HKSAR v. Chan Chun Hong and Another

CACC 230/2005

HEADNOTE

1.Notwithstanding any appearance to the contrary in para. 36-34 at p. 1817 of Archbold Hong Kong 2005, the case of R v Wai Yu-tsang [1992] 1 HKCLR 26 is not authority for the proposition that there cannot be a conspiracy to defraud unless the conspiratorial agreement, if carried out, would have the effect of deceiving the victim into action or inaction as a result of which the victim would suffer economic loss or his economic interests would be put at risk.  An intention to deceive the victim into such action or inaction is a sufficient intention, but not the only sufficient intention, for guilt under a charge of conspiracy to defraud.  In broad terms, “intent to defraud” means, as the Privy Council said in Wai Yu-tsang’s case at p. 30, “simply an intention to practise a fraud on another, or an intention to act to the prejudice of another man’s right.”. Properly understood, nothing said in HKSAR v Lau Kwok-wah, Benjamin [2004] 3 HKC 523 expresses a view of the law different from the foregoing.

2.Accordingly, suppose a person establishes a practice under which it awards purchase contracts to the lowest of two or more competitive quotations.  And suppose there is really only one quotation.  It is a fraud upon such person falsely to make it appear that there were at least two competitive quotations so that such person will award a purchase contract to the supplier providing what appears to be the lower of two such quotations.  Put another way, the scheme prejudices such person’s right to proceed under that practice.

CACC 230/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 230 OF 2005

(ON APPEAL FROM DCCC No. 105 OF 2004)

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BETWEEN

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Before: Hon Stuart-Moore VP, Woo VP and V. Bokhary J in Court

Date of Hearing:  24 November 2005

Date of Decision: 24 November 2005

Date of Handing Down of Reasons: 5 December 2005

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J U D G M E N T

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V. Bokhary J (giving the judgment of the Court):

1.These are the reasons for the decision which we announced at the conclusion of the hearing.

2.In this appeal by way of case stated the Secretary for Justice appeals against verdicts by which the District Court (Deputy Judge Lin) acquitted these two Respondents on the charge brought against them jointly and on the charge brought against the 1^st Respondent alone.  The charge brought against them jointly is Charge 1 while the charge brought against the 1^st Respondent alone is Charge 2.  Both charges are of conspiracy to defraud, contrary to Common Law and punishable under s. 159C(6) of the Crimes Ordinance, Cap. 200.

3.The particulars of Charge 1 are that the Respondents between November 1999 and May 2001, in Hong Kong,

“conspired together and with other persons unknown to defraud aided and government schools and the then Education Department (ED) of the Government of the Hong Kong Special Administrative Region by dishonestly falsely representing that:

(a)     the quotations submitted by Union Wide Enterprises Limited (Union Wide) and Concept Design Service Centre (subsequently known as Concept Education Service Limited)  (collectively referred to as “Concept”) were genuinely competitive ones;

(b)     the quotations submitted by Union Wide and Concept were prepared separately from and independent of each other,

thereby deceiving the said aided and government schools and ED into placing purchase orders with Union Wide and Concept.”

The particulars of Charge 2 are that the 1^st Respondent between 3 August and 24 December 2001, in Hong Kong,

“conspired with TANG Wing-hong and other persons unknown to defraud the then Education Department (ED) of the Government of the Hong Kong Special Administrative Region by dishonestly falsely representing that the items described in the invoice of Concept Design Service Centre (Concept) numbered IV010035 have been duly supplied by Concept to CCC Rotary Secondary School, thereby deceiving the ED into approving payments to be made to Concept.”

4.The 1^st Respondent is a director of Concept and a majority shareholder therein.  He is also a director of Union Wide.  As for the 2^nd Respondent, she is an employee of Concept and a minority shareholder therein.

5.Concept was in the business of supplying computer equipment and software to government funded schools.  The supply of goods to such schools is regulated by the Government Stores and Procurement Regulations (“the Regulations”).  Under the Regulations at least two quotations are required for the purchase of goods costing less than $50,000.00, and the contract is awarded to the supplier who provides the lowest quotation.

6.The conspiracy charged under Charge 1 was one whereby the conspirators caused Union Wide’s quotations higher than Concept’s quotations to be provided for the same proposed orders, thus making it falsely appear that there were competitive quotations which satisfied the Regulations and thus bringing about the award to Concept of contracts of supply.

7.As for the conspiracy charged under Charge 2, the prosecution’s case was as follows.  A teacher had purchased goods for a government funded school from another supplier without complying with the Regulations.  In order to obtain reimbursement from the Education Department, the teacher approached the 1^st Respondent for assistance.  The result of this approach was a conspiracy for the provision to the teacher of a false Concept invoice.  This false invoice was meant to make the Education Department believe that the goods had been purchased from Concept and therefore pay Concept.  Concept would then pass the money on to the teacher.

8.As to his understanding of the relevant law, the Judge said this in the Case Stated:

“I adopted as an accurate statement of the meaning of “defraud” in the offence of conspiracy to defraud the following passage from Hong Kong Archbold in which it was stated that intention to defraud was not narrowly confined but meant:

simply an intention to practise a fraud on another or an intention to act to the prejudice of another’s right.  It was sufficient that the conspirators had dishonestly agreed to bring about the state of affairs which they realised might deceive the victim into so acting (or failing to act), that the victim suffered economic loss or the victim’s economic interests would be put at risk.

I took this passage to mean that the elements of conspiracy to defraud must include not only the fact of an agreement but that the agreement, if carried out, would have the effect of deceiving the victim into a course of action, as a result of which the victim would suffer economic loss or his economic interests would be put at risk.”

9.In respect of Charge 1, the Judge appears to have considered it conclusive in the Respondents’ favour that there was no evidence, as he put it in the Case Stated, that:

“(a)   the prices of the goods purchased from Concept had been unfairly high or the Schools or the ED had suffered any economic loss as a result of placing the order;

(b)     the purpose of such an exercise, i.e. the supply of a second set of quotations, (in this case those issued by Union Wide), was for anything other than putting up an appearance that the relevant practice directions had been complied with;

(c)     manipulating the quotations resulted in any economic loss to any party;

(d)     the Schools or the ED suffered any financial loss or its economic interests had been put at risk or that the prices for which the goods were supplied were higher than normal;

(e)     the Respondents or any co-conspirators had benefited from the transactions;

(f)      any of the parties had suffered any economic loss or that the prices eventually agreed were exorbitant or anything above the ordinary.”

But he added that he found that:

“(a)   Although there was evidence that the quotations issued by Union Wide could have come from the 1^st Respondent with the assistance of the 2^nd Respondent, the two companies were distinct legal entitles, having different registered offices and at some point different staff.

(b)     To read into the quotations representations that they were genuinely competitive and were prepared separately from and independent of each other would be reading too much into an ordinary commercial document.”

10.In respect of Charge 2, the Judge said in the Case Stated that he “took into account that there was no evidence of loss or benefit to any party”, and he then directed himself as follows:

“(a)   The elements of conspiracy to defraud include not only the fact of an agreement but that the agreement, if carried out, would have the effect of deceiving the victim into a course of action, as a result of which the victim would suffer economic loss or his economic interests would be put at risk.

(b)     The violation or any failure to comply with guidelines issued by the relevant government department did not constitute any offence under our law as the regulations were not binding on the supplier of the goods and that any breach of them would at most result in a reprimand to the teachers concerned.”

11.Later on in the Case Stated he added this:

“In relation to the 2^nd Charge, the invoice issued to the school carried prices identical to those paid out by the teacher when making the acquisition from a different supplier.  I agreed that such a practice was bending the rules and was extremely undesirable.  I was however not convinced that this behaviour attracted criminal liability as there was no evidence to show that any of the parties suffered financially from it, least of all the Education Department, or that any of the parties benefited from it.  I therefore dismissed this charge as there was insufficient evidence to prove a conspiracy to defraud in the proper sense of the word.”

12.We now turn to the questions which the Judge poses for our opinion.  These question are put thus in the Case Stated:

“The questions of law arising on the above statement for the opinion of this Honourable Court therefore are:

FIRSTLY WHETHER I was correct in defining the elements of conspiracy to defraud, as requiring that the conspiratorial agreement, if carried out, would have the effect of deceiving the victim into a course of action, as a result of which the victim would suffer economic loss or his economic interests would be put at risk?

SECONDLY WHETHER I was correct in dismissing the two charges for the reason that there was no evidence to prove that any of the parties had suffered any financial loss or their economic interest had been put at risk, or that any of the Respondents or others had benefited from the transactions?

THIRDLY WHETHER I erred in ruling that if the agreement of the conspirators was none other than to falsely put up an appearance that the relevant practice direction had been complied with, that such an agreement, in the circumstances of this case, did not constitute the offence of conspiracy to defraud?

FOURTHLY WHETHER I was correct in holding that the particulars of the 1^st charge had not been proven beyond reasonable doubt because the submission of quotations in the names of two separate companies could not be read, in the circumstances of the case, as representations that they were genuinely competitive ones and that they were prepared separately from and independent of each other.”

13.Mr Ian McWalters SC for the Secretary for Justice asks us to answer those questions as follows:

(1)     No;

(2)     No;

(3)     Yes; and

(4)     No.

And Mr McWalters asks us to : allow the appeal; reverse all the verdicts of acquittal; remit the matter to the Judge with our opinion on those questions; and direct that the trial be resumed in accordance with such opinion.

14.Mr Lawrence Lok SC for the 1^st Respondent accepts that the four questions posed by the Judge should be answered in the way in which Mr McWalters asks us to answer them.  Mr Lok also accepts that the appeal should be disposed of as Mr McWalters asks.  However, Mr Lok says that the Judge has made no finding as to dishonesty, and asks us to indicate that the Judge should make a finding as to dishonesty.  Each charge contains an allegation of dishonesty, and the Judge will no doubt appreciate at the resumed hearing that it is for the prosecution to prove beyond reasonable doubt what it alleges.  Dishonesty is certainly a question which the Judge must consider and decide.

15.The points put forward by Mr Duncan Percy for the 2^nd Respondent include the following.  On Question One, it is said in Mr Percy’s Written Argument that the Judge

“could properly determine whether the 2^nd Respondent held the intention to practise a fraud on another, or an intention to act to the prejudice of another’s rights, by considering whether there was any evidence of dishonesty and any realization that her actions might have or would have caused that other financial loss or put the other’s economic interests at risk.”

On Question Two, Mr Percy says that there is no evidence that Union Wide was a bogus company unable to deliver on its quotations.  On Question Three, Mr Percy submits that, in the absence of any finding of dishonesty, the Judge was correct.  And on Question Four, Mr Percy says that the Union Wide quotations can be regarded as a way of assisting the schools’ decision-making process rather than as a deception.

16.Mr Percy argues that the Case Stated does not exclude the Judge having considered all the essential ingredients of Charge 1 before acquitting.  Ultimately, Mr Percy submits, the Judge’s decisions on the law and his acquittal of the 2^nd Respondent can be supported.

17.The basis on which the Judge proceeded is indicated by his statement in the Case Stated that the questions of law which he posed for our opinion are “questions of law arising on” the case which he stated.  Such basis is also indicated by his saying in Question One that he had defined the elements of conspiracy to defraud as there set out; by his saying in Question Two that he dismissed the charges for the reasons there given; by his saying in Question Three that he ruled as there set out; and by his saying in Question Four that he had held as there set out.  Although case stated procedure involves an appeal by a party, it also involves the trial court seeking the guidance of the appellate court on the relevant law.  That is done for the practical disposal of the case, not for any academic reason.  So it will be based on the trial court’s view of the facts.  This is especially so where the appeal is against an acquittal since then there is no appeal on facts but only an appeal on law.  The trial court would not say that it had defined an offence in a particular way, or had decided for a particular reason, or had ruled in a particular way or had made a particular holding unless it had indeed done so.

Question One

18.Question One, as we have seen, is whether the Judge was correct in defining the elements of the offence of conspiracy to defraud as requiring that the conspiratorial agreement, if carried out, would have the effect of deceiving the victim into a course of action, as a result of which the victim would suffer economic loss or his economic interests would be put at risk.  In so defining the elements of conspiracy to defraud, the Judge based himself on para. 36-34 at p. 1817 of Archbold Hong Kong 2005, which paragraph reads:

“See R v Wai Yu-tsang [1992] 1 HKCLR 26, PC, where it was held that intention to defraud was not narrowly confined but meant simply an intention to practise a fraud on another, or an intention to act to the prejudice o[f] another’s right.  It was sufficient, in cases such as the present, that the conspirators had dishonestly agreed to bring about a state of affairs which they realised might deceive the victim into so acting (or failing to act) that the victim will suffer economic loss or the victim’s economic interests will be put at risk.  See HKSAR v Tam Tung-kee and Others, above; HKSAR v David Wu, (unrep. HCMA 76/2000).  In R v Chan Kang-to [1997] HKLRD 412, CA, the court held that the expression ‘to defraud’ was not self-explanatory and that the nature of the prosecution case must be precise and on the face of the indictment.”

19.R v Wai Yu-tsang [1992] 1 HKCLR 26 is not authority for the proposition that there cannot be a conspiracy to defraud unless the conspiratorial agreement, if carried out, would have the effect of deceiving the victim into action or inaction as a result of which the victim would suffer economic loss or his economic interests would be put at risk.  An intention to deceive the victim into such action or inaction is a sufficient intention, but not the only sufficient intention, for guilt under a charge of conspiracy to defraud.  We say so for the following reasons.

20.Mr McWalters is right in saying that in order better to understand the Privy Council’s decision in Wai Yu-tsang’s case, it is helpful to begin by looking at the decision of the House of Lords in Welham v DPP [1961] AC 103.  Lord Denning gave the main speech in Welham’s case.  Lord Radcliffe, who presided, agreed with Lord Denning’s speech, adding a concurring speech of his own.  The other members of the House of Lords simply agreed with Lords Radcliffe and Denning.

21.At p. 131 Lord Denning rejected the proposition that to defraud involves the idea of economic loss, and he proceeded to say this:

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

And at p. 133 he said this:

“Put shortly, ‘with intent to defraud’ means ‘with intent to practise a fraud’ on someone or other.  It need not be anyone in particular.  Someone in general will suffice.  If anyone may be prejudiced in any way by the fraud, that is enough.”

22.At p. 124 Lord Radcliffe noted that there is nothing to suggest that to defraud is in ordinary speech confined to the idea of depriving a man by deceit of some economic advantage or inflicting upon him some economic loss, and he continued by saying this:

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

Of course, as I have said, in ninety-nine cases out of a hundred the intent to deceive one person to his prejudice merely connotes the deceiver’s intention of obtaining an advantage for himself by inflicting a corresponding loss upon the person deceived.  In all such cases the economic explanation is sufficient.  But in that special line of cases where the person deceived is a public authority or a person holding a public office, deceit may secure an advantage for the deceiver without causing anything that can fairly be called either a pecuniary or an economic injury to the person deceived.  If there could be no intent to defraud in the eyes of the law without an intent to inflict a pecuniary or economic injury, such cases as these could not have been punished as forgeries at common law, in which an intent to defraud is an essential element of the offence, yet I am satisfied that they were regularly so treated.”

23.After Welham’s case but before Wai Yu-tsang’s case came the decision of the House of Lords in Scott v Metropolition Police Commissioner [1975] AC 819.  The main speech in Scott’s case was given by ViscountDilhorne.  The other members of the House of Lords, including Lord Diplock, agreed with Viscount Dilhorne.  But Lord Diplock, in a passage at pp 840-841, added this:

“(1)   …

(2)     Where the intended victim of a ‘conspiracy to defraud’ is a private individual the purpose of the conspirators must be to cause the victim economic loss by depriving him of some property or right, corporeal or incorporeal, to which he is or would or might become entitled…

(3)     Where the intended victim of a ‘conspiracy to defraud’ is a person performing public duties as distinct from a private individual it is sufficient if the purpose is to cause him to act contrary to his public duty …”

24.That statement by Lord Diplock in Scott’s case was rejected by the Privy Council in Wai Yu-tsang’s case.  Delivering the Privy Council advice in Wai Yu-tsang’s case, Lord Goff of Chieveley said this at p. 31:

“With the greatest respect to Lord Diplock, their Lordships consider this categorisation to be too narrow.  In their opinion, in agreement with the approach of Lord Radcliffe in Welham, the cases concerned with persons performing public duties are not to be regarded as a special category in the manner described by Lord Diplock, but rather as exemplifying the general principle that conspiracies to defraud are not restricted to cases of intention to cause the victim economic loss.  On the contrary, they are to be understood in the broad sense described by Lord Radcliffe and Lord Denning in Welham – the view which Viscount Dilhorne favoured in Scott, as apparently did the other members of the Appellate Committee who agreed with him in that case (apart, it seems, from Lord Diplock).”

25.Among the cases considered by the Privy Council in Wai Yu-tsang’s case is R v Allsop (1976) 64 Cr. App. R. 29 decided by the English Court of Appeal.  At p. 33 the Privy Council said this about Allsop’s case:

“The question whether particular facts reveal a conspiracy to defraud depends upon what the conspirators have dishonestly agreed to do, and in particular whether they have agreed to practise a fraud on somebody.  For this purpose it is enough for example that, as in Allsop and in the present case, the conspirators have dishonestly agreed to bring about a state of affairs which they realise will or may deceive the victim into so acting, or failing to act, that he will suffer economic loss or his economic interests will be put at risk.” (Emphasis added)

It will be observed that causing economic loss or putting economic interests at risk were given as examples of what would suffice and were not said to be the only things that would suffice.

26.The meaning which the Privy Council gave to the expression “intent to defraud” is to be found at p. 30 of Wai Yu-tsang’s case where it is said that:

“In broad terms, it means simply an intention to practise a fraud on another, or an intention to act to the prejudice of another man’s right.”

That is the ratio decidendi of Wai Yu-tsang’s case, and it represents our opinion as to the law on the point.  Properly understood, nothing said in HKSAR v. Lau Kwok-wah, Benjamin [2004] 3 HKC 523 expresses a view of the law different from the one now expressed by us in the present case.  Accordingly our answer to Question One is “No”.  The Judge was not correct in defining the elements of conspiracy to defraud in the limited way in which he defined them.

Question Two

27.Question Two, as we have seen, is whether the Judge was correct in dismissing the charges for the reason that there was no evidence to prove that any of the parties suffered any financial loss or that their economic interests had been put at risk, or that any of the Respondents or others had benefited from the transactions.  Our answer to this question is “No”.  The Judge was not correct in dismissing the charges for that reason.  Our reasons for this answer are apparent from the reasons which we gave for our answer to the previous question.

Question Three

28.Question Three, as we have seen, is whether the Judge erred in ruling that if the agreement of the conspirators was none other than falsely to put up an appearance that the relevant practice direction had been complied with, such an agreement, in the circumstances of the case, did not constitute the offence of conspiracy to defraud.  Our answer to this question is “Yes”.  The Judge erred in so ruling.  Our reasons for this answer are as follows.

29.Suppose a person establishes a practice under which it awards purchase contracts to the lowest of two or more competitive quotations.  And suppose there is really only one quotation.  It is a fraud upon such person falsely to make it appear that there were at least two competitive quotations so that such person will award a purchase contract to the supplier providing what appears to be the lower of two such quotations.  Put another way, the scheme prejudices such person’s right to proceed under that practice.

Question Four

30.Question Four, as we have seen, is whether the Judge was correct in holding that the particulars of Charge 1 had not been proved beyond reasonable doubt because the submission of quotations in the names of two separate companies could not be read, in the circumstances of the case, as representations that they were genuinely competitive ones and that they were prepared separately from and independent of each other.  Our answer to this question is “No”.  The Judge was not correct in so holding.  By their very nature quotations like the Concept ones and the Union Wide ones would appear to be separate, independent and genuinely competitive.  This is especially so in the context of regulations requiring competitive quotations.  The quotations can certainly be read as represented to be separate, independent and genuinely competitive ones.  Indeed it is difficult to see how one can begin to read them otherwise.

Disposal of the Appeal

31.For the foregoing reasons, we allow the Secretary for Justice’s appeal; reverse all the verdicts of acquittal; remit the matter to the Judge with our opinion as expressed above on the four questions posed by the Judge; and direct that the trial be resumed in accordance with such opinion.

32.At the conclusion of the hearing we admitted both Respondents to bail.  As we indicated that we would, we direct that this case be brought on for mention in the District Court as soon as possible; that the hearing be resumed within two months of 24 November 2005 subject to any unavoidable delay; and that two days be reserved for the resumed hearing.

Mr I C McWalters, SC, SADPP and Ms Winnie Ho, SGC, of Department of Justice, for the Appellant

Mr Lawrence Lok, SC and Mr C S Fu, instructed by Messrs T H Wong & Co., for the 1^st Respondent

Mr Duncan Percy, instructed by Messrs Haldanes, for the 2^nd Respondent