HKSAR v. CHAN PETER

CACC 102/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 102 OF 2004 

(ON APPEAL FROM DCCC NO. 668 of 2003 )

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J U D G M E N T

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Hon Yeung JA (giving judgment of the Court):

1.  On 15 March 2005, we dismissed the leave application on conviction and reserved judgment on sentence. We now give our judgment and our reasons.

Introduction

2.  The applicant – Peter Chan, a practising solicitor with Messrs Chan & Chiu, was convicted after trial by Deputy Judge Dufton (the judge) in the District Court of conspiracy to defraud and sentenced to 5 years’ imprisonment.

3.  He sought leave to appeal against both conviction and sentence.

4.  Mr Andrew Bruce SC and Mr Michael Blanchflower SC, both leading Mr Naresh Daryanani, separately argued on conviction and sentence respectively.

Background

5.  In early 1994, fifteen individuals and companies established Mart Treasure Investment Ltd (“Mart Treasure”) to build village houses (the Project) on several lots of land in Sai Kung (“the Land”).

6.  The applicant’s wife– Fan May-yung (Fan), was one of Mart Treasure’s shareholders, holding 6.25% of its shares.

7.  Dai Shu Sing (Dai), who originally liaised with indigenous villagers in the purchase of the Land, and Shum Yee Ling (Shum) – Mart Treasure’s company secretary, jointly held 6.25% of shares through a nominee company – Golden Royce Enterprises Ltd (Golden Royce).

8.  Dai was in charge of the Project and the applicant acted as Mart Treasure’s legal adviser.

9.  As the Project was not progressing well, a decision was made in 1997 to sell it. Through a middleman – Mr Tang Ka-hung (Tang), Paron Co Ltd (Paron) was identified and agreed to purchase the Project for $13.2 million.

10.  On 23 September 1997, Mart Treasure held a shareholders’ meeting at the Spotlight Recreation Club to discuss the sale of the Project.

11.  The applicant (as legal adviser of Mart Treasure and Fan’s representative), Dai and Shum, and other shareholders attended the meeting.

12.  According to the prosecution, the selling price of the Project agreed at the meeting was $8.2 million. It was a price put forward by Dai as the agreed price with the purchaser and the applicant successfully persuaded Mart Treasure’s shareholders to accept the price.

13.  On 30 September 1997, Dai signed the provisional sale and purchase agreement on behalf of Mart Treasure, followed by the formal one in November 1997. In the agreements, the selling price of the Project to Paron was stated as $13.2 million, which however, was not disclosed to Mart Treasure’s shareholders.

14.  Pursuant to the agreements, Paron made two payments totaling $8.4 million to Chan & Chiu, as solicitors for Mart Treasure. However, only $4.3 million was paid to Mart Treasure and the remaining sum of $4.1 million was paid out purportedly as “consultancy fee” and “commission”.

15.  In fact, the applicant paid Fan about $1.15 million, Dai’s wife about $1.34 million, and Tang and his associate about $1.61 million.

16.  On 30 November 2001, Dai left Hong Kong for Canada and has not returned. Tang was an immunised witness and gave evidence at trial.

Prosecution Case

17.  The prosecution alleged that the selling price of the Project to Paron was $13.2 million. However, the applicant conspired with Dai to understate the price to $8.2 million and defrauded Mart Treasure’s shareholders.

18.  The prosecution contended that Fan had never been involved in the sale and purchase of the Project and hence was not entitled to any consultancy fee or commission. The payments made to her were just means by which the applicant received his “reward” for the conspiracy.

Defence’s Case

19.  The applicant did not give or call any evidence. However, through cross-examinations of prosecution witnesses, it was suggested that at the meeting on 23 September 1997, the applicant was in fact unaware of the selling price of $13.2 million and he believed that the agreed price was only $10 million.

20.  It was the defence’s case that there was no actual agreement on the exact selling price of the Project and Mart Treasure’s shareholders agreed to accept the net price of $8.2 million, and were not concerned with the actual selling price.

21.  It was further suggested that Paron had marked up the selling price by $3.2 million- from $10 million to $13.2 million and the difference of $1.8 million – i.e. $10 million less $8.2 million, was a consultancy fee paid to Dai.

Prosecution Evidence

22.  There was clear evidence from the property agents that Paron agreed to purchase the Project for $13.2 million, as confirmed by the agreements it executed.

23.  The authorized representative of Paron – Mr Tse, also testified that the agreed price was $13.2 million; and it was not suggested to him otherwise.

24.  On top of the $13.2 million, Paron also agreed to pay “several $100,000” to the property agents as commission.

25.  Other Mart Treasure shareholders present at the meeting on 23 September 1997 described in detail how the selling price of $8.2 million was decided.

26.  Initially Dai said that the purchaser was only willing to pay $8 million. The applicant then explained the complexities of the Project in order to persuade them to sell it for $8 million.

27.  When one shareholder suggested a higher price of $8.5 million, Dai made a phone call, ostensibly to the purchaser, asking if the price could be increased; the $8.2 million selling price was meant to be the increased price after the call.

28.  A ballot was then held and all but one shareholder accepted the price. The minutes of meeting prepared by Shum P8 (a), though brief, were consistent with the recollection of the shareholders.

29.  When Mart Treasure’s shareholders discovered the discrepancies in the payments by Paron, the applicant was confronted. He produced a commission agreement and a consultancy agreement showing the need to pay $3.2 million to Tang as commission and $1.8 million to Dai as consultancy fee.

30.  Mart Treasure’s shareholders were, understandably, not satisfied with the applicant’s explanation and another shareholders’ meeting was held on 11 October 1997. They took the view that the minutes of meeting of 23 September 1997 prepared by Shum were too brief, and another one prepared by Ho Pui Sing [P8 (d)] was produced.

31.  There was then a meeting at the applicant’s office when he was asked to explain the selling price of $13.2 million, the commission and the consultancy agreements.

32.  The applicant said he knew nothing about the $13.2 million selling price and thought it was just $10 million. He also said the purchaser asked to mark up the price by $3.2 million and that Mart Treasure shareholders were all aware of the $1.8 million consultancy fee payable to Dai.

33.  There were subsequent meetings between the applicant and Mart Treasure’s shareholders, when the applicant was said to have made some admission, and agreed to compensate Mart Treasure for $4.1 million – the amount of the “consultancy fee” and “commission”.

34.  There was evidence to the effect that Dai, on earlier occasions, had been paid $500,000 consultancy fee and $600,000 public relation fee, which included payments to indigenous villagers for “fung shui” matters.

35.  The prosecution witnesses were extensively cross-examined by Mr Bruce at trial. The witnesses, except Shum, were adamant and remained unshaken.

36.  There were inconsistencies in Shum’s evidence on the selling price of the Project agreed at the meeting on 23 September 1997, not just with the evidence of other Mart Treasure shareholders, but also in her evidence under examination-in-chief and re-examination.

37.  At some stage, she agreed with the propositions put by Mr Bruce, on behalf of the applicant.

The Judge’s Finding

38.  The judge found that the net selling price of the Project agreed at the shareholders’ meeting on 23 September 1997 was $8.2 million. On that issue, he accepted the evidence of Mart Treasure’s shareholders and the minutes prepared both by Shum and Ho Pui Sing, and the events leading to the agreed selling price.

39.  The judge rejected the suggestion that there was any mention of commission or consultancy fee.

40.  The judge rejected the applicant’s explanation that he believed the agreed selling price of the Project was $10 million, or that Paron had asked to mark up the price by $3.2 million.

41.  The judge concluded that the commission agreement and the consultancy agreement were fraudulently drawn up to conceal the difference of $5 million.

42.  The judge found that the applicant and Dai did conspire to defraud shareholders of Mart Treasure by persuading them to sell the Project for $8.2 million when the actual selling price agreed with Paron was $13.2 million and that he was acting dishonestly.

Grounds of Appeal Against Conviction

43.  Mr Bruce raised short and simple points. He suggested that the conviction against the applicant was unsafe and unsatisfactory because the judge had failed to properly resolve the issue as to what was actually agreed at the meeting on 23 September 1997.

44.  Mr Bruce argued that Shum had agreed with the suggestion that the price of $8.2 million was only the amount available for distribution to shareholders.

45.  If that was the case, the agreed selling price must be more than $8.2 million as there would be other outgoings, such as “ting fees”, to be paid. Hence, the applicant’s defence, that he believed the selling price to be $10 million, could be substantiated and would cast doubt on the prosecution case.

46.  Mr Bruce suggested that the judge should not have simply cast aside Shum’s evidence as unreliable, but should have considered whether her evidence would give rise to any reasonable doubt as to what was the agreed selling price.

47.  Mr Bruce emphasized that Mart Treasure’s shareholders must have appreciated that $8.2 million could not have been the gross price offered by the purchaser, taking into consideration the possible outgoings.

48.  He further submitted that as Dai was given full authority on the Project, Shum’s evidence would have given rise to doubt on the issue of the applicant’s dishonesty.

Discussion

49.  The judge was clearly concerned about Shum’s evidence when she appeared to have accepted some of the propositions put to her. The judge found her agreement to the propositions unreliable and hence unsafe to rely on.

50.  The judge commented that Shum’s agreement to the propositions was wholly inconsistent with the minutes of the meetings.

51.  The judge accepted the evidence of other shareholders that they only agreed, after persuasion by the applicant and Dai, to sell the Project at the net price of $8.2 million.

52.  In so far as Shum might have accepted some of the suggestions put to her; the judge had clearly rejected her evidence.

53.  There was ample evidence to justify the judge’s conclusion on this matter.

54.  Quite apart from the unsatisfactory way in which Shum gave her evidence as identified by the judge, it has to be borne in mind that Shum was closely related to Dai.

55.  The applicant’s defence was premised on his explanation that he thought the true selling price was just $10 million, that the purchaser had marked up the price by $3.2 million, and that $1.8 million consultancy fee would be paid to Dai.

56.  The applicant did not adduce any evidence at trial to support such explanation. In any event, such explanation contradicted the prosecution evidence, which was either undisputed or undisputable.

57.  What he said at subsequent meetings with Mart Treasure shareholders was not consistent with his explanation either.

58.  The other Mart Treasure shareholders were all adamant that they were coerced to sell the Project for $8.2 million and that the figure of $10 million was never mentioned. Mr Tse said Paron had agreed to pay $13.2 million for the Project.

59.  Such evidence was supported by documents, including the sale and purchase agreements and the minutes of the meetings. The applicant himself prepared the sale and purchase agreements.

60.  What was perhaps more striking were the significant payments made by the applicant to his wife from Paron’s deposits. There was never any explanation for them.

61.  The evidence against the applicant was overwhelming. He conspired with Dai to understate the selling price of the project; and in so doing, was acting dishonestly. On the facts as found by the judge, the applicant was rightly convicted.

62.  We did not find anything unsafe or unsatisfactory about such conviction. The application for leave to appeal against conviction was refused.

Appeal Against Sentence

63.  The judge found that in order to justify the price difference of $5 million, the applicant had made false representations to Mart Treasure’s shareholders.

64.  Pursuant to the conspiracy, the applicant disposed of $4.1 million from Paron’s deposits by making payments to his wife and Dai’s wife, as well as Tang and his associate. There was no restitution.

65.  The judge, opining that solicitors are expected to have the highest standards of honesty and integrity, pointed out that the applicant was a solicitor and was therefore in a position of trust, yet he used his privileged and trusted position to defraud his clients.

66.  The judge took into consideration the applicant was hitherto a person of impeccable character and had carried out community works. The judge further took into account that the offence took over 6 years to come to court.

67.  The judge considered a sentence of 5 years’ imprisonment appropriate.

Grounds of Appeal Against Sentence

68.  Mt Blanchflower pointed out that Mart Treasure’s shareholders were able to make a profit out of the Project and some of them had been prepared to pay commission to Dai if he had asked for it. They were still prepared to continue with Dai’s authority after learning of the fraud perpetrated against them.

69.  It was suggested that the judge had wrongly sentenced the applicant on the basis that he was a party to a theft of $5 million and hence the guideline he adopted was excessive. Mr Blanchflower argued that the judge should only have taken into consideration the amount obtained by the applicant, namely the sum of about $1.15 million.

70.  Mr Blanchflower complained about the failure of the judge to indicate a starting point and hence it was not possible to say what discount, if any, had been given to reflect the mitigating factors identified by the judge.

71.  Mr Blanchflower also suggested that the sentence guideline in R v Clark [1998] 2 Cr App 137, which is beneficial to defendants because of inflation, should be adopted in place of the guideline in R v Barrick (1985) 81 Cr App 78.

72.  Mr Blanchflower relied on Art 12(1) of the Hong Kong Bill of Rights and submitted that “if, subsequent to the commission of the offence, provision is made by law for the imposition of a lighter penalty, the offender shall benefit thereby”, and therefore when the judge relied on Barrick (supra) and imposed a heavier sentence in accordance with the practice prevailing at the time of the offence, the judge was in error.

73.  Mr Blanchflower asked us to take into consideration the following factors, namely (1) after Mart Treasure’s shareholders learned of the fraud, they continued to engage the applicant; (2) the period of the fraud only lasted 2 ½ months; (3) the money was given to the applicant’s wife; (4) Mart Treasure’s shareholders had obtained a judgment for $4.1 million against Chan & Chiu and the applicant was subsequently declared bankrupt; (5) impact on the public and public confidence and the effect on fellow-employers or partners was minimal; (6) the long delay in bringing the prosecution; and (6) the applicant’s own history.

74.  It was emphasized that the applicant was suspended from practice due to the unconnected fraud of his conveyancing clerk and in any event, he would never be able to practise as a lawyer again.

Our Approach

75.  Whilst we must not ignore the impact of the sentence on the applicant and his family, we should also have regard to the larger public interest when a solicitor defrauds his own clients in the course of his professional engagement.

76.  Previous good character and the impact of conviction on the applicant’s future career count very little as mitigation in cases of this nature. As the Lord Chief Justice said in Barrick (supra) at p 81:

“The type of case with which we are concerned is where a person in a position of trust, for example, an accountant, solicitor, bank employee or postman, has used that privileged and trusted position to defraud his partners or clients or employers or the general public of sizeable sums of money. He will usually, as in this case, be a person of hitherto impeccable character. It is practically certain, again, as in this case, that he will never offend again and, in the nature of things, he will never again in life be able to secure similar employment with all that that means in the shape of disgrace for himself and hardship for himself and also his family.”

77.  Put crudely, the applicant would not have been able to do what he did but for his previous good character and he should have foreseen the consequences of what he did.

78.  Mr Blanchflower complained that “the judge erred in adopting the monetary guidelines in Barrick (supra), which were less beneficial to the applicant than the guidelines in Clark (supra)”.

79.  The point is this, that the present offence was committed when the Barrick guidelines, as they have been applied in Hong Kong, had not been subject to adjustment, primarily for the factor of inflation, as in Clark. (We note in passing that one of the reasons for the adjustment in Clark was that in England and Wales, the maximum penalty for theft had been reduced from a term of 10 years’ imprisonment to a term of 7 years’ imprisonment; but this is an aside).

80.  What Mr Blanchflower said is that Clark is more beneficial to the applicant because the adjustments made by Clark mean that higher figures must be reached before certain sentencing bands come into play.

81.  We were taken to submissions based upon article 12(1) of the Hong Kong Bills of Rights Ordinance and to questions of benefiting offenders by reason of adjustments in penal provisions after commission of an offence but before sentence.

82.  We do not find it necessary to go into that, because the premise of the submission was misconceived. The judge did not apply the Barrick guidelines. That is clear from two passages in the papers before us:

(1)	In the course of mitigation by Mr Bruce who appeared in the court below for the applicant, the judge recognized that Clark benefited the applicant (see page 98R of the appeal bundle) and when Mr Bruce suggested that by reason of article 12 of the Hong Kong Bill of Rights Ordinance the benefit should go to the applicant, the judge said: “Of course, I accept that.” (Page 99D).
(2)	In the reasons for sentence, the judge referred to Clark’s reconsideration of the guidelines laid down in Barrick and said: “Whilst Clark reviews the guideline in Barrick, the effect of the judgment in my view is beneficial to defendants. This is because Clark took into account inflationary value since Barrick resulting in larger amounts of money stolen before reaching a particular range of sentence.”

83.  It seems to us clear enough that the judge did precisely what Mr Blanchflower suggested he ought to have done, namely applying the guidelines in Clark. Mr Blanchflower appeared to have accepted this in the course of his submission.

84.  The essence of Mr Blanchflower's further submission was that when applying the Clark or Barrick guidelines for a breach of trust offence, the court should limit itself to the amount which the particular accused had obtained.

85.  Mr Blanchflower, in support of this contention, had taken us to Clark and Barrick themselves as well as to the recent case R v Pound 2004 EWCA (Crim) 2488 (8 October 2004), which was itself a case of conspiracy to defraud.

86.  With great respect, the submission is illogical. Sentencing is intended to address the criminality for which an accused should properly bear responsibility. 

87.  What happened in this case was that the applicant together with others put their minds together with the intention, by their conduct, to which conduct the applicant's role was central, of defrauding the applicant's clients of the difference between the true selling price and the represented selling price, namely, $5 million, less such commission as they authorised, or might reasonably be expected to have authorised had the matter been put to them.

88.  The logical consequence of Mr Blanchflower’s submission, were it correct, would be, for example, that if conspirators set out to defraud persons of very substantial amounts of money, and to that end put into place complex plans, but were arrested before the execution of the conspiracy so that none of them in the event obtained benefit from the criminality, the sentencing court would be expected to apply the lowest of the Barrick or Clark brackets. This makes no sense. 

89.  Mr Blanchflower was forced to say, in response to this postulated example, that in such a circumstance the Barrick or Clark guidelines should not be applied.

90.  The case of Pound (supra)was of an altogether different nature from the present case.  It was a case in which different co-conspirators joined the conspiracy at different stages, some for short, some for longer, periods in circumstances in which the only rational way of approaching their comparative culpability was to address primarily the amounts each had received. 

91.  We do not say that the amounts by which individual conspirators have benefited are irrelevant, for that may often illustrate where in the scale of culpability each should be placed. 

92.  However in a case such as this, where the applicant had been in the forefront of the conspiracy, directed at one group of people, to be achieved by one misrepresentation, so that the pie could then be divided between the conspirators, it seems to us that to proceed on the basis that the scale of the conspiracy, so far as he is concerned, should be limited to the amount of his individual benefit, is to ignore his true criminality.

93.  It was then suggested, in the alternative, that the criminality should be limited to the amounts filtered to the applicant's family and to Dai and his associate, a total of about $2.5 million and that we should ignore the sum of about $1.6 million paid, purportedly as commission, to Tang and his associate.

94.  It was said that this latter sum was never part of the case of fraud put forward by the prosecution and that it was never alleged that this sum was not properly due to them.

95.  We do not agree. It was inherent in the whole case that $5 million was hidden from the shareholders and that part of that money was paid to Tang and associate, a payment never mentioned to the shareholders, let alone authorised by them.

96.  There was evidence that no mention was made at the meeting on 23 September 1997 of payments to middlemen, evidence which the trial judge accepted. 

97.  The agreements, which were intended to be evidence of commission and consultancy fee, were bogus agreements; so the judge found.  The judge found the suggestion that the shareholders would have allowed Dai ‘and others’ to keep for themselves whatever they could obtain over and above the agreed price of $8.2 million was unbelievable (paragraph 124 Reasons for Verdict).

98.  One has only to look at the figures to see the artificiality of the suggestion that the sums in question could be taken as lawfully paid and implicitly agreed by the shareholders.

99.  The sum of $1.61 million is almost 20% of the price, which the shareholders were led to believe was the agreed selling price. It is inconceivable that anyone could have thought that to be a legitimate consultancy fee or commission.

100.  One does not approach the question of sentencing as some pure mathematical exercise. The correct approach in this case, is one which has to reflect the true criminality of the applicant’s conduct. That criminality was a plan to defraud the applicant's clients of a sum close to $5 million, with the applicant intending to retain for himself a significant proportion of that sum. 

101.  In the event, the sum of which the shareholders were in fact deprived, as evidenced by the judgment they obtained in the civil action against the applicant, was $4.1 million. 

102.  The applicant had received a proportion, which befits his role in the conspiracy, and of course we take into account as a fact, that the full sum defrauded did not go to his pocket. 

103.  This is the reality of what has happened and it is looking at these facts globally that dictates the correct approach.

104.  We are of the view that the appropriate starting point based on the figures alone would have been a term of at least five years’ imprisonment.

105.  There is, however, an aggravating factor in this case, which is the degree of trust reposed in this applicant. 

106.  The applicant was a professional man in whom the victims had placed complete trust to properly advise them, which trust he abused in lending the weight of his expertise and office by persuading them, in circumstances which showed evident concern on their part, to sell at a price which was 40% lower than the true price.

107.  It was said that we should assume from the judge's reasons for sentence that although, unfortunately, he did not state a starting point, he took a starting point in the region of six years imprisonment. We do not think that in doing so, he can be said to have erred in any material regard.

108.  The question then becomes whether the existing mitigating features applicable to this case, should have taken the sentence below the five-year term imposed.

109.  One matter which has concerned us, and to which the judge expressly gave credit, was the delay between the instigation of the investigation in this case and trial. We think that delay was significant and one that had not been explained adequately. For that reason, some reduction was warranted on account of this factor.

110.  We were then urged to say that by reason of this applicant’s age, namely, 58 years, and the devastation to be visited upon him by the inevitable disciplinary sanction which would be imposed, he was at the end of his useful working life and that this should be taken as a material mitigating factor, for which no credit had been given.

111.  It is of course a tragic fact that someone in the applicant's position who has been of positive use to the community has brought himself to this pass, and that his disgrace has no doubt a dramatic impact upon him as well as upon his family. 

112.  However the cases which address the question of sentence for breach of trust, particularly in so far as they apply to professional persons, take into account the inevitable personal consequences of fundamental breaches of professional duties.  Into the guidelines produced by Barrick and Clark is built-in the fact that they apply very often to professional persons and there is more than a strong hint in these cases that persons in the position of this applicant, namely that of a professional legal adviser, must expect sentences which are certainly as heavy, if not heavier, than others. 

113.  There is good public policy reason for this, for the deterrent element must loom large.

114.  The guideline is just that, a guideline; and as Barrick made clear the circumstances of cases vary greatly, and one of the key factors to be taken into account is "the quality and degree of trust reposed in the offender including his rank".

115.  It should go without saying that the degree of trust reposed by a client in his solicitor is total, and the very last thing he would expect is for that person deliberately and dishonestly to encourage him to follow advice to his financial detriment.

116.  Barrick made the point that the sentencing climate in respect of breaches of trust had changed substantially at that time, "certainly so far as solicitors are concerned"; and the similar point was made that, "professional men should expect to be punished as severely as the others; and in some cases more severely." (See page 81).

117.  The scheme perpetrated by the applicant was intended to deprive Mart Treasure of $5 million less, it might be said, the difference in commission payable on a $13.2 million purchase and that on a $8.2 million purchase.

118.  In the event, because Paron defaulted on subsequent payments, only $8.4 million was paid and Mart Treasure saw a mere $4.3 million.

119.  We take the view that the size of the offence should be taken as one conspiring to defraud Mart Treasure of a sum approaching at least $4 million.

120.  Applying the bands in Clark,which was what Mr Blanchflower invited this court to do (and which, as we have found, the judge did), $4 million, the subject of the conspiracy (which at present day exchange rates exceeds ₤250,000), should attract a term upon a contested case of not less than 5 years’ imprisonment. The sum in pounds sterling would be higher were we to apply the exchange rates applicable in 1997.

121.  We are of the view that with the aggravating and mitigating factors identified earlier in this judgment, the five years’ imprisonment imposed by the judge is a proper sentence.

Conclusion

122.  We have considered everything urged upon us. We are not persuaded that in all the circumstances of the case, including the delay in bringing the charge against the applicant and other possible mitigating factors, that the sentence of 5 years’ imprisonment is manifestly excessive.

123.  We therefore also refuse leave to the applicant to appeal against sentence.