Attorney General v. Marvels Clothing Co Ltd

CAAR000007/1984

Headnote

Appropriate sentence for offences designed to circumvent the Textile Export Control System.

BETWEEN

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BETWEEN

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Coram: Hon. Cons, Fuad, JJ.A. & Kempster, J.

Dates of Hearing: 12 June 1984 & 2 July 1984

Date of Judgement: 2 July 1984

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JUDGMENT

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Cons, J.A. delivered the judgment of the Court :

1. These are two applications for review of sentences passed on a number of summonses taken against two separate defendants.  However the summonses arise from the same transaction and for convenience we have dealt with them all together.

2. Some time in the first part of last year, a trading company by the name of Eagle's Eye (Hong Kong) Ltd., of Peninsula Centre, Kowloon, purchased in China a number of what are described as "cotton corduroy pull-on pants".  All told there were 1,175 half dozens of the pants, designed variously for infants, girls and ladies.  They were intended for resale to a buyer in the United States of America, which was in fact the holding company of the Hong Kong company.  However when the goods arrived here in June Eagle's Eye found themselves faced with what might have been thought to be a substantial difficulty, namely that the Government of the United States of America had by then imposed an embargo on the importation on all cotton corduroy goods from China, probably because the import limit had already been reached.

3. In point of fact Eagle's Eye were in no way dismayed.  They simply had the goods relabelled "Made in Hong Kong" and applied to the Trade Department for an export licence.

4. To be strictly correct Eagle's Eye made five applications for five export licences which together covered the number of the goods that we have already indicated.  That is why ultimately the company was served with five separate summonses.

5. The export licence required is part of a textile control system operated by the Trade Department, and is necessary, so far as these applications are concerned, to insure that Hong Kong abides by import regulations imposed by the United States.  On a broader view the control system is there to enable Hong Kong as a whole to keep within, and of course to take advantage of, the various agreements which Government has made with the States and our other important trading partners.

6. Two prime requirements for the issue of export licences are (i) that the goods in question shall have been made in Hong Kong and (ii) that they shall have been made by the particular manufacturer declared in the application. In each of the Eagle's Eye's five applications the manufacturer was said to be the Marvels Clothing Company Limited, a garment manufacturer of Ng Fong Street, San Po Kong. That company had, of course, not made the pants in question, but it was content to go along with the deception and to sign the necessary declarations in order to maintain friendly business relations with Eagle's Eye.

7. The five licences were duly issued and the goods exported thereunder. The truth came to light in the course of subsequent checks and appropriate summonses were issued, against Marvels for making false statements, and against Eagle's Eye for improper export. The relevant enactments are respectively Section 36(1)(a) of the Import & Export Ordinance, Cap. 60 and Regulation 4(1) of the General Regulations made under that Ordinance.

8. All ten summonses came before the Magistrate at San Po Kong on the 2nd of May this year.   Both companies pleaded guilty and were fined $1,000 on each summons, that is a total for each company of $5,000.  The Attorney General has asked us to say that those figures were, in the circumstances, "manifestly inadequate".

9. We do not know by what the learned magistrate was influenced.  When asked ten days later in accordance with Section 81A(2B) of the Criminal Procedure Ordinance, Cap. 221 to give his reasons for the sentences he was quite unable to recall what they had been.

10. We have been fortunate, however, in that Mr. Eddie Soh who has appeared before us on behalf of the companies, represented the defendants before the magistrate as well.   He has been able to tell us what matters he then urged in mitigation.  Apart from the fact that the companies had pleaded guilty and had not been in trouble before, those matters were twofold.  Firstly, at least so far as Eagle's Eye was concerned, the company had made a huge loss on the transaction.  This was because the company had to expend $275,000 in the purchase of a Hong Kong export quota, and a further $75,000 in air freight to make up for the delay occasioned by the resewing of all the labels. We understand that there was no delay in the issuing of the licences.

11. Mr. Plowman, who appears for the Customs & Excise Department, which initiated the prosecutions below, does not accept that there was a huge or any loss.  He is instructed that if the goods had in June last year been placed on the local market Eagle's Eye could have obtained from 60 to 70% of the actual value, that is a total loss of only $145,000 to $195,000.  From this he argues that the company would not have gone ahead with the re-export unless in fact there was some profit to be obtained, although he does concede that considerations of goodwill may have had some effect.

12. The second factor urged in mitigation was that the Director of Trade would, as a result of the convictions, impose on each of the defendants an administrative penalty, which would take the form of requiring them to surrender an amount of quota equivalent to that which had been used for the improper export.  If necessary each defendant would have had to acquire that amount of quota from a third party.  The value thereof was said to be in the region of half a million dollars.

13. The Director of Trade heads a department which is separate and distinct from that of the Customs & Excise Department so that Mr. Plowman, although understanding that some practice of this kind does exist, was not able to give us full information.  We therefore adjourned the hearing until today and are grateful to Mr. Allan who has appeared before us this morning on behalf of the Director.  He has in addition caused a most useful and informative affidavit to be filed setting out the whole position in its true perspective.

14. We understand that the practice of the Director is in fact as suggested, although he looks upon it as being compensatory or the making of restitution rather than as punishment upon the malefactor.  This view was accepted by a Full Bench of the High Court in the Golden Wall Shirts Case⁽¹⁾ where the legality of such action was unsuccessfully challenged.

15. We are told that the Director applies his policy to every case of quota malpractice that is brought to his attention, regardless of whether any prosecution has been instituted or of whatever penalty may have been imposed by the courts.

16. The question then is whether, as has been suggested, the courts should have regard to what the Director will do and impose what is little more than a nominal fine on the ground that by the Director's action the defendant will be sufficiently punished.

17. We do not think so. In our view that would be an abdication of the responsibility which is placed directly upon the courts by the relevant legislation.

18. As a result of our decision in these two cases we expect that the fines imposed for this kind of offence will in the future be at a more realistic level.  It may then happen that the combined effect of the penalties imposed by the courts and the administrative policy of the Director will be thought to bear too harshly upon defendants.  If this should so be, it will be a simple matter for the legislature to intervene.

19. We return then to the general situation.  There was some disagreement between Mr. Soh and Mr. Plowman as to the present general tariff for cases of this kind.  In Mr. Soh's experience fines are usually in the region of $2,000 to $3,000 per summons, regardless of the particular circumstances of the offence.  Mr. Plowman, however, is instructed that fines of this level are limited to those cases where the defendant's profit margin is in the region of $1,000 or less.  In other cases fines are assessed by multiplying that margin by the figure of two and a half, and in those instances where the profit is not disclosed the magistrate will usually accept a margin of 5% of the overall value of the goods in question.

The latter approach would seem to be more in line with authority. The leading case is Popular Machinery Co. Ltd. v. The Queen ⁽²⁾ a decision of the Full Court in 1972. There it was said :

"Few cases are identical and the' penalty in each has to be decided on the merits of the case having regard to the circumstances of both the offence and the offender. Whilst therefore we refrain from attempting to lay down any mathematical formula or rule of thumb for the assessment of penalties in cases involving commercial misrepresentation, we are constrained to observe that in a case where the Court is fully satisfied that the profits derived from such a misrepresentation have been accurately disclosed to the Court, there is merit in assessing the penalty to be imposed by reference to that figure of profit. In the present case the ratio of penalty to disclosed net profit was 2 ½:1 and we are of the opinion that such a ratio is by no means excessive. Indeed in Criminal Appeal No. 411 of 1971⁽³⁾ the appeal judge, though regarding the ratio of 8½:1 adopted by the learned magistrate in that case as excessive and allowing the appeal against sentence, substituted fines which bore the ratio 5:1."

20. The ratio of 2½:1 was applied by the magistrate in SHIU Chen-chuen v. The Queen⁽⁴⁾ and approved on appeal by Addison, J., although he reduced the actual fines imposed by reason of the defendant's relative poverty.  The same ratio was used in CHAN Hon-yuen v. The Queen⁽⁵⁾ and Jones, J. refused to interfere.

21. For our part we doubt whether it is right to place such singular emphasis upon the question of profit. Prosecutions of this kind are not brought to discourage dishonest enrichment.  They are brought to protect the international reputation of Hong Kong.  This is made clear in each of the cases to which we have just referred. We would respectfully endorse the remarks of Yang, J. (as he then was) in YEUNG Hoi-yu v. The Queen⁽⁶⁾ :

"Trade being the life blood of Hong Kong, any conduct which damages our commercial reputation must be stopped. More especially, our reputation and image abroad must be resolutely protected, so that the confidence of our trading partners in all parts of the world, built up by our industry and integrity over many years, must not be permitted to be undermined by the dishonest few."

22. That confidence-is no less undermined because the dishonest merchant made a profit smaller than might usually have been expected or perhaps made none at all.  In our view the damage occasioned abroad is more correctly reflected in the size of the transaction.  The larger and more valuable that it is, the more will other countries be disturbed by the fact that Hong Kong allowed it to occur.  We have also to take note that in 1980 the legislature specifically increased the maximum fines for these offences to $500,000, that is many times more than the maxima prescribed when the Full Court gave its decision in 1972.

23. There is a further point in relation to profit.  A fine should in no instance be fixed at a level which would allow a person or corporation to emerge from prosecution still showing a profit on the relevant transaction.

24. We agree that as a general rule it is undesirable to assess fines upon a purely mathematical basis.  Nevertheless, in the interest of uniformity there must be some basic guideline, which can then be adapted by the individual court to the individual circumstances.  We would suggest as that guideline a figure of 40% of the value of the goods. We appreciate that this will 'result in substantial fines, but in our view these are substantial offences and the action of the legislature in 1980 indicates that the legislature intended them to be treated as such.

25. At the same time it must be noted that the damage flows from the transaction as a whole, not from the number of its component parts.  Due allowance should therefore be made in cases like the present where more than one licence is involved, and where the ultimate result could not have been achieved by one defendant without the other. It may not necessarily follow that in all cases the participants are equally to blame, but in the present instance we see nothing to choose between them.  The only true mitigation in their favour is that they pleaded guilty when charged.  Taking that into account, as well as the administrative actions of the Director of Trade we have already referred to, we are of the opinion that the appropriate total fines in the case of each defendant should have been $80,000, that is to say, a fine of $16,000 for each particular summons.

26. For these reasons we allow these applications and vary the fines to the figures we have just indicated.

Representation:

G.J. Plowman, Sr. Assist. Crown Prosecutor for Applicant.

Peter Allan, Crown Counsel for Director of Trade Department.

Eddie Soh (Messrs. John Ku & Tam) for Respondents.