HKSAR v. Kwok Wai Bun and Another

DCCC 1075 /2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1075 OF 2011

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BETWEEN

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Reasons for Sentence

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Introduction

1.On 23 February 2012, both D1 and D2 pleaded guilty to the offences of fraud in Charges 1 and 3, contrary to section 16A of the Theft Ordinance, Cap 210. After their admissions to the Summary of Facts on 27 February 2012, they were both convicted on Charges 1 and 3.

2.Following their convictions on Charges 1 and 3, the prosecution applied to offer no evidence against D1 and D2 on Charge 2. D1 and D2 were therefore acquitted on Charge 2.

Facts

3.The facts admitted by D1 and D2 are as follows:

(i) Sun Bus Limited (“Sun Bus”) acquired Hoi Tai Tours Limited (“Hoi Tai”) in mid-August 2006. Since then, Hoi Tai has been providing non-franchised coach services. Operation and vital decisions of Hoi Tai have to be reported to the General Manager of Sun Bus, Wong Chun-hung (“PW1”), and the Senior Manager (Finance and Administration) of Sun Bus, Leung Wood-king (“PW2”).

(ii) Sun Bus employed D1 and D2 on 28 September 2006 and 28 May 2007 respectively. D1 and D2 were assigned to take care of the daily business of Hoi Tai as its Traffic Manager and Operations Officer respectively.

(iii) Hoi Tai has its own fleet of coaches and drivers. If Hoi Tai did not have sufficient vehicles or it was not suitable for a Hoi Tai vehicle to operate that route, then vehicles from Sun Bus or other associated companies would be used. If such means were still unable to cope with the order, subcontractors would be used. D1 was responsible for securing subcontractors but when the order was a long term one or a higher value one, he had to obtain prior approval from PW1 and PW2 before subcontracting. D1 would submit a written proposal, setting out the reasons for outsourcing and the profit margin, for PW1 and PW2’s approval. Having obtained PW1 and PW2’s approval, D1 could sign the agreement with the subcontractor on behalf of Hoi Tai.

(iv) D1 had to follow the paramount interests of Hoi Tai which was to ensure the most benefit to Hoi Tai when engaging subcontractors. D1 and D2 were not allowed to gain personal benefit from subcontracting work.

(v) Wahey Services Company (“Wahey”) commenced business on 25 September 2007. The owner of Wahey was D2’s wife.

(vi) Kornhill Travel Limited (“Kornhill”) was incorporated on 10 January 2008. D1’s mother was the sole director and shareholder of Kornhill.

(vii) On 10 January 2008, the same day when Kornhill was incorporated, Hoi Tai secured a contract with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) for providing coach services for HSBC staff to travel between its offices in Tseung Kwan O and various destinations.

(viii) (a) On 4 February 2008, D1 stated in his written report submitted to PW1 and PW2 that there were insufficient numbers of drivers and coaches of Hoi Tai to accommodate orders from HSBC. D1 recommended that the coach service for the HSBC staff to travel between Tseung Kwan O and Taipo (Route A), between Tseung Kwan O and Mongkok (Route B), between Tseung Kwan O and Tuen Mun (Route C) and between Tseung Kwan O and Tsuen Wan (Route D) be outsourced because Hoi Tai did not have sufficient vehicles and drivers. D1 furnished PW1 and PW2 with the profit margin that he had calculated and attached a draft agreement to be entered into by Hoi Tai and Kornhill. D1 also furnished PW1 and PW2 with the profit margin calculation and attached a draft agreement to be entered into by Hoi Tai and Wahey.

(b) On 5 February 2008, PW2 made his own calculations of the profit margins on the reports prepared by D1, and submitted it to PW1 for approval.

(c) Based on D1’s recommendations, PW1 was led to believe that Kornhill was the most suitable subcontractor for Routes A and B, and that Wahey was the most suitable subcontractor for Routes C and D. PW1 approved D1’s outsourcing proposals on 6 February 2008.

(d) On 12 February 2008, D1 on behalf of Hoi Tai signed a contract (contract no.BSC02/01/08) with Kornhill, and it was agreed that Kornhill would provide coach service for HSBC staff to travel on Routes A and B at a monthly fee of $28,000 and $24,000 respectively for the period between 14 January 2008 and 31 December 2009. All payments in connection with that contract had been made by Hoi Tai to Kornhill.

(e) On 13 February 2008, D1 on behalf of Hoi Tai signed a contract (contract no.BSC03/01/08) with Wahey, and it was agreed that Wahey would provide coach service for HSBC staff to travel on Routes C and D at a monthly fee of $28,000 and $26,500 respectively for the period between 14 January 2008 and 31 December 2009. All payments in connection with that contract had been made by Hoi Tai to Wahey.

(ix) Siu Kee Travel and Transport Company (“Siu Kee”) was a coach service provider. In early 2008 Siu Kee entered into a contract with Wahey and it was agreed that Siu Kee would provide coach service to take HSBC staff to travel on Route A from 14 January 2008 to 31 December 2009 at a monthly rate of $23,500. Siu Kee had received cheques issued by Wahey for settling payments during the relevant period. All cheques issued by Wahey to Siu Kee bore D1’s signatures.

(x) Natural Express Limited (“Natural”) was also a coach service provider. In early 2008, Natural entered into a contract with Wahey and it was agreed that Natural would provide coach service to take HSBC staff to travel on Route B from 14 January 2008 to 31 December 2009 at a monthly rate of $22,000. In late November 2008, Wahey served a notice of termination on Natural stating that Natural’s services would no longer be required. The contract between Wahey and Natural was terminated on 1 January 2009 and Natural ceased to provide the said coach service since that date. Natural had received cheques issued by Wahey for settling payments during the relevant period. All cheques issued by Wahey to Natural bore D1’s signatures.

(xi) Shun Fung Motor Company Limited (“Shun Fung”) was a coach service provider. In late 2008, it was agreed between Wahey and Shun Fung that Shun Fung would provide coach service to take HSBC staff to travel on Route B at a monthly rate of $19,000. Shun Fung provided such service from December 2008 up to around March 2010. Shun Fung had received cheques issued by Wahey for settling payments for the relevant period. All cheques issued by Wahey to Shun Fung bore D1’s signatures.

(xii) Wahey entered into a subcontract with Jetta Bus Company Limited (“Jetta”) which provided the said coach service in relation to Routes C and D. Jetta charged Wahey a monthly rate of around $24,000 and $22,000 respectively for Routes C and D.

(xiii) Both D1 and D2 left Hoi Tai on 31 March 2010. During their employments with Sun Bus and/or Hoi Tai, they never disclosed to their employer their connection with Wahey or Kornhill. PW1 confirmed that Hoi Tai would not have approved any of its staff to make personal gain in the process of the selection of subcontractors. Although Sun Bus and Hoi Tai did not require their staff to make a declaration of interest regarding the employment of subcontractor, Sun Bus or Hoi Tai absolutely did not allow D1 or D2 or other staff members of Sun Bus or Hoi Tai to gain personal benefits when dealing with the subcontracting work.

(xiv) Wahey/Kornhill made a gross profit of HK$180,000 in respect of Charge 1, and Wahey made a gross profit of HK$230,000 in respect of Charge 3.

4.D2 further admitted the following facts when he pleaded guilty to Charges 1 and 3:

(i) D2 admitted under caution that he had liaised with Siu Kee, Natural and Shun Fung for the provision of coach services to the HSBC staff in connection with Routes A and B. He admitted that Kornhill and Wahey had been set up in order that the two companies could be awarded sub-contracts from Hoi Tai. Wahey had been opened by his wife to avoid any suspicion. He admitted to owning 30% of the shares in both companies whilst D1 owned the remaining 70%. D2 said D1 paid for all the set up costs. D2 said Wahey had no vehicles or staff save for his wife who took phone messages on his behalf. He said the office address was an address of his in Yuen Long. He said D1 kept the bank documents and cheque books of the companies and that D1 signed the cheques. D2 admitted that after he had received price quotations from these coach service companies he and D1 would inflate the prices when D1 submitted the recommendations to Hoi Tai, in order that Wahey and Kornhill could make a profit.

(ii) D2 also admitted under caution that he approached Jetta to obtain a quotation to operate Routes C and D. Having obtained the quotation, D2 informed D1 and they agreed to subcontract it to Jetta. The price difference between the contract amount between Hoi Tai and Wahey and the contract amount between Wahey and Jetta was kept secret from Hoi Tai.

Clear records

5.Both D1 and D2 have clear records.

D2’s assistance to the ICAC

6.Mr Marray informed me that D2 gave a non-prejudicial statement to the ICAC on 16 February 2012, that he indicated that he would plead guilty to Charges 1 and 3, and that he was willing to be a prosecution witness against D1. The prosecution accepted D2’s offer to be a prosecution witness against D1. As a result, D2’s non-prejudicial statement was served on D1’s representative and D2 was added to the List of Prosecution Witnesses for the trial against D1. A letter dated 21 February 2012 was sent by Mr Marray to the court advising the court that D2 would plead guilty to Charges 1 and 3 and testify as the first prosecution witness. 

D1’s mitigation

7.D1 was born in December 1972 and is now 39 years old. He is married and has 2 daughters, aged 5 and 2. His right eye has minimal vision and he is receiving treatment at the Prince of Wales Hospital. His wife suffered from post-natal depression after giving birth to their two daughters and is receiving treatment at Pamela Youde Nethersole Eastern Hospital. Before this case, D1 did not have any previous conviction record.

8.Having referred this court to D1’s education, employment and volunteer work records (paragraphs 4 to 19 of the First Defendant’s Mitigation and pages 1 to 20 of D1’s Mitigation Bundle), Mr Blanchflower, SC, submitted that D1 had been a hard-working person and a contributing member of the society, that D1 kept steadily bettering himself for higher education, that D1 had steady employment and good reference from his previous employers, that D1 had participated in fund raising activities organized by World Vision Hong Kong and The Community Chest, and that D1 was an active volunteer in a number of voluntary organizations, including World Vision Hong Kong and The Scout Association of Hong Kong.

9.Regarding the circumstances of the present offences, Mr. Blanchflower referred me to paragraphs 20 to 58 of the First Defendant’s Mitigation and further submitted, inter alia, that:

(i) There was no net benefit to D1 resulting from the perpetration of the frauds in Charges 1 and 3.

(ii) Sun Bus and Hoi Tai did not require their employees to declare their interest regarding the employment of subcontractors, and there were no guidelines requiring the disclosure by employees of any interest in a contract with which Hoi Tai had business.

(iii) PW1 and PW2 approved to subcontract Routes A and B to Kornhill and Routes C and D to Wahey because:

(a) there was a genuine need to outsource the services from other subcontractors; and

(b)the prices charged by Kornhill and Wahey were reasonable so that Hoi Tai could make a reasonable profit by subcontracting the services out to Kornhill and Wahey.

HSBC also extended the contract for 1 year with Hoi Tai because HSBC was fully satisfied with the services provided by Hoi Tai. It followed that the services provided by Kornhill and Wahey were satisfactory.

(iv) The ICAC had been investigating this case against D1, D2, Kornhill and Wahey since August 2009 and PW2 had been providing information to the ICAC about them, including giving his first witness statement on 30 September 2009 to the ICAC. Yet, Kornhill and Wahey continued to be Hoi Tai’s subcontractors in January 2010 when Hoi Tai’s contract with HSBC was extended. Mr. Blanchflower submitted that it put into more clear light about whether the practice (of subcontracting the service from Hoi Tai to Kornhill and Wahey which in turn further subcontracted the service to Siu Kee, Natural, Shun Fung and Jetta) was known or condoned by Hoi Tai at some stage after February 2008. Mr Blanchflower further submitted that although D1 was fired by Hoi Tai on 31 March 2010, Kornhill continued to provide services to Hoi Tai until May 2010.

(v) Hoi Tai was awarded the contract by HSBC on 10 January 2008 and it was required to start providing coach services to HSBC on 13 January 2008. Outsourcing from subcontractors was therefore urgent. On the other hand, Siu Kee, Natural, Shun Fung and Jetta did not have any prior business relationship with Hoi Tai which did not have a good reputation in the industry – bus companies did not want to work for Hoi Tai because Hoi Tai was slow in payment. It was therefore submitted that by subcontracting the service from Hoi Tai to Kornhill and Wahey which in turn further subcontracted the service to Siu Kee, Natural and Shun Fung, D1 alleviated Hoi Tai’s urgency of getting subcontractors to start providing coach services to HSBC on 13 January 2008. It was submitted that what D1 did was just a minor mis-step fuelled by the best of intentions of helping Hoi Tai perform its contract.

(vi) By recommending Kornhill and Wahey to Hoi Tai, D1 did not make any positive assertions that Kornhill and Wahey were the “most suitable subcontractors”. D1 simply omitted to notify Hoi Tai of his, and D2’s, connections with Kornhill and Wahey when there was no company policy requiring him to do so.

(vii) Relying on the Court of Appeal’s judgment in HKSAR v Chan Kin Yan CACC430/2003, it was submitted that the present case was not a “conventional” breach of trust case or gross breach of trust case.

(viii) D1 was not in the usual position of trust which HKSAR v Cheung Mee Kiu CACC99/2006 was directed. D1 did not control or have access to Hoi Tai’s finances. D1 was in an advisory position, not a financial position in Hoi Tai.

(ix) D1 was willing to make restitution to Hoi Tai. Two cashier orders both dated 24 February 2012 in the total sum of HK$100,000 were, at the hearing on 27 February 2012, given to the prosecution for the purpose of restituting Hoi Tai.

(x) There were “exceptional circumstances” justifying a suspended sentence.

10.Today, Mr Blanchflower informed me that Hoi Tai was already in possession of the $100,000 given by D1 as restitution. Further, three letters from D1’s ex-employers were submitted to this court:

(i) In the letter from Mr Yi Kwok Tong who used to work for Hong Kong Ferry (Holdings) Company Limited, formerly known as Hong Kong & Yaumatei Ferry Company Limited as a Marine Manager, Mr Yi commented D1 as a hard working, dutiful, helpful, honest and reliable worker.

(ii) In the letter from Mr Pun Chi Cheong who used to work for Jardine Airport Services Limited as Occupational Health and Safety Assistant Manager, Mr Pun said D1’s performance was very good and conscientious. Mr Pun said D1 was “very hard working, of intergrity, abiding the law and approachable”, and that D1 “worked well with his colleagues, had never done anything in breach of the rules of the company or any laws.”

(iii) PW1, the General Manager of Sun Bus, said in his letter:

“During his (D1’s) time as my staff, he demonstrated high level of competence and high sense of responsibilities. He secured many major service contracts with many big clients such as HSBC which could strengthen our company’s client base. In terms of his relationship with colleagues, he got very well with other colleagues. He is helpful and supportive.

In character, Ben is nice and friendly. Notwithstanding the charges against Ben, Ben showed honesty in various aspects. He usually reported his team’s performance clearly and honestly without hiding negative facts which may make me angry. He was also highly committed to his promise. He never made me disappointed in meeting with his own promises relating to his job.”

PW1 in his letter asked this court to impose a community service order on D1. Mr Blanchflower submitted that PW1’s letter showed forgiveness.

A letter from D1 was also submitted to this court showing D1’s regret and saying that D1 was sorry. Mr Blanchflower also submitted that D1 wanted to make reparation to the community by way of performing unpaid work under a Community Service Order. Mr Blanchflower submitted that in light of D1’s remorse, restitution made to Hoi Tai and his willingness to make reparation, it would not be contrary to sentencing principle to impose a Community Service Order. Mr Blanchflower also asked this court to consider imposing a suspended sentence in light of the exceptional circumstances surrounding D1’s case.

D2’s mitigation

11.Mr. Cheng adopted the submissions made by Mr. Blanchflower so far as the submissions were applicable to D2.

12.In addition, Mr. Cheng submitted that:

(i) D2 was born in 1956 and is now 55 years old. He is married with two sons, aged 30 and 25.

(ii) After D2 completed Primary 6 education, he started to work to help support his family. He worked in a small factory for about 3 years during which he attended evening school and attained Form 2 level. After that, he became an apprentice in spectacles/lens making industry for 3 years. When that industry phased out, he engaged in the electronic components repair industry for another 3 years. Eventually he switched to transportation industry. He was a bus driver and a coach driver for tourist company until May 2007. He then joined Sun Bus.

(iii) D2 had given a non-prejudicial statement to the ICAC. D1’s guilty plea came after D2 had indicated his willingness to testify as a prosecution witness. Mr. Cheng referred me to HKSAR v Eriksson Rickard Wilhelm CACC454/2002, in particular paragraphs 14 and 15 thereof, and asked this court to give credit for D2’s assistance to the ICAC.

(iv) D2 played a lesser role in the frauds. The cheques issued by Wahey to Siu Kee, Natural and Shun Fung were signed by D1, not D2. According to D2’s admission made under caution, he owned 30% of the shares in Kornhill and Wahey. It was also submitted that D2 himself never took any profit from the fraud. (Mr. Cheng admitted that salaries were paid by Kornhill and Wahey to D2’s wife.)

(v) In furtherance to the submission made by Mr. Blanchflower about Hoi Tai condoning the defendants’ practice of subcontracting the service from Hoi Tai to Kornhill and Wahey which in turn subcontracted the service to Siu Kee, Natural, Shun Fung and Jetta, Mr Cheng submitted that despite D2 was dismissed by Hoi Tai on 31 March 2010, Hoi Tai requested D2 not to “rock the boat” because Hoi Tai did not want to disturb the relationship with HSBC. Mr Cheng submitted that D2 assisted Hoi Tai in liaising the subcontractors with Hoi Tai so that since mid-April 2010, the subcontractors started to work for Hoi Tai direct since mid-April 2010 (but at an increased fee).

(vi) Mr Cheng also referred to HKSAR v Chan Kin Yan and submitted that the present case was not a gross breach of trust situation, and asked this court to impose a suspended sentence or Community Service Order on D2.

Suitability Reports for Community Service Order

13.I acceded to Mr Cheng’s request and called for a suitability report for community service order for D2. I also called for a suitability report for community service order for D1.

14.The suitability reports are now available. Both D1 and D2 are considered to be suitable persons to perform work under Community Service Orders. In D1’s suitability report, it says D1 has expressed regret for his misdeeds and is willing to perform unpaid work under a Community Service Order as a means of reparation for his offences.

Sentencing authorities

15.In HKSAR v Ng Tik Ki Chaneki CACC68/2011, Mr. Justice Hartmann JA said:

“51. Criminal frauds take on an almost infinite variety of shapes, seeking to inflict all manner of harm. Often, as in the present case, they involve the exploitation of the victim’s trust. For such reasons, in respect of crimes of fraud, there is no sentencing ‘tariff’ as such.

52. That being said, in Secretary for Justice v Dank & Another [2008] 4 HKC 483, this Court said that in respect of sentencing in frauds involving breach of trust, of which this is one, the guidelines are those referred to in R v Clark [1998] 2 Cr App 137 as adopted in Hong Kong in HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776.

53. In HKSAR v Ng Kwok Wing [2008] 4 HKLRD 1017, the guidelines in HKSAR v Cheung Mee Kiu were adjusted. In cases involving a loss of between $1 million and $3 million, the sentence should be three to five years’ imprisonment.

54. In the present case, on a strict adherence to the guidelines, this would suggest a sentence of about three years and six months’ imprisonment. But guidelines are intended to assist the court in arriving at the correct sentence; they do not purport to identify the correct sentence itself: see R v Millberry [2003] 1 WLR 546, 556 per Lord Woolf CJ.”

I am of the view that although this is not a theft case involving breach of trust but a fraud case involving breach of trust, the sentencing guidelines laid down in HKSAR v Ng Kwok Wing are applicable in this case to assist this court to arrive at a correct sentence.

16.According to HKSAR v Ng Kwok Wing, where the amount involved was between $250,000 and $1 million, the sentence should be two to three years’ imprisonment, and where the amount involved was $250,000 or below, the sentence should be 2 years’ imprisonment or less. (Please also refer to HKSAR v Yeung Chiu CACC105/2009.)

17.In HKSAR v Chan Peter CACC102/2004, the applicant was the legal adviser of Mart Treasure Investment Limited (“Mart Treasure”). He conspired with others to defraud Mart Treasure’s shareholders by understating the selling price of Mart Treasure’s property to $8.2 million without disclosing to the shareholders of Mart Treasure that the purchaser in fact agreed to pay $13.2 million. On appeal, Mr Blanchflower representing the applicant submitted, inter alia, that:

(i) Mart Treasure’s shareholders were able to make a profit out of the project and some of them had been prepared to pay commission to the applicant’s co-conspirator Dai Shu Sing (“Dai”) if he had asked for it. After Mart Treasure’s shareholders learned of the fraud, they continued to engage the applicant and Dai.

(ii) Despite the price difference of $5 million (i.e. the purchase price of $13.2 million the purchaser was prepared to pay, and the selling price of $8.2 million Mart Treasure was prepared to accept), the judge should only have taken into consideration the amount obtained by the applicant, namely the sum of about $1.15 million. It was also submitted that the money was given to the applicant’s wife.

Mr Blanchflower also asked the Court of Appeal to take into consideration the applicant’s own history. In dealing with the matters submitted by Mr Blanchflower, Mr Justice Yeung, JA (as he then was), said:

“76. Previous good character and the impact of conviction on the applicant’s future career count very little as mitigation in cases of this nature. As the Lord Chief Justice said in Barrick (supra) at p 81:

‘The type of case with which we are concerned is where a person in a position of trust, for example, an accountant, solicitor, bank employee or postman, has used that privileged and trusted position to defraud his partners or clients or employers or the general public of sizeable sums of money. He will usually, as in this case, be a person of hitherto impeccable character. It is practically certain, again, as in this case, that he will never offend again and, in the nature of things, he will never again in life be able to secure similar employment with all that that means in the shape of disgrace for himself and hardship for himself and also his family.’

77. Put crudely, the applicant would not have been able to do what he did but for his previous good character and he should have foreseen the consequence of what he did.

…

84. The essence of Mr Blanchflower’s further submission was that when applying the Clark or Barrick guidelines for a breach of trust offence, the court should limit itself to the amount which the particular accused had obtained.

…

86. With great respect, the submission is illogical. Sentencing is intended to address the criminality for which an accused should properly bear responsibility.

87. What happened in this case was that the applicant together with other put their minds together with the intention, by their conduct, to which conduct the applicant’s role was central, of defrauding the applicant’s clients of the difference between the true selling price and the represented selling price, namely $5 million, less such commission as they authorized, or might reasonably be expected to have authorized had the matter been put to them.

88. The logical consequence of Mr Blanchflower’s submission, were it correct, would be, for example, that if conspirators set out to defraud persons of very substantial amounts of money, and to that end put into place complex plans, but were arrested before the execution of the conspiracy so that none of them in the event obtained benefit from the criminality, the sentencing court would be expected to apply the lowest of the Barrick or Clark brackets. This makes no sense.

…

91. We do not say that the amounts by which individual conspirators have benefited are irrelevant, for that may often illustrate where in the scale of culpability each should be placed.

92. However in a case such as this, where the applicant had been in the forefront of the conspiracy, directed at one group of people, to be achieved by one misrepresentation, so that the pie could then be divided between the conspirators, it seems to us that to proceed on the basis that the scale of the conspiracy, so far as he is concerned, should be limited to the amount of his individual benefit, is to ignore his true criminality.

93. It was then suggested, in the alternative, that the criminality should be limited to the amounts filtered to the applicant’s family and to Dai and his associate, a total of about $2.5 million and that we should ignore the sum of about $1.6 million paid, purportedly as commission, to Tang and his associate.

94. It was said that this latter sum was never part of the case of fraud put forward by the prosecution and that it was never alleged that this sum was not properly due to them.

95. We do not agree. It was inherent in the whole case that $5 million was hidden from the shareholders and that part of that money was paid to Tang and associate, a payment never mentioned to the shareholders, let alone authorized by them.

…

100. One does not approach the question of sentencing as some pure mathematical exercise. The correct approach in this case, is one which has to reflect the true criminality of the applicant’s conduct. That criminality was a plan to defraud the applicant’s clients of a sum close to $5 million, with the applicant intending to retain for himself a significant proportion of that sum.

101. In the event, the sum of which the shareholders were in fact deprived, as evidenced by the judgment they obtained in the civil action against the applicant, was $4.1 million.

102. The applicant had received a proportion, which befits his role in the conspiracy, and of course we take into account as a fact, that the full sum defrauded did not go to his pocket.

103. This is the reality of what has happened and it is looking at these facts globally that dictates the correct approach.

104. We are of the view that the appropriate starting point based on the figures alone would have been a term of at least five years’ imprisonment.

…

119. We take the view that the size of the offence should be taken as one conspiring to defraud Mart Treasure of a sum approaching at least $4 million.

120. Applying the bands in Clark, which was what Mr Blanchflower invited this court to do (and which, as we have found, the judge did), $4 million, the subject of the conspiracy (which at present day exchange rates exceeds £250,000), should attract a term upon a contested case of not less than 5 years’ imprisonment. The sum in pounds sterling would be higher were we to apply the exchange rates applicable in 1997.

121. We are of the view that with the aggravating and mitigating factors identified earlier in this judgment, the five years’ imprisonment imposed by the judge is a proper sentence.

122. We have considered everything urged upon us. We are not persuaded that in all the circumstances of the case, including the delay in bringing the charge against the applicant and other possible mitigating factors, that the sentence of 5 years’ imprisonment is manifestly excessive.”

18.In HKSAR v Thomas Henry Spedding DCCC513/2009, the defendant was convicted on two charges of fraud, contrary to section 16A of the Theft Ordinance. The subject matter of the fraud in that case related to a serious breach of trust by the defendant to his employer, Bollman (Hong Kong) Limited (“Bollman”), which was a manufacturer of a famous headwear product under the brand name “Kangol”. The fraud was perpetrated by the defendant’s setting up a BVI company and obtaining supplies of cotton yarn from a supplier in China at an average price of HK$80 per kilogram, and then reselling by the BVI company to Bollman at a price of HK$120 per kilogram. At all material times, the defendant had never disclosed his interest in the BVI company to his employer nor had he disclosed the true identity of the supplier of the cotton yarn. In imposing sentence, Deputy District Judge A Kwok remarked that the case involved a serious breach of trust to make off with secret profits totaling in the sum of HK$1.1 million during a long period of time. Deputy District Judge A Kwok also remarked that no matter how well intended the defendant was in mind when he first started off his scheme, that must have been set off by his later taking of the secret profit during those transactions. Applying the guidelines laid down in HKSAR v Cheung Mee Kiu, Deputy District Judge A Kwok considered a starting point of 3 years’ imprisonment appropriate.

My observations

19.Regarding Mr Blanchflower’s submission that D1 did not receive any remuneration from Kornhill or Wahey and that there was no net benefit to D1 resulting from the perpetration of the fraud in Charges 1 and 3, I note that D1’s mother was the sole director and shareholder of Kornhill and that all cheques issued by Wahey to Siu Kee, Natural and Shun Fung bore D1’s signatures. D1 also recommended Hoi Tai to subcontract with Kornhill and Wahey. It defies common sense that D1 or his family did not derive any benefit from the fraud. Further, I repeat paragraphs 92 and 100 of the Court of Appeal judgment in HKSAR v Chan Peter in which Mr Justice Yeung JA (as he then was) said:

“92. However in a case such as this, where the applicant had been in the forefront of the conspiracy, directed at one group of people, to be achieved by one misrepresentation, so that the pie could then be divided between the conspirators, it seems to us that to proceed on the basis that the scale of the conspiracy, so far as he is concerned, should be limited to the amount of his individual benefit, is to ignore his true criminality.

…

100. One does not approach the question of sentencing as some pure mathematical exercise. The correct approach in this case, is one which has to reflect the true criminality of the applicant’s conduct. That criminality was a plan to defraud the applicant’s clients of a sum close to $5 million, with the applicant intending to retain for himself a significant proportion of that sum.”

In the present case, I find that the true criminality of D1 and D2’s conduct in Charge 1 was to defraud Hoi Tai so as to enable Wahey/Kornhill to make a gross profit of HK$180,000, and that the true criminality of D1 and D2’s conduct in Charge 3 was to defraud Hoi Tai so as to enable Wahey to make a gross profit of HK$230,000. That said, I accept that the net benefit D1 and his family derived from the fraud would not be as much as HK$410,000. In this connection, I note from paragraph 25 of the First Defendant’s Mitigation and page 102 of D1’s Mitigation Bundle that D2’s wife received a total amount of $221,746 from Kornhill and Wahey for the period between November 2007 and March 2010. (It was confirmed by Mr Blanchflower that the sum of $221,746 included payments to D2’s wife for matters unrelated to Charges 1 or 3.)

20.Regarding Mr Blanchflower’s submission that both Sun Bus and Hoi Tai did not require their employees to declare their interest regarding the employment of subcontractors, and there were no guidelines requiring the disclosure by employees of any interest in a contract with which Hoi Tai had business, it is noted that D1 (and D2) admitted in the Summary of Facts that D1 had to follow the paramount interests of Hoi Tai which was to ensure the most benefit to Hoi Tai when engaging subcontractors, and D1 and D2 were not allowed to gain personal benefit from subcontracting work. As I have found earlier on that the true criminality of D1 and D2’s conduct in Charge 1 was to defraud Hoi Tai so as to enable Wahey/Kornhill to make a gross profit of HK$180,000, and that the true criminality of D1 and D2’s conduct in Charge 3 was to defraud Hoi Tai so as to enable Wahey to make a gross profit of HK$230,000, it suffices to say that both D1 and D2 had failed to comply with Hoi Tai’s requirement of refraining from making personal benefit from subcontracting.

21.Mr Blanchflower submitted that (i) the prices charged by Kornhill and Wahey were reasonable so that Hoi Tai could make a reasonable profit by subcontracting the services out to Kornhill and Wahey, (ii) bus companies did not want to work for Hoi Tai because Hoi Tai was slow in payment, (iii) D1 alleviated Hoi Tai’s urgency of getting subcontractors to start providing coach services to HSBC on 13 January 2008, and (iv) what D1 did was just a minor mis-step fuelled by the best of intentions of helping Hoi Tai perform its contract with HSBC. In this connection, I have the following observations:

(a) D1 (and D2) admitted in the Summary of Facts that D1 had to follow the paramount interests of Hoi Tai which was to ensure the most benefit to Hoi Tai when engaging subcontractors, and that D1 and D2 were not allowed to gain personal benefit from subcontracting work. On that basis, what D1 should and could have done when he was outsourcing on behalf of Hoi Tai (and when Hoi Tai was facing the urgency of getting subcontractors and the subcontractors’ reluctance to work for Hoi Tai because Hoi Tai was slow in payment) was to be frank with Hoi Tai about the situation and ask Hoi Tai to improve its terms of payment to subcontractors so as to secure services from subcontractors. Indeed, in mitigation it was revealed that after Kornhill and Wahey’s respective subcontracts with Hoi Tai were discontinued, their subcontractors took their places and worked for Hoi Tai direct at an increased monthly fee. It shows that subcontractors were not completely reluctant to work with Hoi Tai irrespective of the payment terms. If, on the other hand, at the material time no subcontractors but Kornhill and Wahey were willing to work for Hoi Tai, D1 could have informed Hoi Tai of the same, disclosed his interests in Kornhill and Wahey and let Hoi Tai decide whether it was prepared to subcontract to Kornhill and Wahey under such circumstances. D1’s failure to disclose to Hoi Tai that Siu Kee, Natural, Shun Fung and Jetta were subcontracting from Wahey definitely deprived Hoi Tai of the opportunities to negotiate with those subcontractors direct and to enhance Hoi Tai’s profit.

(b)On the topic of urgency, it is noted from Hoi Tai’s respective contracts with Kornhill (contract no.BSC02/01/08 at pages 68 to 78 in D1’s Mitigation Bundle) and Wahey (contract no.BSC03/01/08 at pages 83 to 93 of D1’s Mitigation Bundle) that upon the expiry of the first three months’ probationary period, either party could terminate the contract by serving one month’s notice or giving one month’s payment in lieu of notice. It is also noted that in late November 2008, Wahey terminated its subcontract with Natural and replaced Natural with Shun Fung. It shows that there were other subcontractors willing to provide the coach services. (As I said earlier, after Kornhill and Wahey’s respective subcontracts with Hoi Tai were discontinued, their subcontractors took their places and worked for Hoi Tai direct at an increased monthly fee.) If in early January 2008 Hoi Tai had such an urgency to get subcontractors to start providing coach services to HSBC on 13 January 2008, such urgency gradually ceased to exist.

I refuse to accept that when D1 asked for Hoi Tai’s approval to outsource the services from Kornhill and Wahey in February 2008, he had the best of intentions of helping Hoi Tai perform its contract.

22.It was submitted in mitigation that Hoi Tai considered the prices charged by Kornhill and Wahey reasonable so that Hoi Tai could make a reasonable profit by subcontracting the services out to Kornhill and Wahey. In this regard, it suffices to say, as I have found earlier on, that the true criminality of D1 and D2’s conduct in Charge 1 was to defraud Hoi Tai so as to enable Wahey/Kornhill to make a gross profit of HK$180,000, and that the true criminality of D1 and D2’s conduct in Charge 3 was to defraud Hoi Tai so as to enable Wahey to make a gross profit of HK$230,000.

23.With regard to the submission that Hoi Tai continued using Kornhill and Wahey’s services for a while despite Hoi Tai’s suspicion or discovery of the fraud, similar submission was made in HKSAR v Chan Peter (paragraphs 68 and 73 of that judgment) but it is not apparent from the judgment how much weight the Court of Appeal attached to that mitigation. In any event, Hoi Tai did fire D1 and D2 and discontinue subcontracting with Kornhill and Wahey in early 2010. I refuse to accept that Hoi Tai’s continued use of Kornhill and Wahey and employment of D1 and D2 until early 2010 a mitigating factor.

24.In relation to the submission that D1 did not make any positive assertions to Hoi Tai that Kornhill and Wahey were the “most suitable subcontractors”, it suffices to say that by submitting to PW1 and PW2:

(i) the “Kornhill form” for obtaining approval from PW1 to subcontract Routes A and B to Kornhill (pages 79 to 82 of D1’s Mitigation Bundle) attaching an unsigned contract no.BSC02/01/08; and

(ii) the “Wahey form” for obtaining approval from PW1 to subcontract Routes C and D to Wahey (pages 94 to 97 of D1’s Mitigation Bundle) attaching an unsigned contract no.BSC03/01/08,

D1 impliedly represented to Hoi Tai that Kornhill was the most suitable subcontractor for Routes A and B, and Wahey the most suitable subcontractor for Routes C and D.

25.With respect to the restitution in the sum of $100,000, the two cashier orders both dated 24 February 2012 were given to the prosecution at the hearing on 27 February 2012. It was submitted that Hoi Tai’s profit from subcontracting various routes in Charges 1 and 3 to Kornhill and Wahey was $322,245.85, and that Kornhill and Wahey’s gross profit from further subcontracting those routes in Charges 1 and 3 was $409,500 (paragraphs 44 and 45 of the First Defendant’s Mitigation). In page 100 of D1’s Mitigation Bundle with the heading “Restitution Calculation”, it says that by deducting $322,245.85 from $409,500, it gives the difference in the sum of $87,254.20. It goes on to say that D1 is willing to pay $100,000 as restitution. On the basis that $409,500 was a secret gross profit made by Kornhill and Wahey in addition to Hoi Tai’s profit in the sum of $322,245.85, I see no logic in deducting $322,245.85 from $409,500 and getting the figure of $87,254.20. (As pointed out by Mr Marray on behalf of the prosecution, if Hoi Tai had subcontracted to Siu Kee, Natural, Shun Fung and Jetta direct on the same terms as Wahey did with those subcontractors, Hoi Tai would have made a further gross profit of $410,000. That said, I also note Mr Blanchflower’s submission that there was no certainty that those subcontractors would deal with Hoi Tai direct.) Nevertheless, I recognize that out of the total gross profit in the sum of $410,000 made by Kornhill and Wahey in respect of Charges 1 and 3, D1 made restitution in the sum of HK$100,000. In this connection, I note the judgment in Secretary for Justice v Hui Siu-man CAAR 10/1998 regarding full restitution but the $100,000 given by D1 is not full restitution. Further, the restitution was officially made in court on 27 February 2012 (by tendering two cashier orders both dated 24 February 2012) which was after D1 pleaded guilty to Charges 1 and 3 on 23 February 2012. As Mr Justice Stock JA (as he then was) said in HKSAR v Wong Kam-tat CACC446/2001:

“This was restitution at the very last moment and, although it counts for something, it must be viewed in that light.”

In R v Choi Sze Fai CACC192/1994 which was referred to in HKSAR v Chiu Pui Wan CACC191/1999, the former Chief Justice said:

“As to sentence, the applicant added a further point that full restitution had been made but we are of the view that the judge was right in giving little consideration to that factor because restitution was made at the very last minute.”

26.In HKSAR v Chan Kin Yan CACC430/2003, the Court of Appeal considered there being very exceptional circumstances justifying a suspended sentence or a community service order instead of the immediate custodial sentence. In this connection, I quote paragraph 11 of the judgment which reads:

“11. We are persuaded, in all the circumstances of this case as to why and how the frauds were committed, and in view of the applicant’s clear record, her ability at work and her personality as borne out by the references, that her commission of the offences was due to her intention to reach the sales target that was expected of her and her readiness to please her employer. She was not motivated from any intention to make the $566 additional commission. Nor could it be said that she intended to cause any loss to her employer. Indeed, had her frauds not been discovered, she would have raised the sales that would result in added profits for her employer. We do not accept that there was a position of trust between the applicant and 3Com as argued by Mr Zervos SC, for the respondent, albeit there was a breach of trust, though not a gross breach of trust, towards her employer which had resulted, as it turned out, in a loss to it of about $1 million. However, it has to be noted that it was her knowledge that similar frauds had been perpetrated by her predecessor as well as others in her company and the encouragement from the sales representative of 3Com in Hong Kong that gave her the misguided confidence or comfort to perpetrate the frauds. These, in our view, are indicative that she might well have not appreciated that what she did was in breach of trust that her company had reposed in her as the product manager. While we are far from saying that these were valid or proper excuses for her to commit the offences, we consider that they amount very exceptional circumstances which led her, a person with a good character and good working record, to commit the offences to which she frankly admitted immediately upon being interviewed by the ICAC.”

The facts in HKSAR v Chan Kin Yan are different from those in the present case. As I said earlier on, I refuse to accept that D1 had the best of intentions of helping Hoi Tai perform its contract. I also find that the true criminality of D1 and D2’s conduct in Charge 1 was to defraud Hoi Tai so as to enable Wahey/Kornhill to make a gross profit of HK$180,000, and that the true criminality of D1 and D2’s conduct in Charge 3 was to defraud Hoi Tai so as to enable Wahey to make a gross profit of HK$230,000. It was never suggested in this case that D1 and/or D2 were following the practice of others in Hoi Tai, or that similar frauds had been perpetrated by D1 and/or D2’s predecessors or colleagues. I find that the present case is a conventional and serious breach of trust case. I do not find the existence of any exceptional circumstances justifying a suspended sentence or a community service order.

27.With regard to the three letters from D1’s ex-employers, I repeat the first sentence in paragraph 76 of the judgment in HKSAR v Chan Peter  in which Mr Justice Yeung, JA (as he then was), said:

“Previous good character … count very little as mitigation in cases of this nature.”

28.Mr Cheng on behalf of D2 submitted that D2 played a lesser role in the frauds. I disagree. D2 liaised with Siu Kee, Natural, Shun Fung and Jetta for the provision of coach services in connection with Routes A, B, C and D. Wahey’s office address was D2’ address in Yuen Long. D2’s wife was named as the owner of Wahey to avoid any suspicion. I find that D2 also played a significant role in the joint enterprise.

Sentence

29.I have carefully considered the facts of this case, the mitigations submitted by Mr Blanchflower and Mr Cheng, the aforesaid suitability reports for community service order and various sentencing authorities. This case is a serious breach of trust case. The frauds in Charges 1 and 3 covered a long period of time, i.e. more than 28 months from 25 September 2007 to 1 February 2010/15 March 2010. I do not consider it appropriate to impose a suspended sentence or a community service order on D1 or D2.

30.In relation to Charge 1, the true criminality lies in D1 and D2’s defrauding Hoi Tai so as to enable Wahey/Kornhill to make a gross profit of HK$180,000, with D1 and D2 intending to retain for each of themselves a proportion of that sum. I bear in mind that HK$180,000 was a gross profit. I adopt a starting point of 18 months’ imprisonment for Charge 1 on D1 and D2:

(i) I give one-third discount to D1 for his guilty plea thus reducing the sentence to 12 months’ imprisonment. In view of D1’s involvement in charity work, I give him a further reduction of 1 month. I also give him one month reduction for the restitution. There being no further mitigating features justifying a further reduction in sentence, D1 is sentenced to 10 months’ imprisonment on Charge 1.

(ii) As for D2, he pleaded guilty to Charges 1 and 3, gave a non-prejudicial statement and was accepted by the prosecution to testify as a prosecution witness against D1. As D1 on the first day of trial indicated that he would plead guilty to Charges 1 and 3 thus obliterating the need for a trial, D2 was not required to give evidence. Having considered HKSAR v Eriksson Rickard Wilhelm CACC454/2002 and Z v HKSAR FACC9/2006, I give 45% discount to D2 for his guilty plea and assistance to the ICAC. There being no further mitigating features justifying a further reduction in sentence, D2 is sentenced to 9.9 months’ imprisonment on Charge 1.

31.In relation to Charge 3, the true criminality lies in D1 and D2’s defrauding Hoi Tai so as to enable Wahey to make a gross profit of HK$230,000, with D1 and D2 intending to retain for each of themselves a proportion of that sum. I bear in mind that HK$230,000 was a gross profit. I adopt a starting point of 21 months’ imprisonment for Charge 3 on D1 and D2:

(i) I give one-third discount to D1 for his guilty plea thus reducing the sentence to 14 months’ imprisonment. In view of D1’s involvement in charity work, I give him a further reduction of 1 month. I also give him one month reduction for the restitution. There being no further mitigating features justifying a further reduction in sentence, D1 is sentenced to 12 months’ imprisonment on Charge 3.

(ii) I give 45% discount to D2 for his guilty plea and assistance to the ICAC. There being no further mitigating features justifying a further reduction in sentence, D2 is sentenced to 11.55 months’ imprisonment on Charge 3.

32.On totality, it is noted that the “Kornhill form” for obtaining approval from PW1 to subcontract Routes A and B to Kornhill, and the “Wahey form” for obtaining approval from PW1 to subcontract Routes C and D to Wahey were submitted on the same day on 4 February 2008. The total gross profit obtained from the frauds is $410,000.

(i) For D1, I order that 2 months’ imprisonment in Charge 1 is to run consecutively with the 12 months’ imprisonment in Charge 3, thus making a total of 14 months’ imprisonment.

(ii) For D2, I order that 2 months’ imprisonment in Charge 1 is to run consecutively with the 11.55 months’ imprisonment in Charge 3, thus making a total of 13.55 months’ imprisonment. For easy calculation by the Correctional Services Department, I order that D2 be imprisoned for a total term of 13 months and 2 weeks.