HKSAR v. Lim Jackson Lung Hin and Another

CACC 38/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 38 OF 2006

(ON APPEAL FROM DCCC NO. 637 OF 2005)

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BETWEEN

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Before: Hon Stuart-Moore VP, Stock JA and Reyes J in Court

Date of Hearing: 27 June 2006

Date of Judgment: 27 June 2006

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J U D G M E N T

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Reyes, J (giving the judgment of the court):

I.  INTRODUCTION

1.On 13 January 2006 Deputy Judge Wahab convicted the Applicants in the District Court of theft.  The charge stated that on or about 13 February 2004 the Applicants “stole a chose in action, namely a debt in the sum of $450,000 ... owed by Dao Heng Bank to Monita Group Limited, property belonging to Dynamic Asian Limited.”  The Applicants now seek leave to appeal against conviction.

2.Mr. Blanchflower SC (appearing for the Applicants) submits that the judge erred in one or more of the following ways:-

(1) The judge convicted the Applicants of appropriating a different chose in action from that particularised in the charge.

(2) The judge thought that the chose in action mentioned in the charge (namely, the $450,000 debt owed by Dao Heng to Monita) was property belonging to Dynamic, when it could not have been.

(3) The judge thought that the chose in action mentioned in the charge had been “appropriated” when it could not have been.

II.  BACKGROUND

3.Dynamic is the sole distributor of Pitanga facial treatment machines in Hong Kong. 

4.The Applicants were respectively Dynamic's Managing Director (Lim) and Sales Director (Lam).  They have authority to sell Pitangas to customers for no less than $380,000.  If they wanted to sell at lower prices, they had to obtain approval from Dr. Tang (Dynamic's beneficial owner).

5.In January and February 2004 Dynamic, acting through the Applicants, sold a Pitanga to Monita (a Shanghai company) for $450,000.  Monita, however, received an invoice for the Pitanga from Pacific Quest Limited (PQL).

6.Monita asked the Applicants why Monita had been invoiced by PQL rather than Dynamic.  The Applicants falsely replied that, if Monita made out a cheque to PQL, “it would be the same”.  Consequently, Monita drew a cheque for $450,000 in favour of PQL from its Dao Heng Bank account and handed the cheque over to the Applicants.

7.In fact, PQL was un-related to Dynamic.  The Applicants set up PQL without the knowledge of Dynamic or Dr. Tang.  The Applicants used PQL as a vehicle for siphoning off Dynamic's business.

8.Having received Monita's cheque, the Applicants deposited it into PQL's bank account.  A corresponding credit appeared in PQL's bank statements.

9.The judge found that the Applicants were acting in a joint enterprise.  He held (at Reasons for Verdict §42):-

“DAL [Dynamic] was entitled to the cheque payment from Monita for [the] Pitanga...  PQL was not so entitled in fact or in law ...  Applying the definition of ‘dishonesty' established in the case of R v. Ghosh (1982) 75 Cr App Rep 154; (1982) 1 QB 1053, I was satisfied that D2 [Lam] acted dishonestly when he gave instructions in pursuance of the above-mentioned joint enterprise with D1 [Lim].  I was satisfied beyond reasonable doubt that both Defendants committed theft as alleged in Charge 2.”

10.Four other charges had been brought against the Applicants.  These included a charge of conspiracy to defraud contrary to common law and 3 charges of using documents to deceive a principal contrary to the Prevention of Bribery Ordinance (Cap. 201) (POBC).

11.The judge found that the charge of conspiracy covered the same ground as the other charges and put the prosecution to their election.  The prosecution having chosen to proceed on the other charges, the judge left the charge of conspiracy on the file, but directed that it should not be pursued without the Court's prior approval.

12.The judge not being satisfied that the 3 charges based on the POBC had been proved, those were dismissed.

III.  DISCUSSION

13.We will first analyse what happened to the chose in action specified in the charge on which the Applicants were convicted.  We will then examine each of Mr. Blanchflower's criticisms of the judge.

A.  The $450,000 debt owed by Dao Heng to Monita 

14.When Monita wrote out its cheque to PQL, Monita's Dao Heng account was in overdraft.  However, being only $1,263,928.91 in debit, the account was within its authorised overdraft limit of $2.5 million.  That limit had been agreed between Dao Heng and Monita under a Facility Letter dated 12 April 2001 signed by both parties.

15.Dao Heng was thus under a contractual obligation arising from the Facility Letter to honour Monita's $450,000 cheque upon presentation.  As recognised in Kohn (1979) 69 Cr App R 395 (at 407), such obligation can properly be described as a “debt”.  It is a thing in action and capable of being the subject of theft.

16.A cheque is an instrument by which a debt held by a bank in favour of an account-holder is assigned to a third party payee.  The assignment is completed when the cheque is delivered to the payee or his agent.

17.By its cheque, Monita intended to assign to Dynamic the $450,000 debt held in Monita's favour by Dao Heng.  Monita only made out its cheque to PQL because it was under the impression (fraudulently induced by the Applicants) that Dynamic and PQL were related entities. 

18.The result of the Applicant's deception may indeed have been that, by its cheque, Monita assigned the relevant debt to PQL instead of Dynamic.  But Monita meant PQL to receive the cheque (and the debt thereby assigned) not on PQL's own behalf but solely as Dynamic's agent.  It was Monita's understanding that PQL would account to Dynamic as fiduciary for the debt assigned to PQL through the cheque.  Monita never intended PQL to have an absolute title to the $450,000 debt so assigned.

19.The assignment of the $450,000 debt held by Dao Heng in Monita's favour was completed when Monita's cheque was delivered to and received by PQL ostensibly on behalf of Dynamic.  At that moment, property in the $450,000 debt passed from Monita to Dynamic.  As a result of the cheque's delivery, PQL as agent came under an obligation to account to Dynamic as principal for the cheque, for the debt so assigned, and for any proceeds received out of the assignment.

20.But PQL never intended to (and never did) account to Dynamic for the $450,000 debt assigned by Monita's cheque.  Instead, PQL deposited the cheque into its own bank account and claimed the benefit of the resulting credit of $450,000 for itself.

21.In failing to account to Dynamic for the debt assigned by Monita, by instead treating the benefit of the assigned debt as its own to deal with as it pleased, PQL appropriated the debt.  PQL assumed rights of ownership over the debt which it did not (and was never meant to) have.

22.Given (as the judge found) that PQL was the Applicants' joint fraudulent enterprise, the law can pierce the corporate veil.  PQL is merely the Applicants' alter ego or cipher.  Its actions are attributable to the Applicants as its shareholders.

23.Accordingly, the judge's conclusions were impeccable as far as the charge of theft of a thing in action was concerned.  The Applicants misappropriated the $450,000 debt by failing to account for the same to Dynamic after the property in the debt had passed to Dynamic.  The Applicants instead treated the benefit of the assigned debt as their own and deposited the cheque in breach of their fiduciary duty into PQL's bank account without any reference to Dynamic.

B.  1st ground: Conviction on different chose in action

24.In the course of the trial, Mr. Graham Harris (then appearing for the Applicants) submitted that there was no case to answer on the charge upon which the Applicants were eventually convicted. 

25.Mr. Harris referred to documents suggesting that the Pitanga had initially been sold by Dynamic to PQL for $220,000 and then on-sold by PQL to Monita for $450,000.  This (Mr. Harris argued) meant that title in the Pitanga passed from Dynamic to PQL.  As a result, Monita's $450,000 payment was due to PQL and not Dynamic.  Contrary to the tenor of the charge, the payment (Mr. Harris suggested) could not have been misappropriated by PQL.

26.In response, Mr. Andrews (then appearing for the prosecution) suggested that the words “namely a debt in the sum of $450,000 ... owed by Dao Heng Bank to Monita” in the charge were “no more than descriptive”.  The words (Mr Andrews said) did not constitute a material averment.  The chose in action which was the subject of the charge (Mr. Andrews reasoned) was Dynamic's right to receive $450,000 from Monita as the price agreed for the sale of a Pitanga.

27.The judge rejected Mr. Andrews' submission that the charge could be read as referring to the theft of Dynamic's contractual right against Monita.  He instead decided that there was a case to answer on the charge as framed (that is, the theft of the $450,000 debt originally held by Dao Heng Bank in Monita's favour).  The judge rejected Mr. Harris' argument that property in the Pitanga had passed to PQL. 

28.The judge also ruled that, if Mr. Andrews wished to maintain that the chose in action mentioned in the charge was Dynamic's contractual right against Monita, then Mr. Andrews would have to apply to amend the charge.  In the event, the prosecution did not apply to amend.

29.Mr. Blanchflower infers from all this that the prosecution's case was that the Applicants had stolen Dynamic's contractual right against Monita.  Mr. Blanchflower seems to suggest that, in finding the prosecution case made out, the judge must consequently have convicted the Applicants of stealing Dynamic's contractual right against Monita.  This (Mr. Blanchflower contended) was not what had been charged.

30.We are unable to accept Mr. Blanchflower's submission.

31.It is plain from the paragraph quoted from the Reasons for Verdict that the judge's analysis mirrored that sketched out in Section III.A above.  The judge expressly disagreed with Mr. Andrews that the charge referred to some chose other than the one obviously specified.  Mr. Andrews' submission having been rejected, the prosecution and the judge thereafter focused on the chose in action actually stipulated in the charge.

C.  2nd ground: $450,000 debt not owned by Dynamic

32.Mr. Blanchflower suggests that the only debt that could have been stolen would have been owed by Dao Heng to Monita.  He argues that there was no conduct by the Applicants or Dynamic which would have resulted in Dynamic acquiring a proprietary right in that debt.  Consequently, Dynamic (Mr. Blanchflower submitted) could not have enforced the debt owed by Dao Heng to Monita.

33.We are unable to accept the contention.  Mr. Blanchflower ignores the effect of Monita drawing up a cheque and the circumstances in which Monita delivered that cheque to the Applicants. 

34.Once the cheque was made out and delivered to the Applicants, property in the Dao Heng debt was transferred to Dynamic as principal.  By the cheque, Monita assigned the benefit of the Dao Heng debt to PQL to hold as agent for Dynamic.  The circumstances in which the cheque was delivered show that Monita intended and expected the Applicants and their alter ego PQL to account to Dynamic for the $450,000 debt so transferred.

35.Mr. Blanchflower refers to R v. Preddy [1996] AC 815 in support of this ground of appeal.  We do not think that Preddy helps him.

36.Preddy concerns the electronic transfer of funds from one account to another.  The case is not strictly applicable to the present situation which involves the transfer of a debt by cheque.

37.It is true that in Preddy Lord Goff commented (obiter) on the difficulties of charging X with obtaining property belonging to another where X tricks Y into writing a cheque in favour of X as payee.  In such a case, X (Lord Goff pointed out) cannot be charged with obtaining the debt in his favour represented by the cheque as property belonging to another.  This is because, prior to the cheque being drawn up and delivered to X, the debt or thing in action in X's favour to which the cheque gives rise would not exist.  It follows that, at the moment of receiving the cheque, X could not be said to obtain the debt in his favour manifested by the cheque as property belonging to another.

38.But Lord Goff's dictum is not relevant here.  The charge under consideration is not one of obtaining Monita's cheque (or the thing in action in PQL's favour represented by the cheque) by deception.  The charge here is one of stealing the $450,000 debt initially owed by Dao Heng to Monita.  Such charge entails considerations (including the consequences of using a cheque to assign a debt) not canvassed by Lord Goff in Preddy.

D.  3rd ground: No appropriation

39.Mr. Blanchflower reasons that, where a drawer issues a cheque to a payee as a result of the latter's deception, there can be no appropriation of property belonging to another.  In such situation, the drawer (Mr. Blanchflower observes) intends the payee to have the cheque.

40.This is effectively a variant of Mr. Blanchflower's argument based on Preddy.  Mr. Blanchflower's submission fails for similar reasons to those mentioned in Section III.C above.  We are not concerned here with the obtaining by deception of Monita's cheque (or the thing in action in PQL's favour represented by it).  Instead, we are concerned with the theft of the $450,000 debt which Dao Heng originally owed to Monita. 

41.The fact is that Monita intended PQL as agent to account to Dynamic as principal for the $450,000 debt transferred to PQL by means of Monita's cheque.  PQL never intended to account to Dynamic for the $450,000.  On the contrary, PQL treated the $450,000 debt as its own to do with as it pleased.  By any yardstick, that must amount to an assumption of the rights of an owner and so constitute an “appropriation”.

IV.  CONCLUSION

42.Mr. Blanchflower's 3 grounds for leave having all failed, the application is dismissed.

Mr Alex Lee, SADPP, of the Department of Justice, for the Respondent

Mr Michael Blanchflower, SC, instructed by Messrs Haldanes, for the 1^st and 2^nd Applicants