the operation of the scheme was considered to be essential to the continued viability of the showroom side of TSL’s business.  By way of illustration, albeit at a later time, despite the criticisms of the monthly remittances to the overseas BVI companies made in the KPMG Forensic report of early 2003, the evidence was uncontested that it was felt at that time that the commission scheme, although ‘wrong’, could not immediately be closed down for fear of the financial consequences.

147. We would add that, on a consideration of all the evidence, it would have been plain to Raymond Leung that the 3^rd defendant, as the new chief financial officer with a mandate to rationalise the finances of the company, was inevitably going to learn of the true nature of the commission scheme, probably sooner rather than later.  As the judge observed (para. 850) : “It is inconceivable that these significant payments by TSL to the overseas companies would not attract D3’s attention.  They cried out for explanation.”

148. In his Reasons for Verdict (para. 849), when considering the submission that it was wholly implausible that Raymond Leung would have given such a full briefing to the 3^rd defendant, the judge compared Raymond Leung’s evidence in this regard to his evidence that in late 2002, shortly after the 4^th defendant had joined TSL, he had also been requested to explain the commission scheme and had supplied a written flowchart which very clearly set out the workings of the scheme, showing it to be one that had as its purpose the payment of secret commissions and was one which could only be accomplished by way of false accounting.

149. On behalf of the 3^rd defendant, it was submitted that this was not an apt comparison.  When the flowchart was supplied to the 4^th defendant in late 2002 revelations as to malpractice in TSL had already been made public.  Two years earlier, however, when Raymond Leung said that he met with the 2^nd and 3^rd defendants, the scheme remained secure.

150. While that is correct, it is to be remembered that, when the 3^rd defendant joined TSL, the company was in extreme financial circumstances.  It had been forced to enter into a debt restructuring agreement.  The 3^rd defendant herself was there to look into the finances and sort them out.  As the judge noted, it was inevitable that she would turn her attention to the question of the commission payments.  On both occasions, therefore, as the judge found, Raymond Leung appreciated that he was in a position where he had to explain the true workings of the commission scheme which, it is to be remembered, since 1996 had been integral to the workings of the company.

151. On behalf of the 3^rd defendant, it was further submitted that, if Raymond Leung had been prepared to reveal the true nature of the commission scheme to the 3^rd defendant, surely he would have been prepared to make a similar revelation to others in the company such as Laurence Tai who was later recruited to assist the 3^rd defendant in managing TSL’s finances.  But he had not done so.  We see no improbability in this.  Leaving aside the fact that Tai held a junior position to the 3^rd defendant, it was Raymond Leung’s evidence that he had explained the workings of the schemes on two occasions but only when he was specifically asked to do so by senior officers of the company.  There was no suggestion that he had on any occasion volunteered the information to unwitting third parties.  It is understandable that he would not have wished to trumpet the scheme to all employees: common sense dictates that some form of ‘need to know’ policy would instinctively have applied.

152. As to the submission that it was inherently improbable that Raymond Leung would be willing to explain matters to the 3^rd defendant so soon after her arrival at TSL but had failed to give the same explanation to the 2^nd defendant months earlier, nothing was placed before us to show that Raymond Leung had been asked to offer an explanation for this possible anomaly.  There could be any number of reasons for him not doing so, one being that, on the evidence, the 2^nd defendant had not himself specifically made enquiries of him.

153. In addition to the submissions concerning inherent improbabilities, it was submitted that the judge had failed sufficiently or at all to take into account the material inconsistencies between what was said by Raymond Leung in his first and second non-prejudicial statements and what was said by him in the course of his testimony.

154. In his first and second non-prejudicial statements, when speaking of the meeting with the 2^nd and 3^rd defendants, Raymond Leung said that he had explained to them that the purpose of the commission system was to prevent TSL from itself having to pay the illegal commissions while at the same time allowing the company to lawfully obtain tax benefits.  This, said Mr Richmond, was inconsistent with his testimony at trial which was to the effect that he “believed” he had told them that the commission payments were unlawful.

155. While it would have been better if the judge had dealt with this inconsistency, it is apparent that, in coming to his determination, the judge was focused more on the fact that he could be sure that Raymond Leung had explained the nature and workings of the commission scheme.  The effective admission by Raymond Leung during cross-examination that he could not be certain whether he had specifically admitted that the scheme was a criminal one may have left that issue in doubt but, in our view, not a great deal turned on it.  It may be said that it would have been surprising if Raymond Leung had come out with a blunt admission of criminal conduct.  By way of comparison, the flowchart which Raymond Leung supplied to the 4^th defendant more than two years later clearly set out the criminal nature of the commission scheme without the need to say so in direct terms.

156. In any event, as we have said, we do not see that the failure of the judge to deal with the inconsistency takes the matter much further.  We say that because it is implicit in the reasoning of the judge that, by virtue of the 3^rd defendant’s position and by the fact that thereafter she signed regular payment requisitions and also at a later stage advised Raymond Leung to set up a further BVI company, she must have come to understand the true nature of the commission scheme.

157. As we have said earlier, it was Raymond Leung’s evidence that in May 2002 the 3^rd defendant expressed her concern that Brighouse, the single overseas BVI company then receiving monthly remittances, was having to deal with too great a flow of funds.  She therefore asked Raymond Leung to arrange the setting up of a further BVI company.  That company was Cinedell.

158. It was Mr Richmond’s submission that, in accepting this evidence, the judge failed to take into account evidence which suggested that the 3^rd defendant could not have been the prime mover behind the establishment of Cinedell.  First, there was evidence that as far back as 1996, when the commission scheme had been created, concern had been expressed that, in order to avoid the attention of the auditors, more than one overseas BVI company may have been required.  Second, that well before the 3^rd defendant had joined TSL, Cinedell had been set up by Raymond Leung and his brother.  We do not see that anything turns on this.  The fact that, when the scheme was created, it was anticipated that more than one BVI company may be required does not detract from the evidence that the 3^rd defendant herself recognised the same need.

159. During the course of the trial, there was some confusion as to the much earlier incorporation of Cinedell and its later deployment.  This was an issue to which the judge was alive and we do not see that, either alone or accumulatively, anything turned on it.

160. As to the deployment of Cinedell, there was in addition evidence that the 3^rd defendant had initialled the minutes of a meeting authorising TSL’s subsidiary, Bonaventure, to enter into a business promotion agreement with Cinedell.  She had been close to events at the relevant time.

161. In her cautioned statements to the ICAC, the 3^rd defendant said that she recalled that Brighouse had been a BVI company but could not be sure about Cinedell.  The judge found the 3^rd defendant’s statements concerning matters relevant to the commission B scheme to be “deliberately vague and evasive”.  In coming to this determination, he rejected any suggestion that the passage of time may have been to blame.

162. It was submitted by Mr Richmond that the 3^rd defendant’s statements could not properly be condemned in this manner and was flawed.

163. We do not see that the judge can becriticised for his findings in this regard.  As he noted, the whole commission B scheme had been the subject of a report by KPMG Forensic.  The 3^rd defendant had received that report.  That would have focused matters for her and left them in her memory.

164. During the course of the trial, quite properly, much emphasis was placed on the positive good character of the 3^rd defendant.  Consequent upon this, it was furtheremphasised that, during her time with TSL, the 3^rd defendant had been prepared when necessary tocriticise the workings of the company.  This, it was argued, was hardly the conduct of a person knowingly involved in a criminal conspiracy to advance the interests of the company in another sphere, that is, in respect of the payment of secret commissions.

165. In this regard, for example, there was evidence from Christopher Howe, a director of Anglo Chinese, the financial adviser to TSL, that the 3^rd defendant had made a number of reports to him of a critical nature.  Among other matters, she had expressed concern about the purchase of raw materials from a single supplier in Thailand.  She had expressed grave concerns as to the role of a company called Sino Sources concerning trade receivables in the sum of some $60 million.  She had expressed concerns at the fact that the 2^nd defendant had accepted a personal loan from one of TSL’s jewellery suppliers and that family members were being given jobs in the corporation.

166. Of greater relevance, Mr Howe confirmed that in early 2002, when the board of TSL met to discuss an investigation being conducted by the Internal Revenue Department into the lack of supporting receipts for commission payments, it was the 3^rd defendant who promoted the idea of appointing independent tax consultants to investigate the problem and to deal with the Internal Revenue Department.  Why would she make such a suggestion if it may well expose her own involvement?

167. By contrast, however, there was Mr Howe’s testimony that in the course of 2002 he had asked the 3^rd defendant to obtain information about the true nature and workings of the BVI companies so that full reports could be made to TSL’s bank creditors.  He said that he was disappointed that seemingly the 3^rd defendant had been unable to obtain any satisfactory information.  As Mr Richmond conceded during the course of submissions, it must surely have been a simple enough matter to obtain relevant information on trading partners, either by direct means or indirect means.  But this was not done.

168. That being said, it remained central to Mr Richmond’s submissions that the judge had failed to evaluate the matters of evidence which we have spoken of above which supported the 3^rd defendant by raising a real doubt as to her knowing involvement in the two conspiracies.

169. It is fundamental that a professional judge is under a duty to analyse the material issues and to give reasons as to why he has reached a particular conclusion.

170. The judge did take note of the matters which supported the 3^rd defendant.  He acknowledged them and clearly understood their significance.  But, in coming to the conclusion that the 3^rd defendant had allied herself to the continued operation of the commission scheme, it was implicit in his reasoning that she had done so, not to reap an independent personal reward, but because she saw it as necessary for the future of TSL.  Allying herself to a long-standing scheme to hide unauthorised commission payments did not mean that, by that fact, the 3^rd defendant, an otherwise competent officer of the company, would abandon all her other corporate duties.  These were duties which required her to investigate various aspects of the company’s business and to make reports in respect of those investigations.

171. Not unusually in cases of this kind, the judge was faced with a complex mix of evidential matters not all of which went the same way.  But, as the judge emphasised, in no way ignoring the 3^rd defendant’s positive good character, he was nevertheless satisfied on the totality of the evidence of her guilt.  Hesummarised the evidence which convinced him of the 3^rd defendant’s guilt in the following terms (paras. 880 and 881):

“        Taking into account the totality of the evidence I had no doubt whatsoever that D3 was aware of the commission B scheme and its objectives.  I accepted the evidence of PW1 that he told her about the scheme shortly after she joined the company.  I was sure she was aware the system was used to facilitate the payments of commission to agents without the knowledge of their employers as a reward to them for showing favour to TSL when acting on their principals’ business.  I was sure she played an active role in the conspiracy.  She was the financial director, it could not have continued without her compliance.  She signed payment requisitions.  She signed the minutes of the paper Board meeting of Bonaventure in relation to the business promotion agreement with Cinedell.  I was sure she was aware that such payments were made without lawful authority or excuse.

          I had no doubt whatsoever that D3 was aware that the huge volume of false accounting documentation created by TSL to facilitate the commission B scheme was being used to conceal the cash payments being made to the employees of travel agencies.  I had no doubt she was aware that the false documentation would have commercial and tax advantages for TSL.  I was also in no doubt she would be aware that there would be tax advantages for the recipients of these unrecorded cash payments.  I was sure she acted dishonestly.”

172. We are satisfied that, on an examination of all the evidence, the judge had strong grounds upon which to come to the conclusion he did and that while perhaps his reasoning may have been fuller, it was in this instance sufficient.

173. In our judgment, none of the matters raised in the submissions of Mr Richmond, considered individually or in totality, causes us to doubt the safety of the 3^rd defendant’s conviction in respect of Charges 1 and 2.

Overview of the evidence against the 3^rd defendant in respect of Charge 11

174. In late 2000, the 1^st defendant, the founder of TSL, was declared bankrupt.  He ceased to be Chairman of TSL.  However, he continued to work for the company as a consultant and kept a secretary.  Raymond Leung said that he continued very much as he had done before he had relinquished the chairmanship.  Indeed, Raymond Leung said that he still considered the 1^st defendant to be his “boss”.

175. Raymond Leung testified that in February 2002 the 3^rd defendant consulted him.  She informed him that the 1^st defendant was in need of money and wished to obtain it from the company.  According to Raymond Leung it was agreed between the two of them that a purported bonus – payment being extended over a period of months – would be made to the 5^th defendant who would then pass on the money to the 1^st defendant, retaining only sufficient to cover his own tax liability.

176. Raymond Leung further testified that, as the 5^th defendant’s superior, he was the one who explained the scheme to the 5^th defendant who agreed to it.  The 5^th defendant told him that, as an employee of the company, it was for him to do as he was instructed.

177. It was Raymond Leung’s evidence that a few days later the 1^st defendant came to see him, telling him that he was in need of cash.  Raymond Leung told him that he had already arranged matters with the 3^rd defendant.

178. As it was, five cheques were made payable to the 5^th defendant between March and July 2002.  Each cheque was in the sum of $100,000, making for a total of $500,000.  The payments were designated as being made by way of advance bonus.

179. All five cheques were signed by the 3^rd defendant.  Two were countersigned by the 2^nd defendant, the 1^st defendant’s son, and three by Raymond Leung.   All payment requisitions wereinitialled by the 3^rd defendant.

180. It was the testimony of one of the members of the accounts department that it was the 3^rd defendant who on each occasion asked her to prepare the cheques but did so without supplying any supporting documentation. 

181. As the judge noted, (para. 960), in the preceding two years the 5^th defendant’s bonuses had been $300,000 and $200,000.  If the five payments made between March and July 2002 had been genuine bonus payments, an assertion he rejected, it would have constituted an “extremely generous” bonus.  That, in our view, is clearly the case.  In this regard, as the judge noted, TSL at the time was in severe financial difficulties, beholden to its creditors.  There was evidence of salaries being cut back.  Yet these supposed bonus payments to the 5^th defendant were unsupported by any calculation sheet or specific board or committee minute.

The grounds of appeal specific to Charge 11

182. As with Charges 1 and 2, it was submitted that the judge had failed to recognize inherent weaknesses and improbabilities in the prosecution evidence.

183. It was submitted that, even if the meeting between the 3^rd defendant and Raymond Leung was accepted as having taken place, the evidence as to what the 3^rd defendant allegedly said was ambiguous and insufficient upon which to base a determination that she had knowingly entered into the conspiracy charged.  There is no merit in this contention.  When the evidence as to what was said and agreed at the meeting is considered in its entirety, there can be no ambiguity.

184. It was submitted that, in finding that the 3^rd defendant had entered into the conspiracy charged, the judge had been forced, contrary to the direction he had given himself, to rely on the unsupported evidence of Raymond Leung.  Again, we find no merit in this submission.  As the judge found, there was ample supporting evidence: the size of the supposed bonus to the 5^th defendant, the lack of internal documentation explaining why such a large bonus would have been paid at such a critical time and, albeit to a lesser degree, the 3^rd defendant’s intimate involvement in the processing of the payments.

185. It was argued that, while the bonus to the 5^th defendant may have been large, there was no evidence produced to show that it was a sum to which the 5^th defendant was not entitled.  We disagree.  There was, as we have indicated, the direct evidence of Raymond Leung supported by circumstantial evidence of considerable strength.

Overview of the evidence against the 3^rd defendant in respect of Charge 13

186. Charge 13 alleged that, between April and July 2002, the 2^nd and 3^rd defendants conspired to steal funds from TSL in the amount of $1,821,954, the theft being disguised as a series of bonus payments to a man named Paul Wong.

187. Paul Wong had been the senior executive of, and a shareholder in, TSL’s Mainland subsidiary before resigning his position in July 2001.  His terms of contract had entitled him to a bonus equivalent to 3.5% of the subsidiary’s audited annual profits.  When he had left the company, Paul Wong had been informed that his bonus would be calculated in due course.  He testified, however, that he had not at that time expected to receive a bonus as he had not completed his year’s service.

188. As it was, in October 2001 Paul Wong attended a lunch with the 1^st , 2^nd and 3^rd defendants and a man named Qi.  At or about the time of that lunch, the evidence revealed that the 3^rd defendant gave him a cheque in the sum of just over $78,000.  A letter accompanied the cheque, describing the payment as a discretionary bonus.

189. Several months later Paul Wong received a bonus schedule from TSL.  This schedule indicated that he was not entitled to a bonus pursuant to the terms of his contract of employment.  Paul Wong did not respond in writing in order to dispute this.

190. Shortly thereafter, on or about 27 March 2002, Paul Wong had a further lunch with members of TSL, in particular the 2^nd and 3^rd defendants and Qi, in order to discuss business matters.  Paul Wong testified that later that day he received a telephone call from the 3^rd defendant who informed him that, although he was not entitled to a bonus, because he had worked for TSL’s subsidiary for so long, it had been decided to pay him a further discretionary bonus.  Paul Wong said that he drove to the offices of TSL early that evening.  Because of the difficulties of parking, the 3^rd defendant came down to meet him, handing him a cheque for $100,000.  Paul Wong had no recollection of any conversation when the cheque was given to him, certainly nothing to the effect that this payment was to be the first of several.

191. The evidence showed that the cheque for $100,000 was issued pursuant to a payment requisition form approved by the 2^nd defendant and prepared by the 3^rd defendant.

192. When interviewed by the ICAC, the 3^rd defendant said that Paul Wong had in fact pressed TSL – and pressed hard – for his bonus.  She had made preliminary calculations, she said, and at the lunch on 27 March 2002, not later that day, had given him the cheque for $100,000, saying to him: “You take this first.”  This was a clear indication that further payments would be made to him.  The 3^rd defendant indicated that, to her understanding, the payment was tactically necessary to keep Paul Wong ‘sweet’ in order to obtain his compliance in respect of a business matter in which he was still involved.

193. Paul Wong, however, testified that, having received his payment of $100,000, he made no further enquiries with TSL as to any further bonus payment.  He did not do so because, as he understood matters, no further payments were due to him.  Nor was there any evidence of any correspondence between him and TSL concerning payment of any further bonus.

194. As it was, the evidence revealed that a further four payments were made by TSL, each of them being reflected in the records of the company as bonus payments to Paul Wong.  These further four payments made up the amount which the judge found had been stolen pursuant to Charge 13.

195. The records of TSL revealed that on 2 April 2002 a cash sum of 500,000 renminbi was paid out.  The following day a further cash sum in the same amount was paid out while on 11 April a third cash payment of 850,000 renminbi was made.  The fourth payment was made in July 2002 by way of a cash cheque in the sum of $154,150.  These four payments corresponded with four payment requisitions which were approved by the 2^nd defendant and prepared by the 3^rd defendant.

196. As to the calculation of these payments, a document was produced into evidence (exhibit 887) which contained a number of calculations corresponding with the four payment requisitions.  The top half of this document was in identical terms to the bonus schedule sent to Paul Wong at an earlier time indicating that he was not entitled to any bonus.  However, the lower half of the document contained a series of calculations purporting to be what the judge described as “add backs” and which showed that Paul Wong was in fact due a bonus in excess of $1,900,000.  This document was signed by both the 2^nd  and 3^rd defendants.

197. If it was calculated that Paul Wong was in fact due this extra bonus in terms of his contract of employment, he received no notice of this change.  It was accepted at trial that a copy of the document, exhibit 887, was not sent to him nor, as would have been more likely, had a letter been sent to him informing him of the fresh calculations.

198. Instead, on the undisputed evidence, payments that were meant to constitute Paul Wong’s bonus were made not him but were instead made by the 3^rd defendant to the 2^nd defendant.  As to the circumstances of the 2^nd defendant at the relevant time, the judge observed (para.  988) that the 3rd defendant knew he was in “urgent need of money”.

199. The payments made by the 3^rd defendant to the 2^nd defendant consisted of three cash payments in renminbi and one payment by cheque, the cheque being made out to cash.  As to why the 3^rd defendant, as the Chief Financial Officer of a public company, should have made out such large payments in such an unorthodox manner, the judge recorded the following (para. 989):

“D3 said she gave the money to D2 and never thought he would not pay it to PW39 (Paul Wong).  She said all things relating to bonus had to be paid to D2 and all the other bonuses she worked on went through D2.  She said there was a cash flow problem and when she received the money she immediately gave the payments to D2 and told him it was PW39’s bonus.  She asked him to sign the payment requisitioned forms to show he had received the cash.”

The judge continued (para. 991) :

“She said the payments were made in cash because PW39 requested cash (her second interview). Yet in her third interview she said she could not explain why the cheque was made out to cash and did not have Paul Wong’s name on the cheque.”

200. As to why the 3rd defendant would not have dealt directly with Paul Wong as she had when making the first two payments to him, both payments being by way of cheque, the judge noted (para. 990) :

“D3 said that… she did not want to have any dealings with PW39, she did not like him and he was not her friend.  She said she was reluctant to have any contact with him at all.  She said also that telephone calls would have to be made repeatedly to get hold of PW39.”

201. While the judge accepted that at the material time there had been a degree of friction between the 2^nd and 3^rd defendants and Paul Wong and while he further accepted that Paul Wong had been evasive when questioned as to his tax affairs and his previous dealings with TSL, he was satisfied that he could rely on the truth and accuracy of what Paul Wong said as to the circumstances in which he received the cheque for $100,000 from the 3^rd defendant.  He rejected the 3^rd defendant’s account.

202. The judge concluded (para. 994) :

“Looking at the totality of the evidence, I had no doubt whatsoever that the purported payment of a bonus to PW39 was a sham. D2 and D3 dishonestly conspired to steal money from TSL under the guise of this bonus payment”

The grounds of appeal specific to Charge 13

203. Two grounds of appeal were advanced in respect of Charge 13.  First, that the judge failed sufficiently or at all to evaluate the deficiencies and improbabilities in the evidence of Paul Wong.  Second, that the judge failed to evaluate the inherent probability that the four payments, the subject of Charge 13, were duly authorised bonus payments.

204. There had initially been a further ground of appeal, one which suggested that the finding of the judge had been based solely on the evidence of Paul Wong that, when he received the cheque of $100,000 from the 3^rd defendant, nothing was said to him to the effect that this was a first payment only.  His evidence in this regard was contrary to that of the 3^rd defendant who, in one of her statements to the ICAC, said that she had informed Paul Wong that he should take the payment of $100,000 as his first payment.  This ground, sensibly in our view, was abandoned.  The judge did not base his finding of guilt solely on his determination of what had or had not been said when the $100,000 cheque was given to Paul Wong.

205. As to the submission that the judge failed to evaluate the deficiencies and improbabilities in the evidence of Paul Wong, we find nothing in this ground.

206. As we have said, the judge accepted that Paul Wong had been evasive when testifying about his previous dealings with TSL, particularly as to his dealings in the Mainland and his related tax affairs.  He further accepted that there had been friction between Paul Wong and both the 2^nd and 3^rd defendants.  Nothing has been put before us to indicate that, in coming to his determination that he could rely on the evidence of Paul Wong, the judge failed to make a proper evaluation of his credibility as a witness.

207. It was further submitted that the judge failed to consider the inherent probability that the four payments, the subject of Charge 13, were made over to the 2^nd defendant by the 3^rd defendant in the honest belief that they constituted authorised bonus payments which the 2^nd defendant would pass on to Paul Wong.

208. The judge did not make a specific finding whether the four payments were purported to be payments made pursuant to a contractual obligation to pay Paul Wong a bonus or were purported to be further discretionary bonus payments.  

209. Although we do not see that anything turns on it, we take it that, as neither the 2^nd nor 3^rd defendants testified, there was no evidence as to the exact nature of the calculations that were written on the lower half of the documents produced into evidence as exhibit 887 and no explanation as to their exact meaning.  Nor was anything been put before us to indicate that counsel was able to take any of the prosecution witnesses through the calculations to show that they accorded with the relevant audited annual accounts, an exercise surely that would not have been too difficult.

210. The judge did, however, record that, when Paul Wong received a copy of this document in December 2002 after a meeting with the 2^nd defendant, he was unable to understand it.  Paul Wong himself, of course, had received a number of annual bonus payments in the past calculated according to his contractual entitlement.

211. The four payments are not to be viewed in isolation.  They were preceded by the payment of $100,000.  As to the payment of this sum, the 3^rd defendant told the ICAC that TSL’s remuneration committee, which held its first meeting on 27 March 2002, had not formally approved the payment because, to use her own words: “… it was because we knew in our hearts, we clearly knew that it was wrong.”

212. But if, on the calculations of the 2^nd and 3^rd defendants, it transpired that Paul Wong was contractually entitled to a bonus payment, there would be no question of it being ‘wrong’; it would have been a legal obligation.  As the Chief Financial Officer of the company, the 3^rd defendant would have understood that.

213. The 3^rd defendant’s observation would have been be more pertinent if the payment of a bonus to Paul Wong was discretionary, especially bearing in mind TSL’s straightened financial circumstances at the time.  But, if the payment was discretionary and, in the 3^rd defendant’s mind, was considered to be “wrong” because of TSL’s financial difficulties, that raises the question of how the 3^rd defendant could have leant herself to making four more payments, three of them being made in cash within a matter of days of the payment of $100,000.

214. As to the prevailing circumstances of TSL, the judge observed (para. 980) :

“These payments were made at a time when TSL was ‘cash-strapped’ and any bonus payments were given the most careful consideration.  The first meeting of the remuneration committee was held on 27 March.  D2 was very short of money.  The bonus was more than double the bonus approved by the remuneration committee for D2 and much more than the combined bonus for D2 and D3.  It exhausted nearly the whole of the bonus allocation for the China Division.  The proposed bonus for the year for the China Division submitted to the remuneration committee tabled by D3 was $2 million and the number of staff concerned was between 20 to 30.  The payment of a bonus to Paul Wong of $1,921,954 would leave $79,045 for distribution amongst the other staff.”

In addition, as the judge observed, “Paul Wong had only been employed the seven months of the financial year.”

215. The evidence against the 2^nd defendant that he stole the money was strong.  It is unsurprising that he declined to appeal his conviction.  In our judgment, the evidence against the 3^rd defendant that she conspired with him, although circumstantial, was also strong.

216. While it may have been that the 3^rd defendant was obliged to account to the 2^nd defendant in respect of all bonus payments, in our view the judge was correct to reject any suggestion that the 3^rd defendant, in making over the four payments, was doing no more than discharging her responsibility to account to the 2^nd defendant.

217. First, she had herself had made two earlier payments to Paul Wong by way of bonus.  Both of those payments were made by cheque, each cheque made out to Paul Wong.  Clearly, that was standard procedure and there was no reason why, as the Chief Financial Officer of a public company, the 3^rd defendant should not have followed that same procedure, despite the fact, as she told the ICAC, that cash had been requested.  Knowing that the 2^nd defendant was in urgent need of money, she made over three large payments to him in cash.  She later made a fourth payment by cheque but that was by way of a cash cheque.  If the 3^rd defendant believed that the 2^nd defendant was receiving the cheque for the purpose only of passing it on to Paul Wong she would have had no reason to make out the cheque to cash, the inevitable procedure being to make it out in Paul Wong’s name.

The Judgment of Hartmann JA and Lunn J in respect of the 4^th defendant

218. As McMahon J has differed in his findings in respect of the 4^th defendant’s convictions in respect of Charges 1, 2, 9 and 10, but not in respect of Charge 14, a separate judgment has been written by him limited to those matters.

Overview of the evidence concerning the 4^th defendant

219. The board of directors of TSL resolved to employ the 4^th defendant as the company’s CEO, subject to agreement as to contractual terms, at a board meeting held on 19 December 2002.  That resolution followed the acceptance by the board on the previous day of the resignation of the 2^nd defendant from that position following admissions of his misuse of company funds.  Also, the board resolved to appoint KPMG to conduct a forensic investigation, in particular an examination of “… commission payments to local and overseas travel agents”. 

220. The 4^th defendant commenced his employment immediately on 20 December 2002, although his contract of employment was not signed by the parties until 7 January 2003 and approved by the restructuring bank only later in the month.  He became a director of the company on 18 March 2003.  KPMG’s appointment was confirmed in a letter of engagement of 20 December 2002.

221. In the annual report of TSL, dated 29 July 2003, the 4^th defendant was stated to be the Deputy Chairman and CEO of the company and responsible overall for its financial operations and management.  He was described as being a Chartered Accountant, holding a Bachelor’s degree in Financial Administration and having had “… extensive experience in rebuilding the operations of a number of public companies that are under financial restructuring.”  A number of witnesses called on behalf of the prosecution, some from Anglo-Chinese TSL’s financial advisers, and other independent non-executive directors of TSL confirmed the impeccable nature of the credentials of which the 4^th defendant was possessed for the position to which he had been appointed.

222. No issue was taken on behalf of the 4^th defendant in respect of the testimony of Raymond Leung that he had held a meeting with the 4^th defendant “two or three days” after the latter’s appointment as CEO nor that at the meeting the 4^th defendant had asked him to produce a fund flowchart to explain the system of commission payments operating in TSL.  Similarly, no issue arose in respect of Raymond Leung’s evidence that in “early January” he had presented the 4^th defendant with a draft flowchart, which the latter had amended, mainly as to grammar.

223. Raymond Leung produced the amended version of the flowchart, entitled “FLOW-CHART OF THE OVERSEAS PROMOTION FEE (TABLE B)”, to investigators of KPMG Forensic in the course of his explanation to them of the operation of the commission system.  Such payments were described as being amounts payable to employees of travel agents, negotiated directly between the Business Promotion Manager of TSL and the employee to ensure that they brought their tourists to TSL’s showrooms first, thereby maximizing the amount of money the tourists were likely to spend at TSL.  It stated that the arrangement was not evidenced in writing, “nor is it disclosed or normally known to the Travel Agent.”  After calculation of the monies thus payable, invoices reflecting the overall amount were raised in the names of the two BVI companies Brighouse and Cinedell, on receipt of which the staff of the Account’s department of TSL made payments by TT to those companies.  The two companies returned those monies, less a commission, to the Business Promotion Manager, who distributed it to those parties entitled to payments under the agreement reached with them.

224. The flowchart was referred to and attached to the KPMG Forensic report dated 28 February 2003.  In a receipt dated 28 February 2003, the 4^th defendant acknowledged to KPMG his receipt of one copy of that report.  In the report, KPMG noted that although the apparent agreements between Bonaventure, a subsidiary of TSL, and Brighouse and Cinedell provided for payments to the two companies in respect of the provision of services in arranging tourists to visit the company’s showrooms in Hong Kong on a per capita basis, the actual calculations were made in relation to the amount of money spent in the showrooms by the tourist.  Further, it stated :

“The services as outlined in the agreements therefore appear not to be those actually performed by the BVI companies, the BVI companies appearing to actually be money transfer vehicles to facilitate payments from TSL to travel agents.”

225. At a meeting dated 6 March 2003, the Independent Committee of the Board of Directors of TSL, comprised of its four independent non-executive directors, considered the KPMG Forensic report and, in respect of the commission system (referred to as the commission B system), stated :

“The committee requires Mr Peter Van Weerdenberg, CEO as a matter of utmost urgency to conduct a full review of the commission B system and to recommend a new system that dispenses with the need for the BVI companies, reduces if not completely eliminates the need for cash payments and that all commission agreements with travel agents to be approved by the committee of executive directors.”

On 18 March 2003 the 4^th defendant was appointed a director of TSL.

226. During the first week of each of the months, beginning January and ending May 2003, the 4^th defendant initialled the “Authorization for payment” box in the TSL payment requisition in favour of each of Brighouse and Cinedell.  In consequence, a total of over $6.6 million was paid to those two BVI companies.  Thereafter, there were no further payments by TSL to either Brighouse or Cinedell.

227. The 4^th defendant together with the 2^nd defendant signed a representation letter on behalf of TSL to its auditors KPMG dated 28 July 2003, as requested by them in respect of the financial statements for the year ended 29 February 2003 for TSL.  KPMG issued a qualified opinion, having regard to their determination that of the $22 million payable to business promoters :

“Management have been unable to provide sufficient audit evidence as to the nature of the amounts payable to promoters during the year ended 28 February 2003.”

228. The 4^th defendant had participated in a board meeting on 29 July 2003 of TSL at which it had been resolved that he be authorised, together with the 2^nd defendant, to sign the letter of representation to KPMG on behalf of the company, the text of which letter included the assertion :

“We confirm that we have reviewed and evaluated the findings highlighted in the forensic report, issued by KPMG Forensic department dated 28 February 2003, in connection with the review of certain transactions and other specific concerns subsequent to the board meeting held on 18 December 2002 and concluded that there had been no :
b.	irregularities involving any member of management, or employees who have significant roles in the system of internal controls;
c.	irregularities involving other employees that could have a material effect on the financial statements;
d.	violations or possible violations of laws or regulations, or legal claims or pending litigation of the group, the effect of which should be considered for disclosure in the financial statements or a as basis for recording a contingency.”

229. Raymond Leung testified that after the publication of the KPMG Forensic report there were four or five meetings held between the “core team” consisting of the 2^nd, 4^th and 5^th defendants and himself at which the restructuring of the commission system was discussed.  He said that the 4^th defendant had suggested that companies registered in Hong Kong be used rather than the existing practice of using BVI companies.  The 5^th defendant had been given the job of locating suitable persons to participate in the proposed revised scheme.

230. In the result, successful negotiations resulted in agreements being reached with Kenny Cheung of Best Joint, Allen Cheung of Best Joint and Wong Siu Wai of Golden Speed Travel.  Minutes of the board of directors of Bonaventure dated 2 July 2003, signed by the 2^nd defendant as chairman and initialled by Raymond Leung, authorised the 4^th defendant and the 2^nd defendant to enter into ‘promotion agreements’, on behalf of Bonaventure with the three selected companies for a three-year period backdated to 1 May 2003.  The 4^th defendant signed the three agreements dated 4 July 2003 on behalf of Bonaventure with the respective companies.  Each agreement provided for a ‘promotion fee’ payable by Bonaventure based on net sales, but different in rate each of the three companies.  Raymond Leung testified that the so-called ‘promotion fee’ was comprised of three components; the commission payment, a handling fee for the promoter and a subsidy for tax.  On receipt of payment, each of the three companies handed over the element of commission payment to the business promotion managers of TSL who in turn would distribute the monies amongst the staff of travel agencies.

231. Invoices provided by the three companies for their promotional fees generated TSL payment requisitions and, on payment, receipts from the three companies.  There was no dispute that very many of the TSL payment requisitions were initialled by way of authorisation of payment by the 4^th defendant.  As the judge noted, at para. 328 of his reasons for verdict, in the period May 2003 to February 2005 TSL made the following total payments to the respective companies :

(i)      $26,012, 791 to Golden Speed;

(ii)      $9,819,263 to Best Joint; and

(iii)     $8,325,250 to Well Zen.

232. By ‘Variation Agreements’ between Bonaventure and the three respective companies, dated 28 April 2004, and signed by the 4^th defendant and Raymond Leung on behalf of Bonaventure, the rate of commissions payable to the three companies was reduced.

233. Allen Cheung of Well Zen testified in respect of his participation in the arrangement, his receipt of monies and his on-payment in respect of commission monies.

234. On 28 February 2002 Deloitte were appointed as the taxation representatives of TSL in their dealings with the IRD, in particular in respect of the ongoing enquiries made by the latter in relation to TSL’s liability to pay tax.  From August 2003 the 4^th defendant began to attend meetings between Deloitte and TSL in relation to their tax liability.  By letter of 4 November 2003, in response to an enquiry of the IRD in respect of TSL’s payment of commission of over $92 million and promotion fees of over $17.5 million, Deloitte identified Brighouse, the BVI company with whom, through Bonaventure, TSL had entered an agreement some years earlier purportedly to promote its business outside Hong Kong as the company to whom monies were paid.  At a meeting between Deloitte and the IRD later in November the latter sought further information in respect of Brighouse.  In November 2003, and then in February 2004, the 4^th defendant attended meetings with Deloitte in respect of TSL’s tax liability.

235. On 20 February 2004, the 4^th defendant participated, on behalf of TSL, in a meeting attended by Deloitte and the IRD, informing the latter that all commission and promotion fee payments were made to unrelated third parties, which did not have any connection or relationship with the TSL group or TSL management.

236. By a letter dated 15 March 2004, copied to TSL, Deloitte provided the IRD with a report entitled “Review of Promotion Fees paid to Outbound Promoters”.  The report described Brighouse as having provided genuine services in arranging through a variety of means that tourists attend the showrooms of TSL in Hong Kong for which they were paid on a per capita basis.  On the afternoon of 15 March 2004, in an exchange of e-mails the 4^th defendant approved the submission by Deloitte to the IRD of the report.

237. The 4^th defendant did not give or call evidence, but did rely upon his counsel’s cross-examination of the witnesses for the prosecution.

The reasons for verdict

Charges 1 and 2

238. Whilst the judge noted that the 4^th defendant had not even entered into employment with TSL until 19 December 2002, namely 4½ months before the end of the lengthy period during which it was alleged the two conspiracies alleged in Charges 1 and 2 had been under way, and although he determined that the 4^th defendant was guilty of both the conspiracies alleged in those charges he did not make any determination of when it was that the 4^th defendant had joined those conspiracies.

239. Having noted that the 4^th defendant was possessed of positive good character, impeccable credentials and an outstanding reputation the judge observed that in joining TSL, initially on a temporary contract, as CEO on 19 December 2002 he did so when the company was in “great crisis”.  There was no issue that within two or three days of the 4^th defendant commencing his employment, Raymond Leung had given him an explanation of the commission system and, at the request of the 4^th defendant, had prepared and given to him the flowchartflowchart to which we have referred in early January 2003.  He acknowledged that there was a dispute as to the extent of his explanation (para. 854 of the reasons for verdict).  In particular, the judge noted that the 4^th defendant had made a request that he produce a flowchartflowchart in order that Raymond Leung could present his description of the commission system to KPMG Forensic in a “fluent way” and that it had been supplied to them on the 4^th defendant’s instructions.  Of its contents, he noted that it :

“… referred to payments being made to employees of travel agents without the consent of the employer’s.  It set out the details of the Table B commission scheme using overseas companies.”

Furthermore, noting that the 4^th defendant had knowledge of the contents of the flowchart the judge determined that he :

“… already knew within a short time of joining TSL that the overseas companies were simply money transfer vehicles…”

He found that the KPMG report “merely confirmed the situation”.

240. Of the contentious issue, of whether or not the 4^th defendant had read the KPMG report, the judge determined (para. 888 of the reasons for verdict) :

“I find as a matter of irresistible inference that D4, as CEO of TSL, appointed at a time of crisis, would have read the report.  He certainly actively participated in meetings to discuss its ramifications and approved the public announcement which referred to the report.”

241. Having noted that the 4^th defendant had initialled the authorisation on TSL payment requisition’s in respect of five payments to each of Brighouse and Cinedell, in the period in and between January and May 2003, the judge determined (paras. 889 and 890 of the reasons for verdict) :

“I was satisfied beyond reasonable doubt that, having been informed of the ongoing conspiracy by TSL to pay commissions to employees of travel agents without the consent of the principals, D4 acquiesced in the agreement and actively participated in it.  I was sure D4 was aware such payments were made without lawful authority or excuse.

I was also sure that he was aware that the commission B scheme generated false accounting documentation which was being used to conceal the payments being made to travel agency employees.  I was also sure he was aware of the commercial and tax advantages of the use of false documentation.  I was sure he acted dishonestly.”

Charges 9 and 10

242. At para. 921 of the reasons for verdict, the judge set out the nub of the testimony of Raymond Leung as to the nature of the arrangement between TSL and the local promoters, namely that the payments :

“… would provide for the illegal payments of commission.  He said the fees were divided into three parts.  There was a handling fee which constituted a commission for the local promoter, secondly the file B payments which were calculated by reference to the monthly commission summaries and thirdly a tax subsidy.”

243. Earlier, he had noted that Raymond Leung had described having had meetings with the 2^nd, 4^th and 5^th defendants in which they had addressed the consequences of the decision to stop the use of BVI companies, namely Brighouse and Cinedell (para. 915 of the reasons for verdict).  Of the arrangement reached between Bonaventure and the three local companies, namely Golden Speed, Best Joint and Well Zen, and its implementation he said (para. 917 of the reasons for verdict) :

“To implement the new system there had to be discussions between the parties most involved.  D2 and D4 as Chairman and CEO would have to be kept informed.”

244. Of Raymond Leung’s evidence that these meetings had taken place in April and May of 2003, after the discussion of a qualified opinion by TSL’s auditors, the judge noted :

“KPMG Audit did not receive a copy of the KPMG Forensic Report until the end of June 2003 soon after which it brought to the attention of TSL management that there would be a qualified report.  Clearly, PW1 was inaccurate as to what triggered the discussion about the replacement of the BVI’s.”

245. Of the purpose and use of the local promoters in the arrangement with Bonaventure, the judge concluded (para. 927 of the reasons for verdict) :

“I had no doubt whatsoever that the local promoters were being used in precisely the same way as the overseas companies, namely as a money transfer vehicles to facilitate payments to employees of agencies without the consent of their employers and which were unrecorded.  I accepted the evidence of PW1 in relation to this offence.”

246. The judge noted, from his finding that the 4^th defendant had read the KPMG Forensic report and the fact that Raymond Leung had given him the commission payments flowchart, that prior to the arrangement being reached with the local promoters the 4^th defendant was aware that for many years TSL had been making illegal payments to agents.

247. Of the role of the 4^th defendant in the implementation and operation of the arrangement reached with the local promoters, the judge noted that he had signed the three business promotion agreements with the three companies on behalf of Bonaventure.  Further, together with Raymond Leung he had signed the ‘Variation agreements with these three companies, in which the commission rates were reduced in April 2004.  Also, the 4^th defendant had signed numerous TSL payment requisitions authorizing payments to the local promoters.  The total amount paid to the three companies by TSL in the period May 2003 to February 2005 was over $44 million.

248. Of the cessation of the use of BVI companies and the agreement with the local promoters, the judge determined that it (para. 941 of the reasons for verdict) :

“… was merely a change in the modus operandi of the conspiracy to offer advantages to employees of agencies.  It was also accompanied by the creation of further false documentation which could be used in the same way as under the previous arrangement, namely to conceal the payments being made to travel agency staff.”

249. In determining that the 4^th defendant was guilty of both Charges 9 and 10 the judge said of him that he was :

“… well aware of the purposes of the overseas companies and I was sure he was very much involved in the arrangements to have the local promoters take over from the overseas companies with the same ends in mind.  I had no doubt that D4 was an active participant in these two conspiracies.”

Charge 14

250. The judge noted that Deloitte had been appointed as TSL’s tax representative in February 2002.  He said that in 2002 the persons principally involved on the TSL side in dealing with IRD enquiries were the 3^rd defendant and Mr Lawrence Lai.  In July 2003 KPMG, the auditors of TSL, had issued a qualified opinion in respect of the financial statements of TSL because the company had been (para. 1018 of the reasons for verdict) :

“… unable to provide sufficient audit evidence as to the nature of the amounts payable to business promoters, they were unable to satisfy themselves as to whether such transactions were properly reflected in the financial statements.”

251. The judge observed that from August 2003, the 2^nd and 4^th defendants had become more “proactive with regard to the IRD enquiries, both attending a meeting with Deloitte at which the promotion fee and qualified opinion were discussed, Deloitte being urged to settle the matter with the IRD.”

252. The judge went on to note that in November 2003, in response to enquiries by the IRD, Deloitte had identified Brighouse as being a promoter outside Hong Kong, observing that was the first time that the IRD had been told of “outside promoters”.  As a result of further enquiries by the IRD he noted that in March 2004 the ‘Deloitte report’ had been produced to them, observing that it had been, “… prepared on the instructions from and information supplied by the management of TSL.”  In particular, he noted that it had been approved by the 4^th defendant.  He described it as maintaining, “that the overseas companies provided genuine services to which they were rewarded on a per capita basis”.  Of those assertions, he noted that they were “… at odds and inconsistent with the information supplied to it set out in the KPMG Forensic report.”

253. Earlier the judge had found that the essential features of the true position had been made known to the 4^th defendant by Raymond Leung in his conversation with him on about 23 December 2002 and in the flowchartflowchart that he had given to him.  Further, he relied on his finding that the 4^th defendant had read the KPMG Forensicreport.  The overseas companies were used by TSL to channel money via their bank accounts to enable payments to be made to employees of travel agents without the knowledge of their employers.  The overseas companies were “money transfer vehicles”.

254. In consequence, the judge found (para. 1023 of the reasons for verdict) :

“I had no doubt that the information supplied to KPMG Forensic investigators as to the purpose of using overseas companies was true.  It follows that the information supplied to DTT [Deloitte] and set out in the Deloitte report is false.”

255. In conclusion the judge said (para. 1024 of the reasons for verdict) :

“I had no doubt whatsoever that D2 and D4 knew what they were telling the IRD and what DTT was telling the IRD on their behalf was false.  Both D2 and D4 took an active part in the discussions with DTT and the IRD.”

In the result, he found proved the Particularsof the Offenceset out in Charge 14.

The grounds of appeal specific to the 4^th defendant

256. It is convenient to briefly set out the grounds of appeal specific to the 4^th defendant and the submissions advanced in support of and against them before turning to our analysis.

The 4^th defendant’s knowledge of the KPMG report

257. Complaint is made that the judge erred in finding that the 4^th defendant had read copies of the draft and final “Forensic Report” prepared by KPMG.  The latter was dated 28 February 2003. 

258. Mr Blanchflower submitted that on a consideration of all of the evidence, in the absence of any direct evidence, it was not permissible for the judge to draw the irresistible inference that the 4^th defendant had read the KPMG ‘Forensic Report”.  He pointed to the absence of any evidence that the 4^th defendant had discussed the contents of the report with any of the witnesses called at trial.  Also, there was no dispute that the circulation of the report was deliberately limited to eight copies in order to maintain confidentiality.  Furthermore, although the 4^th defendant was named as one of eight persons to whom KPMG was authorised in the letter of 17 February 2003 from TSL to KPMG to distribute a copy, he was named as receiving that single copy on behalf of the 3^rd defendant and Raymond Leung.  It was submitted that was the context in which the 4^th defendant’s written acknowledgement of receipt of the report, dated 28 February 2003, was to be viewed.

259. Mr Blanchflower invited the court to note that although the 4^th defendant had been introduced to the board of directors of TSL on 19 December 2002, at which date his employment as CEO was approved, he did not become a director of TSL until 18 March 2003.  It was accepted that he had begun work within a day or two of 19 December 2002, although his contract of employment, initially for a period of six months only, was not signed until 7 January 2003 and not approved by the banks involved in the restructuring of TSL until later in the month.

260. Of the undisputed evidence that the 4^th defendant together with the 2^nd defendant had signed a letter of representation dated 29 July 2003 to KPMG in their capacity as auditors of TSL, in particular in the context of a qualification to the financial statements in the Annual Annual Report Report of TSL, in which it was asserted that they had reviewed and evaluated the KPMG Forensic Report, Mr Blanchflower submitted that in all the circumstances it was not necessarily to be inferred that the 4^th defendant had actually read the report.  Given that others on the board of TSL had undoubtedly undoubtedly done so, it was not a necessary conclusion that the 4^th defendant was asserting that he personally had done so.

The use of the KPMG report as hearsay evidence

261. Mr Blanchflower submitted that, although initially the prosecution did not advance the KPMG Forensic report as being the truth of the factual matters there asserted, claiming only that they relied upon it as proof that the 4^th defendant had knowledge of the commission payments, in the result they invited the judge to accept it as being the truth in respect of those payments.  Furthermore, he submitted that although the judge had stated that he warned himself that the report contained hearsay statements and expressions of opinion that were not binding on the court and had determined that its contents were relevant to the issue of what information was available to the defendants, nevertheless he went on to determines that some of the factual statements made in the report were true.  For example, (at para. 1023 of the Reasons for Verdict) the judge said that he found that the information supplied to KPMG Forensic investigators as to the purpose of using overseas companies was true, namely that they were merely money transfer vehicles used as part of a fund flow of money from TSL which was returned in due course to Hong Kong and used to pay the employees of travel agents.

The 4^th defendant’s mens rea

262. Just as Mr Richmond had submitted on behalf of the 3^rd defendant, a central thrust of Mr Blanchflower’s submissions was that it was inherently unlikely that the 4^th defendant, a man of good character and of highly respected professional standing, would have chosen to join the long-standing criminal conspiracies to offer advantages or to commit false accounting as alleged in Charges 1 and 2; in respect of the 4^th defendant in particular after they had been uncovered.  In this regard, the 4^th defendant had joined TSL only after the discovery by the non-executive Independent Committee of the Board of directors of the existence of the BVI companies, their use in the flow of funds to make commission payments and, in particular, after their resolution to commission KPMG Forensic to conduct an investigation into that matter.  As was to be expected, the use of the BVI companies, Brighouse and Cinedell, was abandoned four and a half months later.  Furthermore, it was submitted that the judge had given no reasons for rejecting that inherent unlikelihood.

263. Additionally, it was submitted that there was insufficient evidence to establish that the 4^th defendant had the requisite mens rea to join the criminal conspiracies.  The defendant’s failure to decline to initial the authorisation of the relevant payment requisitions in respect of Brighous and Cinedell in the first part of 2003 may have evidenced “poor professional judgment”, but it fell short of establishing the requisite mens rea.

The evidence of Raymond Leung and the prosecution case

Charges 1 and 2

264. It was submitted that the judge had failed to take into account that, although Raymond Leung had testified in chief that he had spent some two hours explaining to the 4^th defendant the genesis of the commission payments from the date of the ICAC investigation in 1996 onwards, and the use of Worldwide, Brighouse and Cinedell explaining that the illegal nature of the commission scheme meant that “it was done without the consent of travel agencies”, but that in cross-examination the witness had resiled from some of the specific terms that he said he used.  He agreed he may have said “tax planning”, rather than “tax evasion”.  Similarly, rather than describing the payments as illegal he agreed the impression he had given was that on “the face” of the arrangement it was legal.

265. It was contended that the judge erred in stating in his reasons for verdict concerning Raymond Leung (para. 885) :

“He said at that meeting he explained the commission B system.  He said he explained that it covered illegal commissions and assisted agencies with their tax matters.  He said that D4 asked him to write down the whole workflow of the commission so that PW1 could present it in a fluent way when meeting officers of KPMG.  PW1 prepared a draft of P122 for D4 to read.  This evidence is not in issue.”  [Underlining added]

When in fact that evidence was in issue.

266. It was suggested in the context of Raymond Leung’s evidence that the judge erred in placing undue weight on the fact that the 4^th defendant had initialled, by way of authorisation, requisitions for payments to be made by TSL to Brighouse and Cinedell.  It was said this was a mere routine discharge of his duties as CEO.

267. Finally, the court was invited to note, contrary to what Raymond Leung said he told the 4^th defendant, that the KPMG Forensic report did not identify the commission system as constituting illegal bribes.  In their meeting of 6 March 2003 the Independent Committee of the Board of directors TSL did not make such an identification nor did they order the system to cease immediately.  Similarly, Anglo Chinese, the financial advisers of TSL, did not give such advice.

Charges 9 and 10

268. Mr Blanchflower submitted that the judge had erred in replying upon the evidence of Raymond Leung in convicting the 4^th defendant in respect of Charges 9 and 10.  He submitted that there was no supporting evidence that the 4^th defendant had participated in conversations with Raymond Leung and other unnamed co-conspirators in April and May 2003, in which the replacement of the mechanism in which the BVI companies were employed was discussed and it was determined that local promoters be used instead.  He repeated his submission that the judge had erred in finding that the 4^th defendant had read the KPMG Forensic report.  He contended that no inculpatory inference could be drawn from the fact that the 4^th defendant had signed the various business promotion agreements with the three local companies or that he had authorised payments to these companies by TSL.  He was the CEO and responsible for TSL’s finances.  These were matters that fell within his remit in the discharge of his duties.

269. Of the credibility of Raymond Leung, in addition to praying-in-aid the general matters as to the nature of that witness, Mr Blanchflower pointed to the fact that Raymond Leung had not mentioned meetings of the ‘core team’ in his first non-prejudicial statement and had referred to only one such meeting in mid-April 2003 in his 2^nd non-prejudicial statement.  Also, he pointed to the fact accepted by the judge that, having said that the meetings took place in April and May 2003, Raymond Leung was in error in saying that the discussions took place at the same time as the auditors had indicated that they were considering a qualified opinion of the financial statements of TSL.  That did not happen until late June.

270. Finally, Mr Blanchhflower submitted that the judge had failed to take into account the evidence that pointed to the improbability of the 4^th defendant being a party to the conspiracies alleged in Charges 9 and 10.  Amongst the many matters to which he referred was the fact that at their meeting 6 March 2003 the Committee of the Independent Board of directors had required the 4^th defendant

“… as a matter of utmost urgency to conduct a full review of the commission B system and to recommend a new system that dispenses with the need for the BVI companies, reduces if not completely eliminates the need for cash payments…”

Further, the 4^th defendant had directed management to carry out verification of local promoters to ensure accountability.  He left it to others to recommend local promoters and had no knowledge of those that were recommended.  The three local companies with whom Bonaventure reached agreements were companies that did provide either business promotion services or brought tourists to the showrooms of TSL.

Charge 14

271. Mr Blanchflower submitted that in convicting the 4^th defendant on Charge 14, namely of been a party to a conspiracy to defraud the Inland Revenue Department, the judge had erred in relying on the evidence of Raymond Leung of conversations that he had had with the 4^th defendant in prospect of Raymond Leung being interviewed by the IRD in respect of their enquiries into commission payments made by TSL.  Firstly, in February 2004, after the 4^th defendant had attended an interview with the IRD on 20 February 2004, he had had a conversation with the 4^th defendant in which the latter had told him that he wished to have a ‘consensus’ as to what the IRD were to be told by TSL in respect of those enquires.  Secondly, a few days after Raymond Leung had received a notice dated 23 February 2004 from the IRD to attend an interview the 4^th defendant had urged him to follow the story that real promoters did exist.

272. Mr Blanchflower submitted that it was clear that Raymond Leung had lied about that meeting, maintaining in cross examination his account that it had taken place.  He pointed to the fact that it was an admitted fact that the 4^th defendant was not in Hong Kong between 21 February and 8 March 2004.  Also, in his reasons for verdict in his consideration of the evidence of Raymond Leung and under the heading ‘Lies’ the judge had noted, “PW1 gave evidence of a meeting with D4 in relation to Charge 14 at a time when D4 was not in Hong Kong.”

273. Secondly, Mr Blanchflower submitted that the judge had erred in determining that the information provided to the IRD by the 4^th defendant in respect of commission payments made through overseas companies, in particular in the Deloitte report of March 2004, which the 4^th defendant has specifically approved, was false to the knowledge of the 4^th defendant.  He contended that finding was flawed since it was based upon the impermissible finding that the 4^th defendant had read the KPMG Forensic report which contained numerous factual assertions that were directly contrary to those asserted in the Deloitte report.

The submissions of the respondent

274. In the contextof the judge’s consideration of the inherent unlikelihood of the 4^th defendant joining criminal conspiracies, at the outset Mr Duncan invited the court to note that the judge had referred to the positive good character of the 4^th defendant on no less than three occasions in his reasons for verdict, in particular noting that two of the prosecution witnesses had testified to his reputation for honesty and integrity.

275. Of the issue of the validity of the judge’s finding that the 4^th defendant had read the KPMG Forensic report, Mr Duncan submitted that there was abundant evidence upon which the judge was entitled to reach that conclusion as a matter of irresistible inference.  The 4^th defendant had joined TSL as CEO at a time of crisis.  His contract of employment stipulated that he had “overall responsibility for the financial and operational matters” of TSL.  On about 23 December 2002, Raymond Leung had informed him of the operation of the commission system and the use of the two BVI companies, Brighouse and Cinedell, in consequence of which he had asked Raymond Leung to produce a flowchart the better to explain the system to KPMG Forensic.  There was no dispute that he had reviewed and amended that flowchart before it was presented to KPMG Forensic by Raymond Leung.  He submitted that it was obvious from a reading of the flowchart, it being stated in terms, that through the use of monies paid to the BVI companies TSL was making payments to the employees of travel agents not only without the approval of their employers but also without their knowledge of those payments.  The BVI companies were mere money transfer vehicles.

276. The 4^th defendant was a recipient of copies of both the draft KPMG Forensic report (24 February 2003) and the final report (28 February 2003).  Mr Duncan suggested that it was consistent with the 4^th defendant’s responsibilities that the meeting of the three independent non-executive directors of the board of TSL on 6 March 2003 had directed that they required the 4^th defendant “as a matter of utmost urgency to conduct a full review of the commission system and to recommend a new system that dispenses with the need for the BVI companies.”  He accepted that there was no specific evidence of the communication of this requirement to the 4^th defendant.

277. Mr Duncan relied upon the undisputed evidence that the 4^th defendant had signed a letter of representation on behalf of the board of directors of TSL to KPMG in respect of the qualified opinion of KPMG as auditors of the financial statements of TSL for the year ended 28 February 2003, the qualification relating to commission payments, in which it was asserted :

“We confirm that we have reviewed and evaluated the findings highlighted in the Forensic Report issued by KPMG Forensic Department dated 28 February 2003…”

That assertion was a matter of importance.

278. Of the issue taken on behalf over the 4^th defendant that the judge had treated the hearsay statements contained in the KPMG Forensic report of 28 February 2003 as the truth, Mr Duncan submitted that there was no evidence that he had done so.  It was evidence that went to the 4^th defendant’s knowledge of its contents only.  The report was based significantly on the flowchart produced by Raymond Leung and reviewed and amended by the 4^th defendant.  The statements in the report that the three BVI companies used by TSL did not perform the services described in the respective agreements and appeared to be “money transfer vehicles” to facilitate payments was known to the 4^th defendant from the flowchart.

279. Of the submission made on behalf of the 4^th defendant that it was inherently unlikely that he had joined the two conspiracies, the one to offer advantages and the other to commit false accounting, Mr Duncan submitted that, it having been made perfectly plain to the 4^th defendant in the flowchart that the commissions system operated through the BVI companies was to effect payments to employees of travel agents without the consent or knowledge of their employer, it was known to the 4^th defendant that the criminal offences alleged in Charge 1 and 2 were being committed.  He had a choice : he could continue the malpractice, he could walk away from TSL or he could report the matter to the authorities.  The latter option may have led to the collapse of TSL.  Mr Howe testified of gaining that understanding at the board meeting of TSL on 18 December 2002 : “We knew what was going on was wrong but we didn’t really know how it was done or what its consequences might be if we stopped it.”  The 4^th defendant chose to continue the malpractice, albeit that the use of payments through the BVI companies ceased in May 2003.

280. Mr Duncan submitted that the judge was mindful of the ingredient of mens rea in proof of the allegation that the 4^th defendant had joined an ongoing conspiracy.  Both the prosecution and the 4^th defendant’s counsel at trial, Mr Blanchflower, had addressed him on the issue, which submissions are summarised in Archbold Hong Kong 2010, at Cap. 36-13 :

“Knowledge of the law on the part of the defendant was immaterial.  If what the alleged conspirators agreed to do was, on the facts known to them, an unlawful act they cannot excuse themselves by saying that, owing to their ignorance of the law, they did not realise that it was a crime.

281. Of the submission that the judge erred, having recited the evidence as to the meeting of 23 December 2002 between Raymond Leung, the 2^nd and 4^th defendants, in stating “This was not an issue”, Mr Duncan submitted that when read in context it is clear that that sentence applies only to the previous sentence, namely that Raymond Leung had prepared a draft flowchart for the 4^th defendant to read.  There was no error.

282. Finally, Mr Duncan submitted that the judge was entitled to have regard to the fact of the initialling of the authorisation on the payment requisition dated 2003s by the 4^th defendant in favour of Brighouse and Cindell.  Given the financial circumstances of TSL, the total amount of over $6.6 million was significant and a matter to which the 4^th defendant would have given attention.

283. On behalf of the respondent, Mr Duncan pointed out that the judge had accepted that Raymond Leung was inaccurate in testifying that the discussions of the ‘core team’ about the replacement of the BVI companies by local promoters had occurred at the same time that the auditors had indicated that they were minded to issue a qualified opinion of the financial statements of TSL.  He submitted that it did not follow that the finding that Raymond Leung was inaccurate as to that event being contemporaneous with meetings of the ‘core team’ meant that those meetings had not taken place.  He suggested that, as the judge had directed himself in his reasons for verdict, the judge was entitled to accept some parts of the evidence of a witness and reject other parts.

284. Mr Duncan submitted that the judge was perfectly entitled to have regard to the fact that the 4^th defendant was intimately involved in the documentation that created and varied the business promotion agreements and, in particular, that he initialled the authorisation for very many of TSL’s payment requisitions, as a result of which over $44 million was paid by TSL to the three companies in a period of 21 months.  He suggested that it would have been very surprising for the 4^th defendant, as CEO in the circumstances in which TSL found itself, not to have acquainted himself with the reasons for the agreements and the payments.

285. Mr Duncan submitted that it was clear from a reading of the reasons for verdict that the judge had not relied upon the evidence of Raymond Leung at all in respect of the alleged conversations with the 4^th defendant in February 2004.  Indeed, he categorised it as a lie in his analysis of Raymond Leung’s evidence.

286. Mr Duncan contended that, on the contrary, the main plank of the evidence relied upon by the judge to convict the 4^th defendant on the 14^th charge was compelling documentary evidence.  He pointed to the undisputed evidence that in an exchange of e-mails with Ms Christina Leung of Deloitte on 15 March 2004 the 4^th defendant had approved the text of the ‘Deloitte report’ to be submitted to the IRD.  The report addressed “Promotion Fees Paid to Outbound Promoters” and, in particular, was a review of Brighouse and the services it was said to have rendered to TSL.  Mr Duncan submitted that the judge was entitled to accept that false representations were made in the report, namely that Brighouse’s was a genuine promoter that provided services to TSL for which they were properly remunerated on the basis of a headcount of the tourists that they delivered to TSL showrooms.

287. Also, Mr Duncan submitted that the 4^th defendant, in both oral representations to the IRD directly at meetings and through Deloitte in written representations, maintained the same false representations.  For example, he pointed to the letter dated 28 October 2004 from Deloitte to the IRD, which the 4^th defendant had approved the previous day, in which it was asserted :

“Our Client reiterated that the commission payments to travel agents and promotion fees to outbound business promoters were essential and genuine business expenses in relation to the peculiarity of showroom business the operation of which requires enormous and constant inflow of tourists.  Our Client confirmed that all the travel agents and business promoters were unrelated third parties.”

288. Mr Duncan submitted that the judge was entitled to find that the 4^th defendant had read the KPMG ForensicForensic report and to conclude that, from his conversation with Raymond Leung on about 23 December 2002 together with the provisions of the flowchart, the 4^th defendant knew that the purpose of the overseas companies was to, “channel money via their bank accounts to enable payments to be made to employees of travel agents without the knowledge of their employers.”  Those overseas companies were merely “money transfer vehicles, providing no genuine services.

A consideration of the submissions

Did the 4^th defendant read the KPMG Forensic report?

289. We are satisfied that there was overwhelming evidence upon which the judge was entitled to conclude that the 4^th defendant had read the KPMG Forensic report, a copy of which was provided to him on 28 February 2003.  As the judge noted, the 4^th defendant had joined TSL at a time of crisis.  From his conversations with Raymond Leung and his review of the flowchart the 4^th defendant knew that the BVI companies were “simply money transfer vehicles”.  They were vehicles to permit a flow of funds to enable TSL to make payments to the employees of travel agents with whom TSL did business without those employers being aware of let alone consenting to those payments.  The investigation by KPMG Forensic culminating in its report was a matter of the greatest importance to TSL, its board of directors and to the 4^th defendant as its CEO.  It would have beggared belief had it been the case that the 4^th defendant had not made it his business to be acquainted with the contents of the report immediately upon its publication, or at the latest when he became a director of TSL on 18 March 2003.  As the judge noted, subsequently the 4^th defendant, “actively participated in meetings to discuss its ramifications and approved the public announcement which referred to the report.”

Use by the judge of the KPMG Forensic report as evidence of the truth.

290. There is no merit in the submission made by Mr Blanchflower that the judge had used the KPMG Forensic report as establishing the truth of certain facts.  It is clear from his reasons for verdict that he found facts to be proved from evidence other than that report.  Having done so, on occasions he went on to note of that particular fact where it was asserted in the report, that it was true.  For example, he said in his reasons for verdict (para. 888) :

“D4 of course already knew within a short time of joining TSL that the overseas companies were simply money transfer vehicles as he had been given P122 by PW1 and knew PW1 was going to supply that chart to KPMG.  The KPMG Forensic report merely confirmed the situation.”

There was no dispute that the P122, the flowchart, was given to KPMG by Raymond Leung on 15 January 2003 in the course of an interview by KPMG staff.

291. Later in his reasons for verdict (para. 1023) the judge returned to his earlier finding :

“I had no doubt that the information supplied to KPMG Forensic investigators as to the purpose of using overseas companies was true.  It follows that I was also satisfied the information supplied to DTT and set out in the Deloitte report was false.”

292. The truth of what the purpose was of using overseas companies had already been established by the judge’s acceptance of what it was that Raymond Leung had asserted in the flowchart.  In any event, the judge was dealing here with a separate issue, namely that what was asserted in the ‘Deloitte’ report approved by the 4^th defendant and submitted to the Inland Revenue Department was not true.  Of the Deloitte report, the judge had said (para. 1021) :

“The report was prepared on instructions from and information supplied by the management of TSL.  It was approved by D4.  The information contained in the report is completely at odds and inconsistent with the information supplied to and set out in the KPMG Forensic report.”

Mens rea

293. Of the issue of proof in the 4^th defendant of the ingredient of mens rea, in respect of the two conspiracies alleged in Charges 1 and 2, in his consideration of the relevant law the judge cited a passage from the speech of Lord Bridge in R v Anderson [1996] 1 AC 27 at 39 F :

“… the accused should agree that a course of conduct be pursued which he knows must involve the commission by one or more of the parties to the agreement of that offence or those offences.  But, beyond the mere fact of agreement, the necessary mens rea of the crime is, in my opinion established if, and only if, it is shown that the accused, when he entered into the agreement intended to play some part in the agreed course of conduct in furtherance of the criminal purpose which the agreed course of conduct was intended to achieve.  Nothing less will suffice, nothing more is required.

294. Relevant to the issue of mens rea in the 4^th defendant was the judge’s determination of the 4^th defendant’s reaction to the revelation to him by Raymond Leung, orally and in writing in the flowchart, of the purpose to which the monies sent to the BVI companies, Brighouse and Cinedell, were put (para. 689-690 of the reasons for verdict) :

“The flowchart makes it abundantly clear that the BVI’s do not perform the functions stated in their business promotion agreements with TSL.  The document states that the arrangement with the BVI’s was to facilitate monies being paid to agents which are not evidenced in writing or normally known to the management of the travel agent.  The document reiterates that such payments are no known to the management of the travel agent.

On having this explained to him orally and in writing D4 does not immediately resign, ring the police or the ICAC, dismiss PW1 or suspend PW1.  What he does is to tell PW1 to provide the flowchart to the KPMG investigators.”

295. As noted earlier, in a subsequent passage in his reasons for verdict (paras. 887 and 888) the judge found that the 4^th defendant had not only received the KPMG Forensic report, to which was attached the flowchart, but also that he had read it.  He observed :

“D4 of course already knew within a short time of joining TSL that the overseas companies were simply money transfer vehicles as he had been given P122 by PW1 and knew PW1 was going to supply that chart to KPMG.  The KPMG Forensic report merely confirmed the situation.”

296. The judge went on to find :

“He certainly actively participated in meetings to discuss its ramifications and approve the public announcement which referred to the report.”

Clearly, in context that was firstly a reference to the 4^th defendant’s participation in the meeting of the board of directors of TSL on 29 July 2003 and his signature on the letter of representation provided to KPMG from the board of directors of TSL in which reference was made to the fact of the review and evaluation of that report.  Secondly, it was a reference to the public announcement made by the board of directors of TSL on 2 October 2003 in which reference was made to the report, in particular the assertion that it had identified in respect of commission payments by TSL “certain internal controls weaknesses”.

297. As the judge noted, (para. 694-5 of the reasons for verdict) that phrase was borrowed from the auditor’s description of the effect of the KPMG Forensic report in respect of that issue.  Of that, the judge found (para. 695 of the reasons for verdict) :

“To describe the commission B system as an “internal control weakness” is not simply misleading, it is false.”

298. In the result, the judge concluded of the 4^th defendant (paras. 889-890) :

“I was satisfied beyond reasonable doubt that, having been informed of the ongoing conspiracy by TSL to pay commissions to employees of travel agents without the consent of their principals, D4 acquiesced in the agreement and actively participated in it.  I was sure D4 was aware such payments were made without lawful authority or excuse.

I was also sure that he was aware the commission B scheme generated false accounting documentation which was being used to conceal the payments being made to travel agency employees.  I was also sure he was aware of the commercial and tax advantages of the use of false documentation.  I was sure he acted dishonestly.”  [Italics added]

299. The judge made no specific finding as to why the applicant, a man of positive good character and great experience, had acted as he did.  He did not need to do so.  Clearly, he was aware of that issue.  His description of the 4^th defendant as having “acquiesced in the agreement and having actively participated in it” is significant and relevant in this context.  Clearly, the 4^th defendant participated in the continued operation of the scheme until an alternative was found.  Immediately prior to that determination, the judge had found that the 4^th defendant was aware of the purpose of the payments to the two BVI companies.  In the knowledge of the unlawful nature of the commission B scheme, the 4^th defendant “actively participated” in its perpetuation, namely by authorizing payment on the TSL payment requisitions in favour of Brighouse and Cinedell in 2003 to a total of more than $6.6 million.  Clearly, that was a determination that the 4^th defendant was possessed of the appropriate mens rea to make him culpable in respect of Charges 1 and 2, which conclusion he reached.

The evidence of Raymond Leung and the prosecution case

300. Of the issue of what it was that Raymond Leung had told the 4^th defendant in their meeting on about 23 December 2002 of the commission system the judge found (para. 688-9 in the reasons for verdict) :

“What PW1 told this complete stranger was that for years, he had been involved in the sham arrangement to facilitate payments to employees of travel agents without the knowledge of their employers.  He must have said words to that effect as he subsequently provided him with the flowchart P.122 [Underlining added]

The flowchart makes it abundantly clear that the BVI’s do not perform the function stated in their business promotion agreements with TSL.  The document states that the arrangement with the BVI’s was to facilitate monies being paid to agents which are not evidenced in writing or normally known to the management of the travel agent. …”

Clearly, in this instance the judge was relying on the unchanging words contained in the flowchart itself.

301. Of the issue taken that the judge had erred in stating that what had been said to the 4^th defendant by Raymond Leung in their meeting of about 23 December 2002, namely “This evidence is not in issue”, we are satisfied that Mr Duncan’s contention is correct.  That the comment was applicable only to the provision of a draft of the flowchart by Raymond Leung to the 4^th defendant is made clear in context :

“PW 1 prepared a draft of P122 for D4 to read.  This evidence is not in issue.  This referred to payments being made to employees or travel agents without the consent of their employers.  It set out the details of the Table B commission scheme using overseas companies.”

302. Finally, we are satisfied that there is no merit in any of the other submissions that Mr Blanchflower makes in this regard.  The judge was entitled to have regard to the fact that the 4^th defendant authorised payment requisitions in favour of Brighouse and Cinedell in an amount of more than $6.6 million.  TSL was in crisis.  The amount was significant.  Similarly, the fact that that neither the independent non-executive directors nor the financial advisers, Anglo-Chinese, condescended to describing the commission payments as unlawful, in particular that they constituted bribes to employees and led to false accounting, did not disguise the obvious.  It was as plain as a pikestaff that the conduct was unlawful.

Charges 9 and 10

303. There is no dispute, as the judge found, that Raymond Leung was inaccurate in testifying that contemporaneously to the meetings of the ‘core team’ to consider the mechanism by which the BVI companies were to be replaced with local promoters, the auditors of TSL had indicated that they were considering issuing a qualified statement in respect of the financial statements of TSL for the year ended 28 February 2003.  However, as Mr Duncan has submitted, that did not preclude the judge from accepting as true his evidence of the meetings of the ‘core team’.  It is to be remembered that Raymond Leung was testifying of events that had occurred over a nine-year period from 1996 to April 2005 and doing so in the second half of 2007.  Needless-to-say, the judge was acutely aware of the circumstances (see para. 497 of the reasons for verdict) :

“I bore in mind that the witnesses were giving evidence about events and conversations which occurred several years before the trial and several years before they gave their statements to the ICAC.  There were many inconsistencies between their recollections of these events and conversations.”

304. As we noted earlier, the judge was entitled to find that the 4^th defendant had read the KPMG Forensic report dated 28 February 2003.  In the aftermath of the revelations in respect of the use of BVI companies for the overseas business promotion scheme described there, in the flowchart given to the 4^th defendant by Raymond Leung and in the oral explanation of the commission B scheme about 23 December 2002 it was to be expected that the 4^th defendant would take a ‘hands-on’ overview of the replacement scheme.  That is exactly what he did.  As the judge noted, at para. 936-8 of the reasons for verdict, on behalf of Bonaventure the 4^th defendant signed all three business promotion agreements with the three local promoters dated 4 July 2003, but backdated in operational effect to 1 May 2003.  Also, he signed all three ‘Variation agreements’ with those three ‘local promoters’ in April 2004.  Furthermore, throughout the operation of the local promoter scheme the 4^th defendant initialled in the authorisation box on numerous TSL payment requisition forms, in consequence of which payments were made to the three ‘local promoters’.  As the judge noted, in the period May 2003 to February 2005 the payments made by TSL to those three local promoters totalled over $44 million.

305. In addition to the evidence of Raymond Leung to which the judge referred in his reasons for verdict he also made reference to the evidence of Allen Cheung as to the purpose of the ‘local promoter’ scheme of which his company, Well Zen, was one of the three participants.  As the judge noted (para. 922 of the reasons verdict) he testified that they were to handle arrangements for the special commission replacing the overseas companies.  Also, he testified that, as agreed, he had returned monies paid to Well Zen.

306. We are satisfied that there was overwhelming evidence for the judge to determine that (para. 927 and 941 of the reasons verdict) that payments to local promoters by TSL was made for the same purpose as had been made to the BVI companies, namely to facilitate and conceal payments to employees of travel agencies without the consent of those employers.

307. Similarly, given the circumstances in which the local promoter scheme came into being and the role played by the 4^th defendant thereafter, we are satisfied that the judge was entitled to determine of the 4^th defendant that he was “an active participant in these two conspiracies” (see para. 941 of the reasons for verdict).  There is no merit in this ground of appeal.

Charge 14

308. As Mr Duncan pointed out, it is clear from the judge’s findings in his analysis of Raymond Leung’s evidence, under the heading ‘Lies’, of his meeting the 4^th defendant at a time when the 4^th defendant was not in Hong Kong, that not only did he not rely on that evidence but also that he had specifically rejected it.  On the other hand, it is clear that there was overwhelming evidence of repeated misrepresentations by the 4^th defendant to the IRD in respect of the purpose and operations of the overseas companies, in particular Brighouse.

309. As we found earlier, the judge was entitled to reach the determination that the 4^th defendant had read the KPMG Forensic report.  In any event, it was known to the 4^th defendant from his conversation with Raymond Leung on about 23 December 2002 and the provision by the latter of the flowchart that the overseas companies were merely money transfer vehicles, providing no genuine services to TSL but permitting cash to be channelled back to Hong Kong to be available to be distributed to the employees of travel agencies without their employers being aware of that conduct.

310. The ‘Deloitte report’, sent to the IRD under cover of a letter from Deloitte dated 15 March 2004, was entitled “Review of Promotion Fees paid to Outbound Promoters”.  It noted that issue had been of “significant concern” to the IRD during the course of their tax investigation.  It stated that Brighouse had been selected for purposes of the review.  It asserted of the promoters that they “possess the essential expertise with overseas travel agents connections and networks”.  Of the services rendered by Brighouse, it asserted :

“·      contact, liaise and coordinate with overseas travel agents in the targeted countries including Japan, Korea, Mainland China, Taiwan, Thailand, Indonesia, Philippines, USA, Canada, Central America, South America, Europe, Australia and Great Britain to ensure their customers will visit TSLJ’s showrooms while travelling to/via Hong Kong

 ·      promote the showrooms operated by TSLJ to overseas travel agents

 ·      travel to the targeted countries and explore all potential travel agents.”

311. Of the basis of the calculation of remuneration to be paid to Brighouse, it was asserted :

“… TSLJ paid the promotion fees by basing on the number of tourists who, through Brighouse’s contacts and networds with overseas travel agent, actually arrived at TSLJ’s showrooms.”

Further, it asserted that the rates were calculated on a scale contingent on the origin of the tourists, said to reflect the purchasing potential.  In conclusion, it was asserted :

“Without the use of promoters, TSLJ cannot operate a showroom business as it would have no customers.  The use and payment of promoters to secure overseas tourists to visit it showrooms is a fundamental and vital part of the business without which there would be no business.”

312. No issue was taken on behalf of the 4^th defendant with the evidence of Ms Christina Leung, a tax manager of Deloitte, that during the afternoon of 15 March 2004 she had exchanged e-mails with the 4^th defendant in which, first of all, she had attached an amended draft of the ‘Deloitte report’ in respect of which she sought his approval before it was submitted to the IRD nor that he had responded to her within two hours stating, “Your report is approved.”

313. In the result, we are satisfied that the judge was entitled to determine that the 4^th defendant knew what he was telling the IRD directly or through Deloitte was false and that he had conspired with his co-conspirators to defraud the officers of the IRD so as to induce those officers to act contrary to their public duty.

The Judgment of the Court in respect of the 5^th defendant

Overview of the evidence

314. Given that they faced the same charges, many of the matters set out in the ‘Overview of the Evidence’ in the consideration of the discrete grounds of appeal of the 4^th defendant are relevant to the 5^th defendant.

315. There was no dispute that five BVI companies were used in the period March 2000 to May 2003 in the flow of funds from TSL, Brighouse and Cinedell in the outward journey to overseas bank accounts denominated in US dollars, Profitful, Evergood and Griston on the return of the money to Hong Kong to accounts denominated in Hong Kong dollars.

316. The five BVI companies were incorporated on the following dates :

(i)      Cinedell on 9 March 1999;

(ii)      Brighouse on 5 January 2000; and

(iii)     Profitful, Evergood and Griston on 19 and 20 January 2000 respectively.

317. Resolutions were passed by Brighouse and Cinedell on 11 February 2000 and 17 May 2000 to open bank accounts with the Standard Chartered Bank in Jersey denominated in US dollars.  No bank statements of those accounts, other than one for Cinedell in October 2007, were put into evidence at trial.  Profitful and Griston opened bank accounts with HSBC in Hong Kong denominated in Hong Kong dollars and 1 March 2000.  Evergood opened an account with Standard Chartered Bank denominated in Hong Kong dollars in February 2000.

318. Bonaventure entered ‘Business Promotion’ agreements with Worldwide, Brighouse and Cinedell on 27 February in 1996, 24 February 2000 and July 2002 respectively.

319. The 5^th defendant did not give or call evidence, but relied upon his counsel’s cross-examination of the prosecution witnesses.

Submissions on behalf of the 5^th defendant

320. We will set out the grounds advanced on behalf of the 5^th defendant and the submissions in support of and opposition to those grounds before proceeding to an analysis of them.

Failure to disclose

321. Mr Macrae submitted that there was a material irregularity in the conduct of the trial, whereby the prosecution failed to make full disclosure of evidence in relation to bank statements of the accounts of the two BVI companies, Brighouse and Cinedell.  He contended that material was such that it might have materially affected the judge’s assessment of the credibility of Raymond Leung and his brother Steven Leung, in particular it was relevant to the issue of the extent to which they had benefited themselves and their family members in the operation of the overseas promoters scheme.  Specifically, it was said to be relevant to the issue of Raymond Leung’s evidence about payments which he claimed were made to the 5^th defendant : could they have been payments made to the bank accounts of overseas companies controlled by Raymond Leung and/or his family?

322. In support of his submissions as to the materiality of the evidence, Mr Macrae drew the court’s attention to the judge’s concern in respect of this material in relation to Raymond Leung and his brother Steven Leung that (para. 496 of the reasons for verdict);

“… the court had not had the full picture as regards the benefits they had received from their dishonest activities.  The ICAC had not been obtained bank statements in relation to the accounts of Brighouse and Cinedell.  The ICAC could not have obtained this evidence by warrant as the accounts were overseas but this information should have been obtained and could have been obtained through the witnesses.  This is a matter in respect of which there should have been full disclosure.”

323. Further, he submitted that the evidence pointed to ICAC being indifferent to obtaining material that would have established the extent of the benefit to Raymond Leung and his siblings.  For example, ICAC Senior Investigator Chow Kwok Hung testified that it was a decision of a senior officer, Stephen Lam, not to obtain the bank statements of those persons.

Inconsistencies in the prosecution evidence

324. It was also contended that the judge had failed to resolve material inconsistencies between the testimony of Raymond Leung and other witnesses, for example that of  :

(a)	Ivan Chan practising in an eponymous accounting firm, of his testimony in respect of source of the directions given to him in the arrangements setting up the five BVI companies-Brighouse, Cinedell, Profitfull, Griston and Evergood;
(b)	Allen Cheung in respect of the circumstances in which it was determined in 2000 to discontinue the use of Worldwide in flow of funds from TSL;
(c)	Anita Wong, the director of Finance and Administration of TSL at the time of her resignation in February 2000, in respect of her evidence that she was unaware of the decision, in the months before she left TSL, to set up another overseas company to replace Worldwide.

325. Mr Macrae further submitted that there was insufficient evidence to prove the 5^th defendant guilty of Charges 9 and 10.  Of the judge’s reliance upon the testimony of Raymond Leung in convicting the 5^th defendant of Charges 9 and 10, Mr Macrae reminded the court of the inconsistency between the testimony of Raymond Leung and Allen Cheung of the role of the 5^th defendant in negotiations with Allen Cheung to recruit him as one of the three local promoters whose companies were to be used to replace the BVI companies, Brighouse and Cinedell, in about May 2003.  Raymond Leung had testified that it had been decided that the 5^th defendant should conduct the negotiations with local promoters to be recruited into the replacement scheme.  He said that in fact he had conducted no such negotiations, rather that was done by the 5^th defendant.  By contrast, Allen Cheung had said that he had conducted such negotiations with Raymond Leung and not the 5^th defendant.  Furthermore, Mr Macrae submitted that although the judge had analysed the evidence at length, he had not resolved the issue arising from that contentious evidence.

326. In his oral submissions, Mr Macrae conceded that the judge had addressed the issue of the discrepancies between Raymond Leung and Allen Cheung on this matter.  He submitted that, although the finding was correct, it fell short of the full extentof the contradictions.

327. Next, it was submitted that it was unlikely that Raymond Leung would have needed to involve the 5^th defendant in recruiting Kenny Cheung of Best Joint as a local promoter, since Raymond Leung had become familiar with him, having known him for a number of years.

The submissions of the respondent

328. In reply to the submission that there was a material irregularity in the trial arising from the failure of the prosecution to make full disclosure to the defence in respect of the bank statements of the accounts of Brighouse and Cinedell, Mr Duncan submitted that there was no such failure : that material had never been in the possession of the prosecution.  He suggested that the only way that the prosecution could have obtained that material was by making a request of Mr Steven Leung.  He pointed out that at trial a request was made of Mr Steven Leung, by counsel for the 4^th defendant, accompanied by an order by the judge, that Mr Steven Leung provide such copies of bank statements of the two accounts as were in his possession.  In response, he produced a statement in respect of the Standard and Chartered Bank account in Jersey of Cinedell for October 2007 and nothing else.  No application was made at trial that copies of the bank statements of Brighouse and Cinedell be obtained from the banks themselves.

329. Mr Duncan submitted, in reply to the assertion that the judge have failed to resolve materials inconsistencies in the evidence, that there was no need for the judge to ‘resolve’ all the inconsistencies in the evidence of the prosecution witnesses.  He submitted that what was required was articulated in the judgment of this court delivered by Keith JA in HKSAR v Chan Man Cheung (unreported , 31 August 2000, CACC 87/2007 had para. 13) :

“… it is not necessary for judges or magistrates to resolving their Reasons for Verdict every single conflict in the evidence.  They only need to decide on those issues of fact which need to be decided in order to answer the ultimate question which is whether the prosecution has proved each of the ingredients of the offence beyond reasonable doubt.  That is not to say that peripheral factual matters never need to be resolved.  What issues of fact need to be resolved in a particular case will depend on the circumstances of the case.”

330. Mr Duncan pointed out that the judge was well aware of the caution required in approaching the evidence of the named co-conspirators who had given evidence and immunity (para. 490 of the reasons for verdict) :

“I treated their evidence with caution and warned myself of the danger of accepting their evidence without very strong supporting evidence.”

Having listed the deficiencies of Raymond Leung as a witness (paras. 495) the judge stated :

“I was particularly cautiousto look forsupport for PW1’s evidence where it purported to implicate others.”

331. In reply to the submission made that there was insufficient evidence to prove the 5^th defendant guilty ofCharges 9 and 10, Mr Duncan acknowledged that there was a contradiction between the testimony of Raymond Leung and Allen Cheung as to with whom the latter had negotiated to become a local promoter in 2003.  Nevertheless, he submitted that the judge had demonstrated in terms that he was aware of the contradiction, which matter he had taken into account.  He accepted that the judge had not stipulated how it was that he resolved the discrepancies between the evidence of the two men on this point.

332. Mr Duncan submitted that the judge was entitled to rely upon his determination that the 5^th defendant knew of and had participated in the making of false receipts purporting to acknowledge receipt of commission payments, which in fact were distributed to the employees of travel agencies in determining the role that the 5^th defendant had played in the commission payment scheme that existed prior to the time period the subject of Charges 9 and 10.  In particular, he pointed to the judge’s determination that he had signed twelve such receipts amounting in total to over $1.2 million.  He submitted that the judge was entitled to find as he did that (paras. 942-943 of the reasons for verdict) :

“Just as D5 paid [sic] [played] a prominent role in the distribution of cash under the commission B system when the overseas companies were utilized, I was satisfied so that I was sure that D5 played an equally prominent role when the system was switched to using local promoters.

I had no doubt whatsoever that because of his crucial role in a commission payment system, he would have been involved in the discussions leading up to the setting up of the local promoter system.”

333. Mr Duncan submitted that the judge was entitled, as he did at paras. 944-946 of the reasons for verdict, to have regard to the fact that the 5^th defendant had witnessed the variation of the business promotion agreement between Bonaventure and Best Joint, dated 28 April 2004, and the evidence of Raymond Leung and Allen Cheung as to the division of monies initially paid to Well Zen, and the supporting evidence of contemporaneous withdrawals of the amount of cash from the bank accounts of Well Zen.

The reasons for verdict

334. The judge made it clear from the outset that in considering the 5^th defendant’s role in the conduct of the subject of Charges 9 and 10, he had regard to his determination that he had played “a prominent role in the distribution of cash under the commission system when the overseas companies were utilised”.  Similarly, at the outset he acknowledged the fact of the discrepancies between the evidence of Raymond Leung and Allen Cheung.

335. Of the defendant’s knowledge of the purposed of the payment of fees in respect of business promotion, the judge determined (para. 943 of the reasons for verdict) :

“I had no double that because of his position in the company, his role in the new and old systems, D5 knew that the new system was to facilitate the payment of illegal commissions to employees of travel agencies and that the business promotion agreements were sham agreements designed to conceal such payments.”

Of the operation of the scheme and the role of the 5^th defendant, the judge found (para. 949 of the reasons for verdict) :

“I was sure beyond reasonable doubt that the monies were not paid to the local promoters and retained by them for services rendered under the promotion agreements.  Large sums of money were paid out to the promoters and then distributed by D5 and others with no paper trail as to their final destinations.”

336. In finding the first defendant guilty of Charges 9 and 10 the judge said of the 1^st defendant :

“… his was a continuation of the commission B system using local promoters instead of overseas companies.  I was also sure that D5 was aware of the nature of the scheme and actively participated in it.”

A consideration of the submissions

The failure to disclose

337. Of the fact that the prosecution did not disclose to the defence the bank statements and related documentation of the accounts of Brighouse and Cinedell with the Standard and Chartered Bank in Jersey, there is no dispute that they were never in possession of such documents.  The prosecution could have done no more than counsel for the 4^th defendant did during the trial, namely to ask Steven Leung, to disclose such bank statements as remained in his possession.  Of that issue, it is to be noted that he testified that he had closed down the Brighouse bank account in 2003/2004, when it was no longer of further use in receiving monies from TSL.  Of course, the prosecution could have made the request at an earlier date, namely from April 2005 onwards.  However, even that earlier date was almost 2 years after the accounts ceased to be used to receive TTs of monies from TSL in the overseas promoters scheme.

338. Of course, it was open to both the prosecution and the defendants to seek to obtain the evidence from the records maintained by the bank itself and, if necessary, to do so by way of Letter of Request.  In that respect, as Mr Duncan submitted, there was ‘equality of arms’.  Neither the prosecution nor the defence availed themselvesof that avenue to obtain the evidence.

The materiality of the bank statements

339. As Mr Macrae accepted in oral argument, after it had been pointed out by the court, the absence of bank statements of the bank accounts of Brighouse and Cinedell with Standard Chartered Bank in Jersey did not prevent the defence embarking upon the forensic exercise of tracing the fund flow out of TSL and back to the Hong Kong companies from which it was distributed to the employees of tour agencies in Hong Kong.  The bank statements and related records of the three BVI companies, with Hong Kong dollar denominated accounts in Hong Kong, that were used to receive the monies remitted from Brighouse and Cinedell respectively, were available at trial.  The bank statements of Profitful and Griston with HSBC together with those of Evergood with Standard Chartered Bank were put into evidence by the prosecution, by way of banker’s affirmations.  The genesis of the deposits of monies into those accounts from TTs from overseas was readily discernible from the information contained in that documentation.  Brighouse was the source of those monies until July/August 2002, when Profitful and Griston began to receive such TTs in addition from Cinedell.  A reconciliation of the outflow of monies from TSL to Brighouse and Cinedell with the inflow of monies to the three BVI companies was readily achievable.  For that purpose, the absence of bank statements from Brighouse and Cinedell was of no material effect.

340. For the reasons set out above we are satisfied that there was no material irregularity in the conduct if the trial and that there is no merit in this ground of appeal.

The inconsistencies in the prosecution evidence

Charges 1 and 2

341. No issue was taken by Mr Macrae with the submission advanced by Mr Duncan, that it is not necessary for a District Judge in giving reasons for verdict to condescend to a resolution of every single discrepancy in the evidence.  As was made clear by this Court in Chan Man Chung, what is required is a resolution of :

“… those issues of fact which need to be decided in order to answer the ultimate question, which is whether the prosecution has proved each of the ingredients of the offence beyond reasonable doubt.”

342. There was no dispute that there were discrepancies between the evidence of Raymond Leung and Ivan Chan as to the role of the former in the setting up of five BVI companies.  Similarly, there was no dispute that the judge stated that he was aware of those discrepancies (see paras. 493, 514 and 540 of the reasons for verdict).  The judge made it clear that he took those matters into account in evaluating the evidence of Raymond Leung : (para. 493 of the reasons for verdict)

“There were significant differences between PW1 and his brother PW17 and PW20 (the accountant) as to the roles PW1 and PW17 in the setting up of the various overseas accounts.  I took this into account when evaluating his evidence.”

343. Furthermore, the judge made it clear that he was aware of the discrepancy between the accounts of Raymond Leung and Allen Cheung as to the circumstances in which it was decided to cease to use Worldwide as the recipient of the flow of funds from TSL : (para. 561 of the reasons for verdict) :

“The accounts of PW1 and PW2 in relation to the discontinuance of TSL’s use of Worldwide and the setting up of the successor BVI’s is inconsistent.”

344. Of Raymond Leung’s evidence in that regard, the judge found : (para. 571 of the reasons for verdict)

“I did not believe his explanations as to the circumstances in which Brighouse took over from Worldwide.  I was sure he arranged matters so that a company controlled by him would be used for the money transfers.”

345. That finding is relevant to his earlier observation as to the discrepancy between the evidence of Raymond Leung and Anita Wong (paras. 127-128) :

“PW1 said PW4 was aware that the arrangement with PW2 was going to be discontinued.  According to PW1, he said that PW4 said that she was going to leave TSL as she did not want to participate any more.  She advised PW1 to discuss it with D5.  PW4 left in February 2000.

PW4 told the court that she had no idea prior to leaving TSL that PW1 was going to set up another overseas company to take over from Worldwide.  She said that she never advised PW1 to discuss this matter with anyone else.”

Charges 9 and 10

346. As Mr Macrae acknowledged in the course of his oral submissions, there is no dispute that the judge was aware of the discrepancies in the evidence of Raymond Leung and Allen Cheung as to with whom the latter negotiated his part in the local promoter agreement.  Of that issue, the judge said (para. 943 of the reasons for verdict) :

“I took into account that there were differences in the evidence of PW1 and PW2 as to who conducted the negotiations with the local promoters and as to the precise movement of funds within the system.”

347. In doing so, he was adverting to matters that he noted earlier (para. 562-565 of the reasons for verdict) :

“When the local promoters were being set up in 2003, PW1 said it was D5 who contacted promoters and later came back suggesting appointing Well Zen, which was run by PW2, Best Joint and Golden Speed.  PW2 said it was PW1 who approached him and negotiated with him about the terms of appointment of Well Zen.”

At para. 564 he said :

“There were discrepancies between PW1 and PW2 as to discussions about the percentage calculations for the file B amount when the local promoters were used.  PW1 said D5 negotiated with PW2 whereas PW2 said he only discuss the percentage calculations with PW1.”

348. Although the judge had there dealt with a discrepancy between the evidence of Raymond Leung and Allen Cheung, the latter’s evidence elsewhere was supportive of that of Raymond Leung as to the return of supposed commissions paid under the local promoters scheme to Well Zen.  Of that, the judge noted (para. 945 of the reasons the verdict) :

“PW2 said D5 told him to give back the 70% and he handed the money to him.  D5 told PW 2 he could keep 30%.  It was agreed that PW2 would give D5 the 70% as soon as possible after receipt of the money from TSL… The return of the 70% is documented in the record retained by PW2.”

349. Also, as noted earlier, in the submissions of Mr Duncan, the large cash withdrawals evidenced by the bank statements of Well Zen were supportive of that evidence.

350. Of the circumstances in which the local promoter commission scheme came to replace the overseas BVI companies, the judge determined that, in the aftermath of the disclosures that culminated in the KPMG Forensic report : 9 para. 917 of the reasons for verdict)

“I had no doubt that the overhaul of the commission system would have to involve discussions between at least these four persons.  [added : Raymond Leung, the 2^nd, 4^th and 5^th defendants] At that stage the management were involved in a cover-up of the facts revealed by the KPMG forensic report.  PW 1 was kept on as a TSL director and the person in charge of the showrooms.  D5 was retained as the main cash distributor.  D4 and PW1 were given authority to execute the agreement on behalf of Bonaventure.”

351. We are satisfied that the judge was perfectly well aware of the discrepancy in the evidence between that of Raymond Leung and Allen Chan and, although he did not resolve the issue, nevertheless it is clear that he did not prefer that of Raymond Leung in this instance.  On all the evidence the judge was entitled to determine that the cessation of the use of the overseas BVI companies as business promoters to be replaced by local promoters’ represented no substantive change, that the ultimate purpose of making cash available to be given to the employees of travel agencies was continued.  In those circumstance, the judge’s determination in respect of the 5^th defendant’s conduct and role in the earlier scheme was relevant to the subsequent scheme.  There are no merits in this ground of appeal.

The 5^th defendant’s application for leave to appeal against sentence

352. The 5^th defendant was convicted of the six charges which he faced.  He received a total sentence of four years and three months imprisonment.

353. It was submitted on his behalf that there were a number of mitigating features to which the judges had inadequate regard.  These were, first, the relatively limited roles that the 5^th defendant played in the six criminal conspiracies of which he was convicted and, second, the fact that the 5^th defendant, a man of 53 years of age, was suffering from an aggressive form of cancer.

354. As to the roles played by the 5^th defendant in the various conspiracies, the judge recognised that the 5^th defendant had never himself been a director of TSL nor one of those responsible for originating any of the criminal schemes.  But that being said, the 5^th defendant had played a significant and on-going role in the operation of each.

355. By way of illustration, in the two conspiracies to offer secret commissions to agents, the 5^th defendant had taken on the principal responsibility for distributing commissions in cash to the agents.  Although, because of the lack of records, it is not possible to say exactly how much was distributed by him, it would have run into tens of millions of dollars.

356. In respect of the showroom where gold jewellery only was sold, the 5^th defendant submitted false entertainment bills, the monies that he received from TSL being passed on by him to agents as secret commission payments.

357. Concerning the conspiracy to steal $500,000 from TSL, the 5^th defendant accepted bogus bonus payments, deducted an amount to cover his own tax liability and passed on the balance to Raymond Leung who in turn paid the 1^st defendant.

358. While the 5^th defendant received the second longest sentence, we do not see that it points to any failure on the part of the judge to properly assess the relative culpability of the defendants.  It is to be remembered that not all of them were convicted of the same offences.  In respect of the convictions that were common to them, it is also to be remembered that each of them played different roles and were members of the various conspiracies for different periods of time.  In addition, it is to be borne in mind that each of the defendants, all previously of clear record and positive good character, had advanced their own, and often pressing, grounds of mitigation.  These were all factors which the judge had to take into account in determining an appropriate overall sentence for each defendant.

359. On behalf of the 5^th defendant, Mr Macrae placed greater emphasis on the severity of the 5^th defendant’s medical condition.  There was evidence before the judge at the time he assessed sentence that the 5^th defendant had been diagnosed with nasopharyngeal carcinoma stage 4A, the highest stage being 4C.  The cancer had spread to the left side of the base of the skull reaching the left eye and had also spread to the lymph nodes in the neck.  Vision in the left eye had deteriorated and would eventually result in blindness in that eye.  The 5^th defendant was receiving radiation and chemotherapy treatment.  However, even if successful, there was a 60% chance of recurrence within five years.  Medical evidence was to the effect that the success of the 5^th defendant’s on-going radiation and chemotherapy treatment would be best secured with rest and nutrition, the suggestion being that neither could be provided to optimum benefit in prison.

360. It was Mr Macrae’s submission that, despite the severity of the 5^th defendant’s medical condition, the judge had imposed his sentence without indicating how much discount he had allowed for this factor, the implication being that this constituted a misdirection on his part.

361. While the state of health of a defendant is of course a relevant factor in determining an appropriate sentence, it does not follow that it will always demand a discount.  In this regard, we would adopt what was said by the Court of Criminal Appeal of South Australia in R v Smith (1987) 44 SASR 587, at 589 :

“The courts… must be cautious as to the influence which they allow this factor to have upon the sentencing process.  Ill health cannot be allowed to become a licence to commit crime, nor can offenders generally expect to escape punishment because of the condition of their health.  It is the responsibility of the correctional services authorities to provide appropriate care and treatment for sick prisoners.  Generally speaking ill health will be a factor tending to mitigate punishment only when it appears that imprisonment will be a greater burden on the offender by reason of his state of health or when there is a serious risk of imprisonment having a gravely adverse effect on the offender’s health.”

362. In England and Wales, the relevant principles have been distilled by the Court of Appeal in R v Bernard [1997] 1 Cr.App.R.(S) 135, at 138.  They are to the following effect, namely :

(1)	a medical condition which might at some unidentified future date affect either life expectancy or the prison authority’s ability to treat a prisoner satisfactorily might call into operation the Home Secretary’s powers of release by reference to the royal prerogative of mercy or otherwise but was not a reason for the court to interfere with an otherwise appropriate sentence;
(2)	the fact that an offender was HIV-positive, or had a reduced life expectancy, is not generally a reason which should affect sentence;
(3)	a serious medical condition, even when it was difficult to treat in prison, would not automatically entitle an offender to a lesser sentence than would otherwise be appropriate.

363. In the present case, nothing was put before the judge to suggest that the 5^th defendant would be unable to receive all necessary treatment.  As to the concern that the 5^th defendant may be deprived of sufficient rest and appropriate nutrition, there was nothing put before him to suggest that the correctional services authorities would be unable to provide appropriate care in this regard.

364. Serious ill health may of course constitute powerful mitigation but that will only be in exceptional circumstances.  In Bernard (supra), the Court of Appeal set down a fourth principle, namely, that :

“An offender’s serious medical condition might enable a court, as an act of mercy in exceptional circumstances of the particular case, rather than by virtue of any general principle, to impose a lesser sentence than would otherwise be appropriate.”

365. While, at the time of sentencing, the 5^th defendant’s medical condition was serious, he was receiving appropriate treatment and would continue to do so.  There was nothing to suggest that his life was in imminent danger.  We would add that, when the matter came before us some 22 months later, nothing was put before us to suggest that the 5^th defendant’s condition had gravely deteriorated.

366. For these reasons, we are satisfied that the judge did not fall into error in his assessment of an appropriate sentence.  That sentence was neither wrong in principle nor manifestly excessive.  The application for leave to appeal against sentence is therefore dismissed.

The Judgment of McMahon J in respect of the 4^th defendant

367. Unfortunately I must differ from the majority in respect of the convictions of the 4^th defendant on Charges 1, 2, 9 and 10.  Firstly, there were aspects of the evidence which supported the defence of the 4^th defendant regarding Charge 1 (and therefore Charge 2).  That evidence came primarily from the steps taken by the 4^th defendant to have the unlawful payments made to the tour guides employed by the travel agencies brought to the attention of KPMG which was conducting an investigation into various aspects of TSL’s affairs.  It was the prosecution case at trial that the 4^th defendant had instructed Raymond Leung, when Raymond Leung had come to him and explained the operation and purpose of the BVI companies in December 2002, to reduce what had been said to a flow chart for the purpose of explaining the scheme to KPMG.  That was done and the 4^th defendant was shortly afterwards shown the flow chart by Raymond Leung.  The 4^th defendant then instructed Raymond Leung to provide the flow chart to KPMG. 

368. The judge summarised the evidence concerning this in his reasons for verdict as follows (para. 885) :

“PW1 [Raymond Leung] said two or three days after D4 took up his position a meeting was held between himself, D2 and D4.  He said at that meeting he explained the commission B system.  He said he explained that it covered illegal commissions and assisted agencies with their tax matters.  He said that D4 asked him to write down the whole workflow of the commission so that PW1 could present it in a fluent way when meeting officers of KPMG.  PW1 prepared a draft of P122 for D4 to read.  This evidence is not in issue.  This referred to payments being made to employees of travel agents without the consent of their employers.  It set out the details of the Table B commission scheme using overseas companies.  P122 was later supplied to KPMG Forensic by PW1 on the instructions of D4.”

369. All this occurred, according to the prosecution, towards the end of December 2002 only a few days after the 4^th defendant had as a matter of urgency joined TSL as its CEO on 20 December 2002 following the revelations of the 2^nd defendant on 18 December as to his misuse of company funds.

370. I might add, the day before the 4^th defendant had been appointed CEO of TSL the board had met and resolved that various aspects of TSL’s business be investigated by KPMG, including the involvement of BVI companies in commission payments to travel agents.  It was against that background of crisis that the 4^th defendant began his work as CEO of TSL and had instructed Raymond Leung to reveal the operation of the commission system to KPMG. 

371. That meant that the prosecution case must have been that almost immediately the 4^th defendant had become aware of the conspiracy the subject of the 1^st charge he had taken quite firm steps to have it revealed in documentary form to the forensic department of KPMG, and so been aware of the high probability that it would be uncovered, yet had in fact from almost the same time decided to join that conspiracy.  That indeed is remarkable conduct. 

372. The judge’s findings so far as the 4^th defendant’s involvement in this scheme is concerned were as follows (paras. 689-690) :

“        I was satisfied beyond reasonable doubt that, having been informed of the ongoing conspiracy by TSL to pay commissions to employees of travel agents without the consent of their principals, D4 acquiesced in the agreement and actively participated in it.  I was sure D4 was aware such payments were made without lawful authority or excuse.”

373. There was no further analysis as to why the judge concluded that the 4^th defendant had acquiesced in the scheme.  In particular there was no express analysis as to how the defendant’s actions in bringing the scheme to the attention of KMPG almost immediately he had become aware of it was reconcileable with the 4^th defendants then joining into the conspiracy which he must have assumed would be exposed by TSL’s auditors.  It is generally thought to be the primary characteristic of a criminal conspiracy that the members of it try to keep its existence a secret, particularly from those persons who may be under a duty to report such activities.

374. In my opinion before the 4^th defendant could safely be convicted of the conspiracy the subject of Charge 1 (and therefore of the concomitant conspiracy reflecting the cover up of those illegal commissions in Charge 2) it was the obligation of the judge to give reasons how this aspect of the case could be resolved and the defendant convicted.  The law is clear as to a judge’s duties in this regard.  See HKSAR v Poon Chun Kit [2007] 4 HKLRD 12, at 15:

“8.     We allowed the appeal because we were of the view that the Deputy Judge had failed to give adequate reasons, in particular, he had failed to properly evaluate the evidence of the witnesses.
9.       The duty to give reasons is undoubted.  It does not depend on section 80 of the District Court Ordinance, Cap. 336, which requires such reasons to be delivered orally, and reduced to writing within 21 days after the hearing of the trial, and the reasons so reduced into writing signed by the judge.
10.     In Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority [1997-1998] 1 HKCFAR 279 at 290J.  The Chief Justice said:
	‘      Where there is a duty to give reasons, it must be discharged by giving adequate reasons.  What would amount to adequate reasons for a decision would depend on the context in which the decision maker is operating and the circumstances of the case in question.’
11.     Furthermore we agreed with Beeson J who said in HKSAR v Li Chi Shing [2000] 4 HKC 168, that the following words of Chan CJHC (as he then was) in Zhuo Cui Hao v Ting Fung Yee [1999] 3 HKC 634 at 639 apply to criminal as well as civil proceedings:
	‘      Generally speaking, a professional judge is under a duty to analyse in his judgment the material points in the evidence of the case and give reasons as to why he has reached a particular conclusion or decision.  This is the only way to make people understand why their evidence is not accepted by the court and why they lose in a case.  Only by this can justice be seen to be done.  Furthermore, the losing party needs to be clear on whether there is any error in the reasons for the decision given by the court before he can decide whether to appeal or not, and, at a later stage, submit to the Court of Appeal his grounds of appeal in order to seek to set aside the original decision.  A professional judge is under a duty to give adequate reasons for any decision which he has made.  This is a principle of paramount importance in the common law system.  This principle is quite clear.’
12.     We would also repeat the oft quoted words of O’Connor J in The Queen v Lam King Ming (unrep., Crim App No 601 of 1979), that:
	‘      The reasons for verdict should, in manner appropriate to the circumstances of the case, illustrate the salient points in the case and demonstrate that the evidence has been evaluated.  Significant inconsistencies and conflicts should be dealt with in such manner as to indicate how those matters were resolved.  There is no simple formula for what ought to be in a judgment as it must be related to the circumstances of the particular case.  The magistrate should state his reasons to such an extent as will inform the parties as to how and why the particular verdict was arrived at and furthermore will enable an appellate court to perform its duty.’ ”

375. In my judgment, given the issues involved, the reasons given by the judge for the conviction of the 4^th defendant on Charge 1 and Charge 2 were insufficient.

376. It may well have been that there were reasons why the judge rejected the above aspects of the defence case on Charges 1 and 2, but they were not expressed and, on so fundamental an issue, in my view should have been.  In the absence of any reasons having been given I am forced to the conclusion that the convictions were unsafe.

377. The same principle applies to the convictions of the 4^th defendant in respect of Charges 9 and 10.

378. Charge 9 reflected the continuation of illegal commission payments to employees of travel agents, but without the involvement of overseas companies.  Charge 10 was again the concomitant conspiracy reflecting the accounting cover-up of those illegal payments.  On this occasion local promotion companies were substituted for the BVI companies which had been instrumental in the channelling of funds into the hands of the agency employees.  This was done because of the criticisms of the role of the BVI companies by KPMG in their report of 28 February 2003.  

379. These companies were genuine local promotion companies operating in Hong Kong.  They apparently performed promotional services for TSL but were, in addition to payment for those services, provided with a premium which was paid by them to the TSL managerial staff in TSL showrooms and then paid illegally by those staff to employees of travel agencies.

380. Unsurprisingly, following the provision of the KPMG report, the 4^th defendant had been instrumental in the replacement of the overseas companies with the local promotional companies, and had, as CEO of TSL, signed the agreements with those companies for the provision of their promotional services.  That was common ground.  But the issue remained as to whether he was aware the new companies were, in addition to their providing some genuine promotional services, also channelling funds for the purpose of the continuation of unlawful payments to employees of travel agents.  There was nothing on the invoices sent by those companies to TSL which separately reflected the premium paid for the provision of these commission payments to the employees of agents.

381. The judge, in convicting the 4^th defendant of the Charge 9 and 10 offences, gave the following reasons :

“934.   Shortly after D4 joined TSL he was supplied with P122, the commission B flow chart.  I am satisfied so that I am sure he would have read the KPMG Forensic report.  I was satisfied that at that stage he was aware that for many years TSL had been making illegal payments to agents as set out by PW1 in the flow chart and in the KPMG Report.  The new system of using local promoters involved most of the personnel engaged in the previous illegal distribution of commission.  PW1 was still in charge of the showroom division.  D5 and Kenny Cheung of Best Joint were prominently involved in the distribution of cash to agents under the commission B system.”

and :

“913.   At the end of February 2003 TSL received the KMPG Forensic report which stated that the overseas companies used for the payment of commission B were money transfer vehicles.  The report quoted from P122 the overflow chart provided to the investigators by PW1.  It stated that Table B was to facilitate the payment of commission to employees of agencies without their employers knowing about it.

914.   At this time, Hong Kong was in the grip of SARS and showroom business had virtually ground to a halt.  TSL were unable to meet its commitments under the debt restructuring agreement.

915.   PW1 said that after the publication of the report it was decided that the use of BVI’s should stop.  PW1’s recollection was that a number of meetings were held between himself D2, D4 and D5 to discuss the problem.  PW1’s recollection was that these meetings took place in April and May of 2003 after the discussion of the qualified opinion arose.  KPMG Audit did not receive a copy of the KPMG Forensic Report until the end of June 2003 soon after which it brought to the attention of TSL management that there would be a qualified report.  Clearly, PW1 was inaccurate as to what triggered the discussion about the replacement of the BVI’s.”

382. The issue was not whether the 4^th defendant had been involved in the replacement of the BVI companies with local promotional companies (a re-structuring required by the KPMG report) but was whether he was aware that these new companies would continue to provide funds for the illegal commission payments to travel agent employees.  I do not think the reasons given are sufficient as to this issue.  This is particularly so as central to the reasoning supporting the convictions is the judge’s earlier finding that the 4^th defendant was a participant in the conspiracy the subject of Charge 1.  

383. I might add that there was no evidence the 4^th defendant received any monetary advantage from either the 1^st or 9^th charged conspiracies.

384. I appreciate that the KPMG report (dated and received by the 4^th defendant on the 28 February 2003) did refer to the provision of what were called “Commission B” payments, that is, payments made to employees of the travel agents without the knowledge of the travel agent.  But it should be remembered that reference went no further than what was stated in the flow chart P122 and was able to be made only because, on the instructions of the 4^th defendant, Raymond Leung had provided the flow chart setting out the commission payment details to KPMG.  It was common ground that the 4^th defendant, within a month or so of the KPMG report being published, had commenced steps to dispense with the BVI companies and use three promotional companies in Hong Kong in their stead.  On the face of his actions there was a reasonable argument that the 4^th defendant had responded properly, if not promptly, to the criticisms of the “Commission B” payments in the KPMG report.

385. Nothing in the documentation signed or seen by the 4^th defendant at that time, or later, provided any indication that the “Commission B” payments were continuing or were to continue.  The only evidence which incriminated the 4^th defendant in this regard came from Raymond Leung to the effect that he had told the group responsible for recruiting the local promotional companies that the “Commission B” payments would be incorporated in the fees paid to those companies.  It was the prosecution case that the 4^th defendant was a member of that group, though it should be said that Raymond Leung’s evidence as to when and how often the group met, what topics were discussed at particular meetings and who was present was less than wholly certain.  The new promotional companies had been recruited and dealt with by persons other than the 4^th defendant.

386. In my judgement these were also matters which should have formed part of the judge’s expressed analysis in coming to his verdict as being relevant to the defence available to the 4^th defendant on the 9^th and 10^th charges.

387. Accordingly I am of the view that the reasons provided by the judge for the conviction of the 4^th defendant on Charge 9 (and therefore Charge 10) were also insufficient, and in the absence of sufficient reasons the convictions were unsafe.

388. So far as the 4^th defendant is concerned, I would have granted leave so far as the 1^st , 2^nd , 9^th and 10^th charged convictions are concerned, treated the hearing as the appeals and allowed his appeals against those convictions.  My views in this regard do not affect the conviction of the 4^th defendant in respect of the Charge 14 offence.

389. I might conclude by saying I do not think it matters, so far as what I have set out above is concerned, that the 4^th defendant did not give evidence.  The matters supporting his defence arose from facts established by the prosecution case and the defendant was entitled to have these matters considered in his favour.

Hon Hartmann JA:

390. Each application for leave to appeal being granted and the hearing of each such application being treated as the hearing of the appeal, the following orders are made:

(i)	The 1st applicant’s (2nd defendant) appeal against conviction in relation to Charges 1, 2, 9, 10, 11, 12, 13 and 14 are dismissed.
(ii)	The 2nd applicant’s (3rd defendant) appeal against conviction in relation to Charges 1, 2, 11 and 13 are dismissed.
(iii)	The 3rd applicant’s (4th defendant) appeal against conviction in relation to Charges 1, 2, 9, 10 and 14 are dismissed.
(iv)	The 4th applicant’s (5th defendant) appeal against conviction in relation to Charges 1, 2, 9, 10, 11 and 12 are dismissed.

391. The 4^th applicant’s (5^th defendant) application for leave to appeal against sentence is dismissed.