The Attorney General v. Lee Kun Wai and Another

CAAR000006/1992

IN THE COURT OF APPEAL

1992, No. 6

Application for Review

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Coram: Silke, V.-P., Power, V.-P. & Macdougall, J.A.

Dates of hearing: 23 & 24 February 1993

Date of judgment: 24 February 1993

Date of reasons handed down: 25 June 1993

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J U D G M E N T

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Silke, V.-P.:

1. This is the judgment of the court.

2. Lee Kun Wai and Chan Siu Ming pleaded guilty in the District Court before His Honour Judge Daniell to a charge of conspiracy to defraud, contrary to Common Law. Lee Kun Wai was sentenced to 6 months' imprisonment suspended for one year and Chan Siu Ming to 12 months' imprisonment suspended for two years. The Attorney General applied, with leave granted on 7th May 1992, to the Court of Appeal to review those sentences on the basis that they were manifestly inadequate and/or wrong in principle.

3. On 23rd February 1993 this court determined that application, granted the Review and gave short reasons for the course it took. We were of the view that a starting point for sentence, after trial, would have been 3 years' imprisonment and that, allowing for discount for the pleas and general circumstances of the two respondents, a sentence of 2 years and 3 months would have been proper. Following the principles set out in the Attorney General v. Wong Kwok Wai [1991] 2 HKLR 384 we thought a further discount from that which was the proper sentence should be given in so far as neither of the respondents had been in custody. In the result we decided that the sentences imposed by the sentencing judge should be set aside and there should be substituted for those sentences in each case one of 18 months' imprisonment. We stated we would hand down our full reasons later and this we now do.

4. The conspiracy took place between 1st May and 15th November 1990. Lee and Chan conspired together to defraud the Ka Wah Bank Limited - "the Bank" - its existing and potential shareholders, depositors and creditors by dishonestly causing and permitting the bank to grant overdraft and/or loan facilities contrary to the policy of the bank; by causing or permitting the Bank to grant overdraft and/or loan facilities without any, or with inadequate, security for overdraft and/or loan facilities; causing and permitting the Bank to encash, honour, pass for payment or negotiates cheques drawn on the accounts of named companies: Hoi Hing Hong; Kamdiko Investments Limited; Prompt Trading Company; Chan Siu Ho; Leung of Hung and Susan C. Chan: without adequate security or adequate guarantee or adequate provision for the encashment, honouring, passing for payment or negotiation of those cheques.

5. The case concerned cheque kiting. The kite utilised six accounts held in the current accounts section of the Bank headquarters - the section being known as the Banking Business Department - "BBD". At the relevant times that section was in charge of Paul Chan Chi Sing. It, in turn, had three sections of which one was the current accounts section. Lee Kun Wai, an "A" class officer, was the head of that section. Underneath him is a "B" class officer and underneath that officer were two internal officers and four tellers. Lee Kun Wai's duties included supervising the operations of the current account section; monitoring of all inward and outward cheque clearing of all current accounts; and the performance of that which was described as "terminal override acts". This referred to the fact that the computers used by the tellers will refuse to process transactions above a certain value. The section head possesses a card which he can use in the computer to override its refusal. The transaction will then continue but the fact of override will appear on the documentation evidencing the transaction.

6. Normally bank customers are entitled to draw funds against cheque deposits after 3 p.m. on the working day next after the date upon which the cheque was deposited. Both the head of the BBD and an "A" class officer, as was Lee Kun Wai, are authorised to allow customers to draw funds against uncleared cheques up to certain limits and without reference to management. Once those limits are exceeded the customer's request has to be reported to the Branches Division of the Bank for its approval.

7. When a customer of the Bank presents a cheque drawn on an account of the BBD for encashment or internal transfer and if there are insufficient funds to meet it the teller passes the cheque back to an internal officer who will then take it to the section head, in this case Lee. He makes a decision on whether the bank should or should not pay out on the cheque. If there are no uncleared cheques awaiting credit to this account then, if Lee gave approval, he would be exercising his legitimate authority to grant a temporary overdraft. There are however limits on the discretion to grant temporary overdrafts and drawings against uncleared effects. From 28th January 1989 onward there were, for Lee, on personal accounts: $10,000 on temporary overdraft and $20,000 on uncleared effects, with an overall limit of $30,000; on company accounts the temporary overdraft limit was $20,000 and the uncleared effects $50,000; the overall limit was $50,000.

8. When a bank customer makes a deposit of a cheque drawn on another Ka Wah Bank account and does not require encashment or an immediate transfer, then the cheque will be processed internally and the debiting and crediting of the relevant accounts takes place almost immediately. If the customer requests that the cheque be processed through the clearing house this creates an overnight delay in the debiting of the account on which the cheque is drawn. It is only when these cheques are returned from the clearing house the next morning that verification of the signature is done and a check for sufficiency of funds is made. The bank's central computer will print out information on a number of different documents that are created to assist the staff in the performance of their duties. One document is known as the "Inward Clearing Exception Items Report". It lists, amongst other things, all those accounts with insufficient funds in them to meet the cheques drawn on them. An officer in the current accounts section should then inform those customers of the state of their accounts and request them to deposit sufficient funds in order that the cheque might be met.

9. Another daily document printed by the computer is entitled "Exception Overdraft Report". It lists the particulars of accounts which have overdrafts regardless of any cash cheque or transfer in these accounts. A copy of this was given daily to Lee to read. These reports are also sent to the Branches Division of the bank. This division supervises the work of the branches and an officer in it, from time to time, telephoned Lee and asked him about the repayment situation in respect of the overdrafts in the accounts which were part of the kite. When she did so she was always reassured by Lee that the amounts of the overdrafts were covered by deposits made or to be made.

10. Chan Siu Ming was the proprietor of a family business, founded by his father, in marine products, which had traded for many years. Its name was Hoi Hing Hong. Chan claimed part of his business to be the importation of goods into Taiwan and he further claimed that he failed to obtain payment for some of the shipments, thus causing him to suffer loss.

11. Lee and Chan had known each other for more than 10 years. Chan had operated accounts at other branches of the Bank at which Lee had been employed. In January 1989 Hoi Hing Hong opened a current account with BBD. Chan was the sole signatory.

12. In May 1990, knowing that he would not be able to obtain legitimate credit facilities from the Bank - his cash-flow position being a difficult one at that time - Chan went to Lee and the two agreed that he could draw monies from the Bank through Hoi Hing Hong's account. At first this may have been considered by them as a temporary borrowing exercise, a form of unauthorised bridging loan, until Chan was paid the monies he said were due to him from Taiwan. The drawings on this account were from time to time reduced by genuine deposits made by Chan. It was where these deposits were insufficient to eliminate the overdraft which had been created that the kiting of cheques was resorted to. By use of the cheques Chan ensured that Hoi Hing Hong's account was rarely overdrawn. By October 1990 the kite was in full flow and genuine deposits had ceased.

13. In addition to Hoi Hing Hong the other companies involved in the kite were, first, Kamdiko Investments Limited - "Kamdiko". This was established on 25th August 1989 with a taxi as its sole asset. Its shareholders were Chan, his wife and a friend of Chan named Leung of Hung. Kamdiko opened a current account with the BBD. All three shareholders were signatories.

14. The second was Prompt Trading Company. This was established on 1st March 1990 in the name of a brother of Chan. It opened an account with BBD on 4th April 1990 with the brother as its sole signatory. It ceased operations prior to June 1990. The brother then departed for the Philippines and has not returned.

15. The third account was in the name of Leung of Hung, who is by occupation a taxi driver. He opened a current account with the BBD on 19th January 1990 with himself as the sole signatory.

16. The fourth account was in the name of Chan's brother, Chan Siu Ho, and he opened a current account with BBD on 4th November 1989 with himself as the sole signatory.

17. The fifth was in the name of Susan C. Chan, the wife of the brother involved in Prompt Trading Company. She opened a current account with BBD on 5th January 1990 with herself as the sole signatory. She had also gone to the Philippines with her husband and not returned.

18. None of the accounts had any approved credit facilities with the Bank.

19. To indicate how the kite grew: in May 1990 the Bank's exposure to all six accounts was $80,000; when discovery took place in November 1990 the Bank's exposure was $4.8 million.

20. The method used was that empty cheques were deposited into the account of Hoi Hing Hong. Cash was then drawn against uncleared effects and was used to pay the drawers of the cheque. The process was repeated ad infinitum. The operation of the kite depended on the assistance given by Lee in permitting Chan to draw cash against uncleared effects without reporting this to the management. Further, Lee approved unauthorised overdrafts on the related accounts.

21. Lee accepted by his plea that he knew that, in providing this system, a cheque kite was in existence. All those involved in the several companies were stated to have agreed to allow Chan to use the accounts for the purposes indicated. Leung of Hung had signed a large number of blank cheques both on his own account and on the Kamdiko account. Chan Siu Ho helped his brother in the same way. None of the "accounts had any business dealings.

22. The kite was discovered on 14th November 1990 when Lee had taken some leave from the Bank. Paul Chan had become suspicious and suspected that a cheque kite was in operation. He caused enquiries to be made and found that all the accounts involved were the personal responsibility of Lee. Lee was contacted and asked to give an explanation. He admitted permitting Chan to operate the cheque kite but maintained - and this played a large part in the mitigation - that his intention was merely to help his friend Chan. He denied that he had obtained any advantage for doing this.

23. Chan was also asked for an explanation and he gave one of a similar nature to that given by Lee. He offered, in writing, to repay the debt due by monthly instalments of $200,000. Of that a total of $270,000 has been repaid. It is highly unlikely that there will be any more.

24. As we have said Lee and Chan knew each other for about ten years. In 1987 Lee was a manager of the Aberdeen branch of the Bank. While in this position he improperly allowed Chan, through Hoi Hing Hong, to draw funds against uncleared effects. His conduct was investigated. He was told that he had acted outside the scope of his authority and was warned not to allow this to happen again. He was transferred away from the Aberdeen branch. The Crown accepted that there was no evidence that Chan had knowledge of the warning given to Lee.

25. In relation to the charge period, the Crown accepted that there was no attempt by Lee to actively conceal the cheque kiting transactions. This is a matter which played a part in the trial judge's decision to impose a suspended sentence of imprisonment for he felt that, had there been proper supervision in the Bank, none of this might have happened. Everything was recorded by computer and inspection of the print-outs could have revealed what was going on.

26. Lee continued to be employed by the bank until he resigned in January 1991, about two months after the discovery of the kiting.

27. It is the contention of the Attorney General that the trial judge should have approached sentencing by first assessing the proper length of a custodial sentence bearing in mind the gravity of the offence and all relevant mitigating factors. Only after he had done that should he go on to consider whether or not the sentence should be suspended. He was not seen to have followed this course.

28. Further, a large sum of money had been obtained through breach of trust by Lee and, as this court had said in The Queen v. Ying Lai Chan, [1991] 1 HKLR 48 the factors relevant for consideration in offences of this nature, as set out by Lord Lane LCJ in The Queen v. Barrick (1985) 81 Cr App R 78, were as much of relevance in Hong Kong as they are in England. It is submitted that these factors were not, or were not seen to have been, taken into account by the sentencing judge. We shall return to this.

29. The issue of lack of supervision was, said Mr. McWalters who appeared for the Crown on this Review, permitted by the sentencing judge to colour his views as to the seriousness of the dishonesty of Lee.

30. In respect of Chan, the judge should have placed the hope of repayment expressed by Chan in the context of an offence spanning 5½ months and which netted $4.8 million and have taken into account the forlorn nature of the hope.

31. Mr. Rodway, with him Mr. Johnson Lam, who appeared both here and below for Lee, has valiantly sought to defend the sentences imposed by Judge Daniell. We have had our attention drawn to the evidence called at trial, where a friend of many years of Lee's family described Lee "very honest, loyal to family - staunch friend always honour his word". That witness also described Lee as being "stupid" and felt that Lee had been used by a friend whom he trusted. One of Lee's banking colleagues described him as rather "credulous". When he heard of the case against Lee he stated that:

"I felt that he tried to help but was rather credulous."

Another colleague described him as "easygoing - good friend always helpful".

32. Mr. Rodway emphasised that Lee had attempted to do his best to get funds from Chan. At one time he got a personal guarantee from Chan and his wife. While Mr. Rodway had made it clear to the sentencing judge, and to us, that Lee did not seek to attack the bank - he accepted that the non-discovery of the cheque kiting was no excuse - he emphasised, and properly, that strict rules had been relaxed and that this was substantial mitigation.

33. He advanced at trial, as he did before us, that the circumstances which found Lee in this position came about more from foolishness than from a deliberate course of dishonesty. But he accepted, as indeed he must, that Lee had been dishonest.

34. We had placed before us, and read, an affidavit from Lee wherein he describes the course his life has taken since his resignation from the Bank. He had become involved with a new business which carried on the manufacturing of collars and garment parts using a new form of machinery. He had put all his savings into that business. Machinery was ordered from Japan and production started in November 1992. The project had been a great success. Further, to increase capacity new machinery costing some $700,000 had been ordered. His responsibility in the business covered many aspects. He described himself as indispensable to that business. He makes a plea that, if a custodial sentence were to be passed upon him in the course of this Review, this would cause tremendous hardship to him, to his business and to his family. He asked us to take all this into account.

35. On behalf of Chan, Mr. Wong who appeared for him in this court, submitted that the cheque kiting was a desperate attempt to rescue his failing business. The money was not used to support a high standard of living or to cover gambling debts. His case should be distinguished from the case of a fraudster who perpetrates his fraud for the sake of greed. Mr. Wong has drawn our attention to the lack of supervision in the bank and to the judge's observations thereon. He submits that there has been a genuine attempt by Chan to make restitution but the business had ceased in March 1991. He asked us to bear in mind his plea of guilty - evidence of his genuine remorse. He urges upon us to also bear in mind that Chan had had to sell his property to try and make some restitution and is now working as a taxi driver earning a monthly income of $10,000 which was used to support the well being of his wife and his two young children.

36. Mr. Wong emphasises that Chan was not in a position of trust and also the Crown's concession that there was no evidence that Chan was aware of the warning given to Lee in the Aberdeen branch incident. He draws our attention to the fact that some 16 months of anxiety, caused by the arrest in 1990 and the eventual plea in March 1992, had rested on Chan's mind. This has been, he suggests, exacerbated by the delay in the making of this application so that now 11 months have passed since his guilty plea. A point also taken by Mr. Rodway.

37. It seems clear to us that there is now no hope of any real restitution being made to the Bank. The Bank has lost approximately $4.5 million. We have had what are suggested to be sentencing comparables drawn to our attention and we have been urged to follow the Attorney General v. Chan Tak King and Chan Pau Yau [1989] 2 HKLR 428 where the court stated that, while a sentence passed may be one not authorised by law, wrong in principle or manifestly excessive or inadequate, the court is not obliged to impose the sentence it considers should have been imposed at the trial or to dismiss the application - in effect it can make no order. But each case, particularly fraud, very much depends on its own facts.

38. Mr. McWalters has drawn our attention to Ying Lai Chau which, while adopting the factors set out by Lord Lane, LCJ at page 82 of Barrick, nevertheless, stated that the level of sentences suggested in Barrick were relevant to social and economic conditions in England and had no application to Hong Kong.

39. In his Reasons for Sentence, which the sentencing judge indicated were oral reasons taken from notes, which notes were reduced to typescript, the sentencing judge does not appear to have taken much account of the position held in the Bank by Lee or, with respect, the factors that Lord Lane had thought relevant and which are set out at page 50 of Ying Lai Chau. He considered the case against Chan as more serious.

40. With respect to the sentencing judge we though the position of both respondents to be virtually equal in their criminality and their dishonesty. Lee was in a position of trust. The fraud took place over a period of 5½ months and, while the money may have been used to bolster up a failing business, nevertheless the Bank has suggered a loss of about $4.5 million. The public are entitled to have confidence in officers of a bank, which confidence was betrayed by Lee at the instigation of Chan. There is no doubt that Chan did make use of Lee but the latter accepted this and, by so doing, seriously breached the trust placed in him. We took full note of the mitigation placed before us on Lee's behalf and of the effect of a conviction - and a custodial sentence - upon him. Equally we considered the position of Chan. We took particular note of the long period of time that these two men have had this matter hanging over their heads.

41. Hong Kong is a business city and its people are entitled to expect honesty in their dealings from those who carry on their business here. Where dishonesty is uncovered then, both to emphasise this requirement and to punish the individual fraudster - other than in the most exceptional cases - a sentence of immediate custodial imprisonment should be the norm. We accept the contention of the Crown that the matters set out in Barrick as factors to be taken into consideration are not, of themselves, matters of mitigation - simply because some are absent does not reduce the effect of the individual's dishonesty. They assist the sentencing court in determining what the proper level of sentence should be. We accept that the sentencing judge did not state why he thought it proper to suspend the individual sentences passed here. We accept that the term of imprisonment which he had in mind in relation to both of these respondents, that is 6 months in respect of Lee and 12 months in respect of Chan, were themselves manifestly inadequate.

42. We felt that the sentencing judge had exercised his undoubted discretion wrongly. This court was therefore at large in considering what was the proper sentence to be imposed, bearing in mind the criminality of both of the respondents. As we have indicated we thought there to be little real difference between them on this score.

43. It was for these reasons we came to the conclusion that, as we indicated, a proper starting point in respect of both of the respondents here should have been 3 years' imprisonment. Given that starting point there would have been no question, nor indeed should there have been, in the circumstances here, of suspending the sentences allowing for all the mitigation, including the pleas of guilty the personal particulars of each and the delay between arrest and plea. We allowed the Review in the manner indicated.

Representation:

I.C. McWalters, Esq. for Crown/Applicant

Gilbert Rodway, Esq., Q.C. & Johnson Lam, Esq. (T.S. Tong & Co.) for 1st Respondent

Richard Wong, Esq. (D.L.A.) for 2nd Respondent