HKSAR v. Lau Kwok Wah, Benjamin and Another

CACC 215/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 215 OF 2003

(ON APPEAL FROM DCCC 414 OF 2002)

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Coram: Hon Stuart-Moore VP, Stock and Yeung JJA

Date of Hearing: 8 June 2004

Date of Judgment: 8 June 2004

Date of Reasons for Judgment: 29 June 2004

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J U D G M E N T

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Stuart-Moore, VP (giving the judgment of the Court):

Background

1.The applicants (D1 and D3 respectively) stood trial in the District Court before Judge Whaley faced with three alternative charges of conspiracy to defraud, contrary to common law, and punishable under section 159C(6) of the Crimes Ordinance, Cap. 200. A third defendant, Simon Wu Ming-fat (D2) pleaded guilty at the outset of the trial to the conspiracy in charge 2 which the prosecution accepted.

2.For present purposes, we are concerned only with charge 1. The particulars alleged that D1 and D3:

".... on divers days between the 1st day of May 2000 and the 31st day of July 2000, in Hong Kong, conspired together to defraud Toronto Dominion Bank ('Toronto') by dishonestly causing and permitting Toronto to discount Letters of Credit issued by Kincheng Banking Corporation Limited ('Kincheng') in favour of Daihatsu Holdings Limited ('Daihatsu') and Guang Shan Metal Import and Export Company Limited ('Guang Shan') and to make payments thereunder to Daihatsu and Guang Shan, knowing that (i) there were no genuine commercial transactions relating thereto; and (ii) the documents evidencing the supposed underlying commercial transactions were false."

3.On 30 April 2003, D1 and D3, who had cohabited for a number of years prior to these offences, were convicted of the conspiracy alleged in charge 1. Both applicants sought leave to appeal against conviction.

4.At the conclusion of the proceedings on 8 June 2004, we dismissed the applications. We now give our reasons for so doing.

The facts

5.The facts of the case can be summarised very shortly.

6.The trial was concerned with a total of thirteen letters of credit. These were issued by the Kincheng Banking Corporation ("Kincheng Bank") on the application of D1's company, Crown Apex Development Limited ("Crown Apex"), between 26 May and 20 July 2000. Seven of the letters of credit were issued in favour of Daihatsu Holdings Limited ("Daihatsu"), D2's company. The other six were in favour of Guang Shan Metal Import and Export Company Limited ("Guang Shan"), a company purportedly belonging to D3's sister and brother-in-law. D3 was the sole signatory not only on the Guang Shan bank account but also on another company's account which purportedly also belonged to her sister and brother-in-law, namely Golden Alliance Limited ("Golden Alliance").

7.The letters of credit issued by Kincheng Bank were supposedly required by Crown Apex to fund its purchase of auto parts from Daihatsu and stainless steel from Guang Shan ("the beneficiaries"), both commodities allegedly being for onward sale to companies in the Mainland.

8.The total value of the thirteen letters of credit was HK$28,959,924. The beneficiaries approached Toronto Dominion Bank, the negotiating bank, and upon presentation by them of the documents, purportedly in compliance with the requirements stipulated in the letters of credit, Toronto Dominion Bank proceeded to negotiate the letters of credit. In due course, it paid the beneficiaries a total discounted sum of $28,369,217 and, after each letter of credit had been discounted, Toronto Dominion Bank then forwarded all the supporting documentation to Kincheng Bank. Kincheng Bank then paid Toronto Dominion Bank the full value of the letters of credit.

9.Toronto Dominion Bank paid a total of approximately $15.4 million to Daihatsu, out of which D2 remitted a total of approximately $8 million to Golden Alliance with the balance of approximately $7.4 million finding its way into D2's personal bank account. From Golden Alliance, through the agency of D3 as the sole signatory on that company's account, $8 million was forwarded to D1's solicitors.

10.Toronto Dominion Bank also paid a total of approximately $12.6 million to Guang Shan out of which D3 remitted approximately $2.7 million to Crown Apex, $5.1 million to Unimax Holdings Limited, $1.62 million to Eric Pang Wai-kin and $1.15 million to JMN Advertising. The remaining monies were paid out in cash. Unimax Holdings Limited was a company in which D1 was a director and shareholder, Eric Pang Wai-kin was D1's friend and creditor and JMN Advertising was a company with which D3 was associated.

11.There were no genuine commercial transactions underlying the letters of credit and the documents purporting to evidence genuine transactions were, needless to say, false.

12.D1 and D3 elected not to testify at trial.

Judge's findings

13.The judge, in his Reasons for Verdict, made the following relevant findings:

".... all of the bills of lading which were presented in relation to these 13 letters of credit were false. The carriages of goods described therein were fictitious; they never took place..... It follows, in my view, as an irresistible inference that the other documents which accompanied the bills of lading, such as packing lists and commercial invoices, were also false documents..... The purported freight forwarding companies, Asia Pacific and Ever Trust, did not in fact exist. They were created by (D1) assisted by Raymond Chan .... (Appeal bundle p. 295) .... (D1) was instrumental in producing false documents, most particularly false bills of lading which purported to indicate that the goods stated therein had been shipped as stated in each bill of lading..... (Appeal bundle p. 297) In broad terms, the fund flow evidence as a whole establishes that the money which was raised under the letters of credit in question, purportedly as payment by Crown Apex to Daihatsu and Guang Shan, very quickly found its way back, either to (D1) via one or other of his companies; or into the personal account of (D2)..... (Appeal bundle p. 302) (D3) signed three of the Applications for Negotiation on behalf of Guang Shan to Toronto Dominion Bank. Her signatures on those documents were positively identified by Yeung Sau-yi. It was also (D3) who had signed the invoices and the packing lists in respect of each of the six Guang Shan letters of credit..... When all of the evidence is considered as a whole, in my view, the only reasonable inference to be drawn is that all the defendants did dishonestly conspire together as alleged in the 1st charge. There can be no doubt that they each knew at all relevant times that what they were doing was dishonest. It is also clear that they well knew at all relevant times that the documents evidencing these supposed underlying commercial transactions were false. Further, both (D1 and D3) knew that there were no genuine commercial transactions between Crown Apex and Guang Shan relating to any of the relevant letters of credit in question." (Appeal bundle p. 305)

The applications

14.The four grounds of appeal advanced by Mr Lok, SC, on D1's behalf contained two grounds which are identical to the only grounds raised on D3's behalf. We shall deal with these first. Mr Kevin C. Wong, on D3's behalf, very properly in the circumstances, adopted the arguments advanced by Mr Lok without adding to them.

(1) No risk to Toronto Dominion Bank of economic loss

15.In essence, the first ground of appeal was that Toronto Dominion Bank, being the negotiating bank, was never exposed to any risk of economic loss and therefore could not, as Mr Lok expressed it, "have been capable of being defrauded". It was argued that article 14(a) of the Uniform Customs and Practice for Documentary Credits (1993 Revision) ("the UCP"), which is incorporated in the letters of credit, provided that an issuing bank is "bound to reimburse a Nominated Bank for negotiating a letter of credit, as long as the presented documents appear on their face to be in compliance with the terms and conditions of the letters of credit". Consequently, it was contended, as Toronto Dominion Bank could always look to the issuing bank (Kincheng Bank) for reimbursement, Toronto Dominion Bank was "never put at economic risk".

16.It was further submitted on D1's behalf that insofar as any fraud was involved in these transactions, such fraud would not have put Toronto Dominion Bank in a worse situation than if the documents had been genuine provided Toronto Dominion Bank exercised reasonable care in its examination of the documentation presented to it. It was argued that in negotiating the letters of credit, Toronto Dominion Bank could not be said to have acted against its own economic or financial interests and hence was not in a position to be defrauded.

17.Mr Lok, in advancing these arguments, was wholly relying in his written submissions on the terms and conditions specified in the UCP. Article 10(b) of the UCP provides that:

"(i)	Unless the Credit stipulates that it is available only with the Issuing Bank, all Credits must nominate the bank (the 'Nominated Bank') which is authorised to pay, to incur a deferred payment undertaking, to accept Draft(s) or to negotiate. In a freely negotiable Credit, any bank is a Nominated Bank.
	Presentation of documents must be made to the Issuing Bank or the Confirming Bank, if any, or any other Nominated Bank.
(ii)	Negotiation means the giving of value for Draft(s) and/or document(s) by the bank authorised to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation."

18.Article 14(a) of the UCP further provides as follows:

"When the Issuing Bank authorises another bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against documents which appear on their face to be in compliance with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are bound:

'(i)	to reimburse the Nominated Bank which has paid, incurred a deferred payment undertaking, accepted Draft(s), or negotiated,
(ii)	to take up the documents.'"

19.The same arguments were raised at trial. These were encapsulated by the judge in the following terms:

"68. (Counsel), on behalf of (D1), has taken a point of law, with which (counsel for D2) has also associated himself: namely, that the charge that the defendants conspired together to defraud the Toronto Dominion Bank is misconceived, since it is clear on the evidence that the Toronto Dominion Bank has not in fact suffered any loss in consequence of the fraudulent activities in question, since it was, in the normal way, paid out in full on the letters of credit by the issuing bank, Kincheng Bank.

69. Furthermore, it is submitted, Toronto Dominion Bank was never even at risk of losing anything. Reliance is placed on the evidence of Tang Sik-wing, the Senior Manager of the Bills Centre of Kincheng Bank, who testified that if the documents presented met the requirements specified in the letters of credit, then Kincheng Bank, as the issuing bank, was liable in principle to reimburse Toronto Dominion Bank as the negotiating bank. He observed that 'We do not care if there are goods or not, since in principle, the letters of credit operation only deals in documents'. Obviously, however, if Kincheng Bank had known from the outset that there were in fact no commercial transactions and that the documents which were intended to be relied on would be forged, it is inconceivable that they would have issued any of the letters of credit in question." (Appeal bundle p. 306)

20.Having considered the issue as a whole, the judge said:

"I am satisfied beyond reasonable doubt that in entering into and embarking upon the conspiracy, as I have found that the defendants did, they were taking the risk of injuring the rights of the banks involved: both the issuing bank, Kincheng, and the negotiating bank, Toronto Dominion Bank. To state the matter in another way, their conduct involved the risk of injuring the rights of either or both of these banks." (Appeal bundle p. 307)

21.Mr Lok also relied on the evidence given by Tang Sik-wing (PW1), the Senior Manager of the Bills Centre at Kincheng Bank, to the effect that even if Kincheng Bank had known that the documents presented to Toronto Dominion Bank were false, Kincheng Bank would in any event have been bound to reimburse Toronto Dominion Bank. PW1's evidence in this respect was that, if during the period of ninety days over which credit extended, his bank had discovered that no goods of the kind contemplated by the letters of credit were in existence, Kincheng Bank would nevertheless have had to reimburse Toronto Dominion Bank "because our bank had already given .... acceptance advice to Toronto Dominion Bank" (appeal bundle p. 471).

22.It is not, of course, PW1's belief that his bank would have had to make payment to Toronto Dominion Bank with which we are concerned if this was in conflict with the position in law. Mr Lok argued, having regard to the judgment in Montrod Ltd v Grundkötter Fleischvertriebs GmbH [2002] 1 WLR 1975 at 1991, that if fraud had been involved in the transactions, it could only be a reason for the issuing bank to withhold payment to the negotiating bank if the latter had paid the beneficiaries under the letters of credit in the knowledge of the fraud. He cited part of Potter LJ's judgment at pp. 1991-1992 in support of this proposition which reads:

".... The fraud exception to the autonomy principle recognised in English law has hitherto been restricted to, and it is in my view desirable that it should remain based upon, the fraud or knowledge of fraud on the part of the beneficiary or other party seeking payment under and in accordance with the terms of the letter of credit. It should not be avoided or extended by the argument that a document presented, which conforms on its face with the terms of the letter of the credit, is none the less of a character which disentitles the person making the demand to payment because it is fraudulent in itself, independently of the knowledge and bona fides of the demanding party. In my view, that is the clear import of Lord Diplock's observations in the Gian Singh case [1974] 1 WLR 1234, 1238, and in the United City Merchants case [1983] 1 AC 168, 183-188, in which all their Lordships concurred. As I understand it, Lord Diplock was of the view that a seller/beneficiary who was ignorant of forgery by a third party of one of the documents presented, or of the fact that the document contained a representation false to the knowledge of the person who created it, should not be in a worse position than someone who has taken a draft drawn under a letter of credit in circumstances which rendered him a holder in due course....."

23.The observations made by Lord Diplock in Gian Singh Ltd v Banque de L'Indochine [1974] 1 WLR 1234 (PC) 1234 at 1238 were cited earlier in the judgment in Montrod's case at p. 1986 and reads:

"The fact that a document presented by the beneficiary under a documentary credit, which otherwise conforms to the requirements of the credit, is in fact a forgery does not, of itself, prevent the issuing bank from recovering from its customer money paid under the credit. The duty of the issuing bank, which it may perform either by itself, or by its agent, the notifying bank, is to examine documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. The express provision to this effect in article 7 of the Uniform Customs and Practice for Documentary Credits does no more than restate the duty of the bank at common law."

A little later, the judgment continued:

".... There is no issue between the parties that, so far as the state of the authorities is concerned, no English court has yet held an issuing bank entitled to withhold payment under a letter of credit, against documents which on their face conform with the requirements of the credit, save on the ground of fraud of the beneficiary himself, or the person seeking payment. Nor is it in dispute that in England the fraud exception is part of the common law and that it is apt to apply despite the fact that UCP 500 makes no reference to, nor makes allowance for, such an exception....."

24.In our opinion, the arguments which were supposedly given support by the authorities to which we have referred were, for reasons to which we shall turn shortly, wholly without merit. However, Mr Lok chose to add a further plank to his argument which somewhat surprisingly, if it had any foundation in fact, had not previously been included in his written submissions. He suggested that the evidence at trial revealed that before Toronto Dominion Bank discounted the letters of credit, it had supplied Kincheng Bank with all the supporting documents which the beneficiary companies had passed to it to enable Kincheng Bank to authorise Toronto Dominion Bank to discount the letters of credit. This, Mr Lok submitted, was done and, having obtained authority from Kincheng Bank, Toronto Dominion Bank then discounted the letters of credit. Mr Lok argued that this was a matter of considerable significance because the terms of Article 14(a) of the UCP clearly provide that when an issuing bank has authorised another bank to pay or negotiate against documents which, on their face, are in compliance with the terms and conditions of the credit, the issuing bank is bound to reimburse the nominated bank which has paid or negotiated to take up the documents.

25.We do not need to analyse this argument. It was entirely misplaced and misconceived as Mr Lok had to concede after Mr Zervos, SC, on the respondent's behalf, without notice of the point until after the proceedings had commenced on 8 June 2004, took us with meticulous care through the evidence demonstrating the utter fallacy of the arguments so unexpectedly raised by Mr Lok.

26.There had, in fact, been no evidence before the judge in the District Court to suggest that Toronto Dominion Bank had been authorised by Kincheng Bank to discount the letters of credit. On the contrary, the evidence was that after the letters of credit had been discounted, the documentation was forwarded to Kincheng Bank who duly reimbursed Toronto Dominion Bank. It is regrettable that this point was advanced without a properly researched foundation.

27.Mr Zervos, in answer to the other submissions advanced by Mr Lok, referred, as the judge had also done, to Archbold [2004] at para. 17-62 where it is stated that:

"(a)	'To defraud' or to act 'fraudulently' is dishonestly to prejudice or to take the risk of prejudicing another's right, knowing that you have no right to do so: Welham v DPP [1961] AC 103 HL."

Mr Zervos pointed to the illustration of this principle in Lord Denning's example in Welham's case at 131:

"If a drug addict forges a doctor's prescription so as to enable him to get drugs from a chemist, he has, I should have thought, an intent to defraud, even though he intends to pay the chemist the full price and no one is a penny the worse off."

28.For present purposes, and relying additionally on the judgment in Wai Yu-tsang v R [1992] 1 AC 269, Mr Zervos submitted that it was sufficient that the conspirators had dishonestly agreed to bring about a state of affairs which they realised would or might deceive the alleged victim bank, Toronto Dominion Bank, into acting in a way which caused risk to itself, whether or not that risk was an economic one. He argued that whilst it was unnecessary, in the context of a conspiracy to defraud, that the risk should be in terms of its economic interests, the circumstances were such that plainly Toronto Dominion Bank was at risk from an economic point of view.

29.Wai Yu-tsang's case was an appeal to the Privy Council from this court which concerned an accountant employed by a bank who had agreed with others to act dishonestly by concealing in the accounts the dishonouring of certain cheques purchased by the bank. His motive was seemingly to prevent a run of withdrawals at the bank. This court, in HKSAR v Loi Hong-quan, CACC 464/2002 (unreported), in a judgment given on 6 May 2004, adopted (at para. 50) a passage taken from Lord Goff's speech in Wai Yu-tsang v R at p. 276 where reference was being made to Lord Radcliffe's speech in Welham's case. This was as follows:

"Lord Radcliffe agreed with the speech of Lord Denning, but went on to express in his own words his view of the meaning of the words 'intent to defraud' in section 4(1) of the Act of 1913. He rejected the proposition that in ordinary speech 'to defraud' is confined to the idea of depriving a man by deceit of some economic advantage or inflicting upon him some economic loss, and continued at p. 124:

'Has the law ever so confined it? In my opinion there is no warrant for saying that it has. What it has looked for in considering the effect of cheating upon another person and so in defining the criminal intent is the prejudice of that person: what Blackstone (Commentaries, 18th ed., vol. 4, at p. 247) called 'to the prejudice of another man's right.' East, Pleas of the Crown (1803), vol. 2, at pp. 852, 854, makes the same point in the chapter on Forgery: 'in all cases of forgery, properly so called, it is immaterial whether any person be actually injured or not, provided any may be prejudiced by it.''

He went on to say that the special line of cases where the person deceived is a public authority or a person holding public office, and there is no intention on the part of the deceiver to inflict upon him any pecuniary or economic harm, shows that such an intention is not necessary to convict a man of an intention to defraud. The remainder of the Appellate Committee agreed with both Lord Radcliffe and Lord Denning.

The authority establishes that the expression 'intent to defraud' is not to be given a narrow meaning, involving an intention to cause economic loss to another. In broad terms, it means simply an intention to practise a fraud on another, or an intention to act to the prejudice of another man's right."

30.Later, Lord Goff, continuing his judgment in Wai Yu-tsang (at p. 279A-D), said:

"In the context of conspiracy to defraud, it is necessary to bear in mind that such a conspiracy is an agreement to practise a fraud on somebody (c.f. Welham v Director of Public Prosecutions [1961] A.C. 103, 133, per Lord Denning). In Reg. v Allsop, 64 Cr.App.R. 29 what the defendant agreed to do was to present the company with false particulars, in reliance upon which, as he knew, the company would decide whether to enter into hire-purchase transactions. It is then necessary to consider whether that could constitute a conspiracy to defraud, notwithstanding that the defendant's underlying purpose or motive was not to damage any economic interest of the company but to ensure that the transaction went through so that he would earn his commission. Their Lordships can see no reason why such an agreement should not be a conspiracy to defraud the company, substantially for the reasons given by the Court of Appeal. The defendant was, for his own purposes, dishonestly supplying the company with false information which persuaded it to accept risks which it would or might not have accepted if it had known the true facts. Their Lordships cannot see why this was not an agreement to practise a fraud on the company because, as Shaw L.J. said, it was a dishonest agreement to employ a deceit which imperilled the economic interests of the company."

A little later, Lord Goff continued by saying (at pp. 279H-280C):

".... The question whether particular facts reveal a conspiracy to defraud depends upon what the conspirators have dishonestly agreed to do, and in particular whether they have agreed to practise a fraud on somebody. For this purpose it is enough for example that, as in Reg. v Allsop and in the present case, the conspirators have dishonestly agreed to bring about a state of affairs which they realise will or may deceive the victim into so acting, or failing to act, that he will suffer economic loss or his economic interests will be put at risk. It is however important in such a case, as the Court of Appeal stressed in Reg. v Allsop, to distinguish a conspirator's intention (or immediate purpose) dishonestly to bring about such a state of affairs from his motive (or underlying purpose). The latter may be benign to the extent that he does not wish the victim or potential victim to suffer harm; but the mere fact that it is benign will not of itself prevent the agreement from constituting a conspiracy to defraud. Of course, if the conspirators were not acting dishonestly, there will have been no conspiracy to defraud; and in any event their benign purpose (if it be such) is a matter which, if they prove to be guilty, can be taken into account at the stage of sentence."

31.Returning to the present case, it is apparent that the judge considered these legal principles and he set out some of the passages in Archbold which summarise them. Here, the conduct of the parties to the conspiracy was to supply false information to Toronto Dominion Bank which they intended should be instrumental in persuading that bank to negotiate the letters of credit and to accept risks which it would or might not have accepted if it had known the true facts. In this context, a manager of Toronto Dominion Bank (PW4) testified at the trial that if the bank had known that the transactions under the letters of credit were fictitious, it would not have negotiated the letters of credit. In the event, when Toronto Dominion Bank negotiated the letters of credit, it did so on the basis that they were genuine and the bank then gave advance payments to the beneficiaries at their discounted value.

32.One obvious risk undertaken by Toronto Dominion Bank arose from the possibility of questions being raised by the issuing bank on the documents presented to Toronto Dominion Bank such as might well have occurred if, before Kincheng Bank paid out Toronto Dominion Bank, Kincheng Bank discovered that the whole transaction had been fraudulently based. At the very least, there was a risk of Toronto Dominion Bank having to resort to civil proceedings in an attempt to recover its money from Kincheng Bank if Kincheng Bank refused to pay. Mr Zervos, rightly in our view, said that Toronto Dominion Bank was at risk just because these were not genuine transactions and there was no saying what Kincheng Bank may have done had it discovered this before reimbursing Toronto Dominion Bank.

33.This was not a ground of any merit and indeed, as Mr Lok accepted, if the prosecution had chosen to allege that Kincheng Bank was the victim of the conspiracy, there could have been no argument that the applicants, on the judge's findings, were guilty. We would, had it been necessary, have merely amended the charge to show Kincheng Bank as the victim. However, the charge, as we have said already, was properly made out and, in our opinion, no such amendment is required.

(2) Judge's approach to accomplice evidence

34.A number of points were made in relation to the evidence given by Raymond Chan (PW9) whom the judge effectively regarded as an accomplice. In particular, the judge stated that Raymond Chan had willingly colluded with D1 in the production of false documents.

35.In a surprising written submission, having regard to the abrogation of the requirement for a warning to be given about convicting a defendant on the uncorroborated evidence of an accomplice (see: section 60 of the Criminal Procedure Ordinance, Cap. 221), Mr Lok argued that a conviction secured solely by uncorroborated evidence of an accomplice would be likely to be considered unsafe. As to this, Mr Lok submitted that the judge had erred in finding the evidence of So Man-bong (PW10) corroborated Raymond Chan's evidence when PW10's evidence merely repeated what Raymond Chan had told him. If the judge was minded to look for corroboration, in the absence of any other corroborative evidence, it was suggested that Raymond Chan's evidence should have been rejected as unreliable. The point was further made that if Raymond Chan's evidence, which was not given under immunity, had not been accepted by the judge, the case against D1 and D3 would not have been proved.

36.The approach taken by the judge to Raymond Chan's evidence was as follows:

".... I have approached (Raymond Chan's) evidence with considerable caution, since it could not, in my view, be truthful for him to say that he saw nothing unusual in renting a desk for over a year to (D1's) 'friend' who never materialised, or the other activities which he performed at the request of (D1) on behalf of these purported freight forwarding companies, Asia Pacific and Ever Trust. He appears to have willingly colluded with (D1) in these activities, notwithstanding his claim that he saw nothing strange or unusual in them. I am nevertheless satisfied beyond reasonable doubt that he has otherwise told the truth in relation to these activities, and in particular in relation to (D1's) role as the mastermind behind the activities." (Appeal bundle p. 294)

37.Plainly, the judge was entitled to accept Raymond Chan's evidence in part. There was, aside from all other considerations, no suggestion that he had colluded with D1 in the production of false documents. Nevertheless, Raymond Chan was a significant witness and the judge was entitled to look for evidence, such as the testimony given by PW10, which lent some support (as opposed to corroboration in the strict legal sense) to Raymond Chan's account.

38.The evidence of Raymond Chan, although important, did not stand alone. There was compelling evidence that the applicants had conspired to defraud Toronto Dominion Bank by the use of fictitious shipping documents. In particular, as Mr Zervos pointed out, the shipping lines had not issued the shipping documents used in the transactions or carried the goods stated in the bills of lading which were used to deceive Toronto Dominion Bank.

39.The "fund flow" evidence indicated that the money received by Guang Shan and Daihatsu, the beneficiary companies under the letters of credit, was channelled back to companies under D1's control, to D1's solicitor and to the personal account of D2 who was a creditor of D1. Furthermore, the withdrawals of money from Guang Shan's bank account were effected by D3 who also signed the invoices and packing lists in respect of each of the six letters of credit issued in favour of Guang Shan.

40.These factors, in combination, obviously cried out for some explanation in the absence of which an overwhelming inference was to be drawn of complicity in the scheme.

41.This ground had no merit.

(3) Reversal of burden of proof

42.For the remaining two grounds, Mr Lok did not expand in oral argument on his written submissions.

43.In ground 3, it was submitted that the judge had effectively reversed the burden of proof when saying that there was no proof that the goods (auto parts) seen by the two members of the Kincheng Bank staff (PW1 and PW2) at the shipping terminals were related to two of the letters of credit when their evidence during cross-examination of having seen goods ought to have provided a basis for saying that there were real transactions underlying the letters of credit. It was submitted, therefore, that the prosecution had failed to prove the non-existence of the goods itemised in these letters of credit.

44.On this aspect of the case, the judge concluded that "there was no evidence at all as to what goods, if any, were seen" on the visits by the staff of Kincheng Bank. He went on to say:

".... The only evidence of goods seen related to 9 August, when bank staff collected 12 boxes, and on 12 August 2000, on another visit at the invitation of the 1st defendant, 57 cartons of goods were seen. Some of these cartons were opened, and Mr Tang confirmed that he saw pipes and side mirrors, and concluded that they were auto parts in the cartons. He also confirmed that some of the cartons had the name 'Daihatsu' printed on the side of them. These goods were the subject of a legal charge in favour of Kincheng Bank and were, with the agreement of Crown Apex, transported by the bank's appointed agent, BOC Travel Services Limited, to be stored in a warehouse on behalf of the bank.

35. (D1) claimed to the bank staff that these cartons had been shipped in the vessel 'MVSL Lightning' in terms of two of the letters of credit in question, namely letters of credit Nos. 51668 and 51669, and this was the reason why those two letters of credit were mentioned in the 'Remarks' column in the 'Debenture incorporating a fixed charge over chattels'.

36. Mr Tang's evidence was not disputed, to the effect that there was no way of identifying whether these goods were in fact related to these two letters of credit, or to any of the letters of credit in question.

37. All in all, this evidence was vague and of little probative force. At its highest, it established that on 9 and 12 August, some 57 cartons of goods, which appeared to be auto parts, and some of which had the name 'Daihatsu' printed on the cartons, arrived at a shipping terminal in Hong Kong and were taken possession of by the bank, with (D1's) full consent, and upon his indication that they related to two of the letters of credit in question." (Appeal bundle pp. 296-297)

45.In our view, the judge was entitled to take the view that this evidence did not alter his conclusion that there had been, on the whole of the evidence adduced by the prosecution, no underlying transactions to the letters of credit. Such a conclusion plainly did not involve a reversal of the burden of proof.

46.There was no merit to this ground.

(4) Inference from the flow of funds

47.In ground 4, it was argued that the judge erred in drawing an irresistible inference from the evidence about the flow of funds that D1 had committed these offences.

48.The judge gave detailed consideration to the flow of funds which occupied several pages in his Reasons for Verdict. He concluded, properly in our view, that the various fund flows led to an irresistible inference that:

".... the funds which were raised under the letters of credit in question and which were paid to Guang Shan by Toronto Dominion Bank were returned by (D3) to (D1) and also to his creditor, Eric Pang." (Appeal bundle p. 302)

He went on to say:

"In broad terms, the fund flow evidence as a whole establishes that the money which was raised under the letters of credit in question, purportedly as payment by Crown Apex to Daihatsu and Guang Shan, very quickly found its way back, either to (D1) via one or other of his companies; or into the personal account of (D2)." (Appeal bundle p. 302)

49.As Mr Zervos pointed out, if these were genuine transactions involving letters of credit, the monies paid thereunder would in any event have gone to the beneficiaries as opposed to Crown Apex, D1's company, which had applied for all of the letters of credit.

50.This ground was without substance.

Conclusion

51.For the reasons we have given, these applications were dismissed.

Representation:

Mr Kevin P. Zervos, SC, SADPP and Mr Beney Wong, GC, of the Department of Justice, for the Respondent.

Mr Lawrence Lok, SC and Mr Edwin Choy, instructed by Messrs Patrick Wong & Co., for D1/applicant.

Mr Kevin Christopher Wong, instructed by Messrs Cheung, Chan & Chung, for D3/applicant.