The Queen v. Fan Fu Keung and Another

CACC000567/1991

Coram: Yang C.J., Bewley & Barnett JJ.

Date of Hearing: 29th & 30th April 1992

Date of Delivery of Judgment: 22nd May 1992

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J U D G M E N T

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Barnett J.

1. This is the judgment of the Court.

2. The 1st and 2nd applicants (A1 & A2 respectively) appeared in the District Court in 1991, together with a co-accused who does not concern us. They faced a total of seven charges, four of which were charges of conspiracy to defraud to which the applicants pleaded not guilty. We are concerned with three: of those four charges:

(i) Charge 2 was against both applicants and both were convicted.

(ii) Charge 4 was against A2 only. He was found guilty.

(iii) Charge 5 was against both applicants and both were found guilty.

3. On 12th December 1991, upon being convicted of charges 2 and 5, Al was sentenced to concurrent sentences of imprisonment for 18 months on each charge.

4. Upon being convicted of charges 2, 4 and 5, A2 was also sentenced to concurrent sentences of 18 months imprisonment on each charge.

5. A1 and A2 now seek leave to appeal against their convictions and sentences.

6. The charges arose out of various irregularities alleged to have been committed in connection with the export of textiles to Sweden in 1988. The Crown case, in brief, was that the applicants together with certain manufacturers agreed to obtain allocation of textile quotas from the Trade Department of the Hong Kong Government ("the Department") by deceiving the Department into believing that genuine commercial transactions were involved.

7. In pursuance of certain bilateral agreements made between the Hong Kong Government and other countries whereby a range of textile products exported from Hong Kong to those countries is subject to agreed limits, the Department administers a textile export control system in order to give effect to those agreements. Under the system, manufacturers and exporters are required to obtain export licences which are subject to a quota system operated by the Department.

8. In order to participate in the quota system, the manufacturer or exporter must register with the Department and quotas are allocated on the basis of performance in the proceeding quota year, which is not necessarily a calendar year. The same quota will normally be allocated if it was fulfilled in the previous year. If the quota. allocated in the previous year was not wholly utilized, the unused portion would normally be forfeited in the following year. A manufacturer or exporter may increase its quota by means of the Year End Special Shipment Scheme ("YESSS"). YESSS is designed to maximize the use of any unused quota in a quota year and provides an opportunity for a genuine exporter or manufacturer to apply for all or part of that unused quota. The applicant can thus obtain an increased quota for that year which will be reflected in the quota for the following year. There is a limited supply of quota. Quota, therefore, becomes a valuable commodity which can be bought and sold.

9. The three fraud charges involved 12 applications under YESSS which resulted in quota being allocated and export licences granted by the Department on the basis that the contents of the applications disclosed genuine commercial transactions.

10. In the 12 applications, the exporters and manufacturers (who may or may not be the same entities) were all different entities except in two instances. The entities were all controlled by Al and A2, or were otherwise closely associated with them. Three companies featured repeatedly in the transactions. Fu Keung Knitting Garment Factory of which Al was a partner and A2 the export manager. Gary Export Company of which A1 was the sole proprietor. Ruby Export Company, the proprietor of which was Al's wife. There were other companies listed as exporters or manufacturers which were small factories in Hong Kong with which Al and A2 were in constant and close communication. The strict relationship between A1 and A2 was that of employer and employee, but A2 seems to have been more of a trusted lieutenant than a mere employee.

11. The consignee named in each licence was a Swedish company called the SeasonImport AB. Its managing director, Mr. Ingrar Porss, gave evidence that he had never dealt with or heard of the Hong Kong exporters whose licences proclaimed that they were exporting to his company. He said he did not know Al or A2 or their companies. His evidence was uncontradicted.

12. The goods which were the subject matter of the export licences and which were all apparently destined for the SeasonImport AB were loaded in a single container and transported to Hamburg. The accompanying manifests described the goods as typical textile exports, e.g. "girls 65% polyester 35% cotton woven blouses" and the like. The Bill of Lading was endorsed that a freight firm "ASG" was to be notified. At Hamburg, the container was off-loaded and joined another 14 containers on the dock side. The container held 747 cartons of which 154 related to the 12 export licences concerned in this case. Ultimately, the entire contents of this and the other 14 containers were destroyed. SeasonImport AB never knew of the existence of the goods apparently consigned to it.

13. Mr. Peter Mok of the freight company, ASG (HK) Ltd., said the shipment had been arranged by Messrs Roger Lam and Fong of a firm called Art-Muller. It was one of these who, after dispatch of the goods, told Mok not to notify the consignees of the goods in the 15 containers, and to enquire as to the cost of destruction and the cost of re-shipment back to Hong Kong for comparison. Mok made enquiries of his Hamburg agent. He also recalled that Lam and Fong were anxious to know if German Customs would attend the opening of the containers. Eventually, Mok was instructed by Lam or Fong to destroy the contents of the containers. Mok caused these instructions to be carried out having first obtained written letters of authority and indemnity from the shippers of each container. He felt the instructions were "not normal" but not unusual.

14. In Hamburg, Mr. Fleissner of the Atege Freight Company thought the. situation was far from normal. To him, it seemed peculiar that hundreds of cartons in the 15 containers were to be destroyed and that the consignees were not to be notified. He was told by the Hong Kong agents that it was a shipping mistake and that he was not to contact any consignees. Eventually, the 15 container loads were destroyed.

15. Mr. Skrey of the German Customs Investigation office supervised the destruction of the container involved in this case. He opened at least 50 of the 747 cartons at random. In two of those cartons he found roughly sewn items which might be said to resemble children's wear, but which were so rough he could not imagine any child wearing them. The remaining cartons contained nothing but rags and on average were only two-thirds full.

16. In our view, it is idle to suggest as did counsel for the applicants that these transactions were other than sham. We accept that the Department is not concerned with the quality of goods which are the subject of quota applications or export licences. There can be no question, however, but that where the goods are clothing, that clothing must be something that can realistically be expected to be worn and used as such. Plainly, the contents of the cartons could not. Equally plainly, the only reasonable inference to be drawn from the inspection carried out was that all the cartons contained similar material. Whether these bogus transactions disclose a conspiracy between the applicants or the applicants and their co-conspirators is another matter.

17. Four manufacturers gave evidence for the Crown in relation to the three charges. After summarizing their evidence (a summary with which counsel for the applicants does not disagree in point of fact, but does as to emphasis and interpretation), the learned trial judge said this:-

" All these factory operators gave evidence under an immunity granted by the Attorney General. Obviously all were in varying degrees accomplices and I have to treat their evidence with considerable care.

Each read little or no English yet had signed the Trade Department forms in English containing solemn declarations not knowing or caring what they signed. Their attitude was that these formal declarations were an irksome formality which Dl and D2, particularly the latter, could attend to.

None had any figures of what they had been paid in the result, they just said that in general they had been well rewarded by Dl and D2 for their services. Nor did they care or distinguish whether those "services" consisted of making some semblance of cheap garments, lending their names and signatures to sham documents, or a mixture of both.

I would not rely on any of these witnesses, without corroboration on any matter of detail; however'I accept the gist of their evidence, that the defendants were engaged in sham export transactions and they were assisting by making shoddy garments, signing forms as directed,- or both.

Each was specifically and formally asked in cross-examination if he had entered a conspiracy to deceive the Trade Department and replied, not surprisingly, that he had not. I do not accept the submission that as these alleged co-conspirators denied the existence of any conspiracy that must be an end of' the matter. Looking at the evidence as a whole I would say of these denials, like Miss Rice-Davies, "Oh, he would, wouldn't he?" "

18. The learned judge then went on to deal with the individual charge. In relation to the three charges, the subject of this appeal he said:-

" The manufacturers' evidence, the evidence that the goods destined for Sweden were substantially merely padded rags which were systematically and at considerable expense destroyed before they got to Sweden, the care taken to conceal everything from the named consignee, all lead me irresistibly to the conclusion that the Swedish transactions were all sham from the outset. I am satisfied that they were facades to generate more quotas, and that the respective defendants participated well knowing that was the dishonest purpose.

I find charges 2, 4, 5 (and 7) proved beyond reasonable doubt."

19. There were five grounds of appeal. It is convenient to deal with grounds 2, 3, 4 and 5 together because, to some extent, they overlap. These grounds were:-

"2. In returning verdicts of guilty on charges 2, 4 and 5, the learned trial Judge erred in finding that the applicants had conspired with the persons in the charges when all these persons had given evidence that they never had any agreements with anyone to defraud the Director of Trade and when there was no evidence upon which the learned trial Judge could have drawn the inference to conclude that there were such agreements.

3. In returning verdicts of guilty on charges 2, 4 and 5, the learned trial Judge attributed criminal liability to the applicants on the basis that they had signed declarations as the exporter/manufacturer and the alleged co-conspirators had signed as the manufacturer/exporter when all the declarations were in English and there was no evidence that the applicants understood English and the evidence by the co-conspirators was that they did not understand English.

4. The learned trial Judge erred in firstly saying (page 17 of transcript) that without corroboration he would not rely on any of the co-conspirators on matters of detail,and then, without saying if there was corroboration and if so, what it was, going on to say (page 17 of transcript) that he accepted the gist of the evidence that the applicants had engaged in sham transactions.

5. In finding from the evidence of the co-conspirators that the applicants had engaged in sham transactions, the learned trial Judge erred because the gist of the evidence of the co-conspirators was simply that they had been asked by the applicants to sign the export licences and in due course of time, they did manufacture for the applicants the goods in question."

20. Like counsel, we have had some difficulty in grappling with the passage quoted above in which the learned judge said that he accepted the gist of the manufacturers' evidence. First, the gist of their evidence as stated by the :judge must connote on their part an intention to deceive or mislead the Director of the Department. Yet, as the judge pointed out, each manufacturer had denied involvement in any such conspiracy. The judge's comment upon such denials was no doubt well merited. Those denials, however, called for a careful scrutiny of the evidence by the judge to show upon what he relied for saying that these manufacturers were dishonest as opposed to merely careless or negligent.

21. Secondly, the judge's reasoning appears to be contradictory. He was prepared to accept the gist of the manufacturers' evidence without corroboration. In our view, however, the gist of the evidence of these witnesses could only be extracted after an examination of the details of their evidence upon which the judge indicated he would not rely without corroboration. The judge did not indicate whether or not there was any corroboration and, if so, what it was.

22. The evidence of the four manufacturers was, to say the least, vague, confusing, inconsistent and contradictory. In relation to charge 2, Mr. LEUNG Kok-keung was the manufacturer and alleged co-conspirators He was declared hostile. The judge commented that he "was obviously not very reliable". In his findings on this charge, however, the judge simply referred to "the manufacturers' evidence" without any indication of his approach to this witness. Quite clearly, and as counsel for the Crown concedes, the evidence of this witness must be discounted.

23. In relation to charge 4, Mr. CHU Kwai-wing was the manufacturer and co-conspirator with A2 only. Counsel for the Crown conceded that there is nothing in his evidence which suggests fraud and the evidence is insufficient to prove conspiracy. Accordingly, we need say nothing further about this charge.

24. In relation to charge 5, Mr. POON Kam-leung and Mr. LAU Kam-chiu gave evidence. They were partners in the Hop Yau Garment Factory. Mr. Poon said that no garments' were made in relation to the quota applications. Mr. Lau said that some garments which fitted the description of the garments in the export licences were made by his company a few months earlier. The quantities of these goods coincided with the quantities of goods in at least some of the export licences. Nonetheless, there was an apparent contradiction between these witnesses which required resolution. In all the circumstances, we think that the judge's approach to these two witnesses was far too broad brush and that their evidence must, accordingly, be ignored.

25. The judge, of course, relied on other evidence to found the convictions. Some of that evidence is of dubious admissibility. W43 do not consider the evidence sufficient to admit of us.applying the proviso in relation to charges 2 and 5 to the effect that the two applicants simply conspired with each other.

26. In the circumstances, we allow the applications for leave to appeal. We treat the application for leave as the hearing of the appeal. The appeals are allowed. The convictions are quashed and the sentences are set aside. Subject to anything counsel may wish to say, we are^. minded to order a re-trial.

Representation:

Mr. M.A. McMahon, A.S.C.P. for Crown.

Mr. P. Nguyen instructed by Fairbairn Catley Low & Kong for the 1st & 2nd Applicants.