Re Judicial Review By Hermes Pacific Limited

HCMP001936/1987

IN THE SUPREME COURT OP HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS NO. 1936 OF 1987

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Coram: Hon. Barnett J. in Court

Date of hearing: 14th October 1987

Date of decision: 21st October 1987

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DECISION

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1. On the 27th February 1985 the then Financial Secretary upset the ladies of Hong Kong when he introduced duty on cosmetics. This duty was given the force of law by the Public Revenue Protection (Dutiable Commodities) Ordinance, the relevant part of which now appears in Part VIII of the Dutiable Commodities Ordinance, Cap.109. (the Ordinance).

2. Part VIII of the Ordinance consists of one section, namely Section 76 which reads as follows:-

"76.     In the application of this Ordinance to cosmetics -

"cosmetics" means any preparation designed to improve, beautify and generally increase the attractiveness of the person by external application and includes any preparation which -

but does not include any preparation which is a soap, liquid soap, toothpaste, or shampoo for the cleansing of hair and scalp, unless such preparation purports to be any of the preparations referred to in paragraph (a), (b), (c) or (d)."

3. The Applicant imports into and sells in Hong Kong products supplied by its parent, a French company which is well-known internationally. These products are sold under the Hermes label and include six types of soap called "Amazone", "Caleche", "Equipage", "Eau de Cologne", "Parfum D'Hermes" and "Belami" ("the soaps"). On the 13th January 1987 the Commissioner of Customs and Excise determined that the soaps are cosmetics and liable to duty. Subsequently, on 8th May 1987 after an exchange of correspondence between the Applicant and the Commissioner and after the Applicant had submitted samples both of the soaps and of perfumes marketed under the same names, the Commissioner confirmed his decision. In his letter of that date, the Commissioner said:-

"         As the 12 brands of soap in question purport to be perfumed/cologne soap and their corresponding series of per are on sale, they are caught within the definition of cosmetics as provided in Section 76 of the Dutiable Commodities Ordinance, Cap. 109."

4. Two specimens of each of the soaps were submitted. Hence, the reference to "12 brands" in the letter.

5. The Applicant sought clarification from the Commissioner who, in his subsequent letter of 10th July, drew the Applicant's attention to paragraph (d) of section 76. The Commissioner said:-

"      I am of the opinion that the soaps in question purport to be fragrances."

6. Subsequently the Commissioner indicated that he also relies upon paragraph (c) of section 76. This appears in paragraph 21 of the affidavit of Mr. HUI Bo-cheung, filed on behalf of the Commissioner, in which he says:-

"          The Commissioner classified them as cosmetics on the basis that they purport to promote good grooming in the same way in which foam for the bath does ......."

7. The Applicant being dissatified with the decision of the Commissioner, sought and obtained leave to apply for Judicial Review of that decision. The Applicant seeks a declaration that the determination or classification made by the Commissioner of Customs and Excise on the 13th January 1987 that the soaps are liable to duty under the Ordinance is ultra vires and illegal and/or irrational or unreasonable.

8. It is the applicant's contention that the Commissioner's determination and classification is wrong in law in that on a proper construction of section 76 of the Ordinance preparations which are soaps are not cosmetics provided that they do not purport to be any of the four preparations defined in that section, that the soaps do not purport to be any of those four preparations and, accordingly, are not cosmetics and are not dutiable.

9. For the applicant, Mr. Merry relied upon three factors. First, he asserted that the Commissioner has misconstrued section 76. Secondly, he said that the Commissioner has relied upon matters which he was not entitled to take into account. Thirdly, he contended that the Commissioner has been inconsistent in his approach to classification under the section.

10. Mr. Merry drew my attention to what he termed the "curious drafting" of section 76. He pointed out that the section casts a wide net in its definition of cosmetics which brings soap within its meshes. The section goes on, however, to exclude certain preparations, including soap, but then claws them back within the net if they purport to be any of the preparations referred to in paragraphs (a) - (d).

11. It is not disputed that the soaps are soap. The definition of soap in the O.E.D. is "a substance .....used for washing or cleansing purposes". Mr. Merry said that this is the primary purpose of soap and that this purpose is important. The applicant's products are widely used in leading hotels whose guests would be upset if these products did not clean their hands as well as impart a pleasant smell. Accordingly, the exclusion of soap in section 76 is indicative of an intention that any substance whose primary purpose is soap and whose composition is predominantly of soap, should not be dutiable although it may be cosmetic in the broad sense.

12. Referring to paragraph (d) of section 76, Mr. Merry posed the question whether the soaps are fragrances or purported to be such. He maintained that one has only to look at the soaps themselves to come to the conclusion that they are simply soaps, albeit fragrant soaps. They might, perhaps, be dignified with the adjective "beauty" or "toilet" to distinguish them from more mundane household or commercial varieties, but they cannot be called a scent or a fragrance.

13. In paragraph 23 of his affidavit, Mr. Hui says :-

"Fragrance is explained in the Oxford Concise Dictionary as 'Sweetness of smell; sweet scent' and thus fragrance is an attribute rather than an object, the Commissioner takes the view that 'fragrance' in this context may well mean a substance with or capable of giving a fragrance."

14. Mr. Merry says that if this interpretation is correct, most toilet soaps and other excluded preparations would be dutiable. He maintains that the Commissioner has confused the noun "fragrance" with the adjective "fragrant". In the O.E.D. fragrant means "admitting a sweet or pleasent odour, sweet smelling". Mr. Merry contends that this is not what the word "fragrance" means in section 76. It is wrong to say that because a preparation smells sweet, therefore it is liable to duty.

15. The essence of soap, according to Mr. Merry, is that it cleanses before being washed off, although it may leave a lingering and pleasant smell. A fragance, however, is applied to the skin or clothes and is not washed off as the intention is that the pleasant smell should linger. In the circumstances, the Commissioner wholly misunderstood and mis-interpreted the application of paragraph (d) to the exception clause.

16. In relation to paragraph (c) of section 76, Mr. Merry accepts that good grooming means a neat and tidy appearance. He suggests, however, that this should be confined to the hair and clothes because if it is extended to the skin, it makes nonsense of the exception because soap and the other preparations promote good grooming by providing for cleanliness. It is absurd to exclude soap on the one hand from the ambit of the paragraph (c), but immediately to claw it back by virtue of the qualification to the exclusion. If cleanliness of the person is, however, not included within the definition of good grooming, violence to the construction of this provision is avoided.

17. Alternatively, Mr. Merry suggested that the qualification in relation to paragraph (c) might be read as entirely subject to the exception provision. In other words, soap and the other preparations are excepted unless they purport to be preparations of the type mentioned in paragraph (c) or some other preparation purporting to promote good grooming which is not a soap. In this way, force can be given to the exceptions as must have been intended by the legislature.

18. Mr. Merry reminded me of the rules of construction and, in particular, Section 19 of Chapter 1 which enjoins a fair, large and liberal construction and interpretation of a statute as will best ensure the attainment of its object according to its true intent, meaning and spirit. Bearing this in mind, Mr. Merry said that the purpose of Section 76 is to define cosmetics so as to exclude soap and other common bathroom items. There should be no discrimination between types of soap so as to give effect to the section's simple purpose which is to exclude soap. He suggested that the real purpose of the qualification in section 76 is that of an anti-avoidance provision so that a supplier of goods cannot avoid duty by calling a product which is really a fragrance, soap.

19. Secondly, Mr. Merry maintained that the Commissioner took into account a range of matters which he should not have done and therefore was wrong in law and acted illegally. The Commissioner took into account the very high price of the soaps compared with more every day soaps, such as Lux; the limited number of and up-market quality of sales outlets; the quality of the packaging, and the sale under the same brand name as other products sold by the Applicant including perfumes. Mr. Merry said that there is no justification under section 76 for taking these matters into account. In any event, by comparing the soaps with other products, emphasis is lent to the soaps being soap rather that dutiable cosmetics.

20. Mr. Merry also contended that the Commissioner failed to give weight or sufficient weight to the fact that the essential oils which provide the particular scent or fragrance for the soaps comprise only some 3% or 4% of each soap. This is a very small percentage of the whole product. Moreover, it compares favourably with the average of 2% of the ingredients in Lux and other similar soaps which contribute to their particular smell. These other soaps have been found by the Commissioner to be not dutiable.

21. Mr. Merry also said that the Commissioner wrongly relied upon the Lux type soaps using chemical means to obtain their smells rather than the essential or natural oils used by the Applicant's soaps.

22. Finally, Mr. Merry said that the Commissioner has been inconsistent in his approach. He pointed out that the Lux type soaps are held out as being good for the skin or pleasurable. These soaps should therefore at least be caught by paragraph (c). Further, the Commissioner has found a shower gel marketed by the Applicant to be not dutiable. Yet, said Mr. Merry, shower gel must surely promote good grooming and ought, therefore, to be caught by paragraph (c).

23. For the Respondent, Mr. Feenstra said that if Mr. Merry's interpretation of section 76 is correct, a soap can never be a cosmetic and can therefore never be dutiable, because if the qualification at the end of section 76 is an anti-avoidance provision, the only preparations which are caught are those which purport to be the preparations referred in paragraphs (a) to (d). The difficulty with such an interpretation is that such preparations are already caught under the original definition of cosmetics, while soap, which is excepted, can never itself purport to be anything but soap.

24. Mr. Feenstra said that the legislature intended that there should be some soaps which are of such a nature that they should be looked on not only as soaps but also as cosmetics and, for the purpose of duty, should be classified as cosmetics. It was then left to the Commissioner, argued Mr. Feenstra, to distinguish between simple soaps and soaps/cosmetics in accordance with that interpretation of section 76. The Commissioner's approach was to ask himself what are the attributes of cosmetics, and in particular, of a fragrance. The answer was that, in term of section 76, a fragrance is by definition a preparation and not simply a sweet smell or scent or other attribute. A fragrance, therefore, is and has a substance.

25. Therefore, said Mr. Feenstra, to make sense of the scheme of section 76, the Commissioner took the view that where a soap purports to be a substance designed more for giving a sweet smell than for  its ordinary purpose of cleansing, it purports to be a cosmetic. This approach makes sense of all the words used in section 76.

26. Mr. Feenstra relied upon a passage from C. Maurice v. Minister of Labour⁽¹⁾ in which Lord Wilberforce, after setting out the findings of the Tribunal whose decision was under review, said at page 360:-

"          The appellant said of these findings that they are not, or are not mainly, findings of primary fact and that consequently they involve questions of construction, or law, which can be reviewed. But the distinction between primary facts and secondary facts, or between primary facts and inferences from facts, though a useful tool, may be overworked. A fact finding body's decision on primary fact may be, and normally is, unassailable: but it is not a corollary of this that any finding which goes s beyond one of primary fact passes into another dimension - one reserved for decisions by judges. There may well be cases where a tribunal, whose duties include those of finding primary facts, is also called upon to carry out a process of interpretation, to apply words to those facts, or to bring those facts under words, and where the decision of the tribunal, because made by it, also acquires a strong inherent quality of strength. This is, I would think, especially the case where, as here, the language to be interpreted is admittedly imprecise, adapted (and not well adapted) from another quite different purpose, drafted in language not settled by a skilled revenue draftsman, but for use by statisticians and by businessmen called upon to complete the statisticians' forms. When decision on the language of this classification is entrusted to the industrial tribunal I think that Parliament must be taken to have intended to give to its decisions on classification questions, including, as they must, consideration of the classificatory language, a strength only slightly less than that attracted by decisions of fact properly so called. Certainly these decisions may be reviewed; but the reviewing authority ought not, in my opinion, to attempt to construe the headings ab initio as if they were parts of an Income Tax Act or a customs regulation. It should start with the tribunal's findings, as those of a body which has the means and experience of knowing how industry works and is grouped, and see if the decision is one which reasonable men ought not to have come to, or if it is vitiated by some manifest misdirections. This is what the Court of Appeal did."

27. In relation to Cap. 109, Mr. Feenstra said that the Legislative Council must be taken to have intended to give to the decisions of the Commissioner on classification questions including as they must, consideration of the classificatory language, a strength only slightly less than that attracted by decisions of fact properly so called.

28. With respect, I think Mr. Merry made unnecessarily heavy weather of the interpretation of section 76. To my mind, the aim and purpose of that section is quite clear. The legislature intended to make dutiable any preparation or substance, the use or application of which contributes more than simple bodily cleanliness. This straightforward interpretation avoids either the absurdity or the violence to construction which Mr. Merry contended for, particularly in relation to paragraph (c). Good grooming clearly connotes something beyond being simply neat, tidy and clean. It means the lavishing of a little extra care and attention on one's turnout by taking advantage of the many and various preparations which are nowadays available to the person who is concerned to be something more than neat, tidy and simply clean-looking or smelling. The examples used in paragraph (c) support this meaning. A deodorant or depilatory may be desirable to the user but is not necessary for a neat, tidy and clean appearance. A salt or foam for the bath is undoubtedly pleasing to the user, but is also something more than a product or preparation whose primary purpose is cleanliness.

29. In my view, the Commissioner has not erred in his interpretation of section 76. The question, therefore, is whether he has considered matters which are irrelevant and whether he has failed to give weight to matters which are relevant. Mr. Merry pointed out that the Ordinance itself gives no guidance when it might quite easily have done so. For example, it might have provided that soap containing more than a certain percentage of essential oils should be deemed to be a cosmetic. The difficulty with that approach, however, is that there is a vast number of cosmetic preparations available in a wide variety of forms. The task of drawing up a schedule of percentages and other guides would be virtually impossible. The legislature has, therefore, quite sensibly left the matter to the Commissioner to determine.

30. As Mr. Feenstra said, soap is soap and cannot itself purport to be anything but soap. The Commissioner, therefore, must look at not only the soap itself but also the way in which it is packaged, advertised and marketed generally. With that approach, I entirely agree. Thus, while the percentage of essential oils in the soaps will be a factor, perhaps tending in favour of the soap being simply soap if the percentage is small, it is not a conclusive factor, and may be out-weighed by all the other factors which can legitimately be taken into account.

31. The Commissioner distinguished between the Applicant's soaps, whose smell is provided by essential oils, and the Lux type soaps whose smells are apparently generated by chemical or synthetic means. It is legitimate, I think, to note that one associates perfume with natural rather than chemical or synthetic ingredients. I am of the view that the Commissioner was not wrong in his approach to this factor.

32. It was also argued that the Commissioner was inconsistent in not classifying the Lux type soaps and the Applicant's shower gel as cosmetic. The answer is that the factors upon which the Commissioner relied in coming to his decision in respect of the Applicant's soaps were not or not all present in relation to these items.

33. In my view, the Commissioner properly considered and construed the classificatory language of section 76. I detect no manifest misdirection. The Commissioner's decision is not one to which a reasonable man or tribunal ought not to have come.

34. I find that the Commissioner did not act illegally or unreasonably in coming to his decision. It follows that the Applicant is not entitled to the relief sought.

(1)    [1969] 2 A.C. 346

Representation:

Mr. M. Merry inst'd by M/S Denton Hall Burgin & Warrens for the Applicant.

Mr. P.F. Feenstra of Legal Department for the Crown Solicitor.