HKSAR v. Sabag Shmuel

DCCC 247/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 247 OF 2015

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Reasons for Verdict

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1.The defendant faces one charge of theft.

2.The prosecution case is that the defendant operated a diamond trading company called Pure Diamond.  That a company called M&B Diamonds Limited, on five occasions between September and October 2014, gave the defendant a total of 13 diamonds on consignment.  The defendant pawned all 13 diamonds shortly after the signature of the consignor notes.

3.The defendant’s case is that M&B Diamonds had not retained title over the 13 diamonds, so the pawning of the diamonds by the defendant did not involve an assumption of the rights of an owner, nor was there any dishonest intent to deprive another of property by the defendant -- nor was there any dishonest intent to deprive another person of property by the defendant.

4.The charge itself is based on a general deficiency.  No issue has been taken on that.

The prosecution case

5.The prosecution case relied on the oral evidence of PW1 and documents produced by him; and Admitted Facts to prove the pawning of the diamonds; and also the closure of certain accounts by the defendant.

6.PW1 gave evidence.  He is a diamond dealer.  He is an Israeli citizen, but resident in Hong Kong.  He worked for M&B Diamonds as the sole director and manager in Hong Kong.  He knew the defendant was a dealer in diamonds.  Sometime in June 2014, a salesman said the defendant asked for a few stones for consignment.  PW1 said, “Okay,” as they knew the defendant was in the diamond trade.

7.The defendant eventually came a few times to consign and return diamonds.  In respect of each deal, both parties would check the diamond and the GIA number.  The -- GIA is the Gemmological Institute of America, which provides a certificate of authenticity for each diamond.  The certificate is retained by a seller and given to a purchaser on completion of a sale.  After the GIA number is checked, a consignment price would be agreed.  The price would be agreed based on the price of a carat.

8.There would also agree not to sell or consign the diamond to a third party without consultation and not sell the diamond without M&B’s permission.  This, PW1 said, was 100 per cent for all consignments.  PW1 and the defendant would then sign the consignment document, put on their company chops and signatures.  After this, the defendant was free to take the diamond.  M&B, however, would retain the GIA certificate until a sale was agreed.

9.The 13 diamonds, the subject of the particulars of the charge, were transferred to the defendant on consignment.  There was, PW1 said, a Jewish holiday in September.  After this, PW1 asked for the return of the diamonds.  He said the defendant gave him a number of excuses, such as that the diamonds were in Taiwan and China.

10.After this, the defendant’s mother became sick and the defendant, himself, returned to Israel for 10 days.  After this, he returned.  But then, unfortunately, we heard the defendant’s mother died and he returned again to Israel.  Later, following matters concluding in Israel, the defendant returned to Hong Kong.

11.These events lasted from October until January - until the defendant told PW1 and M&B that he had pawned the diamonds.  He told them this during a meeting in late December.  The defendant told PW1 he did not have the money to get the diamonds back and PW1 needed to pay the pawn shop.

12.PW1 personally redeemed one of the diamonds for $91,750.  PW1 produced five Memorandums which catalogued the transactions by which the diamonds were consigned to the defendant.  They were as follows:

(a) Memorandum numbered 0694, dated 23 September 2014, for three diamonds;

(b) Memorandum 0726, dated 23 September 2014, for one diamond;

(c) Memorandum 0693, dated 30 September 2014, for four diamonds;

(d) Memorandum 0692, dated 30 September 2014, for three diamonds; and

(e) Memorandum 0691, dated 7 October 2014, for two diamonds.

13.On each Memorandum there was a lot number and a description of each diamond consigned, together with a minimum sale price per carat.  The Memorandum terms were for 14 days with payments in cash.

14.Each Memorandum was stamped as follows -- with a chop that said the following:

“These goods only be sold with our authorisation and must be returned upon first request. By signature of this document the consignee assumes full responsibility for the goods as detailed above. Under no circumstances may the goods be further consigned without the prior authorisation of the consignor/owner of the goods.”

15.This chop was placed there by PW1 on behalf of M&B and it was M&B’s chop.  In addition, there is the chop of the defendant’s company, Pure Diamond Limited, and the defendant’s signature.

16.On the first Memorandum in time, namely 0694, the defendant has also handwritten the following under the Memo terms:  “Goods will not be sold without confirmation,” and then “more 14 days”.  PW1 said this was done as a result of their earlier discussions prior to the completion of Memorandum 0694, but it was the understanding upon which all 13 diamonds were consigned to the defendant.

17.In addition to the evidence of PW1, there were certain facts agreed.  The facts established that all 13 diamonds had been subsequently pawned after receipt by the defendant.  This showed that the four diamonds, the subject of Memorandums 0694 and 0726, dated 23 September 2014, were pawned on the same day as that Memorandum at two separate pawn shops.  For the four diamonds, the subject of Memorandum 0693, dated 30 September 2014, of these, two were pawned on the same day as the Memorandum and two on 6 October 2014.  The three diamonds, the subject of Memorandum 0692, dated 30 September 2014, were all pawned on the same day as the Memorandum.  The two diamonds, the subject of Memorandum 0691, dated 7 October 2014, were pawned on 7 October 2014 and 13 October 2014.  Thus, 10 diamonds were pawned on the same day as the consignment notices were drawn up with the defendant.

18.The defendant also admitted that Pure Diamond had five bank accounts; one had been closed on 12 March 2014 and the remaining four on 25 November 2014.

19.In addition to this evidence, the prosecution produced two records of interview made by the defendant.  In these interviews, the defendant confirmed that he understood English; that he had worked in the diamond trade for 40 years.  He confirmed that his business with M&B had been consignment, which was summarised at counter 366 as follows -- by a question as follows:  “As you paid M&B for the diamonds sold and returned the unsold diamonds to M&B?”  And the answer to that was, “Yes”.

The defence case

20.The defendant did not give or call any evidence.  Of course, no adverse inference can be drawn from this decision.

21.The defendant did submit the antecedent statement he made to the police and this was admitted by consent.  There is no reference to any criminal convictions of the defendant.  I decided, therefore, to treat him as being of clear record.  This was later confirmed by a letter dated 10 December 2015 and has   -- the defendant’s clear record is now part of the evidence of this trial.  This is naturally and of course relevant to his propensity to commit an offence of this nature, and the reliability and credibility of anything said by him.

22.The defendant’s case is primarily advanced by the cross-examination of PW1, and later, submissions to the court.

The cross-examination

23.In cross-examination, PW1 was referred to the Memorandums numbered 0691, 0692 and 0693.  The defendant showed what were the yellow copies of these Memorandum, which were copies of the Memorandum that the defendant retained.  Originally, the evidence showed there was a white copy and a yellow copy.  The yellow copy is produced as a result of an insertion of carbon paper between the two documents and represents what is written on the white copy or the white paper before the two copies were separated.

24.On the yellow copies retained by the defendant, the date, the Memo terms - Memorandum terms and payment terms were not filled out.  Furthermore, the chop that I referred to, placed on the white copy by PW1 for M&B, is not visible.

25.PW1 himself confirmed that the chop would not go through to the yellow copy and that is why it was not present.  He, however, could not remember if the chop was on the white paper before the white and yellow copies were separated in respect of these Memorandum.  As to the date, Memo terms, payment terms, these were not on the white copy before separation of the copies, and were added by PW1 himself, subsequently to separation of the copies.

26.The defendant’s case as put to PW1 was that each time the defendant took diamonds from PW1, PW1 told him, “The diamonds are now yours.”  That the defendant had to find a customer for himself and that the defendant had 60 days to pay initially.  If he needed more time, he was to let PW1 know that.  That the diamonds could be returned to him if there was no sale.

27.PW1 denied all these assertions made in cross-examination.  Furthermore, PW1 added, there had been another set of Memorandum.  These Memorandums were done after the first set, which would have been 0694, and were made to represent the diamonds that the defendant had at the time, as the defendant had taken and returned a number of other diamonds.

28.The Memorandums 0691, 692 and 693 were to represent the outstanding diamonds.  They were a consolidated record of what was outstanding and were not the original documents by which the diamonds had been consigned, which were, it would appear, not available.

29.The defendant submitted that PW1 had not effectively ever retained legal title to the diamonds when the goods had been given or consigned to the defendant.  It was submitted that the evidence of PW1 could not be relied upon to prove that the retention of title clause placed there, and the chop by PW1 on the Memos, ever existed at the time the defendant took and pawned the diamonds.  That the clause itself may not have effectively retained the legal title, but in any event it could not be proved that the defendant understood the clause and even if he did understand it, it could not be proved that the defendant formed an intention, or had formed an intention, to permanently deprive the owner of its goods.

30.The defendant is charged with theft.  The burden of proving the case remains on the prosecution at all times.  And they must prove beyond reasonable doubt that the defendant dishonestly appropriated property belonging to another person with the intention of permanently depriving that other person of it.  Any assumption by a person of an owner amounts to an appropriation, including where a person has come by the property without stealing it, and any assumption of a right to it by keeping or dealing with it or in it as owner.

31.Property shall be regarded as belonging to any person having possession or control of it, or having in it any proprietary right or interest, not being an equitable interest arising only from agreement to transfer or grant an interest.

32.By section 7(2) of the Theft Ordinance, “where a person, having possession or control of property belonging to another, parts with the property under a condition as to its return which he may not be able to perform, this (if done for his own purposes and without the other’s authority) amounts to treating the property as his own to dispose of regardless of the other’s rights.”

33.The prosecution say that the pawning of the diamonds was a dishonest appropriation of them as the pawning amounted to an assumption of the rights of owner, as M&B still retained a proprietary right or interest as a result of the consignment agreement.

34.Furthermore, the pawning of the diamonds shows an intent by the defendant to permanently deprive, as it involved parting with the diamonds under a condition as to their return and the defendant may not or was not able to perform, and this amounted treating the diamonds as his own to dispose of, regardless of M&B’s rights in the diamonds.  This, they say, moreover, was accompanied by a dishonest intent on the defendant’s part.  He must himself, they say, have known it was dishonest by the standards of ordinary, reasonable people and must have been aware of that himself.

35.The defence submitted that the credibility of PW1 had been, as they said, completely destroyed and the court had no grounds for believing that the chops, particularly the M&B chop retaining title, was on the Memorandums before the defendant signed them, and the top white and bottom yellow Memos were separated, and therefore, PW1 could not be proved to have retained title for M&B.  I noted this submission.

36.I had the opportunity of hearing PW1 and seeing him give evidence.  I found him to be a truthful, reliable and credible witness.  He gave evidence in an open and forthcoming manner.  He answered frankly and without inconsistency.  He did his best to assist the court on how his dealings with the defendant had progressed.

37.Clearly, there had been a number of dealings between PW1 and the defendant.  And PW1 said, at this distance of time, he could no longer clearly give details of each transaction, particularly as to the order in which the Memorandums 0691, 692 and 693 were compiled.  However, PW1 could give a reliable account of the nature of the transactions between the parties and the essential terms that they each relied upon in doing their business together.

38.Firstly, PW1 told us - and I find it clearly proved - that he and the defendant, had conducted their negotiations in Hebrew, of which they are both native speakers.  And they had reached, in their discussions, a clear agreement about how the diamonds were to be dealt with. The agreement then is set out in the Memorandums.

39.Although the Memorandums were in English, which no doubt is the lingua franca of the trade, it must be - and I find it established - that both parties clearly understood the English terms that were being used.  The agreement that they reached was the same for each transaction in the diamonds.  PW1 clearly said that.  This is obviously the case, having regard to both parties’ longstanding business in the diamond trade.

40.It is clear that PW1 and the defendant agreed that the business between them was the consignment of diamonds by M&B to Pure Diamond, meaning by that that the diamonds could only be sold with M&B’s authorisation, as PW1 said, “100 per cent”, and were to be returned on first request.

41.By this, M&B retained title to the diamonds and had the right to demand the return of goods at any time, and also to stipulate a fixed floor fee for the sale of goods.  These terms were fully discussed and agreed before the first transactions took place.  And these first transactions can be seen in the Memorandums of 0694 and 0726, for which no yellow copies have been produced.

42.I accept PW1’s evidence that these Memos reflect the discussions conducted between himself and the defendant.  There is no suggestion that the terms of the yellow Memorandums - should they exist - would show any other arrangement.

43.And in fact, the defendant endorsed Memorandum 0694 with his own understanding, written by him, that the goods will not be sold without confirmation.  And then the terms, “max 14 days”, being the length of the consignment period.  The Memorandum also contained a floor price below which the diamonds could not be sold in the column “price per carat”.  The other condition is cash terms for payment.

44.PW1, in his evidence, said that these were what he described as “generic conditions”.  For all the transactions that occasioned between them, there were a number of transactions with diamonds being given to the defendant, sold and returned on the same terms.  There were Memos to cover those transactions.  These, I am told, were not available and have not been produced.

45.There came a time when there were a number of outstanding diamonds.  To cover these, PW1 and the defendant drew up the Memorandums, 0691, 0692 and 0693.  The terms of doing business for these diamonds were no different from the earlier transactions.  PW1 fairly conceded that the date, Memo terms and payment terms were not filled in when the top white and bottom yellow Memos were separated, and he could not recall if the M&B chop was on the document before the separation occurred.

46.However, these terms were, on PW1’s evidence which I accept, no different from all the earlier existing transactions that had occurred between the parties and they were understood to be on the same terms.  I note the date is not disputed and the Memos represent diamonds already consigned to the defendant.  The Memo term and payment terms were the same. The retention of title was clearly understood and agreed by PW1 and the defendant to apply to all transactions between them.  Without that, the transactions would not have proceeded.

47.Thus, all the 13 diamonds were on this form of consignment.  The title to the diamonds retained by M&B.  M&B had the right to demand return of the diamonds and the diamonds could only be sold with M&B’s permission.  Unsold goods would be returned.  In the agreement, M&B set a floor price for the diamonds.  PW1 also evidenced that the defendant would always have to seek permission to sell the diamond.  PW1 said this is 100 per cent of the case for all consignment.

48.I note the defendant submitted that all that PW1 had in fact retained was an equitable interest in the diamonds, not a legal title.  I also note that PW1 had said that he wanted payment as stipulated in the Memorandums and he would wait payment or return of the diamonds.

49.I did not, on PW1’s evidence and the evidence of the case generally, find that M&B had only retained an equitable interest in the diamonds.  As PW1 insisted, M&B’s permission for a sale was 100 per cent in all consignments.  Furthermore, in all these consignments, M&B retained the GIA certificate.  PW1, himself, did not see how a sale could take place without the production of the GIA certificate to the purchaser.  He did not anticipate that a pawning could occur.  M&B, through PW1, in my finding clearly retained the legal title to these diamonds.

50.I also have no doubt, based on this evidence, that the defendant fully understood the details of the consignment transactions entered into by his company, Pure Diamond.  After all, on his own admission in his video recorded interview, he had been in the diamond business for 40 years.  He had also told police this was a consignment.

51.Finally, it was argued that the court could not necessarily be sure there was an intention to permanently deprive.  I find there is compelling evidence to conclude that there was an intent to permanently deprive.  The defendant had closed all his company accounts in March and November.  PW1 had to redeem one of the diamonds himself.  The conclusion for this I find is that the defendant never had the means to redeem any of the diamonds that he in fact pawned.

52.The evidence shows the defendant was all along wanting to get his hands on the diamonds.  On 23 September, we can see the clear terms agreed and endorsed by the defendant in his own handwriting.  Yet, the four diamonds that were given to him as a result of that consignment arrangement were pawned on the same day, as is the case with seven more of the diamonds.  And the remaining three were also pawned within a few days.  In the absence of an alternative explanation I drew the only conclusion , the only rational conclusion that the diamonds were simply obtained in order to be pawned, presumably to meet existing obligations.  The negotiation and signing of the Memorandums appears, unfortunately, to be a charade on the defendant’s part.

53.I also found clearly that the defendant’s appropriation of the diamonds by pawning them was dishonest in these circumstances.  I think I need to say no more that it was clearly dishonest by the ordinary standards of reasonable people to do this.  And the defendant with all his years in the diamond business, there was no suggestion that he was anything other than a reputable trader, must himself -- must also have realised it to be dishonest by those standards.  And I find this to be an irresistible inference that must be drawn from the established facts.

54.The diamonds were given to the defendant on consignment; an arrangement whereby I found that M&B clearly retained the legal title.  Thus, when the defendant pawned these diamonds, they belonged to that other person, M&B.  The defendant clearly entered into the pawning, in my finding, with intent to permanently deprive M&B, the owner of the diamonds, of them.  This is evidenced by the alacrity with which the diamonds were pawned and the clear inability of the defendant to ever redeem them.  This evidenced by the fact that his company bank accounts were closed, and despite the months the diamonds were left in pawn, there had been no attempt ever made to redeem them.

55.I find the prosecution has proved each and every element of this case beyond reasonable doubt and the defendant is convicted accordingly.