HKSAR v. TARAZONA EDGAR HENRY AND ANOTHER

CACC 508/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 508 OF 2002

(ON APPEAL FROM DCCC NO. 521 OF 2002 )

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REASONS FOR JUDGMENT

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Hon Yeung JA (giving judgment of the Court):

1. On 21 May 2003, we granted leave to the applicants to appeal against conviction. We quashed the conviction and ordered a re-trial. We indicated that we would hand down our reasons in due course and this we now do.

The Facts

2. On 3 April 2002, a party of police officers led by Detective Senior Inspector Baker raided Room 645 of the Inter-Continental Hotel with a search warrant. The room was registered in the names of the applicants. The immigration records indicated that they had on previous occasions travelled together. They in fact entered Hong Kong at the China Ferry Terminal on 3 April 2002 and checked into the hotel.

3. Tarazona Edgar Henry (A1) was inside the room with two men of Spanish nationality, Reyes and Lopez. The police found three locked boxes (A1, B1 and C1) ostensibly of the Federal Reserve USA, each containing 250 $500 million US Treasury Bonds and other items. The 750 Treasury Bonds formed the subject matters of the charges against the applicants.

4. There were a few notebook computers and digital cameras with images of US Silver Certificates and a US Federal Reserve box.

5. The police also seized a black bag (P18) containing a camera and a bankbook in the name Nakamori Shinri (A2) together with a large numbers of documents relating to US Treasury Bonds and Silver Certificates.

6. A2 was intercepted in the hotel lobby when he was in the company of a man named Momohara.

7. Later in the evening, Cheung Chung-kit (Cheung) asked to see A2. Cheung had on his person 88 false US Currency banknotes (Silver Certificates) of $1 million each. The serial numbers of the false Silver Certificates matched those captured in the notebook computers and the cameras.

8. The applicants and Cheung were arrested. The police interviewed A1 on 4 April 2002. At the interview, A1 gave a detailed account of how he came by the false US Treasury Bonds and what he intended to do with them.

9. A1 claimed to be in the business of old US dollars notes issued by US Treasury and A2 was his partner. He said he learnt that Chiang Kai-shek's wife had some 1934 US notes and wanted them to be redeemed by the US Government. He therefore went to China with A2 and was able to obtain 300 US$1 million notes (Silver Certificates).

10. He was also made aware by A2's friend, Momohara, of the availability of US notes. They intended to send the US$ notes and the 3 Federal Reserve boxes to US Customs to have them authenticated. He believed the boxes contained Federal Reserve Bonds but had not seen them as he was told that they had to arrive at US Customs and Federal Reserve intact.

11. A1 also said Reyes and Lopes were introduced to him in Spain by a secret agent friend and they would be able to make arrangement for the Silver Certificates and the Federal Reserve boxes to be sent to the US Customs. When the police raided the room, Reyes and Lopes were taking photographs in order to produce a diskette which would accompany the documentations to the US Customs.

12. Should the Silver Certificates and Treasury Bonds prove authentic, they would find out how much the US Government was prepared to pay for them, keep a percentage and pay the rest to the Chinese owner.

13. A1's explanation was not accepted.

The Charges

14. The applicants were charged with possession of false instruments (the 750 US Treasury Bonds) with the intention that they would be used to induce somebody to accept them as genuine to the prejudice of that person with the alternative charge of simple possession of the 750 false US Treasury Bonds. Cheung was charged with possession of the 88 false US Currency banknotes found on him.

The Trial

15. The case went before Judge Chua in the District Court. Mr. Boase appeared for the prosecution. Mr. Callaghan defended the applicants and Mr. Cheng Huan SC acted for Cheung.

16. The applicants and Cheung applied for a stay of the proceedings. The applications proceeded on the basis of certain admitted facts and the accompanying exhibits. The admitted facts related to the falsity of the instruments in question, the seizure of various exhibits, a photo album depicting the scene and the immigration records of the applicants.

17. A1 gave evidence in the course of the stay application. He referred to and/or produced various documents (DP1, DP6 to DP13) relating to the handling of US Treasury Bonds, Silver Certificates and other instruments. DP 12 was a "Thomas Cook Foreign Currency Identification Guide".

18. Cheung's application was successful and the case against him was stayed. The applicants failed in their applications and the case against them continued.

19. The prosecution case against the applicants was not substantially disputed. It was admitted that the applicants had control and custody of the 3 Federal Reserve boxes and that the 750 Treasury Bonds were false instruments. The defence was that the applicants were not aware of the falsity of the instruments and they had no intention to defraud anyone.

20. When the trial proper commenced, the exhibit officer PW1 gave evidence and produced a large number of exhibits, including those found inside A2's black bag (P18) and those seized from Cheung. Some of the exhibits produced by A1 in the earlier application for a stay were also referred to and produced.

21. There were a large number of documents in P18. Those documents had not all been individually referred to and were not each given a separate marking.

22. Apparently it was not the intention of the prosecution to produce many of the exhibits. There was a suggestion that they were only added when the judge asked for all the documents in the room to be produced.

23. In the course of the evidence Mr. Callaghan raised arguments before the judge as to the admissibility of some of the documents, including the Thomas Cook book (DP12) produced by A1 in the stay proceeding. It was not readily known how DP12 came to be in the possession of the prosecution. The evidence was that a few copied pages of the book were found in Room 645 at the time of the raid.

24. Mr. Callaghan took the view that those exhibits were only produced for the stay proceedings and the defence was entitled not to produce them for the trial proper.

25. The judge disagreed and took the view that they had already been produced and should remain as exhibits. It was not made clear whether they were exhibits in the stay proceedings; in the trial proper or both.

26. Mr. Callaghan did not object to the production of some of the documents inside P18 "to make things run smoother". He reserved his right to make submissions on their admissibility in due course. Mr. Callaghan however did expressly object to a brown envelope (CKS-01), containing the 88 false US$1 million Silver Certificates (CKS-2) and the 5 keys (CKS-03) seized from Cheung. He was then directed by the judge to make his objections all at one time later.

27. Mr. Callaghan also indicated his objection to a number of documents in Chinese or Japanese characters, as there were no certified translations. Again those documents were not properly identified and marked. Instead after Mr. Callaghan raised the objection, there was the following dialogue between the judge and counsel: -

"Mr. Callaghan	:....you'll see in there that there's a lot of documentation in a foreign language- it appears to be in Chinese characters, they could be Japanese characters- and there are no certified translation of the documents, your Honour; they are not admissible.
Mr. Boase	: We're not seeking to produce the....
Court	: What?
Mr. Callaghan	: Well, what's point of putting it in?
Court	: No, everything goes in right now.
Mr. Callaghan	: Yes.
...........
Court	: At the moment I haven't examined all of these, all right?
Mr. Callaghan	: No.
Court	: We have agreed a course of conduct which is everything goes in.
Mr. Callaghan	: Yes.
Court	: What you object to, we'll all deal with it one at a time.
Mr. Callaghan	: And we can deal with that at one time.
Court	: All right?"

28. It is questionable whether Mr. Callaghan's objections, if he did make them, were made on the proper basis, as he appeared to be under the impression that the prosecution was not seeking to produce all the documents inside P18.

29. The prosecution closed its case on 13 September 2002 and the applicants did not give or call any evidence. Final submissions were presented on 16 September 2002 and the case was then adjourned to 20 September 2002 for verdict.

The Further Hearing on 18 September 2002

30. The judge convened a hearing on 18 September 2002 and invited counsel to further address her on certain documentary exhibits. The judge appeared to be concerned with some documents found inside P18, particularly two documents which were then marked as P18(2D)(1) and P18(2D)(2).

31. P18(2D)(1) appeared to be a letter faxed to Momohara by A1 on 18 August 2001 requesting him to release US$500,000 by 22 August 2001 and another US$500,000 on receipt of the 300 $1 million. P18(2D)(2) purported to show that US$500,000 was to be paid into A2's US dollar account with the Hong Kong Bank in Hong Kong.

32. Mr. Callaghan and Mr. Boase were surprised that the judge referred to those documents at all. They claimed not to have seen them before. Mr. Callaghan complained that they were not even included in the unused materials supplied to the defence by the prosecution.

33. Mr. Boase was even more blunt when he informed the judge that those documents had not been admitted and warned the judge not to fall into the error of taking into consideration inadmissible evidence.

34. The judge was not deterred and indicated that those documents had in fact been admitted as evidence.

35. The judge gave her verdict and convicted the applicants as charged. In her reasons for verdict, the judge correctly identified the issues.

36. The judge found that the applicants were in joint custody of the 3 boxes containing the 750 false US Treasury Bonds and that they were aware of their existence and their nature. The judge also found that the applicants knew or believed that the US Treasury Bonds were false and that they intended to use them to defraud Momohara.

37. The judge rested her finding extensively on some of the documents inside P18, particularly P18 (2D)(1), P18 (2D)(2), P18 (2B)(1), P18 (2B)(2) and P19 (2A)(2). It was based on those documents that the judge also concluded that Momohara was the intended victim of the fraud perpetrated by the applicants jointly.

38. The judge also made reference to the Thomas Cook book (DP12) to support her finding that A1 was "a sharp man with knowledge on currency matters" and hence his explanation to the police was a complete sham.

39. In passing, the judge also commented, "Anyone knowing modern Chinese history would have smelt a rat to be told these boxes originating in Mainland China belonged to Madam Chiang Kai-shek".

40. After the judge had given her reasons for verdict, it was suggested that her conclusion about Momohara being the intended victim could not be correct as it was the applicants who were paying Momohara. It was then pointed out that A1 had issued a cheque for US$1 Million payable to Momohara and a copy of the cheque could be found as one of the documents in P18. Complaint was made about the judge making her own investigations without giving counsel the opportunity to address her.

41. The judge however retorted by saying that the applicants could have explained it during the trial and that Mr. Callaghan had been asked to comment upon the documents earlier.

The Grounds of Appeal

42. On behalf of the applicants, Mr. Marash SC raised 3 grounds in support of the application for leave to appeal against conviction, namely;

1. The judge had relied on documents that had not been properly admitted as evidence;

2. When the judge found that the applicant intended to defraud Momohara, she in fact derived from the documents a theory not advanced by the prosecution and the defence was not given the opportunity to address the court on such theory; and

3. The judge had wrongly relied on her own knowledge of Chinese history when it was not a matter of which she could take judicial notice.

43. Grounds 2 and 3 perhaps were self-explanatory. As for ground 1, it was suggested that despite clear indication by Mr. Callaghan that certain evidence were objected to, he was not afforded proper opportunity to raise the objection. There were documents produced by the defence in the stay application which documents were not intended to be produced as exhibits in the trial proper. Yet the judge insisted that they remain as exhibits and had acted on them in reaching her verdict.

44. With particular reference to P18 (2D)(1) and P18 (2D)(2), it was pointed out that the documents were never intended as prosecution exhibits and counsel were not even aware of their existence or nature.

45. Mr. Zervos SC for the respondent suggested otherwise. He said all the documents, including those from the defence had been properly admitted as evidence and that the judge was right in refusing to allow Mr. Callaghan to withdraw the documents after they had been admitted.

46. Mr. Zervos emphasized that the documents in the black bag (P18) were listed and described in PW1's statement and they were found in the room occupied by the applicants. Mr. Callaghan had also been given the opportunity to inspect the documents before PW1 gave evidence and the defence must therefore be aware of their existence.

47. In any event, the documents had in fact been admitted and Mr. Callaghan was given the opportunity to address the court on the documents on 18 September 2002. The conclusion that Momohara was intended to be a victim was a conclusion that could be reached on the evidence.

48. Mr. Boase's comment to the judge that she should not take into consideration inadmissible evidence was described as a failure to appreciate what in fact had been produced as exhibits and "nonsensical".

49. The complaint about the judge's reference to modern Chinese history was dismissed on the basis that it was just a throwaway remark with no significance.

50. In criminal proceedings, it is primarily the prerogative of the prosecution to decide what evidence to present to court. The defence of course can introduce matters from the "unused materials" should it be considered necessary or beneficial to the defence.

51. The trial judge may not always be bound by decision of the parties, but in our adversarial system, he or she should not, save in exceptional circumstances take the initiative in deciding what evidence should be presented and how the case should be run. The judge should keep in mind that there will be information known to counsel which will not be apparent to him/her.

52. When it comes to documentary evidence, the documents intended to be adduced must be properly identified and marked. Parties must be given suitable opportunity to properly appraise for themselves their contents and implication. Any objection must be properly formulated, argued and adjudicated upon. The decision of the judge must then be clear and unequivocal.

53. Counsel and the judge can disagree on the interpretation and implication of the evidence, but they must be ad idem as to what evidence has been admitted. There is no room for "second-guessing" and misunderstanding must be avoided. In other words, everyone in court must know exactly what is before the court by way of evidence and their significance in relation to particularly the prosecution's case.

54. After all, how an accused conducts his defence will depend on the prosecution evidence against him. Counsel's addresses and the judge's decision of course rest entirely on the evidence that has been admitted.

55. We have carefully considered the grounds raised by the applicants and the record of proceedings. The way that some of the documentary evidence was presented, in particular P18(2D)(1) and P18(2D)(2) was unsatisfactory.

56. There was clear misunderstanding as to what evidence could and should be admitted; yet no attempt was made to sort out the misunderstanding.

57. Whilst it is true that PW1 purported to produce all the documents found inside A2's black bag (P18), there was no attempt by anyone to point out the significance of any of the documents.

58. P18 (2D) was presented to the court as "one green paper bag containing some documents." The individual documents in the paper bag were not properly identified and had not been separately marked as exhibits or referred to with the exception of P18 (2E) which was an agreement for a US$100 million transaction. It appeared that only P18(2E) was considered relevant.

59. There were no documents marked as P18 (2D)(1) and P18 (2D)(2) until 18 September 2002 after the applicants elected not to give or call evidence and after counsel had concluded their final submissions. Other individual exhibits, P18(2B)(1), P18(2B)(2), P18(2A)(1) and P18(2A)(2) were again only separately marked on 18 September 2002.

60. Neither counsel considered those documents important. Clearly the judge did not realize the significance of those documents either, until after she had retired to consider her verdict. That explained why the judge had to convene the hearing on 18 September 2002 and invite counsel to make further submission on the documents.

61. From the dialogue that Mr. Boase had with the judge on 18 September 2002, clearly it had not been the intention of the prosecution to produce P18 (2D)(1) and P18 (2D)(2) as evidence. It was doubtful if Mr. Boase had clear knowledge of the existence and nature of those documents. Yet the judge relied heavily on those documents to find guilty knowledge on the part of the applicants and that they intended to defraud Momohara, a theory not advanced by the prosecution and one which seems to have been contradicted by another document that appeared to have escaped the attention of the judge.

62. Mr. Callaghan had on a number of occasions indicated his objection to certain documents. He did not nor was he asked to indicate which particular documents he objected to, or the grounds of his objections. When objection was raised on the basis that some of the documents did not have certified translations, again the matter stopped when Mr. Boase simply said, "We're not seeking to produce the..." without any further attempt to identify those documents or to clarify the situation.

63. It was highly undesirable to adopt the practice that "everything goes in" first and the objections could then be dealt with later at one time. It would have the effect of unnecessary burdening the court with irrelevant evidence and could lead to misunderstanding as to the relevance and/or importance of the evidence.

64. The difficulties could be the result of over-sight on the part of Mr. Callaghan or he could have been misled by what he believed to be the intention of the prosecution not to rely on the objected documents. In the final analysis, the matter simply had not been properly dealt with.

65. If the judge took the view that as the defence exhibits had been produced in the stay application, they had to remain as exhibits in the trial proper, the judge was wrong. Those exhibits should of course remain as part of the court record in the stay application and any further proceedings relating thereto, they were completely irrelevant as far as the trial proper was concerned.

66. It was not known how the prosecution got hold of the Thomas Cook book (DP12). Neither the prosecution nor the defence wanted it to be produced as evidence. Yet the judge relied on it to support her conclusion that A1 was "a sharp man with knowledge on currency matters" and must therefore be aware that the bonds in question were false.

67. Mr. Zervos made the point that Mr. Callaghan had been invited to make submissions on 18 September 2002 before the judge adjudicated on the case. It must be borne in mind that by that time, the defence's case had closed and counsel had finished their final submissions. There was no suggestion that the case could be re-opened to allow further cross-examination of the prosecution witnesses or to enable the defence to reconsider its case.

68. More than that, Mr Callaghan was asked to address the court on aspects of the case that the prosecution was not advancing.

69. When the judge reminded Mr. Boase of the documents and invited further submissions from him, Mr. Boase said in no uncertain terms that the prosecution did not intend to rely on those documents. No doubt such approach, as conceded by Mr. Zervos, would have misled Mr. Callaghan in deciding what further steps to take with regard to the defence and what further submissions to make to the judge.

70. Having carefully considered the record of the proceedings and counsel's submissions, we were not persuaded that the admission of the documentary exhibits was proper.

71. We do not comment on the position taken by Mr. Boase in deciding not to include some of the documents as evidence and (if he chose to include them) whether they could be properly objected to. These will be matters in the re-trial.

72. Similarly the importance or otherwise of those documents and whether they were absolutely necessary to establish guilt of the applicants is not something we should comment on either.

73. It must be borne in mind however, that the judge had placed significant reliance on those documents in finding that the applicants had guilty knowledge. The judge also relied on those documents to conclude that they intended to defraud Momohara.

74. As we have concluded that the admission of those documents as evidence had not been properly dealt with on this occasion, we cannot conscientiously say that the applicants have had a fair trial or that the verdict was a safe and satisfactory one.

75. In the circumstances, the application for leave to appeal must be granted and we have treated the application as the appeal proper. We therefore allowed the appeal. The conviction against the applicants was quashed and the sentence set aside.

76. The alleged offence was a serious one with an international element. It could have significant impact on the image of Hong Kong as an international financial centre. The evidence against the applicants, particularly on the alternative 2nd charge, appeared to be strong.

77. Despite the fact that the applicants have served more than 13 months, which was a major part of the sentence imposed on them, we were persuaded that it was a proper case to order a re-trial.