HKSAR v. Cheung Yiu Ming

DCCC320/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 320 OF 2011

----------------------

---------------------

Reasons for Verdict

---------------------

1.The defendant faces three charges.  There are two charges of fraud, contrary to section 16A of Theft Ordinance and one charge of agent soliciting an advantage, contrary to section 9(1)(a) and section 12(1) of the Prevention of Bribery Ordinance.

2.The background to the charges arises out of the setting up of a company called Transact24.  I'll refer to it as “T24” in future.  This company was set up in September 2006.  The company was to provide a platform for online payments and technical support for merchants in receiving payments from customers on the Internet.  The company business also involved clearing transactions relating to banks and financial institutions. 

3.The charges arise out of the time that the defendant was working for T24.  The actual status of the defendant, whilst working at T24, is in dispute.  However, it is undisputed that the defendant was the technical director of T24 and was involved in setting up a technical centre in Zhuhai, Guangdong, to handle program development on the mainland. This centre was later called “Africa Asia United Technology Company Limited”, “AAUT”. 

4.The defendant recruited PW5, Chen Zhiwei, to head the office, and this person recruited further staff.  The defendant was responsible for the operation of AAUT, and also claimed the expenses of this office from AAUT.  The expenses included the wages of workers, office rent and miscellaneous expenses.  

5.The prosecution say that the defendant was an employee of T24; that the running costs of the technical centre in Zhuhai were to be borne by T24, and no person was permitted to profit from the expenses of the office; that only the actual costs of the office were permitted to be claimed from T24 by the defendant.  In respect to the 1st charge, this relates to the period between 1 November 2006 and 29 February 2008.  The defendant would receive the actual cost of the expenses of the technical office in Zhuhai from PW5, and it is said he then inflated those costs before submitting them to T24 for reimbursement. 

6.T24 would reimburse the sum claimed by the defendant, who would then give the actual cost of the expenses to PW5 and retain the balance for himself.  The total amount alleged as retained, as it were, profit in Charge 1, is approximately 563,318.23 Renminbi.  The 2nd charge relates to a period from March 2008.  On that date it is said that T24 required submission of supporting expenses, receipts and invoices. 

7.Between 1 March 2008 and 31 May 2009, after PW5 or PW6 sent the monthly expense schedules of AAUT to the defendant, it is said the defendant inflated the figures, then instructed PW5 or 6 to prepare invoices that reflected those higher figures, which were submitted to T24.  Again the defendant paid the actual cost to PW5 and retained the balance.  Charge 2 alleges this figure to amount to approximately 326,846.44 Renminbi.

8.The 3rd charge relates to the involvement of T24 with a United States based company called MAS Incorporated, referred to as “MAS”.  MAS was to provide a bank to T24 to facilitate Internet payments via a platform known as the “automatic clearing house”.  This was to be done on the basis that MAS would share 25 per cent of the profit generated. 

9.The prosecution say that the defendant, as an employee of T24, sent certain e-mails to Manuel Sanchez, the operator of MAS.  E-mails were sent between 13 and 15 June 2009.  These e-mails, it is said, were to solicit a commission, ranging between 40 and 50 per cent of the profits MAS made.  A commission was sought on the basis that the defendant’s efforts on their behalf had secured a higher profit sharing for MAS. 

10.It is clear from the beginning that the charges against the defendant were brought on the basis that the defendant was an employee of T24, that the technical office, the Zhuhai office, was a T24 office, and that the defendant was running the Zhuhai office in the capacity of an employee of T24.  This is disputed by the defendant who says that he was never an employee of T24; that he never entered into an employer/employee relationship with that company.  In relation to the 3rd charge, the defendant also says that he was never an agent of T24, although the charges pleaded that his position as an agent arose out of being an employee.

11.I turn to the evidence.  The 1st prosecution witness established that the defendant owned 4.59 per cent of T24 and was their technical director, facts that are not disputed.  He assumed the defendant was an employee and he assumed the defendant had an employment contract.

12.PW2 was Mr Stefanus Meyer.  He was the managing director of T24.  He first met the defendant in 2002.  He used the defendant’s company Azonic Solutions.  When setting up T24 he realised he would need a technical individual to assist in setting up a company.  It was decided that the defendant would be a shareholder.  He was responsible for technical infrastructure for software development.  He was paid a direct salary of US$7,500 and, up to June 2009, he received this monthly figure, except where a loss was made, when the money was put on a loan account.  A schedule of what was described as “salary payments” was P413. 

13.Following the dispute where the defendant was dismissed, a payment was made to his provident fund to cover his MPF payments.  PW2 referred to a service agreement, P30, and a secondment agreement, P31, which governed the defendant’s relationship with T24.  Although PW2 referred to the defendant as an employee, it is common ground there was no employment contract.  He said that the defendant could not accept any advantage from a client of T24.  He said in principle people who work for the organisation should not be paid fees by another organisation. 

14.In relation to Charge 3, his connection with MAS and Manuel Sanchez arose out of the loss of Deutsche Bank.  This was referred to on the periphery, but they could not keep a relationship with T24 as it became apparent that T24 processed payments for online poker playing.  Although not mentioned in evidence, this was an activity that was to be outlawed in the United States.  They had six weeks to find an alternative bank.  The defendant introduced PW2 to Mr Sanchez and an agreement was discussed for MAS to provide banking services to T24.  Eventually it was agreed that T24 would pay MAS a commission of 25 per cent. 

15.On 13 June PW2 was told by Mr Sanchez, and he received an e-mail from the defendant, copied to the defendant’s business colleague, a Mr Francis Ng, saying to Mr Sanchez that NTS, a company of Mr Ng’s, wanted 60 per cent of the 25 per cent that T24 would pay MAS.  The 2nd prosecution witness told Mr Sanchez no such payment should be made, and no payment was in fact made.

16.Following this PW2 decided to dismiss the defendant.  PW2 said T24 originally offered a 15 per cent commission to MAS, but the defendant had suggested to Mr Sanchez that this was too low, and the figure had been increased to 25 per cent.  PW2 said he was devastated and had to get rid of the defendant.  On 22 June PW2 called a board meeting and prepared a document for the defendant to sign.  This is P35.  He asked the defendant to enter into an undertaking that was produced as P36.  The defendant signed both in his office.

17.In relation to the first two charges, the fraud charges from the Zhuhai office, PW2 said the office was set up in 2007 with three or four people.  It was set up by the defendant and funded by T24. The operation will be cheaper if it was set up in China.  T24 funded the Zhuhai office.  All personnel and rent were paid by T24, he said.  The office was for the sole purpose of work connected to T24.  He said there was no authority for the defendant to use the facilities for any other business than T24 business, and the defendant was in complete control of the Zhuhai office. 

18.T24 transferred funds to the defendant’s account to pay the expenses.  He said the defendant was not allowed to profit from the expenses.  Payment passed through the defendant as he was the responsible person.  He was not to make money out of it.  He was paid a salary.  No accounting documents were provided, and originally there was just a spreadsheet of costs and expenses that was provided to the defendant.  An example of this is P37. 

19.In March or April 2008 they employed Josephine Wu.  Then the accounting requirements were changed and receipts were required by her.  PW2 would initially approve the expenses.  There was no supporting document until Josephine was involved, and the approved payments were still made to the defendant’s account. 

20.The Zhuhai office was originally set up in the name of Richard Chen, PW5, or Richard Chen, as a Chinese citizen was required to be setting up this office.  The agreement was P23 and 24 when PW5 and his wife owned 90 per cent and 10 per cent of the company AAUT respectively.  The payments were not made directly to AAUT as they did not have a bank account.  He said if the expenses were not actually incurred he would not have authorised them. 

21.PW2 agreed that prior to the defendant’s dismissal on 22 June 2009 no MPF payments had ever been made to the defendant; that T24 had never made any employer’s return of renumeration of the defendant.  It’s also clear that they never carried any insurance in respect of the defendant either.

22.PW2 confirmed that the original payments for the Zhuhai office had originally been made to Azonic Solutions, the defendant’s company.  He could not dispute that Mr Haakens(?) of T24 had instructed the defendant to provide Azonic Solution invoices from October 2006 to invoice T24 for the expenses in the Zhuhai office.  He agreed that it was Mr Haakens who had drawn up the service and secondment agreements to the defendant on behalf of T24.

23.When put to him, PW2 did not agree that the defendant was never an employee of T24.  However, in cross-examination, when it was put that the position was that the defendant was employed by Azonic Solutions and seconded to T24, he conceded that he had to assume this was Mr Haaken’s intention when drawing up P30 and P31, and he also said it would seem to be in practice that Azonic Solutions seconded the defendant to T24 and that T24 would pay a fee to Azonic Solutions.

24.He agreed P30, the service agreement, covered the relationship with T24 from September 2006 to June 2009.  He understood that Azonic would charge on an expenditure basis even though the agreement allowed Azonic to charge a fee in addition to expenses. 

25.The prosecution called Josephine Wu as the 3rd prosecution witness.  She joined T24 in February 2008 to manage their financial affairs.  She confirmed T24 was responsible for the Zhuhai office expenses.  The expenses were in three main categories: salaries, office rent and office expenses.  Prior to her employment the defendant sent a claim from PW2 who approved it and then paid the defendant.  She changed the procedure and required receipts to be submitted with the claim.  From March 2008, for the documents submitted by PW3, prepared payment vouchers for T24, she said the defendant’s salary was divided into technical maintenance and technical consultancy. 

26.Manuel Sanchez was called as PW4.  He gave his evidence of his negotiations with T24.  The defendant was introduced to him as the technical director of MTS in a meeting in April 2009.  T24 was also mentioned in a meeting on 13 April 2009.  An ACH agreement was completed between T24 and MAS, giving MAS commission of 25 per cent. PW4 said the defendant helped MAS secure that rate from T24 by indicating T24 would pay a higher rate than the 15 per cent originally offered.  PW4 produced an e-mail sent to him, which is P33.  PW4 said that he was being asked for a share of the commission as a result of the MAS contract with T24.  PW4 eventually decided to copy his e-mail traffic with the defendant to PW2. 

27.Prosecution also called PW5, who helped the defendant set up AAUT in China and ran the Zhuhai office.  PW5 prepared the expense schedule for the Zhuhai office.  This was the actual expenses, which he gave direct to the defendant, and it was supplied between October 2006 and June 2009.  He also received all these expenses in reimbursement, paid for some small adjustments.  He said in early 2008 he helped prepare two false tenancy agreements, P41 and 42, to reflect a higher rent that was actually being paid. This was so that the amount shown on the spreadsheet would be reflected in the document.

28.PW5 gave evidence of how the expense of the Zhuhai office was claimed from T24.  In the period of the 2nd charge he was aware that the amount claimed from T24 was larger than the actual expenses incurred.  He assisted the defendant by creating receipts to match the larger figures.  It was in early 2008 the defendant started to show PW5 the spreadsheets for the Zhuhai office.  These indicated to PW5 what the amounts in the invoices should be.  The invoices were prepared in different ways.  Some were real but were not related, some were false, and some were altered using Photoshop.  PW6 assisted in this.  In her evidence she confirmed the procedure by which the invoices were created. 

29.The prosecution also called PW7 to 15, who were the employees in respect of whom wages were claimed, and they gave evidence of their actual salaries, which were always lower than those claimed by way of expenses from T24.  There were also agreed facts that covered the amounts claimed from T24 and the amounts paid.  This evidence is unchallenged. It, in effect, shows that the amounts claimed from T24 paid to the defendant’s Zhuhai office expenses were in excess of the actual cost.  The issue at this point is not whether there was an excess paid to the defendant, but whether such claims and payments to the defendant constitute the offence of fraud given the defendant’s actual relation to T24 as defined in his agreements with them.

30.In addition to the witness evidence and the evidence of admissions, there was also the contents of three records of interview made by the defendant.  The records of interview were challenged by way of a voir dire proceeding but were admitted into evidence after a hearing.

31.The prosecution say that in the video recorded interviews the defendant admits both to being an employee of T24 and also to inflating the Zhuhai office expenses.  In the third video-recorded interview the defendant says, “Each month I would mark up the wages of the staff of T24 in Zhuhai and their expenses, that is the running expenses of the office, before submitting them to the finance department.  The difference went to either the company account of Azonic or my account.  In other words, to put it more directly, the difference between the actual wages and the wages I claimed went to me.” 

32.In 620A he said he agreed the running expenses were marked up as well.  He later said that this had taken place in September 2006 to present, being June 2009.  At counter 882 he says: “As to the mark-up issue, I admit that Phillip” - who presumably is PW2 - and the other staff members of the company didn’t know it.  Well, and I have no intention of saying anything in defence of this respect either.” 

33.I turn to the defence case.  The admitted facts show the defendant is a man of clear record.  The defendant did not call any evidence.  His case was advanced by cross-examination and submission. Defence first submitted: that the evidence did not establish or could not establish to a criminal standard; that the defendant was ever an employee of T24; that the relationship between T24 and the defendant was governed by the service agreement, P30, and the secondment agreement, P31, and those agreements cover the whole period of all these charges; that, if that was agreed to by PW2, the defendant’s supposed employer, the effect of these two agreements, it is said, is that Azonic Solutions, as a consultant, agreed to provide technical service to T24 as a client, and for that purpose agreed to second the defendant, being its employee, to work at T24.  The agreement, it is said, is clear that the defendant remained Azonic’s employee throughout that period; that whatever actually happened, the legal relationship governing the parties, that the defendant could never have become an employee of T24.  That is what is said; that, in addition, there were various circumstantial pieces of evidence that supported that, and supported the contention that the defendant was not and never had been an employee of T24; that although not alleged in the charge, the defendant could not be an agent of T24 either, and on that basis, as the defendant could neither be an agent nor an employee, whatever else had happened the Charge 3 must fail.

34.In respect of Charge 1 and 2, it is said that the Zhuhai office was not and had never been a T24 office, and could not have been until after the termination of the service agreement and the secondment agreement.  The defence referred to clause 7 of the service agreement. It says: “All services shall be performed at the consultant’s facilities unless otherwise mutually agreed between the parties.  The consultant’s facilities were located at the Zhuhai office.  It is said that the circumstantial evidence also points to the Zhuhai office being an Azonic Solution’s office. 

35.The defence contests that the issue of whether the defendant could mark up the Zhuhai office expenses is governed by the service agreement, particularly clause 9, which permits T24 to be billed by Azonic for services on a monthly basis.  There is no condition that Azonic will be renumerated on an expense or at cost basis.  Furthermore, any admission made by the defendant should be disregarded as he made them under a misconception as to the actual legal arrangements that govern the relationship between the parties.  Whatever the defendant may well have said in his interview, he couldn’t make any employment relationship exist if one did not exist in the documentation agreed to by the parties.

36.It is also said that evidence given by the 2nd and the 3rd prosecution witness as to the defendant’s employment status was given by them in ignorance of the actual documents governing the relationship.  The 3rd prosecution witness’s evidence that invoices were needed to ensure that renumeration was on an at cost basis was given in ignorance of the service agreement reached between T24 and Azonic.

37.In respect of Charge 3, it was also submitted that the defendant’s e-mail correspondence could not, in any event, have ever amounted to a solicitation, regardless of his position as an employee, or otherwise.

38.The primary issue that had to be determined during the trial process was the admissibility of the records of interview.  The defendant made three records of interview between 11 pm on 22 June 209 and 10.43 pm on 23 June.  The admissibility of all three records of interview was challenged.  The defence said that shortly after a rest, but before being taken to the ICAC offices, the two interviewing officers, Mr Chan and Mr Chiu, asked the defendant questions on and off the record basis.  This continued during the car journey to the ICAC offices.  The defendant was told that his questioning would not last long.

39.At the first interview the questions were largely repetitive, or repetitions of the questions asked during the off the record questioning.  Before that interview the defendant asked if he could have a lawyer.  He was told there was no real need for a lawyer because he could leave fairly soon.  After the first interview the defendant asked to make various phone calls.  He was only allowed to call his wife.

40.It was said the second video interview record amounted to a cross-examination, after which there was a further off-the- record interview.  The defendant alleged oppression and inducement. In evidence on this issue I heard from Mr Chan and Mr Chiu.  I was able to view the relevant parts of the video interview records.  The defendant did not give or call evidence in respect of the special issue. 

41.The two prosecution witnesses deny that there were off-the-record interviews with the defendant.  They denied all the allegations of impropriety put to them by the defendant in cross-examination. I will note that, from a viewing of the video interview records, the defendant appeared relaxed, cooperative and talkative throughout the interviewing process.  At the commencement of each video recorded interview he was cautioned and reminded of his rights, including any right to legal representation.  On release from the custody at ICAC he signed a form indicating he had no complaints.

42.There were three main areas of allegation: firstly, there were informal off the record conversations; secondly, the defendant was told he had no need of a lawyer, effectively a denial of his right to legal representation; and, thirdly, an inducement to conduct the interview process as he would be allowed to leave fairly soon.  All these allegations were denied by PWs 16 and 17, the aforesaid Mr Chan and Mr Chiu.  When put to them in cross-examination, there was no evidence on these matters from any other source.  This evidence was the only evidence, combined with the video and documentary evidence for what happened.

43.I was referred to various parts of the record of interview from which it was said an inference could be drawn that there had been previous unrecorded interviewing of the defendant.  I did not consider that any of the areas of the interviews referred to introduced any reasonable doubt into the evidence of PW16 and 17 that such off-the-record interview did not occur. 

44.In respect to the defendant’s request for legal representation, he was of course told at the commencement of each interview that he could have a lawyer present.  The only request ever made by the defendant was to contact a lawyer after his release from the third video record, at counter 953.  PW16 replied that he had been told that he could have a lawyer present at any time.  The defendant replied that he knew.

45.PW16 denied the defendant wished to call anyone except to make arrangements for the collection of his car.  In any event, the defendant called his wife at around 1903 hours on the day of his arrest. 

46.I accepted these witnesses PW16 and 17 as being truthful as to the conduct of their dealing with the defendant, and nothing had occurred that would render their statements inadmissible.  I was entirely satisfied beyond reasonable doubt on their evidence that the three video record of interviews were voluntary, and I admitted them into evidence accordingly. 

47.I now turn to the other issues raised during the trial.  In this hearing, the primary issue that I had to deal with arose out of the question of whether the defendant was an employee or an independent contractor of T24.  Given that, of course, it must be borne in mind at all times that the prosecution must prove beyond reasonable doubt that the defendant was an employee.  A lot of the cases on this issue are of course decided on a civil basis of balance of probabilities.  Here there is a higher standard of proof required by the prosecution. 

48.Now, this issue affected the two fraud charges, as were the defendant an employee of the Zhuhai office and was that office run on an reimbursement basis for expenses, then the charges of fraud have certainly been made out.  And on the 3rd charge if the defendant was not the employee or agent of T24, then an essential element of defence would not be proved and it would not be necessary to turn to the rest of the evidence in respect of that charge.

49.The defendant contested he was not an employee.  The prosecution relied effectively on the evidence of PW2 and also on the documentary evidence.  They asserted PW2 was an employee of T24, and PW2 asserted that the defendant was an employee of T24, but he had not been involved in the negotiations that occurred prior to the creation of service and secondment agreements.  In fact, I never heard from either of the parties who had been part of that negotiation. 

50.It is common ground the defendant never signed an employment contact with T24.  In the absence of such a contract, and given that all the other employees had such contract, it would appear to be a somewhat uphill battle by the prosecution to establish on a criminal standard that the defendant was an employee.      

51.Anyhow, PW2 originally considered that P30 and 31 rendered the defendant, or realised the defendant to be an employee of T24, he especially relied upon the secondment agreement where the grantor in T24 and in clause 3 where it states the secondee is employed by the grantor but seconded to the host, who is Azonic Solutions.  However, after cross-examination he agreed, surprisingly, that the reality or intention of the draftee of the document could be that the defendant was employed by Azonic and seconded to T24.  So PW2 in fact was not as firm on his evidence at the end of it as he had been at the beginning. 

52.The prosecution submitted the defendant’s position at T24 should be looked at in all what is described as the overall circumstances.  It was submitted by the prosecution that a person could have more than one employer.  They said the defendant was paid what was described as a monthly salary, and he spent most of his working week at T24’s office.  He was allowed to recruit people.  He occupied a post of technical director; that in fact an MPF pay-in had been made to the defendant, albeit after his dismissal.

53.However, there were also a number of other factors that tended to push the evidence in the opposite direction.  As I have said already, firstly, and most importantly I think, for this issue, there was no contract of employment.  Secondly, the parties’ relationship was governed by P30 and 31, service and secondment agreements, and by clause 3 any person provided by Azonic would remain an employee of Azonic throughout.

54.Under these agreements the defendant never could become an employee of T24, something PW2 eventually seemed to acknowledge as being the intention of Mr Haakens, the drafter of P30 or 31.  The reference in P31 has errors in that Azonic should clearly be the grantor of T24, the host.  Otherwise the secondment agreement becomes unintelligible.

55.Besides this, as I said, the defendant was the only employee of T24 not to have an employment contract.  The defendant also occupied various other roles when he was supposedly employed by T24.  He was the vice president of Travel Zone.  He was the IT director of Mega Tourism.  He was the chief operating officer of something called HSI.  T24 never paid any insurance, filed employer’s return or renumeration for the IRD in respect of the defendant.  No MPF was paid until he was dismissed.  Fees paid to the defendant by T24 were originally classified as consulting fees and Azonic invoices, and information technology expenses in T24’s accounts.

56.Now, given that the evidence is, I think one could describe, unclear on the defendant’s actual status, and given that the prosecution have both the burden of proof of establishing this matter beyond reasonable doubt, as a matter of law the evidence in this case cannot establish, and nobody could ever had established to the standard of a criminal standard, that the defendant was an employee of T24 at any time during the time that he worked with them.

57.In respect of Charge 3, the prosecution alleged that by his position as an employee of T24 the defendant was thereby an agent.  In submissions at the end of the evidence the prosecution appear to have moved away from that and they suggest that the defendant could be an agent even if he was not T24’s employee, although no attempt was made to amend the particulars of that charge.  The offence requires that a principal agent relationship exists, that such relationship exists where there is a fiduciary relationship between the parties, where there is an express or implied consent for one to act on the other’s behalf.

58.Now, as I have said, it cannot be established on the evidence in this case the defendant’s actual relationship to T24 was one of employee/employee.  Aside from this no other factual basis has been made in this case to assert that a fiduciary relationship existed aside from that between the defendant and T24, save that at some point, save also for the fact the defendant was seconded to T24 to provide a service as technical director, I find in this case that clearly there is insufficient evidence to establish beyond a reasonable doubt this created the fiduciary relationship envisaged by the legislature or by Charge 3.  Therefore there is no evidence to prove to a criminal liability the defendant was either employee or agent of T24, and in relation to this the 3rd charge must fail and is dismissed. 

59.I now turn to the 1st and 2nd charges. Prosecution of the defendant for fraud in Charges 1 and 2 arises out of the defendant’s financial handling of the Zhuhai office.  The prosecution case on these charges proceeds on the basis the defendant was an employee of T24, that he ran the Zhuhai office as a T24 office, that he ran that office in his capacity as an employee of T24.  There is also the case the prosecution maintains that the payment of the running of the Zhuhai office by T24 was on an at cost basis, i.e. a renumeration based on the actual cost of the expenses of that office.

60.They say the defendant used deception to inflate the running costs of the Zhuhai office and thereby made a profit he was not entitled to.  In respect of Charge 1 it is said that the expenses spreadsheet was thereby deceptive or deceitful in that the defendant understood that he should only charge at an at cost basis, but permitted an inflated figure to be forwarded to T24 for reimbursement.  That is said to be fraudulent.

61.There is no dispute as to the amounts claimed from T24 by the defendant, there is no dispute as to the actual cost of the Zhuhai office, and there is no dispute the defendant knew all along that the amounts claimed exceeded the actual cost. 

62.The offence of fraud requires that there be deceit with an intent to defraud, which induces a person to commit an act which, in this case, results in a benefit to another person.  By an intent to defraud the defendant must intend to deprive a person of something they might be entitled to by dishonesty.  Fraud will only exist where the defendant is dishonest within the meaning of the case R v Ghosh. 

63.I consider the considerations are different, in fact, in respect of each charge.  In Charge 1 I have already found as a fact the prosecution evidence cannot establish to a criminal standard the defendant was ever an employee of T24.  It is also disputed that the Zhuhai office was a T24 office, at leased until after the defendant was dismissed and the service and secondment agreements were terminated.

64.It was the view of the 2nd prosecution witness that the Zhuhai office was a T24 office.  The defendant was not permitted to profit from that arrangement.  The situation was complicated by the setting up of AAUT, originally set up in the name of PW5 to comply with mainland regulations before entering into employment contracts.  The transfer of shares in November 2008 to T24 was, on PW5’s evidence, a sham as no payment was made for the shares, and in fact a formal transfer was later performed in June or July of 2009.

65.The 2nd prosecution witness had said that the defendant’s reimbursement was on a trust basis.  He expected no profit will be made and would not have approved it.  The 2nd prosecution witness himself had entered into a regulation of operations agreement between himself and T24. This was also drafted by Mr Haakens.  Clause 4 of that agreement provides that costs arising in new entities are the responsibility of T24 and will be renumerated on an expense basis. 

66.In this case the defendant never entered into such an agreement with T24, so it would appear that T24 had different approaches to the entities that they were involved in setting up.  And it would also appear that the 2nd prosecution witness’s understanding of the position in part arose out of his own arrangements, and the agreement that he himself had with T24, which was dissimilar to the agreement that the defendant had negotiated with T24 through the auspices of Mr Haakens under the service and secondment arrangements.

67.PW3, who gave similar evidence about the charging basis for the Zhuhai office, was also ignorant(?) of the general agreements drawn up by Mr Haakens, P30 and 31.  It is clear, from the third record of interview, the defendant was aware that PW2 was unaware that the figure was not at an at cost basis, and also that the defendant understood that PW2 expected that to be the position.

68.However, whatever admission might have been made to that, the actual position is governed by the defence contractual relationship with T24.  And that, of course, is determined by the agreements, not by what people’s opinions of the agreements are.  As I said earlier, surprisingly I have not heard from either party who was involved in the negotiation and drawing these up.  I do not know what Mr Haakens’ intention was.  I can only look at the agreements he makes.

69.He created a legal framework with the intention the defendant was not an employee of T24.  He was seconded to it by Azonic.  There was an agreement with Azonic whereby it rendered services to T24 on a monthly basis.  Azonic rendered services and could invoice for them. There is no basis on which the service could be invoiced.  It is not the same as clause 4 of PW2’s registration operations agreement.  It is left unsaid. 

70.The prosecution say it was understood that expenses were on at cost basis.  However, it appears to have been left unspecified.  I considered all the evidence.  The prosecution again cannot prove to a criminal standard that the Zhuhai office operated purely and only as a T24 office until the termination of the defendant’s agreement with them. Similarly the prosecution cannot establish to a criminal standard what the basis of the charging of the office expenses was.

71.The lack of a clear basis for expense payment means that the submission of a spreadsheet, Charge 1, in respect of the period governed by the 1st charge, cannot in itself be a deceit or a deception as is envisaged by section 16A of Cap. 2(1)(10).  Therefore I find Charge 1 must fail, and it is also dismissed. 

72.However, in relation to Charge 2 there are a new set of circumstances arising.  Charge 2 covers the period from March 2008 to June 2009.  It is after PW3 - that’s Josephine Wu - becomes involved and asks for invoices to cover the expenses of the Zhuhai office.  There is no dispute that false invoices were created in the sense that invoices were actually forged.  False documents were created to deal with the general expenses and with the lease expenses. 

73.The 2nd charge relates to the period from 1 March 2008.  On 26th of March 2008 the defendant sent an e-mail to PW5, asking for receipts.  This was as a result of PW3’s change to the procedures claiming expenses for the Zhuhai office.  PW3 required that receipts be submitted with the claim in order to prove the expenses.  Charge 2 is based upon those changes that took place.  It is undisputed that this led to a change of procedure whereby the defendant made his claim from T24 in that invoices were provided.  Some of the invoices were, in fact, forgeries. 

74.This differs from the earlier spreadsheet, and also the claim for wages, which simply give a figure for an expense, albeit higher than the actual cost figure.  However, some expenses were supported by documents in the sense that they did not refer to them or they were forged. We know clearly that the tenancy agreement was forged, and also the expenses claims invoices were created by a forgery in Photoshop.

75.The production of a forged document is a significant factor because such a document is in itself deceitful or a deceptive act as it purports to support a particular figure by deceptive means.  It is clear that it can be an offence to claim a figure to which one is entitled by false means if it is accompanied by dishonesty.  It is necessary to analyse, firstly, to what extent the defendant was involved in the use of forged documents to support the claim for expenses.  The procedure was that from March 2008 the expenses had to be supported by invoices; invoices for the rent and salary were not originally requested. 

76.In March 2009 copies of the tenancy agreement for the Zhuhai office were requested.  Two forged documents were supplied.  In March of 2008 PW6, who worked for AAUT, was told by PW5 that receipts were required to be submitted to T24 to support the amounts previously shown in the spreadsheet.  PW6 would find and forge invoices to comply with the expenses claimed in the schedule.  Thus it can be concluded throughout the period of the 2nd charge that the amount charged to T24 was in excess of the amounts actually incurred by way of expenses.  Both these amounts, as I have said, are undisputed.  The defendant exactly was fully aware of this discrepancy that in respect of this period documents were used that were false.  Those were the documents supporting the claim for expenses, and secondly the tenancy agreements. 

77.The defendant disputes that he either knew or authorised the use of false documentation in respect of either of these categories, although he is aware of the differences between the prices claimed and those that were paid to him.  The evidence on the question of the defendant’s involvement in the use of false documents comes from PW5.  PW5 said that, “From 2008, every month we had to give an invoice to T24 with supporting documents.”  In the schedule there was a figure of 8,000 for the rental.  PW5 said that had to be substantiated, and the defendant instructed him to do this, that is create P41 and 42.  He said he did this on the instructions of the defendant.  The false documents were given to T24 in April. 

78.In respect of the expenses, receipts were prepared according to the schedule.  From January 2008 some invoices needed to be scanned to accompany the schedule.  He was also asked to gather invoices and receipts.  If the figures were not enough he would ask the defendant if the amount could be reduced and another amount increased.  They would look for invoices according to the new figures given to the defendant.  He prepared two schedules - one was genuine - to be given to the defendant.  The other was done according to figures given to him by the defendant or submitted to the defendant by T24.  Some invoices were genuine, i.e. travelling, but not related to the actual expenses, and some were made up using Photoshop.  He said Annie, PW6, sent them to the defendant, who then sent them to PW3, Josephine Wu.

79.It was put to PW5 the defendant had told him that T24 required receipts, but the defendant never asked him to make any forged documents.  He replied, “That is not the case.  I told him it was not enough.”  It was put that none of this was in his statement to the ICAC, that he had not said the defendant ever instructed him to forge the tenancy agreements. PW5 said he did not recall.  He said the ICAC had never asked him, that the defendant instructed him to do this. 

80.In the statement PW5 actually agreed he told the ICAC that the defendant said this: “Find some receipts for me to cover the two amounts.  Take a look at the sheet for me and you will understand.” PW5 said, on looking at the Excel spreadsheet, he found the figures had been inflated.  PW5 said he understood the defendant meant he was to find some false receipts to cover the inflated figures for him.

81.It was then put the defendant never instructed PW5 to make forged documents.  He told the ICAC what he understood the defendant meant.  His answer was, “No, incorrect.”  He went on to say, “He told me to do it.  According to the documents it could only mean forged documents.  In re-examination PW5 was asked if the defendant directly asked him to fabricate the tenancy agreement.  He answered, “He just asked me to solve the problem with the differences between the rent and the tenancy agreement and the rent shown on the schedule.”  The defendant did say he had to submit it to T24, and the purpose was to enable the defendant to match the amount with the defendant’s schedule to be submitted to T24. 

82.In his third record of interview at 637 the defendant said there was a mark-up ratio in the running expenses.  He did not know what it was because invoices were required.  He said it is the company’s policy that only running expenses bearing an invoice will be paid. At 719 he said, “Annie, PW6 will provide him with a spreadsheet for the month which contained the running expenses and the reimbursement money to be claimed.  At 882 he also said, “As to the mark-up issue, I admit that Phillip and other staff members in the company don’t know it. 

83.Later the defendant explained how he understood the situation at P951.  He said, “We had an informal consensus and the service and secondment agreement.  There was a long period where the process was verbally okay, but it was like a service rendered by Azonic.  It was an unwritten thing between him, Phillip, that is, and me.”  It is not clear, but I take the defendant to be saying for a long period the relationship with T24 was purely orally governed.  Eventually the service and secondment agreements were drawn up, which were backdated, which permitted him to charge to Azonic for services, and not until recently T24 registered any objection to this. 

84.Nevertheless it is necessary to assess the evidence of PW5 against the background of the evidence as it relates to the 2nd charge.  As I have already said, it is not disputed the defendant knew the amounts from March 2008 onwards were in excess of the actual cost.  The amounts by which they differ are not disputed.

85.It is not disputed that the document supporting the expenses claim and rental amount were actual false documents in that they purported to show they were the actual cost incurred rather than the marked-up price.  Now, these documents, the false documents, have been altered to show the figures disclosed by PW5 and 6. 

86.I will say at this stage that both PW5 and 6 were obviously truthful and honest witnesses.  I took into account they were giving evidence under immunity, but nevertheless they had no reason to dissemble on these issues.  And I took them as, as I say, honest witnesses. 

87.It would appear there is clear evidence that in respect of those documents, that is the tenancy and expenses claim, there is clear evidence that the offence of fraud has been committed, subject to there being an intent to defraud, as the deception on the evidence of PW5 led to continuation of the payments to the defendant.  Without these documents the payments would not and could not have been approved, and the evidence of PW2 and 3 establishes that as well.

88.The offence of fraud, as I have already said, requires that by deceit and with an intent to defraud that an act is committed which induces a person to act so as to benefit another person.  The presentation of false documents led to the payment of money to the defendant, or Azonic.  According to the evidence of PW2(?), who said payment would not have been made without these invoices.  The false documents are obviously deceitful, they certainly are deceptive.  The question arises was the defendant involved in that he gave instructions for these to be prepared and submitted knowing they will be false in themselves, and if he did that was this being done dishonestly with an intent to defraud.  Could it be done dishonestly with the intent to defraud given the overall relationship of the parties. 

89.The first issue is whether the defendant was in fact aware that the documents were themselves falsified.  The evidence in this comes from PW5, which I have already set out in my judgment.  It was his evidence that the defendant gave him the instructions to produce invoices to cover the figures in the documents submitted to D24.  He said it could only mean the defendant knew the documents would be falsified.  As he said, it could not be done in any other way.  I found this witness to be honest and reliable, but I also consider PW5’s conclusion is the only conclusion that can actually be drawn on the evidence. 

90.The documents, which could only have been falsified, were submitted to the defendant, who thereafter sent them to T24.  I find the defendant must have and did know about the falsity of those documents, and I am prepared to draw the inference that the defence knowledge of the falsity of the documents can be proved beyond reasonable doubt from the evidence of both PW5 and 6. 

91.The next question arises: Could this be done with intent to defraud?  The purpose of submitting the documents was to satisfy a demand from T24, that they were obviously relating to the payment of the monthly expenditure for the Zhuhai office.  That payment, the result of this, was expected.  The submission of false documents also provides evidence that the documents were knowingly used and thereby evidenced an intent to defraud.  Was this being done dishonestly by the defendant?

92.I find it is clearly dishonest to support a request for payment by the use of forged documentation.  I consider that any reasonable person would know this to be dishonest, and the defendant could not have realised other than the fact that this was evident from his description of this being a mistake in his record of interview.  But it is clear from PW5 that the defendant expected and encouraged the use of such documentation. 

93.Would it be, in this case, a defence for the defendant to say, “I believe this to be a legitimate claim permitted to by the leeway in his agreement with T24 as a position of a service provider.  It may be, on the evidence, that a basis for charging cannot be proved beyond reasonable doubt.  Nevertheless, it must still be dishonest to support such a claim by the use of a forged or false document. 

94.Therefore, I consider that in respect of Charge 2, in respect of the tenancy agreement and the expenses claimed where forged and false documents were used, that the offence of fraud has been established against the defendant, and the defendant’s knowledge of such fraud and involvement in this fraud is also clearly established. 

95.Therefore he will be convicted of the offence in Charge 2 of fraud.  However, the particulars of the offence must read on conviction that such fraudulent activity relates purely to the tenancy agreement and the submission of forged or fraudulent documentation.  I do not think it is necessary at this stage to give a figure for that without hearing submissions on that in due course.

96.So my overall conclusion in respect of this case is that the 1st and 3rd charges must be dismissed and a conviction entered on the 2nd charge.