R. v. Yuen Chap Fai and Another

CACC000707/1995

IN THE COURT OF APPEAL

1995, No. 707
(Criminal)

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Coram : Hon Yang, C.J., Mortimer and Ching, JJ.A.

Date of hearing : 14 June 1996

Date of judgment : 14 June 1996

Date of handing down reasons of judgment : 4 July 1996

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J U D G M E N T

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Hon Yang, C.J.:

1. This is the judgment of the court.

2. The two applicants were convicted after trial on nineteen charges of false accounting contrary to section 19(1)(b) of the Theft Ordinance, Cap.210. They now seek leave to appeal against their convictions.

3. The Particulars of Offence of the nineteen counts are in similar terms, save the differences as to the date of each alleged offence, the number of the false document called a "Sales Proposal", the title of the company which was said to have placed orders for certain plastic materials and the value of each such purchase.

4. Taking the ninth charge at random as a specimen, the Particulars of Offence reads:

" YUEN Chap-fai and CHAN Kan, on the 1st day of June 1993, in Hong Kong, with a view to gain for themselves or each other and with intent to cause loss to another, dishonestly furnished information to Muehlstein East Asia Limited ("Muehlstein") in respect of Sale Proposal numbered 85P-6272 and dated 1st of June 1993 being a document used for accounting purposes which to their knowledge was or may have been misleading, false or deceptive in a material particular, namely that So Kwong Kee Plastic Factory was ordering goods being plastic materials of ABS Prime 3404, from Muehlstein to the value of $370,656.00 Hong Kong currency."

5. The prosecution case is summarised in the learned trial judge's Reasons for Verdict, the gist of which is stated below.

6. In August of 1993, the officers of Muehlstein East Asia Limited ("MEAL") discovered that a number of their customers were significantly late in making payments for plastic materials supplied to them in the early part of the year, pursuant to nineteen separate transactions. These transactions involved eighteen customers, all of whom denied having placed any orders or received the plastic materials. The total amount which MEAL found owing to them was some HK$7.2 million. The customers' denials led to an internal investigation within MEAL, which confirmed that these denials were correct. It was then discovered that MEAL's plastic materials contained in thirty-four containers had been shipped to Mainland China, through the intermediary of Hung Hing Plastic Materials Company ("Hung Hing"), a MEAL's customer. Payment for all those goods remained outstanding at the time of the delivery of Reasons for Verdict in November 1995.

7. At all material times the 1st applicant ("A1") was the General Manager of MEAL, and the 2nd applicant ("A2") was the company's Assistant Sales Manager. It was alleged that the two men collaborated to falsify MEAL internal accounting documents. The internal accounting document in question was known as a "Sales Proposal". It was the document which the company's salesman must complete as proof of an agreed sale and purchase of plastic products. This document would then set in motion a number of processes and other documents whereby the company's approval of the transaction was given, which then ultimately led to the delivery of the goods in question to the particular buyer, and to the necessary invoice being given to the buyer.

8. The working procedures within MEAL are described in the Reasons for Verdict:

" The working procedures within MEAL can be fairly shortly detailed. Once a salesman had struck a deal with a customer, he prepared a Sales Proposal incorporating the essential elements of the agreement. He would pass that on to the staff who would then input the relevant information into the company's computer, together with the obtained-from-USA 85P Number, which is the MEAL transaction reference number. The document would then be passed on to the accounts section for the preparation, by means of the computer, of the MEAL invoice.

The invoice would be checked by the Shipping Department supervisor who would also be responsible for the creation of the Delivery Order ("D.O.") or Release Order ("R.O."), which would be given to the customer together with the invoice. The importance of the D.O./R.O. was that this document enabled access to the goods by the bearer of the document, without further proof of payment. The document could be obtained early (i.e. before MEAL had invoiced the transaction), by the salesman signing on a copy of the document, and this was apparently done on a regular basis to avoid extra/unnecessary storage charges. Also, on occasions a manually typed invoice would be created to achieve the early release of the D.O./R.O."

9. There was at the time a senior member of staff in MEAL, M K Lam by name. He was the Credit Manager. But he was not called as a witness for the prosecution as he had emigrated to New Zealand in late 1992. At some point in time during the procedures alluded to above, it is not clear when, M K Lam became involved in the approval of the transaction after checking that the customer/purchaser had sufficient credit facilities available. If a proposed transaction should exceed the company's credit limit established for the customer/purchaser, the company's computer would automatically block the transaction until M K Lam had decided to over-ride that blockage, either personally or after discussing the matter with MEAL headquarters in the USA.

10. The system of credit limits was set up by MEAL to enable their customers to purchase goods on credit, up to a certain maximum amount and for a limited period. A1 and the company's headquarters were also involved in the operation of this system.

11. As to the nineteen transactions which form the subject matter of the charges, it is not disputed that A2 was the person who made out the Sales Proposals at the request of A1, and the customers specified in those Sales Proposals were not in fact the true buyers of the plastic materials. Both accused admitted at trial that they each had full knowledge that the customers specified in these documents were not the true purchasers.

12. It was also part of the prosecution case that A1, aided by A2, used a Carmen Chow of Hung Hing, to export the containers containing the plastic materials into Mainland China. Carmen Chow was employed by Hung Hing.

13. All nineteen transactions were recorded in MEAL's books, and all the "D.Os." and/or "R.Os." were obtained by A2 before MEAL had issued their invoices to the supposed customers, as is shown by his signature on all the copy documents produced. In fact no sales contracts were prepared or despatched in relation to any of these sales.

14. There was no real dispute that had the Sales Proposals been made out in the name of Hung Hing, M K Lam would not have approved them, as Hung Hing's credit limit with MEAL would have been grossly exceeded.

15. It would be noted that none of the customers named in these Sales Proposals were active MEAL customers, and all except three had MEAL facilities allocated to them but were not fully utilised. By the use of the titles of these customers, MEAL, through M K Lam, was misled into approving the transactions, contrary to their usual credit safeguards. In the case of the other three customers, M K Lam approved them either on his initiative or after seeking instructions from MEAL headquarters in the USA.

16. The learned trial judge also noted in his Reasons for Verdict that the nineteen transactions were not all the instances by which MEAL goods were shipped to Mainland China through Hung Hing. Some payments were received from Hung Hing and credited to MEAL, although it would seem that A1 utilised these payments in "a revolving or check-kiting manner" to settle particular customers' accounts, depending on how long the account had remained unsettled, rather than crediting the funds to the relevant transaction client.

17. As to the relationship between the two applicants and Hung Hing, the judge found that A1 had initially set up Hung Hing. Both A1 and A2 had worked for Hung Hing previously. A1's brother-in-law, Brian Ma, was the proprietor of Hung Hing.

18. The issue is stated by the judge as follows:

" It is without doubt, however, that it was possible to so conduct business, and indeed that is exactly what was done in relation to the thirty-four containers. The real difference between what the prosecution allege and what both accused reply, lies in the motive for their conduct, the prosecution alleging personal gain and corporate losses through dishonesty, and the defendants alleging gain for the company through a device with full knowledge of the company. The crux of the matter is the question of dishonesty - did either defendant act dishonestly, or to put it another way, did the accused do this with the knowledge and consent of MacDonald, and were either or both acting dishonestly ?

The answer to these issues is both a matter of law and fact. The law as to what is 'dishonesty' is conveniently encapsulated in the case of R. v. Ghosh [1982] WLR 110, and both an objective and subjective test must be adopted."

19. It was the case of both applicants that neither would gain anything personally from the whole exercise, and it was always their intention to help MEAL by so conducting themselves. In addition A2's case was that he knew nothing, he was simply doing what A1, his superior, told him to do.

20. Both accused told the court below that their plan of using the credit limit for one customer in the transaction with another customer was approved by Brian MacDonald of MEAL's headquarters in the USA. The plan was to sell the plastic materials to those customers using Hung Hing as the intermediary and by using the MEAL credit facilities granted to those customers who were not actively trading with MEAL.

21. Both A1 and A2 gave evidence. A1 also called a witness, his previous and present employer, and cousin. Having considered the credibility of the defence witnesses, the judge rejected their evidence. He accepted the evidence of the prosecution witnesses.

22. In finding the applicants guilty of the charges, the judge stated that MEAL had lost HK$7.2 million from those transactions. Also each of the MEAL customers (except three) lost the ability to trade up to their maximum MEAL credit limits, and equally MEAL lost the ability to further legitimately deal with their customers up to their assessed credit limits. He noted that there was no real dispute as to the matters stated above. He also stated that there was insufficient evidence for him to find A1 had gained from his actions.

23. In seeking to appeal against conviction, A1 and A2 advanced a number of grounds.

24. A1's Perfected Grounds of Appeal are as follows.

25. On Grounds 1 and 2, A1 complains that MEAL had suffered no loss within the meaning of section 19(1)(b) of the Theft Ordinance, Cap.210, nor was there evidence to establish that A1 had intended gain or to cause loss.

26. The evidence showed that without the Sales Proposal, MEAL's goods could not be removed from their possession or control to the containers for shipment to Mainland China. In causing the falsification of the Sales Proposals the applicant intended that MEAL would be deceived into dispatching, and losing possession of, the containers without payment. This was an obvious gain to those who obtained goods worth $7.2 million without payment and a clear loss to MEAL who released them.

27. By Ground 3, it is submitted that in the absence of Brian MacDonald, whom A1 and A2 both said had approved what they did in order that he (MacDonald) might be helped by them, the judge erred in finding that MacDonald did not know or consent to the arrangement of selling MEAL's goods to Mainland China using other customers' credit limits. The judge having carefully reviewed the evidence and assessed the credibility of A1 and A2 as witnesses, rejected their evidence. Nothing which was advanced before us at the hearing of the application indicates that the judge was not entitled to come to the conclusion which he did.

28. A1's Ground 4 claims that A1 was not dishonest in using another customer's credit limit the way he did because such practice, though perhaps not common, did occur. According to A1's evidence, he had told A2 to "have a word" with his customers about such use of their credit limits. This approach to the customers did nothing to displace A1's and A2's dishonesty vis-à-vis MEAL. The judge found that this practice was not common place and was not permissible within MEAL. We cannot say that this finding was wrong.

29. The next submission is that the judge in assessing A1's credibility was unduly influenced by his "body language" when giving evidence (Ground 5) and the judge erred in saying that A1 was an evasive witness (Ground 6).

30. The only criticism we wish to make here is that the judge did seem to have given undue weight to a witness's body language. He said in his Reasons for Verdict that he looked at the body language of each witness before coming to his views. That demeanour is a notoriously uncertain guide to the truth was discussed by Litton JA (as he then was) in R. v. Ng Wing Ming (1994) 2 HKC 464 at 465. In our judgment, it is even more undesirable to place too much weight on body language by which term which we mean a more expansive and elaborate way of expressing oneself, conscientiously or not, by resorting to the movements of a part or parts of a person's body, whether it be the limbs, the neck, or the waist, etc. It is true, however, that in referring to A1 as a witness the judge did not describe him in the context of body language.

31. The judge has not stepped beyond the realms of propriety in his assessment of A1's evidence. There were sufficient grounds for him to adopt the view he did of A1's credibility.

32. Finally, there is one passage in the Reasons for Verdict which A1 takes exception to. There the judge said:

"A significant piece of evidence produced before me, which I have not yet commented on, consisted of the records of interview of both accused, which were admitted into evidence without challenge as to the voluntariness or accuracy of those records. Both accused were guarded, to say the least, during those interviews, often electing to not answer specific questions put. Of course neither accused was obliged to say anything, but having agreed to answer some queries, it is worthy of note that neither made any admissions as to their conduct, nor did either give any explanation as to what had transpired, or why."

33. It is not clear why the judge felt it necessary to refer to the records of interviews under caution. There was nothing wrong in a person adopting a guarded attitude when interviewed by the authorities, and he is perfectly entitled to not answer any questions. We find the above quoted passage unnecessary and unfortunate. However, it is clear that when the passage is read as a whole, he gave no weight to the failure to answer questions.

34. A1's convictions were not unsafe and unsatisfactory.

35. We now come to A2's application for leave to appeal against convictions.

36. His first ground is that the judge did not consider the case of A2 separately from that of A1. A careful reading of the Reasons for Verdict shows clearly that the judge did treat the two cases of A1 and A2 separately. There is no substance in the first ground.

37. Ground 2 makes a similar point as A1's Ground 3 repeating the absence of MacDonald as a witness. It was submitted on behalf of A2 that in not calling MacDonald the prosecution had failed to rebut A1's defence. The judge had considered and rejected the defence. He did not accept A1's evidence. This ground must also fail.

38. Ground 3 contends that the judge placed too much weight on A2's failure to answer certain questions under caution. We have dealt with the same point in considering A1's case

39. Ground 4 is that the judge placed undue weight on A2's demeanour when giving evidence. It is true the judge, in explaining fully why he rejected A2's evidence, described his demeanour. The criticism we made in respect of the assessment of A1's credibility is equally applicable here, and we make the same observation that the judge has not exceeded the realm of propriety in his assessment of A2's credibility.

40. By Ground 5, A2 advances the argument that the judge failed to consider a prosecution witness's evidence that the practice of "swapping" credit limits happened once in MEAL where A2 used a customer's credit limit to do a transaction for another company. But the attitude of the senior management was: "I believe D1 explained to MacDonald the transactions some mistake in the documents, and the incident was let go." The answer certainly did not imply approval or permission on MEAL's part.

41. In our judgment the learned judge did not err in convicting A2 as charged.

42. For the reasons stated above both applicants' applications for leave to appeal against their convictions were dismissed.

Representation:

Mr A A Hoosen (D.L.A.) for A1

Mr Lawrence Lok QC and Mr Bernard Mak (Messrs Patrick Chung & Co) for A2

Mr Robert Lee of the Attorney General's Chambers for Crown/Respondent