HKSAR v. WU YUI YUEN AND OTHERS

CACC 151/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 151 OF 2011

(On Appeal From District Court Criminal Case No. 659 of 2010)

____________

____________

________________________

REASONS FOR JUDGMENT

________________________

Hon Cheung JA (giving reasons for judgment of the court):

1. The applicants were convicted after trial by H H Judge Browne of the offence of conspiracy to defraud, namely,

1)  two counts of conspiracy to defraud against the 1^st and 2^nd applicants jointly (charges 1 and 2); and

2. two counts of conspiracy to defraud against the 2^nd and 3^rd applicants jointly (charges 3 and 4).

2.  The applicants were sentenced as follows:

1^st applicant

1st charge	3 years’ imprisonment
2nd charge	2 years’ imprisonment (concurrent)
Total :	3 years

2^nd applicant

1st charge	3 years’ imprisonment
2nd charge	2 years’ imprisonment (concurrent to the 1st charge)
3rd charge	4 years’ imprisonment (18 months’ imprisonment to be consecutive to the 3 years’ imprisonment under charges 1 and 2)
4th charge	3½ years’ imprisonment (concurrent to the 3rd charge)
Total :	4½ years

3^rd applicant

3rd charge	3½ years’ imprisonment
4th charge	3 years’ imprisonment (concurrent)
Total :	3½ years

3.  The three applicants applied for leave to appeal against conviction and the 1^st and 2^nd applicants applied for leave to appeal against sentence as well.  At the hearing of the applications, the 1^st and 2^nd applicants abandoned their applications on sentence which were accordingly dismissed.  At the conclusion of the hearing, we dismissed all the applications against conviction.  We now give the reasons for our judgment.

The prosecution case

4. The 1^st and 2^nd applicants were long term friends.  The 2^nd applicant was also a close friend of the father of the 3^rd applicant.

5. The 1^st applicant controlled two companies, namely, Tai Ping Circuits Technology Ltd (‘TPL’) and Deltary International Ltd (‘DIL’).  These two companies were circuit board manufacturers.

6. The 2^nd applicant controlled a company called Plentiful Chemical Ltd (‘PCL’) which traded in dyes.

7. The 3^rd applicant was the manager and one of the sole authorised bank signatories of a company called Yee Fung Company Ltd (‘YFL’) established by his father.  YFL also traded in dyes.

8. TPL had loan facilities in the form of invoice finance or import loan from four Hong Kong banks, namely, DBS Bank, Citibank, HSBC and Dah Sing Bank.

9. DIL had loan facilities in the form of import loan from HSBC.

10. PCL had loan facilities by way of letters of credit facilities from Hang Seng Bank (‘HSB’) and Wing Hang Bank (‘WHB’).

11. YFL had loan facilities in the form of invoice finance from Citibank and in the form of import loan from HSBC.

12. When TPL, DIL, PCL and YFL wished to draw down loans under these facilities they were required to submit the application form to the banks together with the relevant purchase invoice, delivery note or cargo receipt and trust receipt (if appropriate). 

13. In respect of Charge 1, TPL obtained loans from the banks based on five fictitious transactions it had entered into with PCL which purported to be the supplier of goods to TPL. The goods were described in the invoices issued by PCL as ‘copper clad laminate’.  The amount obtained was HK$3,891,005 which was remitted by the banks to PCL.

14. In respect of Charge 2, DIL obtained a loan from HSBC based on a fictitious sale of goods transaction it had entered into with PCL which was purported to be the supplier of the goods.  The goods were described in the invoices as ‘High Power Mosfets’.  The amount obtained was HK$1,801,800 which was remitted by the bank to PCL.

15. In respect of Charge 3, YFL obtained loans from the banks based on 15 fictitious sale of goods transactions it had entered into with PCL which purported to be the seller of the goods.  The goods were described as ‘dyestuffs’.  The amount obtained was HK$24,307,040 which was remitted by the banks to PCL.

16. In respect of Charge 4, PCL obtained loans from the banks based on six fictitious sale of goods transactions it had entered into with YFL which purported to be the seller of the goods.  The goods were described as ‘a lot of chemical’.  The amount obtained was HK$6,793,000 which was remitted by the banks to YFL.

17. The three applicants had signed the application forms for the loans.  The total amount involved with these 27 fictitious transactions was HK$36,792,845.  A summary of the transactions is as follows:

No.	Related Charge	Date	Amount (HK$)	Loan Applicant	Bank	Beneficiary
1	1.1	26-May-2005	461,250.00	TPL	DBS Bank	PCL
2	1.2	26-May 2005	500,200.00	TPL	Citibank	PCL
3	3.1	10-Mar-2006	1,820,000.00	YFL	HSBC	PCL
4	4.1	14-Mar-2006	1,092,000.00	PCL	HSB	YFL
5	3.2	16-May-2006	2,028,000.00	YFL	HSBC	PCL
6	4.2	18-May-2006	2,028,000.00	PCL	HSB	YFL
7	3.3	06-Jun-2006	1,688,000.00	YFL	HSBC	PCL
8	4.3	08-Jun-2006	1,688,000.00	PCL	WHB	YFL
9	3.4	20-Nov-2006	1,180,000.00	YFL	HSBC	PCL
10	4.4	22-Nov-2006	680,000.00	PCL	WHB	YFL
11	3.5	07-Feb-2007	1,680,000.00	YFL	HSBC	PCL
12	4.5	09-Feb-2007	785,000.00	PCL	WHB	YFL
13	3.6	04-Apr-2007	2,320,000.00	YFL	HSBC	PCL
14	1.3	03-May-2007	1,517,880.00	TPL	HSBC	PCL
15	3.7	15-May-2007	1,080,000.00	YFL	HSBC	PCL
16	4.6	16-May-2007	520,000.00	PCL	WHB	YFL
17	3.8	06-Jun-2007	1,030,000.00	YFL	Citibank	PCL
18	1.4	28-Jun-2007	661,500.00	TPL	HSBC	PCL
19	1.5	28-Jun-2007	750,175.00	TPL	DS Bank	PCL
20	2	07-Aug-2007	1,801,800.00	DIL	HSBC	PCL
21	3.9	08-Aug-2007	2,003,040.00	YFL	Citibank	PCL
22	3.10	13-Aug-2007	1,303,000.00	YFL	HSBC	PCL
23	3.11	06-Sep-2007	1,530,000.00	YFL	HSBC	PCL
24	3.12	04-Oct-2007	1,630,000.00	YFL	HSBC	PCL
25	3.13	18-Oct-2007	1,806,000.00	YFL	Citibank	PCL
26	3.14	04-Jan-2008	1,386,000.00	YFL	HSBC	PCL
27	3.15	18-Feb-2008	1,823,000.00	YFL	Citibank	PCL

18. It is accepted that the banks had been repaid in respect of the loans advanced by them but the evidence from the banks was that they would not have lent if they had known that the contents of the applications and supporting documents were false and misleading.

19. The fraud came to light when PW1, a business partner of the 1^st applicant, became suspicious of the transaction relating to the 2^nd charge and after his discussion with Peggy Wu, the daughter of the 1^st applicant and the company secretary of DIL.  PW1 made a report to ICAC.

The evidence of PW3 and PW5

20. The prosecution relied heavily on the evidence of PW3, an accountant with TPL and DIL and PW5, an accountant with PCL, both of whom gave evidence under an ‘Immunity’ from prosecution.  They were respectively directed by the 1^st and 2^nd applicants to prepare the false documents in support of the loans.  In view of the importance of their evidence, we will set out the Judge’s summary of their evidence:

‘ PW3 Lee Fu Yau – Accountant with TPL and DIL Hong Kong [Immunity]

526.  I reminded myself that this witness was giving evidence under immunity and was a named co-conspirator and I therefore treated his evidence with caution.  He joined TPL in February 2000 and left in April 2006, before transaction 20.

527.  PW3 said that at first the cash flow situation of the companies was good but later on, in around 2004-5 it became very tight.  PW3 said that he prepared cash flow budgets for D1 each month.  PW3 said that the method of dealing with the cash flow problem was to make applications for import loans or import finance in favour of PCL. He said that PCL would be named as a supplier.

528.  PW3 said that Ex 182, p. 1103 is the cash flow budget for January 2007 which is after he left. He said that this was the type of document he would prepare for Dl.  PW3 said that the manuscript writing on p. 1135 “use Plentiful for retire” was written by D1.  PW3 said that when he worked for D1, D1 would simply write “Plentiful” which would mean that PCL would be used to settle the outstanding loan from the bank.  He said that he would liaise with PW5 about preparing a PCL invoice to support the loan application.  He would give her the figure which was calculated from the cash flow budget.  The bank application would be signed by Dl.

529.   PW3 said that on one occasion he was contacted by the bank and confirmed that PCL was the supplier of goods to TPL.  PW3 said that PCL would receive the money and pay into the personal account of D1.

530.   He said he was instructed by D1 to draw a number of cheques on his account to repay TPL, PW3 said that D1 told him that this was so it would not look bad, if only one cheque was paid in the bank would not like that.

531.  PW3 said that PCL do not deal in copper clad laminate.  PW3 said that he would provide PW5 of PCL with the description to put on the invoice which he would obtain from D1 or from other invoices such as those supplied by King Board, a supplier of copper clad laminate to TPL.  PW3 said that there would be no deliveries of any goods in relation to the invoices created.  PW3 denied that CB 10 and 12 related to genuine transactions.  He was shown Exhibit D2 – 1 and 2 which purport to relate to these transactions.  He said he had never seen them before.  He said in relation to those documents he was not clear whether these were bona fide business dealings or not.

……

PW5 Ms Leung Kan Ying – Accountant with PCL

533.  The evidence of PW5 was similar to that of PW3 of TPL, in that it was also her understanding that the purpose behind the applications for loans that she dealt with in relation to the subject transactions was to redeem bills for which payments were due.  She said that every month or every time she saw her boss, D2, she would tell him when certain loans were due.

534.  With regard to the PCL invoices for the supply of goods to YFL she said that there were no such goods in the warehouse and she took no steps in connection with the delivery of the goods invoiced.  She said that no one from YFL made enquiries about when the goods were to be delivered.  She told the court how she used the date to create the invoice number.  She did not enter the details of the invoices in her order book.  I noted that had she done so the invoice numbers would have stood out as being very different to the sequential invoice numbers used for genuine transactions.

535.  PW5 said she got the information concerning the details for the PCL invoices for goods purportedly supplied by PCL to TPL from the staff of TPL.  She said that she had never previously heard of copper clad laminate and knew PCL did not deal in such products.  She said that D2 told her it was possible that the trading of such goods would take place on the mainland, that TPL was not able to settle payment on the mainland and TPL Hong Kong would make payment in Hong Kong.  I noted that the defence case was that payment for goods supplied on the mainland was in cash.  DW1 said she paid PCL in cash from the safe of Dl.  PW5 said that both D2 and PW3 told her that goods had been delivered on the mainland.

536.  PW5 said that in each case she either showed D2 the invoice or told him about it and he raised no objections about it.

537.  For the PCL invoices purportedly supplying goods to YFL, transactions 3, 5, 7, 9, and 11, PW5 said she wrote the description according to what she was told by Lorin Siu, the accounts clerk at YFL.  She would create the invoice number from the date.  PW5 said that in relation to these invoices she either showed them to D2 or told him about them.  She said that D2 would tell her the amount involved but not the product description.  She said that for genuine PCL invoices, the word “dyestuffs” would not be used, it is a generic term.

538.  PW5 said that in relation for example to transaction 3 which relates to a PCL invoice dated 10 March 2010 for HKD1.82 million, Pge 70 is the relevant HSB statement for March 2006.  PW5 said the statement shows that the money was credited to the account on the 10 March and 3 days later HKD 728,000 is paid to YFL.  PW5 said that she would keep acheck on the bank statements by internet and when the money came in she would contact D2.  D2 would tell her to whom the cheque was to be paid and the amount, she said the amount depended on the balance at the bank.  She said that D2 told her the amount received from YFL was to redeem two bills on two dates and the balance would be paid to YFL.  PW5 said that the amounts put on the invoices came from balances as calculated according to the bank figures, it had nothing to do with goods to be ordered.  PW5 said that if the bank had queried the transaction she would inform the bank that the invoice related to an order from YFL which was not true.

539.  PW5 said that every month she would tell D2 when certain loan payments were due and the decision to use import loans to repay these amounts was made by him.

540.  In relation to transaction 7, which purported to be a sale of dyestuffs by PCL to YFL dated 6 June 2006, CB94 is the invoice and the invoice number is 060066 which she made up in the manner previously described by her.  The PCL Order Book at page 807 shows that in respect of the invoice number the company supplied was Kam Hing, the product Bipo Black and the amount HKD525,000.  PW5 said that the details recorded in the Order Book did not relate to CB 94.  The fact that they have the same invoice numbers was coincidental.

541.  PW5 described how the loans were applied for by her in respect of goods purportedly supplied by YFL, transactions 4, 6, 8, 10, 12, and 16.  She said she would receive instructions from D2 to prepare the loan applications.  PW5 said that when PCL loans were due for repayment, D2 would instruct her which bank loans would be applied for using YFL invoices.  PW5 said that she would prepare the LC application and send it to Lorin Siu at YFL for Lorin to prepare the invoice.  The application would be submitted to the bank and the bank would send her a copy of the invoice, not YFL.  PW5 said that she got the description from D2 sometimes and other times she just used the names of goods they ordinarily used, she said that she just happened to pick on the names of certain products.  PW3 and PW5 did not place any of the orders in the companies’ order books

…..

543.  Notwithstanding that PW3 and 5 were giving evidence under immunity, I found them both to be reliable and credible witnesses.  PW5 appeared to be uncomfortable giving evidence against her former employer and agreed with defence counsel that D2 was a really nice person.  Other than the invoices created in Hong Kong neither PW3 nor PW5 had ever seen any of the documents produced by D2 purporting to related to the transactions involving their companies.  In relation to the documents PW3 said he was not clear whether they were bona fide transactions or not.  PW5 agreed with counsel for D2 that she could not rule out the possibility of there being genuine transactions.’

The circular movement of the funds

21. The prosecution produced evidence of the circular movement of the funds after they were remitted by the banks to the purported suppliers of the goods.  The suppliers would return the funds to the applicants who applied for the loans.

22. The Judge held that

‘ 15. In respect of each of the 27 transactions loans were applied for purportedly in relation to the purchase of goods by the applicants from suppliers referred to in the applications. There were invoices supplied to support the applications. In many cases, within a short time of the purported suppliers bank accounts being credited for the amount applied for, the supplier returned the loan amount to the applicant. Sometimes the amounts differed slightly because of bank charges. In some cases the amounts returned are split into two or more amounts. In some of the transactions, a sum is kept by the beneficiary and the loan funds only partly returned. In relation to some transactions the amount of the loan was returned by the beneficiary after taking out his own false loan naming the original applicant as the beneficiary. The main purpose of the loan applications was not to fund the commercial transactions described in the bogus documentation supplied to the banks, but to provide cash flow, capital, which the applicants could use for their own purposes.’

23. The Judge summarised the flow of funds as follows:

‘ Fund Flow Analysis

491.  Examination of the bank records and other documentation shows that in most cases there is simple return of funds by the beneficiary to the applicant.  In some cases, the money, or part of it is returned by a corresponding loan taken out by the beneficiary to benefit the original applicant.

492.  Monies were returned to the loan applicant for transactions 1, 2, 14 and 18-22.

493.   Some of the loan monies were returned in transactions 13, 14, 17 and 23-27.

494.   With regard to transaction 3, the whole of the sum was returned partly by cheque (HKD728,000) and by transaction 4 (HKDl,088,103).

495.   With regard to transaction 5, the whole of the sum was returned by transaction 6 (HKD2,021,178.75).

496.   With regard to transaction 7, the whole of the sum was returned by transaction 8 (HKD1,684,528).

497.  With regard to transaction 9, part of the monies were returned by way of cheque for HKD500,000 together with the proceeds of transaction 10 (HKD680,000).

498.   With regard to transaction 11, part of the money was returned by transaction 12 (HKD785,000).

499.  With regard to transaction 15, the whole of the sum was returned by a cheque in the sum of HKD560,000 plus the monies from transaction 16 (HKD520,000).

500.  With regard to transactions 4, 6, 8, 10, 12 and 16, monies were not apparently returned to the loan applicants.  However, I noted that for transaction 4, the money was used to repay transaction 3.  Transaction 6 money was used to repay transaction 5. Transaction 8 money was used to repay transaction 7.  Transaction 10 monies were used to repay transaction 9.  Transaction 12 was used to repay transaction 11.  Transaction 16 was used to repay transaction 15.

D1’s personal account

501.  With regard to transactions 1 and 2, the monies involved were returned to the applicant, TPL, via the personal bank account of DI (see flow chart CB3).

502.  In relation to transaction 14, the monies loaned by TPL from the bank were repaid by PCL by way of split cheques.  The same situation existed for transaction 20 between PCL and DIL.  It was suggested to PW3 that the cheques were split because originally it was intended to repay the money into different bank accounts. PW3 told the court that in relation to the split cheques Dl told him to split the cheques as it would look bad if there was only one cheque, that the bank “would dislike it if there was only a single sum of money transferred over there”.  In cross-examination he disagreed that that had not been said to him by D1.  I noted that in connection with transactions 18 and 19 cheques for the same amounts as the loans were returned to TPL.’

The defence

24. The defence of the three applicants was that all the 27 transactions were genuine transactions that took place in the Mainland by the factories owned by the parties. 

25. The 1^st applicant did not avail himself of his right to give evidence but called DW1 who was a clerk in the 1^st applicant’s company in Shenzhen known in these proceedings as the TPL Shenzhen factory.  She said the sales by PCL were supported by contracts and the goods were delivered to the TPL Shenzhen factory.  PCL was paid in cash by her under the direction of the 1^st applicant in respect of these transactions.

26. The 2^nd applicant gave evidence of the underlying transactions.  He produced documentation in respect of these transactions.  He also claimed that he was told by two bankers that as long as there were underlying transactions, it would be alright.

27. The 3^rd applicant did not give evidence or call any witness.

Bias

28. The first ground of appeal advanced by the 1^st and 2^nd applicants (and also adopted by the 3^rd applicant) is that the Judge had made regular and repeated interventions and interruptions during the course of evidence and the closing submissions of counsel.  It is submitted that the Judge’s approach lacked balance and gave an appearance that he was prejudiced against the applicants’ case.

Principles

29. Li CJ in Chan Kam Keung v HKSAR (2008) 11 HKCFAR 664 at 669 stated that

‘ 13. Assessments of judicial interventions must be made recognizing the court’s duty to exercise proper management over the proceedings in what often are difficult conditions.’

30. This Court (Silke VP, Power and MacDougall JJA) in The Queen v. Yeung Mau-lam [1991] 2 HKLR 468 at 473 stated the applicable principles in respect of bias due to judicial interventions : 

‘ We are satisfied that the authorities establish the following five proposition apposite to our consideration :

 (1)  Interruptions by their number alone are not decisive;

(2)  The quantity and quality of the interruptions must be looked at as factors which react upon each other;

(3)  Actual bias on the part of the judge need not be established, it being enough if by his conduct he would be thought by the informed bystander to be taking over the conduct of the case from the prosecution;

(4)  Where a judge sits without a jury, the appeal court must ask itself whether a person listening to the case would justifiably have had the impression that the judge had by his questions entered the arena;

(5)  The ultimate question for the consideration of an appellate court is whether the judge’s conduct was such that it would have caused the informed bystander listening to the case to say that the defendant had not had a fair trial.

We think it appropriate also to emphasize that a court, when considering the propriety of interventions by a judge, must bear in mind that it is the judge’s duty throughout to ensure that a trial is properly and coherently conducted.’

31. See also the comment of this Court (Leong CJHC, Woo and Yeung JJA) in HKSAR v Tsang Wai Man (CACC 190/2001) (English translation of the relevant part of the judgment appeared in HKSAR v. Chan Yick-Wing (陳奕榮) HCMA 1020/2009).

32. We would like to add that in considering the issue of bias by reason of judicial intervention, the emphasis must be on whether the intervention is necessary and fair.  The context in which the intervention was made is important (The Queen v. Lam Wai Hang [1997] HKLRD 562 at 570).  Judges are not expected to sit passively during the proceedings but rather are entitled to and are expected to exercise proper control over the proceedings so that ambiguities can be clarified and issues can be properly identified.  This applies both to intervention during the giving of evidence and oral submissions.  It is important to bear in mind that the common use of written submissions enables judges to know in advance the ambit of the oral submissions and the issues that call for determination.  Invariably during submissions, there will be exchanges between the judge and counsel.  Views proffered by the judge during the exchange may not necessarily be the basis of the final decision.  Very often one can readily form an impression whether the interventions are unnecessary and biased (aggressiveness and hostility of the intervention may be relevant considerations but they are not the sole consideration) or whether they are necessary and fair.  Examples of the former are stated by Lord Parker CJ in R v Hamilton [1969] Crim LR 486 whose view was adopted in R v Hulusi (1973) 58 Cr App R 378, 382.

‘ … But the interventions which give rise to a quashing of a conviction are really three-fold :

1)  those which invite the jury to disbelieve the evidence for the defence which is put to the jury in such strong terms that it cannot be cured by the common formula that the facts are for the jury and you, the members of the jury, must disregard anything that I, the judge, may have said with which you disagree;

2)  the second ground giving rise to a quashing of a conviction is where the interventions have made it really impossible for counsel for the defence to do his or her duty in property presenting the defence;

3)  and thirdly, cases where the interventions have had the effect of preventing the prisoner himself from doing himself justice and telling the story in his own way.’

33. For ease of reading, we have numbered the three situations separately.

Instances of intervention

34. Mr. Harris S.C. who appeared as trial counsel for the 2^nd applicant and as counsel on appeal for the 1^st and 2^nd applicants and together with Ms Juliana Chow as counsel for the 3^rd applicant identified the following instances of interventions by the Judge during the course of evidence and submission by counsel.

1)    PW1 [Leung Yiu Keung, Alex; a director of DIL]

1.1)  The Judge interrupted the cross-examination by Mr. Harris which might have affected the efficacy of the attack to be made on him.

1.2)  During the same cross-examination, the Judge provided an answer for PW1 even when PW1 was not giving an answer to that effect.

1.3)  During the cross-examination of PW1 by counsel for the 3^rd applicant, the Judge interrupted the examination and thus diluted the efficacy of the attack to be made on PW1.

1.4)  During the cross-examination by counsel for the 1^st applicant, the Judge’s intervention gave the impression that he had taken the view that the internet is a reliable source and he accepted PW1’s explanation without hearing and weighing all the evidence.

2) PW2 [Yau Chun Lung; an accounting manager of TPL]

The Judge interrupted the cross-examination of PW2 by the 1^st applicant’s counsel which affected the orderly, proper and lucid deployment of the defence case of the 1^st applicant and diminished the effect of the cross-examination.

3) PW3

3.1)  In the course of PW3’s evidence in chief, the Judge entered the arena by commenting to PW3 that ‘I think what counsel is getting at, were the accounts a mess or was there no problem at all when you walked into the job?  Some counsel might ask it anyway, come on, let’s get to it.’

3.2)  When counsel for the 1^st applicant objected that the prosecutor did not lay adequate foundation before posing a question to PW3, the Judge made improper comment and assumption by saying ‘Well, presumably he might know what it means or he might not.  He was with the company for six years.’

3.3)  When the same counsel was putting the defence case to PW3 during cross-examination, the Judge again interrupted and entered the arena by having a question and answer session directly with him, thus disrupting the flow of cross-examination.

4) PW5

4.1)  During the examination in chief of PW5, the Judge gave an appearance of assuming the role of counsel by asking a series of questions, which went far beyond clarifying questions.  These questions may have the effect of putting words into the mouth of the witness.

4.2)  When PW5 was being cross-examined by Mr. Harris the Judge interrupted the flow by questioning his approach.

5) PW16 [Wan Kwok Hung; a marketing manager of TPL]

5.1)  During the examination in chief of PW16, the Judge took over the role of counsel by asking questions that were not for clarification purposes.

5.2)  During the same examination, regardless of the objections raised by counsel for the 2^nd applicant, the Judge still allowed the prosecutor to ask irrelevant questions or ask questions without proper foundation.

6) DW1 [Qiu Li Li; a clerk of TPL Shenzhen]

6.1)  While Mr. Harris was cross-examining DW1 as to one of the transactions documented in the materials produced by the 2^nd applicant that supported the defence case, regardless that DW1 had said nothing implying that the transactions were unusual, the learned trial judge put to DW1 that ‘So that was out of the ordinary, was it?’

6.2)  During the cross-examination of DW1 by prosecuting counsel, the learned trial judge again took over the role of counsel by cross-examining DW1 with 12 questions, which were not simply clarifying previous answers.

7) The 2^nd applicant

7.1)  During the cross-examination of the 2^nd applicant by prosecuting counsel, the Judge again took over the role of counsel by cross-examining the 2^nd applicant with more than 30 questions, which were not simply clarifying previous answers.

7.2)  The Judge even put the prosecution’s case to the 2^nd applicant before the prosecution had put the case.  The Judge put to the 2^nd applicant that ‘I think what’s being put to you is that the whole purpose of getting the money from the bank was to pay off these loans…’

8) Closing submission of counsel for the 1^st applicant

During the closing submissions of counsel, the Judge interrupted on no less than 15 occasions.

9)    Closing submission of Mr. Harris 

The Judge made a comment suggesting that the 2^nd applicant deliberately destroyed the documentary records in the Mainland.  This was inappropriate and prejudicial to his defence.

Our view on intervention

35. In considering the intervention in this case, it is necessary to note that the trial took 23 days of which the evidence took 17 days.  The applicants were separately represented below.  The case management role of the Judge in a case of this complexity must be recognized.  We have reviewed the relevant parts of the transcript.  We do not consider that the interventions made by the Judge were unnecessary or unfair.  In respect of the specific instances relied upon by Mr. Harris, it is necessary to consider the context and the nature of the Judge’s interventions.  Many of the questions were for clarification purpose or for the purpose of identifying the issues.  We do not consider that these interventions, whether taken individually or a whole, would give a reasonable person who is familiar with the issues in this case, the impression that the Judge was biased against the applicants.

1)    PW1

1.1)  The Judge was of the view that the answers given by PW1 were in response to the nature of the question that was asked of him by counsel.

1.2)  The Judge merely summarised the nature of PW1’s evidence which was in fact accepted by Mr. Harris.

1.3)  The Judge asked for clarification of the question and reminded counsel of PW1’s earlier answer.

1.4)  The Judge merely reminded counsel of PW1’s earlier response.

2)    PW2

The Judge required counsel to put to PW2 his specific allegation of PW2’s role when there was already evidence on the ambit of his role.

3)    PW3

3.1)  The Judge required prosecuting counsel to put specific questions to PW3.

3.2)  The Judge was of the view that PW3 was able to answer the question asked by prosecuting counsel.  He was not making any assumption.

3.3)  The Judge reminded counsel that the evidence given by PW3 was not based on his opinion but on what he had actually done.

4)    PW5

4.1)  The Judge’s questions were clarifications or a summary of PW5’s evidence.

4.2)  The Judge sought clarification from counsel of his question.

5)    PW16

5.1)  The Judge clarified an issue with PW16 before prosecuting counsel moved to another topic.

5.2)  The Judge allowed questions to be asked in respect of a product because prosecuting counsel said PW16 was familiar with it because of his work.

6)    DW1

6.1)  The Judge raised this question because the evidence showed that payment in cash for that transaction was different from other transactions.

6.2)  The Judge’s questions were directed towards clarification of the evidence.

7)    The 2^nd applicant

7.1)  The questions were for clarification of the evidence in respect of the description of the products, namely, whether PW5 had provided him with invoices, the 2^nd applicant’s view on the invoice numbers and the location of the documents.

7.2)  The Judge merely identified the purpose of prosecuting counsel’s questions when he was going through the documents with the 2^nd applicant.

8)    Closing submission of counsel for the 1^st applicant

  The Judge sought clarification of counsel’s written submission.

9)    Closing submission of Mr. Harris

  The Judge sought clarification of the 2^nd applicant’s case.

Failure to consider the defence and failure to give reasons

36. The second ground relied upon by the 1^st and 2^nd applicants was that the Judge failed to consider their defence and failed to give reasons why he rejected their defence and the documents produced in support of their case.  They argued that

1)  The Judge merely relied on the testimony of PW3 and PW5 that they had never seen any of the documents produced by the 2^nd applicant.

2)  The inference drawn from the 2^nd applicant’s testimony was that if it was necessary to destroy underlying accounting records in relation to the 27 transactions in order to avoid VAT, then it was odd that the warehouse records would be retained.

3)  The Judge further failed to consider the doubts created:

(1)  in relation to the documents.  PW3 did not testify that the documents produced by the 2^nd applicant were bogus, instead PW3 only testified that he was not clear whether they were bona fide transactions or not;

(2)  PW5 agreed that she could not rule out the possibility of there being genuine transactions.

4)  When the Judge held that the warehouse records produced by the 2^nd applicant were bogus, he failed to consider whether it was the only irresistible inference that the warehouse records would also be destroyed if the underlying accounting records had been destroyed.

5)  The prosecution did not adduce or seek to adduce any evidence to show that the documents produced by the 2^nd applicant were bogus – despite having every opportunity to do so.

6)  Regardless, the Judge still held that the documents produced by the 2^nd applicant were manufactured for the purpose of the proceedings which was an extremely serious allegation.

37. The applicants submitted that crucial to a fair determination of the case was a full and reasoned analysis of a large volume of documents produced by the 2^nd applicant as defence exhibits.  If the documents were or may have been genuine the prosecution case is certain to fail.  Hence the Judge erred in failing to justify his finding that all the defence materials were bogus and created only for the purposes of the trial.

Defence properly considered with adequate reasons

38. We disagree.  The Judge’s conclusion that there was no genuine sale of the goods can be supported by the following evidence.  He had also given adequate reasons when he rejected the documents produced by the defence.  In any event the reasons were apparent from his decision that the transactions were not genuine.

1)  The Judge was clearly entitled to accept the evidence of PW3 and PW5 that the documents were manufactured for the purpose of obtaining the loans.  Once this is accepted, the documents produced by the defence of the Mainland transactions cannot be genuine documents.

2)  The circular movement of funds is another strong indication that there was no genuine transaction.  The real purpose of the false transactions was to enable the parties to be provided with cash flow so that they could make use of the funds before they were eventually repaid to the banks. 

3)  When PW1 confronted the 1^st applicant with the suspicious sale, the 1^st applicant did not say that there were genuine underlying transactions in the Mainland.

4)  The 2^nd applicant purported to rely on the payment clause (Clause 5) in the Mainland contract which stated that,

‘ 五、 結算方式：乙方在發貨前需向甲方支付相應貨款，交貨後雙方按實際金額結算。(注)：因甲乙雙方在香港均有公司，則先由雙方在香港公司暫辦理支付手續。即：香港怡豐有限公司支付香港建豐行染料有限公司。[在貨到10天內，乙方必需按商品的實際金額支付給甲方。]甲方收到貨款後再委托香港建豐行染料有限公司退回代收金額。’

Translation

5.   Method of Payment: Party B has to pay Party A before delivery for the products, after delivery both parties will make settlement according to the actual amount.  (note) because both parties A and B has their respective company in Hong Kong, therefore payments shall be handled by their respective Hong Kong company initially, that is Yee Fung Company Limited to pay Plentiful Chemical Limited.  Then within 10 days after delivery Party B will have to pay the actual amount of products delivered, then after Party A received the money to cause Plentiful Chemical Limited to return the amount initially received by them.’

But in the light of the analysis of the fund flow, this provision cannot possibly be a genuine provision.  Even the 2^nd applicant himself recognized that the fund flow looked like a sham.

5)  The Judge had considered that the case advanced by the 2^nd applicant was not put to PW5

‘ 542. I noted that D2 when giving evidence insisted that for PCL invoices he gave instructions to PW5 about preparing invoices he said he gave her detailed descriptions in accordance with the contracts he produced. This had never been put to PW5. When he was referred to a number of PCL invoices in which the product was given a generic description such as “dystuffs”, he said of course he did not give her that description and that PW5 type “dyestuffs” for convenience. Again that was never put to PW5. He also maintained, contrary to the evidence of PW5, that he had never seen nor been told what description was written in the invoices. He said if he had realized she was doing this he would definitely have corrected her. Again, this was never put to PW5. With regard to these matters I did not believe D2. I noted that the contracts which D2 said were connected with the transactions had never been shown to PW5.’

6)  Notwithstanding the 2^nd applicant’s claim that two bankers whom he had named had advised him that so long as there were underlying transactions, it would be alright, he had not called these bankers.  To require the prosecution to call them would be absurd when it had already adduced evidence from the banks that they would not have lent if the content of the applications and supporting documents were false or misleading.

7)  The Judge clearly was entitled to reject the alleged genuine nature of the documents produced by the applicants having regard to the above and to the fact that :

(1)  it was odd that the warehouse records of PCL were retained even though the underlying accounting records were, according to the 2^nd applicant, deliberately not kept for long; and

(2)   it was strange for the applicant, if he was telling the truth, not to have kept proper records of the Mainland transactions which were all carried out in cash.

Mainland transactions not a defence

39. In any event, even if for the purpose of argument, there were genuine corresponding Mainland transactions, we cannot see how this would amount to a defence for the applicants.  Mr. Harris submitted that this showed that the applicants did not have the necessary criminal intent.  We disagree.  In simple terms, one form of conspiracy to defraud is made out on proof of an agreement to use dishonest means for the purpose of causing economic loss to or putting at risk the economic interest of another.  The elements of the charge were clearly fulfilled when false documents were presented to the banks in respect of the false transactions carried out by the Hong Kong companies of the applicants. The evidence from the banks was that the funds would only be granted or released on genuine transactions.  The economic interests of these banks were clearly at risk because of these false transactions.  The element of dishonesty must be present by applying the two stage approach in R v Ghosh [1982] QB 1053 :

‘ In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails. If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what they were doing was by those standards dishonest. In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it. It will be obvious that the defendant himself knew that he was acting dishonestly. It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did. For example, Robin Hood or those ardent anti-vivisectionists who remove animals from vivisection laboratories are acting dishonestly, even though they may consider themselves to be morally justified in doing what they do, because they know that ordinary people would consider these actions to be dishonest.’ (emphasis added)

40. In the present case, there is no question that according to the ordinary standards of reasonable and honest man, using false means to obtain loans was dishonest.  Following from this, the applicants must have known that what they did was dishonest, even if they asserted or genuinely believed that they were justified in their acts, because they knew that ordinary people would consider their actions to be dishonest.

Role of the 3^rd applicant

41. The 3^rd applicant argued that there was no evidence at all as to his role in YFL.  There was also no evidence as to the procedure in YFL in applying for the letters of credit.  Furthermore there was no evidence as to the circumstances in which the 3^rd applicant came to sign the documents. 

42. The only evidence in respect of YFL came from two agreed statements of its staff, PW6 (Ma Sai Lun) and PW14 (Lau Kit Hong) in which they stated that they worked for over 20 years for the 3^rd applicant’s father Lau Senior.  There was no evidence that they worked for the family as such.  The only other evidence came from PW5, an accounting clerk with PCL who stated that she only contacted Lorin of YFL in respect of the transactions. 

43. The 3^rd applicant argued that the Judge approached the matter as follows: he found that YFL was owned and run by Lau Senior who had known the 2^nd applicant for many years.  He also found that there must have been a high degree of cooperation between the companies to facilitate the movement of funds.  He went on to find that because the 3^rd applicant is Lau’s Senior’s son, Lau Senior and the 2^nd applicant were long term and close friends, and since the 3^rd applicant was put forward as one of the banks’ signatories then he must have known that these transactions were false. 

44. The 3^rd applicant argued that it was not the prosecution’s case that Lau Senior was a party to the conspiracies though ‘other persons unknown’ was included in the charges.  He argued that while the Judge seems to suggest that Lau Senior was a party to the conspiracy, he fell into error in inferring that since the 3^rd applicant is Lau Senior’s son and his name was added as an authorized signatory, he must therefore have been a party to the conspiracies.  The 3^rd applicant was not the only son whose signature was an authorized signature at the banks concerned – other family members were also authorized signatures.

The 3^rd applicant was properly convicted

45. We disagree with the submission.  As pointed out by Mr. Wesley Wong, counsel for the respondent, the involvement of the 3^rd applicant with these transactions can be shown from the following evidence:

1)  the appearance of his signature on the application forms and the letters applying for documentary credits;

2)  the undisputed fact that he was one of the sole authorised signatories of each of his company’s accounts;

3)  the manner in which he became an authorised signatory at the various banks; and

4)  that he was named as the contact person in many instances and had been put forward to the banks by the directors of YFL as the company’s manager.

46. It is of note that YFL had not carried out any business since 2006 and it had not done business with PCL.  Suddenly, the applications for loans in respect of the PCL transactions came into existence with the 3^rd applicant’s name on them.  The fraud clearly required close co-operation between PCL and YFL having regard to the circular movements of funds from the applicants of the loans and the recipients of the money and the pairing of the six false transactions under charge 4 with six of the 15 false transactions under charge 5.  In the absence of contrary evidence from the 3^rd applicant, the Judge clearly was entitled to find that he must have been involved with the conspiracy.

Conclusion

47. In our view the applicants were properly convicted.  Accordingly, their applications were dismissed.