Phang Wah v Public Prosecutor and another matter

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JA
• Judgment Date: 23 October 2012
• Neutral Citation: [2012] SGCA 60
• Court: Court of Appeal (Singapore)
• Docket Number: Criminal Reference Nos 1 and 2 of 2012
• Published date: 07 November 2012
• Year: 2012
• Hearing Date: 28 September 2012
• Plaintiff Counsel: Subhas Anandan, Sunil Sudheesan, Noor Marican and Diana Ngiam (RHTLaw Taylor Wessing LLP)
• Defendant Counsel: Aedit Abdullah SC, April Phang, Ma Hanfeng and Yau Pui Man (Attorney-General's Chambers)
• Subject Matter: Criminal Law
• Citation: [2012] SGCA 60

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court): Introduction

The two criminal references before this court arose from two Magistrates’ Appeals heard by the High Court Judge (“the Judge”), which appeals (by the First Applicant and the Second Applicant) were dismissed in Phang Wah and others v Public Prosecutor [2012] 1 SLR 646 (“the Judgment”).

The First Applicant then applied by way of Criminal Motion 89 of 2011 (“CM 89”) for questions of law of public interest to be referred to this court pursuant to s 60 of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) (“s 60 SCJA”). The Judge granted this application, and referred four questions of law of public interest for determination by this court.

Following the successful application by the First Applicant (referred to in the preceding paragraph), the Second Applicant applied by way of Criminal Motion 10 of 2012 to this court for an extension of time to make a similar application. This court granted him the extension of time to refer the same questions in CM 89 for determination by this court as well (we point out, parenthetically, that this court adopted this course of action purely out of considerations of symmetry and (more importantly) due process to the Second Applicant, in light of the successful application by the First Applicant). At a subsequent application pursuant to s 60 SCJA by way of Criminal Motion 29 of 2012, the Judge granted that application, and referred the same four questions of law of public interest (again, referred to in the preceding paragraph) for determination by this court.

After carefully considering the submissions of counsel, we decided that no question of law of public interest had in fact arise in the present case. However, out of deference to the efforts of counsel, we nevertheless proceeded to answer the four questions placed before this court, as follows: “Whether the learned High Court Judge correctly interpreted and applied Section 340 of the Companies Act (Chapter 50) when it was determined that the Applicant along with Hoo Choon Cheat Jackie knowingly carried on a business of Sunshine Empire Pte Ltd (“Sunshine”) with a fraudulent purpose.” Answer: Yes, s 340 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) was correctly interpreted and applied by the High Court Judge. “Whether the conclusion that both actus reus and mens rea elements in respect of Section 340 were established beyond a reasonable doubt was correct in law and in fact considering the following: That there is some merit in the argument that Sunshine was not legally bound to pay up Consumer Rebate Privileges at the rates Sunshine had been paying for 15 months (GD [34]); and That business decisions are undoubtedly influenced by the legally binding terms of the contract signed between participants and Sunshine (GD [34]).” Answer: Yes, the conclusion that both the actus reus and mens rea elements in respect of s 340 of the Act were established beyond a reasonable doubt was correct in law and in fact. “Whether a company’s business decisions which are influences [sic] by the extra-legal considerations such as consistent business practices can supersede the binding legal contract between parties.” Answer: This is a question of fact. “Whether the sustainability of a company is to be taken as a factor in deciding whether there was fraud from the initial stages of the company’s business.” Answer: This is a question of fact.

We now proceed to give the detailed grounds for our decision.

Background facts

In order to address the questions in their appropriate context, a brief rendition of the facts of the case, which are not complex, is apposite. The First Applicant and Second Applicant (collectively, “the Applicants”) had been involved in a multi-level-marketing (“MLM”) business under the auspices of Sunshine Empire Pte Ltd (“Sunshine Empire”), a company which was first incorporated on 18 July 2003 under a different name, Niutrend International Pte Ltd. It was later renamed Sunshine Empire on 8 January 2007. The First Applicant was the consultant of the business and mentor of the Second Applicant, who in turn was the director of Sunshine Empire. Both were involved in the day-to-day running of the business.

The MLM scheme involved the selling of “lifestyle” packages to members of the public. These packages included call-back services from EM-Call (“EM-Call talk time”), e-points, mall points and access to an online platform, e-Mall, on which they could sell their products. There were two categories of packages: Merchant packages and Prime packages, respectively. The differences between the two categories lay in their cost (Prime packages were more expensive), the EM-Call talk time available (Prime packages offered more) and the possibility of receiving Consumer Rebate Privileges (“CRP”) payouts (only Prime package participants were eligible to receive these payouts). There were three sub-categories of Prime packages: Bronze, Silver and Gold packages. The most expensive of the three was the Gold Prime package: it provided the most EM-Call talk time and the highest maximum cap of CRP payouts that a participant could be entitled to. These Gold Prime packages were also the most popular. The Applicants both agreed that these CRP payouts were intended to be an incentive to participants, but also insisted that they were non-guaranteed and purely discretionary in nature. Crucially, they both confirmed that CRP payouts were funded from the sale of lifestyle packages, even though this fact was never revealed explicitly to the participants.

Sunshine Empire’s MLM scheme proved to be popular amongst members of the public, with some even purchasing multiple packages. Throughout its operation from August 2006 to October 2007, there was a general upward trend in the price of the packages, and a total of 25,733 lifestyle packages were sold. The total revenue during that period was about $175 million, and the total CRP payouts amounted to about $107 million. However, all of its operations came to a halt when the Commercial Affairs Department raided Sunshine Empire’s premises on 13 November 2007.

The decision below

In considering the law on s 340 of the Act, the Judge acknowledged from the outset that the learned District Judge (“the DJ”) below had correctly cautioned that the “fact that the Sunshine Empire scheme would not have worked was not sufficient by itself to establish dishonesty, since over-optimistic and honest businessmen could have miscalculated their moves without being dishonest” (see the Judgment at [25]). As such, the Judge’s decision on the fraudulent trading charges consisted of two related parts: whether Sunshine Empire’s business was unsustainable (actus reus); and whether the Applicants ran Sunshine Empire for a fraudulent purpose (mens rea).

In examining the first issue, the Judge recognised that the issue of sustainability centred largely on the CRP payouts. He found that CRP constituted a very high proportion of Sunshine Empire’s revenue (viz, 99%) and that these payouts were funded by the sale of new packages. Crucially, the CRP payouts were maintained at a high level over 15 months, leading to a return of 160%. Hence, it was an “irresistible inference” that, notwithstanding the fact that CRP payouts were not contractually guaranteed, they were the main attractive feature – the “life blood”, in fact – of the entire scheme (see the Judgment at [35]). This inference is further supported by the fact that the Gold Prime packages were the most popular ones, despite being the most expensive and having no real additional benefit over the other Prime packages, save for some additional EM-Call talk time and the prospects of obtaining more CRP payouts.

In relying on the Prosecution’s expert witness’s calculations, the Judge found that the various components of the packages would have constituted only a small proportion of what a reasonable participant would have spent on a package. In particular, a $12,000 Gold Prime package would yield 15,000 mall points worth at most $1,200 (ie, 10% of the price), 2,100 minutes of talk time (worth 4% of the price) and some e-Point bonuses (worth 6% of the price). Quite obviously, since the other benefits that came with the packages were worth such a low proportion of the package price, the main attraction of the packages must have been the CRP payouts. This was bolstered by the evidence of witnesses who were participants in the scheme testifying that they were drawn to the scheme by the prospect of high returns. The model was hence clearly unsustainable (see the Judgment at [41]), and, crucially, the Judge found that “it had to be blatantly obvious to Phang and Hoo that if CRP had been stopped or reduced significantly, the enticing glitter of the packages would have faded almost immediately and further sales thereof would have been severely affected” (see the Judgment at [35]).

With regard to the issue of whether the Applicants had run the scheme for a fraudulent purpose, the Judge agreed with the DJ’s finding that the whole concept of CRP had been deliberately obfuscated with reference to the consumption on the e-Mall platform and “global turnover” to make participants believe that there was a viable source of profits to fund CRP returns, when there was, in fact, none. Such vague references were disingenuous and “part of a well thought-out scheme designed to defraud participants under an aura of legitimacy and respectability” (see the Judgment at [43]). Accordingly, the Applicants were found guilty of fraudulent trading.

No questions of law of public interest

As mentioned above, the key provision in the context of the present proceedings is s 60 SCJA, which reads as follows:

Reference to Court of Appeal on appeal from subordinate court 60. —(1) When an appeal from a decision of a subordinate court in a...