HKSAR v. Chan Fat Chu Raymond and Others

CACC 30/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 30 OF 2007

(ON APPEAL FROM DCCC NO. 69 OF 2006)

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Before:  Hon Tang VP, Hartmann J and McMahon J in Court

Dates of Hearing: 11 and 12 March 2008, 28 May 2008

Date of Judgment: 23 June 2008

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JUDGMENT

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Hon Tang VP:

Introduction

1.The 1^st to 5^th defendants were charged with one joint charge of conspiracy to defraud, contrary to Common Law and punishable under section 159C(6) of the Crimes Ordinance, Cap. 200.  In essence, the prosecution’s case was that the defendants conspired to create bogus loans totalling HK$100,000,000 by the 1st and 2nd defendants to RNA Holdings Limited (“RNA”), a listed company, as a result of which, RNA had paid HK$55,000,000 to the 1st and 2nd defendants and issued shares to the value of HK$45,000,000 to the 1st and 2nd defendants or their assigns.  The bogus loans were “made” in February and the repayment in April 2001.

2.The particulars of offence alleged that the defendants, between 28 December 2000 and 18 September 2001, conspired together and with Lo Chi-kin, Andie (PW1 who testified under immunity) and other persons unknown to defraud RNA and the creditors and shareholders of RNA by dishonestly:

(i) falsely representing that a total of HK$100,000,000.00 was lent to RNA by the 1^st and 2^nd defendants;

(ii) causing and permitting accounting entries to be made to the effect that HK$100,000,000.00 was lent to RNA by the 1^st and 2^nd defendants;

(iii) causing and permitting a payment of HK$55,000,000.00 to be made by RNA to the 1^st and 2^nd defendants;

(iv) causing and permitting accounting entries to be made to the effect that a repayment of a debt of HK$55,000,000.00 was made by RNA to the 1^st and 2^nd defendants;

(v) causing and permitting the issuance of 450,000,000 ordinary shares of RNA to the 1^st and 2^nd defendants, Lucky Strike Investment Limited (“Lucky Strike”) and Classic Charter Limited (“Classic Charter”);

(vi) causing and permitting accounting entries to be made to the effect that the issuance of the said ordinary shares was for the purpose of a repayment of debt.

3.The 1^st to 4^th defendants were convicted after trial by Deputy District Judge Casewell and now seek leave to appeal their conviction.

4.The 5^th defendant who was the 1^st defendant’s secretary was acquitted.  On appeal, the prosecution conceded the 4^th defendant’s appeal, and his appeal was allowed.

5.The 1^st defendant was represented by Mr Ching Y Wong SC at trial, leading Mr Jon Wong.  Mr Joseph Tse SC, leading Mr Selwyn Yu, represented the 2^nd to 5^th defendants.  Mr Robert Andrews prosecuted on fiat.

6.On appeal, Mr Alun Jones QC, Mr Clive Grossman SC and Ms Alice Lee, appeared for the 1^st defendant.  They also appeared for the 2^nd defendant, except that Mr David Boyton appeared in lieu of Ms Alice Lee.  Mr Joseph Tse SC and Mr Selwyn Yu, appeared for the 3^rd and 4^th defendants.

Background

7.RNA was listed on the Hong Kong Stock Exchange on 22 December 1996.  Hing Fung Goldsmith and Refinery Limited (“Hing Fung”) and Giant Dragon Limited (“Giant Dragon”) were its wholly owned subsidiaries.

8.The 1^st defendant was the chairman of RNA.  The 2^nd defendant was the deputy chairman and the 1^st defendant’s brother.  The 3^rd defendant was an executive director and authorised signatory of RNA and Hing Fung.

9.There was exhibited at trial a deed dated 12 February 2001, which was signed by the 1^st and 2^nd defendants as lenders.  The recital of the deed stated that the lenders had from time to time up to the date of the deed advanced to RNA loans in the total sum of HK$100,000,000 interest-free.  The deed also provided that the loan should be repaid on demand at any time by giving not less than 7 days’ advance notice in writing.  The deed was signed on behalf of RNA by PW1 and the 3^rd defendant.

10.The scheme involved the creation of a series of false loans totalling HK$100,000,000 by the 1^st and 2^nd defendants to RNA between 3 and 8 February 2001.  The money purportedly lent by the 1^st and 2^nd defendants to RNA, were immediately cycled back to the 1^st defendant’s bank account via 5 jewellery companies and 3 finance companies set up solely for the purpose.  The banking transactions between RNA and its subsidiaries, the 1^st defendant the 5 jewellery companies and the 3 finance companies were agreed by parties at the trial under section 65C of the Criminal Procedure Ordinance, Cap. 221.  The summary of transactions (Exhibit P2) shows that some of the transactions took place within minutes of each other, and thus required meticulous planning and close coordination in execution.  PW2 who also testified under immunity, said he was told by the 1^st defendant to set up the finance companies and the jewellery companies, and act as director and bank account signatory of those finance companies.  The money for setting up those companies was provided by the 1^st defendant.

11.Mr McWalters SC leading Ms Wong Kam-hing, Fanny SGC, for the respondent, have produced a graphic representation of the movement of money which is reproduced below:

12.To demonstrate the cycles, it is sufficient to trace the initial payment of HK$6,000,000 of the purported HK$100,000,000 loan from the 1^st defendant’s account into RNA on 3 February 2001. The circle actually began by Hing Fung paying HK$4,700,000 by cheque to RNA.  That cheque was cleared at 9:56 a.m.  Then RNA paid HK$6,000,000 by cheque (which included HK$1.3 million from its own resources) to Sunny Bright Jewellery Company Limited (“Sunny Bright”), one of the 5 jewellery companies set up for the purpose.  That was cleared at 10:15 a.m.  Sunny Bright paid HK$6,000,000 by cheque to Asset Capital Finance Limited (“Asset Capital”), one of the 3 finance companies set up for the purpose, and the cheque was cleared at 10:26 a.m.  Asset Capital then paid the 1^st defendant HK$6,000,000 by cheque which was cleared at 10:34 a.m.  Then the 1^st defendant paid HK$6,000,000 by cheque to RNA which was cleared at 11:30 a.m.  All the parties had bank accounts with HSBC.  That was how the first loan of HK$6,000,000 was made, and the following loan cycles though differing in individual amounts followed the same pattern.

13.There were 20 such cycles involving a total of 109 cheques, and they took place between 3 February 2001 and 8 February 2001.

14.There were 5 facility letters made by Giant Dragon (the nominal lender) in favour of the 5 jewellery companies each for HK$25,000,000.  The purpose of each facility was said to be “to facilitate the working capital requirement of the borrower”.  The facility letters were all signed by the 1^st defendant for and on behalf of Giant Dragon.  They were preceded by 5 credit applications dated between December 2000 and January 2001 addressed to RNA which were approved by the 1^st defendant.  Insofar as the credit applications suggested that the 5 jewellery companies were genuine businesses, that was false.  They were each incorporated on 10 January 2001 and, as PW2 said, they were set up on the instructions of the 1^st defendant.  Each of the jewellery companies then appeared to have been “lent” HK$20,000,000 in the process of the circulation of the HK$100,000,000 loan.

15.As noted, a total of HK$100,000,000 was transferred out from the 1^st defendant’s HSBC bank account to RNA’s HSBC bank account between 3 and 8 February 2001 on 20 occasions.  These transfers were effected on each occasion by using a “HKD counter withdrawal form” and “paid-in slip”.  The 1^st defendant was the sole signatory to the HSBC account and signed all the withdrawal forms.  On the other hand, RNA paid cash cheques, amounting to a total of HK$100,000,000 into the 5 jewellery companies’ accounts with HSBC, HK$20,000,000 in total for each company.  The cash cheques were signed by the 1^st defendant, PW1, Ho Wing-kai (RNA’s financial manager) or the 3^rd defendant, all on behalf of RNA.

16.The jewellery companies subsequently transferred the same amount of money to the 1^st defendant, via the finance companies which were all effectively owned and/or controlled by the 1^st defendant back to the 1^st defendant in the 20 circulations using the HSBC account.  The 4^th defendant was the sole signatory to all of the 5 bank accounts of the jewellery companies.

17.The prosecution’s case was that the 20 circular flows were designed to create the appearance of making a loan of HK$100,000,000 by the 1^st and 2^nd defendants to RNA, which in turn justified the subsequent cash payment of HK$55,000,000 to the 1^st defendant and the issuance of HK$45,000,000 worth of ordinary shares to the 1^st and 2^nd defendants or their assigns.

18.RNA’s repayment to the 1^st and 2^nd defendants were made by:

1)      11 transfers of HK$5,000,000 each on 18 and 19 April 2001, totalling HK$55,000,000, from RNA’s bank account at International Bank Asia Limited (“IBA”) into the 1^st defendant’s bank account at the same bank;  The 11 transfers of HK$5,000,000 each from RNA’s account at IBA were made by 11 letters of instructions signed by the 3^rd defendant and PW1 to IBA.  PW1 testified that he signed these letters of instruction upon the 1^st defendant’s instructions.  The 11 letters, each confirming the receipt of the HK$5,000,000 on 18 April 2001 or 19 April 2001 from RNA in respect of the HK$100,000,000 loan deed, were signed by the 1^st and 2^nd defendants.

2)      the issuance of ordinary shares of RNA for HK$45,000,000.  These shares were issued as to HK$7,500,000 worth to each of the 1^st and 2^nd defendants, and to the value of HK$30,000,000 issued to Lucky Strike and Classic Charter.  Lucky Strike and Classic Charter were companies controlled by a Mr George Chan.  The 1^st and 2^nd defendants, Lucky Strike and Classic Charter had signed their respective subscription agreement with RNA on 18 September 2001.  Lucky Strike and Classic Charter were issued RNA shares because the 1^st and 2^nd defendants had assigned part of the purported HK$100,000,000 allegedly owed to them by RNA to Lucky Strike and Classic Charter.

19.The issuance of shares was approved at a RNA Board of Directors’ Meeting on 12 November 2001 as well as at the shareholders’ meeting which preceded it.  The 3^rd defendant, PW1 and other RNA directors were present at the meeting, which was linked to the 1^st defendant by telephone.

20.The purported debts owed by the 5 jewellery companies to Giant Dragon, were all assigned by a document dated 28 January 2001 by Giant Dragon to Hing Fung.  In respect of these assignments, and there were 5 of them, the 1^st defendant signed for and on behalf of Hing Fung, whereas the 2^nd defendant signed for and on behalf of Giant Dragon.  Subsequently Hing Fung assigned the debts owned by the 5 jewellery companies to various persons by deed of assignments all dated 30 April 2001.  These assignments were signed by the 1^stdefendant on behalf of Hing Fung.

21.PW6, the RNA auditor, confirmed that the 1^st and 2^nd defendants had signed RNA’s consolidated accounts and that it was his understanding that RNA had repaid the HK$100,000,000 owed to the 1^st and 2^nd defendants by a payment of HK$55,000,000, and the issuance of shares for HK$45,000,000.  Page 24 of the consolidated profit and loss account of the annual report of RNA for the year ended 30 April 2001 showed advances from shareholders of HK$100,000,000 and a repayment to the same shareholders of HK$55,000,000.  Note 28 to the same annual report recorded that:

“… Subsequent to the balance sheet on 18 September 2001, an amount of HK$30,000,000 out of the total balance was assigned by the shareholders to two independent third parties not connected with the Group.  On 20 November 2001, all of these balances (including an unassigned portion of HK$15,000,000) were settled by the capitalisation of the amounts involved into 450,000,000 ordinary shares in the Company at a subscription price of HK$0.10 each”.

22.The primary factual issue at trial was whether it had been proven the purported loans made in February 2001 were bogus but that such loans were “repaid” as to HK$55,000,000 in cash and HK$45,000,000 with shares.  The central issue at trial was whether or not there was a conspiracy to defraud, and if so, who were parties to the conspiracy.

The 1^st defendant

No fair trial

23.The primary submission (Ground 3) made by Mr Jones on behalf of the 1^st defendant was that the trial was unfair by reason of defective representation at trial.  This is how he put it in the skeleton submissions:

“(a)    acting upon the advice of his lawyers, he did not give evidence or call evidence in his own defence, when it was necessary in all the circumstances to do so to establish his claim of right defence; [paras 13-14 of the 1^st Applicant’s Affirmation];

(b)     he was falsely advised as to the elements of the crime of conspiracy to defraud;

(c)     his legal defence team failed, inexplicably, to challenge important prosecution witnesses by asking them about matters crucial to the defence and known to them through their instructions.”

24.In support of this ground, the 1^stdefendant has applied for leave to adduce further evidence.  The application was unopposed.  Such evidence included an affirmation by the 1^st defendant and a response to his evidence by Mr Ching Y Wong.  The 1^st defendant’s case appeared to be that there was an earlier loan by him to RNA of HK$111,000,000 (deposited into Hing Fung’s bank account) made on 30 April 1999, funded as to HK$88 million from a loan which he and the 2^nd defendant had procured from George Chan through Lucky Strike and the balance from his own resources.  His case was that PW1 was the person who conceived and implemented the details of the circular payments in 2001, and that he was entitled to take part in the circular payments to formalise the loan made by him and his brother in 1999.  He did not know that the scheme was fraudulent and he had no intention of defrauding the company, its creditors and shareholders.  The April 2001 payment of $55,000,000 and issuance of $45,000,000 worth of shares was simply the repayment of the earlier loan.

25.As Mr Jones put it, the central issue in the defence case was whether the 1^st defendant had a claim of right, and thus acted “honestly”.  Mr Jones submitted that the 1^st defendant was wrongly and negligently advised that he had a sound defence on the basis of the prosecution evidence; whereas in fact on the prosecution’s case, a conviction was virtually certain in the absence of evidence supporting such claim of right.

26.Mr Ching Y Wong appreciated the importance of evidence to this defence.  He said in his affirmation:

“2.1   After the first conference with D1 during which the Charge, the Prosecution’s case and evidence were explained to him, I asked my junior to seek from solicitors D1’s specific instructions on the $111 million being a loan made to RNA by him and his brother D2 and related matters.

2.2    Despite our request, we did not receive any useful instructions on the above matters.”

27.He also produced his junior’s notes to their instructing solicitors:

“Attn: Mr. Tony Wan (2845-3467)

From: Jon Wong

Dear Tony,

15/11/2006

DCCC69/2006

Correct me if I am wrong but about the 1999 loan, we now only have the following docs in support:

1)      bank statement of the co with HSBC that shows the entry of 110M on 30/4/1999 (this bank book is now an unused exhibit)

2)      a loan agreement for 88M between D1, D2 and Lucky Strike dated 23/4/1999 signed by all parties witnessed by solicitors.  The party signed on behalf of Lucky Strike is a person called Chan Yuen Ming.  This person might be George Chan.

3)      A supplemental agreement to the above loan agreement dated 23/4/1999 signed by D1 and D2 but not Lucky Strike.

4)      A floating charge agreement between Admiralty Co Ltd (D2’s holding co) and Lucky Strike in respect of the above loan agreement dated 23/4/1999, signed by D2 and solicitor.

5)      Floating charge agreement between Regent Co Ltd (D1’s holding co) and Lucky Strike in respect of the above loan agreement dated 23/4/1999, signed by D1 and solicitor.

6)      2 floating charge confirmation letters addressed to Lucky Strike and signed by D1 on behalf of Regent and D2 on behalf of Admiralty dated 13/8/1999

7)      3 notices of drawing addressed to Lucky Strike signed by D1 and D2 all dated 23/4/1999.

8)      A security over personal assets agreement in respect of the above loan between D1, D2 and Lucky Strike dated 23/4/1999 signed by D1, D2 and solicitor.

9)      Some correspondences between solicitor, lucky strike, D1 and D2 in respect of the above loan.

I think we have more than enough to show to the court that there was in fact a loan of 88M from GC to D1 and D2.  However, we need docs from clients to show where this 88M went to.  Also, we need docs to show that the 88M in fact went to the company.  The company account with HSBC shows 111M went to the company on 30/4/1999.  But there is nothing from client at the moment to show 23M came from client or D2.  To establish the flow of cash, we need more from client.  I am grateful if you could consult client if he could further provide the followings:

1.      any docs (e.g. bank statements) that showed 23M came from client?

2.      general ledge of the co in the year of 1999, especially in april, that shows the entry of the loan into the co?

3.      any other accounting docs of the company in the year of 1999 that show the entry of loans from Lucky Strike and client himself? (or D2’s)

4.      according to the 1^st notice of drawing, 9.2M was credited into account 004-511-587081-001 maintained by Grow Fast Enterprises Ltd on 22/4/1999, does client have any supporting doc about this transaction?  Can client explain his relationship with Grow Fast Enterprises Ltd?

5.      according to the 1^st notice of drawing (2^nd page), 8.8M was credited into client’s saving account with the Hang Seng bank #296-128374-882, can client provide supporting doc about this transaction?  Can client provide bank statements from this account?

6.      according to the 2^nd notice of drawing, 70M was requested to be deposited to Mighter Company Inc’s account with Banque Nationale de Paris Bank in Singapore, can client provide relevant docs from this account?

7.      besides the HSBC bank statement (appendix 3A-Client Instruction Bundle), does client have other supporting docs which show the entry of 110M into this HSBC account was related to the Lucky Strike Loan and client’s own loan?

Yours ever,

Jon”

28.It appeared from the hand written comments written against the questions that the answer to questions 1, 2, 3, 6 and 7 was no. The answers to the other questions were inconclusive.  Mr Ching Y Wong SC went on to say:

“3.1.  Since there were nothing whatsoever upon which to raise evidentially the issue of $111 million being a loan, we requested a second conference with D1 in order to explain the situation to him.”

29.Mr Ching Y Wong further explained that the 1^st defendant did not answer the queries raised with him at the second conference but asked

“…    whether we could proceed without him giving evidence. He was advised that:

(a)     In respect of the $111 million being a loan, since the ‘positive’ method (raising the issue via documents, entries in accounts etc.) was not possible, the only way to proceed was by the ‘negative’ method; that is, to eliminate all other possibilities of what the $111 million could have been in order that the only remaining alternative was a loan. This was agreed to by D1. (Thus during the trial, Andie LO [PW1] was cross-examined to that end.)

(b)     In respect of the scheme and the 5 companies, the only way was to rely upon the legal argument that common law conspiracy having been abolished meant that agreeing to achieve a legal result via illegal means is no longer an offence. If the $111 million was a loan from him and D2, then any and all repayments of it (or part of it) could not be illegal. D1 then agreed to this method of dealing with the scheme and the 5 companies.

(c)     In respect of George CHAN, D1 said that he did not trust him. He was advised that it would be very dangerous to call as his witness someone whom he did not trust. Further, it was pointed out to D1 that George CHAN might not even agree that he and Andie LO had devised and set up the scheme. D1 was further advised that George CHAN should be contacted first to see whether he was willing to be called as D1’s witness. If he was, then we needed his statement. The matter was then left for D 1 to decide.

(d)     It was also explained to D1 that if he was going to give evidence, we needed to be fully instructed on all our queries in order to be able to advise him on what are and what are not necessary evidence to be given by him.

3.3.2 Having had the above advice, D1 then gave the instructions that he was not going to give evidence.

3.3.3 Subsequently, Dl instructed us that he was not going to call George CHAN as his witness.

3.3.4 When the Prosecution closed its case, the matter of his giving evidence (his election) and calling witnesses were again explained to him. He confirmed then that he elected not to give evidence and that he had no witness to call. There is now produced and shewn unto me a copy of such signed confirmation marked ‘CYW-2’.

4.      With the above instructions and limitations, the only defence that could be run for D1 was the one that we did run for him during the trial.”

30.Although the 1^st defendant could show that he and the 2^nd defendant had borrowed HK$88 million, under a loan agreement with Lucky Strike dated 23 April 1999, which was produced at trial as Exhibit D4, the 1^st defendant was unable to show that any part of the HK$88 million went towards the payment of HK$111,000,000 on 30 April 1999 or at all.  The “notice of drawing” referred to in questions 4, 5 and 6 in junior counsel’s note totalled HK$88 million presumably referred to “the notice of drawing” in the schedule to the loan agreement dated 23 April 1999.  So it appeared that the loan of HK$88 million had been drawn down but that there was no evidence whatsoever to show that any part of it went to RNA on 30 April 1999 or at all.  Nor was the 1^st defendant able to show that the balance of HK$23,000,000 came from him or the 2^nd defendant directly, indirectly, or at all.

31.Moreover, when one looks at the audited accounts of the publicly listed RNA, which were signed by both the 1^st and 2^nd defendants, for the financial year ended on 30 April 2001, note 34(b) at page 62 shows that as at 1 May 1999, advance from shareholders was nil.  Since 30 April was the year end, if the 1^st and 2^nd defendants had lent HK$111,000,000 to RNA on 30 April 1999, it is inconceivable that advance from shareholders as at 1 May 1999 would have been nil.

32.There was simply no evidence as Mr Ching Y Wong says, linking the loan of $88,000,000 with the $111,000,000 deposit in Hing Fung’s bank account said to represent the loan to RNA.  That being the case, it is perhaps not surprising that the 1^st defendant decided not to give evidence.  Also, having regard to the state of the evidence, it is not surprising that the treasury accountant’s (Cynthia Ho) evidence was not challenged.

33.Mr Jones nonetheless submitted that a conviction was inevitable unless there was evidence that the 1^st defendant acted in pursuance of a claim of right.

34.The evidence relied on by Mr Ching Y Wong at trial included one page of Exhibit D5 which was a statement of account of Hing Fung with HSBC, Account No. 061-132213-001 at its Shek Tong Tsui Branch.  It shows that on 30 April 1999, there was a deposit by a house cheque of HK$111,000,000 into that account.  Mr Ching Y Wong made much of this document in his cross-examination of PW1.  It was suggested by Mr Ching Y Wong to PW1 in cross-examination that this was evidence of the loan made by the 1^st and 2^nd defendants in favour of RNA on 30 April 1999.  Mr C Y Wong also relied heavily on the loan agreement dated 23 April 1999, Exhibit D4, to show the proximity in time between the 1^st and 2^nd defendants borrowing HK$88 million from Lucky Strike and the deposit of HK$111,000,000.  He also relied on the fact that the HK$55 million paid to the 1^st defendant in April 2001 was paid by the 1^st defendant to George Chan (Sun Harvest) on 18 and 19 April immediately after they were paid to the 1^st defendant’s account, that HK$30,000,000 worth of the new shares also went to George Chan’s companies, that in January 2001, George Chan (through All Success) made a bridging loan of HK$30 million to RNA.  It is unnecessary to deal with these and other matters relied on in any detail.  Suffice to say that the learned judge had taken them into consideration in his decision.

35.Short of calling the 1^st defendant, one might say that Mr Wong had made the best of a difficult case.  It is clear that the 1^st defendant was not in a position to show that the HK$88,000,000 that he had borrowed from George Chan went towards the HK$111,000,000 which was paid into Hing Fung’s account on 30 April 1999.  Nor could he show that he provided the HK$23,000,000 which made up the HK$111,000,000.  I am of the view that had the 1^st defendant given evidence, it would have become inevitably apparent that the claim of right defence had no substance at all.  As it was, Mr Ching Y Wong had used Exhibit D5 in an attempt to show that the HK$111,000,000 could only have been a loan and it was not proved beyond reasonable doubt that it was not a loan by the 1^st and 2^nd defendants.  The prosecution had no notice of the defence of a claim of right until the cross examination of PW1. If the 1^st defendant had given evidence, the most basic cross examination would have revealed that the 1^st defendant was unable to show that any of his or the 2^nd defendant’s money was paid to RNA on 30 April 1999, or that there was any documentation in the records of RNA or Hing Fung establishing any nexus between himself or the 2^nd defendant and the $111,000,000 deposit into Hing Fung’s account, or that that deposit related to a loan entered into by RNA.

36.In such circumstances, has the 1^st defendant shown that the trial was unfair by reason of defective representation at trial?  The applicable legal principles can be found in the judgment of Eichelbaum NPJ in Chong Ching-yuen v HKSAR [2004] 7 HKCFAR 126, where he said:

“… The expression ‘flagrant incompetence’ rightly underlines an appellant’s need to show much more than a mistake, an error of judgment, or a decision to follow one course when in hindsight another would have been preferable. But it should not deflect attention from the most critical point, namely given that there was a significant error of some kind, what will be decisive is the effect of the error on the trial. As Lord Steyn said, in delivering the judgment of the Privy Council in Boodram v Trinidad and Tobago [2002] 1 Cr App R 103:

‘...the general principle requires the court to focus on the impact of the faulty conduct.’ (at p.118)

The bottom line is that to succeed, an appellant must be able to show he or she received less than a fair trial. As the Appeal Committee said in Mak Kam Chuen v HKSAR (unrep., FAMC No 35 of 2001, [2002] HKLRD (Yrbk) 276, [2001] HKEC 1521):

‘...the ultimate question for the court is whether the conduct complained of has resulted in the accused not getting a fair trial so that the conviction is unsafe or there is a miscarriage of justice.’ (at p.4)

Having had the advantage of reading in draft the judgment of Mr Justice Bokhary PJ, I respectfully agree with his reasons for coming to the same conclusion.”  Per Eichelbaum NPJ.

37.I have no doubt that the 1^st defendant has had a fair trial.  Nor am I satisfied that there was defective representation at trial.

38.Mr Jones also submitted that Mr Ching Y Wong was wrong to have advised the 1^st defendant that section 159E of Cap. 200 had the effect of abolishing the common law definition of conspiracy so far as it extended to an agreement to do a lawful act by unlawful means.  He pointed out that Mr Ching Y Wong did not argue the matter at the end of the prosecution’s case, at which point, the defence could have considered again whether the 1^st defendant should give evidence.  He said that no reasonable explanation has been given for the failure to take this argument at the end of the prosecution’s case so that, if it failed, the 1^st defendant could decide whether to advance evidence in support of a claim of right by his own evidence, and perhaps the evidence of other defence witnesses.  But as Mr Ching Y Wong has explained after the prosecution had closed its case, the matter of the 1^st defendant giving evidence was again explained to him.  In any event, this is not an independent point and also depends on whether it was realistic to expect the 1^st defendant to give evidence at all.

39.There is no need for the purposes of this judgment to decide how much, if any of the common law “definition” of conspiracy is encapsulated now in the provisions of section 159A of the Crimes Ordinance.  The failure to take this point has not prejudiced the 1^st defendant in any way.  Nor do I believe that this advice even if wrong contributed in any meaningful way to the 1^st defendant’s decision not to give evidence.  That decision was obviously based on more pragmatic considerations.  It is quite clear that the 1^st defendant was not in a position to give any helpful evidence in support of his assertion he acted pursuant to a claim of right.

40.In saying this I accept that a claim of right is a defence even if the other constituents of conspiracy to defraud have been made out.  Although Chan Boon-ning v HKSAR [2004] 7 HKCFAR 439 was concerned with an offence of theft, what the appeal committee said about R v Ghosh [1982] QB 1053 also has application here.  There Ribeiro PJ said:

“10.   The decision in Ghosh provides the test for what is dishonest and s 3(1)(a) of the Theft Ordinance defines one instance of what is not dishonest.  There is no conflict between the two and the jury was properly directed as to both concepts.  The Ghosh direction did not undermine the claim of right direction.”

41.In Peters v The Queen [1998] 192 CLR 493, a decision of the High Court of Australia, Toohey and Gaudron JJ said at page 508:

“Ordinarily, however, fraud involves the intentional creation of a situation in which one person deprives another of money or property or puts the money or property of that other person at risk or prejudicially affects that person in relation to ‘some lawful right, interest, opportunity or advantage’, knowing that he or she has no right to deprive that person of that money or property or to prejudice his or her interests. Thus, to take a simple example, a ‘sting’ involving an agreement by two or more persons to use dishonest means to obtain property which they believe they are legally entitled to take is not a conspiracy to defraud.”[s1] 

42.Mr Jones also submitted that it was wrong that no formal attempt was made to contact George Chan who might have been able to give evidence favourable to the 1^st defendant.  I see nothing in this point.  In Hong Kong, it is not uncommon for the lay client to do some sounding before a formal approach is made.

43.Further, since the 1^st defendant was unable to show that the money he and the 2^nd defendant borrowed from George Chan’s company went to RNA, it is difficult to see how Mr Chan’s evidence on this vital issue could help.  I am of the view that no case of injustice has been made out.  So this ground of appeal must fail.

44.Mr Jones submitted it is not open to the court to now speculate how the 1^st defendant would have responded to cross-examination, and whether his evidence would have been accepted or not had he gone into the witness box.  He says evidence given by him might or might not have helped him but the absence of evidence on his part was fatal: R v Ho Ling and Anor [1996] 1 HKC 733.  There, the 1^st defendant was convicted after trial of 13 charges of obtaining property by deception and 9 charges of attempting to obtain property by deception.  The 2^nd defendant who was the sister-in-law of the 1^st defendant was convicted after trial of 14 different charges of attempting to obtain property by the deception.  They were the owners of shops selling video and camera equipments, and the charges arose after alleged purchases from the shops with forged credit cards, the slips of which were subsequently submitted for payment by the defendants.  It was fundamental to the prosecution’s case that the defendants were acting dishonestly because they knew that the cards were counterfeit and they were acting dishonestly when they submitted the slips.  The deception was to induce the banks to act on the false credit cards sales slips and credit their cards to the amount shown on them.  Yang CJ said at page 736:

“15.   The case for the defence was that they had no knowledge that forged credit cards had been used. It was also their case that the employees who gave evidence against them acted out of revenge for some dispute over commissions.

16.    The evidence against them was overwhelming, and conviction would inevitably follow unless successfully challenged. Evidence given by the applicants might or might not have helped them, though it should be acknowledged that their chances of obtaining an acquittal were slim in any event. Be that as it may, the absence of evidence on their part was fatal. The consequence of counsel’s failure to explain the situation to them in clear terms was that the convictions were unsafe and unsatisfactory. In this we respectfully adopt the approach of the Court of Appeal in R v Clinton [1993]1 WLR 1181 as applied in Sankar v State of Trinidad and Tobago [1995] 1 WLR 194. We think it important to stress that in reaching our decision we have relied upon the words of counsel in his affidavit as to the advice he gave. In the circumstances of this prosecution the way in which he qualified his advice might well have left the applicants in doubt, as they contend, as to the crucial importance of their evidence.”

45.Ho Ling turned on its own facts and in the present case I accept Mr Ching Y Wong’s evidence as to the full explanation provided to the 1^st defendant as to his position.  In any event, the critical question is whether on the facts of the case, the 1^st defendant has had a fair trial.  The 1^st defendant’s decision not to give evidence was a sensible one, having regard to his inability to support the claim of right by any real evidence.  Even now it is not suggested that the 1^st defendant is able to show that the $111,000,000 deposited into Hing Fung’s account had come from the 2^nd defendant and/or him.  At trial, the 1^st defendant had had the assistance of an accounting expert, and no doubt he would have been advised for the purpose of this application for leave to appeal to produce evidence if available that the $111,000,000 or part of it came from him.  It is difficult to believe that such a large sum could not be traced at all.  I do not believe there was any fault in Mr Ching Y Wong’s conduct of the trial.  More importantly, it cannot be said that the 1^st defendant has not had a fair trial.  It is true that the hoped for doubt had not materialised and that the learned judge found the charge proved beyond reasonable doubt, but that is beside the point.

46.Mr Jones also complained that Mr Ching Y Wong wrongly put to PW1 that RNA was established in 1999.  It is said that this was important because to establish a company in 1999 was consistent with a desire to strip its assets.  However, a fair reading of the cross-examination of PW1 by Mr Ching Y Wong showed that not only was RNA named after the 1^st and 2^nd defendants, RNA had its origin in a company which was established by their late father known as Tam Fat Hing Fung.  In any event, these are all matters of little weight.  The 1^st defendant’s defence depended on the claim of right.  Absent any plausible support for that claim of right there was no sensible defence to the conspiracy having regard to the bogus loans and their repayment.  Nor does it matter that the 1^st defendant claimed PW1 was the author of the scheme or that PW1 told him it was a matter of substance over form.  The so-called substance was the alleged loan of HK$111,000,000.

47.Mr Jones also made other complaints of the failure of Mr Ching Y Wong to cross-examine PW1 as to credit, e.g. that PW1 was dishonest.  That is a matter of judgment.  There is nothing in this submission.

Other grounds

48.Mr Jones then submitted that even if this ground (Ground 3) fails, then the learned judge nevertheless erred in rejecting the possibility that the HK$111,000,000 deposit was indeed a loan by the 1^st and 2^nd defendants to RNA.  It is said that the learned judge failed to sufficiently consider the significance of the fact that PW1 had accepted that the payment of HK$111,000,000 into Hing Fung’s bank account on 30 April 1999 could not be classified as profit; or inter company transfer; or as sale of gold bullion.  To an extent this submission undermines Mr Jones’ primary point since this suggests that it was arguable that even in the absence of the 1^st defendant’s evidence the prosecution had failed to prove its case against the 1^st defendant.

49.Mr Jone’s criticized the learned judge’s comment that if there had been a loan of HK$111,000,000 he would have expected the loan to be reflected in the accounts of the company and there would have been loan documentation.  With respect, I see nothing wrong with the learned judge’s reasoning.  It is inconceivable that if the 1^st and 2^nd defendants had lent HK$111,000,000 to RNA on 30 April 1999, there would have been no formal record of such loan.  RNA was a listed company.  The loan would have been “discovered” in the audit and some formal documentation would have been required by the auditors to regularize the position.  The accounts would not balance otherwise.  Nor could the learned judge be faulted when he relied on PW1’s evidence that HK$111,000,000 was not a loan by the 1^st and 2^nd defendants.  That evidence was again supported by the fact that the audited accounts of RNA did not shown any such loan, and had there been such a loan, the audited accounts would necessarily have reflected it. 

50.Mr Jones also submitted that:

“40    PW6 (Leung King-yu, an auditor from Ernst & Young) was aware of the loans advanced by GC to the 1^st and 2^nd Applicants, hence the issuance of the shares to settle the debt owed by them. He, as the auditor of the company, saw no irregularities surrounding the transactions and made no query about it (para 30 of the Reasons for Verdict, page 71 AB). If there was no correlation between the personal loans of the 1^st and 2^nd Applicants and the shareholders loan of $100 million, there would be no justification to issue the shares to GC to offset the loans owed by the 1^st and 2^nd Applicants. Hence, there was no basis upon which PW6 was able to say that there were no irregularities in the transactions.”

51.I do not agree that any such correlation was proven by the evidence of PW6.  If, as seemed to be the case, the 1^st and 2^nd defendants were indebted to George Chan they could discharge such indebtedness by utilising any money which RNA provided them.  The mischief in this case is that RNA did not owe them any money, and however the advances were accounted for, were not repayments of monies owed to the 1^st and 2^nd defendants.

52.In the absence of evidence that there was indeed a loan of HK$111,000,000, it is not surprising at all that the learned judge found the case proved against the 1^st defendant.

53.Lastly Mr Jones submitted that the learned judge had put a persuasive burden on the 1^st defendant.  He relied on para. 76 of the judgment:

“76.   I have noted that in the evidence there is a coincidence in time between the personal loan taken out by the 1st and 2nd defendants with Lucky Strike and the subsequent payments into Hing Fong. This allows for the possibility that it might have been part of those funds that constituted part of the 111 million payment. However, as I have said earlier, there is no evidence that this is a loan obtained by Hing Fong or RNA or entered into by Hing Fong or RNA with the 1st and 2nd defendants. This would need to at least be evidenced with the defendants along with its terms of repayment and clearly articulated for any defendant relying upon this as a defence to have said he would have had a belief that he had a right to take the money at the time or in the way he did so.”

54.The final sentence of this paragraph is difficult to follow.  However, the learned judge said in para. 75:

“75.   It must be claimed on the 1st defendant’s behalf that he was not acting dishonestly. That being done, the prosecution must prove that what he was doing was dishonest and must prove that beyond a reasonable doubt. In respect to this defendant’s case, the only burden laid upon him is to collect from the evidence enough material to make it possible for there to be a reasonable doubt about this fact and to be dishonest the prosecution must prove that what the defendant did was dishonest by the standards of reasonable and honest people and if it is, the defendant must himself have realised it was dishonest by those standards.”

55.I agree with Mr McWalters that the learned judge was simply saying as a matter of reality that there had to be some evidence to link this loan of HK$111,000,000 with the 1^st defendant if the submission was to have any weight.  The learned judge did not say that this evidence needed to have come from the defence at all.  The learned judge had not put any burden on the defendant.

The 2^nd defendant

56.I turn to consider the 2^nd defendant’s appeal.  He has adopted the submissions made on behalf of the 1^st defendant.  I have already dealt with the submissions made on behalf of the 1^st defendant.  He relied on an additional ground namely that the learned judge erred in convicting him in that there was insufficient evidence from which the only inference that could be drawn was one of guilt. 

57.The 2^nd defendant signed the shareholders’ loan deed dated 12 February 2001 as a lender of the HK$100,000,000.  He also signed together with the 1^st defendant a total of 11 letters dated 18 April 2001, or 19 April 2001, acknowledging receipt of HK$5,000,000 each, totaling HK$55,000,000 from RNA, under the caption of “Re: HK$100,000,000 loan deed dated 12 April 2001”.

58.He signed a subscription agreement with RNA agreeing to subscribe to HK$8,500,000 worth of RNA shares (HK$1,000,000 being directors’ remuneration and HK$7,500,000 being partial repayment of the HK$100,000,000).  These shares formed part of the $45,000,000 worth of RNA shares issued in April 2001.  The issuance of shares was approved by the Board of Directors of RNA subsequently.  He also signed the accounts of RNA referred to in para. 31 above.

59.The 2^nd defendant must have known that there was never a loan of HK$100,000,000 or of $111,000,000.  That being the case, he must have known that neither he nor the 1^st defendant was entitled to be repaid.  The learned judge rightly concluded in para. 85 of his Reasons for Verdict that:

“… These facts present a compelling case that D2 was a knowing participant in the events of the scheme, especially the lending of non-existent money and the receipt by him of securities to extinguish a non-existent debt .. Given that position, the only real available inference in this case is that D2 must have been a knowing participant in the deceitful aspects of this scheme …”.

Paragraph 85 of the Reasons for Verdict

60.At the end of counsel’s reply on 12 March 2008, the court sought counsel’s assistance on the 2^nd and 3^rd sentences in para. 85 of the Reasons for Verdict:

“85.   The defendant was not only Deputy Chairman of RNA, he was an Executive Director of Hing Fong.  To him, the bogus debts of the jewellery company were assigned on 30 April 2001.  The 2^nd defendant also signed an assignment by GDL to Hing Fong of the loan facility dated 29 January 2001 entered into GDL by Man Fok Jewellery Company as one of the jewellery companies.  These facts present a compelling case that the 2^nd defendant was a knowing participant in the events of the scheme, especially the lending of non-existent money and the receipt by him of securities to extinguish a non-existent debt.  Save for the matters that can be inferred from the prosecution case, these facts were unexplained.  Given that position, the only real available inference in this case that the 2^nd defendant must have been a knowing participant in the deceitful aspects of this scheme.”

61.Counsel were unable to assist on 12 March 2008.  On Friday, 14 March 2008 we were supplied with a joint note signed by Ms Wong Kam-hing Fanny SGC, for the prosecution, and Mr Clive Grossman SC, counsel for the 1^st and 2^nd defendants.  This is what the joint note said about those sentences:

“In relation to paragraph 85, it is agreed between A2 and the Prosecution that the transcription (To him) in line G is correct. This is a mistake. The debts were not assigned to A2 but by GDL to Hing Fung on 28 February 2001 (Exhibits P6-10).

The next sentence is clearly wrong because there was no other such assignment at all. The only other assignments are those on 30 April 2001 (Exhibits P16-P18) which were assignments by Hing Fung to people outside the group purporting to extinguish the debt, with which it is not alleged that A2 is concerned.”

62.We were not satisfied with the joint note and because of the possibility that the parties might wish to address the court on the application of the proviso, we reconvened for further submissions on 28 May 2008.

63.It will be convenient to number the first 4 sentences in para. 85 as sentences (i), (ii), (iii) and (iv).

64.Counsel are now agreed, having listened to the audio recording, that “To him” in sentence (ii) was a wrong transcription.  The learned judge had said “to whom”.  It is also clear that sentences (i) and (ii) are in fact one sentence.

65.As for sentence (iii), counsel are also agreed that what the learned judge actually said was:

“85.   … The 2^nd defendant also signed an assignment by GDL to Hing Fong of the loan facility dated 29 January 2001 entered into [by] GDL by [with] Man Fok Jewellery Company as one of the jewellery companies.” [Emphasis added]

66.So far as sentence (iii) is concerned, it is clear to me that there the learned judge was referring to the deed of assignment dated 28 February 2001 by GDL in favour of Hing Fung, which was signed by the 2^nd defendant for and on behalf of GDL.  That deed purported to assign a loan facility granted by GDL in favour of Man Fok which was dated 29 January 2001.  In other words, the date “29 January 2001” qualified the loan facility rather than the assignment by GDL to Hing Fung.  In fact there were 5 deeds of assignment each dated 28 February 2001.  The learned judge referred to only one (Exhibit P9) presumably because all 5 are in all material respects identical.

67.Turning to sentences (i) and (ii), Mr Jones submitted that as the learned judge had said “to whom” and not “to which”, he was referring to the 2^nd defendant.  As the bogus debts were never assigned to him, the learned judge had made a mistake.  But “whom” is sometimes:

“… used to refer to things denoting or connoting a group of people or having the implication of personality.”  Shorter Oxford Dictionary.

68.The evidence was that on 29 January 2001, GDL granted loan facilities to 5 jewellery companies.  On 28 February 2001, there were 5 assignments by GDL of those debts to Hing Fung.  In respect of all 5 assignments, the 2^nd defendant had signed on behalf of GDL and the 1^st defendant, Hing Fung.  Then on 30 April 2001, also by 5 assignments, all signed by the 1^st defendant, Hing Fung assigned the same debts to 5 individuals.

69.The learned judge had correctly understood the evidence, he said in para. 12 of his Reasons for Verdict:

“Before this, on 28 February 2001, the 1^st defendant had signed on behalf of Hing Fung the assignment of the paper debts to the jewellery companies and furthermore on 30 April 2001, the 1^st defendant on behalf of Hing Fung for a consideration of $1 assigned the jewellery company debts.”

70.Mr Jones submitted that if “to whom” referred to Hing Fung, then the learned judge had made a mistake about the date.  The assignments of 30 April 2001 were not to Hing Fung but by Hing Fung to 5 individuals.   Mr Jones submitted that unless one were to read “to whom” as “by which”, the learned judge had made a mistake.  Mr McWalters submitted that the learned judge had meant to say “by which” rather than “to whom”.

71.Mr Jones further submitted that if the learned judge was referring to the assignment of 28 February 2001, then sentences (i) and (ii) added nothing to what the learned judge was saying in sentence (iii).  Since in sentence (iii), the learned judge recorded the fact that the 2^nd defendant had signed the assignment by GDL of Man Fok’s liabilities to Hing Fung, one of 5 assignments dated 28 February 2001.

72.Reading sentences (i) and (ii) together, it seems to me that “to whom” could not have been a reference to the 2^nd defendant.  I believe when the learned judge said “to whom”, he was referring to Hing Fung and not the 2^nd defendant.  The learned judge was drawing attention to the fact that the 2^nd defendant was an executive director of Hing Fung.  His position as an executive director would be just as relevant whether Hing Fung was the assignee or assignor of the bogus debts.

73.Syntactic analysis is a useful tool, but the Reasons for Verdict is 42 pages long and should not be read microscopically.  Judgments, like other documents, should be read with common sense and:

“59.   … if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”  per Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties and Ors [1999] 2 HKCFAR 279 at 296D.

74.Mr Jones submitted that the mistake is a serious one because he submitted that reading paras. 79 to 86 of the judgment together, it is obvious that the 2^nd defendant was convicted by the learned judge solely on the basis of the matters mentioned by him in sentences (i), (ii) and (iii) in para. 85.

75.In paras. 80 and 81, the learned judge recited part of the defence of the 2^nd defendant which included evidence that the 2^nd defendant was very busy, he handled the business of the two groups of company with five lines of business and that his work involved signing vast numbers of documents:

“which are often circulated without explanation; that the companies transferred capital internally and used GDL as a lender of money”

76.Further, that the 2^nd defendant was not involved in the circular fund flows by way of signing cheques or giving instructions.  Nor was he involved in setting up any of the companies involved in the funds circulation schemes.  His role in the company was mainly concerned with taking positions in gold etc.  The learned judge said that these were uncontested facts.

77.In paras. 82 and 83 of the Reasons for Verdict, Mr Jones said the learned judge was merely reciting the prosecution’s case.  This is what the learned judge said:

“82.   Now, the 2nd defendant was not referred to in the evidence of the 1st and 2nd prosecution witnesses. The 2nd defendant did not form a great part of the live witnesses called, evidenced by the live witnesses, and the extent of the 2nd defendant's involvement can be gleaned from the documentation that he was involved in. Of importance in this is the 2nd defendant signed as borrower in the shareholders loan agreement of 12 February 2001. The terms of this agreement are clearly shown on the document. The inference to be drawn from this must be the defendant must have known the purpose of this loan and the drawdown of funds on 3 and 8 February 2001 as the agreement is retrospective in its operation.

83.    The 2nd defendant is again involved in the scheme when on 18 April he signs letters by which a total of 30 million is transferred from RNA to D1's personal account which is in respect of the $100 million loan made by himself and his brother. Finally, the 2nd defendant is a recipient of the subscription shares which is said to be for debt reduction without, however, a debt being specified.”

78.Mr Jones submitted that when para. 84 is read together with para. 85:

“84.   The 2nd defendant, like the 1st defendant, was in a position of trust and responsibility in this company. I can draw no other conclusion that these acts illustrate that the 2nd defendant must have been a knowing participant in the conspiracy from an early stage up to its successful conclusion with the allotment of shares amongst others.” [Emphasis added]

The words “these acts” in para. 84 referred to the matters mentioned by the learned judge in sentences (i), (ii) and (iii), rather than the facts which he had recited in paras. 82 to 83. 

79.But, as Mr McWalters pointed out, in sentence (iv) the learned judge mentioned the lending of non-existing money, which was mentioned in para. 82, and the 2^nd defendant being a recipient of the subscription shares which was mentioned in para. 83.  These were findings by the learned judge, he was not merely reciting the prosecution’s case.

80.I am satisfied that the error in sentences (i) and (ii) are not material.  As Mr McWalters pointed out, the learned judge was aware and has stated as much in para. 12 of his Reasons for Verdict that Hing Fung was the assignee of the bogus debts on 28 February 2001 and the assignor of the same debts on 30 April 2001.  I believe in sentences (i) and (ii) the learned judge was making the point that the 2^nd defendant was an executive director of Hing Fung which was involved in the assignments of the bogus debts.

81.Mr Jones is right that sentences (i) and (ii) added little to sentence (iii), but in sentence (iii) the point made was that the 2^nd defendant signed for GDL (“the assignor”), in sentences (i) and (ii), the 2^nd defendant was an executive director of Hing Fung, which was the assignee in the 28 February 2001 assignments, and the assignor the 30 April 2001 assignments.  I do not believe the possible error in the date in sentence (ii) is material.

82.As I am satisfied that the learned judge had made no material error, it is unnecessary for me to consider the application of the proviso. 

The 3^rd defendant

83.Mr Joseph Tse SC who appeared for the 3^rd defendant, submitted that the 2^nd, 3^rd and 4^th defendant never adopted the 1^st defendant’s claim of right defence.  He submitted, however, that while some of the particulars pleaded in the charge were only overt acts others were essential ingredients of the offence charged.  He submitted that particulars (i), (ii), (iii) and (v) constituted the essential ingredients of the offence so that each and every one has to be proved.  He submitted that insofar as it was not proved that the 3^rd defendant had agreed to or had any knowledge of each of these 4 ingredients he must be acquitted.

84.Mr Joseph Tse also complained that there was no analysis in the verdict to explain how the learned judge arrived at the conclusion that:

“There are six pleaded particulars of that conspiracy and they represent overt acts within the conspiracy.” (p. 60N)

85.However, the learned judge concluded that the 3^rd defendant:

“… was a knowing participant in the agreement as pleaded …”

In other words, all the particulars had been proved against the 3^rd defendant.  That being the case, Mr Tse’s submission is academic.

86.The 3^rd defendant was an executive director of RNA.  He signed the loan agreement of the 12 February 2001 which purported to evidence a number of past loans made by the 1^st and 2^nd defendants to RNA.  He acknowledged that RNA owed HK$100,000,000 to the 1^st and 2^nd defendants, all of whom were shareholders in and directors of RNA.  The cycle of cheques had been started up some days prior to the loan agreements being signed or at least dated.  That cycle was plainly designed to falsely suggest HK$100,000,000 had in fact been placed in RNA’s bank account for the bank’s account of the 1^st defendant, one of the lenders under the loan agreement.

87.That cycle was initiated by a cheque for HK$4,700,000 drawn on Hing Fung’s bank account signed as a co-signatory by the 3^rd defendant.  The 3^rd defendant was a director of Hing Fung.  On the same day, the 3^rd defendant also signed the first RNA cheque to one of the 5 jewellery companies which had been incorporated only a few days before.  That cheque apparently represented a loan to that company.  That loan, it is common ground, amongst all parties, was also bogus.

88.The 3^rd defendant remained active in that cheque cycle and signed 2 cheques in favour of each of the 5 jewellery companies, each representing a bogus loan.  Subsequently the 3^rd defendant authorized a payment to the 1^st defendant of HK$55,000,000 in cash.  He did this by cosigning a transfer instruction to RNA’s bank.  He was also present at the Board Meeting of RNA which authorized the issuance of 470,000,000 new shares of RNA for HK$47,000,000 as part payment of the HK$100,000,000 debt.

89.An inference can only be drawn when it is the only reasonable inference. But the drawing of an inference is strengthened in circumstances such as exist in the present case where a defendant does not give evidence and explain that which is crying out for an explanation.

90.In the present case what was crying out for an explanation by the 3^rd defendant was how it was that he was involved in four of the five stages of this fraud (i.e. the signing of the Loan Agreement; signing some cheques in two of the three legs of the circulation of funds, and being involved in the payment of cash and the issue of shares to the 1^st applicant) without realising the true nature of the agreement.  As Li Defan shows, depending on the circumstances, the court may be:

“32.   … entitled to regard the failure of the accused to give any explanation on oath as strengthening the inference to be drawn from the prosecution case.”  Per Lord Hoffmann NPJ at para. 32.

91.I agree with the learned judge’s conclusion that the 3^rd defendant:

“… was a knowing participant in the agreement as pleaded …”

92.In any event, I believe the conspiracy charged was that the defendants had dishonestly defrauded RNA, its creditors and shareholders.  I agree with the learned judge that the particulars were overt acts, which might have been provided as voluntary particulars.

93.Mr Tse compared the present charge with the charge in R v Sharon Bennett and Ors [1999] EWCA Crim 1271, where the English Court of Appeal said:

“… the agreement was particularised in the indictment as including the three stages of involvement set out above … ”

so that

“… to be convicted as a conspirator on this indictment, someone whose active role was only in the first stage could only be convicted of the conspiracy alleged if he or she agreed to the whole three stage conspiracy”.

94.But Bennett provides no assistance to Mr Tse.  Here, the question is not whether the 3^rd defendant was aware of each of the overt acts of the conspiracy.  It sufficed that he had agreed to participate in a conspiracy to defraud RNA.  It was not essential that he should have been aware of all the details of the conspiracy.  Furthermore, as I have said, the learned judge held and I agree that the particulars have been proved against the 3^rd defendant.

Conclusion

95.The application for leave to appeal by the 1^st, 2^nd and 3^rd applicants is dismissed.

Hon Hartmann J:

96.I agree.

Hon McMahon J:

97.I wish to add this.  I agree with the judgment of Tang VP concerning the 1^st and 2^nd defendants’ applications and the reasons given for dismissing them.  So far as the application of the 3^rd defendant is concerned, however, while I agree his application should also be dismissed, I accept there is merit to the submission of Mr Tse that the conspiracy charge in the present case included within its particulars, not just a description of the overt acts but also the terms of the agreement founding the conspiracy.  The particulars of the charge were as follows :

“Particulars of Offence

CHAN Fat-chu, Raymond, CHAN Fat-leung, Alexander, TSUI Muk-ming, CHUI Muk-hing and TSUI Yuk-hing, during the period of the 28^th day of December 2000 and the 18^th day of September 2001, in Hong Kong, conspired together and with LO Chi-kin, Andie and other persons unknown to defraud RNA Holdings Limited, the creditors and shareholders of the said RNA Holdings Limited by dishonestly :

(i)      falsely representing that a total of $100,000,000.00 Hong Kong currency were lent to the said RNA Holdings Limited by CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander;

(ii)     causing and permitting accounting entries to be made to the effect that $100,000,000.00 Hong Kong currency were lent to the said RNA Holdings Limited by CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander;

(iii)    causing and permitting a payment of $55,000,000.00 Hong Kong currency to be made by the said RNA Holdings Limited to CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander;

(iv)    causing and permitting accounting entries to be made to the effect that a repayment of debt of $55,000,000.00 Hong Kong currency was made by the said RNA Holdings Limited to CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander;

(v)     causing and permitting the issuance of 450,000,000 ordinary shares of RNA to CHAN Fat-chu, Raymond, CHAN Fat-leung, Alexander, Lucky Strike Investment Limited and Classic Charter Limited;

(vi)    causing and permitting accounting entries to be made to the effect that the issuance of the said ordinary shares was for the purpose of a repayment of debt.”

(Emphasis added)

98.Mr Tse argued that some, at least, of the particulars set out, formed the terms of the agreement and as such were part of the ingredients of the offence.  He accepted that other particulars were simply recitations of overt acts designed to further the purpose of the conspiracy.  With that general proposition I agree.  The construction of the charge itself prima facie pleads the particulars as being part of the agreement.

99.In R. v. K [2005] 1 Cr. App. R. 25 (408), a case of conspiracy to defraud, Thomas LJ, in dealing with a submission that the prosecution were obliged to prove all of the particulars specified in the charge, distinguished between particulars which formed part of the ingredients of the offence and particulars which were simply the recitation of overt acts, i.e. evidence, going to establish those ingredients.  He said :

“… In our view therefore, the indictment should identify the agreement alleged with the specificity necessary in the circumstances of each case; if the agreement alleged is complex, then details of that may be needed and those details will as in Bennett form part of what must be proved.  If this course is followed, it should then be clear what the prosecution must prove and the matters on which the jury must be unanimous : see Bennett.  Further particulars should be given where it is necessary for the defendants to have further general information as to the nature of the charge and for the other purposes identified by Lawton L.J. in Landy.  Such further particulars form no part of the ingredients of the offence and on these the jury do not have to be unanimous, as this court correctly decided in Hancock.”

100.It seems clear that it is now accepted that simply charging a conspiracy to defraud simpliciter without particularising the agreement may well be insufficient : see R. v. Landy (1981) 72 Cr.App.R. 237.  In R. v. Bennett [1999] EWCA Crim. 1271 it was held, as Mr Tse pointed out in his submissions, that the particulars of the charged conspiracy to defraud particularised the terms of the agreement and that all had to be proven.  As Henry LJ said in delivering the judgment of the court :

“As a conspiracy is an agreement, and the parties to that agreement are the conspirators, so, with a criminal conspiracy the indictment must define the conspiracy. …” (Emphasis added)

101.The court concluded that, as the jury might have arrived at their conviction on the basis of different particulars, a direction pursuant to R. v. Brown (Kevin) (1984) 79 Crim. App. R. 115 should in that case have been given. 

102.It seems correct, as a general statement of law, that where a conspiracy to defraud is alleged, then a criminal agreement is alleged, and if that be so, the agreement, like all agreements, must have terms.  Those terms should be specified in the indictment.  The essence of an agreement to defraud is to put at risk a victim’s proprietary rights (or their performance of a duty) by doing certain things.  If the prosecution assert that forms part of the agreement, that is, that those things be done, then that is normally what must be particularised and proven by the prosecution if they wish to establish such an agreement.  I do not agree, so far as an offence of conspiracy to defraud is concerned, that the particularisation of the charged offence requires no more than a setting out of the overt acts to be relied upon to evidentially establish the conspiracy.

103.It would appear to be a matter of construction in an individual case as to whether the particulars amount to terms of the conspiratorial agreement, as in Bennett, or are to be regarded as overt acts, as in R. v. K and R. v. Hancock [1996] 2 Cr.App.R. 554.  It seems to me however that it is an undesirable state of affairs, and leads to unnecessary confusion, to particularise a charge of conspiracy to defraud with details of evidence which do not necessarily form part of the ingredients of the agreement as it is alleged by the prosecution.

104.A conspiracy to defraud is essentially an agreement and its particularisation in the charge should more properly be restricted to a setting out of that which constitutes the agreement.  There must be sufficient of the agreement’s terms specified in the particulars so as to allow the agreement, in its purpose and in how that purpose was to be achieved, to be identified with sufficient certainty.

105.That is not to say that every part of the agreement has to be set out, as it may well be that the full details of the agreement are not known.  But there must be sufficient particularised so as to properly describe the basis of the agreement.  In my view many of the difficulties which have arisen in the drafting of conspiracy to defraud charges in recent years are due in large part to the incorporation into the particulars of charge of mere overt acts which do not form part of the terms of the conspiracy.

106.Drafters of such charges should, before particularising, consider what the prosecution’s essential allegations are concerning the terms of the criminal agreement which they say came into being.  Those essential terms are all that are required to be particularised.  There may be a number of overt or consequential acts of conspirators which are to be established in evidence so as to inferentially prove those terms.  But those acts need not necessarily be particularised in the charge.  They could well be satisfactorily notified to defendants by way, perhaps, of the usual service of witness statements and exhibits, or by way of a separate document.  That would have the benefit of simpler and therefore clearer charges and is more likely to avoid difficulties such as those experienced in R. v. Brown (Kevin) and, of a different sort, in R. v. Greenfield, 57 Crim. App. R. 849 and R. v. Griffiths (1966) 1 QB 589.  

107.I note that the editors of Archbold (2008) at 34–44 advise that :

“Care should be taken to differentiate between particulars which define the agreement which the Crown seek to prove, as in Bennett, and those which set out overt acts from which the Crown invite the jury to infer the existence of an agreement.  Some counsel have begun to limit the particulars of offence to the terms of the agreement to be proved, followed by voluntary particulars which set out the principal overt acts relied upon.  This practice, it is submitted, has the advantage of clarity and precision and was approved by the Court of Appeal in R. v. K., ante.”

108.Given those principles Mr Tse complains of the judge in the present case stating that :

“2.     There are six pleaded particulars of that conspiracy and they represent overt acts within the conspiracy.”

109.The judge was quite right in saying that.  Rather than distinguish between the terms of the conspiracy and overt acts the drafter of the charge had, as is very often the case, regarded the terms of the conspiracy as being evidenced by, and essentially the same as, the important overt acts.

110.As matters transpired the judge was satisfied that the prosecution had, in any event, proven all of the matters particularised.  That of necessity carried with it proof of those particulars which were in fact the terms of the conspiracy.  I might add that there was no question of an R. v. Brown (Kevin) direction being required.  That is particularly so when a judge sits alone, but in any event, there was no risk, on the facts of this case, of there being a different basis of conviction for any individual defendant.  The terms of the conspiracy were so interdependent one upon the other as to remove any possibility of differing pathways to conviction.

111.Hence I agree with Mr Tse’s submission that the particulars of a conspiracy should specify the alleged terms of that conspiracy and not merely consist of a recitation of overt acts (which amount to little more than evidence from which the terms may be inferred), but in the end result of this case the judge was plainly satisfied, and properly so, that the agreement had been proven in its essential terms.  There was no error of law by him and his conclusion was amply supported by the evidence.  I agree therefore that the application of the 3^rd defendant be dismissed also.

11 and 12 March 2008

Mr. Alun Jones QC, Mr. Clive Grossman SC & Ms. Alice Lee, instructed by Messrs Louis K.Y. Pau & Co., for the 1^st Applicant.

Mr. Alun Jones QC, Mr. Clive Grossman SC & Mr. David Boyton, instructed by Messrs Louis K.Y. Pau & Co., for the 2^nd Applicant.

Mr. Joseph Tse SC and Mr. Selwyn Yu, instructed by Messrs John Ho & Tsui, for the 3^rd and 4^th Applicants.

Mr. IC McWalters, SC, DDPP and Ms. Wong Kam Hing Fanny, SGC, of the Department of Justice, for the Respondent.

28 May 2008

Mr. Alun Jones QC, Mr. Clive Grossman SC & Ms. Alice Lee, instructed by Messrs Louis K.Y. Pau & Co., for the 2^nd Applicant.

Mr. IC McWalters, SC, DDPP and Ms. Wong Kam Hing Fanny, SGC, of the Department of Justice, for the Respondent.

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