HKSAR v. Kwok Shing Fan

DCCC 658/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 658 OF 2010

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REASONS FOR SENTENCE

1.The Defendant  has been convicted after trial of one count of  conspiracy to defraud, contrary to common law and punishable under Section 159C(6) of the Crimes Ordinance, Cap. 200,   that between 1^st May, 2006 and 31^st August, 2006, in Hong Kong, he conspired with Dai Chi-wai, Ng Yam-shee and Chan Hoi-lap, Alfred of Bolton Construction Co. Ltd. (hereinafter referred to as ‘Bolton’) to defraud the Bank of Tokyo-Mitsubishi UFJ Ltd. and Dah Sing Bank Ltd. by dishonestly and falsely representing to these banks in application forms for the issue of letters of credit and in supporting documents for the payment of letters of credit, namely cargo and/or trust receipts and commercial invoices, hereinafter referred to collectively as the documents, that the credit facilities sought were exclusively for the purchase of the materials described in the documents, whereas the materials were not in fact purchased and the payment made under the letters of credit were in respect of the total project fees, including labour costs. The Defendant’s company, Season Engineering (HK) Ltd. (hereinafter referred to as ‘Season’) was the beneficiary under the letters of credit in question. False documents were prepared and submitted to the banks that had issued the letters of credit as required under the letters of credit for payment to be effected under the letters of credit to the beneficiaries pursuant to the said letters of credit.  There was no underlying commercial transaction as shown on the documents submitted pursuant to the said letters of credit for payment under the said letters of credit to the said beneficiaries under the said letters of credit. Season was a sub-contractor of Bolton and had received contracts to do works for Bolton.  Initially, Bolton had effected payments for works done by cheques, but a time came when it was not able to meet its commitment to pay Season for the work they had done. Thus evolved this scheme whereby Bolton applied to the banks in question for letters of credit to be issued to Season for the supply of ‘one lot of marble’  in respect of each letter of credit involved.  In fact there were  no such transactions.  These were for payment of the project fees, including labour costs. False documents were prepared to comply with the requirements under the letters of credit. Bolton issued ‘cargo receipts’ to Season acknowledging the receipt of the marble allegedly purchased under the letters of credit, while Season submitted their invoice  showing they had sold ‘one lot of marble’ to Bolton together with the cargo receipt and other documents required under the letters of credit  and the banks concerned were induced to make payment under the letters of credit to Season.

2.The conspiracy took place between 1 May, 2006 and 31 August, 2006 and involved a total of 3 letters of credit from two banks,  the Bank of Tokyo-Mitsubishi UFJ Ltd. and the Dah Sing Bank Ltd.  The total value of the three letters of credit is  HK$464,715.

3.There has been a lapse of five years from the commission of the offence until now. Mr. Mackay has handed up a chronology of events in respect of this matter. One of the reasons for the delay is because the trial of the co-conspirators of the Defendant herein was a lengthy one involving some 11 charges and other sub-contractors were involved as well.  DCCC 67/2009 refers. The 3 defendants therein,  D1 Dai Chi-wai, D2 Ng Yam-shee and D3 Chan Hoi-lap were sentenced on 1 March, 2010.  The Defendant first appeared to answer the charge herein at the District Court on 29 June, 2010. Prompt investigation was carried out upon discovery of the matter.  A considerable period of time was obviously necessary in the investigation.  We heard from PW1, a staff member in the accounts department of Bolton that she was questioned  in respect of many letters of credit issued by Bolton to various sub-contractors. Clearly,  a case of this nature and complexity would require lengthy investigation.  No fault can be attributed to either the Prosecution or the Defence.

4.It is obvious that the purpose of this conspiracy was because Bolton was not able to pay Season the project fees when they became due, and this scheme was devised so that Bolton could apply for letters of credit under their credit line in respect of letters of credit with the banks in question to secure funds so that Season could be paid what they were due for the work they had done for Bolton.  I accept that Season and the Defendant herein did not profit from the conspiracy.  Although there was no underlying commercial transaction as set out in the letters of credit,  the payments to Season under the letters of credit were in payment of project fees for work Season had actually done for Bolton pursuant to the contract between them for Season to do works for Bolton at three sites.

5.Repayment has been made to the banks involved in respect of these letters of credit and the banks have suffered no financial loss.

6.In  HKSAR v Chan Kar Leung & Others, CACC 287/2004,  the Court of Appeal said:

“89. But in any event, it was clear beyond peradventure that the bank was deliberately deceived into thinking that there were goods available in Hong Kong as security and that, but for these misrepresentations, the letters of credit would not have been issued. The gravamen of culpability, when it comes to letters of credit fraud, is the fundamental damage that is done to this system of trade; a point that has been made time and again by appellate courts.”

7.In HKSAR v Lee Kwok Yun & Others, CACC 117/2004, the Court of Appeal said:

“28. It has been said too often to require any detailed explanation that the gravamen of offences of this kind lies in the substantial risk that they impose upon banks and the damage that is done to the lifeblood of commerce by letters of credit fraud. The fact that there was in the event no loss to the banks is a factor to be taken into account and it is a fact that the judge took into account; but, nonetheless, the risk was always there, and the period over which the conspiracy was effected, and in which the second applicant played a central role, was substantial.”

8.In my view, Hong Kong’s reputation as a financial and banking centre would suffer greatly if such frauds like the present one were to be allowed to grow.  The abuse of invoice loan financing, if allowed to become prevalent, would entail banks having to put in more manpower and resources to check applications for letters of credit and the contents of the documents submitted pursuant to them. Banks may even became more stringent in granting credit facilities to their clients.  Ultimately, both the banking industry and bona fide traders would suffer. 

9.Defence Counsel mitigated on behalf of the Defendant. I have considered all that he has said.  I have considered too the contents of the Background Report and Further Background Report which are before me as well as the letters handed in by Counsel from former satisfied clients and the Defendant’s employees. These letters show the Defendant to be a responsible and caring employer who takes the works undertaken by his company seriously and the works performed are to the satisfaction of the clients.  Counsel submitted that the Defendant is now aged 48. He had been educated to Form 3 in China. He is the eldest son in his family and has an elder sister in Hong Kong. Other members of his family are in China.  He has a previous clear record.  His father came to Hong Kong in 1973 as a construction laborer and the Defendant joined him in Hong Kong in 1984. His mother came to Hong Kong in 2001. The Defendant has a close relationship with her and contributes several thousand dollars to her, although this is not regular. She receives CSSA.  When the Defendant first came to Hong Kong, he worked at odd jobs in factories and then in construction sites.  He then started his own company in the decoration business, doing lobby renovation works.  It is clear that it is through his own hard work that he has achieved this.  He is separated from his wife, although he still supports her financially. Much of what I have been told about his background was confirmed by the Background Reports, and I do not propose to rehearse the contents herein. Counsel has submitted that the Defendant was not the mastermind of the conspiracy – that he was unfamiliar with letters of credit and quite ignorant of the legal consequences.  Bolton was in financial difficulties at the material time, as was the Defendant and the Defendant participated in the scheme as he had no choice if he wanted to get paid. I am told that he  is now remorseful. However, even when he was interviewed by the probation officer for the Background Report,  he maintained that he had committed the offence out of ignorance.  Counsel submits that the Defendant is still owed over HK$100,000 by Bolton.  Counsel submitted too that the Defendant only played a minor role – I do not accept that – had the Defendant not participated by negotiating the letter of credits in question using the false documentation, the scheme would never have got off the ground.

10.A number of cases have been handed up.  In particular, I have before me the  reasons for sentence in respect of DCCC 67/2009, relating to the three co-conspirators of the Defendant herein. Each was convicted after trial.  The charge that is the same as the present one is Charge 7.  D1, Dai Chi-wai, was sentenced to 3 years and 4 months’ imprisonment, D2 Ng Yam-Shee to 3 years’ imprisonment, and D3 Chan Hoi-lap to 2 years and 2 months’ imprisonment.  A lower starting point was taken on behalf of D3 because the Court found that he had wanted to withdraw from the conspiracy.

11.Defence Counsel has submitted a number of authorities  - HKSAR v. Lau Kin-yu, HCMA 391/2002, HKSAR v. Yeung Shu-pui, DCCC 11122/2008, HKSAR v. Chiu Peng, [2002] 1 HKLRD 185, SOJ v. Lin Min Ying, [2002] 3 HKC 415, and SOJ v. Hui Siu Man, [1999] 2 HKLRD 236.  I have considered all these.   As in all cases, each case depends on its own particular facts.

12.I view the offence as a serious one. As Stock J. said in HKSAR v. Chin Kam Chiu, CACC 179/2004,  at paragraph 7:    “The gravity of offences within this category lies in the attack which they present to the efficacy and importance of the documentary credits system and the risk that is created whether or not in the event there is a loss”.

13.The Defendant has been convicted after trial. Such remorse as has been shown by him has been after he has been convicted. I accept that the Defendant was not the mastermind of the conspiracy, and he received no reward other that what was due to him and his company by Bolton for work that he had done for them. He had little choice but to participate to get paid his dues. I note too that there has been no loss suffered by the banks involved. I bear in mind that he has a previous clear record.

14.Taking into account all the matters put before me, bearing in mind too the circumstances of the Defendant and the offence, I take as a starting point 3 years’ imprisonment.  I accept that there has been some delay in bringing the matter to court, albeit I do not find that fault can be attributed to the Prosecution or the Defendant.  But there has been delay, and in my view the Defendant is entitled to some discount to reflect that, and I give him a discount of 6 months.  I also give him a further discount of 3 months to reflect his previous clear record. The Defendant is sentenced to 2 years and 3 months’ imprisonment.

15.I have considered whether there are circumstances to warrant my suspending this sentence.  In my view there are none.