City Harvest Appeal Decision Explained – Episode 3 (Minority Report)

Why did the Minority take the view that both Sun Ho and Kong Hee had obtained benefits from the misappropriated funds, that the appellants did not act in the best interests of CHC, that CHC had suffered permanent financial loss, and that little weight (if any) should be given to the fact of “full restitution”? What are the practical implications of this case on how churches and charities should deal with donations? We will consider all these questions, and more, in Episode 3.

A. PREVIOUSLY, IN EPISODES 1 & 2, and outline of Episode 3

In Episode 1, we had considered the complex facts of this case in some detail, as well as why the Majority had largely dismissed the appeals against conviction, while in Episode 2, we had examined why the sentences were reduced significantly (primarily due to the Section 409 point of law, as well as several unique mitigating factors, which were largely assumed as true for the purposes of sentencing, or which remain open for debate to a certain extent, or in respect of which the Minority has expressed a strong dissent).

In this blog post, we will consider the Minority’s report, or rather his grounds for departing from the Majority in three areas (while otherwise agreeing with the Majority’s grounds of decision) ([438]-[441]). First, he disagreed with the Majority on the Section 409 point of law ([444]-[474]). This has been dealt with in Episode 2. Second, he disagreed with the Majority’s assessment of the appellants’ mind-sets concerning the success of Sun Ho’s English album across the various transactions ([475]-[490]). This is dealt with in Section B below. Third, he disagreed with the Majority on various mitigating factors which were taken in account. This is examined in Section C below. In the light of his decision on the Section 409 point and his assessment of the facts, he would not allow the appeals against sentence.

In Section D below, we will consider the practical implications of this case on how companies, charities and churches are run and how they should deal with trust assets or donations.

The capitalized terms below are as defined in Episodes 1 and 2, while the numbers in square brackets are references to the relevant paragraph(s) in the 298-page City Harvest Church Appeal Decision.

B. APPELLANTS’ EVOLVING MINDSETS

We will first consider why the Minority disagreed with the Majority’s assessment of the appellants’ mind-sets concerning the success of Sun Ho’s English album across the various transactions ([475]-[490]).

The Minority felt that the appellants had believed that Sun Ho would be a successful artiste in the US in the light of the representations made by Justin and Wyclef, and that they had also believed, in the several months leading up to the signing of the 1st Xtron BSA, that it was more likely that not that they would have been able to ensure that Xtron would eventually have sufficient funds to redeem the bonds within a few years and make substantial profits thereafter ([477]).

Amongst other factors considered, the Minority took the view that Justin was fanning the appellants’ ambition to make Sun Ho an internationally renowned singer and had provided the appellants with very optimistic figures and projections, that Justin had also “expressed great enthusiasm” for Sun Ho’s music videos, “China Wine” and “Mr Bill”, in April 2007 ([478]), and that the projection of a sale of 200,000 albums was a “conservative estimate” which reflected the truth of the appellants’ attitude towards the investment in Sun Ho’s music career and her potential in the US market at or around that particular period (i.e. they did not genuinely believe  that there was a significant risk of failure which was likely to materialise) ([479]). As late as end March 2008, Justin had projected for Kong Hee a very rosy picture of securing a total accumulated net profit in excess of US$32 million by 2012 ([480]).

However, the Minority held that as more projections (projecting greater losses in 2008 and 2009, and a much reduced profit in 2010) were subsequently done, the picture appeared less and less rosy, and the appellants’ mind-sets must have correspondingly changed ([481]). Around this, i.e. in the middle of 2008, it became apparent to the appellants that the revenue from the investment would be insufficient to repay the Xtron bonds.

The Minority found the appellants’ conduct in the period leading up to and after the execution of the Firna BSA “highly objectionable” ([482]), i.e. causing CHC and Xtron to enter into the detrimental ABSA (which reduced the interest rate from 7% to 5% per annum, and extended the deadline for redemption from 2 years to 10 years, etc), and causing CHC to enter into the Firna BSA to divert “even more funds from CHC to fund the Investment at a stage when the production of the album had been beset by various delays, serious budget overruns and other issues”, and had even provided S$2.5 million under the Firna BSA to Wahju for his personal expenses. The Minority went on to say as follows ([482]):

“It is clear to me from the chain of events that the appellants treated CHC’s funds as their private piggybank which they could draw on as and when they deemed fit. Indeed, when it became apparent that they might not be able to return the funds initially misappropriated under the Xtron bonds due to budget overruns and delays, the appellants had no qualms about amending the repayment terms or misappropriating even more funds from CHC to fund their Investment under the guise of the Firna BSA.” [Emphasis in bold added]

In a similar vein, the Minority found the appellants’ conduct in relation to the round-tripping transactions “completely unacceptable and criminal in nature”. He found that the appellants had ([483]):

“… reverse-engineered the sums payable under the ARLA in order to ensure that the Xtron and Firna bonds could be repaid with the stipulated interest so as to not alert the auditors who were growing suspicious.”

While the Minority found that the appellants’ genuine belief at the time the 1st Xtron BSA was entered into that they would have been able to make sufficient profits to repay the bonds ought to be taken into account in sentencing (with respect to the Xtron bonds), he held that ([484]):

“… their subsequent actions in allowing CHC to enter into the Firna bonds despite the relatively negative prospects of their Investment at that stage is, in my view, far more aggravating in nature. Additionally, where the round-tripping charges are concerned, I find the appellants’ use of one colourable device (ie, the round-tripping transactions) to cover other colourable devices (ie, the Xtron and Firna bonds) to be an aggravating factor that ought to be taken into account in sentencing Eng Han, Ye Peng, Serina and Sharon on these charges.” [Emphasis in bold added]

That being said, the Minority emphasized that his finding above did not impinge in any way on the finding of the Majority (which he agreed with) that the Xtron and Firna bonds were not investments when viewed through the lenses of CHC and amounted to a “wrong use” of the Building Fund irrespective of the appellants’ initial belief in the commercial viability of their investment ([485]).

C. DIFFERING VIEWS ON MITIGATING FACTORS

We will now consider the Minority’s differing views on the various mitigating factors, namely, both Sun Ho and Kong Hee (amongst others) had obtained benefits from the misappropriated funds, that the appellants did not act in the best interests of CHC, that CHC had suffered permanent financial loss, and that little weight, if any, should be given to the fact of “full restitution”.

C.1 Direct and Indirect Benefits

The Minority held that it was very clear from the evidence before the court that Sun Ho had obtained a direct benefit (both financial and non-financial), Kong Hee had obtained an indirect benefit (both financial and non-financial), and that a third party Wahju had obtained a direct financial benefit (S$2.5 million) (see [502]-[512]). As a result, it could not be said that the appellants were motivated by purely altruistic motives.

Context: To set the context, the Minority felt that the appellants as leaders of CHC “ought to have carefully examined what would be the most cost-effective means to execute the Crossover”, especially since large sums of donated funds were being used ([504]). For example, the appellants could have engaged an already well-established and renowned singer to attract a large secular crowd, and for Kong Hee to suddenly appear on stage to preach to the captive audience. The apparent “single-minded pursuit of only one option to use Sun Ho” without even considering the possibility of other better and more cost-effective alternatives to achieve the same evangelisation objective itself raises questions as to whether there was a predominant motive to benefit Sun Ho specifically and Kong Hee indirectly, with evangelisation being just a distant objective ([505]).

The Minority went on as follows ([506]):

“Although the plan was for Sun Ho to use the fame and influence derived from the Investment for evangelistic purposes via the Crossover, any assertion that the fame and influence Sun Ho obtained through the Investment did not also directly benefit her and indirectly benefit her family (including her husband, Kong Hee) would, to my mind, be entirely contrived.” [Emphasis in bold added, while the underlined portions were emphasized in italics by the Minority]

Sun Ho: With respect to Sun Ho, she had obtained both a direct financial and direct non-financial benefit from the appellants’ use of the criminally misappropriated funds to fund her music career ([507]). She had obtained a direct financial benefit and was the direct beneficiary of the use of the misappropriated funds to fund her music career. The Minority emphasized the strength of this point ([507]):

“Indeed, I struggle to see what possible evidence can be adduced to show the contrary or how it can be argued otherwise given that Sun Ho’s music career was being sponsored through the use of those funds.” [Emphasis in bold added, while the underlined portions were emphasized in italics by the Minority]

Apart from this, Sun Ho would have gained further financial benefits under the various artiste management agreements, which had advantageous terms for Sun Ho. For example, under the agreement between Sun Ho and Xtron, she was to receive 25% of the gross income received by Xtron (before accounting for amounts spent to earn that income) as well as a monthly salary of US$10,000, thus putting her always effectively in a position of “net financial gain” while any losses suffered would be borne exclusively by Xtron. The same framework applied to her agreement with UA, under which she was entitled to 10% of the gross income as well as 100% of the royalties that UA received on her behalf from Justin’s company. Submissions were made during the appeal hearing on her benefit that she had always donated the monies received as an artiste to the church or to various other charitable causes, but the Minority held that “it is not clear whether this was in fact true”, but even assuming that this was so, she was nevertheless “contractually entitled to a substantial financial benefit without having to bear any of the corresponding risk”, and this was a “benefit in and of itself” ([508]).

In addition, with respect to direct non-financial benefits to Sun Ho, the Minority made the following finding ([508]):

“Apart from these direct financial benefits to Sun Ho, the use of the misappropriated funds to finance the development of her music career with the objective of turning her into a mega-star also conferred a direct non-financial benefit on Sun Ho in allowing her to build up her music career at CHC’s expense and to gain international fame and success for herself.” [Emphasis in bold added]

Kong Hee: With respect to Kong Hee, the Minority held that Kong Hee (by the very fact that he is Sun Ho’s husband) had obtained an indirect financial and non-financial benefit, that his motivations were not pure or altruistic, but rather, he was coloured by greed and self-interest ([509]):

“In my judgment, the very fact that Kong Hee is Sun Ho’s husband necessarily means that he must also have obtained a financial and non-financial benefit – albeit in an indirect way – from the use of the misappropriated funds on her and her career. It cannot escape notice that having the church pay for all the expenses involved in building up Sun Ho’s music career meant that Kong Hee and his family would not need to provide their personal funds for Sun Ho’s music career development. Just as this was a form of direct financial benefit to Sun Ho, it was an indirect financial benefit to Kong Hee. Equally, the income and potential profits that Sun Ho was entitled to were also a form of indirect financial benefit to him, while the fame and success that Sun Ho could gain (and gained) as a direct non-financial benefit to herself was also a form of indirect non-financial benefit to Kong Hee as her husband. Taken together, these factors would call for the imposition of a more severe sentence on Kong Hee than that imposed by the Judge as they would demonstrate that his motivations were not pure or altruistic, and that he was coloured by greed and self-interest.” [Emphasis in bold added]

Wahju: With respect to Wahju, the Minority held that the S$2.5 million (out of the S$11 million transferred from the Building Fund under the Firna bonds) that was lent to Wahju without interest for his personal use (which included certain trading activities) “undoubtedly amounts to a clear form of direct financial benefit to Wahju that has been proven beyond reasonable doubt and which the court may have regard to for the purpose of sentencing” [emphasis in italics added]. As such, the presence of this fact means that where the third sham investment charge is concerned, “the appellants’ motivations cannot be described as exclusively or solely altruistic” ([512]).

The Procedural Difficulty: However, the Prosecution did not bring up the above points (i.e. that Sun Ho benefitted directly and Kong Hee had benefitted indirectly) in their submissions before the Judge, or in the written submissions before the High Court, but had brought up the point that Sun Ho had benefitted only during the appeal before the High Court by way of oral submissions ([498]).

Due to the manner in which this issue had been dealt with, these factors were not properly ventilated and were thus not taken into account by the Judge during sentencing, and left matters in an “unsatisfactory state” ([502]). As the Minority opined ([510]-[511]):

“The problem in this case is not that the Prosecution had premised its case against the appellants exclusively on wrongful loss in respect only of proving the elements of the CBT Charges; it is that the Prosecution appears to have accepted, for the purposes of both conviction and sentence, that Kong Hee obtained no direct or indirect financial or non-financial benefit as a fact, and had further proceeded largely on the basis that any direct financial and non-financial benefit, though clearly present on the facts, to Sun Ho was also to be ignored…

… As a result, the presence of benefits to Sun Ho and Kong Hee does not appear to have been properly ventilated at trial (although evidence in relation to the benefits was adduced before the court) and the appellants have not been given a full opportunity to address the court on them. I discuss the implications of this from [548] onwards below.”

The Minority was thus faced with a difficult procedural question, i.e. whether he may take such facts and circumstances into account, at the appeal stage, in an appeal against sentence. This is dealt with in Section C.5 below.

C.2 The Appellants did not Act in Best Interests of CHC

Next, the Minority did not accept that the appellants acted with CHC’s best interests at heart or had no intention of causing CHC to suffer financial loss as a result of the various transactions ([513]-[531]).

Xtron Bonds: With respect to the Xtron bonds, the Minority held that the appellants did not genuinely believe that they were acting in CHC’s best interests when causing CHC to enter into this transaction, having regard to the following: (1) CHC had overpaid for the Xtron bonds. The interest rate (7%) was low compared to the magnitude of the financial risk involved in investing in Sun Ho as an artiste. This is all the more so when a Hong Kong bank, Citic Ka Wah Bank Limited, had demanded a much higher interest rate of 16% per annum to loan a smaller sum of S$9 million to Xtron, a loss-making music production company with hardly any assets; (2) The amendment of the 1st Xtron BSA to the ABSA which decreased the interest rate payable, extended the repayment period, and increased the maximum amount of fund for the Xtron bonds, without Xtron providing any valuable consideration for such variations to the terms. See [521].

Firna Bonds:  With respect to the Firna bonds: (1) No due diligence was done to ensure that the 4.5% interest was the market rate for bonds issued by Firna; (2) No survey was done to ensure that the Firna bonds were the best or most appropriate investment option for CHC out of the range of other bond options available in the market; (3) The Firna bonds were not a genuine investment, but were merely a façade or a convenient conduit for the appellants to extract even more funds from CHC to finance Sun Ho’s secular music career and to provide funds to Wahju for his personal use; (4) Firna was not responsible for payment under the bonds, and this was hidden from public scrutiny; (5) The appellants engineered the use of the secret letter, which cut down the protective features under the Firna BSA; (6) The market would have demanded a return higher than 4.5% if it were aware of the true circumstances and purposes for which the bonds were issued, assuming there would be willing buyers for such Firna bonds, which the Minority very much doubted there would be if all the material facts had been fully disclosed. See [522].

The Minority went on to hold that the appellants had compromised on CHC’s financial interests, and that it was difficult to see how it can be accepted that the appellants believed that they were acting in CHC’s best interests ([523]):

“The above analysis thus shows that the appellants compromised on CHC’s financial interests by causing CHC to enter into unprofitable transactions for the purpose of extracting monies from CHC to fund Sun Ho’s music career (and also, where the Firna bonds are concerned, for the additional purpose of providing funds to Wahju for his personal use). The appellants also willingly put CHC’s legal welfare in jeopardy through the use of covert devices such as the secret letter which cut down on terms that were meant to give CHC proper legal protection. It is difficult to see, when these facts are considered, how it can be accepted that the appellants believed that they were acting in CHC’s best interests and had no intention to cause CHC to suffer financial loss of any kind at the time the transactions were entered into.” [Emphasis in bold added]

In fact, assuming Sun Ho had achieved astronomic success in the US, the financial fruits would have gone directly to Sun Ho and to her management company (Xtron or UA), while the only returns which CHC would have received was the “paltry interest” under the bonds which was not commensurate with the market interest for bonds of such a high-risk nature ([524]).

Round-Tripping Transactions: With respect to the round-tripping transactions, there was also in fact “quantifiable financial loss” suffered by CHC, when the Xtron and Firna bonds were converted into an obligation on Xtron’s part to provide premises under the ARLA ([525]).

At the time of the ARLA, Xtron was providing premises at Expo to CHC which was (according to Eng Han) worth S$2.5 million per annum, whereas under the ARLA, CHC had paid the full rental sum of S$7 million per annum times 8 years amounting to S$56 million (but discounted to present value, by 5%), i.e. S$53.2 million. But Xtron in fact had no premises of that worth to offer. In addition, there is little contemporaneous evidence to substantiate Eng Han’s assertion that the rental amount was S$7 million per annum (to rent the convention hall at Suntec City).

In other words, although CHC had contracted to receive 8 years’ worth of premises worth S$7 million per annum from the date of the ARLA, “CHC did not receive its money’s worth” as Xtron had no premises of that worth to provide at that juncture, and in fact only provided premises (at Expo) worth much less than what CHC had actually paid for (for premises at Suntec City). CHC had thus been “overcharged by a huge amount” of S$4.5 million per annum as it was only provided with the premises at Expo. “This constituted real financial loss to CHC at the time the ARLA was executed”, and CHC had suffered financial loss at the rate of S$4.5 million for every year that it did not have the Suntec City premises to use. See [526]-[527].

The Minority went on to conclude as follows ([528]):

“As exemplified by the above illustration, it is clear that the ARLA was not an agreement that was in CHC’s best interests. Immediate substantial financial loss was caused to CHC once it agreed to and executed the ARLA on the terms as set out. The agreement was structured to disadvantage CHC financially from the beginning. An agreement of this nature was not one that the appellants ought to have caused CHC to enter into, even assuming that the ARLA was a genuine agreement for advance rental. Additionally, at the time the ARLA was executed, there was no suggestion that the appellants intended to rescind the ARLA and repay the monies thereunder sometime in the future. In the circumstances, I find it very difficult to accept the point made by all the parties (including the Judge) that the round-tripping transactions merely allowed for the substitution of debts and did not in fact cause CHC to suffer any financial loss save for the GST sum. Indeed, based on the above, at the time CHC executed and made payment to Xtron under the ARLA, apart from the possible loss of more than $3m paid in GST, CHC also suffered a loss of monies as the advance rental was paid on the basis of immediate occupancy even though Xtron had no premises of that worth to offer. This was “permanent loss” that the appellants intended for CHC to bear at the time the ARLA was executed, and their subsequent decision to rescind the ARLA in no way impinges on this. In my judgment, Eng Han, Ye Peng, Serina and Sharon could not have believed that the ARLA would have been in CHC’s best interests; indeed, I find that in causing CHC to execute the ARLA, they clearly intended to cause CHC to suffer financial loss and to cause a third party private company, Xtron, to gain financially.” [Emphasis in bold added, while the underlined portions were emphasized in italics by the Minority]

Conflict of Interests on Kong Hee’s Part: The Minority also found that Kong Hee did not act in the best interests of CHC, having regard to him being in a position of conflict being the head of the church while at the same time being Sun Ho’s husband in a situation where church funds were being used to build up her secular music career (at [529]-[530]):

“529    Apart from the various transactions and the manner in which they were structured, I also find that Kong Hee did not act in the best interests of CHC. As Sun Ho’s husband, Kong Hee was undoubtedly in a position of conflict where CHC’s monies were to be spent on building up Sun Ho’s secular music career and making her a singing artiste with international fame. Kong Hee had on a number of occasions even indicated that he was willing to go the extra mile for Sun Ho (see, in this regard, the examples cited by the Judge at [316] of the Conviction GD). Whilst it appeared that Kong Hee was acting in Sun Ho’s best interests, it is not an ineluctable proposition that the best interests of Sun Ho’s music career would at all times coincide with CHC’s best interests. Given these various areas for potential (or actual) conflict of interest, it is incumbent upon Kong Hee to ensure that all that he did with respect to the relationship between CHC and Sun Ho’s music career, especially where this involved the use of CHC’s funds, was above-board. This would be the case a fortiori since Kong Hee was also the head of the church, with the responsibility to be a good custodian of the charity funds which CHC raised. However, Kong Hee abused the trust placed in him and failed to ensure that he was totally transparent and honest with the CHC Management Board, the EMs, the members of CHC and the professionals who were advising him or even with the other appellants. Indeed, there were various instances where he made false or misleading statements (see, for example, those cited by the Judge at [301]–[302] of the Conviction GD and [15] of the Sentencing GD).

530    In the circumstances, quite apart from the issue of whether Kong Hee received any indirect benefit and could therefore be said to be motivated by greed and self-interest, I find that Kong Hee did not act in the best interests of CHC when he used CHC’s funds to invest in Sun Ho’s music career. Rather, it appears to me that Kong Hee used the BF as his personal funds from which he could draw down without limit and spend on building up his wife’s singing career in the name of the Crossover. In misappropriating the BF, Kong Hee ultimately obtained a heavily subsidised loan from CHC to fund his wife’s secular music career in conflict with CHC’s best interests, while – at least at the beginning – harbouring high hopes that the Investment would make so much money that he would be able to return the monies criminally misappropriated. Kong Hee could only have done all of this with the participation of John Lam, Ye Peng, Eng Han and Serina, who assisted and supported him in conceiving of and administering the illicit schemes. I find that Kong Hee was the leader of the conspiracy which caused harm to CHC. I will however leave open the question whether Kong Hee had harboured a thought or a belief at the time the sham investment offences were committed that he would be able to get away with the misappropriation of massive amounts of CHC’s monies under the cover of the Crossover in the event that the Investment should turn out to be unsuccessful and the monies could not be repaid. If he did, that would have been a very serious aggravating factor to be considered for the purpose of sentencing.” [Emphasis in bold added]

Minority’s Concluding Remarks on this Factor: In the light of the above, the Minority did not accept that the appellants acted with CHC’s best interests at heart or had no intention of causing CHC to suffer financial loss as a result of the various transactions ([531]).

C.3 Permanent Financial Loss to CHC

The Minority held that it was “entirely likely that CHC suffered permanent financial loss” (pertaining to the Xtron and Firna bonds), and that CHC had also suffered “actual and permanent financial loss” pertaining to the ARLA ([532]-[537]).

The Minority held that if the appellants had not criminally misappropriated CHC’s funds for the Xtron and Firna bonds, CHC may have used the monies to invest in other financial instruments which may have allowed it to obtain a greater return for the same amount of financial risk taken. The Minority gave a broad estimate of the loss under the 1st Xtron BSA, i.e. S$1.17 million of interest per annum. This is based on 16% (demanded by Citic Ka Wah Bank Limited) minus 7% per annum (under the 1st Xtron BSA), which amounts to a difference of 9% of lost interest on the sum of S$13 million which was withdrawn from the Building Fund under the 1st Xtron BSA. See [534].

In relation to the ARLA, the Minority disagreed that the repayment made by the appellants (of the sum of S$40.5 million) amounted to “full restitution” ([536]). This S$40.5 million comprised (1) S$33,039,117.60 being the unutilised advance rental; (2) S$7 million being the security deposit; (3) S$453,103.02 being the interest accrued from the date of the termination of the ARLA until full payment was made. The Minority held that interest ought to have been paid (but was not paid) on the unutilised license fee that CHC had paid Xtron from the time of payment (from CHC to Xtron) to the date the ARLA was rescinded, given that Xtron had the full use of CHC’s monies during this period. See [535]-[536].

The Minority concluded that it was “factually inaccurate” to say that due to “full restitution”, CHC had suffered no permanent financial loss. However, at this juncture, the Minority ran into the same procedural difficulty as the point on the benefits to Sun Ho and Kong Hee (see [537]):

“The Prosecution appears to accept that as a result of the appellants’ “full restitution” that CHC suffered no permanent financial loss. This is, in my view, factually inaccurate for the reasons aforementioned. However, as a result of the Prosecution’s position, the permanent financial loss suffered by CHC as a result of the entry into the Xtron and Firna bond transactions as well as the shortfall in the so-called “full restitution” was not dealt with, and the appellants did not have an opportunity to address the court on these points. As in relation to the issues surrounding the direct benefit to Sun Ho and the indirect benefit to Kong Hee, I discuss the implications of this from [548] onwards below.” [Emphasis in bold added, while the underlined portions were emphasized in italics by the Minority]

See Section C.5 below on how the Minority eventually dealt with this difficult issue.

C.4 Little Weight Given to “Full Restitution”

The last factor which the Minority considered is the mitigating impact of the appellants’ restitution. Where restitution indicates genuine remorse, this may be a ground on which the sentence could be reduced. The Minority went on to hold as follows ([538]):

“In the present case, however, there is unequivocal documentary evidence showing that the appellants’ motive for rescinding the ARLA was to pre-empt any investigation by the authorities and to avert any suspicion of dishonesty.”

See [538]-[540] for the very notable contents of the email dated 31 March 2010 (the very same day the ARLA was terminated) and a BlackBerry message dated 5 April 2010 which were considered by the Minority when making the above finding.

Having regard to these documentary evidence, the Minority held that the appellants’ desire to “fill up the hole” (in Xtron, and correspondingly, CHC) was “not motivated by genuine remorse but by a desire to avoid detection, with a sense of urgency coming from the need to do so before closer scrutiny by the authorities” ([540]).

Apart from the motive for doing so, the manner in which the appellants went about procuring funds to “fill up the hole” also severely limits the mitigating weight that can be accorded to the appellants for this ([541]).

In this regard, to obtain funds quickly, Kong Hee, Ye Peng and Eng Han were involved in sourcing for a number of external loans that would be pumped into Xtron. It appears that these loans, amounting to a sum of approximately S$30 million, were procured from individuals affiliated to the appellants or CHC. In an excel sheet prepared by Serina dated 15 April 2010, Serina detailed these loans, and titled that sheet “What we need to pay back CHC”.

The Minority raised the following questions on the available evidence (or lack thereof) pertaining to the circumstances under which such loans were obtained ([542]):

“It is not clear from the evidence whether three of the four individuals who provided the loans to CHC (detailed in the excel sheet as “Surhardiman”, “Labelindo” and “Roy Tirtaji”; the fourth individual was Wahju) were affiliated to CHC or members of the church. More evidence in this regard would have been helpful. For instance, if these funds or part of these funds that had been loaned were funds that these persons had originally intended to be donated to CHC, I would consider this an additional aggravating factor rather than a mitigating factor since the appellants’ acts would then have effectively kept CHC out of funds that it would have received but for the appellants’ wrongdoing. However, as there was scant evidence concerning this, I say no more about it.” [Emphasis in bold added, while the underlined portions were emphasized in italics by the Minority]

Importantly, the loans were all disbursed to Wahju, who in turn transferred the money to Xtron, making him look like he was honouring a personal guarantee, when in fact the guarantee was only created in March 2010 and backdated to 2007 (the year the 1st Xtron BSA was entered into). The Minority made the following observations on this point ([543]-[544]):

“To facilitate the repayment of the outstanding sums to CHC under the rescinded ARLA, Serina maintained a loan schedule setting out the timing for the loans to be disbursed to Wahju. Wahju was then supposed to transfer the monies to Xtron. Wahju was included as an intermediary to channel the external loans to Xtron as the appellants sought to create the impression that he was putting his own money into Xtron in fulfilment of a personal guarantee he had purportedly given in favour of Xtron in 2007 to underwrite any losses suffered. In reality, this guarantee was drafted only by Serina on Eng Han’s instructions in March 2010 and backdated to 2007. To provide assurance to Wahju that the guarantee was merely cosmetic, Eng Han also instructed Serina to draft a cross-guarantee by, inter alia, Kong Hee, Ye Peng and Eng Han in favour of Wahju, in the event the personal guarantee he had given had to be called upon… It is therefore clear that the appellants did not intend that Wahju would be responsible for repaying the external loans. Instead, it was Kong Hee, Ye Peng, Eng Han and Serina who took it upon themselves to raise money for repayment.” [Emphasis in bold added]

In other words, the appellants had borrowed from various individuals (under unclear circumstances) to repay CHC, but tried to make it seem that Xtron was making that payment, through funds put in by a personal “guarantor” honouring his contractual obligations, i.e. Wahju, when in fact the personal guarantee never existed at the time the Xtron bonds were entered into, and in respect of which a cross-guarantee was given to Wahju by Kong Hee, Ye Peng and Eng Han (showing that they knew that they were personally responsible for repayment, rather than Wahju).

Furthermore, it is interesting to note Eng Han’s proposal for repaying the external loans, i.e. to implement a scheme whereby he would invest CHC’s surplus funds at an agreed rate of 5% interest while aiming to achieve a 16% return. The surplus 11% return on the investment of funds could then be used to repay the external loans. The Minority had this to say on this point ([545]):

“It is not clear if this plan was ever carried out. Be that as it may, what it demonstrates is that in spite of all the controversy surrounding the appellants and their acts at that material time, they had nevertheless, at least at one point, intended or considered using CHC’s funds as “investment capital” so as to generate funds to repay the external loans taken. This again demonstrates that the appellants still viewed CHC’s funds as monies which they could control and use for whichever purpose best suited their needs. In the light of such facts, there is little weight, if any, that can be given to the fact of restitution. Indeed, I would venture so far as to say that the appellants’ conduct in considering, once again, to misuse CHC’s funds despite the spectre of criminal liability demonstrates their lack of remorse (and this is quite apart from their insistence of their complete innocence both at trial and at the appeal).” [Emphasis in bold added, while the underlined portions were emphasized in italics by the Minority]

C.5 “Agreed” or “Misunderstood” Facts where Court Disagrees

If the Minority was able to take all of the above points (pertaining to his differing views on the mitigating factors) into consideration, he “would not [have] hesitate[d] to allow the Prosecution’s appeals and substantially increase the sentences of the appellants, in particular those of Kong Hee” ([547]).

However, as described above, he faced a procedural difficulty in increasing the sentences ([547]):

“This question arises because three of the above issues – namely, (a) whether there was indirect benefit to Kong Hee; (b) whether there was direct benefit to Sun Ho; and (c) whether CHC continued to suffer permanent financial loss despite restitution having been made – were not properly ventilated at trial or even on appeal. It appears that the parties were of the mutual view that there was no indirect benefit to Kong Hee and that CHC suffered no permanent loss because full restitution was made. There also appears to be some confusion and misunderstanding between the parties concerning the relevance of the direct benefit to Sun Ho by the funding of her music career to the appellants’ conviction and sentence (see [498] and [510] above). As I have alluded to above, this has resulted in a rather unsatisfactory state of affairs. It also raises some difficult questions.”

The first question is whether the court is precluded from considering reliable factual evidence and making legitimate inferences of fact simply because the parties have agreed or chosen to inter alia not to rely on that evidence in their submissions or to treat as factually true what is on the reliable evidence established to be factually untrue ([548]). This applied to the issues of whether there was indirect evidence to Kong Hee and whether CHC suffered permanent financial loss despite restitution being made ([550]).

The second question is what the court is to do when it transpires that the parties had misunderstood each other’s position and thought that they were agreed on an issue when they were not, and a result of this misunderstanding, one party has (or both have) been deprived of the chance to pursue the case or the defence in a certain direction ([549]). This applied to the issue of whether Sun Ho had obtained a direct benefit, and whether the appellants had intended as such ([550]).

After analyzing the law, the Minority was not prepared to take these three factors into account without first hearing from the appellants, notwithstanding that these were “major and material aggravating factors” ([556]):

“Returning to the situation in the present case, my view is that in the light of how the proceedings and arguments had ensued as a result of the parties’ agreement (for the two issues of indirect benefit to Kong Hee and permanent financial loss) and the confusion (for the issue of direct benefit to Sun Ho), I should not take into account all these three factors. Given that these three factors are all major and material aggravating factors, I would not be prepared to take these factors into account without first hearing from the appellants. And while I may have ordinarily asked for submissions from the parties and hear what the appellants have to say about my view based on the evidence before the court that there is permanent loss, and that benefits have accrued to Kong Hee and Sun Ho, I do not think it is appropriate or necessary to do so in this case, considering the circumstances as well as the fact that I am in the minority.” [Emphasis in bold added]

Without these three major aggravating factors, the Minority was unable to say that the sentences imposed by the Judge were manifestly inadequate ([557]).

Comments: It is important to note that neither the Judge nor the Majority made any finding of fact that there was no personal benefit (to either Sun Ho or Kong Hee), but had rather assumed this to be so for the purposes of sentencing. In fact, the Judge had observed in the Judge’s Sentencing GD at [21]-[22], [26] that on the evidence, Sun Ho and Kong Hee had benefitted from the misuse of CHC’s funds, but clarified that this was not a factor he had taken into consideration for the purposes of sentencing:

“21     I am conscious that there was no evidence of wrongful personal gain for all six accused persons. The prosecution had made it very clear that their case was always premised on CHC having suffered wrongful loss rather than the accused persons having derived personal gain. But I should add that the evidence does show that their misuse of CHC’s funds directly benefitted Sun Ho, and plainly had been intended for this purpose, since the funds were used to finance her music career under the auspices of the Crossover. In this limited sense, there was undoubtedly also a form of indirect benefit for Kong Hee if efforts to advance his wife’s music career had benefitted from the availability of these funds. It is difficult to see how this can be characterised otherwise.

22     If there had been evidence of wrongful gain which the accused persons had intended to benefit from personally, as is common in most typical CBT or property offences, this would have been an aggravating factor. It would indicate that they were motivated by greed and self-interest. That cannot however be said of all six accused persons, and perhaps it can only be true in a limited and indirect sense for Kong Hee. But it is not the prosecution’s case that even Kong Hee had enjoyed any wrongful gain; this point does not feature in the evidence or in the prosecution’s submissions and I will say no more about this aspect.

26… I am also not quite able to see how there was a pure “altruistic” purpose for the use of the Crossover funds, contrary to the submissions of the defence. The direct beneficiary as I see it was Sun Ho, whose music career in the US was being sponsored through these funds. She was not in any financial hardship.”

[Emphasis in bold added]

But given that these points were not raised by the Prosecution before the Judge, the Judge did not take them into account, and had sentenced them on the basis that the appellants were not motivated by any “personal gain” and that there was no evidence of any “wrongful personal gain”. On appeal, the Majority approached sentencing on the same assumed basis, without any further analysis, whereas the Minority held that there was clear evidence showing personal gain on the part of Sun Ho and Kong Hee, but was not prepared to take it into account given that the appellants were not given an opportunity to be heard.

The same applied to the no permanent financial loss factor. For the purposes of sentencing, the Judge took the position that no permanent loss was caused to CHC, since the monies were repaid to CHC (this is seen in the light that the Prosecution had recognised or acknowledged it as such, see [33], [52] of the Judge’s Sentencing GD), while the Majority assumed this factor to be true for the purposes of sentencing. On the other hand, the Minority disagreed with the Prosecution that “restitution” meant that there was no permanent financial loss (in his opinion, there was evidence of such loss), but was again unable to rely on it given that the appellants were not given an opportunity to be heard.

If these factors were raised earlier, the sentences would likely have been higher (in particular, in relation to Kong Hee), regardless of whether Section 409 was reduced to Section 406 or not.

On whether the appellants believed they were acting in the best interests of CHC and did not intend to cause financial loss to CHC, the Majority accepted that they did believe so (though expressly leaving the matter open for debate as to whether they had in fact acted in CHC’s best interests), whereas the Minority went further and did not accept that the appellants acted with CHC’s best interests at heart or had no intention of causing CHC to suffer financial loss as a result of the various transactions.

D. PRACTICAL IMPLICATIONS

The City Harvest case has many learning points and practical implications on how companies, charities and churches are run and how they should deal with trust assets or donations.

Strict Compliance: First and foremost, the leaders or directors of churches or charities must strictly and unwaveringly comply with the expressed wishes of donors. There is no room for discretion, even where the donations are applied to an alternative cause or endeavour which is or appears to be generally endorsed by the members of the church. In this case, a critical element which gave rise to criminal liabilities was that monies explicitly donated for the Building Fund was used for purposes other than what it was donated for.

Mere Followers: Second, an employee cannot claim innocence on the basis that he or she is not a leader, and was merely a follower carrying out orders. In this case, the Majority did accept that Sharon was “at no point a leader of CHC, the Crossover or the illegal transactions”, and that she was “only an employee” who was “merely carrying out the decisions and instructions of the decision-makers in CHC” ([433]). Nevertheless, she was convicted and jailed (although her sentence was considerably lower than the other appellants, being a total of 7 months) ([434]).

For employees caught in similar situations, they must exercise independent judgment, register their dissent, refuse to carry out illegitimate instructions, and if need be, resign. To lose one’s job is better than to hide in the shadow of giants and to potentially go to jail with them (albeit for a shorter time).

Conflict of Interests: Third, leaders or directors in churches or charities must openly declare potential conflict of interests, especially where the intended use of donations may benefit (whether directly or indirectly) themselves or parties related to them, and to also refrain from taking part in or influencing the process of making decisions pertaining to such use.

This is an application of the rule that fiduciaries have a duty not to put themselves in a position of conflict of interests, and not to make an unauthorised profit by reason of his position as a fiduciary. As GP Selvam J puts it, “The office of a fiduciary is founded on selflessness. Selfishness is absolutely prohibited” (Kumagai-Zenecon Construction Pte Ltd v Low Hua Kin [1999] at [13]).

In this case, as the Minority found, Kong Hee was “undoubtedly in a position of conflict”, being both the husband of Sun Ho, while also being the head of the Church, where CHC’s monies were to be spent on building up Sun Ho’s secular music career and making her a singing artiste with international fame, and that he had failed to ensure that all that he did with respect to the relationship between CHC and Sun Ho’s music career (especially where this involved the use of CHC’s funds) was above-board ([529]). Instead, he abused the trust placed in him and failed to ensure that he was totally transparent and honest, and there were various instances where he made false or misleading statements.

Prudent Decisions: Fourth, leaders / directors of a Church must act prudently when deciding how to apply donations to achieve a particular cause (even where it is or may be theologically legitimate).

In this case, even where the theological legitimacy of the Crossover as a means of evangelism (i.e. using popular secular music for evangelism) was not raised as an issue ([1], [504]), there is nevertheless a need (at least according to the Minority) for the appellants as leaders of the Church to do a proper evaluation of the other feasible options and to choose the most cost-effective means to execute the Crossover, for example, by engaging an established international singing star (to attract the crowds before preaching to them) versus the highly risky financial venture of turning Sun Ho into an international singing star ([504]-[505]). As the Minority put it, the single-minded pursuit of only one option to use Sun Ho without considering the possibility of other better and more cost-effective alternatives to achieve the same evangelisation objective itself raises questions as to whether, at the back of it all, the appellants had a predominant motive to benefit Sun Ho specifically and to benefit Kong Hee indirectly, with evangelisation being just a distant objective ([505]).

In short, while the general premise of a particular project or mission may be theologically sound (or unchallenged), the means of achieving it must be carefully and prudently selected, especially where donated funds are being applied. All roads lead to Rome, but perhaps one or two roads are better than others.

Church leaders / directors are guardians of the galaxy of donated funds. They will do well to conduct a cost-benefit analysis (at the very least, to do a proper evaluation of feasible options), before acting pursuant to the deep trust reposed by donors in them to apply in a prudent and reasonable manner, the donations to achieve any given approved objective.

E. CONCLUSION

There you have it. We have completed a trilogy of articles on this decision, which is massive both in terms of page length as well as public significance. With the facts and analysis in mind, it is hoped that you are now in a better position to form a balanced view or to comment fairly on this decision.

Or better still, to create systems or rules in churches, charities or companies which prevent (as much as possible) a similar episode (or episodes) from happening again in Singapore. By way of an imperfect analogy to the general premise in the 2002 movie Minority Report, knowledge helps prevents a crime before it is committed.*

The usual disclaimer: All opinions expressed on www.singaporelitigationlawyer.com are entirely my own. Importantly, my opinions do not constitute legal advice and you should definitely formally engage a lawyer to confirm, vary or refute my views.

To Sue or Not to SueDemystifying Litigation in Singapore@www.singaporelitigationlawyer.com © Dominic Chan, a Singapore litigation lawyer. All rights reserved.

The picture above is taken from https://commons.wikimedia.org

* For the avoidance of doubt, I am not suggesting that we arrest people before they commit a crime, with the benefit of knowledge about the future (which of course, is generally not possible). Let me end here before we stray into sci-fi.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s