HKSAR v. Chen Keen (Alias Jack Chen) and Others

HCCC 309/2019

[2023] HKCFI 1803

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NO 309 OF 2019

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R U L I N G

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1.The Prosecution proposes to call Mr Clive Russell Hudson to give expert accounting evidence and to tender his two reports dated 4 February 2021 and 25 March 2021 as evidence. The Defence jointly object to the admissibility of Mr Hudson’s evidence on the following 5 grounds:

(1)  The fundamental basis for the prosecution case has disappeared in light of the clear evidence from the Shinewing witnesses that the Tab 11 figures were never concealed from them - the concealment allegation at the heart of the case as opened to the jury is plainly unsustainable.

(2)  Mr Hudson’s instructions were always based on a fundamental misunderstanding of the issue in respect of Counts 2 and 4 and, hence, his resulting evidence is simply not relevant to any issue before the jury.

(3)  Mr Hudson does not in fact give “expert” evidence at all. Rather he purports to describe factually what are the differences in the figures between the Tab 11 Crafar farms’ accounts and D3’s financial statements. These are factual matters which are not in dispute and are already before the jury.

(4)  Mr Hudson is not a farm accountant. He is not competent to provide any valid opinion evidence on the reasonableness (or otherwise) of either the original Tab 11 figures or D3’s changes to those figures, which fall strictly into the province of farm accounting requiring specialist knowledge. He certainly cannot give expert evidence about the exercise of ascertaining a proper basis for the three years unaudited profit and loss figures attributable to the target assets. None of the opinions in his second report concerning the changes in the figures are admissible.

(5)  Mr Hudson’s evidence is not “necessary” since the changes are facts already before the Jury. The fact that the figures were changed or the extent of the changes is undisputed.

2.As rightly pointed out by Mr Mitchell, leading counsel for the Prosecution, Grounds 2 to 5 are identical to Grounds 1 to 4 of a similar objection raised by the Defence in the 2021 retrial before DHCJ Bruce. The learned judge allowed Mr Hudson to give expert evidence without giving a reasoned ruling.

Ground 1

3.In respect of Ground 1, the Defence submit that it has always been the central point of the Prosecution case on Counts 2 and 4 that the agreement necessarily involved the concealment of the Crafar external accounts to 31 March 2009 (the Tab 11 accounts). The Defence contend that the Prosecution case on concealment is contradicted by the documentary evidence as well as the Prosecution witnesses. The evidence of the ShineWing witnesses conclusively demonstrates that they were provided with the Tab 11 accounts as well as other underlying books and records of the target assets latest by 7 July 2009. The fact that there were losses in the 2009 Crafar Farm accounts was never concealed from ShineWing. ShineWing knew that adjustments were made to reflect the correct income stream generated by the target assets and the costs which directly go to the production of that income stream. It was not deceived into believing that the HK$92,520,000 gross profit figure related to the Crafarm group. Therefore, the fundamental basis for the Prosecution case has disappeared.

4.In reply, the Prosecution points out that this Ground involved a factual dispute to be resolved by the jury instead of an admissibility issue. It ignores the true issue in this case, which is whether the accused had formed the said conspiratorial agreements. The issue in this case is what these accounts were being presented as, whether they were presented as historical accounts attributable to the target assets. In order to determine whether there was a conspiratorial agreement one has to look at the actions and words of the accused. In assessing this issue, the element of concealment is relevant to the intention of the accused in presenting these accounts. The Prosecution disagrees that the evidence conclusively demonstrates that ShineWing had the Tab 11 accounts. Concealment is not simply a matter of looking at the evidence of the ShineWing witnesses. Even on their evidence it is not clear that the Tab 11 accounts were released to them at all. Reference was made to the emails between various reasons and the testimony of the ShineWing witnesses including Mr Barry Yip (PW7) who stated that only one set of accounts was presented as historical accounts.

5.It appears to me that this ground is more akin to a no case to answer submission which has little bearing to the admissibility of Mr Hudson’s evidence. Without going at length to issues which should be considered in a no case submission, on the totality of the documentary and testimonial evidence, I am satisfied that there is sufficient evidence of concealment to go before the jury. No doubt this issue will be canvassed in detail at the appropriate time.

Grounds 2, 3 and 5

6.In respect of Ground 2, the Defence submit that in his reports Mr Hudson did not address his mind to the fact that Appendix II of the Circular does not purport to present the net profit figures for the six Crafarms’ companies for the full 12 month period ending 31 May 2009. The Defence contend that Mr Hudson’s instructions from the ICAC (“whether the 2009 Crafarms Group profit and loss position for the 12 months ended 31 May 2009, presented by Natural Dairy to its shareholders in 2009, are a true representation of the Crafarms Group profit and loss position for that year when compared with the 2009 accounts actually prepared and signed off by the Crafarms Group accountants.”) were based on a fundamental misunderstanding of the nature of Appendix II because Appendix II is not the “Crafarms Group profit and loss position”. The issues are whether Appendix II was prepared based on the financial and other information properly compiled and derived from the underlying books and records of the target assets.

7.Reference is made to some passages in the summing up of Madam Justice Pang (as she then was) in the 2016 trial. Her Ladyship pointed out to the jury that the issue in this case was not whether the changes made by D3 were reasonable or justified. As such, Mr Hudson’s opinion on whether various changes made by D3 could be explained or justified is irrelevant to the true question that the jury has to decide, and his evidence is therefore inadmissible.

8.Grounds 3 and 5 contend that Mr Hudson’s evidence is unnecessary because the differences in the figures between the Tab 11 Crafar farms account and D3’s financial statements are undisputed factual matters. The fact that the figures were changed or the extent of the changes are facts already before the jury, therefore no expert evidence is necessary.

9.The Prosecution submits that Mr Hudson’s evidence will assist the jury by:

(1)  comparing D3’s final figures with the farms’ profit and loss position for the 10 months ended 31^st March 2009 as prepared by the farms’ accountant;

(2)  comparing the various sets of accounts prepared by D3 and provide his analyses and comments on the progressive changes made which show they were not justified in accounting terms;

(3)  commenting on the reasoning/justification/explanations D3 provided in his emails for the changes made in the accounts; and

(4)  comments on whether D3’s final figures were a true representation of the farms’ profit and loss position for the 12 months ended 31^st May 2009.

10.In reply, the Prosecution points out that the information which should have appeared in Appendix II is the historical income stream derived from all the farms and all their tangible assets, and that’s the same for the six farm companies, except for the debt because all the farms belonging to the six companies and all the fixed assets on them that belong to the Crafars were to be purchased. The figures should be historical, otherwise they were of little help to the shareholders who would want to know how the assets performed over the last 3 years instead of how they might perform if managed differently.

11.In respect of the differences in the figures, the Prosecution submit that the changes themselves maybe straightforward, but understanding how and why such changes were made is not easy. The Prosecution also relies on the pattern of changes (or lack thereof) to demonstrate the dishonesty of the accused and the falsity of the figures presented to ShineWing. Demonstrating the methodology employed by D2 and D3 as they changed the accounts by stages is an important indicator of the dishonestly of what they were doing.

12.It is important to identify the issues involved in Mr Hudson’s evidence before consideration of the above grounds. The relevant issues were identified by Pang J (as she then was) in her summing up to the jury at the 2016 trial [1]:

“About particulars (d) and (e), you may similarly think that at the end of the day the core issue is whether Eric was or was not playing with the figures and merely using the projected 2009 UBAH accounts as a pretext, or as an excuse, to provide such false figures to defraud 462 and the stock exchange pursuant to the conspiracy he had with Jack Chen and May Wang, rather than about the actual changes he made to the CraFarms’ historical accounts or about any ambiguity of the requirement for historical or actual figures under the Listing Rules.” (emphasis added)

13.And [2]:

“But in this case you may find that a direct comparison of Eric’s accounts with the tab 11 accounts is bound to result in differences. So the differences themselves may not be of much importance, but rather why there were such differences.

…

In other words, the issue for you after considering Panaho’s evidence and the rest of the evidence adduced before you is this: might it be that the differences were the results of the adjustments made by Eric in his preparation of the UBAH projected accounts. If so, the prosecution would fail to prove the alleged false representation concerning such financial information. Or, are you sure after considering all the evidence that the differences were the result of a false representation made dishonestly pursuant to the alleged conspiracies and that the claim of making adjustments was only put forth as an excuse to inflate the profit in order to paint a rosy picture for 462 and/or its shareholders in order that approval for the acquisition would more readily be given.” (emphasis added)

14.As the Court of Appeal pointed out at the outset of its Judgment [3]: “ Of the 3^rd appellant, it was the prosecution case that he had provided ShineWing with false figures in respect of the target company and target assets. He did so by manipulating the figures that had been provided to him by Mark King. ”

15.The above directions of Pang J were upheld by the Court of Appeal [4]:

“498. As the judge reminded the jury, there was no dispute that there were differences between the figures in the accounts provided by Mark King to the 3^rd appellant and the figures provided by him in the accounts supplied to ShineWing. Again, as the judge reminded the jury, the issue was whether or not the 3^rd appellant was “playing with the figures”, so that the figures that he provided were “utterly false accounts”. Or, were the figures the result of the 3^rd appellant making adjustments and producing projected accounts to ShineWing?

499. In that context, we are satisfied that the judge’s direction was correct. ... As the judge had suggested to the jury rhetorically, the real issue was why there was a difference between the figures provided by the 3^rd appellant to ShineWing compared with the figures provided to him by Mark King.”

16.Taking into account the content of Mr Hudson’s reports and the submission of parties in light of the issues identified by the Court of Appeal, I accept that Mr Hudson is an expert forensic accountant capable of giving evidence which could assist the jury in their determination of the relevant issues including whether D3 was making adjustments or manipulating the figures provided to him by Mark King. Mr Hudson did not conduct a simple comparison between the Tab 11 accounts and the final accounts supplied by D3. He looked at the changes in various stages. For instance, he can give evidence as to how the figures were changed, what changes were made, whether they were made in stages, whether they were made to all the farms, how the changes added up in accounting terms and whether the figures would appear in round number.

17.Furthermore, Mr Hudson’s opinion was acquired after lengthy and studious examination of the related documents. A vast amount of accounting material and a number of spreadsheets/summaries have been placed before the jury. The documentation involved is particularly cumbersome for them to handle. His evidence will no doubt assist the jury in understanding the significance of the figures.

Ground 4

18.Ground 4 can be dealt with briefly. The fact that Mr Hudson is not a farm accountant is a matter that will go to the weight of his evidence. No doubt counsel for the Defence would take the opportunity to explore this matter with Mr Hudson in his cross-examination.

19.To this regard, it would be helpful for Mr Hudson to read the transcripts of Mr Mark King and Mr David Wiltshire in this trial. I order that the same be provided to him before he gives evidence.

Conclusion

20.In my judgment, the expert evidence to be given by Mr Hudson is clearly relevant to Counts 2 and 4, and admissible for that purpose.

21.I rule that Mr Hudson is permitted to give expert evidence as a forensic accountant and to tender his two reports to the jury.

Postscript

22.These reasons are provided for the parties’ information only. The only part of this judgment which may be reported publicly is the above Conclusion. The remaining part of this judgment may not be reported until further order or until the conclusion of the trial.

Mr Neil S Mitchell, Counsel-on-fiat, leading Miss Ng Oi Lam, Joycelyn, SPP of the Department of Justice, and Mr Li Chun Ngai, Martin, Counsel-on-fiat, for the Prosecution

Mr Tim Owen, K C, leading Mr Benson Y M Tsoi, instructed by Boase, Cohen & Collins, for the 1^st Accused

Mr Ian Winter, K C, leading Ms Betty Chiu, instructed by Haldanes, for the 2^nd Accused

Mr David A.S. Khosa, instructed by Hobson & Ma, for the 3^rd Accused

[Subject to Reporting Restrictions as per Paragraph 22 of this judgment]