HKSAR v. Chae Man Tock and Another

DCCC 973/11

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 973 OF 2011

REASONS FOR VERDICT

1.At the outset of the trial the defendants pleaded not guilty to the original 16 charges which had been preferred. D2, D1’s wife, was charged with all 16 offences. D1 was charged with 12 offences. He was not charged with offences 3-5 and 14. After pleas were entered the prosecution offered no evidence in relation to charges 7,8, 12-14 and 15 and they were dismissed.

2.The trial therefore proceeded against D1 in respect of 7 charges, namely, charges 1,2,6, 9-11 and 16 and against D2 in respect of 10 charges, namely, charges 1-6, 9-11 and 16.

3.The first 5 charges alleged offences contrary to ss. 9(1)(a) and 12(1) of the Prevention of Bribery Ordinance. All the other charges, except charge 16, alleged offences of Fraud,contrary to s.16A of the Theft Ordinance. Charge 16 alleged a conspiracy to defraud by D1, D2 and a prosecution witness who gave evidence at the trial as PW4,

4.During the course of the trial, charges 1 and 2 were amended and charges 17 and 18 were added as alternative charges to charges 1 and 2. 21 joint charges of fraud were preferred against D1 and D2 as alternative charges to Charge 16.

5.At the close of the prosecution case, the court found no case to answer in relation to charge 16, the charge of conspiracy to defraud.

Background

6.Promo International Limited (PIL), which has been trading as “Olympicpromo” ( OIL-UK), is a trading company incorporated in the United Kingdom by Peter John Townsend, PW1. It engages in the trading of premium products. PW24, Philip Palmer, is the operations manager for PIL.

7.In 2003 OIL-UK set up an office in Shenzhen to source mainland suppliers of goods. The arrangement was that the suppliers would submit purchase invoices to the Shenzhen office who would forward the invoices to OIL-UK. If the quotations were acceptable, OIL-UK would send a supplier purchase order to the mainland supplier and pay a deposit, usually 30% of the purchase price. Upon delivery of the goods, OIL-UK would pay the balance of the purchase price to the mainland supplier. No money was paid to the OIL Shenzhen office. All wages and outgoings for the Shenzhen office were paid from OIL-UK.

8.The Shenzhen office manager was a lady called Brenda Chang. She opened a dedicated personal bank account for payment of office expenses and petty cash. Wages were paid direct to the personal accounts of the employees.

9.PW24 was the effective line manager for the Shenzhen office and spent some time each year working out of that office.

10.In April 2006, D1 was employed as a merchandiser in the Shenzhen office. The prosecutions allege that he signed a contract of employment, P9. D1 denied having ever seen or signed this document.

11.PW1 was concerned about the expenses for running the Shenzhen office. He had discussions with D1 who told PW1 that an office in Hong Kong could operate more economically. D1 said that he could cut the operating costs by 40%. Eventually it was decided to open an office in Hong Kong in May 2007 with D1 as the general manager. Brenda Chang left the employment of OIL-UK some time in March 2007.

12.The prosecution case was that the Hong Office of OIL ( OIL-HK) was to be run in the same way as the Shenzhen office. OIL-HK would forward invoices from mainland suppliers to OIL-UK who paid the mainland supplier directly. No payments were to be made in Hong Kong except for exceptional cases where payment had to be made to the supplier in cash on the mainland. The prosecution case was that at all material times, D1 was employed by OIL-UK as the manager of OIL-HK. According to the prosecution, the only change in arrangements was that from May 2007 D1 would be paid in pounds sterling instead of Hong Kong dollars and OIL-UK would not pay make any payments to the Mandatory Provident Scheme (MPF) on his behalf. There was disputed evidence as to who suggested this change.

13.The prosecution allege that a letter, D10, confirming the new arrangements was sent to D1 in the internal mail. D1 denied ever having received this letter.

14.D2’s employment with OIL at the Hong Kong office started in August 2007.

15.The prosecution alleged that D1 and D2 were involved in a fraudulent scheme whereby, unknown to OIL-UK, the prices in mainland suppliers’ invoices were inflated and sent on to OIL-UK. It was alleged that after the payment of the inflated price had been made by OIL-UK to the mainland supplier, OIL-HK would contact the supplier and ask for the price difference to be paid to the personal bank account of D2 or exceptionally to the personal bank account of D1. It was alleged that in addition to inflating the prices, D1 and D2 would arrange for tooling costs to be inflated and the difference paid to D2. It was also alleged that commission payments were made to D2 by mainland suppliers without the knowledge or consent of OIL-UK.

16.It was alleged by the prosecution that D1 and D2 embarked on this criminal enterprise event before the Hong Kong office opened. It was alleged that they had come to a similar arrangement with the proprietor of a mainland supplier, Mega Handbag Manufatory Limited ( Mega), run by PW7, whilst D1 was employed by OIL in Shenzhen and therefore long before D2 joined OIL-HK. The prosecution alleged that Mega invoices at inflated prices were sent to OIL-UK and the price differences paid into the bank account of D2 after Mega had been paid by OIL-UK.

17.The defence case was that when OIL-HK opened, PW1 and D1 entered into some kind of partnership arrangement whereby D1 was entitled to inflate invoice prices for his own benefit. It was contended that PW1 was only concerned with profits his company generated in the UK and was not concerned with any profits made by D1.With regard to D2, D1 said she was aware of the new arrangements and therefore she lacked the necessary mens rea for any of the offences. D1 said under the new arrangement he was entitled to authorize payments of commission to D2.

Charges 1 and 2- D1 and D2

18.The first two charges originally averred that, in May and July 2007, D1 and D2 as employees of PIL, secretly solicited and accepted payments from Mega. Evidence adduced at trial established that D2’s employment did not commence until August 2007. The court agreed to the prosecution’s application to amend charges 1 and 2 and to add charges 17 and 18 as alternative charges against D2 alleging that she aided and abetted D1 in respect of charges 1 and 2.

19.The defence case was that there was insufficient evidence to show that any payments were made in relation to any orders placed with Mega.

Charges 3,4 and 5 – D1 only

20.These charges of bribery were preferred only against D2. It was not disputed that D2 received the payments from suppliers referred to in the charges. As I have mention above, the defence case was that she was authorized by D1 to receive such payments and D1 had told her he was authorized to do so.

The Fraud Charges

21.With regard to the fraud charges, it was not disputed that the invoices supplied by the various mainland suppliers referred to in the charges were sent to OIL-UK with inflated prices. It was not disputed that the mainland suppliers were paid by OIL-UK the inflated price in the invoices and that the price differences were paid into the personal bank account of D2 or exceptionally D1. The defence was that PW1 was aware that prices were being inflated and that under the arrangements made between D1 and PW2 this was permitted.

Summary of Evidence

22.I have set out a summary of the evidence in the appendix attached.

Directions

23.I bore in mind that the prosecution have to prove the ingredients of each offence against each defendant beyond reasonable doubt, the defendants have nothing to prove.

24.I bore in mind that the second defendant had a clear record and D1 had a criminal conviction for a minor offence committed several years previously. I therefore treated D1 as having a clear record. This is relevant to the issues of credibility and propensity.

25.I bore in mind that a number of witnesses gave evidence under immunity and I therefore treated their evidence with the utmost caution.

26.I bore in mind that, where the court relies on circumstantial evidence, the court is only permitted to draw an inference from facts proved beyond reasonable doubt, and that such an inference must be the only inference that can be reasonably drawn from such facts; the inference must be irresistible.

27.To prove that either defendant is guilty of any of the bribery offences charged, the prosecution had to establish beyond reasonable doubt that :

(1) there exists a principal/agent relationship

(2) there is a solicitation or acceptance by an agent of an offer to him of an advantage

(3) the solicitation or acceptance of that advantage be an inducement to, or reward for, or otherwise on account of

(4) the agent conducting himself in relation to his principal’s affairs or business by doing an act in relation to his principal’s affairs or business.

28.The legislation is designed to deter “ commissions taken behind the master’s back” – Bowen LJ in Boston Deep Sea Fishing Ice Company v. Ansell (1888) 39 Ch D @362.

Fraud

29.The essence of this offence consists of a person who by (a) any deceit (b) with an intention to defraud (c) induces another person to commit an act or make an omission (d) which results in either a benefit to any other person or prejudice ( or a substantial risk of prejudice) to any other person.

30.S17 (4) provides that deception means any deception (whether deliberate or reckless) by words or conduct, as to fact or as to law, including a deception relating to the past, the present or the future and a deception as to the intentions or opinions of the person using the deception or any other person.

31.As regards the intention to defraud, it must be shown that the defendant must have had the requisite intention to deprive a person of something that is his, or to which he is, or would be, or might be entitled, or to injure some proprietary right of a person by dishonesty. Dishonesty is to be construed according to the test applied in the English case of R v. Ghosh [1982] QB 1052.

Evaluation of the evidence

32.PIL which trades as OIL-UK was set up in Essex in England by PW1. The company was incorporated in the UK and both PW1 and his wife are directors. The company deals in the importation of international brand products into the UK and Europe.

33.In 2003, the company set up an office in Shenzhen with Brenda Chang appointed as the office manager. The Shenzhen office had 6-8 employees. The purpose of the office was to source goods on the mainland for customers of OIL-UK. Invoices would be received by the Shenzhen office from mainland suppliers and, if the quotations were acceptable, would be sent to OIL-HK who would place an order in accordance with the invoice. An initial payment usually of 30% would be paid direct by OIL-UK to the mainland supplier. Brenda Chang and her staff were paid a salary and bonuses.

34.Brenda Chang opened a dedicated personal bank account into which OIL-UK would make payments covering all office expenses and petty cash.

35.In March 2006, D1 was interviewed by PW1 and PW24, the Operations Manager of OIL-UK and PW1’s deputy. D1 started as a merchandising manager on a monthly salary at the Shenzhen office in April 2006. His salary was paid direct to his personal bank account.

36.In early 2007, PW1 was concerned about the costs of running the Shenzhen office. PW1 said that D1 said that the operation could be run more effectively and cheaply from Hong Kong. PW1 said that it was decided that the Shenzhen office would close and an office open in Hong Kong in May 2007 with D1 as the office manager. Brenda Chang resigned before the Shenzhen office closed down.

37.It was not disputed in this case, that, as from 1 May 2007 until 16 August 2010, OIL-UK obtained quotations for products from mainland suppliers via OIL-HK. OIL-UK would inform OIL-HK of the products required by their customers and OIL-HK would source a supplier on the mainland. The mainland supplier would send a quotation to OIL-HK. In the vast majority of cases, OIL-HK either prepared themselves or obtained from the suppliers a quotation at an inflated price decided by D1 or by staff of OIL-HK on the instructions of D1. The quotation at the inflated price would be sent to OIL-UK. OIL-UK paid the inflated price to the mainland supplier. OIL-HK would then contact the supplier and request that the amount by which the price had been inflated be sent back to OIL-HK, usually to the personal bank account of D2.

38.As regards D1, the main issue to be resolved was whether or not the prosecution had established beyond reasonable doubt that D1 was still an employee of OIL-UK from May 2007 when the Hong Kong office opened. It was the contention of D1 that, as from 1 May 2007, he ceased to be an employee the UK company and had entered into a loose arrangement with PW1 whereby he had become a partner of PW1 or they had entered into a joint enterprise. PW1 denied that this was the situation. PW1 said that there was no change in D1’s status as an employee of the company when the Hong Kong office opened.

39.D2, a merchandiser and the wife of D1, did not join the company until 1 August 2007. D1 said that he never told D2 in detail what his relationship was with PW1 but told her that he had changed from being an employee to a joint venture partner with the opening of the Hong Kong office. D1 said he did not tell D2 the reason for the mark-ups as he did not have to give her a reason. The defence case was that if D2 thought, or might have thought, that D1 was a joint venture partner of PW1 and entitled to do what he did, she would lack the necessary mens rea in relation to the offences with which she was charged.

40.There was a clear dispute between the evidence of PW1 and PW24 on the one hand and D1 on the other. PW24 produced a copy contract dated 6 April 2006, P9. PW24 said that the original was signed by D1 in the Shenzhen office in April 2006. D1 was adamant he had never seen, let alone signed, any document of this nature.

41.PW1 said that when the office in Hong Kong opened in May 2007, the only change in the contractual arrangements in relation to D1’s employment was that D1, at his own request, was going to be paid in pounds sterling rather than Hong Kong dollars and it was agreed that OIL-UK would not make payments to MPF on his behalf.

42.PW1 said that the change to the method of paying D1 was done at the request of D1 who said it would have tax and currency exchange advantages for him. D1 said that this change was made at the request of PW1 whom he claimed said that it would have tax advantages for PW1 in the UK.

The Contract P9 and the Letter P10 dated 4 May 2007

43.In the summary of evidence I have set out in some detail the evidence given by PW1 and PW24 in relation to P9.

44.According to PW24, the Operations Manager of OIL-UK, the second in command to PW1 and the effective line manager of D1 and the other OIL staff in Shenzhen, P9 was a standard OIL-UK contract which was stored on his computer and also on the computer of Brenda Chang. PW24 said that D1 had commenced his employment at the OIL Shenzhen office in April 2006. PW24 said that, at that time, he was also working out of the Shenzhen office. PW24 said that he downloaded a contract from his computer and gave it to D1 to sign. PW24 said that a few days later he asked D1 for the signed contract. PW24 said that he requested D1 to provide a copy of his identity card and he made a copy of the signature page of the contract, page 13, together with the identity card, so that a copy of the identity card would show on the page to be signed.

45.PW24 said that he personally saw D1 sign the contract. PW24 said that the signed contract was copied either by himself or Brenda Chang. PW24 said that the original contract was left in the Shenzhen office as they required original documents to show to the mainland authorities and about one week later, he returned to the UK with the copy which he filed in his office. PW24 said that, about one year later, the human resources department of OIL-UK decided to centralize personnel records and he handed the copy of D1’s contract to the department for their records. PW24 said he was later given back either the copy of P9 which he had given the HR department or a copy of the document he gave them, and he retained that copy in his files. PW24 said that he had nothing more to do with the document.

46.PW1 said that in June 2010, he discovered that D1 was stealing millions of dollars from him. He said that over the 3 years it amounted to about HKD8 million. He said that he became very concerned and made many copies of P9. PW1 said he did not know what D1 would do and feared he might even burn down his factory. PW1 said that, after a report was made to the ICAC about the activities of D1, he obtained copy of P9 from company records and sent it to the ICAC.

47.PW1 said that, after the Shenzhen office was closed down by D1, no documents from that office could be found in the Hong Kong office.

48.PW1 said that an offer of employment letter was sent to D1 when he was initially employed setting out such matters as his salary. P9 makes reference at paragraph 2.1 to such a letter but no copy of that offer letter was produced. The contract itself meant little without the offer letter of employment.

49.PW1 said that the contract, P9, was a specimen employment contract drafted by their solicitors in the UK. It was apparent that many of the clauses were totally inappropriate to the terms and conditions of D1’s employment in Shenzhen. Clauses 21.1 and 21.2 describe the “normal place of work” as “Wickford in Essex” or “anywhere” in the UK. There were a number of inconsistencies in the contract.

50.PW1 said in relation to P10 that, after the move of offices from Shenzhen to Hong Kong, D1 requested that he should be paid in pounds sterling and that he should be responsible for his own MPF payments. PW1 said that D1 said this would have tax and currency exchange advantages for D1 and that it was in those circumstances he wrote P10 and sent it to D1 along with other packages sent for delivery to the Hong Kong office.

51.D1 said that he never received P10. I noted however that P10 is dated 4 May 2007 and on, 7 May 2007, D1 sent an e-mail to Charlotte Cudlip in the accounts office of OIL-UK copied to PW1 and his wife stating :

“ Below is my new payroll account, kindly re-confirm with [PW1 and his wife] my monthly salary will be paid in GBP at 2,500 (GBP30,000 per annum) with effective from May 2007.

All bank details and account number remain unchanged.

A/C number …………..payroll account which accept GBP

A/C number…………..petty cash account remain unchanged, accept HKD only.

Let me know if you need any further details”

52.I noted that D1 asserted that the monthly contributions paid to D1 by OIL-UK in GBP were not salary payments but were made to his for the purpose of running of the Hong Kong office, fixed costs. If that were so, I could see no reason for such payments, describe in bank documents as wages, should be paid into a different personal bank account. The petty cash account was a dedicated account to cover petty cash. I also noted that the other OIL-HK employees had their salaries paid by OIL-UK into their own personal bank accounts.

53.This e-mail confirms the change in payment of his salary as mentioned in P10.

54.D1’s assertion that he did not sign P9 is supported by the evidence of DW1, Dr Valary Aginsky, the documents expert. He told the court that page 13 of the contract had a “completely different production history” and a “drastically different production history” from pages 1-12. DW1 said that page 13 is a multiphotocopy of lower resolution than the other 12 pages. DW1 said that the scatter marks pattern on pages 1-12 were completely different to those on page 13.

55.PW24 gave evidence that page 13 was copied separately from the first 12 pages at the Shenzhen office in order to photocopy page 13 with a copy of D1’s identity card copied on to it. I noted that PW1 and PW24 said that extra photocopying of the document took place about one year later when the contract was supplied to the HR department. PW1 said also that many further copies were made in June 2010 when PW1 claims he discovered that D1 was inflating the quotation prices. PW1 claimed that he made many photocopies as he feared some form of retaliatory action by D1once D1 discovered that PW1 was aware that D1 was inflating the prices on purchase invoices.

56.The additional photocopying of the document had not been mentioned by PW1 or PW24 in their witness statements. The defence suggested that this evidence was given with a view to explaining away the findings of DW1 and that PW1 and PW24 must have been made aware of such findings.

57.I also noted from the correspondence produced in exhibit D1 that PW1 was concerned about the forensic testing of P9. He said that he was concerned that this was a time-wasting tactic on the part of D1 and that PW1 had considerable mistrust of the motives of D1.

58.I noted that there was no forensic evidence to support what was suggested to PW1 in cross-examination, namely that the defendant’s signature and identity card had been cut and pasted on to page 13. DW2 confirmed there was no direct evidence of this.

59.D1 said that the signature on P9 was not his formal signature. He said it was the sort of marking he would make were he initialing a document. D1 said that he would use his full signature on formal documents and examples of such signatures were produced. Other documents were produced by the prosecution to show where for example on the lease, Ex1444 , D1 had used his informal signature.

60.It was only suggested for the first time by D1 in cross-examination that the he doubted that the copy identity card on page 13 was a copy of his identity card.

61.In relation to P10, DW2 opined that P10 and P9 had been printed from the same photocopying machines. The evidence was that the copies were obtained from OIL-UK so this evidence is of no significance.

62.In relation to P10, it was pointed out that, amongst all the documentation produced, this was the only letter. The evidence was that all other communications between D1 and PW1 were by telephone, fax, e-mail or Skype. The point was made by the defence that if ,the communication had been by e-mail, there would have been an independent record of such a communication.

63.PW1 said that the payment of D1 in pounds sterling was D1’s idea and for his advantage. D1 said that this was done at the suggestion of PW1 as he said PW1 claimed it was to the advantage of PW1 from a tax perspective. I noted that if that had been the case, it would seem logical that PW1 would have requested that all salaries for the Hong Kong office be paid in pounds sterling.

P12 National Westminster Bank Payment Records for D1

64.I noted that, in the bank payment advices produced as P12, D1 is shown to have received monthly payments of salary in HKD from OIL-UK from March 2006 to April 2007 including double pay in January 2007. OIL-UK also made MPF payments for that period.

65.From May 2007 the description of what is paid is changed from “salary” to “wages”. No further MPF payments were made in respect of D1 from May onwards.

66.I noted that these payments were very modest as compared with the enormous sums of money paid into his wife’s bank account by mainland suppliers refunding the amounts by which the prices were inflated between May 2007 and his arrest in August 2010.

E-mail Communications between D1 and PW1 – Exhibits 1389-94

Ex 1394/2543 - January 2008

67.This exhibit related to e-mail exchanges in January 2008 between PW1, his wife and D1, inter alia, concerning the payment to a mainland supplier in RMB equivalent to USD162,000. PW1’s wife is the financial director of OIL-UK. The first e-mail is at page 2534/4. On 24 January 2008, Mrs Townsend asks D1 for bank details of the suppliers of two orders. D1 responds the following day by informing her that since the supplier has an RMB account under his personal name, RMB has to be taken to the mainland in cash. Mrs Townsend replies by asking how such large payments can be made to the suppliers. D1 responds directly to PW1 saying he is “pissed off” by these enquiries and that he is more than happy if someone else were recruited to handle the money issues for the Hong Kong office. I was sure that D1 definitely did not want anyone else handling the money issued for the Hong Kong office.

68.PW1 responds to D1 on 25 January, copied to his wife and PW24, saying D1 had no right to be “pissed off” as Mrs Townsend was only doing her job. PW1 continues

“We are a limited company and we have to make reports on all our financial activity. A USD160,000 cash payment to an employee is not normal practice and has to be accounted for correctly”

69.PW1 goes on in his e-mail to state that, as no currency hedge was taken on RMB, they lost USD6,000 on the exchange rate and they would have to hedge on currency in the future.

70.D1 responds with a long e-mail from which Mrs Townsend is excluded. In his evidence, D1 stated that PW1 was afraid of his wife and she did not know about their arrangement in connection with the Hong Kong office.

71.In his reply D1 said that he had tried to make it clear how the arrangements were put in place to pay mainland suppliers in cash for the benefit of the company. He goes on:

“Make it further clear the money you transferred to my petty cash account is not for myself, it is for payments and expenses running the office, you should know me, I do all my best and effort in order to avoid any confusion and misunderstanding in using money not belongs to me, we both understand how could the situation become worse when dealing money issues with women. I believed I have done everything to ensure no confusion here and I reply to every question raised by Charlotte and Lynda

The only money belongs to me is my wages, nothing more than that.”

72.D1 goes on to ask why he needs to use his own money to pay the suppliers before he receives funds from the UK. He states that it is not the first time that there was a negative balance in the petty cash account. He reminded PW1 that he had brought more than RMB600,000 to the mainland for a previous order and asserted that the money had belonged to him and not the company. D1 goes on to mention the risk he takes in crossing the border with cash. He concludes by saying “There is a Chinese proverb- always trust the one who work for you, never work with the one that you don’t trust”

73.I noted that there was no mention in this exchange of any special business arrangement between PW1 and D1 even when D1 is communicating with only PW1 and PW24. D1 said that PW24 knew of the new arrangement between him and PW1. PW24 said in his evidence he was not aware of any arrangement whereby D1 was entitled to inflate the prices of quotations and seek commission for himself and others. It was never put to PW24 that he was aware of such an arrangement. I noted that the tone of the e-mails is quite the opposite of what D1 claimed to be the situation between him and PW1.

Exhibit P1391/2540- E-mail correspondence dated June 2008 re Holidays for D1 and D2.

74.On 24 June 2008, D1 wrote to PW24 saying that he would like to apply to take a full weeks holiday together with D2 starting from Monday 7 July to Friday 11 July.

75.PW24 replied by e-mail headed “ Re: Need a break” agreeing to the request and saying that he thought D1 needed and deserved a holiday. This correspondence was shared with Mrs Townsend, the financial director of OIL-UK and Charlotte Cudlip-Bartlett from the accounts department.

Exhibit P1393 – E-mail correspondence concerning the APL transaction dated September 2008

76.This correspondence is dated September 2008 and relates to mugs ordered by OIL-UK from APL. From the evidence, I accepted that no payment was made by OIL-UK for the third of the three shipments and there was a dispute concerning the quality of the products. I reminded myself that this transaction was not the subject of any charges. The court’s attention was drawn to this matter when counsel for the defendants introduced, in cross-examination, a letter from the UK solicitors of OIL to OC Chan and Company who represented APL and were claiming payment of HKD214,866. The reason for counsel introducing the correspondence was to show that the English solicitors in their letter to OC Chan and Company refer to D1 as “their client’s agent” rather than as an employee of the company.

77.However, when it was produced to PW1, PW1 produced e-mail correspondence suggesting that the Hong Kong solicitors were in fact instructed by D1. It was also contended that most of the money claimed would in any event have been eventually paid to D1 under a price inflation arrangement he had with APL.

78.The first e-mail is from PW1 to D1 on 4 September 2008. PW1 informs D1 not to worry about the letter from OC Chan and Co demanding payment of the outstanding amount for which D1 had written a personal cheque in the sum requested but subsequently told the bank not to pay. I noted that, although this was a personal cheque of D1, it was drawn on the account used for the payment of petty cash sums from amounts paid into the account by OIL-UK. Apparently, D1 had told PW1 that the lawyers had threatened to get the police involved. PW1 said as there was a genuine contractual dispute the police would not get involved. He told D1 to speak to the company lawyer.

79.D1 responded on 4 September 2008 by saying that all the persons he had spoken to about the matter said there was cause for him to be worried because he had issued a personal cheque. D1 said that he could not get away from his personal responsibility stating:

“ I am intended to be cheating, even though my employer telling me to do this and that. Sorry, if I did not make myself very clear, but every of my friend look stupid that I follow your instruction to negotiate for discount, to pay the supplier, to stop the cheque, and to refund back the money to you, just because you are my boss”.

80.Again, this is correspondence between D1, PW1 and PW24 only. D1 claimed that PW24 knew about his arrangement with PW1 and yet there is no reference to D1 being PW1’s partner in the Hong Kong office, he refers to PW1 as his boss and his employer.

Exhibit P1392/2541 – E-mail correspondence concerning bonus for staff of OIL-HK

81.On 30 June 2010 PW1 sent an e-mail to D1 stating that PW24 mentioned to him that, on the previous evening, D1 had asked PW24 when the HK office would receive the bonus from the first quarter. PW1 explained that they had had to slow down bonus payment for two reasons. Firstly they had made yet another loss that year and he did not want to increase it by paying bonus in June before the year end. Secondly, that, as D1 had seen, their cash is really tight at that time due to a company taking 90 days credit from them. PW1 asks D1 to tell his team that they would receive their bonuses in the July pay packet. PW1 asked D1 to extend his apologies for the slight delay and to thank them for their patience.

82.I propose to set out D1’s response in its entirety:

“I did not ask or beg for bonus, you know me. I accept whatever you offer, although I’m good at bargain, but not to you.

You did send email earlier this year to Bowie and Daniel, saying the company met the target for the first quarter and they will be entitled to the bonus scheme, you also mentioned the figures to them, which is something black and white.

I just want to let you know, I’m already dealing everyday here with suppliers who not always keep their words, this is very frustrated to work with people that don’t keep promise. I don’t want you to give my team an impression of overpromised.

You should at least send email to Bowie and Daniel and telling them the latest situation, but not keep silence until they are disappointed there is nothing being paid in their June salary. I think they will much appreciate to read email from you rather than I speak on behalf of you or the company.

Remember you met with Bowie and Daniel face to face many times in the last few years, we all appreciate every time you were here, probably you should agree Bowie and Daniel is not a greedy person only talk on money.

One more thing to mention, I much respect Lynda as your wife, still very deep in my mind the happy times to be a guest in your home, as well as the fantastic food Lynda cooked. However, on the business side, I did not report to the Financial Director the first day I joined the company, I report to the Managing Director and the Operation Director, I am not expected to do the accounts job when I joined the company as the Merchandising Manager. You should also agree that, although it does not sounds good, I do not much respect as my wife inside the office, she is treated as one of my team of no difference to Daniel and the others.

I tried to do my job as per your expectations since the first day I am in Olympic, Lynda drove me mad whenever she is jumping in and get involved with the in the middle, for example the Leffe Menu.

You or Phil should be the person I report to, I don’t think this is an un-reasonable request, I am still happy to response of any money issue to the accounts girls, but should not be nothing more than that.

The last I want to ask from you, please don’t ask me to pay the company expenses from my pocket from now on. Charlotte should be very clear of the regular expenses each month here, please ensure enough funds being transferred by the end of each month to cover the expenses of the following month. That also gives me a little respect.”

83.I noted that this e-mail was sent only to PW1. In my view, the tone of this e-mail is entirely inconsistent with D1’s assertion that he was a partner of PW1 or that they were involved in some sort of joint venture in so far as the Hong Kong office was concerned. Indeed, in this context, I noted that PW’s 2, 3 and 4, the OIL-HK merchandisers, were given different reasons for the price inflations. D1 in his evidence even claimed that OIL-UK was part of his set up and that he told PW3 that HK was the buying office and that OIL-HK was his sales office.

84.D1 claimed that PW4 lied when he said he was told by D1 that mark ups would be shared as a bonus to staff.

85.D1 claimed he told D2 that in addition to her wage she would be paid commission on the orders she handled.

P1389/ 2538 E-mail correspondence dated July 2010 re Braun Bag Shipment

86.On 20 July 2010 PW1 sent an email to his wife, D1, PW24, and Charlotte Cudlip in the accounts section giving them all various tasks in connection with this shipment. D1 is tasked, inter alia, with arranging an inspection date for the goods. He wrote back to PW1 by e-mail asking for some clarification of the inspection arrangements. He adds that this is “one more thing for the boss to decide”.

87.The cumulative effect of these e-mails, taken in conjunction with the other circumstantial evidence pointed strongly to D1 being an employee of OIL-UK rather than a business partner of PW1 as he alleged. I did not believe D1’s contention that the words used by him were with a view to acknowledging PW1’s “seniority” in the working arrangement.

Emails produced by Defence – Exhibit D5 -

88.This correspondence dated 22 April 2008 concerns a payment of USD50,000 by D1 on behalf of OIL-UK. D1 had written to the UK accounts clerk for reimbursement and then wrote to PW1. PW1 replied that the accounts clerk was on holiday and the money would be sent that same day by telegraphic transfer. PW1 thanked D1 for his assistance and said that “it helped to keep the wheels turning for a few days”.

89. D1 responded saying he had done this :

“as a personal favour to PW1, not the company, and although it was not the first time hopefully it would be the last. D1 goes on to say that it was probably not the right moment to discuss to be a shareholder, but definitely feeling there is a big potential Olympic can make a bigger step to a sizeable corporation. I won’t be shy to discuss with you my year end bonus this year!

90. There is a post script where D1 states that he assumed PW24 had already told him that a new person called Brian ( PW3) will report duty on 5 May.

91. I noted that all the payments in relation to this matter are recorded in the office petty cash book and monies used were paid through the dedicated account in the name of D1 but used for company payments and through which passed substantial amounts of money. The fact that the defendant stated that he would rely on this to support his discussions in regard to year end bonus, in my view, supports the contention that D1 was an employee. It is inconsistent with his assertion that PW1 and PW24 were aware that D1 was in some sort of partnership arrangement with PW1 and that OIL-UK were sending to OIL-UK inflated quotations which included a mark-up for D1.

Correspondence and evidence relating to Aesthetics Prototype Limited(APL) Claim – Ex D3, D4, P1393 and P1438

92.I have referred to this matter previously in other contexts.

93. In his cross-examination of PW1, defence counsel introduced exhibits D3, a letter before action dated 23 August 2008 from C.O. Chan and Co, purporting to act on behalf of APL, to D1 claiming that he owed his client HKD214,866 for materials sold. Also produced was a cheque dated 2 July 2008 drawn on a personal account of D1 with DBS in the sum claimed. After the cheque had been drawn, D1 stopped the cheque on the instructions of PW1 because of quality issues.

94. I noted that this transaction was not the subject of any of the charges. The purpose of introducing this matter was twofold. Firstly, to show that the English solicitors instructed by OIL-UK, when they wrote to Chan and Co on 5 December 2008, D5, referred to D1 as their client’s agent, rather than as their employee.

95. Secondly, it was used to show that D1 had used a personal cheque to pay this debt. This, they argued was inconsistent with his position as an employee.

96. Having raised this matter with PW1, PW1 stated that he had reason to believe that the Hong Kong solicitors were acting on the instructions of D1 and he produced e-mail correspondence between D1 and Chan and Co, P1438. This in turn led to questions being asked by the prosecution about the underlying transaction and their contention that not only was D1 involved in instructing the Hong Kong solicitors, but the monies claimed were monies which would have been paid back in any event by APL to OIL-HK which had presented an inflated the invoice. In other words, APL, had received most of the money to they were entitled in their original quotation and most of the outstanding amount was D1’s mark-up.

97. D1 said he had been to see the Hong Kong solicitors with APL’s proprietor “Ronnie” as Ronnie was not good at English, poor in communication, was often outside Hong Kong, and wished to settle the matter peacefully. D1 said that he accompanied Ronnie to see Chan and Co in August 2008 before Exhibit D3 was sent.

98. One week after D3 was sent to D1, PW1 sent an e-mail to D1, Ex 1393/2542/2, in which PW1 said he had been speaking to PW24 who told him that D1 was still concerned that he might be in trouble with the police as threatened by the Hong Kong lawyers. PW1 reassured D1 that it was a civil matter and that the police would not be interested.

99. D1 alleged in his evidence that subsequently he was visited by debt collectors on behalf of APL and threatened. D1 told PW1 about this and it was this that led to the solicitors for OIL-UK writing to Chan and Co. D1maintained that on one occasion in August he returned to his office to find 4-5 persons waiting in his office. He said they were smoking. He said that they told him they were there to collect money and when he tried to ring the management, they grabbed his phone and pushed him away. He said that when he arrived back at his office he was told that they had been waiting there for 15-20 minutes. PW’s 2,3 and 4 were all working for OIL-HK at the time but none of them were asked about such an incident.

100. After OIL’s UK solicitors wrote to Chan and Co to complain about D1 being assaulted by “people who mentioned your clients name”, “Judy” from Chan and Co sent a a copy of the letter to D1, D1 sent an e-mail to Chan and Co

“Dear Judy,

Just ignored (sic) the letter an no reply required

Regards,

Dick”

101. In the end, this money was never paid to APL. D1 claimed that after many threats to him he resolved the matter by paying RMB 3000/4000 to the forwarder involved in the deal. APL did not respond to the letter from OIL’s UK solicitors and their offer to settle the matter for USD7,500 was never taken up.

102. D1 gave evidence in chief about his dealings with “Ronnie” of APL. OIL-UK had placed an order with APL for a number of mugs to be sent out in 3 shipments. In his evidence in chief D1 said that the initial 30% deposit was paid and payments were made for the first and second shipments. This tallied with the evidence of PW1. PW1 said he refused to pay for the third shipment because of defective mugs sent in the first two shipments.

103. When cross-examined by prosecution counsel, D1 changed his evidence and asserted, for the first time, that the balance 70% payment had only be made for the first shipment and not the second.

104. D1 had produced as D10 his records of orders handled by him in 2007/2008. This included the purchase order between OIL-UK and APL. The record shows that the order was placed for 72,164 mugs and that he had marked up the price from US.903 to US1.234 per mug, an increase of over 36%. The record indicates that he was never paid. It is quite clear from the records that the major loser in this transaction was D1 not APL. PW1 said that in any event, they were disputing their liability to APL because of the defective mugs supplied. The actual amount APL would have kept based on their uninflated price should be USD65,164. D1 claimed he paid RMB3/4000 shipment fees for which APL were responsible and this meant that they received almost the full amount due to them. There was no reason why APL should not take up the offer of USD7,500 made by OIL’s UK solicitors in their letter D4.

105. I was sure that the letter from C.O Chan and Co demanding payment from D1 of HKD214,866.60 was arranged by D1 in an attempt to recoup his profit on this deal. He had marked up the price by more than 36% and would be the main loser. His assertions that the solicitors were threatening to inform the police about the dishonoured cheque and that the solicitors or Ronnie using debt collectors to threaten him were entirely inconsistent with his assertion that he had gone to the solicitors with Ronnie to assist Ronnie who wanted the matter resolved peacefully. When OIL-UK’s solicitors wrote to Chan and Co about the debt and the alleged threats, D1 not only told Chan and Co to ignore the letter but the offer of USD7,500 was not taken up. I had no doubt that this was a dishonest and cynical attempt by D1 to pressure PW1 to pay APL so D1 could get his profit.

106. PW1 said that he only became aware of the connections between D1 and Chan and Co in May 2010.

107. This is a matter which should be referred to the appropriate authorities for investigation and the Hong Kong Law Society.

108. As I have mentioned above, this transaction was not the subject of any charge. It was introduced by counsel for D1 to show that PW1 regarded D1 as an agent rather than an employee and that the actions of D1 in writing a personal cheque, albeit on the petty cash account, for such a large sum of money to one of OIL-UK’s suppliers was not the action of an employee, but rather that of a partner. The fact that I found this to be an attempt by D1 to pressure PW1 to paying his profit on the deal with APL does not mean that D1 is guilty of any of the offences charged, but, in my view, this is a matter which seriously undermines D1’s credibility.

Exhibit D2 Correspondence between PW1 and ICAC in relation to initial complaint

109. PW1 was cross-examined about an e-mail dated 10 June 2010 following a telephone complaint by PW1 to the ICAC concerning certain staff at OIL-HK including D1 and D2.

110. PW1’s attention was drawn to two passages.

111. In the second paragraph of the summary, PW1 said that he had not been “completely open” with the ICAC as to the name of his organization and he wished to put the matter straight. PW1 said that, when he initially leant about the suppliers’ invoices being inflated by staff of OIL-HK, he took legal advice and was undecided how to proceed. PW1 said that over HKD8 million had been obtained by OIL-HK from the inflated prices. He said that he had to decide to either deal with this through the ICAC or start civil proceedings. PW1 said that he was aware that he could make the initial complaint to the ICAC without revealing his company name and he wished to take advantage of the fact that complaints could be made anonymously before deciding which way to proceed.

112. The second matter referred to by defence counsel was the reference by PW1 to D1 being “initially employed by PIL, after several years of employment requested that his status become self-employed”. PW1 said this summary was not drafted by him but by one of his employees and he did not focus on this point. I noted that on the following page it states:

“The impression they [HK staff] wish to give is that they are operating as an agent and therefore entitled to the commission payments they are requesting.

This is NOT, and never has been the case. There is, therefore, absolutely no legitimate reason for these suppliers to be transferring money to personal bank accounts of our employees, nor any legitimate reason for them to make the requests in the first place”

113. Also, in his re-examination, PW1 confirmed that, in his statement made to the ICAC shortly after this e-mail, he made it clear that D1 was an employee of OIL-UK.

114. I noted also that, as from May 2007, D1 was paid in pounds sterling and OIL-UK made no MPF payments on his behalf.

115. I noted that PW1 makes it clear in his summary that one of his goals was to “reclaim as much of the stolen money as possible”.

116. It is apparent from Exhibit D2 that PW1 did not have any clear idea as to the powers of ICAC. He asked if they could freeze D1’s accounts: find out if there were other accounts being used; could seize D1’s computer; had the authority to search the home of D1 for other evidence and bank statements that PW1 believed he kept there; had the authority to search the hard drives of D1’s computers for deleted files.

OIL-HK Accounts

117. The only accounting records produced by D1 for the relevant period were Exhibit D10 for the years 2007 to 2008 and D11 for 2011 which are lists of orders. D1 said that these records only relate to orders dealt with by him. D1 said that as for orders dealt with by his merchandisers he had no record of such orders on his computer, they would be on the merchandisers’ computers. I noted that in the notebook in the name of Bowie Chow, Ex P1045, seized from the desk of D2 by the ICAC, there were some records relating to order numbers and apparent mark-ups. For example, on one of the pages there is a reference to “P15711 Bar Caddy – 3000 pieces USD1.88” all written in blue biro and then in red biro “USD2.85 3210”. These entries coincide with one of the entries on Ex D11 which is an order which D1 dealt with according to his evidence.

118. D1 said that only on a few occasions did suppliers fail to return the amounts by which the orders had been inflated.

119. D1 said he did not keep proper accounting records nor did he disclose earnings to the Inland Revenue Department.

120. There were no proper accounting documents to account for the amounts returned to him by suppliers. There were simply e-mail requests to return the amount by which the order had been inflated to the private bank account of D2 and sometimes the private bank account of D1, not the one used for petty cash payments. The purchase invoices supplied to OIL-UK by the Hong Kong office were in fact false documents in that, on the face of them, they showed the prices inflated by D1 or on his instructions. Proper accounting records could not have been prepared from the documentation available.

121. D1 claims to be in some kind of partnership arrangement with PW1. It is a fundamental duty of every partner to show the utmost good faith in his dealings with the other partners. Partners are bound to render true accounts and full information of all things affecting the partnership to any partner.

122. D1 claims that he was entitled not to disclose his profit on these deals in Hong Kong to PW1 just as PW1 was entitled not to disclose his profit to D1 on his deals with his UK clients.

123. It was obvious that, not only had D1 done his utmost to conceal his profits from PW1, but, his profits had been concealed in such a way that only by going to and beyond source documents was it possible to ascertain what profits were being made. From merely inspecting the purchase invoices, a form of source document, one would not be able to see any profit to D1. One had to go back to the original invoices from the suppliers to ascertain what profits had been made. Records of these documents were kept on D1’s computer or the computers of the merchandisers who handled the orders. It would have been almost impossible for D1 to “render true accounts” to PW1 as the appropriate accounting records were not in place to show such profits to PW1 or anyone else. There was deliberate and systemic concealment by D1.

124. D1 was not registered as having any official connection with the business other than as an employee. PW1 had said that he had been advised that since there was no trading going on in Hong Kong there was no need for him to register the business in Hong Kong. D1 was making profits in Hong Kong. He was not registered as being in any way connected with the management of the business. The lease for the premises was taken out in the name of Pacific Premium, a defunct company registered in Hong Kong. D1 had signed the lease as a director of that company which he was not. The company directors were initially friends of PW1, two brothers called Kwong, and later on the parents of PW1 became directors.

125. All the outgoings for OIL-HK were paid for by OIL-UK.

126. OIL-UK paid the MPF contributions for the OIL-HK staff except D1. There was disputed evidence from PW1 that this was at D1’s request.

Evidence of OIL-HK Merchandisers – PW’s 2,3 and 4

PW2

127. PW2 worked as a merchandiser for OIL-HK from April 2007 to January 2009. She was interviewed by D1 and PW24. Her salary was paid into her bank account by OIL-UK.

128. She said that on the instructions of D1 she marked up prices on 70-80% of the orders she handled. She disagreed that she only marked up 50% of the orders. She said that D1 never told her why the prices were inflated. She said that, around the first Christmas she was employed, D1 gave her a cheque for HKD4-5,000 and her colleagues also received cheques.

129. PW2 identified the writing of D2 in the book produced as Exhibit1045 and she said that some of the words referred to products OIL dealt in.

PW3 – Brian Cheung – Charge 9

130. PW3 was employed from May 2008 to January 2009. He was initially interviewed by D2 and later by D1. His salary was paid direct by OIL-UK into his personal bank account. PW3 said that he was told at the start by D1 that prices would be inflated. He said that the reason given by D1 for the inflation was that, if the client asked for a price decrease, the HK office could easily do so without having to go back to the supplier. He said such increases were explained to the suppliers as being internal commission for OIL-HK.

131. PW3 said that he was told by D1 on interview that he would be paid company bonuses payable from refundable money but he never received any.

132. PW3 said that all the orders he handled had inflated prices. PW3 said that he was able to alter prices received from suppliers on his computer as they were in excel format.

133. PW3 was taken through 21 invoices Exhibits 1329-1335, pages 2341 to 2399. These were the transactions the subject of charge 9. He confirmed that all the invoices from MCP Gift Enterprise were inflated on the instructions of D1 and the additional money was paid directly into the bank account of D2. PW3 said that he informed the suppliers that the additional sums were commission due to OIL-HK and must be returned to OIL-HK once the suppliers had been paid by OIL-UK.

134. PW3 told the ICAC that, when he was first employed, D1 told him he was a partner of PW1.

PW4 Daniel Yeung Charges 19 to 39

135. PW4 gave evidence about the 52 purchase orders placed with 21 suppliers.

136. PW4 was a merchandiser with OIL-HK from September 2007 until he was arrested on 16 August 2010 by the ICAC. He gave evidence under immunity and admitted that he secretly made some personal gain by inflating prices. He said he knew it was wrong to do so.

137. PW4 said that all the 52 purchase orders the subject of the charges were inflated by D1 or himself on the instructions of D1. PW4 said that he e-mailed the suppliers to pay the mark up to the personal account of D2 or on two occasions to the account of someone else. PW4 said that all the merchandisers marked up the prices, including D2. PW4 confirmed that Ex 1442 detailed all the invoices from the 21 suppliers and that the prices on all the invoices were inflated and the difference refunded to D2 except for two occasions when they went to the account of a Ben Chung.

138. PW4 said that all along he was not sure about the relationship between D1 and PW1 and he thought there was an element of fraud. He said that all along he had a query about the legality of what they were doing.

139. PW4 said that he was given by D1 four cheques for HKD4,000 and one for HKD8,000. He said PW1 told him that he would share any surplus with them and that he thought that this was the reason for these payments made respectively on 18 January, 8 April, 15 July 2008, 8 May 2009 and 20 April 2010.

140. PW4 said that D1 told him that the reason for the price mark-up was that, if there should be any damage or quality issues, or other small additional costs, or mistakes by the factory, then the mark up would provide a buffer which meant there would be no need to notify OIL-UK. He said that OIL-UK as far as he was aware were not notified about the mark-ups.

Evidence of the Suppliers –PW’s7,6,5 and 15

PW7 General Manager of Mega Handbag Manufactory, Charges 1,2 and 6

141. PW7 gave evidence under immunity. He gave evidence relating to the 11 purchase orders the subject of charge 1,2 and 6. He gave evidence as to which orders had been inflated and those from which commissions paid. PW7 said he met D1 at the Shenzhen office of OIL in 2007 through his former colleague, Jeff, who told him D1 was the general manager of OIL- Shenzhen. PW7 said he met D2 at the Shenzhen office of OIL about one month after he met D1. PW7 said that they both came to his factory later on whilst the office of OIL was in Shenzhen and he met employees of the Shenzhen office called Cathy and Patience. He said he later dealt with PW4 at the Hong Kong office of OIL. PW7 said he was aware of the change of offices because they left some items at his premises such as samples. PW7 said when he met D1 and D2 price inflation on orders was discussed.

142. PW7 produced a record of the orders placed by OIL as P579/1297/3. PW7 said he made payments relating to these orders to D2’s account. He said that sometimes the numbers were rounded down. These payments were substantiated by bank documentation Exhibits P951/2/ 1641-1642. These payments of USD13,198.72 and USD18,000 were made on 14 May 2007 and 03 July 2007 and are described as being “principal commission” on the bank documents from the account of D2, pages 1641/2). PW7 said that the payments made to D2’ s account related to the inflated prices quoted on purchase orders sent to to OIL-UK.

143. The first 6 orders shown on Ex P579 relate to order numbers 15259 ( P24/163), 15268 (P15/148), 15257 (P23/159),15288( P43/188), 15292 (P44/192)and 15279 (P53/207). The first four orders were dated prior to closing their Shezhen office when it was not disputed D1 was an employee of OIL-UK. I noted that, according to correspondence produced by counsel for the defendants, D8, Brenda Chang, who was responsible for running the Shenzhen office, left the employment of OIL Shenzhen in March 2007. PW7 said that he sent the quotations to OIL -Hong Kong at the original price he quoted by e-mail and the figures were adjusted in the Hong Kong office. He said it was their internal affair how they did this.

144. I noted that PW7 agreed that in his 11-page statement made to the ICAC he had not mentioned having discussed these matters with D2. PW7 said that he did not just assume D2 was involved. He said that the whole process was operated by the two of them, they were the persons who had a stake.

145. I also took into account that PW7 did not part on good terms with D1. D1 cancelled his final order with PW7 and PW7 was left with materials in his factory. PW7 said that this deal fell through because he refused to pay D1 the 5% commission he requested.

146. PW7 said that the sum of USD960 paid into D2’s account represented a figure which he had rounded down from USD992 being the commission payable in respect of order 15259 ( Exhibit P23/159). This is the subject of Charge 1.

147. When D1 gave evidence about these matters he produced Ex D12 which is headed “Cash List for Dick( Aug). The prosecution had not seen this document before and it was never shown to PW7. On the face of this document and from the evidence of D1, it shows 3 credit payments to PW7 and many payments apparently made by PW7 on D1’s behalf for mainland bills. D1 stated that whatever amounts he had been paid by PW7, they had to be reduced by these credits as these were refunds made to PW7.

148. I noted that the Petty Cash Record (P1384/2469-2479) shows that nearly all the expenses referred to in D12 were paid from the petty cash account which is funded by OIL-UK.

149. I had no doubt that the monies paid by PW7 into the bank account of D2 was commission for orders placed with his company. I had no doubt that his arrangement started before OIL closed down its Shenzhen operation and moved to Hong Kong. The purchase orders P23/159, P24/163 are dated 6 and 7 March 2007 respectively. I was sure the prices on the invoices had been inflated at the request of D1 and D2 and that the surplus was paid into the bank account of D2. The dates in the purchase orders are before the opening of the HK office.

PW6 Barry Man – Charges 3 and 10 – Director Macro Development Limited (MDL)

150. PW6 has pleaded guilty to three charges of offering advantages to D1 and D2.

151. PW6 was introduced to OIL by PW5, Joe Chan, who worked for him from October 2008. There were 5 orders with OIL commencing January 2009. PW6 said all the dealings with OIL were via PW5.Each order was inflated and the balance paid to the bank account of D1. PW6 said not only were the prices of goods inflated but also the tooling costs and the balance paid back to D1. Details of the relevant orders were given in his evidence which I have summarized. PW6 said he saw an e-mail from D2 to PW5 confirming refunds were to be made to D1’s account.

152. PW6 said that ,in addition, he paid commission of 3% to PW5 and was told by PW5 that a further 3% commission was paid to D2. PW6 said he paid both sets of commission to PW5 and understood that PW5 paid D2 her commission on each of the five orders. This evidence was confirmed by PW5.

153. PW6 said he met D1 and D2 for the first time at their Landmark office in Sheung Shui before the first order was placed.

154. PW6 said that PW5 left MDL in May/June 2009 to set up his own company, Macro Union, to deal with OIL orders. PW6 said that, whilst PW5 was with him, OIL was his major client.

155. PW6 said he did not become aware that D1 and D2 were married until he was arrested by the ICAC.

PW5 Joe Chan – Charges 3-5, 10,11 – Macro Union

156. PW5 has pleaded guilty to 5 charges of offering advantages to D2.

157. PW5 confirmed much of the evidence of PW6 in relation to the inflated prices on the 5 orders and the commissions of 3% paid to him and D2 in respect of each order.

158. PW5 said that he met D2 in 2005 when he was working for a toy factory. He said that D2 was employed by one of their clients. PW5 said that he later learnt D2 had joined OIL-HK and they spoke about the type of business in which OIL was engaged. PW5 said that he later told D2 that he had joined MDL and they discussed doing business together.

159. PW5 confirmed that ,towards the end of 2008, he and PW6 visited OIL-HK’s offices at the request of D2 who introduced D1 as her boss. PW5 said that he always dealt with D2 and was told that OIL-HK was a sourcing company for OIL-UK. PW5 said that it was D2 who brought up the issue of commission payments to her and inflating the prices of orders remitted to OIL-UK. PW5 said that D2 told him that it was the intention of the UK company that the price difference be paid back to OIL-UK. PW5 said that the day before the first order was placed, he and D2 discussed how the balane should be remitted to OIL-UK. He said that D2 said she would get back to him. He said that D2 said that it would be too troublesome to remit the money to the UK, so it should be paid into the bank account of D1 which would be equivalent to paying the money back to the UK company. PW5 said that he and PW6 were surprised about this arrangement but they agreed to go along with it. PW5 said that D2 said the same arrangement should be made in respect of the inflated tooling charges. I noted that, at that time, OIL were MDL’s major clients.

160. PW5 confirmed the evidence of PW6 that the refunds in respect of the inflated prices and tooling charges were paid into the bank account of D1 on the instructions of D2.

161. As regards the commission payments, PW5 said that he received a cheque from PW6 for commission of 6% and he would pay D2 half this money in cash at the downstairs area of her office block in Landmark North. PW5 said he just gave her cash, and that there were no receipts or other documentation.

162. PW5 said that after he set up Macro Union in 2009 there were four orders received from OIL and they were handled in a similar manner except that there was no inflation of the tooling costs and the commission payable to D2 was 4% rather that 3%. PW5 produced the relevant documentation in relation to these transactions.

163. PW5 said that the refunds were paid into the bank account of D1 except on one occasion when PW5 received an e-mail from D2 telling him to pay the money into her account as D1 was absent to make an urgent payment to a mainland factory to ensure delivery of goods.

164. PW5 said he paid commission to D2 in cash or by cheque.

165. PW5 said that until the ICAC investigation he did not know that D1 and D2 were married, He said they always acted like boss and subordinate. PW5 said that D1 told him that he and PW1 were partners and that D1 was responsible for the HK side of the business.

PW15 Liu Desheng ( Delson) – Charge 35

166. PW15 is the sales manager of Tianchang Jinren Toys Factory. They had one purchase order from OIL, Ex 473/860.

167. He said that he met PW2 and later PW4 at his factory. He said that the original supplier unit price was USD5.95, but for various reasons this was later negotiated downwards to USD5.90. He said that they were paid the higher figure by OIL-UK and refunded the difference to the account of D2 as instructed by PW4 by e-mail.

D1

168. I have set out the evidence of D1 in some detail in my summary of the evidence. I have dealt with parts of his evidence elsewhere in my evaluation of the evidence.

169. D1 claimed that when the OIL-HK office opened in May 2007 he had reached an informal verbal agreement with PW1 whereby they had become business partners and that PW24 was aware of this arrangement. D1 said that under this arrangement he was allowed to inflate prices on orders sent to the OIL-UK and keep the difference. He said that PW1 was only concerned about the bottom line, the profits made at his end of the business in the UK.

170. D1 claimed that the amount by which his prices were inflated were highly confidential. He said that he would not ask PW1 how much he made and he would not disclose the amount by which he inflated prices to PW1. However, I noted that D1 said he was aware of the turnover of the UK company. There was no suggestion that OIL-UK did not keep proper books of account. All the merchandisers employed in the Hong Kong office were aware of the price inflations. I was sure that PW24 was D1’s direct boss and the boss of all those working in the Hong Kong office. Both PW1 and PW24 were regularly in Hong Kong. PW24 on occasions worked out the Hong Kong office. None of the merchandisers who gave evidence said they discussed this matter of price inflation with PW1 or PW24.

171. D1 said that when it was agreed that the office would move from Shenzhen to Hong Kong he told PW1 that he would be able to reduce the overheads by 40% from USD420,000. D1 said that he told PW1 that if he could not achieve this saving he would pay the difference himself and if he achieved greater savings he could keep the difference. D1 said that he was told by PW1 that if PW1 could buy the products cheaper elsewhere he would do so.

172. D1 said after the Hong Kong office opened PW1 told him he would be paid in pounds sterling and that the UK office would no longer make MPF payments. D1 said that PW1 told him that this would be advantageous to PW1 taxwise.

173. D1 said he signed the lease as a director of Pacific Premium (the directors were two brothers who were friends of PW1 called Kwong) and signed for the utilities. D1 said that OIL –UK made monthly petty cash payments into a dedicated account in his name and salaries were paid direct by OIL-UK to the employees of OIL-HK.

174. PW1 said he had never seen the contract P9 and had definitely not signed it. He said he never received P10, a letter dated May 2007, purporting to vary the terms of P9.

175. D1 claimed that it was he who employed the merchandisers of OIL-HK and that OIL-UK was his UK sales arm.

176. D1 asserted that no merchandisers were allowed to claim commission but he was aware his wife, D2, was doing so and that, according to his evidence, he told her she would be paid commission on her orders when she was first employed.

177. D1 said that he recruited his wife to join in August 2007 at a salary of HKD21,000 which was HKD5000 less than her previous salary but she would in addition be paid commission on the orders she handled.

Exhibits D10 and D11-List of orders

178. D1 admitted that he kept no proper accounting business records and made no declarations for tax purposes. He produced D10 and D11 which listed some orders placed in May 2007 to December 2008 and January to August 2010 respectively. He said that these were orders he personally handled and he had no accounting records of transactions handled by the merchandisers.

179. I noted that even from these incomplete records it is clear that D1’s financial situation had improved dramatically when the HK office opened.

180. D1 was unable to give any satisfactory explanation as to why the amounts by which tooling costs were inflated were not returned to OIL-UK who had paid them.

181. I noted that PW’s 2,3 and 4 were given varying reasons as to why the prices were inflated.

182. D1 claimed that OIL-UK was part of his set up and that he even told PW3 that OIL-HK was the buying office and that the UK company was his sales office.

Conclusions

183. I had serious reservations about the provenance of the purported contract, P9, and the prosecution evidence concerning the letter P10. Not only did I decide to attach no weight to these documents, I treated the evidence of PW1 and PW24 with the greatest caution.

184. The prosecution are required to prove their case beyond reasonable doubt, the defence have nothing to prove. As I stated earlier, I reminded myself that if I were to disbelieve the evidence of D1 that does not mean either he or D2 are guilty of any of the offences charged. I have to consider the evidence I did accept and decide if that satisfied me of the guilt of either defendant on any of the charges to the required standard.

185. There is however, in my view, a substantial volume of compelling and persuasive evidence that D1 was an employee of OIL rather than in some kind of partnership arrangement with PW1. I was also left in not the slightest doubt, taking into account all the evidence, that PW1 and PW24 had absolutely no idea that the staff of OIL-HK was marking up the prices of quotations obtained from their suppliers and that D1 and D2 were pocketing the difference.

186. I also noted that D1 not only marked up the prices of the products, in some cases he marked up the prices for tooling and instructed the suppliers to return this amount to him as well. There was no doubt these tooling costs were paid by OIL-UK and D1 was unable to give any satisfactory explanation as to why these extra sums were paid to him.

187. It was not disputed that D1 was an employee before the Hong Kong office opened in May 2007.

188. I was sure that before the Hong Kong office opened D1 and D2 had entered into an arrangement with PW7 for invoices with inflated prices to be sent to OIL-HK and the balance returned to the bank account of D2. This was well before D2 joined OIL-UK in August 2007.

189. It is also not disputed that thereafter he was paid in pounds sterling instead of HKD and the UK office no longer made any MPF payments for D1. In respect of the rest of the Hong Kong staff the UK office paid their wages in HKD and made MPF payments on their behalf. The monthly payments into D1’s account for the three years prior to his dismissal are described in bank documents as wages

190. After the office in Hong Kong opened, it was arranged that D1 would open a personal account to cover petty cash payments. OIL-UK made all the payments into this account. D1 provided OIL-UK with two account numbers, one for payment of his wages and the other for petty cash. In effect, D1 was taking over the role performed by Brenda Chang who had formerly run the Shenzhen office. There was no question that she was anything more than an employee. She too had a dedicated personal bank account into which OIL-UK made payments for petty cash.

191. Over the following three years, nearly all the invoices sent to OIL- UK contain inflated prices and there was an arrangement whereby the excess paid back to the personal account of D2, or exceptionally the personal account of D1, not the petty cash account.

192. I have dealt in some detail above with the e-mail correspondence between D1 and OIL-UK. This correspondence, taken with other evidence to which I will refer later, left me in no doubt whatsoever that OIL-UK had no knowledge whatsoever that the prices of invoices submitted to them had been inflated. The tone and language of this correspondence is entirely consistent with D1 being an employee of OIL-UK rather than some sort of business partner of PW1. There is no reference whatsoever to invoices in Hong Kong being marked up even in correspondence touching on the issues of bonuses for Hong Kong staff .

193. No books of account were kept in relation to any of the transactions the subject of the charges. The evidence showed that prices were inflated for the vast majority of purchase orders sent to OIL-UK through the Hong Kong office. Thereafter, once the payment had been received by the mainland suppliers, they were instructed by e-mail to deposit the amount of the excess into the bank account of D2 and exceptionally into the bank account of D1. In most cases the amount of the excess was paid as instructed. Not only were no books of account kept to cover the millions of HK dollars being paid into the bank account of D2, there was no accounting documentation that could explain such payments. On the face of it, no profit was being made in Hong Kong at all. The monies due in respect of invoices sent via the Hong Kong office would be paid directly to the mainland. I was sure that this arrangement was with a view to concealing the activities of D1 and D2 from OIL-UK and from any third parties in the knowledge that this money had been fraudulently obtained.

194. The evidence and correspondence relating to the purchase order made by OIL-UK with APL in my view reinforced the evidence that D1 was an employee. It also in my view showed that the defendant was prepared to resort to underhand and dishonest means to try to get back his secret profits. I had no doubt that D1 was acting in collusion with the lawyers purportedly acting for APL. I was sure that he attempted to reinforce this by falsely claiming he had been threatened with police action and threats of violence from debt collectors if this amount was not paid. I was sure that most of the monies that were requested were for him to get back his secret profit on the deal.

195. With regard to the APL matter, I noted that APL were paid nothing and did not even take up the offer from OIL’s UK solicitors to pay APL USD7,500 in settlement. In fact, what the solicitors purporting to act for APL did was to follow the e-mail advice (Ex 1438) given by “Dick” (D1) to “Judy” (of C.O. Chan and Co). They ignored the letter from OIL’s solicitors and made no reply.

196. The OIL-HK merchandisers, PW2-4, were given a variety of different reasons as to why the prices were being inflated. I was satisfied that PW24 was the line manager for D1 and the other merchandisers in the Hong Kong office. He came every year for a few weeks to work out of the Hong Kong office and PW1 visited regularly. There were never any discussions between them and PW1 or PW24 and any of the Hong Kong staff about the subject of price inflation. PW4 said that he had a query as to whether the marking up was legal or not. He said he did not know what the arrangement was between D1 and the Hong Kong company.

197. D1 maintained that the staff of OIL-HK worked for him and not for OIL-UK. This is clearly at odds with the evidence. Their wages and MPF were paid by OIL-UK and there is correspondence where he makes enquiries with OIL-UK as to the bonuses. The only evidence of his making payments to staff came from PW2 and PW4. PW2 said on one occasion he gave her a cheque for HKD4,500. PW4, who worked for OIL-HK for nearly three years was given by D1 four cheques for HKD4,000 and one for HKD8000. I considered this evidence in the context of millions of dollars being paid into the personal account of D2.

198. D1 maintained that the payments by the UK company to the merchandisers were part of the yearly “fixed costs” of the Hong Kong office. I noted however that there were separate payments into a designated account for petty cash. The the wages for the Hong Kong staff were paid into their personal accounts by OIL-UK.

D2

199. D2 and D1 were married in 2005 and they have no children. She graduated in the 1980’s from HK Polytechnic with a degree in engineering and has been a merchandiser for over 10 years.

200. D2’s employment with OIL-HK commenced in August 2007 at a salary of HKD21,000. She had previously worked for a European company as a merchandiser at a salary of HKD26,000 per month. D1 said that he told her that she would be paid commission on the orders she handled.

201. It was not disputed that for some months before she joined the Hong Kong office of OIL she had an e-mail address at OIL-HK. It was also not in dispute that a number of payments were made into her personal account by suppliers of OIL-UK before she joined the company. Some of these payments relate to orders placed when D1 was working for OIL in Shenzhen. It was not in dispute that D1 was an employee at that time.

202. I was sure that D2 was involved in the discussions with PW7 about price inflation. I was sure that these discussions took place before OIL opened its Hong Kong office, and therefore well before she joined OIL-HK. I was sure that D2 was aware that invoices at inflated prices were sent to OIL-UK and that OIL-UK would be unaware of such price inflations. I was sure that the amounts of the price inflations were refunded into the personal account of D2 and that she was aware that such monies were being paid into her account for that purpose and without the knowledge of OIL-UK.

203. D1 said that he never told D2 in detail about his relationship with PW1 but that he had changed from being an employee to being in a joint venture with the opening of the Hong Kong office

204. D1 said he did not tell D2 the reason for the mark-ups because it was his company and he did not need to give her any reason because she was his wife, but went on to tell her it was his profit.

205. D2 was the most senior of the merchandisers. She was paid more than the others. She had been educated to tertiary standard and worked as a merchandiser for 10 years. She was the effective deputy to D1 after she joined OIL. She had initially interviewed PW3 before he joined the company in May 2008. It was not in dispute, that throughout the material period, over three years, on a very regular basis, very large sums of money were paid into her personal bank account by mainland suppliers of OIL-UK. It was not dispute that she knew the source of this money. She, along with other members of staff and been engaged in arranging the price increases and instructing the mainland suppliers to send the price differences to her personal bank account. OIL-HK had no accounting records to explain the profits it was making. There were no accounting documents to explain these substantial payments being made into her bank account.

206. D2 had negotiated the price increases involved in goods supplied by MDL and Macro Union and the commission which she was to receive. This commission was paid to her by PW5 mostly in large sums of cash at the downstairs of her office.

207. PW5 and PW6 did not know that D2 and D1 were married until the ICAC investigation. She had known and had dealings with PW5 since 2005. They said that D1 and D2 acted like boss and subordinate.

P1045 The notebook of D2

208. This notebook was recovered from desk of D2 at the offices of OIL-HK on 16 August 2010. By that time D2 had been employed by OIL-UK for just over 3 years.

209. The book was produced by PW2 who recognized that it contained the handwriting of D2.

210. I noted from her personal notebook, P1045, that she had recorded details of some of the transactions and the names of the products in which OIL traded.

211. On one of the pages there is a reference to “P15711 Bar Caddy 3000 pieces USD1.88” in blue letters and USD2.95 2100 in red letters. This entry coincides with an entry on Exhibit D11 which D1 said recorded orders handled by him. I noticed that this entry shows a price inflation of over 50%.

212. As I have mentioned above, in June 2010, there was e-mail correspondence between D1 and PW1 about the bonuses for the HK staff. I have set out the whole of Exhibit 1392/2541 above. This e-mail specifically refers to Bowie (D2) and Daniel (PW4). In his e-mail PW1 explained that he might not be able to pay their bonuses as the UK company had suffered yet another loss that year and cash was really tight. D1 stated in his reply that PW1 should at least send D2 and PW4 an e-mail explaining the situation and not to keep silent until they “ are disappointed there is nothing being paid in their June salary”. D1 stated that PW1 should agree that D2 and PW4 are not greedy people who only talk about money.

213. In D2’s notebook there appears the following:

“During my three years with this company I feel I have carried out my duty conscientiously and I have recently acquired additional responsibilities. I feel that my qualification and the nature of my work justify a higher salary and have already been offered a similar position with another company at a salary of 25K per annum. My present duties are interesting and I thoroughly enjoy my work. Although I have no wish to leave the company, I cannot afford to turn down the present offer unless some improvement in my salary can be arranged.

I hope a salary increase will be possible. Otherwise I feel my only course will be to accept the offer made to me”.

214. D2 was receiving monthly salary payments from OIL-UK of HKD21,000. I noted that when the bonus situation as regards D2 and PW4 was being discussed in e-mail correspondence in late June 2010, D2 had been with the company for just under 3 years. In her previous job she had been paid HKD26,000. This notebook was seized from the office desk of D2 at OIL-HK on 16 August 2010 and would appear to relate solely to OIL-HK matters. PW2 recognised the writing in the book as being that of D2.

215. I was sure that this was a draft relating to her position with OIL. I noted that it referred to an increase in salary to 25 K per annum. This should obviously have referred to a monthly salary.

216. In my view this was admissible documentary evidence to show knowledge of the contents to which they relate. Looked at in conjunction with other evidence I was sure the contents related to matters concerning OIL-UK .

217. This draft is entirely inconsistent with any contention that D2 might have thought or ever been told that PW1 and D1 were partners in some sort of joint venture. It is entirely inconsistent with OIL-UK knowing anything about price inflations being made by OIL-HK and the price differences being refunded on the instructions of the staff of OIL-HK mainly to the bank account of D2. D2 knew about the money made by D1 from OIL orders, the vast majority of it went through her personal bank account and all the merchandisers at OIL-HK were aware that nearly all the quotations from suppliers were marked up. According to D1 he said he regarded the Hong Kong staff as his staff. He said he offered his wife a job at a reduced salary plus commission on the orders she handled. This draft is entirely inconsistent with that arrangement. From the documentation and bank statements produced, there was no evidence of any commission payments being made to D2 by D1.

218. Taking into account the totality of the evidence, I had no doubt whatsoever that D2 was aware that PW1 and PW24 knew nothing whatsoever about the price inflations on purchase orders being sent to them. I was sure that she was aware that D1was an employee of OIL-UK and had no authority to inflate prices and arrange for money to be paid into her bank account. I was sure that she was aware that OIL-UK was being defrauded.

Decision

Charges 1,2,17 and 18

219. I was sure that on 14 May and 3 July 2007,D1 was an employee of PIL and that he accepted the sums of USD960 and USD2,717 respectively from PW7, a mainland supplier of OIL-UK. I was sure that D1 fraudulently increased the prices in the purchase invoices relating to these transactions which were submitted at the inflated prices to OIL-UK. I was sure that D1 arranged for the amounts by which the prices were inflated to be paid into the personal bank account of D2. I was sure that OIL-UK neither knew about the price inflations nor sanctioned D1 to inflate prices on suppliers’ invoices. I was sure that D2 was aware that D1 was an employee of OIL-UK ant that the invoices of PW7’s company sent to OIL-UK had been fraudulently inflated. I was sure that she was aware that the sums paid into her bank account was as a result of this fraudulent activity. I was sure that advantage was accepted as and inducement or reward for D1 conducting himself in relation to the affairs of OIL-UK and that D2 was aware that this was the situation.

220. I convict D1 on charges 1and 2 and D2 on Charge 17 and 18.

Charges 3-5 Accepting Advantages – D2

221. It was not disputed that D2 received the sums referred to in the charges by way of commission. I was sure that at the time, D2 was an employee of OIL-UK. D1 said he authorized her to receive such sums. The commissions were paid by Macro Development Limited ( Charge 4) and Macro Union ( Charges 4 and 5). PW6 ran MDL and was later joined by PW5. MDL placed 5 orders with OIL-UK at inflated prices. Commission of 3% was paid in cash to D2. I was sure that D1 had no authority to authorize such payments and that D2 was aware that he had no such authority. I was sure that D1 was aware that OIL-UK knew nothing of the payment of commission and that they would not have authorized its payment.

222. PW5 later went on to set up Macro Union which placed 4 orders with OIL-UK and paid commission to D2 in respect of such orders. I was sure D2 was aware that D1 could not authorize such payments and that OIL-UK neither knew nor would have authorized her receipt of such payments. I was sure that D2 accepted the advantage as an inducement or reward on account of her conducting herself in relation to the business of OIL-UK.

Charges 6, 9-11, 19-39 - The Fraud Charges

223. In respect of all the fraud charges I was satisfied so that I was sure that D1 and D2 were complicit in a fraudulent scheme whereby the prices were dishonestly inflated in invoices received from the mainland suppliers referred to in each of the charges. This was a scheme which had been started by D1 and D2 when D1 worked for OIL in Shenzhen. I was sure that the invoices containing the inflated prices were sent to OIL-UK. I was sure that OIL-UK were neither aware of nor would have authorized any such price inflations. I was sure that D1 and D2 knew that OIL-UK was not aware of the price inflations and that they would not have authorized them. I was sure that that OIL-UK paid the inflated prices to the mainland suppliers believing them to be genuine prices. This alone represents the offence of fraud. I was sure that the price differences were then paid into the personal bank account of D2 or exceptionally into the personal bank account of D1.

APPENDIX

 

Summary of the Evidence

 

Evidence for the prosecution

PW1 Peter John Townsend – Managing Director of PIL

1. PW1 gave evidence under immunity. The immunity was produced as Ex 1437 and PW1 said that he understood its conditions. The immunity was provided on the basis that PW1 in his evidence might make certain admissions which could attract liability under ss. 5 and 15 Business Registration Ordinance Cap 310 in relation to carrying on a business in Hong Kong which was not registered in Hong Kong.

2.  PW1 said that he is the Managing Director of PIL which was incorporated in the United Kingdom and both he and his wife are directors. PW1 said the head office of the company is in Wickford, Essex and employs about  25 staff. He said that the company deals in the importation of international  brands into the UK and Europe. PW1 said the goods are sourced abroad and many of the goods come from China. PW1 said that he started as a small trader some 25 years ago and eventually set up PIL in 2003. PW1 said that Phillip John Palmer, PW24, is the company’s operation manager and he regards him as his second most senior employee.

3. PW1 said that in 2003 he set up an office in Shenzhen for sourcing goods in China. He said that originally the office manager was a Brenda Chang who came from Hong Kong and there were 6-8 persons employed in the Shenzhen office.

4. PW1 said that in March 2006 he first met D1 when he and PW24 interviewed him for the position of merchandising manager of  the Shenzhen office. PW1 said they decided to employ D1 and a contract was signed, P9, page 42. PW1 said that P9 is a copy of the contract which they keep for company record purposes. PW1 said that the contract is a standard contract which is stored and downloaded from the computer of PW24. PW1 said that he was not present when the contract was signed. PW1 said that the original was kept at their Shenzhen office as mainland authorities would only accept originals of such documents. PW1 said a copy was sent to their UK Office and further copies were sent the following year when they were centralizing their human resources department within their accounts department.

5. PW1 said that paragraphs 16 and 18 deal inter alia with the prohibition of employees accepting gifts. He said that employees are not allowed to accept gifts and D1 was never given permission to accept any gifts.

6. PW1 said that salary was paid monthly direct to the bank account of D1 and the Mandatory Provident Fund payments (MPF) were made via a dedicated bank account held by Brenda Chang.

7. PW1 said that the Shenzhen office closed in February /March 2007 as the company was not reaching its sales targets and they were looking to reduce costs. PW1 said that Brenda Chang resigned at that time. PW1 said that D1 suggested that efficiency would be increased if they closed their Shenzhen office and opened an office in Hong Kong with fewer but better staff. PW1 said that they accepted his advice and he gave D1 and authorization letter to close down the Shenzhen office, Ex 1388. D1 located an office in Hong Kong and in April 2007 the Hong Kong office was set up at Unit 1512, 15/F , Landmark North, Sheung Shui.

8. PW1 said that D1 became the office manager. D1 organised the computers, the telephones and the recruitment of new staff. PW1 said that all the overheads including wages, petty cash, mandatory provident fund payments (MPF), and utility bills were paid from the UK office. PW1 said that D1 was asked to open a personal bank account for the transfer of funds from the UK office to cover office expenses. PW1 said that suppliers were paid direct from the Hong Kong office, no business turnover went through the Hong Kong office and there were no salesmen in Hong Kong. PW1 said he spent 2-4 weeks per year in Hong Kong usually at a time of a major project.

9. PW1 said that Yeung Hoi Fan, Daniel (PW4) was recruited by D1 in August/ September 2007 as the senior merchandiser. PW1 said that D2 started to work for them at the same time as a merchandiser. PW1 said he was reluctant to employ D2, D1’ s wife, but D1 assured him that she was the best they could get for the job. PW1 said that D1 told him that they signed contracts but they could not be found when he later took control of the office in August 2010. PW1 said that salaries were paid to the personal bank accounts of employees and MPF payments were made by PIL

10. PW1 said that in April 2007, D1 suggested that he would like his salary paid in sterling rather than USD for tax purposes as an overseas employee of  a UK company and exchange rate advantages. PW1 produced  a letter agreeing to this suggestion as Ex P10 page 55. PW1 said the letter was sent with packages and other communications sent by courier. An e-mail confirming the arrangement was sent to Charlotte Cudlip, the financial controller of PIL, Ex p11, page 56.

11. PW1 produced a series of  bank documents which he said were kept by his office for record purposes which deal with salary payments to D1 between April 2007 and August 2010, P12. PW1 said that the first payment was slightly higher than salary as it was for more than one month. He said that bonuses of  double pay were made at Chinese New Years with the exception of 2008 because of performance problems. PW1 said the documentation also shows any salary increases.

12. PW1 said that Ex P13, pages 110 to 145, were similar documents in relation to D2.

13. PW1 said that D1 was given the task of setting up the MPF arrangements for the Hong Kong office. PW1 said that D1 opened a personal dedicated bank account for the payment of office expenses. PW1 said that money was paid into this account by the UK office. PW1 said that PIL could not open a bank account in Hong Kong as it was a UK company. PW1 said that D1 had to account to the UK office for any expenditure from the account. PW1 said that his account was also used on the few occasions suppliers had to be paid in RMB as this could not be done from the UK.

14. PW1 produced a series of e-mails between D1 and the UK office about a variety of matters including financial payments, PW1’ s position as D1’s boss and D1’s request for him and his wife to take leave, Exhibits 1386,1389-94.

Petty Cash Account

15. PW1 was referred to the record of petty cash expenditure for O-HK, Ex 1385 pages 2467 -2530. PW1 said that all funds came from the UK on a regular basis. They cover rental payments, renovation expenses, MPF and all office outgoings.

 

Payments to Suppliers

 

16. PW1 said that his salesmen in the OIL-UK would receive requests to supply certain products. OIL-HK would suggest which suppliers to use and they would contact several such suppliers. When the OIL-UK clients place an order, OIL-UK would request the supplier on the mainland to provide a pro-forma invoice to OIL-UK via O-HK. PW1 said that OIL-UK would pay direct to the mainland suppliers 20-30% of the price. PW1 said that when the goods were received together with the commercial invoice, if the quality was right, OIL-UK would pay the balance direct to the supplier. PW1 said that on the rare occasions  payment was required in RMB, payment would be made via OIL-HK. PW1 said this only happened 2-3 times over the whole period.

17. PW1 said that no consultancy fees were paid to D1. PW1 said that on no occasion did he agree to the suppliers’ prices being inflated to cover payments to D1. PW1 said only he would have authority to do this and he never did so. PW1 said that D1 was not authorized to take any commission. D1 said he never discussed this issue with the defendant or the issue of any rebate being made to the defendants.

18. In cross-examination, PW1 denied that his evidence about the status of  PW1 and his business relationship with D1 since April 2007 was a pack of lies.

P9 – The Contract

19. PW1 said that P9 is a standard contract drafted by his solicitors in UK. PW1 said he recognized the signature on the last page of the contract, page 13, as being that of  D1. PW1 said he had seen this signature used by D1 many times.

20. PW1 denied that he had tailored his evidence about having made many copies of P9 because he was aware of the contents of the expert report obtained by the defence. PW1 agreed that he was aware that an expert report was being obtained and had asked that it be done in the presence of an ICAC officer and his own expert. PW1 said he did this because he did not trust the defendant after he had discovered what D1 was up to in his Hong Kong office. PW1 agreed that he had not mention in his witness statements to the ICAC about having made many copies of  P9.

21. PW1 said he knew nothing about the signature being cut and pasted and that the same thing had been done with the ID card. It was suggested to him that the document had been photocopied and tippex used to white out the squares. PW1 said he knew nothing about this.

22. I noted that the document expert said in cross-examination that there was not evidence that his had been done.

Exhibit 10, page 55 Letter from PW1 to D1 dated 4 May 2007

23. PW1 was told by counsel that D1 had never received this letter which related to paying the defendant in GBP rather than HKD. PW1 said it was sent with other documents and packages by courier. PW1 said this type of document would not be sent by e-mail as it related to a contractual matter. PW1 said that this matter was discussed with D1 in Hong Kong when PW1 was in Hong Kong. PW1 said he left Hong Kong and arrived in UK on Thursday 03 May and he sent the letter the next day. D1 denied that this arrangement was made at his suggestion or that it had any advantage for him or his company. PW1 said he was keen to write it to put on record that D1 was responsible for payment of his tax.

 

Closure of the Shenzhen Office

 

24. PW1 said that Brenda Chang left his company because she felt undermined by D1 and found the situation intolerable. PW1 agreed that Brenda Chang was trying to get redundancy pay for herself and three of the mainland staff. PW1 said that he acted on the advice of D1 in this matter. PW1 denied that he was greedy and had a history of not paying suppliers. PW1 said that he did go to FESCO, an organization in Shenzhen to protect mainland workers. PW1 said that the workers were later paid monies owed to them. PW1 said that the amounts involved were very small.

25. E-mail correspondence relating to the period just before Brenda Chan left the company was produced as D6.

26. PW1 denied that he had ever discussed with D1 that when OIL-HK opened, D1 would become a partner. PW1 denied that he told D1 that with regard to business transacted through OIL-HK, PW1 was only concerned with the bottom line and he did not care how much D1 made on top of that.

27. PW1 agreed that D1 signed the lease for OIL-HK which opened on 2 May 2007. PW1 agreed that this was done in the name of Pacific Premiums Limited established by D1 in 2002. PW1 said that two HK residents who were brothers called Kwong were the directors. PW1 agreed that the company was redundant. PW1 agreed that he did encourage D1 to become a director of this company. PW1 said there needed to be a Hong Kong director.

28. PW1 was shown Exhibit D2, a fax sent on 10 June 2010 by PW1 to the ICAC. He agreed that it stated that D1 was initially employed as an employee of  OIL-HK but he later became self-employed. PW1 said this was not the correct position. PW1 said that the fax was drafted by someone in his management team and he signed it.

29. PW1 agreed that in Exhibit D2 he said that he had not been “completely open” with the ICAC about the name of his organization. PW1 said that he was aware that reports could be made to the ICAC in circumstances of anonymity and he had not decided at that stage which way to proceed with this matter. PW1 said he took advice from his lawyers in regard to this matter.

30. PW1 said he did not believe he needed to register a company in Hong Kong for what he was doing. He said he understood the position to be that if he was not trading here it was not necessary for him to do so.

Alleged assault on D1- Exhibits D3 and D4.

31 PW1 said that he was aware that a letter, Exhibit D3, dated 23 August 2008, was sent to D1 at OIL-HK  by solicitors in Hong Kong, OC Chan and Company relating  to an alleged debt owed by OIL-UK to Aesthetics Prototype Limited (APL) in the sum of just over HKD210,000. PW1 was aware that later it was alleged that D1 was assaulted in relation to this matter.

32. PW1 said he instructed his English solicitors to write a letter to OC Chan complaining about this assault, Ex D4. It was pointed out by counsel for D1 that in that letter D1 was referred to as the agent of OIL. PW1 said that he had not noticed that at the time. He said he was more interested in the safety of his staff. PW1 said he did not know why that language was used. He said it was done more in haste than accuracy.

33. In re-examination, PW1 said he came to know that D1in relation to this matter the order was for goods worth USD100,000 and D1 had an under the table arrangement to receive USD28,000 about which PW1 was unaware at the time. PW1 said that the amount being claimed by Chan and Co was for this sum of USD28,000.

34. PW1 said that he later found out that it appeared that D1 had instructed Chan and Co to write D3. He said that after D1 had been arrested in August 2010, the computer used by D1 was recovered and from the hard-drive he recovered e-mail correspondence from which he concluded that D1 was giving instructions to Chan and Co. PW1 produced the e-mail correspondence as P1438.

 

Correspondence dated April 2008 relating to certain payments made by D1 –Exhibit D5

35. PW1 said that this correspondence related to payment for goods supplied to OIL-UK. PW1 said that payments in respect of these goods were made using the petty cash account. PW1 said that in respect of this matter D1 had stated in his e-mail dated 15 April 2008, that he would not be shy to discuss with PW1 his year-end bonus.

Exhibit D7 E-mail dated October 2009 headed “Future”

 

36. PW1 said that this e-mail related to the suggestion by D1 that an office be opened in Ningbo. PW1 said that he was concerned about his company being uncompetitive as their costs were too high. PW1 said that whilst D1 was at OIL-HK turnover had gone from HKD5.5 million down to 3 million. PW1 said that since D1 left the turnover went up to HKD6 million. PW1 said he was very concerned to cut the cost of the goods being supplied and was anxious to reduce this.

37. PW1 said all the set up costs for the Hong Kong office had been paid by OIL-UK. He agreed that initial payments may have been made by D1 but he was reimbursed for any expenses incurred by him.

38. PW1 said that there was never an agreement about D1 receiving payments from suppliers. PW1 said there were several e-mail exchanges concerning the costs of products supplied to OIL-UK and never once did D1 suggest that he was receiving anything from such payments. PW1 said that the profit to his company in the years D1 was there was HKD1.5 million yet D1 had amassed HKD8 million from his dealings. PW1 said it is incredible that if there were such a highly complicated arrangement between them that nothing would appear in writing. PW1 said that if there was such an arrangement he could not understand why it would be necessary to alter the invoices supplied to get higher prices. PW1 said that on a number of occasions he wrote to D1 stating that the prices obtained were over the prices obtained by their competitors but never once did D1 mention that he was receiving a margin.

PW24 Phillip John Palmer, Operations manager of PIL

39. PW24 said that he had worked for PIL for about 11 years.

40. PW1 said he was involved in the recruitment of D1 in April 2006. PW24 said that at the time he was working in the Shenzhen office of PIL as they were looking to recruit a new manager for the Shenzhen office to replace Brenda Chang who was to move to sales. PW1 said that he interviewed D1 in Shenzhen and there was a second interview in Hong Kong attended by himself and PW1. He said they interviewed about 5 candidates. PW24 said that the same day D1 was informed that he would be recruited and they met him that night for dinner. PW24 said that D1 started working at the Shenzhen office the following week.

41. PW24 said that he had a template of the standard contract on his computer as did Brenda Chang, the Shenzhen manager. PW24 said that they asked D1 for a copy of his identity card. PW24 said that a few days after D1 started he was given the company’s standard form of contract to peruse and the copy of the defendant’s ID card was attached to the last page of the contract, the signature page. PW24 said that a few days later he asked D1 to sign the contract and D1 did so in his presence.

42. PW24 said that either he or Brenda Chang photocopied the contract and he later brought the copy back to the UK to file in his office. PW24 said that the original contract was kept in Shenzhen as the authorities there needed to be shown originals of documents. PW24 said that about one year later he handed the copy contract to the company’s human resources department who were centralizing such records. PW24 said that that department later returned the copy or a copy of that copy to him. PW24 said that thereafter he had nothing to do with P9.

43. PW24 said he was the boss of D1 and he would discuss with him matters such as his bonus. He said that in later years that was discussed between PW1 and D1.

44. PW24 said  that he supplied the ICAC with a number of documents including a list of purchase orders, Ex 1385, page 2531. PW24 said that he also supplied them with purchase orders, proforma invoices, commercial invoices and bank payment advices.

45. PW24 explained the procedure by which goods were sourced, ordered and supplied. This evidence was gone over in further detail by other witnesses.

46. PW24 said that the UK office took the figures supplied to them by the supplier in invoices to be actual and not inflated figures. PW24 said that he was not aware of any commission being added to the figures supplied to them by suppliers in their commercial invoices. PW24 said that he was not aware that commission was being paid to the Hong Kong office.

Incident at offices of OIL-HK on 18 August 2010

47. PW24 said that on the 18 August 2010 he was at O-HK when D1 and D2 arrive at the offices. D1 and D2 had just been released from ICAC custody. PW24 said that D1 and D2 wanted access to the office and he refused to allow them inside. He said that he handed each of them employment termination letters. PW24 said that D1 asked him to go downstairs to Delifrance for a coffee. PW24 said that he agreed to do so so as to get them away from the Hong Kong office staff. PW24 said that whilst they were at Delifrance D1 made such comments as PW24 knew how good D1 was and that D1 had been preparing for that day. PW24 said that D1 said that PW1 had punched him and D1 was going to make life difficult for PW1. PW24 said that he understood D1 to be talking figuratively rather than literally. PW24 said that D1 asked PW24 which side he was on and PW24 told him that he was on the side of the company. PW24 said that D1 said that it was a good time to set up a business with top sales persons from the UK. PW24 said that D1 said that he was very good at buying.

48. PW24 said that he was aware that D1 and D2 had been arrested in connection with inflating prices and passing them on to the UK office but this topic was never mentioned.

49. PW24 said that D1 said he wanted access to the office and he contacted by telephone a person in the management office to come to join them. PW24 said that a Chinese male called Ken came to join them. PW24 said that D1 and Ken spoke in Cantonese and he was unable to understand what they said. PW24 said that D1 said that he would call the police so as to get access to the office.

50. PW24 said that he later told PW1 about the incident a couple of days later.

51. In cross-examination, PW24 denied that PW1 was a difficult man to work with and he had never seen him throwing things across his desk. PW24 said that PW1 uses colourful language and makes his views known. PW24 said he is not intimidated by PW24 and his job did not depend on his giving evidence in this trial.

52. PW24 agreed he made two statements to the ICAC, the first on 24 November 2011 and the second the week after. PW24 agreed that he made no mention of the meeting with D1 and D2 in his first statement and that he gave details of the conversation with D1 in his second statement.

53. PW24 agreed that after D1 and D2 were arrested they changed the locks on the office door. He agreed that when D1 arrive at the office he was very angry. PW24 agreed that up til that time he and D1 had worked together harmoniously and he found D1 helpful. PW24 said that D1 communicated well and was good at resolving problems.

54. PW24 agreed that D1 maintained that the premises were leased in his name and he had a right to enter the premises. PW24 said that D1 did claim that PW24 maintained that PW24 had nothing to do with Pacific Premium and that PW24 was a trespasser.PW24 agreed that at one time he did see Ken outside the office. PW24 agreed that later the police arrived. PW24 said that he rang the company solicitor, Leland Chiu, who later arrive at the office with a company search which showed that the directors of Pacific Premium had changed from the Kwong brothers to the parents of PW1. PW24 agreed that when D1 was shown this document he left the premises.

55. PW24 denied that he made up the conversation he claimed to have had with D1 at Delifrance. PW24 said he made a notes of the conversation and about 6 months later he made the notes produce in court as P1432, p. 2631. He said that in his mind this was a traumatic event. PW1 agreed that PW1 had told him to make a note of the conversation. PW24 denied that he had made up this conversation so as to beef up the case against D1.

The Contract P9

56. PW24 agreed that the standard contract used by the company was of more relevance to UK based staff. PW24 said that he understood that staff employed at the Shenzhen office signed similar contracts but he could not produce any such contracts.

57. PW24 said that on offer letter relating to his contract was sent to D1. PW24 said he did not know why a copy of such letter was not retained.

58. PW24 said that in dealing with P9, he asked D1 for a copy of his identity card. He then photocopied the identity card on to page 13 of P9 and gave the contract to D1 to sign. PW24 said that a copy of D1’s ID card was made by either himself or Brenda Chang but he did not keep a copy of D1’s identity card.

59. PW24 agreed he made no record of the events relating to D1 signing his contract until he made his first witness statement to the ICAC on 24 November 2011. He agreed that in that statement he simply said that he prepared PIL’s standard terms and conditions of contract dated 6 April 2006 and gave it to D1 who signed it in his presence, the original was retained at the Shenzhen office by Brenda and he retained a copy along with a copy of D1’s identity card. PW24 said that in relation to his retaining a copy he meant the he retained the copy of the contract on which the identity card of D1 had been photocopied. In his witness statement PW24 said that he produce the photocopy signed by D1.

60. PW24 denied that he had been told the results of the forensic tests conducted by the defence expert on P9 and had tailored his evidence accordingly.

PW2 Ms Wong Wan Ching,  Carina, Merchandiser, 2007-9

61. PW2 said that she joined OIL-HK as a merchandiser in April 2007 and left in Janaury 2009. Her monthly salary was HKD17,000. PW2 said that she was interviewed for the job by PW24 and D1. She said that she signed no contract and received no letter setting out any terms of contract. PW2 said that she provided the company with details of her bank account for payment of her salary which was paid by OIL-UK.

62. PW2 produced a sketch showing the layout of the office as P1430, page 2623.

63. PW2 said that after receiving a request from the UK office in respect of a particular product she would make enquiries with mainland suppliers. Once a potential supplier was located they would be invited to supply a quotation, usually via e-mail.

64. PW2 said that once a quotation was received, she would be instructed to inflate the price by a percentage as instructed by D1. PW2 said from the information received from the mainland supplier she would prepare a document similar to Ex 1229, page 2120, which would include the inflated price. PW2 said that the price was inflated for 70-80% of the orders she handled.

65. PW2 said that the order, at the inflated price, was the sent to the UK office. PW2 said that if the deal proceeded the full price would be paid by the UK office to the supplier. PW2 said that when the full price was paid they would send a bill to the supplier for payment of the excess to the bank account of D2. PW2 said that D1never told her why the prices were inflated. She said that she was never told how the money was used. She said none of it was offered to her.

66. PW2 said that on occasions it was D1 who put the inflated prices on the server which would be accessed by the UK office.

67. PW2 as shown Ex 1045, pages 1791 to 1804 which is in book form bearing the name of D2. She said she recognized the writing in the book as being that of D2. PW2 said that many of the words appearing in the book are the names of products which are produced by their mainland suppliers for OIL-UK.

68. PW2 said that she did not know if D1 dealt with the suppliers. PW2 disagreed that it was only in 50% of the deals she handled that the prices were marked up.

69.  PW2 recalled that on the first Christmas she was employed she received  bonus of HKD4-5,000 but she could not recall on whose account the cheque was drawn.

PW3 Mr Cheung Yuk Fung, Brian, Merchandiser, May 2008 – January 2009 – Charge 9.

70.  PW3 worked as a merchandiser for OIL-HK from May 2008 to January 2009. He was interview initially by D2 and then by D1. D2 told her what he was required to do and D1 gave him a more detailed explanation. He was paid HKD17,000 per month by the UK OIL company directly into his personal bank account. He said he did not sign any contract of employment.

71.  PW3 said that when he joined the company he was told by D1 that quotations received from mainland suppliers had to be increased before being sent on to the UK company. PW3 said that when he received quotes from mainland suppliers he would ask D1 by how much the quotes should be increased before they were supplied to the UK office. PW3 said that the increase would vary up to about 20%. PW3 said that suppliers were told that this increase was an internal commission of the company although it was not shown on the commercial invoices as commission.

72.  PW3 said that after payment had been made by the UK company they would send an e-mail to the mainland supplier informing them to refund the amount of the increase to the bank account of D2. PW3 said he did not know what happened to the money paid into the bank account of D2.

73.  PW3 said that the prices for all the transactions handled by him were inflated.

 Purchase by OIL of water bottles from MCP Gifts Enterprise Limited – November 2008 – Charge 9

74.  PW3 was shown a series of documents and e-mail correspondence relating to the purchase by OIL-UK of 9,910 water bottles from a mainland company called MCP Gifts Enterprise Limited, Exhibits1329 to 1348, pages 2341 to 2383.

75.  The documents show that the company sold the goods at a unit price of US1.05 but the amount charged to OIL-UKwas USD1.27 and the inflated balance was paid back by the mainland company into the bank account of D2 when the transaction was completed.

76.  PW3 was referred to Ex 1342/2372 an e-mail he sent to a person called Sammy at OIL-UK informing him of the unit price as supplied by the supplier at a unit price of USD1.05 for 1300 bottles. PW3 said he later sent out a second e-mail informing Sammy that “the supplier had made some mistakes” and the unit price was in fact USD1.220, an increase of over 20%. PW3 said that they requested the supplier to send them the original proforma invoice in Excel or Word format so that O-HK could amend the price on the invoice and send the invoice to the UK company as if the price adjustment had been made by the supplier. PW3 said that he sent the invoice to D1 to see what changes he needed to make. PW3 said that the figures in the proforma invoice were increased on the instructions of D1. PW3 said that it was on the instructions of D1 that he told the UK company that the supplier had made a mistake on the original invoice.

77.  PW3 was referred to an e-mail dated  12 November from Sammy-Jo Brown of OIL-UK to D1 stating that the number of bottles required was to be reduced to 9,900, Ex 1344/2376 and the reply from D1 that the price would have to be increased to USD1.27 per bottle. PW3 said that price in fact remained the same as far as the supplier was concerned.

78.  PW3 said that after the transaction was completed he sent an e-mail to the supplier asking for the price difference, USD2180.20, to be remitted to the bank account of D2, Ex 1331/2346. PW3 said that the account number was sent to him by e-mail marked “Importance – High” and “ Sensitivity – Confidential”.

79.  PW3 said that the suppliers indicated that they could not send the the money to the USD account of D2 and so he supplied them with an RMB account held by D2 with the China Merchants Bank in Shenzhen, Ex 1332/2347. PW3 said that Ex 1333/2348 is the relevant inter-bank transfer.

80.   PW3 agreed that in his statement to the ICAC he said that D1 told him that he and PW1 were partners. PW3 also agreed that he told the ICAC that the prices were to be inflated 5% for commission. PW3 agreed he said this but said he when he made the statement he had worked for a number of companies and he might have mixed up the amount. He said in re-examination that what he told the court was correct.

81.  PW3 agreed that he also told the ICAC that 1-2 cents would be added as the UK company would generally seek a price reduction and that the unit price would be raised to allow for this. PW3 said that he never discussed the price increases with anyone from the UK office.

PW15, Liu Deshing, Delson – Sales Manager of Tianchang Junren Toys Factory – Charge 16

82.  PW15 supplied OIL-UK with a quantity of bean bags in mid 2009. PW15 said that he was not aware what the connection was between OIL–UK and OIL-HK. He said he dealt with PW2, PW4 and D1 at OIL-HK. He said that the unit price for the sale was USD5.90 but OIL-HK increased the unit price to USD5.95 and he refunded the difference to the bank account of D2.

83.  PW15 produced Ex 473/860 which is a purchase order from OIL-UK dated 02 June 2009 for 1250 bean bags at a unit price of USD5.95 plus USD480 for tool costs. The total price was USD7,917.40.

84.  PW15 produced ex 474/864 which is the proforma invoice prepared by his company for OIL-HK at a unit price of USD5.90 for 1300 bean bags.

85.   PW15 said that they received payment for the goods from OIL-UK. He produced Exhibits 881/1488 and 883/1490 in relation to these payments. PW15 said that his company then remitted USD3189 to the bank account of D2. PW15 produced exhibits 885/1492 and 1296/2239 as evidence of such payment. PW15 said he did not know who D2 was. He had only dealt with  D1 and PW4. PW15 said that the amount paid to OIL-HK was the difference between the price he quoted and the inflated price together with an amount relating to the set up costs for providing samples. PW15 said that these were returned to OIL-HK as the order proceeded.

86.  PW15 said that it was not a custom for merchandisers be paid a commission.

PW7 Mr Yuan Shenyong, Charge – General Manager of Mega Handbag Manufactory Limited – Charges 1,2 and 6

87.  PW7 gave evidence under immunity, Ex P1440. He said that he understood the terms of the immunity.

88.  PW7 said that through business he came to know D1 and an employee of OIL-HK called Jeff. He said that Jeff told him that D1 was the general manager of OIL-HK. He said he later found out that the company was a sourcing company for a UK company.

89.  PW7 said that he later came to know D2 and also dealt with other employees of OIL-HK called Patience and Cathy. PW7 said he dealt with D1 when the office of OIL was in Shenzhen and he was aware that the company later moved to Hong Kong. PW7 said he dealt mainly with D1, D2 or PW4.

90.  PW7 said that he was told that there would be price amendments made to his quotations and sometimes commission would be requested. He said he was not given any reason as to why the prices would be inflated. PW7 said that once his company had received payment for goods he would be requested by D1 by e-mail to make the appropriate refund to the bank account of D2. PW7 said that banking documents Ex 951/1641 and 952/1642 dated 03 July and 17 August 2007 related to two such refunds.

91.   In respect of his dealings with OIL-HK, PW7 produced an Order List, Ex 759/1267 which related to 11 transactions. Evidence was adduced of a further transaction by P68/231 which was a transaction which occurred in November 2007.

92.  The Order list gives each transaction a number and records whether there was a price inflation and/ or a commission payment. The order numbers are 57,59, 60, 68,74, 85, 67,79, 91 to 93. The corresponding purchase orders were produced as  P23/159, P24/163, P15/148, P43/188, P44/192, P37/179, P53/207, P58/215, P63/ 223 and P51/202.

93.  PW7 said that after the price increases and commission were agreed, a commercial invoice would be sent to OIL-UK. PW7 said that the quotations contained in his original proforma invoices went to OIL-HK could be altered at the Hong Kong office, he said he did not alter the invoices. PW7 said that he would receive a purchase order form OIL-HK at the inflated price.

94.  PW7 said that the first refunds paid to OIL-HK were based on the amounts as set out in P1297 but the figures would be rounded down. The first amount sent, USD13,200 is USD32 short of the total of the first three amounts due. PW7 said that the second amount sent, USD18,000 on 3 July 2007 was also a rounded down figure of the sums due to OIL-HK for the next four figures shown on Ex P1297.

95.   In cross –examination, PW7 agreed that in his witness statement he had not mentioned discussing price differences with D2.

96.   PW7 agreed that in his witness statement he said he paid Jeff a commission of 2 US cents in respect of the first transaction shown on his Order List Exhibit 1297. PW7 said that Jeff had not asked for this and later repaid the money to PW7’s wife.

97.  PW7 said that notwithstanding having been left with a great deal of material when D1 cancelled his final order he said he does not hate him. He said that this was notwithstanding D1 forged the chop of PW7s company. PW7 said that he refused to pay D1 a commission of 5% on the final order which was why it did not proceed.

98.  PW7 agreed that in his witness statement he said that D1 told him that the money refunded to him was to finance the running of his office in Hong Kong.

PW6 Mr Chan Kim Ming, Barry – Director of Macro Development Limited – Charges 3 and 10

99.  PW6 told the court that he was arrested on 16 August 2010 and charged with offences of conspiring to offer advantages to D2 to which he has entered guilty pleas. PW6 agreed that he admitted offering advantages to her in relation to her principal’s affairs. He is awaiting sentence on those charges.

100.  PW6 said that in 2006 he set up a company dealing in stationary and marker pens which he sourced from mainland factories. PW6 said he became a director and 60% shareholder in Macro in 2008 and they had offices in Shatin. PW6 said that a corporate bank account was set up and he was able to sign cheques up to HKD10,000 but for amounts above that figure there had to be a co-signatory.

101.  PW6 said that for a number of years he has known Chan Wai Chung, PW5. PW6 said that he knew that in mid-2008 PW5 had been fired and was looking for work. PW6 said he knew that PW5 had been earning a high salary which he could not afford to pay. PW6 said that it was agreed that PW5 would work for him for a monthly salary of HKD16,000 plus commission of 1% for the work he handled and 3% for work introduced by him.

102.  PW6 said that PW5 introduced OIL to him with a view to his company securing quotations for OIL. PW6 said that PW5 later told him he dealt with D2 at OIL and he introduced her to him. PW6 said that at the end of 2008 they went to the premises of OIL in Sheung Wan where he met D2 and D1. He said that D1 was introduced as the boss of D2. PW6 said that he was told by D5 that in respect of business being done with OIL, a commission of 3% would have to be paid to D2.

103.   PW6 produced documentation in relation to 5 purchase orders, Exhibits 72/238, 79/248, 92/264, 97/272 and 101/279. PW6 said that in respect of these orders there was a unit price and in some cases a cost in relation to setting up the tools to produce the goods supplied. PW6 said that in relation to each order, the unit price was inflated and  in respect of some of the orders, the tooling costs were also inflated. PW6 said that in respect of each order, the amount by which the prices were inflated were paid into the bank account of D1. PW6 said that for the commission payments, he gave PW5 a cheque for 6% commission based on his original  quoted price ( ie before the figures were inflated) and he understood from PW5 that he would pay half of that to D2. PW5 confirmed that he did pay half of the amount he received in cash to D2 without any accompanying documents.

104.  PW6 said that there was e-mail correspondence between D2 and PW5 copied to him which dealt with what sums were to be paid and to whom.

105.  PW6 said that he did not come to know that D1 and D2 were married until after he the ICAC started to make an investigation into his dealings with D1 and D2.

PW5 Chan Wai Chung, Joe, Charges 3,4,10-11

106. PW5 was arrested in August 2010 by ICAC and later charged with 5 offences of offering advantages to D2 in relation to her principals business. He is still awaiting sentence.

107. PW5 said he knew PW6 for a number of years and joined his company in mid-2008.

108. PW5 said that he met D2 in about 2005 when he was working as a project manager for a mainland toy factory. PW5 said that D2 was employed by one of the clients of the factory.

109. PW5 said that he later learnt that D2 had joined OIL-HK. PW5 said he met D2 in her office in Hong Kong and she would seek his advice about developing products.

110. PW5 said that he had known PW6 for a number of years and he met up with him in mid-2008 when he was out of work. He said that PW6 agreed to employ him at a monthly salary of HKD18,000 plus commission. PW5 said that he told D2 that he had joined Macro Development and they spoke about doing business toether. PW5 said that the visited the offices of OIL-HK in Sheung Wan together with PW6 and met D2 and D1 whom D2 introduced as her boss. PW5 said he did not learn that they were married until he was investigated by the ICAC in 2010. PW5 said the they asked that their company provided them with some quotations to compare against prices they had been quoted by other suppliers. PW5 said he came to know that OIL-HK was connected with an English company run by PW1 who came to the Hong Kong office every year for a regular inspection. PW5 said that the question of commission was not discussed at that first meeting.

111. PW5 said that at a later stage, when the prospect of carrying out an order, D2 mentioned to PW5 the question of commission. PW5 said he discussed this issue with PW6 and eventually they agreed to pay D2 a commission of 3% on the prices quoted by Macro Development.

112. PW5 said that the day before the first order was place, D2 spoke to him about inflating the unit price. PW5 said that D2 told him that OIL-UK wanted the price inflated and the price difference would be refunded to OIL-UK. PW5 said that D2 told him that in order to make matters less troublesome the price difference should be paid into the bank account of D1 which would be equivalent to banking it with OIL-UK. PW5 said that D2 also said that the costs for tooling should also be increased and the difference refunded the same was the inflated price difference. PW5 said that he was surprised by these requests and he discussed them with PW6 who was also surprised but the agreed to the arrangement.

113.       PW5 confirmed the evidence of D6 that that the five invoices supplied by Macro to OIL all had price inflations, some had tool costs inflations and the price differences were refunded to the account of D1. PW5 said that 6% of the original quoted price was paid to him by cheque by PW6 and he handed half the amount in cash to D2 at the downstairs of her office.PW5 said that he handed her the cash with no other documentation.

 

114. PW5 said that he left the employment of PW6 in May 2009 and set up a company called Macro Union Company ( MAC). PW5 said that he came to a similar arrangement with D2 as regards order placed by her with MAC. PW5 said that there were four such orders as evidenced by Purchase Orders P108/289,113/298, 132/320/ 133/324.

115. PW5 said that the agreement was that price increases would be paid back to the bank account of D1 and that commission of 4% rather than 3% would be paid to D2 by cash cheques which he handed to her at the KFC outlet in the ground floor of their office building.

116. PW5 said that the first payment of the price difference in the invoices was paid to the bank account D2 rather than D1 as D2 informed him that D1 was away on business and OIL-HK were in urgent need of funds to pay a mainland factory which was refusing to make a delivery of goods until they were paid. PW5 said he later discussed this matter with D1 who confirmed that the money was required to pay a mainland factory.

117. PW5 said that on the MAC invoices he used the address of Macro Development.

118. PW5 agreed that there was no company signboard outside the offices of OIL-HK. PW5 agreed that D1 and D2 acted like boss and subordinate rather than husband and wife. PW5 agreed that D1 said that he and PW1 were partners and D1 was responsible for looking after the Hong Kong operation.

119. PW5 agreed that MDL paid commission to other merchandisers.

PW4 Mr Yeung Hoi Fan, Daniel, Former Senior  Merchandiser at OIL-HK

120. PW4 gave evidence under immunity, P1441. PW4 said that he had read and understood the immunity.

121. PW4 said that he joined OIL-HK in August 2007 after being interviewed by D1. PW4 said that D1 had told him that he was in charge of OIL-HK and that PW1 was in charge of OIL-UK. PW4 said he was paid by OIL-UK directly into his personal bank account and he was paid an annual bonus by OIL-UK. PW4 said that if he incurred traveling expenses he would claim re-imbursement from D1 who paid him either by cheque or cash.

122. PW4 said that when he met customers with D1, D1 referred to himself as the merchandising manager.

123. PW4 said that in 95% of cases he handled, the quotations he dealt with were increased. He said that the amount of the increase was decided by D1 or himself after consultation with D1. PW4 said that D1 told him the mark up was in case there was some damage to the goods or some additional costs or mistakes made. PW4 said that D1 told him that they could deal with such matters without bothering the UK company. PW4 said that the UK company were not told about the mark up. PW4 said that after the supplier had been paid by the UK company the price difference would be paid by the supplier to the bank account of D2 or Chung Hin Fu, Ben. PW4 said that the supplier would be informed by e-mail about which account to pay.

124. PW4 said that he did not think it was proper to do this as he did not know if the UK company was aware of the marking up and he thought it was wrong. PW4 said the relationship of PW1 andD1 was not clear to him. PW4 said he was given four cheques by D1, Exhibits 1040-4 pages 1786-90 totaling HKD20,000. PW4 said that D1 had told him that the surplus in any mark up would be shared and he thought these payments related to that. PW4 said that he was given the cheques in D1’s room when there were none others present. PW4 said he did not know if any other members of staff were paid in this manner.

125. PW4 said that the other merchandisers including D2 were all engaged in marking up quotation prices in a similar fashion and this practice remained throughout his time with the company.

126. PW4 produced a list, Ex P1442, of transactions handled by him in relation to 21 suppliers where the prices had been increased. PW4 said he had dealt with other transactions where prices had been inflated which were not included in the list produced.

127. PW4 said that on less than 15 occasions he had made an additional mark up on the quotation price and had been repaid either in cash or transfer to his personal bank account. PW4 said he did not initially tell the ICAC about these matters. PW4 said that he knew that what he was doing was wrong.

128. PW4 agreed that when he was first told about the practice of price inflation, D1 told him that sometimes errors might be made by the Hong Kong office and a buffer was needed for when this happened. PW4 agreed that D1 said that at the end of a period, any if any money was left over it would be shared as bonuses.

129. PW4 said he did not believe he was breaking the law at first when he did it. PW4 said it depended on the relationship between PW1 and D1. PW4 said he had a query as to whether it was illegal or not. PW4 said he did not believe he had entered into a conspiracy to defraud the UK company.

Ex P1443 s.65B statement of Dr HUI Wing-sze, Forensic Scientist

130. Dr Hui examined P9 in order to compare the signature on that document with the signatures D1 on other documents.

131. Dr Hui said that she could neither confirm nor eliminate that the signature on page 13 of P9  and the controlled signatures submitted were written by the same person.

132. PW4 agreed that he was never aware of any mistakes made in any of the orders he placed.

133. In re-examination, PW4 said that the UK company did not know about the price mark up so there was an element of fraud. He said he felt this after working for OIL-HK for about 6 months.

Submissions of No Case

134. At the conclusion of the prosecution case, counsel for the prosecution applied to amend the indictment by amending charges 1 and 2 and adding charges 17 to 39. Charges 17 and 18 were preferred only against D2 and were alternative charges to charges 1 and 2. The remaining charges were alternative charges to charge 16. Defence counsel was given the opportunity of having any witnesses recalled and the court indicated it would accede to a request to have the matter adjourned for him to take full instructions and consider his position.

135. I found no case to answer in respect of charge 16 and a case to answer in respect of all the other charges.

Case for the Defence

136. The first defendant elected to give evidence.

137. He told the court that he was born in Hong Kong, is 36 years of age and educated to Form 7 standard. He has worked for a number of years as a merchandiser. He married D2 in 2004.

138. D1 confirmed that he started to work for PW1 in Shenzhen in March 2006. He said that his salary was HKD29,000 per month. D1 said he was given no contract and that he did not sign nor had he ever seen the employment contract produced as P9. D1 said that he does not know how the signature got on to P9 and that in any event, that is not the way in which he signs formal documents. D1 said that for cheques and other documents he uses his full name, not just his surname. He produced his application to Sun Alliance for MPF, Exhibit P1397/2349/50 to show how he usually signs important documents. D1 said that the signature on P9 is similar to the manner in which he initials documents. He said that he has no idea how this initialing got on to P9.

139. D1 said he never handed over his identity card at any time.

140. D1 said that he lived in Yuen Long and travelled to Shenzhen daily. D1 said that he was told by Brenda Chang, the office manager, that because he worked on mainland for more than 180 days per annum, he wa accountable for tax on the mainland. D1 said that the company declared to the mainland authorities that his income was RMB8000 per month.

141. D1 said that whilst working in Shenzhen he became involve in dealing with problems between OIL-UK and the mainland suppliers such as delayed payment for goods and quality control issues.

142. D1 said that his wife did not join OIL-HK until 1 August 2007. He said that prior to that she worked for a large European company as a merchandiser earning HKD26,000 per month. D1 said he met his wife in 2001 when she was working as a merchandiser.

143. D1 said that after he started to working for OIL- Shenzhen D1 said that he was instructed by PW1 to ask his team to avoid paying suppliers if they could. D1 said that PW1 was concerned about the overheads of the Shenzhen office. D1 said that on  a trip to the UK he spent much time with PW1 discussing how the achieve cost cuts. D1 said that PW1 told him that when D1 returned to Shenzhen he was to review all the figures in relation to running the office and come up with a solution. D1 said that after reviewing all the relevant information he came to the view that the office could be run more efficiently and cheaper if it relocated to Hong Kong.

144. D1 said that there was much animosity between PW1 and Brenda Chang and she resigned in February 2007. D1 said that this led to problems with closing down the Shenzhen office as Brenda Chang was the company’s legal representative on the mainland, she held the company chops and was responsible for the bank account. D1 said that is was only after the interventions of Mr Kwong of Pacific Primium, a friend of PW1, that the matter was resolved. D1 said that there were problems about payments to mainland staff and there was outstanding tax due to the mainland government.

 Alleged new arrangement between D1 and PW1

145. D1 said that in the period leading up to the opening of the Hong Kong office, there were many discussions between him and PW1 about how cost cutting could be achieved. D1 said he was told by PW1 that the cost of running the Shenzhen office was USD420,000 per month. D1 said he told PW1 he could reduce this figure by 40% by running the office from Hong Kong. D1 said that if he could not achieve this saving, he would pay the difference from his own pocket and if he achieved greater savings, D1 could keep the difference. D1 said that PW1 agreed to his markng up supplier’s prices and keeping the difference. D1 said that PW1 told him that if OIL-UK was able to buy the products cheaper elsewhere they would do so.

146. D1 said that after the Hong Kong office opened on 2 May 2007, he was no longer an employee of PW1 but became his partner. D1 said that he was paid in British pounds and the UK company no longer paid his MPF. D1 said that the decision to pay him in British pounds was made by PW1. D1 said that PW1 told him this enabled him to claim tax deductions in the UK. D1 said that he was not happy about this arrangement because of the exchange rates but he eventually agreed.

147. D1 said that he and PW1 discussed setting up a new company but PW1 did not wish to do so. D1 said that he discussed a 50% partnership with PW1 but PW1 did not agree.

148. D1 said that a business registration certificate was required for the purposes of signing the lease and arranging for the telephone and other utilities. D1 said that PW1 asked him to contact one of the Kwok brothers, friends of PW1, who were the directors of the dormant company, Pacific Premium, to arrange for a registration certificate. D1 said he did he obtained the certificate and signed the lease as a director of Pacific Premium and he also signed for the utility supplies. D1 said that he was not a director but Kwong told him to sign in whatever capacity he wanted. D1 said there was no formal name for the office in Hong Kong.

149. D1 said that the initial set-up costs were paid by him including the first month’s rent, stamp duty, office equipment rental which came to about HKD80,000. D1 said that he did not want to pay for the whole year out of his own pocket and neither did PW1 so it was agreed that the USD250,000 for running the office should be divided by 12, one for each month. D1 said that  PW1 agreed PW1 would pay the office costs to D1 to pay and the salaries would be paid direct by OIL-UK.

150. D1 said that he recruited his wife to join the office in August 2007 at a reduced salary of HKD21,000 but she would be paid commission on the orders she handled. D1 said that he paid cash or cheque bonuses. PW4 received HKD24,000 and D2 was paid cash. D1 said that there were records of such payments.

 Charge 1

151. D1 said in relation to charge 1 which is dated 14 May 2007, D2 was not an employee of the company at that time. D1 said that this order with Mega Handbag was handled by Zhou at the Shezhen office and he did not get involved in this order.

152. D1 was referred to Exhibit 759/1297 which had been produced by PW7. D1 said that contrary to the evidence of PW7, D2 never met PW7 in Shenzhen. D1 said that the first time he met PW7 was in March 2007.

153. D1 said that neither he nor D2 received USD992 referred to in charge 1 or the money referred to in Charge 2.

154. In relation to Charge 6, he was involved in inflating the order prices in relation to items 93,92 and 67 of Exhibit 759. D1 said he received no commission on these transactions.

155. In relation to order 93, D1 said there was a problem regarding the produce logo which he was told to sort out. D1 said he instructed Mega to provide a logo.

156. D1 said he kept no books of account in relation to his business. He said he kept records on e-mail. He said that some XL records were produced at the end of some years, D10 and D11, which are for the years 2007/8 and 2010. D1 said he could not find the records for 2009. D1 said that he had a server in his office and everything was recorded on that.

157. D1 said these records of account were not disclosed to PW1. He said that his factory price was highly confidential.

Legal Action by Aesthetics Prototype Limited

158. D1 produced as Exhibit D3 a letter to himself from C.O. Chan and Company, Solicitors, on behalf of Aesthetics Prototype Limited ( Aesthetics) demanding that D1 pay HKD214,866.60, in respect of money allegedly owing in respect of an order placed by OIL-UK.

159. D1 told the court that this concerned an order placed by OIL-HK for a quantity of mugs bearing the Heineken Logo. D1 said that a deposit of 30% was paid and the goods were shipped to the UK in three shipments. In his evidence in chief, D1 said that OIL-UK paid for the balance of 70% in respect of the first two shipments. D1 said that PW1 told him that he did not have sufficient funds to pay for the third shipment and D1 said that he told the person he was dealing with at Aesthetics, Ronny, that he would be responsible for payment. D1 said that PW1 claimed that there was a quality problem in relation to the first two shipments. D1 said that he had an argument with PW1 about this matter and he came up with a solution that the supplier would agree to allow compensation and PW1 should pay the balance and the defective goods would be replaced. D1 said that PW1 agreed to this arrangement. D1 said PW1 asked D1 to pay the supplier and D1 would pay him later. D1 said that on 30 June Ronny came to his office and he issued him with a cheque in the sum of HKD214,866.60 for the amount outstanding. D1 said he dated the cheque 2 July 2008 as 1 July was a public holiday. D1 in his evidence in chief said that his was for the balance outstanding on the third shipment.

160. D1 said that he told PW1the PW1 would get the bill of lading to collect the goods in the UK. He said that they were concerned about the demurrage charges being incurred whilst the goods remained uncollected. D1 said that on 2 July, PW1 called him and asked if he had paid the supplier. D1 said that when he told PW1 he had issued the supplier with a personal cheque, PW1 asked him to stop payment on the cheque. D1 said he was most reluctant to do so but eventually agreed. D1 said he spoke with the supplier, Ronny, on 4 July. D1 said that Ronny told him he was ill and had  not presented the cheque. D1 said that Ronny checked with his forwarder in Shenzhen and discovered that the goods had been released in the UK illegally through PW1’s forwarder in the UK. He said he did not know how it was released. D1 said that Ronny did not know the  cheque had been stopped. He said that when Ronny discovered that the container had been released he demanded cash from D1 and threatened him.

161. D1 said that some time in August 2008, just before one lunch time he saw 4-5 persons smoking in his office. His staff said they had been there for 15-20 minutes. D1 said that they told him they were there to collect money. He said he tried to ring the management office but they pushed him away and threw his mobile phone to the ground. D1 said that they said that they would return one hour later to collect the money. D1 said that 5 minutes later Ronny rang and told him to transfer the cash by 4.00pm otherwise he could not guarantee what would happen later.

162. D1 said he received the letter D3 on or around 23 August 2008. He said he did not go back to his office for one week after he had been threatened as he was afraid.

163. D1 said that four different men came to his office in late October and showed him D3 and his cancelled cheque, D3-1, and asked him how he was going to deal with the problem. D1 said the men told him they were debt collectors and were coming to collect more, but they did not say how much. D1 said that they said that they would return in 2 weeks time and they knew where he lived. D1 said that he told PW1 about what happened and that PW1 told him not to pay. D1 said he told PW1 he was scared and PW1 said that if  he paid it would be from his own money.

164. D1 said he went to the police with the letter, D3, and the cheque and told the police what happened but they told him as he was unable to show any injuries they were not interested.

165. D1 said he told the management office as to what was going on and nothing happened for the next two weeks. D1 said that he then saw the letter from PW1’s solicitor, P1438(3), dated 5 December 2008. D1 said he noticed that it referred to an assault the previous week but that was not correct.

166. D1 said that he paid RMB 3-4000 in respect of charges incurred in relation to this business but he never paid the amount requested in the solicitor’s letter.

167. D1 said that Ronny did not speak English or use e-mail and wanted to settle the matter peacefully. D1 said that he therefore agreed to visit Ronny’ s solicitor in August 2008 before D3 was sent. D1 said he told the solicitor that he agreed he owed money to Ronny in regard to the cancelled cheque. D1 said that Ronny told the solicitor that if she wanted to send e-mails then send them to D1 and if received any letters about the matter she should call D1. D1 said he did not tell PW1 about these circumstances.

168. D1 was referred to the e-mail correspondence, P1438, between himself and Judy Lam of C O Chan and Co in relation to the letter sent by PW1’s solicitors, Ex P1438 (3). D1 tells “Judy” to ignore the letter. D1 said that he was able to contact the solicitor on behalf of Ronny and Ronny told him to reply in that way. D1 said that this money was never paid.

Charge1 – In relation to evidence of PW7 and Ex 759/ 1297

169. D1 said in relation to Exhibit P15/148, which is referred to as order number 68 in Ex 759/1297 that he received nothing from this transaction. He said that this related to an order which had been place with a Taiwanese company. D1 said that the logo on the products were not acceptable and he was asked to find an alternative supplier for the logo. D1 said he approached Mega, the company run by PW7, to supply the logo. D1 said that the logo had to be sent from the mainland to Hong Kong and then on to Taiwan as because of political tensions, goods could not be sent direct. D1 said that transportation costs of around HKD1,000 were paid by OIL- Shenzhen office.

 Charge 6

170. D1 said charge 6 also concerned goods supplied by Mega. D1 said that D2 had no involvement with Mega. D1 said that these matters were dealt with by Patience in the Shenzhen office and by him when the Hong Kong office opened.

Charge 3,4 and 5 – Relevant witnesses PW5 and PW6

171. D1 said that PW5 and PW6 dealt with D2 in respect of the orders the subject of these charges. D1 said that it was agreed that D2 would receive 3% commission in respect of these orders. D1 said that he agreed to accept such an arrangement. D1 said he did not tell D2 the details of his relationship with PW1 and how it had changed.

Exhibit P10/55 Letter dated 4 May 2007 from PW1 to D1

172. D1 said that he never received this letter. The letter purports to deal with D1’s request to be paid in UK sterling2,500 per month for tax purposes. It refers to double pay at Chinese New Year, company bonus and performance related schemes. It refers to him continuing to be an employee. D1 said that correspondence had never been addressed to his home address before. D1 said he communicated with PW1 by phone and e-mail.

Incident 18 August 2010 concerning D1 and PW24

173. D1 said that after his arrest by the ICAC, when he was released by the ICAC he went to the OIL-HK offices with D2. D1 said that PW24 refused to let them in and handed him 3 termination of employment letters relating to him, D2 and PW4. He denied having any conversation with PW24 in the terms alleged by PW24.

174. D1 agreed that he left after company solicitors arrived showing that the directors of Pacific Premium, in whose name the tenancy on the offices had been leased, had been changed from the Kwong brothers to relatives of PW1.

Payments into bank account of D2

175. D1 said that monies rebated from his suppliers were paid into the bank account of D2. D1 said that when they were married he did not have much saving and she had more money than he had. D1 said he did not keep money in his bank account. He said all monies were paid into the bank account of D2.

176. D1 said that payments received in respect of charges 3,4, 5, 10 and 11, which were received from PW’s 5 and 6 of Macro, were paid into his bank account. D1 said that PW5 and PW6 did not know that D1 and D2 were married. He said that they knew he was the boss of OIL –HK. D1 said that it was not appropriate the those monies be paid into the bank account of D2 as PW5 and PW6 thought that D2 was just an employee.

Charge 9

177. D1 said that there was no mark up in relation to this charge. He said that the order was dealt with by PW3. He said that the prices for these goods were too competitive to permit any marking up of prices.

Charges 19 to 39 – orders placed with 21 suppliers

178. D1 said all these orders were handled by PW4. D1 said that he was consulted about the price mark-ups. D1 said D2 had no involvement with these orders. D1 said he made arrangements for these mark-ups as co-owner of the business.

Cross-Examination

P9/42-54 – Employment Contract

179. D1 said that he never signed P9 nor did he release his identity card to anyone at OIL. He claimed that the signature was forged and that the copy identity card was not a copy of his identity card. D1 said that the signature was his informal signature and he would not use that signature on this type of document. D1 was shown Ex1444, a tenancy agreement signed by him on 20 May 2009 which bore his informal signature. He agreed that he had signed this document using a signature similar to the signature on P9.

180. D1 denied that he received the OIL letter dated 4 May 2007 regarding the change in arrangements for payment of his monthly income, P10. D1 claimed that on 30 April his status as an employee finished. D1 agreed that there was a change in which the monthly payments were made. He said that the decision to pay him in pounds sterling was made by PW1. He denied that it was his idea to be paid in that way and the change was for his advantage as regards his Hong Kong tax position.

181.  I noted that P11/56 is and e-mail from D1 to Charlotte Cudlip at OIL-UK stating that “ Below is his new payroll account, kindly re-confirm with [PW1 and his wife] my monthly salary will be paid in GBP at 2500 ( GBP30,000 per annum) with effective (sic) from May 2007”.

182.  The e-mail goes on to give his bank details for two accounts. He said that one of the accounts should be used for paying in the GBP and the other account was to be used for petty cash which accepted HKD.

183.  D1 said that there was nothing in writing to reflect his alleged change in status. D1 said he did not consider PW1 to be his boss. D1 agreed that they had a common objective to make money. D1 agreed that he had no company or business registered in Hong Kong. D1 agreed that the salary of the HK employees of OIL were paid from the UK each month and that he would also receive a monthly payment. D1 agreed that there was also an additional payment into one of his  bank accounts for the office petty cash.

184.  Despite these arrangements, D1 said he regarded the Hong Kong employees of OIL as his employees and he told them that they were his employees.

185.  D1 agreed that PW24 was present when some of the HK staff were interviewed.

186.  D1 agreed that he signed the lease of Pacific Premium as a director when he was not a director of that company.

187.  D1 was referred to a number of e-mails exhibits 1389 -1392/ 2538 to 2541 in which he PW1 as his boss and asks for approval of his taking a holiday. D1 said that they did not indicate he was still an employee.

188.  D1 was referred to the e-mails Ex 1393/2542 concerning the dispute about the payment for mugs supplied by Aesthetics which refers to PW1 as his boss. He was referred to Exhibit 1394/2543 from PW1which states that  his wife is the financial director of the company and has the right to ask questions of whom she wishes. It refers to a payment of US160,000 in cash by an employee( D1) which has to be correctly accounted for. D1 said that this concerned a payment which had to be made on the mainland in cash. D1 said that PW1 had copied his wife into this letter and that it was written more with a view to appeasing his wife as D1 claimed that PW1 is very afraid of his wife.

189.  D1 said that his reply at Ex 1394/2543, was not copied to PW1’s wife, explains his position as regards using his own money and being reimbursed by the UK office. I noted that in that letter, D1 stated that the only money belonging to him was his wages and nothing else.

190.  D1 said that PW24 was aware of the relationship between him and PW1.

191.   At Ex 1394/2543/3 D1 wrote in an  e-mail to PW1 that he was more than happy if PW1 needed to recruit someone else to handle all the money matters for the HK office.

D2

192.  D1 said that D2 had never visited the Shenzhen office as asserted by PW7. D1 said that she was not involved in any matters concerning ordering until she joined OIL-HK in August 2008. D1 agreed that she had an e-mail address at OIL-HK before she joined the company. D1 agreed that payments were made into her bank account by suppliers of OIL-UK before she joined OIL-HK.

193.  D1 said he was aware that D2 received commission payments from PW5 in cash. He said no other employee was allowed to receive such payments in cash. D1 said he authorized D2 to receive the payments in that manner. D1 said that D2 was aware that the suppliers paying her were customers of OIL-HK. D1 denied that D2 knew that he was an employee of OIL-HK and not a principal.

194.  D1 said his employees at OIL-HK were all told that the mark up was his profit. I noted that this was never put to any of the employees who gave evidence. PW4 stated that in relation to marking up the prices he queried whether it was illegal or not. He said that he did not know the relationship between D1 and PW1. He said that he thought there was an element of fraud. I also noted that the employees were given a variety of reasons as to why the prices were marked up.

195.  D1 said that he paid commission to PW4 from his own funds. D1 denied telling PW4 that profit would be shared amonst the merchandisers. D1 agreed that he did make a substantial profit.

196.   D1 said that he kept the suppliers’s prices on his server only in relation to orders which he handled. He said that with regard to orders handled by his merchandisers, they would keep the suppliers’ prices on their own computers.

Charges 10 and 11  – Orders placed with PW5 and 6 of MDL and MUC

197.  D1 agreed that the inflated prices for these orders included inflated payments for tooling costs. D1 said that the amount of the price inflation went into his account rather than the account of D2 as PW’s 5 and 6 did not know that D2 was his wife and it would not be appropriate to direct them to pay the money into the account of an employee.

198.  D1 said that D2 had worked as a merchandiser for 10 years. She graduated with a degree in Engineering from HK Polytechnic.

Aesthetics

199.  D1 said that he did not know if Ronny, the owner of Aesthetics, had been to see OC Chan and Co before he went with him to see them. D1 said that Ronny showed D1’s cheque for HKD214,866.60 to the solicitors. D1 said that Ronny wanted to settle the matter in an amicable fashion. D1 said that the solicitors did not warn D1 of any potential conflict of interest.  D1 denied that the money being requested was his profit on the deal with Aesthetics.

200.  When counsel for the prosecution went through the figures with D1 in cross-examination, I noted that D1 changed his position. For the first time he asserted that in addition to paying the initial deposit of 30%, D1 said that OIL-UK only paid for the first shipment, not the second and third. In his evidence in chief, D1 clearly stated, on a number of occasions that OIL-HK had paid for the first two shipments and after allegedly finding defects, refused to make payment for the third shipment. D1 said that the third consignment was sent about 3 weeks after the second consignment and the shipping took about 23/4 days.

201.  D1 agreed that the HKD214,866.60 was never paid and he only paid RMB3-4000to Ronny’s forwarder for shipping company charges. D1 also agreed that the payment of USD7,500 in the letter from the solicitors representing OIL—UK was never paid or claimed.

202.   D1 said in re-examination that he neither paid nor gave any instructions to OC Chan. I noted that he in fact sent an e-mail to “Judy” at OC Chan and Co informing her to ignore the letter from OUL-UK’s solicitors.

203.  D1 said he never took any legal advice about his status as a partner of OIL-HK. He said that he had always worked as an employee before that apart from when in 1996 he was the sole proprietor of a business for one year.

DW1 Valery N Aginsky – Documents Expert – P9 & P10

204.  D1 maintained that he had never seen nor signed the contract dated 6 April 2006, P9/42 or the letter from PW1 of OIL-UK dated 4 May 2007, P10/55.

205.  Copies of  these documents produced by the prosecution were forensically examined by DW1. He submitted his report as Exhibit D9.

206.  Evidence in relation to the signing of P9 was given by PW24. He said that he had a copy of the contract on his computer as did Brenda Chang, the manger of the Shenzhen office at the material time.PW24 said that he could not recall who printed out the contract. PW24 said that at the Shenzhen office the contract was left with D1 for him to sign. PW24 said that he later chased up D1 for the contract and that D1 signed the contract in his presence. PW24 said that before the contract was signed he asked D1 for his identity card so that this could be copied on to the page 13 of the contract. PW24 said that either he or Brenda Chang copied page 13 and D1’s identity card so that the identity card would appear on page 13.

207.  PW24 said that the original document was passed to Brenda to keep at the Shenzhen office and he received a copy of it. PW24 said that originals had to be kept at the Shenzhen office in order that they could be shown to mainland authorities. PW24 said that he could not recall if  a copy was given to D1. PW24 said that 2-3 weeks later, he returned to the UK with the copy of D1’s contract which he kept in a file in his office. PW24 said that about a year later the human resources department of the UK office were centralizing personnel matters and he gave the department the copy of D1’s contract. PW24 said that he later received back from human resources either the document he gave them or a copy of it which he filed. PW24 said that thereafter he had nothing to do with the contract.

208.  DW1 opined that it is highly unlikely aht page 13 of Exhibit 9 is a first generation copy of the original page bearing the signature of the defendant.

209.   Some of the observations of DW1 relating to differences in the appearance and setting of the type on P13 are explicable by the fact that the page was photocopied separately from the rest of the document with the identity card of D1 placed on that page for photocopying.

210.  DW1 examined the trash marks on P9 and P10. He said that trash marks are toner specks or dots which appear on photocopied documents rather like constellations of stars. He noted that the  200 plus “trash” marks on pages 1-12 were consistent but very different from the 21 trash marks that can be seen on page 13. DW1 said that at this revealed a different history.

211.  DW1 also noted that page 13 had a lower resolution as if at some time it had been faxed.

212.  I noted that before P9 was allegedly signed, according to PW24, page 13 was separately photocopied so as to facilitate a copy of D1’s identity card appearing on the page to be signed.

213.  I noted that there was no evidence before the court as to what happened to the document submitted to the HR department at OIL-UK. I also noted that a standard form of contracts was used and only page 13 required and original information and a signature.

214.  I noted that there was no evidence to support the proposition put to PW1 that the signature and identity card had been cut and pasted on to that page. DW1 said there was no direct evidence to suggest that happened.

215.  I noted also, that when the ICAC investigation started in mid 2010, this was at least four years after the commencement of D1’s employment with OIL in Shenzhen.

Please refer to CACC255/2012 for the relevant appeal(s) to the Court of Appeal.