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Note: Kelly Cheng Kit-Yin (Fraudster), the director of Wing Fai Construction Ltd. (Applicant), and an executive director of its parent company China Rich Holdings Ltd. (Parent), a Hong Kong listed company with net assets over HK 600 million, requested the issuance of 11 letters of credit between September 2001 and January 2002 from 4 different banks (Issuers) in respect of the purchase of construction materials, which did not exist. The banks were secured by fixed deposits registered at the Companies Registry with an additional guarantee provided by Parent. Parent repaid the amounts advanced under the LCs to the banks, which suffered no losses from the frauds.

In 2004 the frauds were discovered after the liquidation of Applicant, but Fraudster was not charged until December 2009. On 21 October 2013, Fraudster pled guilty to 11 charges of conspiracy to defraud, and on 4 December 2013 was sentenced to 21 months' imprisonment, which was determined by applying a one-third discount of the standard 3 years' imprisonment per offense, with a further reduction of 3 months for good behavior. Fraudster filed an application for leave to appeal against the sentence. In her application, Fraudster argued that the sentence was manifestly excessive and that a suspended sentence should have been considered because unlike other LC fraud cases, Issuers faced no risk of economic loss due to the security and guaranty on the LCs. Fraudster also noted that the sentencing judge had failed to take into account the delays caused by prosecution in bringing charges against Fraudster, including the apparent destruction of evidence by an officer of the Department of Justice.

The Court of Appeal, Barma, J., granted Fraudster's application for leave to appeal. The court rejected Fraudster's argument that the sentencing was excessive because while Issuers faced no realistic prospect of financial loss due to the financial strength of Parent, the LC guarantor, other factors weighed into the determination, including Fraudster's complicity in perpetuating the frauds, the sustained nature of the fraud involving 11 separate LCs, and lack of exceptional circumstances. However, the court agreed with Fraudster that the prosecution had unduly delayed earlier proceedings, which were not cancelled out by Fraudster's subsequent applications for stays and judicial review and reduced the sentence to 17 months.

[KCM]

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