HKSAR v. Kazuhiko Fujita
Read the full judgment text of CACC 327/2003 on BabelCite. This Court of Appeal judgment was delivered on 6 July 2005.
1. This applicant was tried by Nguyen J and a jury upon an indictment containing four counts. On 7 July 2003 he was acquitted of the first two counts but convicted of the third and fourth. He was sentenced to a term of two years’ imprisonment suspended for three years on each, to run concurrently; and an order was made under the Companies Ordinance that he be disqualified from company directorships for a term of five years.
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CACC 327/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CRIMINAL APPEAL NO. 327 OF 2003 (ON APPEAL FROM HCCC NO. 329 OF 2002) ---------------------- BETWEEN
-------------------- Before : Hon Stuart-Moore V-P, Stock JA and Burrell J in Court Dates of Hearing : 21 June 2005 Date of Judgment : 6 July 2005 ---------------------- J U D G M E N T ---------------------- Hon Stock JA (giving the judgment of the Court): Introduction 1.This applicant was tried by Nguyen J and a jury upon an indictment containing four counts. On 7 July 2003 he was acquitted of the first two counts but convicted of the third and fourth. He was sentenced to a term of two years’ imprisonment suspended for three years on each, to run concurrently; and an order was made under the Companies Ordinance that he be disqualified from company directorships for a term of five years. The facts 2.Yaohan International Holdings Limited (YIH) was a publicly listed company incorporated in Bermuda with its principal place of business in Hong Kong. 3.Although this Court was not provided with a self-contained list of characters and their place in the story, as we think should be provided in all cases of this type, we have ascertained that the key personalities are these:
4.It is common ground that towards the end of 1997 YIH found itself in financial difficulties. Seven loans amounting to HK$1.263 billion had been granted to six BVI companies purportedly to facilitate the financing of development projects in Taiwan; but a substantial percentage of these amounts was channelled back to the Group and its associated companies. The amount outstanding on these loans at the times with which we are concerned was HK$686.71 million. The prosecution case was that these loans were bogus and supported by bogus documents, each signed by the applicant and by other members of the company's management. The prosecution case was that all the BVI companies were established by junior employees of the Group and that the loans were neither independent nor at arms length. It was asserted that the supporting documents were produced to the auditors to deceive them as well as shareholders and creditors into believing that the loans were secured, and that the company was in a better financial condition than was in fact the case. It was during the liquidation of the company that the newly appointed management discovered the true position and reported the matter to the authorities. The indictment 5.Count 1 alleged conspiracy to defraud, and by its particulars that the applicant between 1 April 1995 and 30 September 1997 conspired with Hiroaki Kawai and Masakazu Saito and other persons to defraud the shareholders and creditors of YIH and such persons as might lend money to the company by dishonestly:
6.Count 2 alleged an offence of false accounting, contrary to section 19(1)(a) of the Theft Ordinance, Cap. 210. The date of the offence was 1 August 1996, and the allegation was that this applicant with Kawai and Saito dishonestly with a view to gain for themselves or another or with intent to cause loss to another, falsified a facility agreement dated 1 August 1996 between YIH, as the lender, Galliams as the borrower and Hung Kuo Real Estate Development Corporation as the guarantor, by making an entry which was false and misleading in that it purported to show that the company agreed to make a loan facility of up to a maximum of HK$270m to Galliams under a guarantee from Hung Kuo for the development of a department store project in Taiwan. 7.The date of the offences alleged in Counts 3 and 4 are the same, namely 22 August 1997. 8.Count 3 asserted that the applicant on or about 22 August 1997 with Kawai dishonestly and with a view to gain for themselves or another or with intent to cause loss to another made use in furnishing information or a document required for accounting purposes, namely, a letter from YIH to Price Waterhouse, as auditors, which letter to their knowledge was or may have been misleading, false or deceptive in a material particular in that: (a) statements made therein, were not made to the best of their knowledge and belief, 9.The fourth count was also a count of false accounting and alleged that the applicant on or about 22nd day of August 1997 together with Mr Kawai dishonestly with a view to gain for themselves or another or with intent to cause loss to another, in furnishing information made use of a further document required for an accounting purposes, namely a letter from YIH to Price Waterhouse of that date, which was false in that:
10.No-one other than this applicant was prosecuted in Hong Kong for these alleged offences because the other alleged conspirators left the jurisdiction in October and in November 1997 and have not returned; but the applicant did not leave. The prosecution evidence 11.There were four groups of witnesses: first, those formerly engaged by YIH, including one Raymond Cheung. He said that the three top men in the company were Mr Wada, Yamada and Kawai and that he, Cheung, received his instructions either from Kawai, Saito or from the applicant. His testimony was that there came a time when he asked whether board meetings had been held and minutes prepared concerning the loans to the BVI companies and he was told that they had not. So a board meeting was then held to rectify that omission and to prepare the necessary minutes. He did not suspect anything amiss with these loans. Mr Kawai had explained these loans to the auditors in his presence, and he accepted what Kawai had said. 12.Testimony was given by Mr Clementson of Price Waterhouse (PW). He referred to a series of meetings in 1997 attended by the applicant and other YIH officers at which the auditors pressed for documentary evidence of the written loan agreements. There was a meeting on 21 May 1997 at which the applicant had said that supporting documents would be forthcoming; another on 10 July 1997 when the applicant, who then headed those attending from YIH, was asked about loans to outsiders totaling HK$695m, and when told that attempts to obtain loan agreements from YIH management had not met with any success, said that there were no formal arrangements for such loans and that YIH fully trusted the borrowing developers. Mr Clementson asked for a formal agreement and confirmation of all loans as soon as possible, and the applicant agreed to provide these. He said too that the loans had been granted to secure preferential rights to tenancy agreements in department stores in the new developments in Taiwan. 13.Mr Clementson said that it was the applicant who dealt with matters such as the cash flow forecast; for he oversaw the preparation of it; and it was at a meeting of 5 August 1997 that the applicant presented a revised cash flow forecast. The minutes of that meeting show that the agreements for which the auditors had asked had still not been presented to them. PW prepared the letters for signature which are the subject of Counts 3 and 4. The stage had been reached at which the auditors needed to state certain opinions, and they were concerned about cash flow and whether the company could continue trading for the next twelve months. The letters were required as confirmation of representations made in connection with the audit. 14.The first letter of 22 August, which is the subject of Count 3 runs in its material parts as follows: “We confirm to the best of our knowledge and belief and having made appropriate enquiries of other directors and officials of the company, the following representations given to you in connection with your audit of the company’s and subsidiaries consolidated accounts for the year ended 31 March 1997. Two persons signed that letter, namely Mr Kawai and the applicant. PW wanted the applicant to sign because he was, in their eyes, the financial controller: he was the person they would see or talk to in the absence of Kawai. 15.The second letter of 22 August 1997 was also signed by Kawai and the applicant. It reads as follows: “We confirm that the cash flow forecast of the company for the period from 1 April 1997 to 31 July 1998, as attached, together with the related assumptions for which we as directors are solely responsible, was prepared after due care and consideration by the directors and in our opinion the Group will be able to procure sufficient financing to meet its obligations as they fall due for a period of at least twelve months from the date of this letter.” 16.Mr Mayell, also of PW, testified, and in the course of his testimony he said that the applicant was not a key decision maker in the Group but that, rather, there was an inner sanctum of family members who, as the judge put it in his summing-up ‘called the shots’. In return for their being well looked after, employees were expected to show an unswerving loyalty to their employer. 17.The applicant was interviewed by the police in 1998 and the effect of his interviews was much the same as the testimony given at trial in so far as he then said that he was an unwitting party to any false representation that was made. He said in the interview that he had ‘no autonomy to decide things’; was not in a position to know what sort of projects the senior people were handling; and that his function was to deal with banks. He was asked about the company called Galliams and he said that ‘I remember the name of the company’ but he could not recall the exact nature of the transaction. He said that he had no idea about the guarantor company Hung Kuo; he had no idea about the project in Taiwan and that he had been given no details about it. He could not recall the circumstances in which he had signed the facility agreement of 1 August 1996. He said that documents were provided to him in bundles for signature. 18.There was a further interview the next day. He said that there were board meetings a few times a year which he attended, but that at the board meetings the Chairman pronounced decisions and that was that. He, the applicant, was just a salaried person; this is how things were done in Japanese companies, particularly Japanese family companies. So it was with the loans in this case: they were decided by the top management, and the applicant and others at his level were expected to do no more than to implement those decisions. The applicant’s evidence 19.The applicant gave evidence at trial. He said that he was told by his seniors that stores were planned in Taiwan and that the company was working with developers there to secure a site for a development. He signed loan agreements as well as balance confirmations. He accepted that fraud had taken place, but his case was that he had been the victim of lies told to him by Kawai and Saito. Whilst financial controller in name, his real function was to conduct business with banks. He said that on official documents two signatures were required, one of which was his; and he emphasized the great number of documents that had to be signed by him. He would be asked by Kawai to sign documents and he did, trusting Kawai when he did so. He had heard of the plan to have stores in Taiwan and believed that the Group was working with developers there. He had never thought that what he was told about the loans was untrue. At the meeting of 10 July when he represented the company at the discussions with PW, he had to telephone Kawai on several occasions for information and that was the information he conveyed at those meetings. As for the two letters of 22 August 1997, Kawai had asked him to sign the two letters there and then at his, the applicant’s desk, and he believed the statements in the letters to be true. In relation to the statement in the first letter that proper enquiries had been made directors, he had talked, he said, to two directors. As for the meetings with the auditors in 1997, the account given to them by Kawai were the same as that which Kawai had told him, so he believed what was said. The appeal 20.A number of grounds of appeal have been put before us, but in the event and for reasons which shall shortly become apparent, it is not necessary to traverse them; for in the course of argument it became apparent that the application in relation to both Counts 3 and 4 had merit in two quite specific aspects, which fell outwith the broad grounds of complaint advanced. 21.It is apparent that the judge took the view that what was central to the case was this applicant's state of knowledge as to the falsity of the loan agreements; and that he encouraged the jury to the view that although Counts 2, 3 and 4 were put as alternatives to Count 1, they all stood or fell together. Whilst, as we are sure he recognised, that was, given the different aspects of particulars in Counts 3 and 4, not strictly accurate, nonetheless that was the view which he took as to the justice and gravamen of the matter. So much is evident from the following passage in his summing up: “It is very important, members of the jury, in this particular case that you bear in mind that if you find the defendant not guilty of the 1st count, then it does not follow at all that you must find him guilty of Counts 2, 3 and 4. That does not follow because, members of the jury, Counts 2, 3 and 4 are different counts from Count 1 and, indeed, you may think, members of the jury, that in this particular case because knowledge on the part of the defendant is such a vital ingredient for the prosecution to prove, you may think, members of the jury – it is a matter for you – that if you find the defendant not guilty on the 1st count because you find as a fact that he was not aware of what was going on when he signed the documents because he believed what he had been told by Kawai and the other Japanese directors, then you may think that because he did not know what was going on, you may also find him not guilty of Counts 2, 3 and 4.. It is a matter entirely for you but in this particular case it may be that that will be the scenario when you are considering your verdicts.” (Appeal bundle, pages 6-7). In the event, that was not the course that the jury took. By a majority of 5-2 they acquitted the applicant in respect of Counts 1 and 2, but by a majority of 6–1 convicted him in relation to Counts 3 and 4. 22.It was suggested as the first ground of appeal that the verdicts in relation to Counts 3 and 4 were necessarily inconsistent with the verdicts of not guilty in relation to Counts 1 and 2. We happen not to agree with that proposition but our reasoning matters not, given our conclusion in relation to the other aspects that arise. What does matter is that one should proceed upon the assumption, given the verdicts in relation to Counts 1 and 2, that the jury concluded that it was or may have been the case that the applicant was unaware that the loans represented as genuine were in fact bogus. That being the case, it must also follow that the particulars in Counts 3 and 4 that correspond with that specific alleged state of knowledge must be taken not to have formed the basis of the convictions in relation to those counts. It follows that we concentrate, for present purposes, on the suggestion in Count 3 that the first letter of 22 August 1997 was, to the knowledge of the applicant, false in so far as he represented that proper or appropriate enquiries had been made of other directors and officials of the company; and in Count 4 on the assertion that in the second letter he knowingly misled the auditors, or intended to mislead them, by saying that the cash flow forecast had been prepared after due care and consideration. Count 3 23.The difficulty in relation to the remaining representation in Count 3 is that the judge may have left the jury with the impression that what had been represented by the letter was that all directors had been consulted, and that enquiries of only some, rather than of all, directors could not constitute proper enquiries. 24.The matter developed in this way. Cross-examination was pursued on the basis that the representation in the first letter was false in that, so counsel understood, the applicant had only made inquiries of one director whereas the representation was of directors, in the plural. The applicant said that he had not had the time to make calls to other directors because there were few in Hong Kong; but he added that in addition to speaking to Mr Kawai, he did make inquiries of Mr Aoki as well, adding that Mr Aoki was an alternate director. He did not however speak to each single individual director. 25.In his summing-up in this regard, the judge said: “You see that in the 3rd and 4th counts, there are four particulars listed. And what I have said in the last handout is that if the prosecution proves that the defendant knew that a certain particular proves that the defendant knew that a certain particular was misleading, false or deceptive and if you, the jury, find that that particular concerned was a material particular, then if both of those matters are proved and if only one of the four particulars enumerated in the count is proved, that is sufficient. So, for instance, if you find proved in the 3rd count particular A, that the statements made therein were not made to the best of their knowledge and belief, if you find that proved but you find that particular B is not proved, then that is sufficient for you to find the defendant guilty of the 3rd count. 26.We see there the reference to "all the directors", with the possible implication that proper enquiries could only be constituted if all the directors had been consulted. In addition, it is accepted by the respondent that nowhere in the summing-up is there any guidance as to what might or might not constitute “appropriate enquiries” or “proper enquiries”. 27.When sentencing the applicant, the judge said this: “It is not clear from the jury’s verdict whether they had found that you knew that the documents were false in all four particulars enumerated in the counts or whether they had found you had knowledge of only one or more of those four particulars. 28.It seems clear enough from those passages that the judge himself took the view that enquiries of all the directors was the essence of the false representation alleged. That clearly was not the case. The opening sentence of the letter, we remind ourselves, ran as follows: “We confirm to the best of our knowledge and belief, and having made appropriate enquiries of other directors and officials of the company…’; and the particulars of Count 3(b) asserted that misrepresentation was constituted by the fact that ‘no proper enquiries of directors and officials of the company had been made’. It was necessary in the circumstances for the judge to direct or guide the jury as to what it was that constituted “proper enquiries of directors”; and this was not done. So too, it was erroneous to imply that proper enquiries could only be made if they were made of all, rather than of some, directors. 29.One cannot get away from the fact that, as matters transpired, these omissions or errors are important because, in the event, particular (b) of Count 3 became singularly significant, materially more important than must have appeared to everyone at the time of the judge's summing-up. Given the judge’s understandable view that the counts stood or fell together, it is not surprising that he did not concentrate on the matters that have now taken on a centrality of their own. 30.In the light of the erroneous concentration upon inquiries of all directors, we take the view that the conviction in relation to Count 3 cannot stand. Mr Reading does not suggest otherwise. Accordingly, we grant the applicant leave to appeal against the conviction on Count 3, treat the hearing of the application as the appeal, allow the appeal and quash that conviction. Count 4 31.There was revealed in the course of the argument a difficulty in relation to the directions on Count 4 which, again, did not form part of the original grounds of appeal. 32.In the course of summing-up, the trial judge handed to the jury a series of written ‘handouts’; in other words, directions as to the law which he read out in the course of his oral summing-up but which had been reduced to writing and which in that written form the jury took with them for the purpose of their deliberations. Handout 5 was as follows:
33.Whilst the judge was accurate in his distillation of the separate ingredients of the offence, there was a clear error in the latter part of that direction in that what was omitted was that the prosecution had to prove, not merely that a certain particular was a material particular and that the accused knew that it was misleading or false, but further that in each instance of false accounting the falsity was dishonestly made with a view to gain. This was especially so where, as ultimately transpired, one was left solely with an alleged misrepresentation that a cash flow forecast had not been prepared after due care and consideration, and where mere laziness or playing the role of a rubber stamp, rather than dishonesty might be an explanation for the lack of care, and where there may or may not have been any thought given to gain or loss. 34.The problem is compounded when one sees the terms of the first handout which ran as follows:
35.One sees there that whereas in relation to the first count the question of loss or gain as a result of the conspiracy was touched upon (albeit without reference to a view to gain), it is entirely omitted in the directions relating to the second to fourth counts. Once more, it is likely that those directions were crafted when what was in the judge's mind, and probably in everyone's mind, was the essence of the case, which at that stage was whether the applicant did or did not know that the loans were bogus. However, once the case is reduced to the remaining particular in Count 4(b) the omission becomes particularly significant for the reasons we have explained. 36.Whatever else may have been said orally in the summing-up, the fact is that these directions were taken by the jury, in black and white, as it were, to the jury room; and the omission is not one that was cured. Mr Reading concedes that there has been a material non-direction, but asks us to apply the proviso to section 83 of the Criminal Procedure Ordinance. Given the possible alternative explanations to which we have referred at paragraph [33] above, we do not think it appropriate to do so. 37.Accordingly, in the case of Count 4 as well, we grant the applicant leave to appeal against that conviction, treat this as the hearing of that appeal, allow the appeal, and quash the conviction in relation to Count 4.
Mr Andrew Macrae SC leading Mr Graham Harris instructed by Messrs Haldanes for the Applicant Mr John Reading SC, DDPP leading Miss Teresa Kam Yuk, GC of Department of Justice and Mr Rupert Spicer, Counsel on Fiat for the Respondent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||