HKSAR v. Chu Wai San and Others

CACC 311/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. CACC 311 OF 2006

(ON APPEAL FROM DCCC NO. 113 OF 2006)

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BETWEEN

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Before : Hon Stuart-Moore VP, Stone and Beeson JJ

Date of Hearing : 13 December 2007

Date of Judgment : 30 January 2008

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J U D G M E N T

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Hon Stone J (giving the judgment of the court) :

The appeals

1.The applications for leave to appeal in this case are against conviction and sentence arising from a letter of credit fraud.

2.This case also involves, at least within the application of the 2^nd applicant, consideration of the issue of the element of mens rea required for the offence of ‘aiding and abetting’ in a situation in which the actus reus of such alleged accessory liability lies in the sin of omission, not commission.

3.The applicants herein, Chu Wai San, the 1^st applicant, Ko Man-lok, the 2^nd applicant (and the wife of the 1^st applicant), and the 3^rd applicant, Ding Bo, were jointly charged in the District Court – in DCCC No 113 of 2006 – with 10 counts of ‘Procuring the Making of an Entry in a Record of a Bank by Deception’, contrary to section 18D of the Theft Ordinance, Cap 210, which in material part reads:

“

(1)

Any person who dishonestly, with a view to gain for himself or another or with intent to cause loss to another, by any deception (whether or not such deception was the sole or main inducement) procures the making, omission, altering, abstracting, concealing or destruction of an entry in a record of a bank or deposit-taking company, or any subsidiary thereof the principal business of which is the provision of credit, shall be guilty of an offence and shall be liable on conviction upon indictment to imprisonment for 10 years.”

4.The 10 charges against each of the accused were in like form, save for the differing dates, amounts of credit entries, company details, and details of the commodities and the prices; thus, in each of the particulars of charges 1 to 10 it is averred that the 1^st, 2^nd and 3^rd applicants:

“

…had dishonestly with a view to gain for themselves or another or with intent to cause loss to another, procured the making of an entry in a record of the Bank of China, namely 10 different credit entries to the account of Trisource Enterprise Company Limited (“Trisource”) with the Bank of China (“the bank”) by deception, namely, by falsely representing to the bank that Trisource had supplied and delivered certain goods specified in the charges to various subsidiaries of Po Sing (Holdings) Company Limited.”

5.The applicants pleaded Not Guilty to all charges.

6.After trial in the District Court before Deputy District Judge Thomas, in his Reasons for Verdict – comprising some 120 pages and 224 paragraphs – which was delivered on 24 July 2006, the judge convicted all the applicants upon all the charges they faced.

7.On the following day, in his Reasons for Sentence dated 25 July 2006, the judge sentenced the 1^st applicant to 5 years imprisonment upon each charge, such sentences to run concurrently, the 2^nd applicant to 2 years on each charge, such sentences to run concurrently, and the 5^th applicant to 5 years imprisonment on each charge, such sentences to run concurrently.

8.The position upon these appeals now is as follows:

The 2nd applicant – the 2nd defendant at trial – now seeks leave to appeal her conviction only.  Pending her appeal against such conviction the 2nd defendant applied for and was granted bail on 19 January 2007.

The 3rd applicant – the 5th defendant at trial – now seeks leave to appeal both his conviction and sentence.

The 1st applicant – the 1st defendant at trial – having initially launched an appeal against both conviction and sentence, on 29 August 2007 formally abandoned his application for leave to appeal against conviction, and accordingly in these proceedings now seeks leave to appeal against sentence only.

9.For purposes of this judgment, we adopt the practice followed by counsel during argument and refer to the applicants by their designation as defendants at the trial.

The background facts

10.In fundamental terms there is no great dispute as to the primary facts as were placed in evidence before the judge at trial. 

11.The ten offences of which these three defendants were convicted involved the submission of false letter of credit documentation to the Bank of China, the issuing bank of the credits in question, thereby enabling funds to be drawn down and paid to the beneficiary under the credit, with the funds thus remitted to the beneficiary immediately being transferred by that beneficiary to the applicant for the credit, or to a company or other entity related to or under that applicant’s control.

12.The applicants for the credit in each case were not the same, but in all instances were subsidiary companies – variously Po Sing Imitation Jewellery Manufactory Company Limited (‘Po Sing Imitation’), Dragon Full International Limited (‘Dragon Full’), and Always Advance International Trading Limited (‘Always Advance’) – of one Po Sing (Holdings) Ltd, a company of which the 5^th defendant, Ding Bo, was a director and authorized signatory for the applicant companies, as well as being a director of Po Sing Imitation and Dragon Full.

13.The 5^th defendant, Ding Bo, had a close relationship with the 1^st defendant, Chu Wai-san; the latter formerly had been a teacher on the Mainland, and Ding Bo had been his student.

14.What essentially happened was this.

15.Between 17 January 2003 and 12 November 2003 the three subsidiary companies of Po Sing (Holdings) Limited, Po Sing Imitation, Dragon Full and Always Advance, applied to the Bank of China on ten different occasions for the issuance of irrevocable letters of credit; all the applications were signed by the 5^th defendant, Ding Bo, and on all ten occasions the stipulated beneficiary under the credit was named as Trisource Enterprise Company Limited (‘Trisource’).

16.Trisource was a small private family company owned by the 1^st and 2^nd defendants, together with their daughter; in fact, the majority shareholding (89%) was held by Madam Ko, the 2^nd defendant, who had established the company; her husband, Mr Chu Wai-san, the 1^st defendant, owned a mere 1%, and their daughter the remaining 10% of the shareholding.

17.Each of the credits, as issued, contained details of the alleged transaction in Hong Kong between the particular Po Sing company and Trisource.  In each case the credits made it clear that the transaction was a local transaction in Hong Kong, in each case partial deliveries were not permitted under the terms of the credit, and in each case the cargo receipt specified that the goods were to be held in trust for the bank until the bank was satisfied as to repayment by the relevant Po Sing entity of the monies thus advanced pursuant to the credit.

18.The consistent modus operandi was thus: the particular Po Sing company would prepare a cargo receipt which purported to suggest receipt of the goods said to be purchased in Hong Kong from Trisource, and in turn Trisource would prepare a commercial invoice therefor.  Thereafter these documents would be presented to the Bank of China, which in turn, after confirming that the documents thus presented precisely complied with the terms of the credit, would remit to Trisource the amount as specified in the credit.

19.However, the problem was that there were no goods – at least in Hong Kong – and there was no underlying transaction in Hong Kong between the particular Po Sing company and Trisource; hence the documents as presented pursuant to the credit were entirely false, and fundamentally misrepresented the true position.

20.The particular documentary credit having been processed via presentation of such false documentation, that which then would happen was that shortly after receiving, qua beneficiary, the sums accruing from the negotiated credit, Trisource in turn would remit the sum thus received back to Po Sing after the deduction of a small sum as its ‘transaction fee’ for its participation in a documentary credit transaction in which the Bank of China, in this instance both issuing and negotiating bank dealing solely in documents, had been led to believe was as represented on the face of the documentation presented by Trisource pursuant to the terms of the credit.

21.One example of the operation of this scheme will suffice: the 1^st charge preferred against these defendants involved the application to the bank on 17 January 2003, by Po Sing Imitation, for a letter of credit, which thereafter was issued, in the specific terms requested, on 21 January 2003, under No. G90B00749. The face value of the sum to be paid under the credit was HK$2,960,000, which, upon presentation of compliant documents specified within the body of the credit, was paid to Trisource by the bank on 29 January 2003. Out of this principal sum Trisource then transferred the sum of HK$2,953,668.75 back to Po Sing on 30 January 2003, after deducting the minor sum of HK$6,631.25, which appears to have been regarded as its ‘commission’ for its participation in this transaction. 

22.Thereafter, the internal bank documentation relevant to this transaction shows that, somewhat unusually, the bank did not move to debit this amount from the account of the applicant for the credit, Po Sing, until fully five months later, on 27 May 2003.

23.In effect, therefore, what was happening was that as a result of such false documentary credit transaction, the applicant for the credit, Po Sing, was by this means effectively gleaning an extensive and entirely unauthorized credit line (additional to other approved credit lines which already had been granted to Po Sing by the Bank), and that such unauthorized credit, representing the fruits of these false documentary credit transactions, ultimately was repaid, upon remission to the Po Sing account with the Bank of China, of monies apparently obtained from the sale of the finished Po Sing products in China (albeit, as was recognised by the trial judge, there was some difference at trial between the evidence of the 1^st and 5^th defendants as to whether there was any connection between the fact of repayment and the sale of such products).

24.This, therefore, represented the recurrent factual matrix which founded the ten charges as preferred under section 18D of the Theft Ordinance against the 1^st, 2^nd and 5^th defendants, all of which charges, as earlier noted, all were found to have been established against all three defendants by the judge in the court below.

Pre-trial admissions by the 1^st and 2^nd defendants

25.The 1^st defendant, Chu Wai-san, was arrested on 1 February 2005, and voluntarily participated in two interviews under caution, which were video-taped.

26.In the course of these interviews he had admitted that there was no actual business between Po Sing and Trisource.  He said that the 5^th defendant, Ding Bo, his erstwhile student, had approached him and had said that he had a cash-flow problem in terms of his China business (which, in part at least, was the manufacture of jewellery) in terms of the payment of his raw materials suppliers, and that he, Chu, had agreed to assist. 

27.Accordingly, letters of credit were applied for and issued in favour of Trisource notwithstanding that the underlying ‘transactions’ purportedly the subject of each particular credit did not exist; nevertheless, the credits were negotiated by Trisource by its presentation to the issuing bank of false documents in apparent compliance with the terms of the credit, and after receiving the funds, less a small deduction for bank charges and ‘remuneration’, the balance of the credit sum thus negotiated immediately would be remitted by Trisource back to Po Sing, sums which then would be used by Po Sing, and Ding Bo, to finance its China operations.

28.The 2^nd defendant, Madam Ko Man-lok, the wife of Mr Chu, also was arrested on the same day, 1 February 2005, and herself voluntarily participated in two interviews under caution, which once again were video-taped.

29.It is the content of these two interviews which formed the sole evidence against the 2^nd defendant, who, contrary to the position of her husband, the 1^st defendant, and also that of the 5^th defendant, elected not to give evidence at the trial.

30.We revert to the content and context of these interviews later in this judgment.  For present purposes, suffice to say that on the basis of these interviews, which formed the entirety of the evidence against the 2^nd defendant, the judge concluded that it was “abundantly clear” that Madam Lo had known what was going on, and accordingly had convicted her of all the 10 charges as preferred against her, sentencing her to 2 years on each charge, such sentences to run concurrently, consequent upon that which was found to be accessorial liability.

The prosecution evidence at trial

31.In addition to the cautioned statements of the 1^st and 2^nd defendants, a staff member of Trisource, one To Shek On (PW1) and two members of the Po Sing companies, one Chan Mei-fung (PW2) and one Leung Kai-wah (PW5), gave viva voce evidence at trial.

32.Each of these witnesses gave evidence under immunity.  However, whilst admitting their part in the preparation of the relevant false documents, their evidence did not reveal that they had been participants in this fraudulent letter of credit scheme.

33.Finally, two affirmations of one Rosanna Ho Yee-wah, an officer of the Bank of China, were put in as evidence on behalf of the Bank under section 20 of the Evidence Ordinance, Cap 8.

34.In addition to adducing the documents relating to the ten letters of credit, together with documentation relating to the bank accounts of the companies allegedly concerned, Miss Ho also deposed to the nature, purpose and operation of letters of credit.

35.In particular she deposed to the Uniform Customs and Practice for Documentary Credits, ICC Publication No 500, commonly referred in the commercial world to as ‘the UCP 500’, containing the rules and procedures relating to credits as are followed by banks within subscribing countries dealing with international trade finance transactions; Hong Kong is a member country of the ICC and thus all licensed banks within the territory, including the Bank of China (Hong Kong) Ltd, must comply with these ICC rules.

36.Under the heading ‘Bank Practices and Procedures’ relating to documentary credits, Miss Ho also explained and expanded upon the risk to the bank issuing irrevocable credits, and specifically the risk if and in so far as the customer/applicant for the credit was unable to repay the money advanced by the issuing bank to the beneficiary under the credit; hence the necessity for the bank to retain documentary title to the goods the subject of the underlying transaction, via the medium of a trust receipt, so that if necessary it would be in a position to reimburse itself in part if and in so far as the customer failed so to do.

37.The admission of this evidence on the part of Miss Ho initially had formed a ground of appeal on behalf of the 5^th defendant, Ding Bo, but, sensibly in our view, this ground was withdrawn shortly before the commencement of this appeal.

The defence case at trial

38.Although the trial commenced on Friday 14 July 2006, when the prosecution produced an amended charge sheet and a re-amended summary of facts, it was not until the following Monday, 17 July 2006 that for the first time the defence produced a bundle of documents containing, inter alia, purchase orders, warehouse receipts, and payment confirmations relating to transactions in the Mainland which at first blush appeared consistent (or, at the least, not inconsistent) with the alleged Hong Kong transactions which ostensibly had underpinned the issuance of the ten documentary credits the subject of the ten charges against these defendants.

39.It appears that at the trial the prosecution had agreed to the production of this new bundle, making no admission as to the truth and authenticity of the documents therein, albeit it was conceded that there was a possibility that these Mainland transactions were transactions consistent with those mentioned in the letter of credit documentation as presented for negotiation to the Bank of China, which documentation purportedly had related solely to transactions within Hong Kong.

40.In the event both the 1^st defendant (whom, as earlier indicated, now has withdrawn his appeal against conviction) and the 5^th defendant elected to give evidence at the trial.

41.At bottom the defence adumbrated by and on behalf of the 5^th defendant – a defence with which in his evidence at trial the 1^st defendant associated himself – was that in fact there were transactions on the Mainland to which these 10 letters of credit related; it was said that the 1^st defendant in Hong Kong represented the Mainland suppliers of raw materials the purchase of which was to be effected by the monies derived from these 10 credits, and that it was convenient for the Mainland suppliers to be paid from monies remitted from Hong Kong.

42.Ultimately, the monies thus remitted from Trisource to Po Sing were repaid to Po Sing’s account with the Bank of China in Hong Kong (presumably after the successful sale of the finished goods thus produced by the Po Sing factories), and that whilst the letters of credit failed to reflect the whole truth effectively it was said that they reflected the “commercial truth”, given that Trisource was said to be the Hong Kong agent for such Mainland suppliers.

43.However, notwithstanding its status as alleged Hong Kong agent of such Mainland suppliers, Trisource apparently had had no legitimate means of remitting monies to its principals in the Mainland, and hence this was a task which was to be effected via the good offices of Po Sing, which had legitimate facilities to effect cross-border transfers, and whose factories on the Mainland in turn would remit, in renminbi, the relevant funds owing to the suppliers. 

44.The 5^th defendant also made the point that on occasion it appeared that payment had been made to the suppliers by Po Sing’s mainland factories before the latter had been placed in funds, in which case these factories would retain the monies thus directly remitted from Hong Kong; in any event these suppliers would be paid directly by the Po Sing factories either before or after the funds representing the proceeds drawn down under the 10 credits had been remitted, through the Po Sing group, to China.

45.Before turning specifically to consider the appeals against conviction respectively mounted by the 2^nd and 5^th defendants, it may be useful to make brief reference to the law relating to the establishment of secondary liability, in particular within the context of offences wherein the actus reus thereof constitutes a failure to act.

Omissions as acts founding secondary liability?

46.This is an area of the criminal law where the question is easier posed than answered.  In his work ‘Principles of Criminal Law’ (4^th ed. 2003), Professor Ashworth considers that the key issue is simple to state, namely, “Can a person be convicted as an accomplice merely for standing by and doing nothing when an offence is being committed?”

47.The general principle at common law is that a person incurs no criminal liability for simply standing by and doing nothing. This stance seems to be primarily a matter of policy: see, for example, Simester and Brookbanks, Principles of Criminal Law (2^nd ed., 2002) who observe (at page 46):

“	The prohibition of omissions is far more intrusive upon the individual’s autonomy and freedom than is the prohibition of acts, which is why the systematic imposition of (criminal or civil) liability for failures to act is to be resisted.”

48.In this regard we agree with Mr Macrae’s submission that the law in this area is not clear, and that it is difficult to divine any principle of general application; generally criminal liability is founded in instances wherein the courts find a defendant to be secondarily liable for failing to control the actions of others, in particular wherein there is a perceived ability (or duty) so to do. 

49.It is such element of control (or, at least, some degree of control) which underpinned the findings of culpability in, for example, the case of Du Cros v. Lambourne [1907] 1 KB 40, in which Mr Du Cros, owner of a new Mercedes, had arranged a jaunt in his car, which then was driven at a high and illegal speed; there was a conflict of evidence as to whether the driver had been Mr Du Cros or his lady companion, and in the words of one commentator (see Glanville Williams, ‘Which of you did it’, 52 MLR 179, at 180) the court “improvised a solution by impaling Du Cros on a metaphorical fork”: either he was driving or he had become an accomplice by failing to exercise the control of the driver which he, as owner, could have exercised; see also the cases of Tuck v. Robson [1970] 1 WLR 741, in which a publican permitted customers to consume alcohol on licensed premises after hours, and it was held by the Court of Appeal that the licensee was in control of his premises and had full knowledge that intoxicating liquor was being consumed after hours, and that the magistrate had been entitled to draw the inference that there was passive assistance by the licensee in the sense of presence, with no steps being taken by him to enforce his right to reject the customers or to revoke their licence to be on the premises, and thus that he had been rightly convicted; and also the more recent case of JF Alford Transport [1997] 2 Cr App R 326, where a company did nothing to prevent its employees from falsifying tachograph records of its transport vehicles, contrary to certain sections of the Transport Act 1968, the Court of Appeal in that case holding that for establishing secondary liability what mattered was knowledge of the principal offence coupled with the ability to control the action of the offender and the deliberate decision to refrain from so doing. 

50.Also relevant in this context is the older case of Rubie v. Faulkner [1940] 1 KB 571, wherein the appellant was a driving instructor supervising a driver with a provisional licence who did nothing to prevent the driver from overtaking on a bend, and who was held to be rightly convicted of aiding and abetting the driver in the commission of an offence, Hilberry LJ noting (at 574-575) that the supervisor in question “must be intended [by the relevant motor vehicle licencing regulations] to have the duty, by supervision, of making up as far as possible for the driver’s incompetence…”; also the case of R v. Clarkson (1971) 55 Cr App Rep 445, wherein the English Court of Appeal, sitting in its capacity as Courts-Martial Appeal Court, held that whilst continued presence at the scene of a crime in itself does not necessarily amount to encouragement of the offence, nevertheless a person who offered no opposition to that crime, although he might reasonably be expected to prevent and had the power to do so, or at the least to express his dissent, might in some circumstances afford cogent evidence upon which a jury would be justified in finding that he wilfully encouraged, and thus aided and abetted that crime.

51.Clearly, all cases involving the sin of omission as founding criminal culpability are peculiarly fact-sensitive, as indeed is the situation in the case before this court, and whilst previous case law is of some assistance, previous decisions cannot be considered as decisive pointers towards guilt or innocence within the confines of any particular case.

Mens rea in instances of secondary liability

52.The classic statement of the mens rea required for accessorial liability is that of Lord Goddard CJ in Johnson v. Youden [1950] 1 KB 544.  This was a case in which a builder had been convicted under a section of the post-war Building Materials and Housing Act, 1945 of offering a house for sale at a price in excess of that which was permitted, and his three partners were charged with aiding and abetting him in the commission of that offence.

53.As to the requisite mental element in instances of secondary liability, the Chief Justice said, op cit., at 546:

“

Before a person can be convicted of aiding and abetting the commission of an offence he must at least know the essential matters which constitute that offence.  He need not actually know that an offence has been committed, because he may not know that the facts constitute an offence and ignorance of the law is not a defence.  If a person knows all the facts and is assisting another person to do certain things, and it turns out that the doing of those things constitutes an offence, the person who is assisting is guilty of aiding and abetting that offence, because to allow him to say, “I knew of all those facts but I did not know ‘that an offence was committed’, would be allowing him to set up ignorance of the law as a defence.”

54.The principle in Johnson v. Youden, op cit., was applied shortly thereafter in Ferguson v. Weaving [1951] 1 KB 814, a case stated by the Leeds stipendiary magistrate, in which it was held that a licensee of premises could not be held secondarily liable under the relevant licensing laws then in force for permitting after-hours drinking because she personally had been unaware of what had been happening, having delegated to the waiters the task of ensuring that the legal time-limits were observed, and that in such circumstances the knowledge of the waiters could not be imputed to her so as to render her not a principal offender but an aider and abettor; in this context Lord Goddard CJ stated, op cit., at 821:

“

We will assume for the purposes of this case that the licensee had delegated to the waiters the conduct and management of the concert room, and if the Act had made it an offence for a licensee knowingly to permit liquor to be consumed after hours, then the fact that she had delegated the management and control of the concert room to the waiters would have made their knowledge her knowledge.  In this case there is no substantive offence in the licensee at all.  The substantive offence is committed only by the customers.  She can aid and abet the customers if she knows that the customers are committing the offence, but we are not prepared to hold that knowledge can be imputed to her so as to make her, not a principal offender, but an aider and abettor.  So to hold would be to establish a new principle of criminal law and one for which there is no authority…”

55.The celebrated case of Director of Public Prosecutions for Northern Ireland v. Maxwell [1978] 1 WLR 1350 involved the conviction of a member of the Northern Ireland ‘Provisionals’ who had been the car driver for members of that organization who placed a bomb at an inn owned by Roman Catholics; in fact, he had done as instructed and driven his car to the inn in the locality in which he lived in such a manner that he had acted as a guide to the would-be bombers, who themselves were strangers to the area.  The driver, Maxwell, was convicted of the statutory offence of unlawfully and maliciously doing an act with intent to cause an explosion likely to endanger life, his conviction was upheld by the Northern Ireland Court of Appeal, and the case ultimately came to the House of Lords on a certified point of law of general public importance, namely, if the crime committed by the principal, and actually assisted by the accused was one of a number of offences, one of which the accused knew the principal would probably commit, was the guilty mind which must be proved against an accomplice thereby proved against the accused?

56.The House of Lords dismissed the appeal, holding that knowledge of the actual offence committed was not an essential ingredient before a person, who aided and abetted the commission of the offence, could be convicted of that offence, and that so long as the relevant offence was in the contemplation of the accused, and so long as he had intentionally lent his assistance to the commission of such crime, then the guilt of the accessory is established.  In his speech Lord Scarman approved the approach of the Court of Criminal Appeal in Reg v. Bainbridge [1960] 1 QB 129, wherein the court had held that it was not necessary that the accused should know of the particular crime intended or committed by those whom he had assisted, and held that it was enough if it was clear that the accused knew the type of crime intended, and stated, op cit., at 1362:

“

The principle thus formulated has great merit.  It directs attention to the state of mind of the accused – not what he ought to have in contemplation, but what he did have: it avoids definition and classification, while ensuring that a man will not be convicted of aiding and abetting any offence his principal may commit, but only one which is within his contemplation.  He may have in contemplation only one offence, or several: and the several which he contemplates he may see as alternatives.  An accessory who leaves it to his principal to choose is liable, provided always the choice is made from the range of offences from which the accessory contemplates the choice will be made…”

57.Perhaps the leading current authority on mens rea in the context of secondary criminal liability is the Australian authority of Giorgianni v. The Queen (1995) 156 CLR 473, a decision of the High Court of Australia on appeal from the Supreme Court of New South Wales, which had dismissed the applicant’s appeal from his conviction upon 5 charges of culpable driving causing death and one charge of culpable driving causing grievous bodily harm from an incident occurring on 18 May 1979 when the brakes of an heavily-laden coal truck failed while descending a steep incline and collided with other vehicles, causing the death of five persons and serious injury to another. 

58.The truck in question was driven by one Renshaw, an employee of the applicant, Giorgianni, who was charged under section 52A of the New South Wales Crimes Act 1900, and the Crown case was that the brakes of the coal truck were dangerously defective and that Renshaw, by driving it in that condition, was driving in a manner dangerous to the public.  It was not suggested that the applicant, Giorgianni, was present when Renshaw drove the truck; what was contended on behalf of the Crown was that the applicant had procured Renshaw to drive the truck in its defective condition, and thus he was charged with such secondary liability under section 351 of the Crimes Act, which provided:

“	Any person who aid, abets, counsels, or procures, the commission of any misdemeanour…may be indicted, convicted, and punished as a principal offender.”

59.After an exhaustive review of the law relating to mens rea as founding secondary liability, in which, in allowing Giorgianni’s appeal, Gibbs CJ, Mason J, and Wilson, Deane and Dawson JJ wrote three separate judgments, the High Court held that no one may be convicted of aiding and abetting, counselling or procuring the commission of an offence unless, knowing all the essential facts which made what was done a crime, he intentionally aided and abetted, counselled or procured the acts of the principal offender.  Wilful blindness, that is to say the deliberate shutting of one’s eyes to what is going on, is equivalent to knowledge, but neither negligence nor recklessness is sufficient.

60.Accordingly, the High Court of Australia drew a clear line in the sand between, on the one hand, specific intent and wilful blindness as constituting the necessary and requisite intent for secondary liability, and recklessness and negligence on the other: the former would suffice, but the latter would not, Chief Justice Gibbs observing, op cit., at 487, that:

“

…connivance, or wilful blindness, is only relevant to the liability of a secondary party to an offence because it virtually amounts to knowledge.  Recklessness, in the sense of not caring whether the facts exist or not, would be relevant only if it too was virtually equivalent to knowledge, in other words only if it amounted to wilful blindness.”

61.Such categorization of the degrees of knowledge, and the degree which will, or will not, suffice to found accessorial liability, subsequently was approved and adopted by the English Court of Appeal in JF Alford Transport Ltd, op cit., the ‘false tachograph records’ case to which we earlier have made reference, in which the 1^st defendant was the transport company which operated the fleet of lorries in question, the 2^nd defendant was the Managing Director of the company, and the third defendant was the transport manager, each of whom had been convicted of aiding and abetting the drivers of these lorries, who themselves had pleaded guilty to making false entries in tachograph records contrary to section 99(5) of the Transport Act 1968.

62.In allowing the appeals of these three parties, the Court of Appeal held that what mattered was the knowledge of the principal offence coupled with the ability to control the action of the offender and the deliberate decision to refrain from doing so; thus it would have to have been proved that each of the appellants in this case intended to do the acts which he knew to be capable of assisting or encouraging the commission of the crime, but he need not have intended that the crime be committed, so that if the management’s reason for turning a ‘blind eye’ to the false entries was to keep the drivers happy rather than to encourage the production of false tachograph records that would have afforded no defence, but that as there was no sufficient evidence of such knowledge of the principal offence on the part of these appellants, their convictions would be quashed.

63.For our part, in terms of the degrees of mens rea required to found secondary liability, we agree with and accept the dichotomy as formulated in Giorgianni, op cit., as applied in JF Alford, op cit., and propose to apply these principles in the resolution of the applications as now mounted before this court.

64.It is to these applications that we now turn.

The application for leave to appeal against conviction of the 2^nd defendant, Madam Ko Man-lok

65.On behalf of Madam Ko, perfected grounds of appeal were filed on 12 December 2006.

66.Three grounds therein were advanced:

(1)	that the learned judge erred in convicting the 2nd defendant on the evidence before him, in that there was no or no sufficient evidence upon which to found accessorial liability on her part;
(2)	that the learned judge had misread the answers of the 2nd defendant in her interviews, and that properly construed, and in context, they did not provide a sufficient basis for a finding that she had aided and abetted the 1st defendant in respect of any of the offences for which she was convicted; and
(3)	that the learned judge erred in his finding of dishonesty, notwithstanding the existence of ‘parallel transactions’ on the Mainland, that she had nothing to do with the workings of Trisource or of the fraud, nor had she been shown the documents in question prior to the interviews.

67.The latter two grounds effectively amounted to no more than particularization of the general first ground, which in substance formed the thrust of this appeal, and reflected the manner in which leading counsel for the defendant, Mr Macrae SC, approached the argument.

The trial judge’s findings

68.In terms of the actus reus of the charge against the 2^nd defendant, it is fair to say that the judge approached this issue of principle in a robust manner (Reasons for Verdict, at paragraphs 179-181).

69.He rejected, correctly in our view, the defence submission that the position of Madam Ko was analogous to that of an entirely unconnected third party observer of a crime, who does nothing and who runs away in fear, observing crisply that “directors have a responsibility in their companies as to what they do”, and noting that the 2^nd defendant was a director of Trisource and at the material time was the majority shareholder, and that whilst she is not to be fixed with knowledge that she does not have, nevertheless “if the prosecution proves that she had the requisite knowledge that Trisource was allying itself to a dishonest scheme, that I have described as ‘the charade in Hong Kong’, she is guilty of allowing Trisource to continue to lend its name to this charade in order to give it verisimilitude and the appearance of a normal commercial transaction in each case.”

70.He then stated (at paragraph 181):

“

In my judgment, if D2 became aware of the part that the company of which she was a director was playing in this dishonest charade, to do nothing with that knowledge would be to do something positive, and that is to continue to allow the company of which she was a director to continue to play its part in this dishonest scheme.  To that extent, yes, there is actus reus.  That is the positive allowance of a company of which D2 had stewardship to continue to take part in a series of dishonest acts.  That is to take part in this wholly fictitious and fraudulent merry-go-round of letters of credit.”

71.As to the requisite element of mens rea, the judge proceeded (at paragraphs 182-221) to quote in considerable detail the questions and answers posed to and answered by the 2^nd defendant, in some instances accompanied by his own commentary/observation on the particular question or response thereto, before concluding (at paragraph 216) that “…it is abundantly clear that D2 was well aware of the misuse to which letters of credit were put and she appeared to be saying that she had some personal knowledge of that…”, followed by (at paragraph 217) “And it is abundantly clear to me that D2 was admitting that she knew that what was going on was wrong but allowed herself to be persuaded by D1 that, although it was wrong, there was little risk and that turned on D1’s assessment of D5 and that D5 would not let them down.”

72.The judge then wraps up this part of the judgment (at paragraphs 218, 220 and 221) in the following terms:

“	It does mean that, in my judgment, in the interviews, which have been fully accepted as to voluntariness and challenged as to truthfulness, indicate that D2, though trying from time to time to look the other way, knew exactly what was going on; that she had known how the scheme operated from her earlier companies, and that, in effect, she allowed the company of which at first she was an equal shareholder – but at the time of the offences a majority shareholder and a director – to continue to play its full part in this charade…
	…In all the circumstances, I am satisfied so that I am sure that the prosecution has proved that the defendant knew that what was going on was a dishonest scam.  I am satisfied that D2 had duties to the company as a director and that, by knowing that her company was involved in such a scam and permitting D1 to continue to use her company or a company for which she had stewardship responsibilities, to continue to play its part in this thoroughly dishonest scam and that thereby she was permitting this scam to continue.  In other words, she was aiding and abetting the commission of these offences.
	In those circumstances, I have no hesitation whatsoever in saying that although D2 was not a prime mover she was fully aware of what was going on and permitted her company to go on playing its part.  Indeed, without her permission the company could not have gone on playing its part.  In those circumstances, I have no hesitation whatsoever in saying that the prosecution has satisfied me so that I can be sure beyond a reasonable doubt that the defendant is guilty of the offences.”

The argument

73.Mr Macrae’s argument was wide ranging and precisely advanced.

74.His broad proposition was that the evidence before the judge in relation to the 2^nd defendant simply did not support the conclusions to which the judge came, and that there was no sufficient evidence to support the conclusion of infraction of section 18D of the Theft Ordinance, a crime of specific intent, which required proof of the following elements: of dishonesty, a view to gain or an intent to cause loss, and the procuring of the making of an entry in a record of the bank by deception – the deception in each instance being the false representation that Trisource had supplied and delivered goods, as particularized, to a named Po Sing company.

75.His introductory observation was that the problems which have been thrown up by this case necessarily arose from the manner in which the charges had been particularized, and the way in which the case had been put by the prosecution, noting in this context that the 2^nd defendant had been indicted as a principal notwithstanding that she had had nothing to do with the documentation submitted pursuant to the credit applications or with the business of Trisource – which had been run exclusively by her husband, the 1^st defendant – and that these were matters which must have been realized by the prosecution from reading her records of interview, which stood as the only evidence which was led against her.  Nor, he submitted, had prosecuting counsel at trial specifically indicated to the court whether his client was being charged as principal or, on the basis of accessorial liability, as a secondary party.

76.The consequence of this, he said, was that his client’s defence had been affected because the manner in which the case had been framed against the 2^nd defendant cried out for particularization, and that had the mind of the court been focused upon the sole issue of aiding and abetting, and had the court had had the advantage of being addressed on the authorities on the point, he suggested that the learned judge would have come to a different conclusion.

77.As to the element of actus reus, Mr Macrae submitted that “the real question” in the present case is whether the 2^nd defendant can be said to incur secondary liability “by failing to exercise an entitlement to prevent or control the actions of the 1^st defendant?”

78.In thus characterizing the issue, he further submitted that it would be an “over-extension of the criminal law” if a defendant could be inchoately liable on the basis that she had refrained from exercising an entitlement to prevent or control another party’s actions.

79.As to the issue of mens rea, Mr Macrae’s main thrust essentially was that the records of interview of his client did not demonstrate to the required standard that she had had the necessary element of intention in terms of the Giorgianni analysis, that is, specific intent or wilful blindness, or, in terms of the analysis in JF Alford, op cit., whether she could be shown to have had knowledge of the principal offence coupled with the ability to control the action of the offender and the deliberate decision to refrain from so doing.

80.On behalf of the respondent, Mr Reading SC met these arguments head on, and firmly maintained that both elements of the offence had been clearly satisfied. 

81.In his useful written argument he cited in some detail the content of certain of the 2^nd defendant’s interview responses, and submitted that in the circumstances of this case that there could be no valid criticism of the findings of the trial judge, and further submitted that the 2^nd defendant rightly was convicted of the charges against her by reason of her permitting her company to play the part which it did in this dishonest and fraudulent scheme.  It was, he said, precisely the finding that the 2^nd defendant thus permitted Trisource to act as it did which had ‘caused or brought about’ the situation in which the bank was bound to pay out under the terms of the credit as issued, and as such there was nothing of substance in the ‘procurement’ point, and that the 2^nd defendant was correctly held to have procured the making of an entry in a record of the bank.

82.As to the criticism that the prosecution had failed to provide adequate particulars, Mr Reading observed that it was always the prosecution case below that the 2^nd defendant was fully aware of the fact that there were no transactions of goods in accordance with the details in the letters of credit opened with the bank on the application of Po Sing; he said that there was no substance in the complaint that in terms of the charges against the 2^nd defendant that in the course of the trial the prosecution had shifted its ground from the original position, namely that there never had been any sale and delivery of goods under the various documentary credits, to the position that there may possibly have been legitimate transactions on the Mainland, citing in this connection the observations of the trial judge (at paragraph 116 of his Reasons for Verdict) that whilst the judge indeed had recognized that there were ‘parallel transactions’ on the Mainland, nevertheless “what happened in Hong Kong is still the subject of the prosecution allegations…that the defendants, as named, falsely represented to the Bank that Trisource had supplied and delivered to the particular Po Sing company the commodities involved”, so that the “mere fact” that there were these parallel transactions “does not automatically make them underlying transactions.”

83.Finally, Mr Reading took the point that although the 2^nd defendant, as was her right, chose not to testify in her defence, in the absence of evidence from the defendant the judge was entitled to draw adverse inferences from the evidence against her – in this case her pre-trial interviews – and that he was fully entitled in these circumstances, in the words of the Court of Final Appeal in Li Defan & anr v. HKSAR [2002] 5 HKCFAR 320, “to regard the failure of the 2^nd defendant to give any explanation on oath as strengthening the inference to be drawn from the prosecution case.”

Decision

84.It may be useful to clear some ground at the outset, the better to focus upon that which we consider to be the real point at issue in this appeal.

85.Whilst Mr Macrae’s critical exposition of the manner in which the case had been broached by the prosecution at trial – in terms of the particularization of the charges, wherein the 2^nd defendant had been indicted qua principal – this criticism (which in the event does not find its way into the grounds of appeal) is, at bottom, more apparent than real, because on the available material it is tolerably clear that no-one, least of all the trial judge, was in any doubt as to the ambit of the admissible evidence against the 2^nd defendant, which consisted solely of the undisputed record of her two pre-trial interviews, and further of the evidential necessity of establishing – in circumstances in which the 2^nd defendant, although a director and majority shareholder, exclusively had left the day to day running of Trisource to her husband, the 1^st defendant, and wherein the 2^nd defendant had done no positive act nor had she signed any documents relating to the present charges – that she had possessed the requisite degree of knowledge as to the false representations as were made in this documentary credit fraud.

86.Save for her shareholding and status within Trisource, therefore, the 2^nd defendant otherwise was in the position of the quintessential onlooker, and the approach of the judge in his very extensive Reasons for Verdict makes it entirely clear that he was alive to the necessary constituent elements which were required to be established against this defendant before there could be a valid conclusion of guilt beyond a reasonable doubt.

87.The other matter which needs to be removed from the preliminary equation is that of Mr Macrae’s criticism in terms of the actus reus of the secondary liability found by the judge to have been proven against his client.

88.As earlier noted (at paragraphs 72-73, supra), Mr Macrae formulated the proposition by reference, in the circumstances in which the 2^nd defendant found herself, as her failure to exercise “an entitlement to prevent or control the actions” of her husband, the 1^st defendant, and that such characterization of the position could not be justified on the present state of the criminal law as to amount to the necessary actus reus.

89.This was an argument of some nicety, persuasively mounted, but at the end of the day we decline to accept it.

90.As expressly was recognized by the judge, whilst this lady indeed had ceded the day-to-day operation of Trisource to the 1^st defendant – there is reference in the interview evidence admitted against her to the fact that she had wished to give her husband, a former teacher, something useful to do, whilst she concentrated upon the family’s other commercial interests – in our judgment, in instances in which a majority shareholder and director of a private company becomes aware that this corporate entity is being used as a vehicle for fraud, such person cannot negate criminal liability on the basis of absence of the relevant actus reus simply by asserting that there was failure to exercise an ‘entitlement’ to prevent or control the situation of which she has knowledge.

91.To the contrary.  If and in so far as the relevant degree of knowledge can be demonstrated on the part of such person, it seems to us that she can and must move to control the activities of the company in order to preclude further instances of corporate criminality.

92.In fact, as Mr Macrae pointed out (albeit in another context) this is precisely what she later did, when in 2004 the 2^nd defendant actually went to the Bank in order to share her concerns about what may have been happening within this company, notwithstanding that her motive in this instance seems to have owed as much to preventing her husband offering credit, via Trisource, to a lady friend in Shanghai, as to any conceptual displeasure about the false representations implicitly involved in the submission to the issuing bank of patently false documents pursuant to a documentary credit facility.

93.Be that as it may.  Eventually this lady did take steps to go to the bank in an attempt to control/regulate the company’s behaviour, in terms of changing the authorized signatories, which seems to us to erode Mr Macrae’s proposed conceptual limitation stemming from her mere ‘entitlement’ to remedy the situation.

94.Accordingly, we are in no doubt but that, other things being equal, the trial judge indeed was justified in holding that in the circumstances of this case there was a sufficient element of actus reus present in order to justify a conviction.

95.However, the real problem with this case, in our view, lies in the element of knowledge so confidently attributed by the judge to the 2^nd defendant, and in particular whether it safely could be concluded that she possessed the necessary degree of knowledge which, as the authorities earlier reviewed establish, is required to found criminal liability in instances of culpable omission.

96.This aspect, in our judgment, is the fundamental point at issue in this appeal. 

97.In short, does Mr Macrae get home in terms of his submission that the content of this lady’s two pre-trial records of interview did not suffice to justify the conclusion of the judge that it was “abundantly clear” that she had known precisely what was going on in terms of these fraudulent representations on the part of Trisource, but that she had done nothing to prevent it?

98.It is at this stage that, after some hesitation, we are persuaded to part company with the firmly expressed views of the judge, who has written an extensive and carefully considered judgment.  For our part we are far from sure that the available evidence indeed suffices to establish the fact of the 2^nd defendant’s knowledge with the clarity which the judge has perceived to exist.

99.We go further. In our view a complete, and properly contextual reading of these two pre-trial interview records with the 2^nd defendant leaves the objective reader with a substantial feeling of unease that, solely on the basis of these interviews, the 2^nd defendant has been convicted of being an accessory in terms of the 10 charges as were preferred against her.

100.The 2^nd applicant was asked whether she knew anything about the documentation in relation to each of the 10 charges, and in each instance she responded that she knew little or nothing about it.

101.We consider that Mr Macrae is correct when he submits that the common thread running through both interviews is that she had left the running of Trisource to her husband, and had only acted when, concerned that there may be problems in terms of a Shanghainese lady whom she suspected of having an affair with her husband, she had gone to the bank to change the authorized signatories; she repeatedly said that she did not know what had happened, although counsel on behalf of both the 2^nd defendant and the respondent have been able, in their extensive written arguments, to light upon and set out verbatim certain passages within these interviews that Mr Macrae in particular (who has reproduced no less than some 17 responses prima facie supportive of his case) and Mr Reading, employ to substantiate their respective contentions, although Mr Reading appears to have relied more upon the judge’s interpretation of, or gloss upon, these responses than upon the primary text of the interviews themselves.  In this context we would add that the frequency of certain responses which, on their face, might be categorized either as exculpatory or inculpatory, in itself is an arid exercise, and to their credit neither senior counsel sought to rely upon such a simplistic approach.

102.However, the more that the interview transcripts – which have been made available to the court in translation – are read and reread, the more we find ourselves reflecting upon the disparate (and often apparently contradictory) answers to disparate (and often substantively repetitive) questions.

103.It is also evident that the context of any particular question and answer cannot be removed from the interpretative equation. 

104.In this connection, we hope that we will be forgiven for observing that, read largely and liberally, it sometimes is less than clear whether and to what extent the officer interviewing the 2^nd defendant actually understood the manner in which the documentary credit system in fact operates.

105.We have no wish to be unfair – and indeed it has occurred to us (although we do not think it likely) that the interviewer actually may have been feigning ignorance on certain aspects, the better to induce the 2^nd defendant to reveal the true situation – but on several occasions during these interviews it appeared that, when viewed in correct context, an apparently inculpatory response by the 2^nd defendant could as much be taken as providing an explanation to the interviewer of the documentation she was being shown (and which, it must be stressed, it was not alleged that she had seen before) as an inculpatory response indicative of prior knowledge of what had been happening.

106.In this connection, we note that on several occasions in his Reasons for Verdict the judge variously observed, admittedly within the context of the interviews conducted with the 1^st defendant, that in terms of comprehension the interviewing officer “seemed to be making heavy weather of what was going on” (at paragraph 94), the nautical metaphor reappearing in the paragraph following (at 95) when, in attempting to grasp the concept of a ‘revolving credit’, the judge remarks that “the officer was all at sea”, and (at paragraph 137) the judge goes so far as to speculate whether the interviewing officer “was genuinely unable to keep up with what was going on” or if he was deliberately playing the part of a “bumbling officer”.

107.With this in mind, it is perhaps a little odd that when it came to an evaluation of the interviews of the 2^nd defendant as indicative of guilt beyond a reasonable doubt, that the judge should have been more prepared to overlook the often obvious inadequacies of comprehension as were displayed by the 2^nd defendant’s interlocutor.

108.At this juncture, we also take note of Mr Macrae’s submission that whenever the 2^nd defendant answered her interrogators as to what she may have “reckoned” about the absence of underlying transactions, it is entirely possible to construe this as this lady giving a speculative answer upon her being shown the relevant documents, and that her response was based upon her assumption as to that which she now understood, in light of such documentation, to have taken place; this point, perhaps, is reinforced when it is pointed out, as Mr Macrae did, that the Chinese word she actually used in reply the question(s) asked of her, was “估計”, which he suggests could have been more accurately translated as ‘guessed’ or ‘speculated’ as opposed to ‘reckoned.’

109.Accordingly, it strikes us that it would be a bit rich if that which in substance may have been no more than an attempt by the 2^nd defendant to assist and enlighten her questioner in terms of the meaning and/or use of a particular document or documents within the documentary credit transactions as in fact took place now is to be interpreted as amounting to evidence of guilty knowledge on the 2^nd defendant’s part, which, looking at the matter in the round, is the conclusion the judge appears to have had little difficulty in confidently drawing.

110.In saying this, we do not suggest that there was no material whatever upon which the judge could come to the view that he did – although we would caution that in the circumstances his repeated use of the phrase “abundantly clear” is difficult to justify – but we are of the view that such conclusion, and the judicial ‘gloss’ placed upon some of the 2^nd defendant’s responses, is not as soundly based as the judge appears to have thought, and the feeling of unease, to which earlier we have made reference, is not assuaged even in light of those parts of the interviews upon which the respondent has relied in terms of urging upon this court the correctness of the judge’s conclusion.

111.It is the existence of this very element of residual unease, in our view, which ultimately serves to provide the analytical answer to the issue of whether the 2^nd defendant has been shown to possess the requisite level of guilty knowledge.

112.In this context we would make two observations: first, it seems to us that the highest the case against the 2^nd defendant can be put in terms of her degree of knowledge is either that of recklessness or negligence; we do not consider that this evidence is sufficient to surmount the ‘line in the sand’ drawn in the case law, as earlier reviewed, between on the one hand wilful blindness (which will suffice to constitute the relevant mens rea in such situations) and recklessness (which will not), and which falls immediately on the other side of that line. 

113.In all the references in the interview records there is nothing to suggest that the 2^nd defendant had done anything intentionally to assist any of the direct participants in these fraudulent letter of credit transactions, or that she had any direct knowledge of the patently false documentation.  Accordingly, whilst in the circumstances she may well have been negligent, or possibly even reckless when it came to overseeing the activities of Trisource, we take the view that such is insufficient to sustain her conviction upon the charges to which she was subject.

114.Or, to put the matter another way, we find it difficult to conclude to the required standard that the 2^nd defendant possessed the degree of guilty knowledge which would have been necessary to sustain the criminal charges against her.  

115.This, then, finally leaves for consideration what may be termed the ‘Li Defan’ point, Mr Reading here submitting (if not accepting) that if and in so far as the interview records of the 2^nd defendant did not in themselves go far enough to sustain her convictions, the fact that she did not choose to go into the witness box in order to obviate the drawing of certain adverse inferences which may be regarded as arising from the interview evidence was sufficient to enable the trial judge “to regard the failure… to give any explanation on oath as strengthening the inference to be drawn from the prosecution case”: see Li Defan, op cit., at 320.

116.In the context of this submission the first, and most obvious point to bear in mind is that in this case in his Reasons for Verdict the judge expressly did not rely upon the fact that the 2^nd defendant had not given evidence in her defence and thus, in coming to the conclusion that he did, the judge did not purport to invoke what in shorthand terms might be characterized as the ‘Li Defan principle’.

117.Given that this was the case, this court took the opportunity to inquire from leading counsel on each side whether this argument now remained open to the respondent to this appeal, in light of the fact that there had been no apparent reliance on the point by the court below in arriving at its conclusion as to the guilt of the 2^nd defendant.

118.To this query diametrically opposing answers were received: Mr Macrae asserted that in these circumstances this argument was not open to the respondent, or to this appellate court, whilst Mr Reading expressed the contrary view.

119.In this we consider that Mr Reading undoubtedly is correct; in our view the appellate court is not to be constrained in the application of this principle (if principle it be) simply by reason of the fact that no reliance appeared to have been placed by the court below on the fact that the 2^nd defendant had not chosen to give evidence; it seems to us, moreover, that this view is consonant with that part of the judgment of Lord Hoffmann NPJ in Li Defan, op cit., at 334F-G, who observed that the need for “considerable caution” in inviting a jury to regard the failure of the accused to testify as in any way relevant to the determination of guilt is of far less concern when the tribunal of fact is a professional judge, and that it is unnecessary to give himself directions on these points when it can safely be assumed that the judge is well aware of the elements of the offence charged. 

120.We also remind ourselves that in light of the totality of the evidence which was admitted against the 2^nd defendant, namely the two pre-trial interview records, the appellate court must be in as good a position as the judge to evaluate these records of interviews.

121.However, this is not dispositive of the point at issue, which, although briefly mentioned (at paragraph 62) at the end of his written argument, was not one which was developed in oral submission by Mr Reading.

122.As we apprehend it, this is whether this court should take the view that the election of the 2^nd defendant not to give evidence is an element which should be placed into the analytical ‘mix’, and thus serve to justify and/or strengthen an inference (or inferences) of guilt which otherwise is/are to be drawn from the case as mounted below against the 2^nd defendant?

123.At the end of the day it strikes us that this essentially is a matter of common sense, dependent, as always, upon the fact-sensitivity of any particular case; in such areas there can be no generally applicable principle, and that this must be a question of judgment in any particular case.

124.In this instance, given that the case as brought against the 2^nd defendant solely is dependent upon two often internally contradictory records of interview, in our judgment it would be wrong and unsafe to purport now to utilize the 2^nd defendant’s omission to give evidence – which in the particular circumstances hardly can have been unexpected – in order to strengthen any inference of guilt, not least because no such clear inference otherwise can be discerned on the face of these records of interview – with regard to the content of which, somewhat surprisingly, both prosecution and defence considered supported their respective cases.

125.Accordingly, in our view this argument fails also.   

126.If the foregoing be correct, it ineluctably follows that this application for leave appeal against conviction by and on behalf of the 2^nd defendant must succeed, and that her convictions, and consequential concurrent sentences thereon, on all the 10 charges must be set aside.

127.Accordingly, treating the hearing as the appeal, we grant leave to the 2^nd defendant and allow her appeal.  Conviction on each of the ten charges she faced, together with the sentences imposed upon them, are quashed.

The application for leave appeal against conviction of the 5^th defendant, Ding Bo

128.On behalf of the 5^th defendant, Ding Bo, perfected grounds of appeal were filed on 23 April 2007.

129.However, these grounds did not represent the manner in which this appeal ultimately was argued by Mr Duncan SC, in that the complaint originally specified in the first ground, namely the admissibility of certain parts of the affirmation of Ms Rosanna Ho Yee-wah, an officer of the Bank of China was abandoned, and in the Amended Perfected Grounds of Appeal against Conviction and Sentence, filed on 22 November 2007, the specific issues were stated in the following terms:

(1)	The learned Deputy District Judge was in error in respect of his stated basis for finding that the 3rd applicant was not telling the truth viz. that what the 3rd applicant said “flies in the face of the documents which have been accepted in evidence”.
(2)	The learned Deputy District Judge was in error in concluding, on the evidence available to him, that it had been proved to the requisite standard that the 3rd applicant knew he was acting dishonestly.
(3)	In all the circumstances the conviction of the 3rd applicant is unsafe and unsatisfactory.

The trial judge’s findings

130.If we may say so, from a detailed reading of his judgment there is no doubt but that the trial judge was entirely on top of the factual elements of the case as brought against the 5^th defendant, and further in his analysis of the evidence which was given by the 5^th defendant.

131.The case put forward by the 5^th defendant is summarized thus by the judge (at paragraphs 15-17 of the Reasons for Verdict):

“	D5’s defence is that Trisource was an agent of various suppliers on the Mainland.  Both D1 and D5 say, in evidence, that there were transactions and that Mainland supplying companies delivered raw material to factories on the Mainland which were part of the Po Sing group.  D5 says that, as agent for those various suppliers, the transaction was complete when, in fact, the letter of credit was negotiated by Trisource and the funds transferred to its account.
	However, D5 says that, as a favour, the various companies in the group and the holding company offered facilities to Trisource to receive the money that had been paid to Trisource and then to pay it to the Mainland factory through legitimate means.  After the money had been received by whichever Mainland company as part of the Po Sing group, it then paid the suppliers in Renminbi.
	The crux of the defence, particularly as adumbrated by the evidence of D1 and D5, is that the letters of credit did, indeed, represent legitimate transactions.  D1 and D5 say, however, that these transactions were not in Hong Kong but on the Mainland.”

132.When the judge come to a detailed consideration of the case against the 5^th defendant, three matters of significance emerge with clarity:

first, that the judge recognised a significant difference in the evidence of the 1st and 5th defendants.  Whilst the 1st defendant, in his pre-trial police interviews, had maintained that he was taking part in these Hong Kong transactions (dubbed by the judge (at paragraph 159) as “this play-act in Hong Kong”) because he had thought that the 5th defendant’s companies had had a cash-flow problem – a stance which itself significantly altered when the 1st defendant gave evidence at trial, in that he then adopted the position that he had made Trisource available to Po Sing to fund ‘parallel transactions’ on the Mainland because Po Sing had not been able to remit money directly to Mainland suppliers by reason of exchange control regulations – nevertheless that which what the 5th defendant actually said in his evidence effectively amounted to the mirror image of this version of events, which was that there was no connection whatever between the payment on the mainland, and hence the repayment to the Bank of the monies advanced under the letters of credit transactions, and thus that the 5th defendant, via his Po Sing companies, merely was providing a service to Trisource, qua agent of the mainland companies, to remit monies to the mainland when Trisource had no facilities so to do;
second, that the judge expressly had found (at paragraph 143) that the true situation indeed was as stated by the 1st defendant in his police interview, namely that in fact Trisource, and the 1st defendant, had thought that this fraudulent letter of credit scheme was for the purpose of assisting D5, and the Po Sing group, in a cash flow crisis; and
third, that the view that the judge has come to, after seeing and hearing the witness, is that the 5th defendant had no credibility whatever: “I disbelieve D5 entirely” (paragraph 162), further (at paragraph 175):
“	So far as D5 is concerned I have no doubt whatsoever that the prosecution has satisfied me so that I am sure beyond a reasonable doubt that he knew what he was doing was dishonest.  Again, it is abundantly clear that he knew that this whole system was not the use of the letter of credit as envisaged by the Bank of China or any other reputable bank.  The companies of which he was either a director or signatory with the bank were producing cargo receipts that bore no resemblance to reality.  The dates of delivery in those cargo receipts were not the dates when delivery was actually made.  Indeed, throughout the 10 transactions represented by the charges – and I emphasise yet again that those transactions are the letter of credit transactions and not, as the defendants would have me believe, underlying transactions – these transactions were wholly fictitious and designed merely to provide a revolving credit for the Po Sing companies.”,
and lastly (at paragraph 178):
“	I have no truck with D5’s view of the matter.  I have no truck with the view that no one gets hurt, if that is what D5 would be inviting me to say.  But of course he has not because he is inviting me to say that he was doing something wholly legitimate in helping out D1 because he had the proper licences and permissions.  So I reject his evidence entirely.  It is abundantly clear from the documents that the Po Sing group of companies had helped themselves to credit from the Bank of China without even asking for permission of the Bank of China, let alone getting it.  D5 was wholly dishonest and in my judgment the prosecution has proved the case against him…”

The argument

133.Against this unpromising background the task of Mr Duncan SC was not an easy one.

134.The thrust of Mr Duncan’s address was that, in all the circumstances of this case, the crucial issue for the judge had been whether the prosecution had proved beyond reasonable doubt that his client, the 5^th defendant, had acted ‘dishonestly’, a fact that he pointed out had been correctly identified by the judge who had observed (at paragraph 17 of the Reasons for Verdict) that the crux of the defence of the 1^st and 5^th defendants was that the letters of credit indeed represented legitimate transactions, albeit on the Mainland and not in Hong Kong, and (at paragraph 111) that “whilst the parties concerned should not have acted in such a cavalier way towards the Bank of China, there was nothing dishonest about this matter.”

135.However, submitted Mr Duncan, whilst the judge had correctly identified the key issue, he had erred in his evaluation of dishonesty on the part of the 5^th defendant, given his finding (at paragraph 109) that the alleged transactions on the Mainland “did or may well have existed”, and his further finding (at paragraph 115) that “all the documents that have been adduced in evidence by the defence in the defence bundle show that there were transactions dealing with the respective commodities in each of the respective charges”.

136.In light of these findings, counsel submitted, the judge had been in error in respect of his stated basis for finding that the 5^th defendant had not been telling the truth, which was (at paragraph 153) that “what D5 tells me flies in the face of the documents which have been accepted in evidence”.

137.In fact, Mr Duncan maintained, the 5^th defendant’s evidence was consistent with the available documentation in terms of these ‘parallel’ Mainland transactions, and thus, he said, there was no evidential basis for the conclusion of the judge that in practice what was happening was that the Po Sing companies had been setting up their own revolving credit, and that the 5^th defendant was not saying – as was attributed to him by the judge – that there was no connection whatever between payment on the mainland and the letters of credit; to the contrary, properly understood the 5^th defendant’s evidence was that the Po Sing factories on the Mainland were funded by Po Sing in Hong Kong, and on those occasions when the Mainland factory would pay its suppliers in advance, such factory would look to its Hong Kong agent, Trisource, to make repayment from the proceeds of the letter of credit.

138.If this be correct, counsel said, once the possibility was established (as the prosecution indeed had accepted) that there may have been ‘parallel’ transactions on the Mainland between the various suppliers of the raw materials and the Po Sing factories, there was no evidence before the judge at trial as to whether, in such circumstances as prevailed, the Bank of China nevertheless would have been content to issue the various letters of credit in any event – certainly, he maintained, there was no evidence that the Bank would not have consented, which was highly pertinent in any consideration of the issue of dishonesty; moreover, the judge had specifically observed (at paragraph 154) that he had “no idea whatsoever if the Bank of China would have agreed to that”, and subsequently (at paragraph 158) “I have no idea whether banks would give letters of credit for past transactions, but I have to say that on any view of the matter it must be that the bank would laugh any applicant out of the office.”

139.Thus, concluded Mr Duncan, absent evidence from a bank officer that letters of credit would not have been supplied for past transactions, there was no evidential basis for the judge to have concluded that the 5^th defendant knew what he was doing was dishonest, particularly in light of the history of dealings between Po Sing and the bank, wherein the existing Po Sing overdraft facility of HK$3 million had not been exceeded, and the fact that in order to operate an L/C facility in the first place Po Sing had had to open a bills account with the bank.

140.For the respondent, in his written submission Mr Reading effectively made two broad points in answer to these contentions.

141.First, in terms of the contention that the judge had erred in respect of his stated basis for finding that the 5^th defendant had not been telling the truth, it was clear that as the ‘seeing and hearing’ judge the judge was fully entitled to form his own views as to the credibility of the 5^th defendant, whilst as to the 5^th defendant’s claim that there was ‘commercial truth’ in the letters of credit, as the tribunal of fact the judge also was entitled, as was the case, to have rejected the 5^th defendant’s explanation; in addition, given the fact that with regard to two of the credits, respectively referred to in Charges 6 and 9, there could not arguably be any ‘underlying transactions’ or any semblance of ‘commercial truth’, and once again the judge was entitled to reject the 5^th defendant’s contention in this regard that the completion of some transactions prior to the issuance of the relevant credit was due to a ‘misunderstanding’.

142.Second, in terms of the argument that the trial judge was in error in concluding on the available evidence that it had been proved that the 5^th defendant knew that he had been acting dishonestly, Mr Reading pointed out that in paragraph 10(b) of the affirmation of Ms Rosanna Ho filed on behalf of the bank, Ms Ho had made it clear that when opening a documentary credit for a customer there was always a risk that the bank would have to effect payment in terms of the irrevocable credit when fully compliant documentation was presented, notwithstanding that the customer, the applicant for the credit, was unable to pay the bank; hence, Ms Ho had pointed out, by retaining documents of title to the goods the subject of the underlying transaction the bank would be in a position to dispose of the goods in order to reimburse itself as best it could, and that apart from this element of ‘final recourse’, all parties to a documentary credit transaction deal solely in documents.

143.Accordingly, said Mr Reading, in instances wherein, as here, in each case the letter of credit in question made it clear that the Bank regarded the transaction as a local one in Hong Kong, and when in each case partial deliveries were not permitted under the terms of the credits, on each occasion the goods the subject of the underlying transaction were to be held in trust for the bank until repayment to the bank had been effected. 

144.It was against this uncontentious background, he submitted, that the judge, as the tribunal of fact, correctly had held that these transactions “simply did not exist in Hong Kong”, and that “Trisource was not in any shape or form the supplier or seller of the goods set out in the letter of credit”, and that “these were completely bogus transactions and involved the production of false documents which, although written on appropriately headed notepaper and over the appropriate chops and signatures, nonetheless contained entirely false information”: (at paragraph 21 of the Reasons for Sentence).

145.Thus, continued Mr Reading, because bogus documents evidencing fictitious transactions were provided to the bank as part of the modus operandi of this fraud, the bank had no security for goods which had been represented to be part of the underlying transaction in Hong Kong, and it followed that it continually was at risk in the event of non-repayment of the monies advanced to Po Sing under the 10 credits.

146.Accordingly, counsel concluded, there was ample foundation for the trial judge to hold (at paragraph 164 of the Reasons for Verdict) that the 5^th defendant was dishonest in terms of the test laid down in R v. Ghosh [1982] QB 1053, namely that the test of dishonesty was subjective, but that the standard to be applied was that of reasonable and honest men and not that of the accused.

147.Against this backdrop, Mr Reading submitted that this appeal should be dismissed.

Decision

148.It must be acknowledged that during the hearing of this appeal it was tolerably clear that Mr Duncan’s argument had not struck an immediately sympathetic chord with this court, and opportunity for reflection has not altered that position.

149.Upon the findings of the judge in this case, findings which, it seems to us, eminently were justified on the facts before him, we find it difficult to see how the judge could have concluded otherwise than he did.

150.There was no element of ‘commercial truth’ in this case.

151.To the contrary.  This fraudulent scheme, whereby patently false documentation was submitted to the issuing bank in order to activate payment under the 10 credits as issued, resulting in a very significant de facto unauthorized credit line accruing to the Po Sing group, represented a continuing commercial lie which, in the event, fortuitously had no deleterious consequence upon the Bank of China because the sums advanced under each credit ultimately were all repaid; to this extent, therefore, the trust which the 1^st defendant had reposed in his former student, the 5^th defendant, proved to be well-founded.

152.The fact of an absence of loss, however, is nothing to the immediate point.  The bank was defrauded into issuing these 10 credits by, inter alia, the patent misrepresentations within the documentation submitted in order to negotiate the credits, and with respect to Mr Duncan’s sterling effort, in the face of a formidable and antipathetic factual matrix, to convince the court that the judge had erred in his conception of the evidence and in his characterization of the 5^th defendant as clearly dishonest, we hold that such bold submission fails in limine.

153.In short, absence of loss accruing from this fraudulent scheme was fortuitous, not exculpatory, and for the period in question the bank continuously was at risk, a fact which the judge clearly recognized in observing as follows (at paragraphs 165-167):

“	It is abundantly clear that banks are commercially-aware bodies and organizations and, as has been made clear by Miss Ho from the Bank of China, banks are well aware of the fact that they guarantee that the sellers will not get hurt because they are guaranteed payment.  But the banks are well aware of the fact that there is a possibility that they, the banks, will get hurt.  It is for that reason that at all stages the cargo receipts shall contain the phrase that the goods are to be held in trust for the bank, and it is abundantly clear that that is why the application for the letter of credit shall say that the applicant accepts that the goods shall be held on trust for the bank, and why the letter of credit itself says that the goods shall be held on trust for the bank.
	It is an attempt by the bank to ensure that if it cannot actually seize the goods in question it at least has documents of title.  That may be somewhat more difficult in a local transaction because there are fewer documents of title.  One of the paragraphs that I did not think it necessary to read out in Miss Ho’s affirmation is the fact that a bill of lading for carriage of goods by sea fulfils a number of functions.  One of those functions of a bill of lading is that it acts as a document of title.  For the sake of completeness, it acts also as a contract.  But it is as a document of title that interests banks, and if the bank can get hold of the bill of lading before the goods have dissipated it has a chance of re-taking the goods and selling them in the event of default on the part of the buyer of the goods or services.
	It is also clear from numerous decisions of the Court of Appeal in Hong Kong that that is precisely the view that the Court of Appeal takes.  This is not a win/win situation.  This is a situation where it may well be that the bank, as it turns out, does not lose.  But there are periods – and having given the periods of credit to which Po Sing companies helped themselves without the consent of the Bank of China, they were considerable periods – during which the bank was at risk.  By that time the goods had gone.  The goods had been delivered, according to the defence documents, to the factories on the mainland and they had been turned into imitation jewellery and whatever else it was that the factories did with nylon yarn.  So it is quite clear that the Bank of China had an unsecured credit which it would have had to enforce in the event of default by Po Sing.”

154.We respectfully agree with these observations.

155.In our judgment there was ample evidence for the judge to come to the view that he did regarding the guilt of the 5^th defendant, who clearly was the driving force behind these false documentary credit transactions.

156.Nor, with respect, did Mr Duncan’s submission that there was no evidence that the Bank would not have consented to the issuance of the credits had it known about the so-called ‘parallel’ Mainland transactions, and/or that it would not have consented to supply credits in terms of past transactions, offer any analytical attraction; this strikes us as commercial nonsense, and in our view the observation of the trial judge as to this aspect (quoted, supra, at paragraph 136) was entirely apposite.

157.It follows from the foregoing, therefore, that in our judgment this application for leave to appeal against conviction demonstrably has no merit, and must be dismissed.  We so order.

The applications for leave to appeal against sentence

158.We turn now to the last of the trilogy of issues for consideration in this appeal, namely the applications for leave to appeal against sentence on the part of the 1^st and 5^th defendants.

159.Both the 1^st and the 5^th defendants were sentenced to 5 years’ imprisonment, such sentences to run concurrently on each of the 10 charges upon which each defendant had been convicted.

The approach of the trial judge

160.In his Reasons for Sentence, delivered on 25 July 2006, the day following his delivery of his Reasons for Verdict, the judge reviewed in some detail the charges upon which the defendants have been convicted, and repeated (at paragraph 23) his view that, on analysis, the possibility of the so-called Mainland ‘parallel transactions’ was nothing to the analytical point, and that “in effect the Po Sing companies had established at their own behest, without the knowledge, let alone the consent, of the Bank of China, a line of credit” and that over the relevant period covered by the 10 charges, that is, from January to November 2003, a total sum of HK$22,574,200 was paid by the Bank of China to Trisource pursuant to the negotiation of these false and fraudulent credits.

161.He noted that the mitigation advanced on behalf of the defendants was that there was no loss in fact caused to the Bank – “no one has lost” – and that all that had happened was that, apart from Trisource making a small amount of money in ‘tips’ arising from playing its part in these transactions, the Po Sing group had merely had access to unauthorized capital, but that it had not defrauded the Bank of China in the sense “that it never made off with the money and ensured that the Bank of China was paid.”

162.The judge further observed (at paragraph 26) that the courts in Hong Kong have taken an extremely serious view when it comes to letter of credit fraud, and that in the Court of Appeal decision in The Queen v. Chan Kam Chuen, [1995] 2 HKLR 257, a case which had revolved around the falsification of what were stated to be real transactions in Pakistan, Mortimer J (as he then was) had stated (op cit., at 261):

“

…On any view, even though the gain to the applicant was small, these offences are very serious.  The system of documentary credits is the means whereby international trade has been conducted for hundreds of years.  The system depends entirely on trust.  Money is paid out, not upon an examination of the goods but upon the documents themselves.  It is fundamental to the system that the documents should be truthful and accurate.  If false documents are circulated, some of which are, in effect, title to the goods themselves, the whole system falls apart.  That is why courts always regard offences of this nature as very serious.”

163.The trial judge also reminded himself – again correctly in our view – that in instances where, as in the present case, the documentary credits support local trade, entirely like considerations apply, and he cited once more his reliance upon the affidavit evidence of the Bank of China officer, Miss Rosanna Ho, the better to emphasise that so far as the issuing/negotiating bank is concerned, the transactions are solely transactions of documents, and that the bank in question which is negotiating the credit “has complete indifference as to the actual transaction of physical commodities”.

164.The “wholly fictitious and bogus transactions” underpinning the credit documentation in this case again is emphasized, as is the fact that the so-called Mainland ‘parallel transactions’ were not the transactions for which these 10 documentary credits were issued.

165.The judge next considered a number of comparable Hong Kong authorities which were cited to him in this area, namely HKSAR v. William Yao [2002] HKLRD 397, Chan Kam Chuen, op., cit, HKSAR v. Cheung King [2001] 3 HKRLD 68, and also the decision in HKSAR v .Lau Kwok Wah & Anr, unrep., CACC 215 of 2003, wherein a division of the Court of Appeal consisting of Stuart-Moore VP, Stock and Yeung JJA were concerned with a case in which the defendants had defrauded a bank and caused it to discount 13 letters of credit to the cumulative value of HK$28.959 million, and wherein there were no true commercial transactions underlying the credits issued by the issuing bank on the application of the company of the 1^st defendant in that case, in which false documents purported to evidence such transactions, and wherein the negotiating bank – which in this instance was not the issuing bank – actually had negotiated the credits against the documents presented, and something in the order of HK$28 million was handed over consequent upon such negotiation.

166.The judge noted that in that particular appeal the argument had been run that, in fact, there had been no risk of economic loss to the negotiating bank, but the Court of Appeal had dismissed the appeals, holding that when the negotiating bank had negotiated the credits, it did so on the basis that they were genuine, and the bank then had purchased the documents and advanced payment to the beneficiaries at a discount to the value of the draft drawn under the credit, the court observing that at the least there was a risk to the negotiating bank having to resort to civil proceedings in the event that the issuing bank declined to pay on the basis that the documents submitted in support ought not to have been accepted because they were not genuine. 

167.The judge further observed (at paragraph 36) that whilst in the case before him the issuing bank and the negotiating bank were one and the same, “nonetheless, the bank was at considerable risk and would have had to sue the Po Sing company concerned, or the group of companies, to recover any money should default have been made”.

168.He also firmly rejected, again correctly in our view, the highly optimistic mitigation argument advanced on behalf of the 1^st and 5^th defendants to the effect that, absent repayment, the bank always retained the right to sue the Po Sing companies and/or to trace the proceeds of sale of the goods – we would add that in issuing/negotiating documentary credits commercial banks most certainly do not do so in the expectation of purchasing highly expensive and almost inevitably fruitless litigation – and concluded (at paragraphs 39-40) that the ‘mischief’ against which the offences of this and other cases attempt to strike is that “above all else, the integrity of the documentary system of credit must be maintained”, and that if it were to be thought that letters of credit could be “demeaned and devalued” by companies such as the Po Sing group “helping themselves to an unauthorized and, indeed, undisclosed line of credit, then anyone dealing with Hong Kong and being asked to accept letters of credit would, of course, look askance and think twice.”

169.Thereafter in his Reasons for Sentence the judge made the point (at paragraph 41) that if Hong Kong were to be seen to allow “such a wholesale fraud” as is involved in this case on the basis that these are mere ‘technical offences’, then confidence in Hong Kong’s ability to comply with its international obligations would rapidly erode; thus, he concludes that these matters in his view are “extremely serious”.

170.The individual circumstances of the 1^st and 5^th defendants are then considered in his Reasons for Sentence, and the judge arrives at the view (at paragraph 58) that in each of their cases he takes as the starting point 5 years’ imprisonment, and that since the defendants, as is their right, had pleaded not guilty they are entitled to no credit for their pleas.

171.We have set out in some detail the conceptual framework of the judge’s approach to his sentencing task the better to place into context the arguments as were employed in the appeals against sentence.

Submissions as to sentence

(a) On behalf of the 1^st defendant

172.On behalf of his client, Mr Macrae argued that although the trial judge rightly had imposed a concurrent term for each charge, in the circumstances of the case the starting point of 5 years imprisonment in respect of the 1^st defendant was manifestly excessive and wrong in principle.

173.His opening salvo was that the judge had erred in extracting guidance from the case of HKSAR v. William Yao [2002] 3 HKLRD 397, wherein, as the judge had recognized, the offences at issue were those of ‘conspiracy to defraud’ and ‘conspiracy to deal with a property knowing or believing it to represent the proceeds of an indictable offence’, the judge was wrong to have equated the charge in the present case, that is, dishonestly procuring the making of an entry in a bank record, with these more serious offences of conspiracy – which attracted maximum sentences of 10/14 years – and thus at the outset he had been led into error in this case in lighting upon his sentencing ‘starting point’ of 5 years.  Thus, said Mr Macrae, the judge should sentence on the basis of the charges actually brought, and not by making comparisons with other offences carrying a higher maximum penalty.

174.Mr Macrae further submitted that whilst it is indisputable that letter of credit frauds are by their very nature serious offences involving circulation of false documents in documentary credit transactions depending upon trust, nevertheless the sentences imposed in each case should be commensurate with the gravity and maximum penalty of each offence and the criminality and moral culpability of each defendant.

175.In this context counsel reviewed six suggested ‘comparable’ cases wherein he pointed out that a lower ‘starting point’ had been adopted: see R v. Chan Kam Chuen [1995] 2 HKCLR 257 (plea of guilty to 4 charges of furnishing false information contrary to section 19(1)(b) of the Theft Ordinance, involving negotiation of letters of credit, bills of lading and false supporting documentation, issuing bank suffering a loss of US$140,000, starting point of 4 years taken, reduced on appeal to a starting point of 3 years, actual sentence 2 years imprisonment); HKSAR v. Cheung King [2001] 3 HKLRD 68 (preparation of false documentation in readiness for application for an L/C involving US$891,000, no loss suffered by the bank and no financial benefit derived from the offence, applicant described as ‘small fry’ by the Court of Appeal, which considered an appropriate starting point to be 4.5 years); HKSAR v. Kwong Shing Cheong Stephen, unrep. CACC 555/2002 (plea of guilty to charge of conspiracy to defraud, charge concerning bogus letter of credit transactions with total value of HK$7.8 million, no loss suffered by bank, appellant trying to help friend in financial difficulty, no benefit derived therefrom, judge adopted starting point of 3 years, Court of Appeal refused leave to appeal against sentence, observing starting point ‘very lenient’ in a ‘bad case of this type’); HKSAR v. Tse Ching Ng & ors, unrep., CACC 361/2004 (one count of conspiracy to defraud 3 banks by dishonestly causing two companies to submit false documents to apply for 9 letters of credit, deception perpetrated over 1.5 years, banks paid out some HK$40 million under the L/C’s, loss to the applicant company of which D1 was General Manager about HK$26 million, starting point adopted by trial judge 5 years, held not manifestly excessive by Court of Appeal, which nevertheless stressed the necessity to take into account personal culpability and lack of personal benefit, sentence of D1, aged 80, reduced to 2.5 years); HKSAR v. Leo Yee Sang Patrick, unrep., CACC 494/2004 (false applications for L/C’s in respect of 40 fictitious transactions, 11 charges, around HK$100 million credit fraudulently obtained, no actual loss by virtue of injection of capital by buyer of group, applicant found fully aware of frauds and played an important role in carrying them out, starting point of 3.5 years taken, actual sentence 3 years 4 months, Court of Appeal suggesting establishment of appropriate starting point for each offence before application of discount to recognise individual mitigating factors in respect of each defendant); HKSAR v. Law Chi Man Kenneth, unrep., CACC 356/2006 (conviction after trial of 3 charges of conspiracy to defraud by causing false representations, in the form of false documentation, to be made to bank to secure credit facilities, total loan facility secured HK$15.6 million, total loss HK$9.8 million, no personal gain to applicant, who nevertheless was found to be a ‘key player’, sentenced to 6 years concurrent on each charge, no reduction in total sentence by Court of Appeal, but said appropriate sentences for each of the offences should be 4 years imprisonment.)

176.Mr Macrae strongly submitted that the trial judge had failed to give any or any sufficient consideration to the relative criminality of the 1^st defendant, who was not the initiator of this scheme, in comparison with the 5^th defendant; he said that the 1^st defendant merely was ‘helping out’ his former student, and thus that his client had a lesser degree of moral culpability than the 5^th defendant, particularly when it was borne in mind that the court had accepted that there might well have been ‘parallel transactions’ on the Mainland referable to each charge. 

177.Counsel also argued that, although the trial judge had dismissed the point as constituting a ‘relevant factor’, it should not be forgotten that there was an absence of personal gain on behalf of the 1^st defendant, albeit that Trisource, the beneficiary under the credits, did receive small amounts of money to reflect the value of having an employee of Trisource dealing with the mechanics of the negotiation of the letters of credit.

178.Nor, said Mr Macrae, should it be overlooked that there was no actual loss occasioned to the issuing/negotiating bank, the Bank of China, and there had been a significant time lapse between the commission of the offences (in 2003) and the conviction of the defendants (in July 2006).

179.He also referred to the fact that, although there had been no plea by his client to the charges, there had been a “high degree of cooperation in the conduct of the trial” in terms of the admission of documentary evidence, a fact which had been acknowledged by the judge in his Reasons for Verdict. 

180.In fact, said Mr Macrae, together with the other defendants the 1^st defendant had admitted some 9 pages of admitted facts which concerned documents related to the application for, and the issue and negotiation of, the documentation presented for payment under the letter of credit for each charge, admitting the signature on each document as being required for payment under the respective credits, and that this co-operation should be recognized within the sentencing profile: see R v. Vy Vankien and anr [1991] 1 HKLR 422, at 427, wherein it was recognized that a considerable shortening in the length of trial had accrued on account of the accused agreeing to much of the case against him, and that this had been acknowledged to be a mitigating factor.  In this connection he further cited the Court of Appeal case of HKSAR v. Xu Xia Li and anr [2004] 4 HKC 16, wherein (at paragraph 42 of the judgment of Woo VP) the view was taken that agreement to the banking transactions in that case had the consequence of saving time for the prosecution and also the time of the court, and that credit should be given on this score.

(b) On behalf of the 5^th defendant

181.For the 5^th defendant, Ding Bo, Mr Duncan noted that in terms of ‘starting point’ this Court has not laid down any sentencing guidelines for documentary credit frauds of this type, in this connection citing the observations of Stuart-Moore VP in HKSAR v. Choi Sum Tong, unrep., CACC 11 of 2005, at paragraph 14, although he recognized that the courts in Hong Kong do regard such offences as “very serious”: see, for example, R v. Chan Kam Chuen [1995] 2 HKCLR 257, per Mortimer JA at 261, and that a starting point as high as 6 years has been upheld in HKSAR v. Chan Chun Hung, unrep., CACC 553 of 2002 – although he noted that in comparison the facts in Chan Chun Hung the fraudulent scheme in the present case was far less elaborate, there was only one bank involved, nor were there any ‘bogus companies’, and in fact the scheme as utilized in this case spanned a relatively short period of time, from January to November 2003.

182.In any event, said Mr Duncan, the ‘starting point’ for each case will, indeed must, depend on the facts of each individual case, and within this rubric he took the opportunity to emphasise that in the present case no loss had been suffered by the bank, that (as the judge indeed had recognized) there might well have been Mainland transactions “which paralleled the transactions as set out in the charges”, that whilst the aggregate value of the credits was in the order of some HK$22.5 million, no one credit was for more than HK$3 million, and at no time was the existing overdraft facility, earlier granted by the bank in favour of Po Sing, overdrawn.

183.He said that it was significant that each of the 10 letters of credit in question was within the credit limit of the existing bills facility granted by the Bank to Po Sing – in the absence of which the documentary credit facilities could not have been issued – and he submitted that in terms of the sentence as passed the trial judge had “concentrated unduly on the aggregate value of the L/C’s instead of considering the outstanding debt at any one time.”

184.He further argued that although, due to the scheme as in fact implemented, the Bank may not have had security over the goods the subject of the false credits, it may well have had in place security for the bills facility granted by the bank and pursuant to which these credits were issued, albeit at trial there was no evidence as to whether such security existed.

185.In all the circumstances, Mr Duncan concluded, the ‘starting point’ of 5 years was too high, and he suggested that the maximum sentence his client should have received after trial was one of 4 years’ imprisonment.

Decision

The appropriate ‘starting point’

186.Since both leading counsel have attacked the starting point of 5 years as adopted by the trial judge in his Reasons for Sentence, it seems to us that this must be the initial matter for consideration.

187.In all the circumstances of this case, we do not think that a starting point of 5 years was ‘manifestly excessive’, as has been submitted on behalf of these two defendants.

188.The appropriate ‘starting point’ is necessarily offence-sensitive, and in so holding, we take into account in the present case the modus operandi in terms of the submission of false documents, the length of time – some 11 months – over which this fraud was practised, during the entire period of which the bank was at risk, and the amount of money secured pursuant to this fraudulent scheme, namely, in or around some HK$22.5 million.

189.In short, this was not some slight, opportunistic scheme which was adopted and put into play; to the contrary, it was planned and systematically executed, with the Po Sing companies obtaining, via presentation of the false documentation purporting to have been created pursuant to a legitimate underlying transaction in Hong Kong, a very significant addition to their legitimate credit lines absent either permission or knowledge of the Bank of China.

190.For our part we fail to see how this scheme, in concept and execution, can be diminished in import, as counsel now suggest.

191.In HKSAR v. William Yao [2002] 3 HKLRD 397, at 400, Stuart-Moore VP observed:

“

…the two most important and relevant sentencing considerations in cases of this type involving the circulation of false documents for the purpose of raising letters of credit are, firstly, the impact that this conduct is likely to have on a system which necessarily makes provision for credit go be given based upon the apparent integrity of the documents and, secondly, the size of the potential risk to which the banks providing the credit based on those documents have been exposed.”

192.There is no reason to suggest that those views are any the less relevant today than they were five years ago; to the contrary, as the global importance of Hong Kong as a financial centre continues to increase, it seems to us that there should be every reason to continue to promulgate the strong message that letter of credit fraud, if duly proven, is not to be tolerated in our criminal courts, and in principle will attract significant penalty.

193.In considering the issue of relevant ‘starting point’, we have also been assisted by citation by Mr Reading of cases in this jurisdiction, some of which also have been cited by Mr Macrae, in which a like or broadly similar starting point has been adopted: for example, HKSAR v. Choi Sum-tong, unrep., CACC 11 of 2005 (applicant a main player in the fraud, a total of 14 local L/C’s issued, with a total sum of HK$1.4 million involved, banks suffered no loss, starting point of 4.5 years upheld on appeal); HKSAR v. Kwong Shing-Cheong, Stephen, unrep., CACC 555 of 2002 (applicant one of the main players in the fraud, a total of 3 L/C’s issued and a total sum of almost HK$7.8 million involved, band suffered no real loss, starting point of 3 years adopted considered ‘very lenient’ on appeal; HKSAR v. Cheung King [2001] 3 HKLRD 68 (defendant considered ‘small fry’ used by others to produce documents in support of bogus transactions, defendant derived no financial benefit from the transaction, only 1 L/C issued involving US$891,000, appropriate starting point considered to be 4.5 years imprisonment.)

194.We agree with Mr Reading’s submission that in the circumstances of the present case a starting point of 5 years cannot be considered to be clearly out of kilter or otherwise ‘manifestly excessive’; indeed, we endorse it.

195.Mr Reading also observed that, in his Reasons for Verdict, the judge specifically bore in mind, but declined to consider as mitigating factors, that the 1^st defendant had not personally gained from this scheme, and that the bank in fact had suffered no loss, and he further suggested that in view of the complexity of the case, with 11 lever-arch files of documentary evidence, the time lapse of 3 years pre-trial should not be considered as a mitigating factor either; in short, Mr Reading sought to uphold the sentences as passed, without any element of discount from the starting point as employed by the trial judge.

The 5^th defendant, Ding Bo

196.Having considered the submissions made as to sentence on his behalf, we see no reason to accede to his application for leave to appeal against the sentence of 5 years passed upon him by the trial judge.

197.It seems to us that the 5^th defendant clearly was the primary the author of, and mover within, this fraudulent scheme. 

198.He had persuaded his former teacher, the 1^st defendant, to assist him in terms of his cash flow problems, and thus embarked upon a serial submission of false applications for the issuance of the 10 documentary credits by the Bank of China. 

199.True it is that all the monies thus de facto advanced to the Po Sing companies, via the medium of the so-called ‘beneficiary’ of these credits, Trisource, ultimately were repaid, and the Bank had suffered no loss, but the inescapable facts are that this was a sizeable scheme in terms of monies illegitimately and fraudulently obtained, and that throughout the period in question the Bank had been on risk in the event of default in such repayment on the part of the credit applicant.

200.Nor do we consider that, in light of the size and scope of this scam, that the 5^th defendant, who did not plead guilty, and thus who is entitled to no discount therefor, otherwise should have his sentence reduced.

201.In this connection, we are unable to attach any importance to Mr Duncan’s ingenious submission that each L/C as issued was within the overdraft limit of the bank in respect of the bills facility as had been granted to Po Sing.

202.With respect, that seems to us to be nothing to the immediate point.  The bank is, and was, entitled to regard the application for the issue of these credits, and the documentation submitted pursuant thereto, as proper and legitimate, and this plainly was not the case throughout the 10 credits the subject of these charges. 

203.Nor do we understand why there should be any complaint that the judge had “concentrated unduly” upon the aggregate value of the false credits, and thus the amount of money falsely and fraudulently obtained; to the contrary, all the cases in this area rightly consider the monetary volume arising from the particular fraud to be a salient consideration in terms of the sentencing process.

204.In light of the foregoing, therefore, we do not accede to the application by the 5^th defendant for leave to appeal against his sentence, and accordingly this is dismissed.

The 1^st defendant

205.The application of the 1^st defendant in terms of his like 5 year sentence has provided pause for thought.

206.Notwithstanding Mr Macrae’s suggestion that the sentencing process embarked upon by the judge may have gone out of kilter at the outset in his reliance upon the case of William Yao, op cit., which case involved conspiracy charges, we do not consider that there is anything in this point. 

207.It is quite clear that the trial judge recognized that this latter case had involved conspiracy, and we do not think that in selecting the starting point which he did that he was in any way misled; forensically the argument may have held some attraction, but in substance it strikes us as barren.

208.Similarly, as was the situation in terms of the 5^th defendant’s application for a reduction in his sentence, we do not consider that the judge has erred in making no reduction by reason of the lack of loss on the part of the bank or, in this instance, the absence of personal gain on the part of the 1^st defendant (the so-called ‘commission fee’ earned by Trisource for its participation in this fraud is, in our view, de minimis), nor by reason of the fact of the 1^st defendant’s clear record. 

209.The further argument that there had been a time-lag between the commission of the offences and the date of conviction also did not, in the circumstances, strike us as compelling, and nor, for that matter, were we attracted to the submission there had been a “high degree of co-operation by his client” in terms of documentary admission absent formal proof of the relevant documentation; in this connection (and particularly in light of the fact that the 1^st defendant’s appeal against conviction has been abandoned) it was unfortunate that this exercise in co-operation did not carry through into a formal plea to the charges, which would have triggered the usual one third discount for a guilty plea.

210.We have, however, further reflected upon Mr Macrae’s submission that the trial judge had given no or no sufficient consideration to the “relative criminality” of the 1^st defendant in comparison with that of the 5^th defendant.

211.The trial judge in fact did consider the issue of criminality on the part of the 1^st and the 5^th defendants; he said (at paragraph 54 of his Reasons for Sentence):

“

The two defendants, D1 and D5, therefore, were not merely minions of others.  They were not pawns.  They were not ‘small fry’.  They were not in any sense beholden to others.  D1 and D5 were wholly the authors of this scam which went on for the best part of 2003 involving the sums of money that I have already detailed.”

212.In fact, in his Reasons for Verdict, the judge says in terms that he believes the true story behind this fraud was not that as given in the witness box by the 1^st or the 5^th defendants, but that as given to the police by the 1^st defendant in his pre-trial caution statement; in this context the judge states (at paragraphs 132-133):

“

Clearly, so far as D1 is concerned, as I have been at pains to say, I have not really read out large chunks of both interviews with the police merely to avoid making any analysis.  In my judgment, it was important to set out the interview at reasonable length because in that way it gives the flavour of the interviews D1 gave…

D1’s explanation, which he gave at every turn, was that he had been told he was being investigated for a conspiracy to obtain a pecuniary advantage and he understood that to mean that he had defrauded the banks.  He was at pains to say that he did not think he had defrauded the banks at all, and so he focused on the fact that in Hong Kong he was of the view that he had done nothing wrong at all.  He accepted, he said, that there were no transactions in Hong Kong because that was the truth.  However, there were transactions on the mainland and he was entirely comfortable with the fact that he was not telling lies…”

and then again (at paragraph 137-138):

“

…D1…was prepared to take the officer back to the start of these matters and to tell the officer how it was that the system had started in the first place.  Incidentally, if the officer was genuinely unable to keep up with what was going on, then I should say that he should have been better prepared.  If, however, he was deliberately playing the part of the bumbling officer who did not understand in order to draw D1 out, then all I can say is that he played his part brilliantly…

…the interviews have been accepted as having taken place as they were supposed to have done…so the defendant, D1, was going back to how matters started with D5 having credit difficulties on the mainland; how he complied with a request from D5 to help him out of what was presented to him as temporary difficulties..  There was a reference to the fact that D5 had said, ‘Well, how about just lending me the money?’  D1 may have been prepared to accept that he introduced suppliers to D5 and his companies and helped to obtain generous credit terms.  He may have been prepared to help negotiate letters of credit.  He was most certainly not prepared to put up his own money to anyone, not even his former student…”

213.Clearly, therefore, these defendants were principals; in the circumstances revealed on the evidence, however, can an equal degree of moral culpability be ascribed to the 1^st and 5^th defendants?

214.In this connection, Mr Macrae referred the court to the work ‘Sentencing in Hong Kong’. 5^th ed., 2007, at 346, in which the authors cite with approval the observations of Gleeson CJ in the High Court of Australia in Ostrowski v. Palmer [2004] 218 CLR 500, who said:

“	Ignorance of the legal consequences that flow from the existence of the facts that constitute an offence is ordinarily not a matter of exculpation, although it may be a matter of mitigation, and in some circumstances may enliven a discretion not to prosecute…
	…where an accused is punished for an offence, an important factor for the court is the degree of moral culpability.  If this is lacking, the accused will be punished less severely than someone who has deliberately set about flouting the law: R v Sachs [1953] (1) SASR 392, at 409.”  (emphasis added)

215.The 5^th defendant clearly was the progenitor of this scam, who took the opportunity to take advantage of the friendship and trust of his former teacher, and who, moreover, was the de facto recipient of some HK$22.5 million in terms of the monies realized from the false applications for the 10 documentary credits; in this regard the judge’s summation of the position of the 5^th defendant (at paragraph 175) cannot be faulted.

216.Equally, whilst it is true that the 1^st defendant achieved very little from this exercise, save for the receipt of very small sums and, perhaps, in terms of the satisfaction of assisting his old friend out of the temporary difficulties in which he found himself, the hard fact is that it takes ‘two to tango’, and that without the assistance of the 1^st defendant over the entire eleven month period of this fraud the 5^th defendant would not have been able to achieve what he did.

217.Looked at in the round, therefore, we find it hard to accept that the 1^st defendant did not realize the seriousness of what he was doing, in terms of the creation of the false documentation purportedly emanating from Trisource in order to facilitate negotiation of the credits, and for our part, we are unable to discern a significant enough difference between the relative moral culpability of the 1^st and 5^th defendants in this case in order to justify interfering with the sentence passed upon the 1^st defendant.

218.Accordingly, the application of the 1^st defendant for leave to appeal against sentence also is dismissed.

Mr Andrew Macrae SC and Miss Maggie Wong Pui-kei, instructed by Messrs Haldanes, for the 2^nd applicant/2^nd defendant (as to conviction) and for the 1^st applicant/1^st defendant (as to sentence)

Mr Peter Duncan SC and Mr Gibson Shaw, instructed by Messrs Y L Yeung, for the 3^rd applicant/5^th defendant (as to conviction and sentence)

Mr John Reading SC, DDPP, Mr Wong Hay-yiu, and Miss Cecilia Chan, GC, for the Respondent