HKSAR v. Hui Siu

CACC 207 /2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 207 OF 2007

(ON APPEAL FROM DCCC No. 1130 of 2006 ) 

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Before: Hon Yeung JA, Yuen JA and McMahon J in Court

Date of Hearing:  19 March 2008

Date of Judgment:  19 March 2008

Date of Handing Down Reasons for Judgment: 11 April 2008

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REASONS FOR JUDGMENT

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Hon Yeung JA (giving the reasons for judgment of the Court):

Introduction

1.On 19 March 2006, we granted leave to Mr Hui Siu (the applicant) to appeal against conviction. Treating the application as the appeal proper, we allowed his appeal, quashed his conviction and set aside his sentence. We indicated that we would hand down our reasons in writing and this we now do.

Background Facts

2.Between 6June and 15 June 2005, and on eight different occasions, the applicant, in the name of Global Computer Ltd (“Global”), ordered from Zodiac Technology Ltd (“Zodiac”) computer parts worth $9,000 to $44,000. The applicant paid for the purchases with post-dated cheques, payable 7 days after delivery, drawn on Global’s account with Bank of East Asia Limited (“BEA account”) to which he was the sole signatory.

3.Global did not have any formal overdraft facility, but under an informal arrangement, BEA allowed Global a temporary unsecured overdraft facility of up to $200,000. Whenever the BEA account was overdrawn beyond $200,000, the applicant would be urged to deposit money to bring it within the $200,000 limit, and if he failed to do that, BEA would reverse all entries in the account.

4.On 13 June 2003, despite the overdraft far exceeded the $200,000 limit, the applicant failed to deposit sufficient money into the BEA account. The first of the eight cheques issued in favour of Zodiac was, therefore, dishonoured upon presentation for payment. Subsequently, the other seven cheques were also dishonoured when they were presented for payment on their respective due dates.

5.Global sold the computer parts supplied by Zodiac on the same day of, or the day following delivery at a loss or at cost, and then closed down altogether on 20 June 2005 when other unpaid suppliers removed goods from its shop.

6.The aforesaid incident led to an indictment consisting of 8 charges of theft and 8 charges of evasion of liability by deception against the applicant.

7.The prosecution case was that the applicant knew, when ordering the computer parts, that he was not able to pay for them, and that he tried to evade liability towards Zodiac by issuing the eight cheques, which he knew would not be honoured.

8.The applicant pleaded not guilty to the charges before Deputy Judge Chainrai (“the judge”) in the District Court.

9.The applicant was acquitted of the theft charges but convicted of the evasion of liability by deception charges, and sentenced to a total term of 16 months’ imprisonment. The applicant sought leave to appeal against conviction.

The Prosecution Evidence

10.Much of the background facts were undisputed.

11.Although the applicant was neither a shareholder nor a director of Global, he was in sole charge from 1 September 2001.

12.Zodiac started supplying computer parts to Global from December 2004 and Global did not default in payment at the initial period.

13.However, at the end of May or early June 2005, the applicant sought and obtained from Zodiac a 7-day credit period, and was allowed to pay for the purchases with post-dated cheques.

14.After the new arrangement between Global and Zodiac came into place, the cheque payments for the first three transactions were honoured. However, the post-dated cheques for the payment of the next eight orders were all dishonoured, leading to the charges in question.

15.When the registered shareholders of Global were pursued by Zodiac’s debt-collectors, they had a meeting with the applicant. The applicant told them that his business was in difficulty with a debt of about $2 million. The applicant further said that he was at his wit’s end and had to sell goods at below their costs to meet the difficult financial situation.

16.According to Zodiac’s sales supervisor (Miss Wan), when the 1^st cheque was dishonoured on 13 June 2005, she telephoned the applicant to ask for an explanation. The applicant told her that he had lost the chequebook and he had to cancel all the cheques from that chequebook, including those issued to Zodiac.

17.The applicant also repeatedly promised to deposit cash into Zodiac’s bank account until Global closed down. The applicant then told Miss Wan that as Global’s other suppliers had taken away goods from its shop, he could not pay Zodiac.

18.Miss Wan said the applicant did not tell Zodiac that Global was in financial difficulties until after it closed down. Miss Wan admitted that Zodiac had not asked Global to return the goods as the time lapse had been short and they expected Global to be able to make payment.

19.Miss Wan was adamant that the applicant said he had lost his chequebook when questioned about the dishonoured cheques.

20.Miss Wu, Global’s accounts clerk, confirmed that Global had been losing money since 2004 and that cheques issued by Global were often dishonoured due to insufficient funds. When that happened, the applicant would instruct her to issue replacement cheques. Miss Wu said she was not aware of any loss of chequebook by Global. Miss Wu also confirmed that goods supplied by Zodiac were all sold, sometimes at a loss, shortly after their deliveries.

21.On 20 June 2005 when Global closed down, the applicant called Miss Wu in the morning telling her to use the available cash to pay off the salaries of staff. The applicant also told Miss Wu that a client would be coming to the shop to take away goods as the cheque issued by Global as payment for the goods was dishonoured.

22.Miss Wu further said on 20 June 2005, many suppliers had come to the shop to take away goods and the situation was chaotic. She tried, but was unable, to get in touch with the applicant again.

23.Miss Wu confirmed that when Global’s financial situation turned bad in 2004, there were cash sales of goods at a loss in order to generate cash to deposit into its account to meet the cheques issued to suppliers.

The Defence Case

24.The applicant admitted that since 1 December 2001, he alone was in charge of Global although he claimed to be unaware of the need to file the annual returns with the Companies Registry.

25.The applicant also admitted that beginning in 2000, Global had been running at a loss and to alleviate the cash flow problem, he would pay for goods with post-dated cheque whilst insisting on immediate payments when selling to its customers.

26.The applicant said cash and cheque payments received by Global would be paid into various accounts in order to generate cash, which would be paid into BEA account as soon as possible to meet cheques drawn on that account.

27.The applicant said Global’s cash flow problem was such that he had to borrow money from his mother and friends, despite the informal overdraft facilities granted by BEA.

28.The applicant further said that he sometimes sold at a loss because prices were dropping and sometimes because he needed cash to meet cheques that had been issued.

29.The applicant admitted that at the beginning of June 2005, Global’s financial situation was very bad. Global did not have sufficient money to meet its commitments, and its bank account was heavily overdrawn. The applicant said he was under great pressure both from the bank and from Global’s suppliers.

30.However, the applicant claimed that when he issued the eight cheques in question, he expected to be able to meet them when they became due. He said on previous occasions when Global’s cheques bounced, he was still able to pay the suppliers subsequently.

31.The applicant’s contention was that he was not acting dishonestly when he issued the eight cheques in question as he thought there would be sufficient funds in the BEA account to meet the cheques on their respective due dates.

32.The applicant denied telling Miss Wan that he had lost the chequebook and therefore had to cancel all the cheques. He said he was unable to remember if he told Miss Wan that he would deposit cash into Zodiac’s bank account. He said he would be saying either “cash deposits” or “issuing new cheques”.

33.To prove that he had tried to obtain loans to ease Global’s financial difficulties, the applicant called witnesses, including his mother, to testify for him.

The Judge’s Findings

34.The judge pointed out the unsatisfactory way in which Global’s business records were kept, in particular the lack of complete and proper account records. The judge pointed out that despite the numerous deposits, their sources and what they related to were unclear, and it was also unclear if Global’s receipts had all been deposited into its account.

35.The judge emphasized that by selling at a loss, the only possible outcome for Global would be its collapse.

36.The judge pointed out that the proceeds from selling his mother’s flat were used by the applicant to repay personal friends and relatives for loans obtained well before June 2005.

37.The judge accepted the evidence of the prosecution witnesses and rejected that of the applicant. The judge found that the applicant was buying goods on credit, selling them at cost or less for cash in order to pay off cheques issued when they became due and to try to bring the overdraft down.

38.The judge was satisfied that the actions of the applicant gave rise to the only possible conclusion, using both the subjective and objective tests set out in R v Ghosh [1982] QB 1053, that he was dishonest.

39.However, the judge had a doubt as to whether the applicant never intended to pay for the goods when he placed the orders with Zodiac. The judge opined that the applicant might have been able to continue to buy on credit and sell the goods at cost or less, and the cash generated therefrom could have enabled him to carry on for some more time. She said, in this regard, the following:

“97. The prosecution case is that the defendant dishonestly appropriated the     goods in question in the eight theft charges at the time the goods were delivered. The defendant acted dishonestly because he knew he was not able to pay for  the goods nor could he ever make payment.

98. It is clear that what the defendant was doing was buying goods on credit, selling them at cost or less for cash, and using the cash to pay off cheques issued when they became due and to try to bring the overdraft down. Whether he had the dishonest intent at the time when the orders were placed and the goods delivered to Global not to pay for them I do have some doubts about. Had the defendant been able to continue to buy on credit and sell the goods for cost or less at cash he may well have been able to carry on for some time longer.

99. I am not satisfied therefore that the prosecution has proved all the elements of the eight theft charges to the requisite standard and the defendant is acquitted of these charges.”

40.The judge acquitted the applicant of the eight theft charges because she concluded that the prosecution was unable to prove all the elements of those charges.

41.On the eight charges of evasion of liability by deception, the judge took the following approach:

“In considering the evasion of liability charges, the key issue is whether the defendant dishonestly induced the payees of the cheques, Zodiac, to wait for payment with an intent to default on payment.

…

The defendant was buying goods on credit, selling them at cost or less for cash so he could deposit money into the bank accounts to cover payments of cheques he had already issued. The only inference to be drawn at that stage was that this was a fairly desperate measure to produce quick cash to enable the defendant and Global to meet the pressure from the bank to cover the payment of the cheques issued. Zodiac was never informed of the financial problem of Global. In fact, the defendant testified that he had been asked by PW3 (Miss Wan) to be prompt in payment in April and May 2005 so that she could obtain credit terms for Global from Zodiac, and this is exactly what he did.

The defendant was heavily overdrawn. The manner in which he conducted his business was such that it was inevitable that the business would collapse yet the defendant continued to operate in the same way in the forlorn hope that all would turn out satisfactorily at the end of the day and he would be able to trade his way out of the difficulty he was in. He did not inform Zodiac of the extent of his problems. He gave excuses and false promises when pressed for payment.

In all the circumstances, I am satisfied on the evidence that the only inference which can be reasonably drawn from the defendant’s actions in the circumstance is that the defendant was reckless within the specific meaning of the word given to it in law as to whether or not he would be in a position to meet the cheques when presented on the due date. Things were bad in June 2005 and getting worse and the defendant’s stated belief that he could continue trading was no more than a vague and forlorn hope that things would turn out all right in the end.

I am satisfied that there was deception practised by the defendant, a reckless deception, when handing over the eight post-dated cheques or when promising payment. It was reckless of the defendant to think that he would be in a position to pay when the cheques were presented for payment or that he would be able to pay cash into Zodiac’s account when asked by PW3 (Miss Wan).”

42.It appears that the judge convicted the applicant on the evasion of liability by deception charges, not on the basis that the applicant never intended to pay for the goods ordered from Zodiac or that he knew that the cheques issued by him as payment would be dishonoured, but on the basis that the applicant was reckless, i.e. without caring whether there would be funds in the BEA account to meet the cheques on their due dates and that he was acting dishonestly.

43.In relying on “reckless deception”, the judge, in her reasons for verdict, reproduced extensively the reasons for verdict of the trial judge as recorded by the Court of Appeal in HKSAR v Leung Yuen-keung (unreported CACC 211/1998). In fact the last two paragraphs of the excerpts of judge’s reasons for verdict hereinbefore set out were almost the exact replica of the corresponding paragraphs in the reasons for verdict of the trial judge in Leung Yuen-keung (supra).

Grounds of Appeal

44.Mr Allen Lam, on behalf of the applicant, put forward a number of grounds in support of the application. Mr Lam argued that the conviction on the evasion of liability charges was inconsistent with the acquittal on the theft charges when both set of charges depend on a very important common element, namely whether the applicant intended the cheques, issued in favour of Zodiac as payments for the goods, would be honoured.

45.Mr Lam suggested that the judge was wrong in convicting the applicant on the evasion of liability by deception charges when she made no finding against the applicant that “he intended to make default payment”, but instead on the basis that the applicant was being reckless when there was insufficient evidence to prove that he was acting dishonestly when he issued the cheques in favour of Zodiac.

46.In any event, Mr Lam argued that the judge’s decision to convict the applicant on the evasion of liability charges was inconsistent with her earlier finding that “had the defendant been able to continue to buy on credit and sell the goods for cost or less at cash he may well have been able to carry on for some time longer”. 

47.Mr Lam suggested that the judge’s findings in relation to the evasion of liability charges were not consistent with those on the theft charges.

48.Mr Lam identified various factors in favour of the applicant. He suggested that those factors were consistent with the applicant’s case that when he issued the cheques in question, he in fact intended those cheques to be honoured. In particular, Mr Lam pointed out the evidence that between 6 and 13 June 2005, the applicant had paid a total sum of not less than $1 million into the BEA account and that he continued to deposit money into the BEA account, albeit smaller sums, up to 20 June 2005.

49.Mr Lam argued that the applicant’s conduct was inconsistent with the suggestion that he was acting dishonestly.

50.Mr Lam suggested that the only reason for the collapse of Global’s business was the removal of its goods by the suppliers on 20 June 2005.

51.Mr Lam referred to the reproduction, in the judge’s reasons for verdict of an extensive part of the reasons for verdict of the trial judge in Leung Yuen-keung,and suggested that the judge had not properly evaluated the evidence on the issue of whether the applicant was acting dishonestly.

The Respondent’s Position

52.Mr John Marray, on behalf of respondent, argued that the mens rea for the evasion of liability by deception charges and the theft charges are different in that for an evasion of liability by deception charge, it was not necessary to prove an intent to make permanent default, and trying to delay making a payment would be sufficient.

53.Mr Marray suggested: “the applicant, by deception (namely issuing cheques and then telling lies to PW3 as to why the cheques could (not) be honoured (with intent to default)) realising there were insufficient funds for the cheques to be honoured, dishonestly induced the creditor… to wait for payment.

54.Mr Marray referred to the ways in which the applicant conducted Global’s business and argued that the judge had in fact found that the applicant had intended to default on the cheques. Mr Marray further emphasized that the BEA account was extensively overdrawn since the 1^st week in June 2005 as demonstrated by the bank statements.

55.Mr Marray suggested that Global did not collapse because of the suppliers’ action on 20 June 2005. He also emphasized that despite the applicant’s deposit of about $1 million into the BEA account between 6 and 13 June 2005, the debit balance in the account continued to increase during the same period as the amount of the cheques due for payment exceeded $1.4 million.

56.Mr Marray submitted that when the judge concluded that the applicant did not intend to default, she was referring to cheques previously issued and not to the eight cheques in question. Mr Marray further submitted that when the judge expressed a doubt as to whether the applicant “had the dishonest intent at the time when the orders were placed and the goods delivered to Global not to pay for them”, the judge was simply saying, in connection with the theft charges, that the applicant might not have the permanent intention not to pay for the goods.

57.Mr Marray suggested that the judge’s finding of recklessness, based on the applicant’s subjective appreciation of the risk of default, was justified.

Discussion

58.S 18B(1)(b) of the Theft Ordinance Cap 210 provides:

“(1)  Subject to subsection (2), where a person by any deception (whether or not such deception was the sole or main inducement)-

(a)    dishonestly secures the remission of the whole or part of any existing  liability to make a payment, whether his own liability or another’s;

(b)   with intent to make default (whether the default is permanent or otherwise) in whole or in part on any existing liability to make a payment, or with intent to let another do so, dishonestly induces the creditor or any person claiming payment on behalf of the creditor to wait for payment (whether or not the due date for payment in deferred) or to forgo payment; or

(c)    dishonestly obtains any exemption from or abatement of liability to make a payment.

he shall be guilty of an offence and shall be liable on conviction upon indictment to imprisonment for 10 years.

(2)   For the purposes of this section ‘liability’ means legally enforceable liability; and subsection (1) shall apply in relation to a liability that has not been accepted or established to pay compensation for a wrongful act or omission….

(3)   …

(4)   …

(5)   For the purposes of this section, ‘deception’ has the same meaning as in section 17.”

59.Under section 17, “deception” means any deception (whether deliberate or reckless) by words or conduct (whether by any act or omission) as to fact or as to law, including a deception relating to the past, the present or the future and a deception as to intentions of the person using the deception or any other person.”

60.There could be no doubt that when the applicant issued the cheques in question, he was representing to Zodiac that those cheques would be honoured on their respective due dates and that in reliance on such representation, Zodiac agreed to wait for payment. By such representation, the applicant was able to induce Zodiac to wait for payment for the goods supplied to Global.

61.The issues were whether there was any deception practised on Zodiac and whether the applicant was acting dishonestly.

62.Under s 17(4) of the Theft Ordinance, a deception can be deliberate or reckless. What the applicant did, as found by the judge, was clearly reckless. However, whether the deception was deliberate or reckless, the prosecution would still have to prove the extra ingredient of dishonesty.

62. Whilst in a deliberate deception case, “dishonesty” may well be easily established when the defendant knows he is not telling the truth, it is important to examine the defendant’s mind to decide if he is dishonest in a reckless deception case.

“Where a reckless deception is relied on, the necessity for stressing the extra ingredient of dishonesty, which has to be proved even where the deception is deliberate, will be that much the greater” (Archbold H.K. 2007 para 22-148).

63.Dishonesty is a separate ingredient of the offence being additional to the requirement of a deliberate or reckless deception. In R v Potger (1971) 55Cr App R 42 at p 46, Sache LJ said: “Where the deception is not deliberate but is reckless…the summing-up must, of course, normally deal separately with the added ingredient of dishonesty needed to justify a conviction”.

64.Indeed, in R v Ghosh (1982) 75 Cr App R 154, Lord Lane CJ, in emphasizing the importance of the issue of “dishonesty” in a reckless deception case, said the following at p 159:

“The difficulty with s 15 of the Theft Act 1968 is that dishonesty comes in twice. If a person knows that he is not telling the truth he is guilty of dishonesty. Indeed deliberate deception in one of the two most obvious forms of dishonesty. One wonders therefore whether ‘dishonesty’ in s 15(1) adds anything, except in the case of reckless deception.”

65.In the particulars of the evasion of liability by deception charges, the operative deception alleged against the applicant was: “by falsely representing that [the cheque].., would be a good and valid order for payment… if presented on or after the date thereon”.

66.It was, of course also alleged against the applicant that he intended to make default of his liability towards Zodiac.

67.Indeed, the concluding paragraph of Mr Marray’s opening at trial stated: “All the above leads to the inevitable conclusion that the defendant was never in a position to pay for the goods obtained from Zodiac and he was aware of his inability to pay when ordering the goods. There was never any intention to make payment”.

68.The dishonesty alleged against the applicant, common to both the theft charges and the evasion of liability by deception charges, appeared to be that the applicant, when issuing the cheques in question, knew that they would be dishonoured on their due dates, and that he never intended to pay on them.

69.When identifying the issues on the evasion of liability charges, the judge also said: “the key issue is whether the defendant induced the payees of the cheques, Zodiac, to wait for payment with an intent to default on payment”(italic emphasis added).

70.It was clear from what we have set out in paragraph 39 hereof that the judge was unable to be sure that the applicant never intended to pay for the goods ordered from Zodiac or that the applicant knew that the cheques issued by him as payments for the goods would be dishonoured.

71.If the applicant, when issuing the cheques in question, might have believed that they would be honoured, on what basis did the judge then conclude that the applicant was acting dishonestly? The judge did not explain other than saying:

“The English case of Ghosh [1982] 2 QB 1053 gives the test to be applied to the circumstances to see whether or not there was dishonesty. Given the actions of the defendant in the circumstances in which he found himself, I am satisfied that the only possible conclusion, using both the subjective and objective tests set out in Ghosh, is that the defendant did know what he was doing was dishonest.”

72.No doubt, the applicant’s conduct in running Global’s business was highly suspicious. As the judge pointed out: “from the outset, Global was losing money. By June 2005, its financial situation was dire. Goods purchased on credit were sold at cost or below cost for cash and cash thus deposited into the bank account to meet the daily pressure from the banks to clear the informal overdraft”.

73.The applicant lied to Miss Wan when the first cheque he issued in favour of Zodiac was dishonoured, and he continued to order goods from Zodiac and pay for them by post-dated cheques.

74.However, there were also other factors consistent with the applicant’s defence that he was not acting dishonestly and that he did not intend the cheques to be dishonoured on their due dates. As Mr Lam repeatedly emphasized, the applicant continued to deposit money into the BEA account right up to 20 June 2005 although at the latter stage, the amounts deposited were modest.

75.The judge herself found that the applicant was buying goods on credit, selling them at cost or less for cash so he could deposit money into the bank accounts to cover payment of cheques he had already issued.

76.The judge, having identified, in relation to the evasion of liability charges, the key issue, namely “whether the applicant dishonestly induced…with an intent to default on payment”, had thereafter expressed a doubt about the prosecution’ s suggestion that the applicant never intended to pay for the goods on their due dates when he issued the cheques in question.

77.The judge expressly found that the applicant might be able to continue to buy on credit and sell the goods at cost or less, and the cash generated therefrom could have enabled him to carry on for some more time.

78.The implication, on the judge’s finding, was that the applicant could well have genuinely believed that the cheques he issued in favour of Zodiac would be honoured on their due dates.

79.In the light of the aforesaid, it was incumbent upon the judge to properly evaluate the evidence and to justify her conclusion that the applicant was nevertheless acting dishonestly. The judge failed to do so and her extensive reproduction of the reasons for verdict in another case reinforced the suggestion that she had not properly evaluated the evidence relating to the issue of dishonesty in accordance with both the objective and subjective tests enunciated in Ghosh (supra).

80.Mr Marray suggested that when the judge said she had a doubt if the applicant had the dishonest intent not to pay for the goods when he placed the orders, the judge was simply saying that she could not be sure that the applicant never intended to pay for the goods.

81.Mr Marray emphasized that the applicant was clearly unable to pay for them when the cheques fell due. Mr Marray further suggested that the applicant could have been acting dishonestly when he tried to delay the time for the payments.

82.We were not persuaded that Mr Marray’s argument was a valid one. If the judge took the view that the applicant did not intend to pay Zodiac when the cheques fell due although he might have intended to pay Zodiac eventually, or that the applicant was dishonest because he had tried to delay the time for the payment, she would have said so in clearer terms.

83.In relation to the theft charge, the judge was unable to be sure that the applicant, when issuing the cheques in question, had the dishonest intent not to pay for them. The judge should also have a doubt, in relation to the evasion of liability charges, whether the applicant had acted dishonestly with intent to default on payment when he induced Zodiac to wait for payment. 

Conclusion

84.We had serious doubt, on the facts as found by the judge, that the element of dishonesty against the applicant, as contended by the prosecution, had been established. We were not persuaded that the judge had dealt with the issue properly or at all.

85.If it was possible that the applicant might have intended the cheques to be honoured on their respective due dates when he issued them, the “dishonesty” ingredient required, not just for the theft charges, but also for the evasion of liability charges, had not been established.

86.In the circumstances, we found the conviction against the applicant, on the charges of evasion of liability by deception, unsafe and unsatisfactory.

87.We therefore granted the applicant leave to appeal against conviction, and treating the application as the appeal proper, we allowed his appeal, quashed the conviction on the eight charges of evasion of liability by deception and set aside the sentence thereon.

Mr John Marray, Counsel on fiat of the Department of Justice for the Respondent.

Mr Allen Lam instructed by Messrs K W Luk & Co for the Applicant.