R. v. Robert John Walsh

CACC000219/1994

IN THE COURT OF APPEAL

1994, No. 219
(Criminal)

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Coram: Litton, V.-P., Bokhary and Mayo, JJ.A. in Court

Date of Hearing: 15 March 1996

Date of Judgment: 28 March 1996

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J U D G M E N T

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Bokhary, J.A. (delivering the judgment of the court):

INTRODUCTION

1. This is an application for leave to appeal against conviction and sentence.

2. It comes to us from a trial before Leonard J and a jury lasting from early January to late April 1994.

3. The appellant, a man then in his early 60's and of previous good character, faced four counts being of: fraudulent trading under the 1st count; theft under the 2nd and 3rd counts; and conspiracy to defraud under the 4th count.

4. He faced the fraudulent trading count together with his wife, and the others on his own. The person with whom he was alleged to have conspired, a Mr Taylor, was not before the court.

5. The jury delivered their verdicts on April 22, 1994.

6. In the result, the appellant was unanimously convicted on the fraudulent trading count and the two theft counts. He was unanimously acquitted on the conspiracy count. His wife was acquitted by a majority of 6 : 1 on the only count which she faced, being the one of fraudulent trading.

7. Sentence was passed on the same day.

8. In all, the applicant was sentenced to 4 years and 9 months' imprisonment and fined $250,000. That term of 4 years and 9 months was arrived at by way of 3-year terms on each count: the ones on the theft counts being concurrent with each other and to commence 1 year and 9 months after the commencement of the one on the fraudulent trading count. The fine was imposed under the fraudulent trading count.

9. The judge also made an order under section 157 E of the Companies Ordinance, Cap. 32, that the applicant shall not, without leave of the court, be a director or a liquidator or a receiver or manager of the property of a company or in any way, whether directly or indirectly, be concerned or take part in the management of a company for a period of 9 years and 9 months.

10. This application first came on for hearing before another division of this Court in January last year. But, for reasons into which we need not go, it had to be adjourned a number of times.

11. When the application finally came to be argued, the applicant appeared in person in regard to conviction while Miss Draycott of counsel appeared on his behalf in regard to sentence.

CONVICTION

12. At the moment, we are dealing with conviction.

Grounds of appeal

13. As to that, the applicant placed these grounds of appeal before us at the beginning of the hearing:

"The learned judge erred in that the jury were mis-directed on an issue relating to the evidence. Halsbury 1390.

The crown failed to establish a prima facie case to support the allegation of fraudulent trading. The conviction is therefore unsafe and should be quashed. The relevant issue is R vs Scott.

Amendments to the charges were allowed by the learned judge after the crown had rested their case and a no case submission had been presented by defence counsel. In doing so it is argued the ruling contravenes article 11, Sub-article 2(a) of the Bill of Rights.

The appellant was convicted of two counts of theft contrary to the evidence. The conviction should therefore be quashed."

(The case referred to there is Scott v. Metropolitan Police Commissioner [1975] AC 819. Article 11(2)(a) is the provision in the Bill of Rights under which people are guaranteed the right to be informed promptly and in detail and in a language which they understand of the nature and cause of any charge against them.)

14. The applicant addressed us. We have of course considered his grounds and his submissions with care.

Definition of fraudulent trading

15. Fraudulent trading is a statutory offence. You get its definition by reading subsections (1) and (3) of section 275 of the Companies Ordinance. Reading those subsections together, you see that the offence is committed by every person who was knowingly a party to the carrying on of any business of a company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose.

Particulars: fraudulent trading count

16. The particulars of the 1st count, being the one of fraudulent trading, read:

" Robert John Walsh and Susanna WONG Sau-ping, between the 6th day of April 1990 and the 10th day of June 1991, in Hong Kong, were knowingly parties to the carrying on of the business of a company called Breckenridge Corporation Limited ("Breckenridge"), for a fraudulent purpose, namely to dishonestly obtain from members of the public ("the growers") cash, cheques and bankers drafts, with the intention of permanently depriving the growers thereof, by deception, that is by dishonestly inducing the growers to pay for a powder ("series 333 culture") on the basis of false representations that:

(1) Breckenridge intended to pay the growers, each month for a period of one year, a sum of money for the lactic ferment they produced;

(2) Breckenridge was a financially sound and reputable business, able and willing to honour its agreements with the growers by sale of the series 333 line."

Particulars: theft counts

17. Turning to the 2nd and 3rd counts, both being of theft, the particulars of the 2nd count read:

" Robert John Walsh, on or about the 11th day of January 1991, in Hong Kong, stole a thing in action, namely a debt in the sum of $1,560,600 Hong Kong currency, owed by Citibank NA to Breckenridge Corporation Limited."

And the particulars of the 3rd count read:

" Robert John Walsh, on or about the 1st day of March 1991, in Hong Kong, stole cash $400,000 Hong Kong currency, the property of Breckenridge Corporation Limited."

Breckenridge

18. The charge period under the fraudulent trading count is the period during which Breckenridge traded. Things such as the company's incorporation, when it changed its name to Breckenridge, the period during which it traded and who were its directors and shareholders throughout are set out in the first nine paragraphs and the 27th paragraph of the Statement of Admitted Facts setting out the facts formally admitted in writing by the prosecution and the defence under section 65C of the Criminal Procedure Ordinance, Cap. 221.

19. Those first nine paragraphs read:

" Cherish Hope Limited ("Cherish Hope") was incorporated in Hong Kong on 14 October 1988.

On 15 February 1989 the [applicant's wife] and her sister, WONG Sau-yee, Shirley, became the directors of Cherish Hope.

On 2 June 1989 Cherish Hope changed its name to Breckenridge Corporation Limited ("Breckenridge").

On 5 April 1990 WONG Sau-yee, Shirley resigned as director of Breckenridge and the [applicant] was appointed as new director of the company.

Breckenridge commenced trading in Hong Kong on 6 April 1990. From 6 April 1990 until 1 July 1990 the directors of Breckenridge were the [applicant and his wife].

On 1 July 1990 the [applicant's wife] resigned as director of Breckenridge and from 1 July 1990 until 8 May 1991 the directors of Breckenridge were the [applicant] and American Business Group, Inc.

American Business Group, Inc. was incorporated in California in the USA on 4 October 1985 and the Chief Executive Officer of the company was Eric Alexander of 98 Main Street, Tiburon, California.

From 9 June 1989 until 21 August 1990 the shareholders of Breckenridge were [the applicant and his wife], each [of them] owning one share.

On 21 August 1990 a further 98 shares in Breckenridge were issued. Of these, 84 shares were allotted to the [applicant], one share was allotted to WONG Sau-yee, Shirley, and the remaining shares were allotted to various members of staff of Breckenridge and others.

20. The 27th paragraph of the Admitted Facts reads:

" Breckenridge ceased trading on 10 June 1991 and on 12 July 1991 John Robert Lees and Morgan James Chubb, of Ferrier Hodgson & Co, were appointed provisional liquidators of Breckenridge."

21. Turning to how, in neutral terms, Breckenridge's business was carried on, that is dealt with in this way in the 12th to 23rd paragraphs of the Admitted Facts:

" Breckenridge sold milk power ("lactic culture") to members of the public ("the growers"). Each month the growers were required to add a quantity of milk to a portion of the lactic culture in order to form a mould-like substance ("lactic ferment") on top of the milk.

Pursuant to a written agreement between Breckenridge and each of the growers, Breckenridge agreed that it would buy the lactic ferment from the growers and pay each grower upon receipt of the lactic ferment. This generally occurred on a monthly basis.

By 10 June 1991 Breckenridge had signed up some 3,400 growers, who had paid Breckenridge approximately HK$78,700,000.00 for the lactic culture. Approximately HK$34,000,000.00 was paid back to the growers.

Breckenridge purchased approximately 823 kg of lactic culture from Australia, which was transported to Hong Kong on 10 April 1991 and 26 June 1991. The total cost of these two shipments was AUD$3,040.00.

The lactic culture purchased from Australia was blended by Techniques Incorporated, a dry powder blending company in Australia, to specifications provided by the [applicant]. These comprised food grade materials, namely 25% skimmed milk power, 60% sweet dairy whey, 5% lactobacillus acidophilus and 10% hydrolized lactalbumen.

Breckenridge gave growers who were due to receive money from the company an option to re-invest their returns in an investor's programme. This arrangement was formalised by an agreement entitled "Investor's Agreement".

Under the Investor's Agreement an investor would authorise the company to retain a percentage of the monthly payment due to the grower from Breckenridge for receipt of the lactic ferment. This percentage was to be deposited in a private investment fund available only to Breckenridge growers. The fund was to be invested by a five-person board. A grower was entitled to withdraw from the program at any time, but in the event he did so within less than 12 month's from joining the fund, he would not be entitled to any interest on the money due to him. All profits were to be distributed every 12 months to the growers participating in the fund.

Funds received from investors were maintained in the general account of Breckenridge. No separate account was created for deposit of these funds.

There has never been any application by the [applicant] or Breckenridge to set up any investment or other form of fund in Hong Kong.

On 7 January 1991 the [applicant] signed a contract on behalf of Breckenridge to purchase a cosmetic from Chen's Industrial Company in Hong Kong. This cosmetic was produced in France by M.F. Production and imported into Hong Kong by Chen's Industrial Company on behalf of clients who packaged and distributed it under various brand names, including "Fair Lady", "C. Ming" and "Monsealey".

Cosmetics purchased by Breckenridge from Chen's Industrial Company were marketed under the brand name "Series 333". These cosmetics did not contain any lactic ferment produced by the growers.

"Series 333" was never registered as a trade mark in Hong Kong"

False representations

22. It will be remembered that the particulars of the fraudulent trading count allege two false representations.

23. The first is that "Breckenridge intended to pay the growers, each month for a period of one year, a sum of money for the lactic ferment they produced".

24. Towards beginning of the summing-up, the judge outlined the basis of the prosecutions contention that that representation was false thus:

"... first of all, that at the end of the day a lot of cheques bounced and a lot of growers weren't paid; and, secondly, that in the Crown's view the whole scheme of agreeing with growers to pay for mould in this way was fundamentally unsound and was bound to result in disaster because, according to Mr Meocre Li, the more growers you get the bigger the problem you make for yourself because one day the growers are going to stop coming and then there won't be any money to pay the previous growers because this scheme depended upon later growers paying the money which was used to satisfy earlier growers. That is the Crown's case although, of course, it is vigorously contested by the defence as we will see later."

(Mr Meocre Li is an accountant who, on behalf of the police, conducted an investigation into the affairs of Breckenridge and gave expert evidence thereon for the prosecution.)

25. Then the judge said this to the jury:

" Now, of course, if you are not sure that it was the intention to default in those contracts, then that particular paragraph can't assist the prosecution, and that would leave them with the second representation, which was that Breckenridge was a financially sound and reputable business."

26. That refers to the second false representation alleged in the particulars of the fraudulent trading count, which is that "Breckenridge was a financially sound and reputable business, able and willing to honour its agreements with its growers by sale of the series 333 line."

27. Then the judge said this to the jury:

" Now the Crown says that they rely on all the evidence about the way the Company operated to show that it was holding itself out as a financially sound and reputable business, able and willing to honour its agreements. And the Crown says that in doing so, it was making a false representation because the Crown's view is it wasn't a financially sound and reputable business and it wasn't able in the long term to satisfy all the growers' requirements nor was it willing to because, according to the Crown, the whole object of the exercise was to bring in cash for the defendants to deal with as they wished without regard to the interests of the growers. That, of course, again is very hotly disputed by the defence.

Now, of course, if you are not satisfied that there was such a representation, that is the end of the matter. But if you are sure that, looked at as a whole, the conduct of the Company as run by -- allegedly by - the defendants was such as to constitute such a representation, you then have to decide whether or not it was false. If you decide it was not false, that is the end of the matter. But if you decide that either one or both of those representations was false, that is not the end of the matter because you have then got to be sure that there was dishonestly on the part of either [the applicant] or [his wife] or both of them, because dishonesty is an essential ingredient of the offence of fraudulent trading."

Sham

28. More generally, the prosecution's case was that the whole scheme was a sham. And the judge summarised that aspect of the prosecution's case like this in his summing-up:

" Of course, the prosecution case is that the whole business was a sham. It wasn't a genuine business at all, and the object of the exercise was not to make a profit from a genuine commercial operation but, rather, to get members of the public to produce huge amounts of cash by growing something which, it was never intended to use, so that Mr Walsh could use it for whatever purpose he wanted."

Dishonesty

29. In relation to all the charges which they had to consider, the judge gave the jury this direction as to the element of dishonesty:

" And this is what I want to tell you about dishonesty. The standard of honesty which has to be applied is that of reasonable and honest people, and it is for you as the judges of fact to decide what is dishonest by the ordinary standards of reasonable and honest people. You must consider whether the accused, whether it be [the applicant] or [his wife], acted dishonestly by those standards.

If you find that he or she did act dishonestly, you must go on to consider whether the accused, whichever one it be, must have realised that what he or she was doing was dishonest by those standards of reasonable and honest people whatever his or her own standards of honesty might be.

Now the reason I say that is because you have seen [the applicant] giving evidence and he was asked at one point whether something was dishonest and he said, well, in his view it wasn't dishonest. So, first of all, you have to decide, if you are looking at some particular activity, was it dishonest by the standards of ordinary, reasonable, honest people. Normally that will be enough. But if there is reason to think that the defendant might have a different view of what honesty is, you have to say to yourself, well, is it a situation where he must have realised that what he was doing would be regarded by any reasonable and honest person as dishonest. If he must have realised that, then he is to be convicted whether he says he didn't realise it was dishonest or not."

Issues

30. What we have said so far is an indication of the issues on the fraudulent trading count.

31. It is convenient now to give an indication of the issues on the theft counts, being Counts 2 and 3. Here, the judge said this at an early stage of his summing-up:

" Now the case against [the applicant] on count 2 is that he purported to sell to the Company something which he knew to be worthless for the sum of 250,000 US dollars and that the sum referred to in count 2 is part of that money. The "something" that he purported to sell was the rights in the 333 formula or perhaps the rights in the 333 trademark or perhaps both, depending on your view of the evidence.

Now count 3 alleges the theft by [the applicant] on 1 March 91 of 400,000 dollars, the property of Breckenridge, and of course the prosecution's case is that that money was the remaining part of the equivalent of the 250,000 US consideration for the 333 rights.

Now there is no dispute about the fact that the transaction took place. The only question is whether [the applicant] was stealing the money or whether he was genuinely selling something that was worth the money to the Company. And you have heard evidence which the Crown relies on, that the rights were worth nothing and you have heard evidence from [the applicant] that he gave good value for those rights to someone in the United States and that he was simply selling them to the Company at cost, as it were, and the issue you are going to have to decide is whether in purporting to sell the rights he was acting dishonestly."

Defence put

32. The judge duly reminded the jury of what the applicant said his scheme was all about. One finds this passage in the summing-up:

" You heard [the applicant] outline his scheme in great detail. And you heard from two witnesses who were called by him who said that in their opinion it was a perfectly viable scheme. In addition, of course, you had people like Mr MAK Ho-ming who is a very experienced direct sales man, who said that once he had grasped the idea of the scheme, and after he heard from Dr Studer that it was possible to produce this wonder cosmetic, that he was quite confident that [the applicant's] plans were realistic."

33. Later on, the judge put the defence to the jury in his summing-up in these words:

" And generally speaking, you will gather without any doubt from the evidence that [the applicant's] defence is simply that he was a man acting in perfectly good faith with a brilliant new scheme which nobody had ever tried before, and that everything was going very well until it was ruined by the interference from outside by people who didn't understand what he was trying to do, first of all the Next Magazine, and secondly the CCB. And if you think that it may be that [the applicant] was acting in good faith thinking that he had a very good idea which was going to work, then clearly the element of dishonesty would not have been proved.

Of course, [counsel for the applicant] pointed out to you that whilst it is proper to look at the scheme to see if it would have worked, even if you decided it would not have worked, you still have to consider the possibility that [the applicant] was over-optimistic and honestly thought it would work. If he did, then even if it wouldn't have worked anyway it doesn't make him dishonest. So dishonesty is a very important element in this matter.

As you know, one of the points [counsel for the applicant] made very strongly is that a great deal of support for [the applicant's] case came from witnesses which the Crown themselves had called."

Properly convicted

34. The stark fact of this case is that from about April 1990 onwards, an increasing number of growers were "recruited"; and yet no cosmetics were ever produced by Breckenridge or anyone else by the use of the growers' lactic culture. At the end of the day many cheques drawn by Breckenridge were dishonoured, and many growers were unpaid. There was no evidence that Breckenridge had any resources from which those growers could have been paid, except the receipts from yet further growers who might have been attracted to the scheme.

35. A number of points have been urged by the applicant. We have considered all of them. At the end of the day it seems to us: that there was evidence on which a properly directed jury could convict; that the jury was properly directed; that the case was properly presented; that it proceeded regularly; that it was tried fairly; and that the convictions are neither unsafe nor unsatisfactory. The applicant was properly convicted.

SENTENCE

36. We now turn to sentence.

Grounds of appeal

37. On the applicant's behalf, Miss Draycott has lodged three grounds of appeal against sentence. These read:

"1. The Learned Judge erred in making the sentences for theft partially consecutive to the term for fraudulent trading. The sale of the 333 trademark for US$250,000 to Breckenridge, the subject of the theft charges, was merely a ruse for withdrawing the proceeds of the fraudulent trading. It was not a separate criminal enterprise and should not have been sentenced as such.

2. The sentences of 3 years for the offences of theft were manifestly excessive.

3. The total sentence of 4 years and 9 months was manifestly excessive."

Too long

38. In our judgment, 4 years and 9 months is, in all the circumstances, too long a term of imprisonment. All things considered, we think that the term should be reduced by one year to 3 years and 9 months.

RESULT

39. In the result, leave to appeal against conviction is refused. But the application for leave to appeal against sentence is treated as the appeal itself and that appeal is allowed to reduce the total term of imprisonment by one year from 4 years and 9 months to 3 years and 9 months. That result is achieved by making the term on the fraudulent trading count a term of 3 years and 9 months, leaving the duration of the terms on the two theft counts undisturbed, and making all three terms wholly concurrent.

Representation:

Miss A Papadopoulos (of the Attorney General's Chambers) for the prosecution

Miss C Draycott (instructed by Messrs Finley & Co.) for the Applicant re sentence

The Applicant in person re conviction