HKSAR v. Tang Yiu Hong Eric and Another

CACC 307/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 307 OF 2002

(ON APPEAL FROM HCCC 100 of 2001)

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BETWEEN

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Date of Hearing:   7 December 2004

Date of Judgment:  11 January 2005

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J U D G M E N T

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

1.On 1 June 2002, the applicants (D1 and D2 respectively) who are brothers, were each convicted on seven counts following a trial before Beeson J and a jury and, on 20 June 2002, both of them were sentenced to terms of imprisonment amounting in total to ten years.  They now seek leave to appeal against conviction and sentence.

The indictment

2.The offences, jointly alleged against D1 and D2, covered the period of eleven months between 1 August 1997 and 30 June 1998. 

3.Count 1 alleged a conspiracy to defraud, contrary to Common Law and punishable under section 159C(6) of the Crimes Ordinance, Cap. 200.  The particulars were that D1 and D2, between 1 August 1997 and 30 June 1998 conspired with Danny Leung Yiu-shing (D3) and Katy Tang Lai-yun (D4) to defraud China Shine Investments Limited (“China Shine”), the directors and shareholders of China Shine and China Investments Assets Limited (“CIAL”) by dishonestly:

“(1)    representing to various lending institutions that certain quantities of shares in GKC Holdings Limited [GKCH], the property of CIAL, pledged as security for loans and other banking facilities, were pledged with the consent of CIAL;

(2)    presenting to the said various lending institutions various documents, including documents which purported to be the minutes of meetings of the directors of CIAL, purporting to show that CIAL had authorised the pledging of the said quantities of shares in GKCH, when CIAL had not authorised the pledging of the said quantities of shares in GKCH as aforesaid;

(3)    pledging the said quantities of shares in GKCH with the said lending institutions without the consent of CIAL.” 

4.The second count alleged a conspiracy with D3 and D4, between the same dates as count 1, to deal with the proceeds of an indictable offence, contrary to section 159A of the Crimes Ordinance, Cap. 200, and section 25 of the Organized and Serious Crimes Ordinance, Cap. 455.  The proceeds in this count were particularised as the proceeds of the theft of three hundred and sixty million shares in GKC Holdings Limited (“GKCH”), the property of CIAL.

5.Counts 3, and 5 to 10 were alternatives against D1 on which the jury was not required to return verdicts following the guilty verdicts on counts 1 and 2.  Similarly, counts 3 to 10 were alternatives against D2 on which, again, the jury returned no verdicts.

6.Counts 11 and 12 alleged forgery, contrary to section 71 of the Crimes Ordinance and counts 13 and 14 alleged the use of the false instruments covered by counts 11 and 12, namely the minutes of meetings held on 6 March 1998 by the directors of GKCH and CIAL respectively. 

7.The last charge on the indictment, count 15, alleged the forgery of a cheque, number 544 981, in the sum of HKD39 million drawn on the bank account of GKCH at the International Bank of Asia Limited. 

8.There were two other defendants at trial.  Danny Leung (D3), an employee of the German Kitchen group of companies (“GK group”) was acquitted on counts 1, 2, 9 and 10.  Katy Tang (D4), the sister of D1 and D2, was convicted on count 10, a ‘money laundering’ offence.

Background issues

9.D1 and D2 were directors of the GK group which was involved in a joint venture with a mainland company controlled by China International Trust and Investment Corporation, Beijing (“CITIC”).  The joint venture company, CIAL, was a BVI company, incorporated in August 1997.  Sixty percent of CIAL was owned by German Kitchens (Hong Kong) Limited (“GKHK”), one of the GK group and forty percent was owned by China Shine, a subsidiary of CITIC.  The joint venture partners decided to ‘go public’ in an initial public offering (“IPO”) by way of a separate incorporated company, GKCH which was first listed on 17 December 1997 on the Hong Kong Stock Exchange.  The only asset of CIAL was a seventy-two percent holding of the shares (three hundred and sixty million shares) in GKCH.  As to the balance of the shares in GKCH, three percent (fifteen million shares) were held by James Law Kok-chun and twenty-five percent (one hundred and twenty-five million shares) were floated to the Hong Kong public in the IPO share issue.

10.The essence of the prosecution’s allegations in counts 1 and 2 was that D1 and D2 conspired with others to steal the three hundred and sixty million shares belonging to CIAL and, having done so, that they used them as security for loans at various lending institutions or used the proceeds of their sale for the financial purposes of the GK group.  There were a total of fourteen transactions by which the disposal of the shares belonging to CIAL was effected.  In relation to counts 11 to 14, D1 and D2 forged what purported to be the minutes of directors’ meetings and then used these minutes to obtain mortgages of the joint venture shares with finance companies.  The cheque in count 15, allegedly a forgery, was used as a security for a loan.

11.The trial occupied seventy-nine days between 21 January 2002 and 1 June 2002.  Despite the length of the trial, much of the evidence concerning the transactions which were said to be fraudulent was not in dispute.  This, no doubt, was because the transactions were well-documented.  In short, however, D1 and D2’s case was that the joint venture partners, Mr Wang (PW1) and Mr Sun (PW2), knew what D1 and D2 were doing and had consented to their actions.  The main challenge to the evidence given by PW1 and PW2 was that they had not been telling the truth about their own involvement, that they had known what was going on and had benefited from what was done, but were trying to avoid the blame for what had been done by giving a false account.

12.D1 gave evidence but D2 did not.  Two other witnesses were called in support of the defence case.

13.In an admirable summary of the prosecution’s case, the judge gave an overview of what the prosecution’s evidence was designed to establish.  Having regard to the grounds of appeal, which to a considerable extent relied upon the absence of legal representation for D1 and D2 when the trial had reached an advanced stage, it will suffice for present purposes if we merely repeat what the judge told the jury at the outset of the summing up.  This was as follows:

“… If you took at the big picture, you will see a group of companies in 1997 which can be referred to as the GK group.  Some members, such as GKHK, are family companies, others like GKC and CWT are joint ventures, and other companies that we have heard about are companies that interact with the GK group, not to trade but to hold shares in or invest in companies which do trade, and you will note this category, this is CSIL and CIAL eventually.

And we also know that the companies are connected through Shortridge to CITIC, a large mainland company.  In 1997, the GK companies appear to have been operating and prosperous but it is possible that, after considering the evidence that you have heard, the appearance of prosperity, certainly towards the middle of 1997 is deceptive.  Around 1997 and in the months that followed, external pressure which has been referred to throughout as ‘financial turmoil’ in Hong Kong, ‘the Asian financial crisis,’ began to cause other companies that interacted with the GK group to delay or default on payments.

This, eventually put pressure on the trading companies of GK group and it is really the prosecution’s case that a rather desperate plan was put into effect with a view to support all the companies in the group and, in particular, to give the listed company, which by then was GKCH, a healthy appearance.  GKCH, which was a joint venture, had been listed, that is the holding company.  The listing had been delayed for about a month because of the financial turmoil and so the date was changed from November but on 17 December, the listing became a reality and it was no doubt a matter of pride for the GK group and, to a lesser extent, its partner, that the company was listed.

I say, ‘to a lesser extent’ for the partner because the joint venture partner had other listed companies in its group and in its structure and it was not a family business, as the GK group actually was.  What we know from the evidence is that, as at 17 December, the joint venture partners held, through a company formed solely for the purpose of holding the shares in that company, that is CIAL, 360 million shares in the holdings company in GKCH.  But by June of 1998, as a result of the 14 transactions that we have heard so much about, those shares had been pledged or sold.

It is the prosecution case that the selling and the pledging was done entirely without the knowledge or consent of the joint venture partner, CIAL.  The money obtained or the benefits derived were used in a variety of ways.  They were not really used for the benefit of the listed company.  They were used to obtain banking facilities, to provide cashflow, to secure overdraft facilities, to repay outstanding loans to banks and financial institutions, perhaps to repay borrowings, or to repay borrowings from the joint venture partner.  In the case of the outright sale of shares, they were actually used for cash applied to various payments and purposes.

Now, overall, the benefits from pledging them failed in supporting or propping up the companies of the GK group, although it is quite clear that some large sums went to Shortridge and CWT.  It is the prosecution case that those payments to Shortridge and CWT were paid to those companies in such a way as to make them appear to be the kind of accounts receivable that they might naturally expect to be paid to them from trading companies in the ordinary course of business.

The prosecution alleges that it was because these four defendants entered into two conspiracies that all these things were done.  The first conspiracy related to the defrauding of the joint venture partner, that is the directors and shareholders of the joint venture partner and the company formed to hold the shares; CIAL.  The second conspiracy actually involved an agreement to use the proceeds of the indictable offence of theft, the theft being of the property which was the 360 million shares in GKCH.

The prosecution says that the defrauding consisted of leading the banks and financial institutions to believe that CIAL consented to the pledging, or the sale, of shares and backing up the alleged consent by producing documents which, on their face, appeared to show that consent had been given in the proper manner and then going ahead and pledging the shares without the consent of CIAL or without the knowledge of CSIL.

The second conspiracy relates to what the accused agreed to do with the proceeds of the theft of the 360 million shares.  The prosecution says that if you are sure about the matters put before you in evidence relating to the flow of funds, and the disposal of funds to the various recipients, you can be sure that the accused dealt with the proceeds of the theft of the shares by using them, not for the legitimate purposes of the listed company but for use by other companies in the group, or for repaying advances made by the joint venture partner.

Eventually, according to the evidence of the prosecution, the joint venture partner found out what had happened in relation to the shares, in particular because the dwindling financial performance which they did not notice until the early part of 1998 forced Shortridge to more closely examine the trading companies which appeared to them to be having difficulty in repaying their trust receipts.

In the course of taking tighter control of the financial matters, the pledging of the shares was discovered.  When first questions were asked about the pledged shares, the 1^st and 2^nd accused tried to hide what had happened but within a short time they had to admit the full extent of the pledging.  By then it was too late to recover the funds or recover the shares, or effectively to save the listed company.  Now, that is a simple view of the prosecution’s case.”  (Appeal bundle pp. 26-29)

The judge continued by summarising the defence case, saying:

“The defence case is that no such agreement to defraud existed and that the proceeds obtained from the pledging or the sale were not the proceeds of theft but that this was the proper use of funds belonging to the majority shareholder. … the defence case is that, far from acting without the knowledge of the joint venture partner, the funds were obtained in each case, with the knowledge and consent of the Shortridge directors of CIAL, that is Mr Wang (PW1) and, through him, Mr Sun (PW2).

The defence say that the documents that have been referred to as forged documents, were either signed by the persons who should have signed, or signatures were placed on the documents with the knowledge and agreement of the person whose signatures they purported to be.  Because the funds were used to prop up or assist companies in the group and did not directly benefit the accused it is suggested that there was no wrongdoing.

The defence case is that the transactions were done with the knowledge and consent of Sun and Wang and they say that they are trying now to pretend that they did not have any knowledge of the transactions, either because they knew that the transactions would not be approved by their mainland superiors or because they themselves benefited financially, directly or indirectly, from the funds obtained.

Although the trial has been long and the number of documents you have been referred to has been large, you will have realised by now that the matters that you have to consider are not in themselves complicated.  There is little dispute about the transactions themselves.  You know where the funds came from, what shares were pledged, the manner of the pledging and what happened to the funds obtained, up to a certain date.  And you will consider the documents relating to each transaction but you will note that except in very limited ways that evidence is not challenged.

What is challenged is whether the documents that you might think of as the consent documents, the company Minutes, the Resolutions or the bank account documents are genuine or are properly obtained.  There are separate charges relating to whether or not the documents are genuine and if not who was responsible for them and charges 11, 12, 13, 14 and 15 affect the 1^st and 2^nd accused only.

For the conspiracy charges, you have to decide whether you are able to draw inferences from the evidence before you so that you are sure of it, that these defendants entered into the agreements to defraud and deal with the proceeds of the indictable offence in the manner described in the particulars of Charge(s) 1 and 2.  If you cannot be sure that such agreements existed, you would then go on to look at the individual charges which are presented to you as alternative charges, that is Charges 3 to 10, and I will refer to the charges in more detail later.”  (Appeal bundle pp. 29-30)

Grounds of appeal

14.Nineteen substantive grounds of appeal against conviction were advanced on behalf of D1 and D2 by Mr Bernard Yuen.  In essence, seven of these (grounds 1 to 6 and 16) amounted to complaints that material irregularities occurred during the course of the trial and twelve of the grounds (7 to 15, 17, 18 and 18B) alleged misdirections on the part of the judge when directing the jury. We shall deal only with the salient aspects of each ground.

(1) to (4) and (6)  Failure to accord a fair trial after legal representation ceased

15.D1 and D2 were represented by counsel up until the fifty-fifth day of trial.  On that day, their counsel and those instructing him withdrew and thereafter D1 and D2 represented themselves.

16.In grounds 1 to 4 and 6, it was submitted that the interests of D1 and D2 from the fifty-fifth day of the trial onwards were not properly protected and that, for them, this resulted in an unfair trial.  In particular, amongst other things, it was said that the defence was not fully brought out before the jury, due in part to the pressure of time under which D1 and D2 were placed.  It was also alleged that there was a failure on the part of the defence to call a witness despite D1’s indication to the judge that there was someone who was able to give evidence, as Mr Yuen described it, of “crucial relevance”.  Furthermore, it was said that the judge failed to provide D1 and D2 with the assistance they needed to conduct their defence suitably and that, amongst the omissions on the judge’s part, was a failure properly to advise D1 and D2 of their right to apply for PW1 and PW2 to be recalled for further cross-examination and to make a submission of no case to answer at the conclusion of the case for the prosecution.

17.This case was listed with an estimated length of forty-five days.  Having regard to the disputed issues at trial, this was at the time probably a pessimistic, but perfectly sensible, forecast of its length.  It is not suggested either that counsel, Mr Michael Leung, who represented D1 and D2 until 24 April 2002, the fifty-fifth day of the trial, had acted in any other way than with complete propriety and competence or that the judge’s decision to release counsel and his instructing solicitors from their duty to represent the applicants was in any sense mistaken or flawed.  Mr Bernard Yuen, on behalf of the applicants, with commendable brevity following the adoption by him of his extensive written submissions, concentrated what he had to say on these grounds to the events which occurred after legal representation for the defence had ceased.  It was pointed out that the prosecution had, at that stage, just one witness to call.  This was Mr Nicholas Hill (PW26), the accounting expert, whose two relatively short witness statements were coupled with a report.  In due course, a supplementary report which contained amendments to the original report was served on the defence on 22 April 2002.  After PW26 had completed his evidence, a number of exhibits and admitted facts were tendered before the prosecution’s case was closed.

18.It was submitted that the judge failed to give D1 and D2 sufficient time in which to prepare for the evidence given by PW26.  In our opinion, without needing to go into any of the details of what occurred, this was a complaint which the transcript, time and again, illustrates as being unfounded.  PW26 commenced his evidence on 25 April 2002 after proceedings had been adjourned early on 24 April 2002 to enable D1 and D2 to prepare themselves.  PW26 concluded his evidence-in-chief during the morning session on Friday, 26 April 2002, and D1 commenced his cross-examination.  This took the rest of the day and he continued on Monday, 29 April 2002.  He was followed by D2 who cross-examined PW26 for the remaining part of that day and the whole of Tuesday, 30 April 2002.  By this stage, D2 had still not completed his cross-examination.  1 May 2002 was a public holiday and, after that, D2 continued to cross-examine on 2 May 2002 and until about midway through the morning session on Friday, 3 May 2002.  To give praise where it is due, the cross-examination was well-structured, relevant to the issues and conducted overall in a most competent way.  On occasions, the judge  interrupted to assist in the formulation of questions and with advice about the rules of evidence.

19.At the conclusion of the case for the prosecution on 3 May 2002, the judge informed D1 and D2 of their right to make a submission of no case to answer and of their right to give evidence or to remain silent.  The judge went into greater detail when explaining to D1 and D2 their right to give evidence when the hearing resumed on 6 May 2002.  In the event, D1 and D2 were given time to prepare themselves and the proceedings were adjourned to Wednesday, 8 May 2002 when the defence case began with an ANZ Bank witness, Mr Jim Chan (DW1).  After that, D1’s application to start his evidence on Friday, 10 May 2002, was granted.  D1’s evidence on 10 May 2002 continued, as it happened, on Tuesday, 14 May 2002 which was then the sixty-sixth day of trial.  The following day a juror was ill so that the court was unable to sit again until Thursday, 16 May 2002.

20.On 17 May 2002, D1 was cross-examined by counsel for D3 and counsel for D4 before prosecuting counsel commenced his cross-examination.  There followed a long weekend, with 20 May 2002 being a public holiday, and cross-examination was concluded on Tuesday, 21 May 2002.  The judge then permitted D2 to “re-examine” D1.  Thereafter, D1 called a former employee (DW3).  This evidence was concluded on Wednesday, 22 May 2002 (day 71 of the trial).

21.When D1 had closed his case, D2 elected not to give evidence.  No evidence was called by D3 and D4.  A discussion then followed as to the order of speeches, after which prosecuting counsel made his final speech.  The court was unable to sit on 23 May 2002 to suit the convenience of one of the jurors.  On Friday, 24 May 2002, D1 and D2 were given further time in which to prepare their final submissions.

22.When the court sat on Monday, 27 May 2002 (day 73), counsel for D3 and D4 made their final speeches.  Thereafter, D1 began his closing address although this was in fact a joint address with D2, both applicants being allowed to contribute to the speech as it progressed.  This was consistent with the way in which the defence case had been run throughout, with D2 effectively adopting the evidence given by D1.  In a most useful schedule prepared on the respondent’s behalf, it is apparent, on close analysis, that no less than one hundred and twenty-three issues were covered in the defence speech.  There was nothing to suggest, as Mr Yuen had done, that the speech was disorganised or piecemeal.

23.It has been necessary to chart the progress of the last days of the trial prior to the commencement of the summing up to demonstrate, contrary to Mr Yuen’s contention, that the time given to D1 and D2 to prepare for the presentation of their case was sufficient to satisfy the requirements of a fair trial.  It is apparent, also, that the judge had not failed to give D1 and D2 the assistance necessary to satisfy those requirements.

24.We have earlier referred to a witness whom the applicants were allegedly unable to call.  This matter was raised in the course of D1’s evidence.  He was explaining why he had not put a particular issue to PW1.  This was because he had recently “bumped into” the manager of a club who had told him something.  However, quite properly, he was prevented from saying what he had been told because it was hearsay.  The judge then informed D1 that if he wished to call this man as a witness, he was entitled to do so.  D1 replied: “Yes, I know that”.  In the event, D1 did not call the witness and at no stage was it later suggested by him that he wanted to call the witness.  Furthermore, we were informed by Mr Reading, SC, on the respondent’s behalf, that his learned junior, Mr Callaghan who prosecuted at trial, had made all the arrangements at the request of D1 to have the ANZ bank witness (DW1) at court.  In these circumstances, we are satisfied that D1 was well aware of his right to call other witnesses if he so desired.  The same also applies to Mr Yuen’s suggestion that if D1 and D2 had been aware of their right to have PW1 and PW2 recalled for further cross-examination, they might have taken the opportunity to put further matters to them arising from PW26’s supplementary report.  Neither of them had been slow in coming forward with requests, always articulated in a measured and sensible way.  It is quite apparent, in any event, that even if PW1 and PW2 had been recalled, there was nothing either of them could have added.  There had been no challenge as to the flow of funds described by PW26 in the fourteen transactions which were illustrated in the charts attached to his reports, exhibits P. 604 and P. 604A respectively.  PW1 had been cross-examined at extraordinary length and he had never wavered in his response that he was unaware of the sale or pledging of shares and had not consented to such actions on the part of D1 and D2. 

25.A further suggestion was made that D1 and D2 were effectively denied the opportunity of making a submission of no case to answer at the close of the prosecution’s case.  It was said that although their right to make such a submission was explained to them, the judge effectively took this away by saying that it was “unlikely” to succeed because it appeared to her that there was sufficient evidence to go to the jury.  This was a statement which is self-evidently correct.  There was a wealth of evidence for the jury’s consideration and the judge cannot, in our opinion, be criticised for advising the applicants of the futility of making such a submission when the case was most obviously a matter for the jury to decide.  In this context, it is to be noted that both counsel representing the alleged co-conspirators (D3 and D4) in counts 1 and 2 chose not to make submissions of ‘no case’.

(5)     Directions on PW26’s supplementary report

26.In ground 5, it was submitted that the judge failed to refer sufficiently in her directions to the jury to the “proper effect and significance of the supplementary report showing the flow of funds representing the proceeds of the pledging of shares in contrast to the original report which suggested that only D1 and D2 or their companies were the ultimate recipients of such proceeds.”  Neither the original report nor the supplementary report prepared by PW26 was exhibited.  However, flow charts showing the way in which funds from the disposal of the three hundred and sixty million GKCH shares valued at just under HKD90 million were utilised, together with the summaries of transactions which were contained in these reports, were exhibited.  These were produced by consent (P. 604 and P. 604A).  The amendments in the supplementary report were added to the flow charts from the original report and were given to the jury.

27.In the cross-examination of PW26, D2 concentrated heavily on the tenth of the fourteen transactions set out in the charts.  This was a transaction showing, amongst other things, the deposit of HKD14.11 million to the ANZ Bank on 7 March 1998.  PW26 was unaware of the purpose of this transaction but the applicants knew that these funds had ultimately been remitted to the account of a company run by PW1 and PW2, Shortridge Limited, to pay off two outstanding trust receipts.  The ANZ Bank witness, DW1, was duly called for the defence to demonstrate this is what became of those funds.  The clear purpose of this exercise was to lend support to the defence account generally, and on this occasion specifically, that the monies which were derived from the disposal of the GKCH shares were used not for personal gain but for the benefit of joint venture company.  The other side to this argument, as the respondent maintained, was that the use of these funds was a necessary means of paying off a debt to avoid Shortridge Limited realising that the applicants’ company was virtually insolvent and unable, therefore, to repay the Shortridge-guaranteed (trust receipts) line of credit which had been extended to the joint venture companies.

28.The judge accurately and succinctly covered these points at various stages in the summing up.  She said:

“Now, matters addressed by the accountancy expert (PW26) relate to the dealings in the GKCH shares and the tracing of the fund flows that resulted.  The charts that have (been) used set out in diagram form what the fund flow was at the time he looked at the matter in January 2001, and then some alterations were made by the supplementary report of February 2002.  And you will recall that some funds were then traced further to different recipients. …”  (Appeal bundle p.64)

Shortly afterwards, the judge went on to say:

“… Mr Hill (PW26) confirmed in cross-examination that almost all the transactions were proper transactions and within the powers of the directors, if – and it is a big if – and only if there was proper consultation and agreement between the partners.  And that is the issue that you have to decide.

His evidence cannot help you decide that point.  You have to decide that on the view you form about the witnesses’ evidence and the question of consent, and the inferences that you can draw from the documents.  So although he gave very lengthy evidence and although he was cross-examined in great detail, you will probably not have any difficulty in deciding that the fund flows that he described were accurate.  And you will not have any difficulty in deciding that what he has given as hypothetical situations are correct, that he says the directors should have done this in this set of circumstances.  But he cannot answer the question as to whether or not consent was given by the joint venture partners.  And that is what you have to decide.

Now, in respect of the 14 transactions you will probably find that PW1, PW2, PW3 – that is Mr Wang, Mr Sun and Mr Chan – are the witnesses that you look at most in relation to this history of the transactions and what was happening at the time the transactions were being effected.  You also have in each case the witness who represented the particular finance house, and overall you have the evidence of Mr Hill (PW26) which relates to all the 14 transactions.”  (Appeal bundle pp. 65-66)

Later in the summing up, the judge summarised the whole of the evidence given by DW1, the ANZ Bank representative, concluding the topic by saying:

“What his evidence really concerns is that the end user of the 14 million was Shortridge, and that is a point that the defence relies on, because they say that this shows that Shortridge was getting benefits from the money that was obtained from the pledging of the shares.  That may be the case. …”  (Appeal bundle p. 103)

29.In our opinion, the suggestion made by Mr Yuen that the jury might not fully have comprehended the importance of this evidence to the defence case, late in the day though it may have been that it emerged, is without foundation.

(16)   Direction to treat the evidence of D1 as the evidence of D2

30.We can deal briefly with the last of the grounds (ground 16) which alleged an irregularity in the course of the trial.  This related to a direction given in the summing up which invited the jury to consider the evidence given by D1 to have been, in effect, evidence given by D1 and D2.  The judge said :

“As I have told you, the burden is on the prosecution, the defendants do not have to give evidence in this case.  Here, the 1^st defendant has chosen to do so and he and the 2^nd defendant have effectively presented their evidence together, in part, because they are representing themselves and in part also, because the evidence relating to them is very similar. … The 1^st accused chose to give evidence, he did so in a lot of detail and in doing so, has spoken for the 2^nd defendant as well.  You should consider that evidence as a joint effort, because they liaised together in respect of giving the evidence and also in relation to the submissions that they made as a result of the evidence.

Now, the evidence given challenges directly the evidence on which the prosecution case is based.  There is no dispute that the 14 transactions occurred and that what was done in relation to those 14 transactions happened, but the case is that far from those transactions being done without the consent of the CSIL directors, the CIAL directors from CSIL, all the transactions were done with the knowledge and agreement of both Mr Wang and Mr Sun.  The defendants deny the forgeries and the use of the forged documents.”  (Appeal bundle pp. 99-100)

31.Earlier in the summing up, the judge had given standard directions as to the separate approach the jury should take to the individual cases before them.  The directions, taken overall, were perhaps more generous to D2 than they might have been having regard to the fact that he had not been exposed to cross-examination.  Despite this, D2 was given the benefit of a direction that D1 had spoken for both of them.  This direction created no disadvantage whatsoever to D2.  This ground was misconceived, particularly in the light of a further direction, given towards the end of the summing up, in the following terms:

“None of the accused has anything at all to prove in the case, and you must treat each accused as if he or she was appearing before you alone.  I know that that was slightly confusing because Mr Eric Tang gave evidence that purported to be – and was – for Mr Eugene Tang as well.  But when you are considering the cases, you must consider their cases separately, even though you can take into account the evidence that was given in that manner, and to treat each charge separately as well.”  (Appeal bundle p. 127)

(7) and (8)  The letter containing proposals (P. 605/605A)

32.Grounds 7 and 8 were in the following terms:

“7.    The trial judge was wrong in attaching undue weight in the summing up to Exhibit 605 as evidence in view of the poor quality of the evidence of PW1 and PW5 thereon, the undue delay and circumstances of the production of the same, the lack of the original, the challenge from the defence and the tremendous prejudicial effects outweighing any probative value thereof against (D1 and D2).

8.    The trial judge failed to properly and sufficiently direct the Jury as to the proper approach in assessing the weight, reliability and risk of considering Exhibit 605 particularly in the light of (D1’s) denial of his signature therein, the lack of expert evidence verifying the signature thereon, the prosecution witness undue delay and circumstances in producing the same, and the failure to produce the original of the document.”

33.The document (P. 605) to which reference is made in these grounds was written in Chinese and was exhibited with a translation in English (P. 605A).  It is headed: “Proposals for Saving GKC Holdings Limited” and bears what purports to be D1’s signature.  It is dated 16 July 1998.  The first two paragraphs stated:

“As a joint venture set up by German Kitchen (Hong Kong) Co. Ltd. (holding 60% of the shares) and Shortridge Ltd. (holding 40% of the shares) in the year 1993, German Kitchen (China) Co. Ltd had quickly become the leader of construction materials suppliers in the market.  It was successfully listed in name of GKC Holdings Ltd. In December last year too.

However, in order to achieve the listing purpose and for further maintenance of the whole situation, many unwise decisions have been made, resulting in the loss suffered by Shortridge Ltd.  That has made us unable to live up to the expectation of China Trusts.  I am now deeply sorry for that and am willing to shoulder all responsibilities.  In order to safeguard our national assets and save GKC Holdings Ltd. so as to compensate for the loss suffered by Shortridge Ltd., our side now raise the following proposals, hoping that you can accept them.”  (Appeal bundle p. 1894)

34.The proposals are then set out, concluding with a paragraph which contains an apology for “the wrong decisions that we have made”.

35.We do not need to go into detail about the way in which this document came to be exhibited.  These grounds amount to a complaint that the judge attached undue weight to it and failed to provide the jury with sufficient directions to enable them to assess its reliability having regard to D1’s denial that he had signed the document.  A reading of the summing up, however, reveals that the judge’s handling of this topic was entirely even-handed.  After dealing with the evidence of Ms Freda Chan who had found the document, and after dealing with the defence case in detail, the judge, referring to P. 605 (and P. 605A) as a “proposition letter”, said:

“In respect of the proposition letter that was put at the meeting, I think, on 19 June to the group by Mr Eric Tang – or alleged to be put by Mr Eric Tang – this is a significant document, if you find that it was put, because if you read it, effectively it is an admission as to what was being done, and it is written in terms that indicate that the joint venture partner did not know what was going on and had not consented to it.  It is a proposition to save the listed company.  However, there are certain matters to note.  First of all, there is no original document, and there was no question of this document being handed in until November of 2001.  Freda Chan (PW5) was not able to find a copy of it, and she was not able to find the original of it either.

It is a matter for you what you decide is the truth about that document.  If you are satisfied that the document was presented in the terms that Mr Wang (PW1) described – in other words he just found it amongst some papers, took it to Freda Chan and left it to her to deal with it, which is what he said happened – that is a matter for you to decide.  You will have to decide that and it is based on, it is really, again, a matter of Mr Wang’s credibility, as to what you make of that document.

But if you are satisfied that that document was presented at the meeting, as Mr Sun (PW2) and Mr Wang (PW1) and Mr William Chan (PW3) say, that is a document that you have to take into account in considering the case against the accused. …”  (Appeal bundle p. 117)

36.We are satisfied that these grounds were without substance.

(9)     Dishonesty (in count 1)

37.In ground 9, it was alleged that the judge failed to give sufficient directions to the jury as to the element of dishonesty in the context of the 1^st count of conspiracy to defraud.  Mr Yuen submitted that the direction which was given to the jury was “grossly inadequate” because it failed to set out the test provided in R v. Ghosh [1982] 75 Cr.App.R. 154 at 163.  The judge’s directions were in these terms:

“You have to be satisfied by the prosecution evidence that each of the accused was acting dishonestly.  In this case, ‘dishonestly’ does not have any special meaning; it is just the ordinary meaning that you would expect when you use the term ‘dishonestly’.  If you found, so that you were sure, that the defendants had used the shares without the consent of the joint venture partner in the way that the prosecution alleges, you could be sure that that is a matter that was regarded as dishonest.”  (Appeal bundle p. 41)

38.It is apparent, having regard to the defence to count 1 that PW1 and PW2 had consented to the fourteen transactions which were covered by the offence, that no Ghosh direction was necessary.  Normally, it is unnecessary and undesirable to attempt to define dishonesty.  It is sufficient simply to tell the jury that ‘dishonesty’ is a word which bears its ordinary meaning, a meaning which will be well-known and understood by all of them.  In exceptional cases where, for example, a defendant has alleged that his conduct, either admitted by him or proved against him, was not considered by him to be dishonest, a Ghosh direction should be given.  This court has consistently encouraged judges to canvass the need for such a direction with counsel before speeches.  In the present case, this was done with counsel for D3 and D4, albeit at a stage when D1 and D2 were not themselves represented.

(10) and (11) Ingredients of Count 2 and the drawing of inferences

39.Under grounds 10 and 11 it was submitted that:

“10.    The trial judge failed to give proper or sufficient directions to the jury as to the meaning and requirement as to the essential ingredients of Count 2 to be proved before (D1 and D2) could be convicted of the 2nd count.

11.    The trial judge failed to give proper sufficient and consistent directions to the jury as to the proper approach for drawing inferences from the evidence.”

40.These matters were comprehensively dealt with by the judge in her summing up to the jury and we do not propose to repeat them.  Indeed, Mr Yuen accepted that a correct approach to inferences was eventually given by the judge but his complaint was that this was done at a stage in the summing up when it was too late for the direction to have been properly understood by the jury.  We disagree with this proposition.

(12) and (13) The sixty percent shareholding of GKHK in CIAL and the position of the directors

41.The 12^th and 13^th grounds of appeal were stated as follows:

“12.    The trial judge failed to give proper or sufficient directions to the jury as to the proper effect and significance of (D1 and D2) through their parents holding through GKHK 60% of the shares of CIAL in dealing with the issues as to whether there had been any dishonesty, intention to defraud, intention to cause economic loss or risk of economic loss, and as to whether there had been any conspiracy to defraud or theft in respect of the pledging of shares in question on the part of (D1 and D2) in relation to the 1^st and 2^nd counts.

13.    The trial judge failed to give proper or sufficient directions to the jury as to the proper effect and significance of (D1 and D2) together with Mr. Peter Cheung, their brother-in-law, being the majority directors (3 out of 5) in CIAL in dealing with the issues as to whether there had been any, up to 20 May 1998 when the 6^th director was appointed, dishonesty, intention to defraud, intention to cause economic loss or risk of economic loss, and as to whether there had been any conspiracy to defraud or theft in respect of the pledging of shares in question on the part of (D1 and D2) in relation to the 1^st and 2^nd counts.”

42.The shareholders of GKHK were the parents of D1, D2 and D4.  D1 and D2 were merely directors.  GKHK owned sixty percent of the joint venture company, CIAL, and it was CIAL which owned the three hundred and sixty million (seventy-two percent) of the shares in GKCH, the publicly listed company.  D1 and D2, as directors of GKCH (an admitted fact), did not, as Mr Yuen suggested, own sixty percent of GKCH.  The company owned the shares.  Nowhere in Mr Yuen’s submissions did he make reference to the decision in R v Gomez [1993] AC 442.  In this regard, it suffices to set out a passage taken from Archbold Hong Kong [2004] at paras. 22-38:

“APPROPRIATION OF COMPANY ASSETS

In R v Gomez [1993] AC 442, HL, Lord Browne-Wilkinson, in a speech with which the majority concurred, said :

‘Where a company is accused of a crime, the acts and intentions of those who are the directing minds and will of the company are to be attributed to the company.  That is not the law where the charge is that those who are the directing minds and will have themselves committed a crime against the company: see Att-Gen’s Reference (No.2 of 1982) 78 Cr App R 131, applying Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250.  In any event, your Lordships’ decision in this case, re-establishing as it does the decision in Lawrence, renders the whole question of consent by the company irrelevant.  Whether or not those controlling the company consented or purported to consent to the abstraction of the company’s property by the accused, he will have appropriated the property of the company.  The question will be whether the other necessary elements are present, viz, was such appropriation dishonest and was it done with the necessary intention of permanently depriving the company of such property?’ [at p 496].”

With respect to Mr Yuen, these grounds were wrongly based in law.

(14) and (15) The balance of the summing up

43.Mr Yuen submitted under grounds 14 and 15 that the summing up was unfairly balanced in favour of the prosecution, containing comment which he suggested defeated the arguments put forward by the defence and failed to provide directions which gave effect to matters which were favourable to the defence.

44.We have looked at the examples provided by Mr Yuen of what he was effectively saying were demonstrations of bias or a lack of impartiality on the judge’s part and we are satisfied that such comments as were made were well within the bounds of legitimate comment.  There was no basis for these grounds.

(17) and (18) Application of proceeds and true nature of pledging

45.It was submitted under grounds 17 and 18 that the judge “failed to give sufficient directions as to the application of the proceeds obtained from the pledging of shares in assessing whether all the essential ingredients for the 1^st and 2^nd counts (had) been established by the prosecution” and “as to the true nature of the pledging of the shares”.

46.As we have said already in regard to ground 10, the judge gave comprehensive directions on the 2^nd count of the indictment.  The same also applies to the directions given on the 1^st count.  Furthermore, as the respondent pointed out, these grounds appear to ignore the actual words used in the particulars of count 1 (see para. 3 above).  The dishonest representations alleged were that (i) the shares were pledged with the consent of CIAL and (ii) various documents were presented to lending institutions purporting to show that CIAL had authorised the pledging of shares, when it had not done so.  It was alleged, thirdly, therefore, that the pledging of the GKCH shares was done without CIAL’s consent.  Similarly, so far as these grounds affect count 2, the actual words used: “conspired together to deal with proceeds of an indictable offence” appear to have been ignored.

47.There was no basis for these grounds.

(18B) Majority direction

48.In a recent addition to the grounds of appeal, Mr Yuen submitted that the judge had erred in directing the jury in such a way that the impression may have been created that “they had to come to a unanimous decision or majority decision of seven to one or six to two of guilty or not guilty” without having the option to disagree.  This, he contended, might have seemed to the jury as to have been a direction which compelled them to take a course which resulted in the verdicts which were returned.  These, as it happened, were by a majority of seven to one or six to two.

49.The relevant directions given by the judge at the conclusion of the summing up on 31 May 2002 were in the following terms:

“You will go out to consider your verdicts in a few minutes.  It is desirable that you should all be agreed on those verdicts, but if, after discussion, you cannot all agree, then the court is prepared to accept verdicts of seven to one or six to two.  But there has to be at least six of you who are agreed.  You will be asked for a verdict on the individual charges, and whether all of you have agreed on it.  And if you are not in agreement you will be asked what your verdict is, whether it is seven to one or six to two. …

… If the verdict is guilty on any charge, you will be asked whether the verdict is one that you all agree about.  And if it is not one you all agree about, by what majority you have reached the verdict.”  (Appeal bundle p. 128)

50.Before the jury went out, they were invited to take their time and to discuss matters carefully.  Later in the day, at 4:57 p.m., the judge called the jury back so that they could be present when they were put in the charge of new ushers.  The judge apologised for interrupting the jury’s deliberations and said:

“I don’t want you to feel that you’re marooned here because you’ve been deliberating for quite a long time now.  Shortly, you’ll be asked about your requirements for dinner and you can continue with your deliberations up until that time and, if necessary, then I may call you back again to discuss whether you need any assistance, or whether you need to be retired for the night, or what the situation is. 

So don’t feel that you’re under any pressure … I just remind you that I can do two things.  I can remind you about parts of the evidence or help you with matters of law but you may feel at this stage that all you need is a bit more time to discuss the matters further because we do have a lot of material to cover.  So I’ll ask you to go back now.”  (Appeal bundle p. 2103)

51.The case was adjourned at 8:11 p.m. when the jury ceased their discussions.  When the jury returned to court in the morning, the judge said :

“I am now going to send you out again to consider your verdict.  I would remind you of what I told you before – that the most important point in this case in respect of each of the charges is that the prosecution has to make you sure of the guilt of the accused.  If not, you must acquit him or her of the charge or charges that you’re looking at.  The burden of proving the guilt so that you’re sure, remains with the prosecution; that the accused does not have to prove anything at all in this case.  You must treat each accused as if he or she was appearing before you separately.  You must deal with each charge separately, and I would remind you that these accused are people of clear record.

So I would ask you to go out now and consider your verdict.  I can help you in two ways if you need to, at a later stage.  I can remind you of any evidence if you don’t have a memory of what happened over a particular piece of evidence.  If you need advice about the law, I can remind you of that and I’ll be in court here if you need anything.

If you have any inquiries or questions, as I reminded you yesterday, I’ll have to ask counsel and the accused to reassemble, so there may be some delay if you have any queries.”  (Appeal bundle p. 2106)

At 10:59 a.m., the court was informed that the jury had reached their verdicts.

52.Mr Yuen relied on the recent decision in HKSAR v. Kwok Chi-wai [2004] 3 HKLRD 185 where this court, allowing the appeal, held (at page 190) that:

“13.    When the issue of pressure on a jury is raised, each case will turn on its own events, the words used by the judge, the context in which they were used, the time the jury has been out for deliberations, and what then transpired.  It is not possible to lay down exhaustive parameters as to what is or is not acceptable.  It is a matter of experience, and the sense of the message conveyed by all the circumstances to the jury, and the facts of the particular case, remembering always that jurors are lay persons unversed in the law.”

53.In that case, the factual issues fell within a narrow compass.  The jury was informed that a verdict of six-to-one or five-to-two was acceptable but the judge continued by saying twice, at different stages:

“A verdict of four-to-three either way does not constitute a verdict.  It has to be either six-to-one or five-to-two.”

The jury retired at 11:30 a.m. and nothing more transpired until 7:39 p.m. when counsel were recalled.  Shortly afterwards, the jury returned to court when the judge explained the arrangements for the jury to remain overnight if that became necessary.  She then continued (at page 189) by saying:

“All things considered, I think that you should be given until 8:30 tonight to see if you can reach a verdict of either ‘guilty’ or ‘not guilty’ unanimously if possible, but by a majority of six-to-one or five-to-two if you cannot be unanimous.  So if you reach a verdict by 8:30 this evening, we’ll take the verdict tonight, even if it takes a little after 8:30 by the time we can all re-assemble in this courtroom.  I’m talking about your reaching a decision by 8:30.  But if you cannot reach a verdict by 8:30, then the jury usher will bring you back to court and I shall then give you further directions as to what you should do when you go to your sleeping quarters.  Basically, what happens is that there will be no verdict taking until tomorrow morning, say about 10 o’clock or thereafter.”

54.The ground of appeal in that case was that the judge had put pressure on the jury by stating a time by which they should reach a verdict unless they were kept overnight and by giving them no indication that it was open to them to disagree.

55.Stock JA, giving the judgment (at pages 190-191) stated:

“… we find ourselves, on the facts of this particular case, feeling uneasy about the verdict that was reached and the circumstances in which it was reached.

15.    This jury had been out for over eight hours by the time they were recalled; a long time in a case where the issue fell within such a short compass.  They returned a majority verdict less than an hour after the Judge’s further directions.  In the previous trial involving this appellant, the jury had failed to agree, and had been discharged.  Whilst the Judge in this trial was perfectly correct to say that a verdict of four-to-three did not constitute a verdict, we are troubled, in full context, by the emphasis that was twice placed on the direction that ‘it has to be either six-to-one or five-to-two’, and ‘it has got to be at least five-to-two’, in direct juxtaposition with mentioning four-to-three decisions, with no hint at any stage, not even when they returned eight hours later, that if at the end of their deliberations their settled view revealed a four-to-three split, then they were entitled to say so.  The formula for intimating to a jury that they are entitled at the end of the day to disagree is implicit in the question which is sometimes asked when a jury has been deliberating for a substantial time, namely, whether there was any likelihood of reaching an agreement if given a while longer, a question which we note was not put in this case; or a formula along the lines suggested in the specimen directions issued for the guidance of judges: ‘A verdict of four-to-three either way does not constitute a verdict and should that position arise I shall direct you further.’

16.    An intimation to this effect was never given.  The jury had been told that they had to come to a majority of at least five-to-two, if they were not all agreed, and no other option was hinted at by the time they were told that if a verdict was not reached by the stated hour, they would have to stay overnight.  Indeed the implication of the Judge’s comments about four-to-three decisions combined with the imperative words requiring a majority of five-to-two at least, must (or at least might well) have left the impression that four-to-three was never an option.  It is this combination of circumstances and the facts of the case, in this particular instance, that leads us to fear that one or more jurors might have felt compelled to a course which resulted in the verdict reached.  At least we cannot exclude that as a real possibility.”

56.The situation in the present case, while similar, differed in material respects.  Here, the deliberations of the jury came after a lengthy trial and while the issues were, ultimately, not particularly complex, there was a great deal of material for them to consider.  There was no suggestion ever made by the judge that, if they were unable to reach a verdict by a particular time, they would have to remain overnight.  On the contrary, the jury were given all the time they needed.  The combination of these circumstances has satisfied us that the jury was placed under no pressure whatever to return verdicts of one sort or another.  In the circumstances, whilst the judge might have informed the jury that she would give them further directions in the event that they were unable to agree, this would have been a relatively early stage to do so after such a long trial.  In any event, we do not consider, in these particular circumstances, that this was a material omission.

Conclusion (conviction applications)

57.We are satisfied that the verdicts were neither unsafe nor unsatisfactory.  D1 and D2 were convicted on overwhelming evidence.  These applications are dismissed.

Sentence

58.No less than ten grounds were advanced by Mr Yuen in relation to sentence.  These alleged that the judge:

“(i)    misinterpreted and misconceived the evidence and misunderstood the pledging of shares to carry serious public impact and took irrelevant factors into consideration, and thereby exaggerated the culpability of (D1 and D2);

(ii)    wrongfully made reference to cases involving far more serious degree of culpability and wrongfully treated the present case as coming within the top band of the worst kind of fraud in considering the proper sentence;

(iii)    erred in looking at the 14 years statutory maximum and in adopting 12 years as the global starting point and in globally sentencing (D1 and D2) to 10 years on the facts of the present case;

(iv)    wrongfully treated the previous good character of (D1 and D2) as an aggravating factor making the crime more serious;

(v)    failed to take into consideration or attach sufficient weight to the evidence showing that (D1 and D2) had tried hard to repay the loans to the lending institutions;

(vi)    wrongfully found that the proceeds obtained from the pledge did not benefit the listed company when in fact a substantial amount of the proceeds were applied for the benefit of GKC which was the trading and operating arm of GKCH and thereby benefiting the listed company;

(vii)    had not properly or sufficiently considered or attached sufficient weight to the fact that even though part of the proceeds of the pledging of shares were applied to pay for the overdraft of GKHK yet the overdraft of GKHK were used to pay for the overdraft and other banking facilities of GKC and CWT and their related companies;

(viii)    failed to consider or attach sufficient weight to the evidence showing that a very substantial portion of the proceeds of the pledging of the shares were applied to the GKC as the trading arm of GKCH and to CWT of which PW1 and PW2 were the 60% majority shareholder(s) and to Shortridge which was the company of PW1 and PW2;

(ix)    was wrong in finding that the shares were made worthless and that none of the HK$80 million was recovered nor was there any prospect of it being recovered as such finding was contrary to the weight of clear evidence indicating otherwise and evidence indicating other causes for losses relating to PW1 and PW2 and the lending institutions; and

(x)    failed to consider or attach sufficient weight to the fact that (D1 and D2) through GKHK were the beneficiaries and shareholders holding 60% of the shares of CIAL.”

59.Mr Yuen, in the light of these grounds, submitted that the global ten-year sentences imposed on D1 and D2 coupled with an order under section 168E of the Companies Ordinance, Cap. 32, were manifestly excessive.

60.The summary of the applicants’ criminality which the judge gave, before turning to a consideration of the appropriate sentence, demonstrates that grounds (i) and (v) to (x) are without any foundation whatever.

61.The judge’s summary was as follows :

“The facts show that the 1st, 2nd and 4th defendants are siblings.  At the time of these offences they were all working for a listed company, GKC Holdings, a company that evolved from a number of companies run by the Tang family, the core business being the importing and supplying of kitchen cabinets.  

Prior to the listing, the Tang family business had operated what was loosely referred to at the trial as ‘the GK group of companies’.  GKHK was the family company; other companies were operated as joint ventures, CWT Textiles and German Kitchen China, the joint venture partner being a Hong Kong company Shortridge, which was a subsidiary of a Mainland company, CITIC.

As the joint venture company, GKC, was run successfully in the years before 1997, as a result a listing was decided on and planned for by the joint venture partners.  This company became GKC Holdings which was listed on the Stock Exchange Hong Kong on 17 December 1997.  A BVI company, CIAL, was set up to hold the 360 million shares owned by the joint venture partners, 60 per cent being held by the Tang family and 40 per cent by the joint venture partner, CSIL.

Originally, a shareholders’ agreement was to have been in place by the time of the listing, but that was not achieved until 5 weeks after the listing.  The purpose of the shareholders’ agreement was to ensure that the joint venture shareholding could not be dealt with except with the joint consent of both the joint venture partners.  

The evidence suggested that the implementation of the shareholders’ agreement had been delayed deliberately by the Tangs.  The joint venture partners were obliged to amend the Memorandum and Articles of CIAL where they conflicted with the terms of the shareholders’ agreement, but although there were attempts by the Mainland partner, CSIL, to achieve this, no amendment was ever effected.  

In the early and middle part of 1997, the companies in the group appeared to be operating successfully, but it seems that there may have been inherent financial weaknesses in the group companies, probably caused by a high level of borrowing.  The evidence showed that by the time of the listing, the GKHK partners were in need of funds to enable other companies in the group to meet their commitments.  

These weaknesses were not known to the Mainland partner, much of whose money had been used to finance the joint ventures, such finance being made available to the group at rates more favourable than the rates available from the banks.  The listing was originally due to take place in November 1997, about the time what was referred to throughout the trial as ‘the Asian financial turmoil’, started.  The listing was delayed a month on the advice of the sponsors, but the company was eventually listed on 17 December 1997.  

Starting on 18 December 1997, the day after the listing, the defendants, by a series of 14 transactions, pledged or sold the whole of the joint venture shareholding of 360 million shares in an effort to obtain finance, apparently to keep the GK group companies afloat.  This was done without the knowledge or consent of the joint venture partner; it was against the spirit initially, and after 23 January 1998, the letter, of the shareholders’ agreement and was in breach of the listing rules.  

The share price at the time was at, or very near, $1 a share over the relevant period.  Monies obtained were about 20 per cent of the share price for the packets of shares applied for.  The monies were applied for the benefit of companies other than the listed company.  In the early part of 1998, the joint venture partner, Shortridge, was puzzled by apparently insoluble financial problems and a constant need for more finance for the other joint venture companies, and so began to exercise closer supervision and management, but to little effect.  

In June 1998 the joint venture partner discovered that the shares that they thought were in safe custody had been pledged and sold by the defendants.  Initially, the joint venture partner believed it was possible to salvage the listed company and the defendants encouraged this view by saying the shares had not all been disposed of.  However, in a matter of days, the joint venture partner found it was too late to recover the shares, repay the funds, or save the listed company.  

Some $80 million was obtained fraudulently and this was applied in efforts to save other group companies.  None of that money was recovered, nor is there any prospect of it being recovered.  As a result of some transactions, overdraft facilities were repaid which were to the benefit of companies which were either joint venture companies, or the company Shortridge, which was the joint venture partner’s main company.

Investigations showed that to ensure the joint venture partner did not learn of the pledgings and sales, the defendants had produced Minutes of directors’ meetings which had not taken place, or had taken place without proper notice, or which were inquorate, or they had produced minutes signed by the 1st and 2nd defendants which served to reassure the lending institution that they were valid minutes passed by CIAL, which was the borrower.  

The lending institutions took the documents at face value, apparently believing that they accorded with the memorandum and articles of CIAL.  When the only financial institution to do so required the Minutes of directors’ meetings for both CIAL and GKCH, the listed company, the 1st and 2nd defendant(s) produced forged Minutes where the signatures of the Mainland directors and the non-executive directors had been forged. 

In another incident, the basis of Charge 15, a cheque drawn on the account of the listed company and presented to the Equitable Bank as security for what amounted to a substantial unauthorised overdraft, bore the forged signature of Mr Wang, a director of the joint venture partner.  Mr Wang knew nothing of the transaction to which this cheque related.  

Some of the funds obtained through the pledging of the shares were channelled to other joint venture companies and Shortridge itself.  The routes by which those payments were made, make it appear at first sight that they were accounts receivable paid in by client companies in the ordinary course of trading, or that they were repayments of borrowings that the joint venture companies, GKC and CWT, had obtained from Shortridge itself.  

The accountancy expert who gave evidence at trial, opined that apart from the sale of the shares, which was forbidden by the Stock Exchange within six months of the listing, none of the pledges would have been wrongful as long as they had been done with the knowledge and consent of the joint venture partner.  The jury, by its verdict, accepted that such knowledge and consent had not been obtained.  

The accountancy expert was of the view, based on his examination of the transactions and the flow of funds, that the Tangs regarded the listed company and the funds obtained from its shares, as their own, to deal with as they thought fit.  This included propping up companies in the group which were insolvent, or nearly insolvent and companies which were solely family companies, like GKHK. 

Despite the roundabout route by which the funds were directed from the lending institutions to other companies, there is no evidence to show that any of the defendants used the money for personal enrichment, other than the general enrichment which might come from the profitable operation of the GK group.  

When the full extent of the pledging was eventually revealed, the 1st defendant, on behalf of the Tang family, produced a proposal to save the listed company, the gist of the plan being that the Tangs would relinquish control to the joint venture partner, the joint venture partner would apply funds to rescue the company, and the reputation of the Tang family would be protected and the listed company saved or rescued.  Unsurprising1y, the joint venture partner at that stage declined the proposed plan.”  (Appeal bundle pp. 157-161)

62.It is plain from these remarks that the judge approached sentence having taken the greatest care to express with accuracy the effect of the evidence given at trial.  In the outcome, as the respondent correctly submitted, the GKCH shares plummeted and GKCH was de-listed.

63.Prior to the unauthorised disposal by D1 and D2 of CIAL’s three hundred and sixty million shares in GKCH (a seventy-two percent shareholding), GKCH’s shares had been trading at about HKD1.00.  After GKCH was de-listed, the public’s twenty-five percent shareholding was rendered valueless.

64.The judge reviewed a number of previous decisions of this court in other major fraud cases and took into account the salient matters raised in mitigation.  The judge described the offences as “serious breaches of trust” on the part of D1 and D2 who held the positions, respectively, of chairman and managing director in a listed company.  She continued by saying:

“They owed duties to the shareholders, the public, the Hong Kong Stock Exchange and also to their joint venture partners.  They were in senior and responsible positions and had all (the) substantial experience in running companies, and in the case of the 4th defendant, varied and extensive experience as a company secretary.  

I looked at the question of public impact and noted that the depredations on the shareholding of the listed company would have had an undoubted public impact directly on the shareholders and far-reaching effects on the commercial community within Hong Kong.  The failure of a listed company so soon after its listing must also, to those outside Hong Kong, be seen as causing damage to Hong Kong’s trading reputation, and its hard-won reputation for the reliability and integrity of its financial market.

The flouting of listing rules, the cavalier treatment of the joint venture partner and the misuse of funds, smacks of a primitive attitude to commercial dealing which would be unlikely to encourage investment in Hong Kong by outsiders.  What appears to be the inability of experienced directors and businessmen to distinguish between their own funds and the funds of a listed company, would be unlikely to entice foreign joint venture partners into commercial alliances with Hong Kong companies.”  (Appeal Bundle pp. 161-162)

65.The judge went on to take a global starting point of twelve years for the offences committed by D1 and D2.  She described their clear records and hitherto blameless lives as the only mitigation, and she acknowledged that by that stage they had lost their assets and had been bankrupted.  On counts 1 and 2, D1 and D2 each received concurrent sentences of ten years’ imprisonment, with concurrent two-year sentences on each of the remaining counts.  In our opinion, for the reasons which the judge eloquently stated, the totality of these terms was appropriate.  This was a case which plainly called for deterrent sentences.

66.We found no merit in any of the grounds advanced on these applications so far as they concerned sentence.  Accordingly, they are dismissed.

67.The respondent invited us to consider making an order for costs against D1 and D2.  In normal circumstances, we would have done so but, as we have indicated already, the applicants have been made bankrupt and we do not, therefore, consider it to be appropriate.  We shall, therefore, make no order for costs.

Mr John Reading, SC, DDPP and Mr G.D. Goodman, SGC, of  the Department of Justice and Mr Peter Callaghan,  counsel on fiat,  for the Respondent.

Mr Bernard Yuen, instructed by Messrs Chan, Wong & Lam, for D1 and D2/Applicants.