HKSAR v. Kong Sum Ming

DCCC 896/2016

[2019] HKDC 131

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 896 OF 2016

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Reasons for Verdict

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1.The defendant faces four charges in relation to this incident, three of fraud and one of attempted fraud.

2.The charges relate to a time when he was a salesman at a company called INC International Accounting.  The charges are based on alleged misrepresentations made by him on behalf of INC and also by its representatives which are said to have induced the victims to take out loans using INC as a financial intermediary with the loan provider, enabling INC, not the defendant, to earn a service charge that can amount to up to half the amount of the loan.

3.The background is as follows.  The first and second prosecution witnesses, who are a Mr Wong and a Mr Tsang, both had an equitable and legal interest in what is described as an HOS flat with a premium not paid.  The third witness, Madam Ngai, had an equitable and legal interest in an HOS flat with the premium paid.

4.The non-payment of the premium means that there are restrictions on remortgaging the property and permission must be sought from the Housing Department.

5.All three victims say they went to INC because of misrepresentations made to them by INC and its representatives, and they include the defendant in that.  Those misrepresentations are particularised in the indictments in respect of each charge.  They say they were all induced to seek refinancing of their existing debts.

6.INC’s proposal in respect of Mr Wong and Mr Tsang, whose properties were premium not paid, was that they take out a loan with a loan company.  This loan would repay some or all of their existing debts and would be an interest-only loan for a period of 12 months.  They would, by this operation, get money back from the loan and have their existing debts paid off and INC would get a service charge from that loan as well.

7.INC would also propose that part of the loan amount would be held by them to repay between four to eight months of the repayments under the loan with the new loan company.  The rate of interest on this loan would be up to 30 per cent per annum.  INC would also propose that the Housing Department be approached so that a mortgage could be take out with a bank at a lower interest rate which would repay the loan taken out with the loan company earlier.  The effect of this is that the loan taken out by INC as a financial intermediary would be a bridging loan while other finance was sought from the bank and the bank’s security would be the property owned by the witnesses.

8.The Housing Department would be approached by another company to whom INC would refer that application.  I believe it is called Chung Shun.  The prosecution in their evidence attempted to show that that was a related company, but I will say at this stage the evidence never could reach that conclusion on what I have read.

9.In neither Mr Wong’s nor Mr Tsang’s case - that is, the first and second witnesses - was the application to the Housing Department successfully completed, largely because of their own withdrawal of those applications.  In Ms Ngai’s case - that is, the last prosecution witness - her flat was premium paid, so no permission to remortgage would be required by her.  In her case it was proposed that a loan be taken out with a finance company to repay her existing loans, that she get the cash back, and INC be paid their service charge from that loan; that INC would retain money to pay some of the loan instalments; and that INC would seek to obtain a lower interest bank loan to pay the loan to the finance company.  Again, in Ms Ngai’s case such a lower interest loan never materialised because she was, as I understand it, not in a position to pledge her property.  Her husband was in custody in the mainland.

10.As far as the further details of these charges are concerned, PW1, who was concerned in the first two charges, fraud and attempted fraud, was the registered owner of a property purchased under the government’s Tenants’ Purchase Scheme.  He had an income of around 8,000 to 10,000 from online stationery businesses.  It was difficult to actually assess what his income was based on his evidence.  There were contradictory elements to it.  He had two loans secured on the property:  National Resources for $100,000 and $150,000.  He had also an overdraft of over $100,000 from HSBC.  He said the total repayments exceeded $10,000, presumably monthly.  He said he had never defaulted on instalments.  Presumably, given his income, that was why the overdraft was so high and increasing all the time.

11.On the figures that were supplied by him in a somewhat piecemeal fashion, I concluded that he could no longer service his debts.  He said in 2014 he received a call.  He said it was from HSBC by a Mr Wong saying they had conducted a risk assessment.  If he failed, then HSBC could demand full repayment of his liability to them.  PW1 was asked to explain the two National Resources to them.  He told them his income was $20,000 per month.  He was later told that he failed the stress test.  His information would be passed to an accountant who was described as on the list of the bank and that person would call him.

12.On 4 September 2014 PW1 in his evidence at some point said he received a call from Mr Kong, who said he had received information transferred to him by HSBC.  He urged PW1 to take out a second mortgage to pass the risk assessment, that for the first eight months there would be no payment of instalments and his loans and HSBC overdraft would be repaid and there would also be a $50,000 to $100,000 cash reserve and that the second mortgage that he could take out could be up to 60 per cent of the property value.

13.We know that PW1 later went to INC’s offices and met the defendant, because the defendant told us he did.  He admits this in his evidence.  PW1 says the defendant introduced himself as the person who contacted him earlier on on the telephone.  The defendant denies that.  They consulted an Excel document.  PW1 was told if he mortgaged to the bank, the repayments would be several thousand dollars.  He said there were three conditions he required:  repayment of the three loans, cash reserve of $50,000 to $100,000, and on that basis he signed an authorisation for INC and an agency agreement.

14.Shortly after, PW1 went to a solicitors’ firm, Darin Leung, and met a representative of Actually Finance and also a person of the law firm.  At this location he entered into a personal loan agreement with Actually for a loan of 1.2 million for 12 months.  It would appear the contents were explained and signed by PW1 so that he thus would have understood what he was entering into.

15.$280,000 of the loan was retained by Darin Leung Solicitors to repay the National Resources loans.  PW1 was given a cheque for 920,000, which he took to Hang Seng Bank to cash.  PW1 said the defendant had told him he need not pay the first eight months of instalments on the loan. After cashing the cheque, the defendant told PW1 to hand over the 920,000 to him to clear the debt with HSBC - that is, the overdraft - pay the first eight months of the Actually loan, and to pay INC’s service charge of $600,000.

16.Eventually PW1 received a call from Darin Leung to confirm the National Resources debt was paid, and there was in fact a refund to him.  Later, PW1 said the defendant told him the money returned by them was insufficient to obtain repayment to him of $50,000 to $100,000 and also at the same time to repay HSBC due to the need for the eight months loan instalment payments to be retained.  Therefore, the defendant needed to increase the application for the bank loan to 1.3 million - that is the 2nd charge - then he could repay the HSBC loan in full.

17.PW1 did meet a Miss Fung of this company, Chung Shun, the property company, who it was said would deal with the application to the Housing Department for a further loan, and various documents were filled in by him in respect of that application.

18.The problem was that PW1’s sister’s name was on the household particulars, and he was required to remove that, and he did so as part of the application.  PW1 supplied a number of documents to Miss Fung concerning his income and expenditure and he went with her to the Housing Authority to deal with the remortgage.  PW1 was told he needed to produce his deed to the flat, but he was unable to do this as his mother retained it and he did not want her to know about any remortgage.

19.In March 2015 INC refunded two mortgage instalments to PW1 in the sum of $67,200 after PW1 had requested the repayment to him.  It would appear that the remortgage of the flat on which the whole purpose of taking out the original loan was posited could not proceed without the title deeds, and PW1 could not furnish the title deeds, so his application went no further.

20.As far as the second witness is concerned and the 3rd charge, the deceit alleged is falsely representing that a remortgage loan could be obtained for this witness at Hang Seng Bank Limited. He was working as a taxi driver.  He had bought an HOS flat in 1998.  It was premium not paid.  He had a 20‑year mortgage with Hang Seng Bank.  He also had three other loans, two with Sun Hung Kai and one with UA Finance, Sun Hung Kai for a quarter of a million and UA the same, a quarter of a million Hong Kong dollars.  In November 2014 he received a phone call from a person who claimed to have been with Hang Seng Bank in the past and had handled the mortgage of PW2’s flat.  He said he was surnamed Kong and called “KK”.

21.There was some dispute about who that person was because the prosecution were saying that was the defendant.  The defendant denied that it was him, but he did say he knew a KK who worked within INC, and there was some documentation to establish that as well that was produced by the defendant.

22.This person said he could suggest a personal finance scheme to clear the debts.  PW2 eventually went to INC and saw the defendant, who he said told him he was KK.  The defendant told PW2 he could get a remortgage with Hang Seng Bank and the repayment would be $11,000 for 10 years.  He could also get the quarter of a million in cash and his debts cleared.  This was on the basis of obtaining an intermediary loan.

23.PW2 admitted he signed a number of documents concerning remortgaging the flat.  These documents were from the Housing Authority for approval to remortgage.  It was arranged for PW2 to go to a solicitors’ firm at Langham Place.  They went to a firm called Tang & Associates, where PW2 met a representative of China Prestige.

24.PW2 himself said the documents were explained to him individually by the representative.  There was a loan of 1.05 million, an interest-only loan.  The interest instalments were 26,250 for 12 months.

25.The defendant at some point explained that the money from the Hang Seng Bank mortgage when it was obtained would pay off the loan to China Prestige; in other words, a bridging loan.  PW2 said he thought the eventual mortgage to be taken over his property was to have been with Hang Seng Bank.  He was told by a person called Sam Lui that of the 1.05 million, $340,000 would be retained by the solicitors’ firm to pay his - that is, PW2’s - outstanding debts.  The balance of 710,000 would be given to him by a cheque.

26.The defendant explained to PW2 and said that of the 710,000, 260,000 would be given to him.  The remaining amount was INC’s service charge and eight months of instalments to China Prestige.

27.PW2 did cash the cheque for 710,000 at Hang Seng Bank and was given a quarter of a million.  The defendant took 450,000 which was INC’s service fee and the eight month loan instalment for the application fee to the Housing Authority.  PW2 went to the defendant’s office to collect the receipt for $450,000.  At that time he was introduced to Miss Fung and Chung Shun who were to handle his application to the Housing Authority for remortgage.

28.PW2 was told he had to supply all the required documents if the application was to be successful, and he handed over the documents within 10 working days.

29.Eventually PW2 said he was told by a representative of INC that the Hang Sang Bank would not grant a pre-approval letter and they would apply to another public bank.  There was some evidence that there had been an irregularity in the application made to the Housing Authority, but as I say, this was done by another company, not INC.  PW2 because of this did not thereafter pursue his application for remortgage through INC and Chung Shun so we do not know if that would or could have been successful in any event.

30.The final charge relies on the evidence of PW3, Madam Ngai.  She had purchased an HOS flat in 2004 jointly with her husband in Yau Tong.  Premium was paid.

31.At all material times her husband, who is a joint owner of this property, was in prison in mainland China.  The property was subject to a 60 per cent mortgage at Dah Sing Bank for 10 years and was repaid.  Ms Ngai had taken out two loans for $400,000 with OK Finance and $300,000 with Goldmax.

32.She said that she had received a call from a Mr Chan saying she had illegally pledged her flat to the two finance companies, and he had told her he used to work for OK Finance but now worked for INC.  She was also told she would receive a letter from a company called Hong Kong Land Company, and eventually she received a letter from an HOS mortgage company which referred to her unlawful pledging of the flat.

33.She called Mr Chan, who told her to come to his company, where he would get a manager to look at the letter.  She went to INC.  She took the letter with details of her income and liabilities.  She also had some other letters urging her to repay her debts. 

34.PW3 said she met Mr Kong, the defendant.  She said at one point he had called her before she went to INC.  He said he had not.  At INC the defendant said he told her allegedly that he was the boss, talked to her about borrowing, and she said he said things were messed up and that the initial payments in Goldmax were high.  He said that one loan was troublesome and she should transfer it to his company as the interest rate was very low.  That was her account of what she said she was told.

35.The defendant had told her she could borrow 1.4 million to repay Goldmax and OK and the monthly payment would be $28,000 on that bridging loan.  His company would take 600,000 by way of a service fee and his company would help her to get a loan from the bank.

36.On 22 December she went with the defendant and met a Mr Ho from Fast Billion Holdings solicitors’ firm, and this was for the arrangement of a loan to be taken out and to clear the OK and Goldmax loans.  The amount to be borrowed and the interest rate was explained to her. She was told three months of instalments on the loan would be retained.  The loan was explained and she signed.

37.PW3 was given a cheque for 600,000.  Later she cashed the cheque and transferred $200,000 to the defendant’s account and 300,000 in cash to the defendant.  The 300,000 was given to the defendant so that he could work on getting a mortgage.  It would appear that PW3 again was unable to supply the title deeds for remortgage, so the application could, in any event, not proceed.

38.The defendant gave evidence about all this and agreed he was a salesman and consultant employed by INC.  He said he in his role did not conduct cold calls to potential clients.  He had earlier been involved in an office in INC that did call clients in advance and he had graduated up and become a salesman.

39.The prosecution produced some evidence of items seized from that office.  Though they said it supported their view that the kind of cold call PWs 1, 2 and 3 received would be made from that office, it is difficult to see on the basis of that documentation that that is the case.

40.In any event, I note that this is not charged that the defendant has been involved in a conspiracy, although at times it was prosecuted as if it was one.

41.In respect of all three prosecution witnesses, the defendant said the first time he spoke to them was when he saw them in his office.  They all came to him seeking refinancing because they had difficulty making payments on their loans taken out with other finance companies.  They were all people who would have difficulty in obtaining further loans because of the nature of their existing borrowing.  His proposal to them would differ depending on whether their property was premium paid or not.  If the premium was not paid, as in PW1’s and PW2’s case, they could either themselves pay the premium, which would allow them to mortgage the property without restriction. If this was not possible, then they would have to remortgage, but in that case, permission would need to be given by the Housing Department.  In order to meet the short-term need for money and to repay the loans which were pressing, the defendant would recommend to these witnesses, particularly PW1 and PW2, that they take out a loan with a finance company for 12 months.

42.The purpose of taking out of that loan was as follows:  to free capital for the applicant; to pay off the existing loans; to provide some money to support an application for refinancing from the Housing Authority by way of bank finance which would be used to extinguish the loan with the finance company when it was granted.  The bank financing would obviously be at a much lower rate of interest than the existing loan taken out with the loan company, and it was anticipated that the means of the prosecution witnesses would be sufficient for them to repay the outstanding mortgage repayments on that new loan with the bank.

43.What the defendant was proposing was bridging finance.  It is a very common way of funding property deals, especially in Hong Kong.  The problem really is the defendant agreed here that INC would take a service charge of up to 50 per cent of the loan and would hold back up to eight months’ instalment payments on the loan, but this was, according to the defendant, INC’s business modus operandi and it was something that would be fully explained to the applicant at the time when they dealt with it.

44.Criticism has been made of the extent of that service charge, but it has never been put to me that there is any illegality in a finance company doing this.  It seems to be left to the matter of what we call caveat emptor - the buyer must beware.

45.What INC would then do would be what he described as set in train an application for remortgage to the Housing Authority through another company.  That other company was a company that I think Miss Fung was a representative of, Chung Shun.

46.It was considered by them that the application for the remortgage would take up to eight months, and that is why eight months of instalments were retained, to prevent default on the loan while the application to the Housing Authority was being made.  Remember that the actual loan was for a 12‑month period when it was anticipated that the loan could be amortised into the bank financing within eight months.  Of course, that could never have happened in respect of any of these three witnesses because they all withdrew their applications for remortgaging before the application to the Housing Authority had been completed.

47.He said that for PW1 and PW2 an arrangement of this sort took place.  However, the remortgage with the bank was not achieved because PW1 could not access the title deeds and PW2 withdrew his application. PW3’s property was premium paid, so she did not need permission to proceed. She was able to obtain financing through Fast Billion.  Her loans were repaid and three months’ instalments were retained.  She, however, did not continue with the application for bank remortgage, and that was because, it appears, her husband was not in a position to sign the necessary documents.  He was in China in prison.

48.The defendant denies all the particulars of fraud alleged by the prosecution.  He said he was simply a representative of the financial intermediary.  He said the arrangement could relieve the clients of their immediate need to meet their loans, could provide some capital to them, and would, in the fullness of time, if the applications were pursued, enable a lower-interest loan to be taken out with a bank which would extinguish the interest on the bridging loan, and the finance that he arranged was simply intended as a bridging loan.  The defendant also said that all the documentation in the case supported his account, that the documents that all the prosecution witnesses signed as to taking out their loans were fully explained to them in the presence and at a solicitor’s office, and all the clients, PWs 1 to 3, had signed to acknowledge their understanding of each stage and at every element of the refinancing process.

49.As far as the case is concerned, the prosecution bring this case.  They need to prove it.  The burden remains on them at all times:  they must prove it beyond a reasonable doubt.  They have to prove it on the basis of the particulars set out in the charge, and those particulars alone.  The case is not pleaded any differently by the prosecution.  And in doing so, they must completely rely upon the reliability of the witnesses they have chosen to call and their ability to recollect what happened, because the intrinsic underlying transaction that took place in every single case is not said to be in any way illegal.  The taking out of the financing, the repayments, the taking of the service charge, the application to the Housing Authority, are all done, as I understand it, lawfully.  The prosecution say that the addition of fraudulent misrepresentations brings these transactions into the category of fraud.

50.The definition of fraud is to be found in section 16A of the Theft Ordinance, and in this case requires the defendant acted deceitfully or dishonestly and made false representations in order to procure the loans that were made, and that was done with an intent to defraud, and that those applications resulted in benefit either to himself or INC or to prejudice or substantial risk of prejudice to each of the clients.

51.As far as the resolution of the case is concerned, as I said, apart from the representations that are said to have led up to the witnesses entering into the loan arrangements, the prosecution does not say that the agreements entered into are in any other way unlawful.

52.Loans are taken out and lawfully committed.  The complaint is made to the Commission it is too large, and that is a complaint made by all of the witnesses here and leaves them feeling aggrieved.  None of the charges relate to this and it is not said to be unlawful.  Perhaps it should be, but it is not.

53.The prosecution have distilled their case on the charges down to the various allegedly false representations made by, they say, this defendant.  The prosecution case stands or falls with them.  They must be made out to criminal standard.  Only then can they form the basis of a criminal conviction if made dishonestly.

54.The 1st charge has five alleged misrepresentations made to PW1, the first being that PW1 had failed the stress test and that INC were recommended, the second one being that INC were being referred by HSBC to deal with this as a financial intermediary.

55.In fact, PW1 said a number of things about this.  He said that a Mr Wong made the first representation of the defendant and that he had in fact forgotten the exact words of that misrepresentation.  The second misrepresentation is said to have been made over the phone and relies on a telephonic identification of the defendant’s voice. It made it difficult to separate out who actually is alleged to have made that misrepresentation and at what point.  The third misrepresentation is that INC could arrange for a loan in the sum of $1,200,000 with monthly payments, it said, of approximately $5,000 to $6,000 currency to repay his outstanding loans and National Resources and HSBC.

56.That is, as I understand it, seriously still pursued as a false misrepresentation when it is clear from the written documents that PW1 was entering into a completed agreement when he made the loan with Actually with a completely different repayment structure being suggested.

57.Clearly, from the written documents he signed, PW1 was fully aware of the interest rates and the agency commissions; also that it appears to have been explained to him that the eight months’ repayment would be retained in order to make the repayments of $33,600 per month to Actually. The consequence of that of course by simple calculation would be insufficient to immediately repay HSBC.

58.In respect of the fourth particular we can see that the defendant had signed a receipt for the first eight months’ retention of mortgage interest repayments which were to be paid by INC.

59.The final misrepresentation is that he would be provided with $50,000 to $100,000 in cash.  The evidence appears to show that he was in fact paid a number of cash sums by INC in the course of this mortgaging process.  The figures I have seen that he was repaid were 30 to 35,000, a figure of 67,200, and another figure I was given was 51,200.  It would appear that that is not an allegation that can be effectively pursued on the evidence I heard.

60.As far as the 2nd charge is concerned, it was the case that the Actually loan would have been insufficient to settle his outstanding loans with HSBC as at the same time as money was being retained to pay the instalments on the loan that he had taken out.  It would appear that that must have been clear to PW1 when he made this arrangement.  I find it difficult to see how that can be pursued as an attempted fraud charge.

61.Turning to the second prosecution witness, the false representation in this case allegedly here pursued by the prosecution is that a remortgage loan could be obtained from Hang Seng Bank.  The particulars are INC falsely represented that he could arrange for a remortgage loan for the witness at Hang Seng Bank Limited.

62.It would appear that this issue could never properly be put to the test because PW2 did not proceed with the loan application of his own volition in any event.  The application to the Housing Authority was pursued by the Chung Shun properties who were to help with obtaining a pre‑approval letter from the bank.  PW2 in fact agreed in his evidence the defendant had told him that the Housing Authority would determine if the application was successful and that the bank, Hang Seng, would decide whether to offer finance.

63.Given this evidence, it does appear that the allegation of a false representation being made cannot be established to criminal standard.

64.As far as the 4th charge is concerned, that concerned Mrs Ngai and a total of three allegations of false representation being made.  The first one was that the Housing Authority could repossess her flat for illegal pledging of the flat.  There had been also that a low interest loan could be obtained with no monthly repayments for the first three months.

65.Unfortunately, PW3 in this case was both a confused and confusing witness.  I found it not possible to discern a clear narrative from what she told me, and she gave evidence for some considerable time.  She also quite clearly made misleading statements about her contacts with the defendant, especially those that had been what had happened after the loan had been arranged.

66.She did however at one point in her evidence say that she had never spoken to the defendant before she went to INC, although she did contradict that later, so it is unlikely that the defendant could be proved to be involved in the first alleged misrepresentation about repossessing her flat.

67.What is or can be seen is clearly a false letter had been sent to her by a company called Hong Kong Housing Mortgage.  She, we know, showed the letter to the defendant, and she agreed he told her that it was not from the Housing Authority and that her flat was premium paid and that the Housing Authority could not interfere.  She agreed with that, so it would appear that the misrepresentations based on that letter and those early misrepresentations allegedly made cannot be sustained on the evidence.

68.I do note in the second particular there was what is described as a low-interest mortgage, although it is difficult to understand what is meant by that particular term or what a court could discern from that.  It is also the case that she appeared to have been told about the nature of the mortgages that she was entering into and she was also told that her husband’s consent and signature would be required to proceed with any mortgaging of the flat.

69.As far as the last particular is concerned about no repayment for the first three months was required, she did evidence that INC paid the first three months of the loan and she was not required to make that repayment, and I do not see how this, based on the evidence that I have heard, could again form a particular false representation.

70.In any event, as I said earlier, I found PW3 to be inherently unreliable.  I can make no clear findings as to her evidence, although it certainly did not satisfy the burden of standard of proof required in a criminal case.

71.The issue I identified in relation to all these charges was simply the reliability of the witnesses in respect of what they said were false representations made to them by the defendant as opposed to any other person.  That was the real issue I had to decide.

72.On this I had their evidence, I had the evidence of the defendant, and I had the documentary evidence which, as I said earlier, tended to support the defendant’s account of his relationship with the clients.

73.In respect of all the prosecution witnesses, they were being asked to recall incidents where they had been spoken to by people purportedly working for INC who were not the defendant, we know that, and we know that INC in fact had an office of people conducting cold calls.

74.It was a feature of this case that all the witnesses were understandably somewhat confused as to by whom, when and where the alleged misrepresentations were made.  It was common ground to this extent that the defendant’s role was to explain the loan arrangements and collect the commission.  The documentation supported this and the defendant’s evidence about the case was of that nature.

75.My view is that overall on this evidence it is not possible to reach to a criminal standard a conclusion that the defendant had made or adopted any of the representations that are contained in the indictment and PWs 1 to 3 evidence at one time or another.

76.In this case, it would appear to be that the real complaint of all of these people was the commission, the taking of which is not illegal and which they signed to acknowledge, and what the commission does is raise the effective interest rate on the loans to way behind the point at which it would be lawful to offer such loans in Hong Kong, but they are offered by different companies.

77.This may speak of some collusion of INC with the lenders.  However, this is not part of the prosecution’s case and is not evidenced in the case that I have heard, and in any event was not part of the defendant’s area of responsibility.

78.So one cannot exclude the overall aura of some form of criminality existing in INC’s operations, but it does not necessarily mean the defendant was a party to it in doing the rather limited functions that were required of him in this job.

79.As I said, I have found overall the charges the prosecution bring fail on the standard of proof.  Clearly there is suspicion here and they may well have had a better case at a civil proceedings with a lower standard of proof.

80.But in this case, I do not find that any of the charges can prove to sustain the standard of proof required of a criminal case given that there must exist a reasonable doubt on each of these four charges in respect of the defendant’s position, and I will dismiss those four charges.