THE QUEEN v. HON CHUN-MING

IN THE COURT OF APPEAL

BETWEEN

__________

JUDGMENT

__________

Li, V.-P.:

1. The applicant is convicted of the offence of procuring the execution of a valuable security contrary to section 22(2) of the Theft Ordinance.

2. In the particulars of offence it is alleged that on or about the 8th of February 1983 the applicant with a view to gain for himself dishonestly procured from the Bank of Tokyo Ltd. the execution of a copy of irrevocable documentary letter of credit No. 680LLB525447 in the value of $229,725.10, namely by falsely representing that the original of this irrevocable letter of credit had been lost.

3. The prosecution evidence in support of the charge was that in  August 1982 the applicant was running one Cheung Hing Electric Wire & Cable Manufactory with a friend which opened an account with the Hong Kong Metropolitan Bank and obtained credit facilities. To all intent and purposes the applicant was the only person who operated this business. The firm of Cheung Hing deposited a sum of $500,000 with the Metropolitan Bank. In return the Bank gave the firm credit facilities to the amount of $1.2 million with cheque discount facilities up to $0.5 million. The arrangement worked satisfactorily until November 1982 when the Metropolitan Bank found that a lot of discounted cheques had been dishonoured so that the overdraft facilities for $500,000 limit was exceeded. The Bank pressed the applicant for repayment.

4. On the 28th of January 1983 the applicant took 3 letters of credit, 2 of which were issued by the Bank of Tokyo, Hong Kong to the manager of the Metropolitan Bank, Mr. Ngan. We are only concerned the present case with one that was issued by the Bank of Tokyo, namely letter of credit No. 680LLB525447 to the value of $229,725.10.

5. According to Mr. Ngan these two letters of credit issued by the Bank of Tokyo were pledged with the Metropolitan Bank as additional security so that the Bank would not press for immediate repayment of the overdraft facilities in respect of the discounted cheques, the limit of which had been exceeded by $100,000. At the same time the applicant was asked to sign two blank forms of undertaking for repayment of a short-term overdraft in favour of the Bank. Each of the form of undertaking related to one of the two letters of credit of which No. 680LLB525447 was one. According to Mr. Ngan, the manager, these two letters of credit were pledged to the Bank as additional security so that the Bank would not press for immediate repayment by the applicant.

6. On the 8th of February 1983 the applicant signed a letter and caused it to be delivered to the Bank of Tokyo reporting the loss of the two letters of credit aforesaid and requested that Bank to issue duplicate letters of credit. The Bank of Tokyo did so, cancelled the original letters of credit and notified the Hong Kong Banking Association which immediately gave notice to all the member banks. The Metropolitan Bank received such notice in due course.

7. In the meanwhile the applicant went to the Guandong Provincial Bank to open a current account in the name of his firm and presented the said letter of credit to the Guandong Provincial Bank for collection. In due course the Bank of Tokyo accepted and honoured this letter of credit and paid out $229,725.10 in full and such amount was credited to the applicant's company account. It was the Crown's case that by so doing the applicant falsely represented the loss of the letter of credit that would enable him to obtain extra credit from another bank instead of repaying the Metropolitan Bank with the proceeds of that letter of credit.

8. The applicant in the court below elected to give no evidence. Nor did he call any witness. However, in the course of cross-examination Mr. Ngan of the Metropolitan Bank was subjected to repeated cross-examination that the letters of credit lodged by the applicant with the Metropolitan Bank originally were for the purpose of applying for a short-term overdraft. This was persistently denied by Mr. Ngan. Great reliance was placed by defence counsel on the two blank application forms which stated clearly that they were for short-term overdrafts. It was put to Mr. Ngan that if the letters of credit were not for extra overdraft facilities on short terms, there would have been no necessity and no purpose for the applicant to sign those two blank forms. While admitting that such forms were signed for short-term overdraft, Mr. Ngan persisted that the lodging of the letters of credit was solely as a pledge to cover the excess and overdraft facilities of the discounted cheques.

9. Finally, there was put to him a question as follows:

In his cautioned statement to the police the applicant said:

 

Later, in answer to a question in the same statement the applicant said as follows:

"All along, I had obtained an overdraft facilities to the amount of $500,000 from the Metropolitan Bank, but in January, 1983, my overdraft in the Metropolitan Bank had exceeded the overdraft limit by more than $100,000. The Metropolitan Bank refused to grant further overdraft facilities to me for carrying on my business. Then I contacted the bank, and the bank said that unless I had Letter of Credit as pledge, I could not have further overdraft facilities. Then, at the end of January, 1983, I took two of the Letters of Credit issued to me by the Tokyo Bank to the Metropolitan Bank for pledging. I thought that the Metropolitan Bank could grant further overdraft facilities to me, but subsequently the Metropolitan Bank refused to grant me any further overdraft facilities. Therefore, at the beginning of February, 1983, I made a report to Tokyo Bank of loss of the Letters of Credit and I requested Tokyo Bank to issue L/Cs to me as replacement, so that I could use such Letters of Credit to get cash from other banks in order to carry on my business."

10. Throughout the trial in the court below it was the stand of the applicant that he lodged these letters of credit with the Metropolitan Bank for the purpose of obtaining further overdrafts and that was the agreement reached on the 28th of January. But later, according to the applicant's case, the Metropolitan Bank resiled and refused to grant further overdraft facilities while retaining the two letters of credit. It was for this reason that he obtained the duplicates for his purpose from the Bank of Tokyo.

11. In the event the judge found that the applicant did leave originals of the two letters of credit in the custody of the Metropolitan Bank and left them as an additional security so that the Metropolitan Bank would not press for immediate repayment of the overdraft facilities. The applicant subsequently made a false report to the Bank of Tokyo that the original letters of credit were lost. By this way he obtained duplicate letters of credit, one of which he presented to another bank, The Guandong Provincial Bank, for payment. For that he received $229,000 which he never used to repay his overdraft with the Metropolitan Bank. By so doing he obtained a gain for himself and the false report was dishonest. We use the judge's words:

"He thereby obtained the duplicate LC's as a result of the deception which was dishonest and he obtained the permanent use of these LC's presenting one of them for payment and cancellation."

12. On behalf of the applicant in this court learned counsel first argued that the Crown failed to prove what banking facilities were granted to the applicant by the Metropolitan Bank, and if facilities were granted, there was no evidence as to how such facilities were to be disposed of i.e. whether as the account of trust receipts or letters of credit and discounted cheque facilities, and that there was no evidence to show by what sum the applicant had exceeded the facilities.

13. In the premise, it was argued on behalf of the applicant, that  there was no evidence to show that the Metropolitan Bank was entitled to retain the two letters of credit as a pledge. It is further contended that there was evidence to suggest that the Metropolitan Bank through Mr. Ngan misled the applicant as to the retention of the said letters of credit that they would grant him as a packing loan facility which they then failed to fulfil. However, the evidence given by Mr. Ngan was that the trust receipt facilities was to the limit of $300,000. The cheque discount facilities was up to $500,000. There was also evidence that the total credit facilities extended was $1.2 million.

14. In his cautioned statement the applicant said in so many words that his company had already had overdraft facilities to the amount of $500,000 granted by the Metropolitan Bank. But at that time the Metropolitan Bank informed him, the applicant, that the overdraft of his firm had exceeded the overdraft limit by more than $100,000, and that the Metropolitan Bank pressed for repayment unless he lodged letters of credit as pledge. The applicant also said in that statement that towards the end of January, 1983 he took the letters of credit to the Metropolitan Bank hoping that he could use them as pledge for securing a further overdraft, but as a result, the Metropolitan Bank did not give him further overdraft facilities. Thus, on the occasion when he lodged the letters of credit, the applicant well knew that the bank would retain those letters of credit as a pledge rather than for further overdraft facilities. As to the signing of the blank forms of packing loan applications, the judge had this to say:

"The defence made much of the fact that two partially completed PLA's resulted from the meeting on the 28th January 1983. This they argued supported their case that a short term credit was arranged for the company and the two LC's were taken as part of this arrangement. But the Bank did not honour the arrangement yet refused to return the two LC's.

 

It is common ground that no further O.D. resulted following the 28th January meeting, and I have found as a fact that the Bank took these two LC's as pledges or additional security for existing debt."

Thus the judge did consider the point but he rejected the suggestion by defence counsel which went no further than mere suggestions. The trial judge had no other evidence to rely on except the equivocal statements contained in the cautioned statement made by the applicant himself.

15. The more substantial ground of appeal was that there was no evidence to show that the Bank of Tokyo upon whom the document imposed a liability to pay was in fact defrauded and such evidence is a necessary constituent of the offence which the Crown must prove before a conviction could be secured. In this respect learned counsel relied on the case of Thornton, (1963) 1 All E.R. 170. There some of the counts on indictment were obtaining valuable securities by false pretences contrary to section 32(2) of the Larceny Act, 1916. Delivering the judgment of the Court of Criminal Appeal, Ashworth J. said as follows: (at p.174)

"So far as principle is concerned, the view of this court is that s. 32(2) is aimed at, or directed to, a document imposing liability on the person defrauded, or someone at any rate other than the accused, to pay money or to perform any other obligation to the advantage of the defrauder, or some person whom the defrauder desires to benefit."

In order to understand the dictum the wording of the subsection must be understood. Subsection 2 of section 32 of the Larceny Act, 1916 provides as follows:

"Every person who by any false pretence with intent to defraud or injure any other person, fraudulently causes or induces any other person - (a) to execute, make, accept, endorse or destroy, the whole or any part of any valuable security; or (b) to write, impress, or affix his name or the name of any other person, or the seal of any body corporate or society, upon any paper or parchment in order that the same may be afterwards made or converted into, or used or dealt with as, a valuable security; shall be guilty of a misdemeanor."

The charge in the present case is founded on section 22(2) of the Theft Ordinance of which section 20 of the Theft Act in England is the counterpart. Section 22(2) in the Theft Ordinance provides that:

"Any person who dishonestly, with a view to gain for himself or another or with intent to cause loss to another, by any deception procures the execution of a valuable security shall be guilty of an offence and shall be liable on conviction upon indictment to imprisonment for 7 years."

Section 8(2) of the Theft Ordinance provides as follows:

"For the purposes of this Ordinance - 'gain' and 'loss' are to be construed as extending only to gain or loss in money or other property, but as extending to any such gain or loss whether temporary or permanent; and -

 

Thus the offence created by section 22(2) of the Theft Ordinance depends not only on a loss to the person defrauded but also on the gain of the person who defrauded. Archbold (paragraph 18-133) recognizes this:

"Section 20(2) of the Theft Act (i.e. equivalent to our s.32(2)) reproduces and extends the scope of the offence under the Larceny Act 1916, s.32(2)."

We find the case of Thornton to be of no assistance to us.

16. In the present case the issue of duplicate letters of credit was surely a gain to the applicant in the sense that he obtained temporary extra credit more than that to which he was entitled to. By obtaining the duplicate letters of credit by his deception he was able to obtain extra cash instead of having to make repayment to the Metropolitan Bank to cover his overdraft. In short, he obtained additional cash flow facilities.

17. It is also argued that the judge did not explain why he found the deception dishonest. It is argued that the whole test of dishonesty is the mental element of belief to which the subjective test must be applied. It is argued that the applicant in the present case had reasonable cause to believe that he was entitled to the money.

18. On the 28th of January 1983, the applicant asked for a separate short-term overdraft and forms had been signed in favour of the Metro-politan Bank for the purpose. A mere lie to the Bank of Tokyo need not be criminal. The essential point is that the applicant believed that he had a right to obtain the duplicates from the Bank of Tokyo. In his "Reasons for verdict" the trial judge did not consider that the applicant had an honest belief that he, the applicant, was entitled to the duplicates.

19. Counsel for the Crown argued that the applicant could not have an honest belief that he had the right to the duplicates. While applying the subjective test he cited the case of Ghosh, (1982) 2 All E.R. 689. At page 696, Lord Lane, L.C.J. said as follows:

20. As the trial judge accepted the evidence of Mr. Ngan that the original letters of credit were pledged as additional security, it would be sufficient reason for him to regard' the applicant's conduct in obtaining the duplicates by a lie as dishonest. He could not possibly believe that he was entitled to the duplicates so as to enable him to obtain cash loan or credit elsewhere.

21. We are of the opinion that it is not even necessary to rely on the argument which seeks support from the dictum of Lord Lane. The applicant elected not to give evidence. Thus, there was no evidence to support whatever belief he had in mind. Before the trial judge, there was only the evidence of Mr. Ngan who persistently told the Court the letters of credit were pledged as additional security.

22. Finally, complaint is made of the judge's "Reasons for verdict" in which he said:

"As a tribunal of fact I gave no weight to the exculpatory parts of P4 and full weight to the inculpatory parts."

It is contended that the trial judge should consider both the inculpatory and exculpatory parts of a cautioned statement: Cheng Chiu v. The Queen, 1980 H.K.L.R. 50. In this respect we are bound by the case of Leung Kam-kwok v. The Queen, Privy Council Appeal No. 36 of 1983, in which the decision in Cheng Chiu was considered. Delivering the judgment, Lord Roskill said at page 10 as follows:

"Their Lordships respectfully suggest that the position resulting from those English decisions is not as complicated as the Court of Appeal there appeared to have thought. If an accused person in a statement not made on oath in Court denies his guilt, saying for example 'I am not guilty: I was not there' and no more, that statement is not evidence of the truth of his absence from the scene of the crime and thus of the truth of his alibi. But if such a statement consists partly of an admission and partly of an explanation for example 'I shot him: it was an accident' or 'I shot him: I was provoked' the admission is plainly admissible and common fairness requires that the entirety of the statement should be admitted so as to show the precise context in which the admission was made, even though what is said by way of explanation or excuse is not evidence of its truth. Where the accused goes into the witness box and repeats the explanation or excuse on oath there is no problem. Where he does not go into the witness box it behoves the trial judge, when dealing in his summing up with the admission, in common fairness to the accused, also to refer to the accompanying explanation or excuse, adding if he thinks fit to do so that that explanation or excuse has not been supported by evidence on oath before the jury. It is then for the jury to evaluate the admission and the unsworn explanation or excuse as they think fit."

23. In the present case the applicant did not go into the witness box. What was contained in his statement, insofar as it is exculpatory may be regarded only as the circumstances in which he made his admission. In any event even if the tests in Cheng Chiu were to be applied, the judge said in so many words that as a tribunal of fact he gave no weight to the exculpatory parts of the applicant's cautioned statement. As a tribunal of fact the judge sitting alone is entitled to do so.

24. It is also the applicant's general argument that the conviction is unsafe and unsatisfactory because Mr. Ngan, the principal witness, failed to explain why the partially completed "Undertaking to Repay" forms were signed. We have said he consistently said the forms were signed as part of their bank procedure and that the letters of credit were lodged in fact for additional security of the excess overdraft. There is no other evidence to contradict him. The judge having heard the evidence as a whole and believed him, we cannot find any good reason to interfere with the judge's finding.

25. For these reasons, we find that there is no merit in this application. The application for leave to appeal against conviction must be refused.

26. We now proceed to hear the application for leave to appeal against sentence.

IN THE COURT OF APPEAL

BETWEEN

______

Coram: Li, V.-P., Yang & Barker, JJ.A.

Date of Hearing: 2nd April 1985

Date of Sentence: 2nd April 1985

__________

SENTENCE

__________

Li, V.-P.:

28.                We have considered the proper sentence to be imposed upon the applicant. Learned counsel have drawn our attention to the favourable probation officer's report. It appeared that the applicant had received not much education. He started work at the young age of 13.   Due to his industry and self improvement he was able to operate a factory of fairly substantial size. He is a resilient person. Having failed a couple of times he still managed to re-establish himself in business. Unfortunately he lacks of management skill. In fact he is far too ambitious without knowing his limitations. However, the probation report is in favour of the applicant. It shows him as a person of simple taste and of industry. The offence as committed is a serious one in the sense that it infringes upon the principle of business integrity which is very essential. A sentence of 9 months is, by no means, excessive by itself. There is nothing really basically wrong with the sentence. The trial judge must have taken all into consideration before he imposed a sentence of 9 months.

29.                We take into consideration that he is a man in his mid-thirties and he is still in employment. His present employer is prepared to employ him dispite this conviction and sentence. In the circumstances we feel that there is no necessity to impose a sentence in this case as a general deterrence. Nor is it necessary, in the present case, to impose a sentence as personal deterrence. We are prepared to give the applicant yet another chance.   Albeit there is nothing wrong with the sentence of 9 months. However, owing to the personal background of the applicant and the favourable probation report, we are prepared to exercise leniency. For these reasons, the application for leave to appeal against sentence is granted. It is treated as the appeal proper, the appeal is allowed and the sentence is set aside substituted therefor a sentence of such a length so as to enable the applicant to immediate release.

Representation:

Mr. Gilbert Rodway & Mr. Cheng Huan (Wong, Hui & Souza) for appellant

Mr. G.J. Lugar-Mawson, Crown/respondent