HKSAR v. Lau Hok Tung and Others

HCMA500/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 500 OF 2010

(ON APPEAL FROM KTCC 3041 OF 2009, KTCC6856 OF 2009
KTS 9666 OF 2009, KTS 19512 OF 2009 AND
KTS 19514-19521 OF 2009)

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BETWEEN

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Before : Hon McMahon J in Court

Date of Hearing : 28 October 2010

Date of Judgment : 5 January 2011

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J U D G M E N T

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1.The three appellants were each convicted after a trial before Mr Dufton at Kwun Tong Magistracy of the same 11 offences of possession for sale or for any purpose of trade or manufacture, of goods to which forged trademarks had been applied, contrary to section 9(2) of the Trades Description Ordinance, Cap. 362 (“the Ordinance”).

2.The 1^st appellant was sentenced to 8 months’ imprisonment, his wife the 2^nd appellant to 180 hours of community service, and their company the 3^rd appellant, of which both were directors and of which the 2^nd appellant was company secretary, was fined a total of $250,000.  

3.All three appellants appeal their convictions and the 1^st appellant also appeals his sentence.  

4.The provisions of section 9(2) of the Ordinance are as follows :

“Subject to the provisions of this Ordinance, any person who sells or exposes or has in his possession for sale or for any purpose of trade or manufacture, any goods to which any forged trade mark is applied, or to which any trade mark or mark so nearly resembling a trade mark as to be calculated to deceive is falsely applied, commits on offence.”

5.By section 26(4) of the Ordinance a defence is provided to a person charged with an offence under section 9(2).  It is as follows :

“In any proceedings for an offence under section 9(2) it shall be a defence for the person charged to prove that he did not know, had no reason to suspect and could not with reasonable diligence have ascertained, that a forged trade mark had been applied to the goods or that a trade mark or mark so nearly resembling a trade mark as to be calculated to deceive had falsely been applied to the goods.”

6.The prosecution case was that the 3^rd appellant was a garment retailing company and owned or rented 11 premises in Hong Kong comprising eight shops, two warehouses and an office.  

7.On 14 May 2009 Customs and Excise officers raided all 11 premises and in each found a large number of counterfeit clothing items.  In total there were 6,795 items of clothing which were eventually found by the magistrate to bear false brand names such as Abercrombie & Fitch, Reuhl, Hollister, Lacoste, Timberland and Tommy Hilfiger.  A total of nine false brand names were found on labels attached to the items of clothing at the 11 premises. The goods found in each of the 11 premises were the basis of a separate charged offence.  That resulted in the total of 11 joint charges faced by each appellant.  

8.The primary defence case at trial was that the garments were genuine garments and comprised factory rejects, i.e. “seconds”, surplus production or sample garments. Additionally the defence placed reliance on the statutory defence contained in section 26(4) of the Ordinance.  

9.The admirably succinct grounds of appeal against conviction advanced by Mr Bruce SC with Mr Sammy Ho and Mr David Khosa on behalf of all three appellants are as follows :

(1)   That the magistrate erred in his application of the burden of proof. 

(2)   That the magistrate erred in holding that section 26(4) of the Ordinance required the appellants to satisfy a persuasive burden of proof. 

(3)   That the magistrate in any event imposed too high a standard as to what enquiries were “reasonable” in the circumstances of the case so as to satisfy the requirements of section 26(4).  

It is accepted that there is no distinction amongst the appellants so far as these grounds are concerned.  They stand or fall together. 

Ground 1 “The burden of proof”

10.This ground stems from the magistrate’s self-direction at an early stage of his Statement of Findings, to the effect :

“7. I remind myself of the burden and standard of proof and that the burden is on the prosecution throughout. The defendants have to prove nothing. I direct myself that I must be sure of the defendant’s guilt on each charge before I can convict, each charge and summons to be considered separately and the case of each defendant separately. On the other hand if the court thinks that the defence evidence pointing to innocence is true or may be true, it would follow that the defence has raised sufficient doubt in the prosecution case and the defendant entitled to be acquitted.”

11.Mr Bruce complains that the last sentence of the direction omits to state that a reasonable doubt about a defendant’s guilt may arise from within the prosecutions case, and that the direction therefore restricts the magistrate to any finding of doubt arising only in the defence case.  Mr Bruce argues that this had a practical effect in the circumstances of the case as there were aspects of the prosecution evidence which assisted the defence. 

12.He particularly points to some part of the prosecution evidence which came from a Mr Milano (PW22), a witness the magistrate described as impressive, who gave expert evidence as to the “Abercrombie & Fitch”, “Reuhl” and “Hollister” labelled clothing as being counterfeit.  In cross-examination he had agreed that the cut labels (which some items apparently had) could indicate that they were genuine seconds, but could also have been cut to give a false impression to that effect, and that the prices appearing on some of the items were about the same as the wholesale prices of genuine goods, suggesting that there was nothing in the price implying knowledge on the part of the appellants that the goods were counterfeit, and that the price was consistent with genuine “seconds” or “over-run” items. 

13.I do not think there is any merit whatsoever in this ground.  The magistrate is a professional and very experienced jurist.  The suggestion that he may have thought that, if there was some aspect of the prosecution case which aided the appellant’s case that he could not take it into account as evidence assisting the appellant, is simply untenable.  There is nothing of substance to suggest the magistrate may have thought he could only consider defence evidence as a source of reasonable doubt.  As a starting point the standard direction on the burden and standard of proof given to juries, and which the magistrate gave himself, quite clearly ensures that a jury understands that if, on the prosecution’s case, there remains a doubt as to a defendant’s guilt then they must acquit. Magistrates as professional jurists are certainly in no worse position. Indeed, that the magistrate was well aware that he was not restricted to the defence case as suggested is confirmed by his careful consideration of PW22’s evidence as to whether it did or could give any support to the defence case. He decided it did not.

14.Further, I do not think it can make any difference that there exists in the present case a statutory defence, the onus of proof of which was on the appellant.  It was suggested by Mr Bruce that the different onus and standard of proof complicated matters further and compounded the risk of the magistrate overlooking the principle that evidence from the prosecution case could be taken into the appellant’s favour.  But the two matters are quite distinct and separate consideration can readily be given to each.  Nor, with respect, was Mr Bruce able to advance any substantive argument to the contrary.  

15.This ground fails. 

Ground 2 “The reverse onus”

16.It was accepted by, or at least implicit in, the argument of both Mr Bruce for the appellants and Ms Alice Chan for the respondent that section 9(2) does not require the prosecution to prove mens rea; the presumption in that regard being displaced by the clear intent of the legislature that the statutory defence available in section 26(4) encompasses the element of mens rea.  The issue then remaining is whether the subsection is unconstitutional in placing the burden of proof in establishing that defence upon a defendant. 

17.It was never suggested to the magistrate that the defence set out in section 26(4) of the Ordinance required anything other than that the appellant prove that defence on the balance of probabilities.  And indeed, no doubt on the basis of the long history of the approach by courts in this jurisdiction to that sub-section, the magistrate found that the persuasive onus was on the accused to establish that defence. 

18.Mr Bruce argues now before me that that approach is unconstitutional because it is inconsistent with the principle of the presumption of innocence guaranteed by Article 87 of theBasic Law; Article 14(2) of the International Covenant on Civil and Political Rights (as applied under Article 39 of the Basis Law) and Article 11 of the Hong Kong Bill of Rights.

19.Mr Bruce argues that in the light of the principles expressed by the Court of Final Appeal in HKSAR v Lam Kwong Wai & Another [2006] 9 HKCFAR 574 and HKSAR v Hung Chan Wa & Another [2006] 9 HKCFAR 614, the defence provided for in section 26(4) must either be read down to impose an evidentiary burden only or, alternatively, be found to be unconstitutional.   On either basis he says the magistrate was wrong and the conviction of all three appellants must be quashed.  

20.There is no doubt that the presumption of innocence is now, in addition to being a central tenet of the common law, cast as a constitutionally guaranteed right in Hong Kong for an individual facing criminal charges by way of the above articles and that the presumption is derogated from where a statutory provision requires a defendant to prove a fact or facts determinative of the ultimate issue of his guilt. 

21.It is important to note that a true reversal of the persuasive burden, and a prima facie objectionable derogation of the presumption of innocence, does not occur only where the relevant fact or facts form part of that which the prosecution must prove to establish the offence.  It is reversed whether or not the fact in issue is characterised as an element of the offence or as some other fact (perhaps a fact making up a statutory defence) which is determinative of guilt or innocence.  The test is whether the legislative enactment which purports to place a persuasive onus upon a defendant regarding a particular fact or facts thereby “exposes the defendant to a conviction even though there may be a reasonable doubt regarding some matter determinative of his criminal liability” : HKSAR v Ng Po On (2008) 4 HKLRD 176 at para. 39 and R v Whyte (1988) 51 DLR (4^th) 481 at p. 493.  

22.It seems to me that by providing the statutory defence in section 26(4) of the Ordinance our legislature has recognised that a defendant should not be convicted of an offence under section 9(2) where the circumstances defined in section 26(4) apply.  Ultimately therefore a requirement that a defendant prove those circumstances on the balance of probabilities (and a proper construction of section 26(4) requires him to prove all three of those circumstances), must mean that a defendant could be convicted even where he is able to establish those circumstances may (though not probably) have existed. 

23.It logically follows that as section 26(4) imposes a persuasive burden upon a defendant, and as the defendant “may be convicted while a reasonable doubt exists”, section 26(4) breaches the presumption of innocence.  

24.The ultimate question then arises whether in the circumstances of a section 9(2) offence this derogation from the presumption of innocence can be justified.  The burden of establishing that justification lies upon the respondent : see HKSAR v Lam Kwong Wai (2006) 3 HKLRD 808 at para. 44; Ng Po On at para. 52.

25.Two matters are relevant. 

26.The first is whether the derogation is rational.  Mr Bruce accepted that it was, and with that I agree.  The circumstances set out in section 26(4) quite clearly are designed to impose a reverse onus on a defendant so as to aid the conviction of persons who are involved in dealing with counterfeit goods.  That is a rational societal aim and a proper one. 

27.The real question before this court concerning section 26(4) is whether its placing of a persuasive burden on a defendant prosecuted under section 9(2) is proportionate.   It is true that proportionality is conceptually capable of some vagueness, though perhaps not more so than other matters courts habitually address.  But as I say the respondent “bears the burden of providing compelling reasons why a persuasive reverse burden is no more than necessary and why an evidential burden does not suffice” : Ng Po On at para. 52.  So the dividing line is drawn firmly in favour of a defendant.

28.Ms Chan relied on R v S [2003] 1 Cr App R 35.   In that case the English Court of Appeal dealt with issues, similar to those arising in the present case, concerning section 92(1)(c) of the Trade Marks Act 1994.  That section criminalises the possession of goods bearing a false trademark in similar terms to section 9(2) of the Ordinance and by section 92(5) provides a defence of belief, on reasonable grounds, that the charged conduct did not infringe the relevant trademark (which would include a belief, obviously, that the charged goods bore a genuine trademark). 

29.The court held that the sub-section by its construction imposed a legal (i.e. persuasive) burden on an accused and that that imposition was both rational and proportionate : see para. 49. 

30.This judgment required the court to differ from its earlier decision of the previous year in R v Johnstone (2002) EWCA Crim 194 to the effect that as a result of the presumption of innocence contained in Art. 6(2) of the European Convention for the Protection of Human Rights and Fundamental Freedoms, the burden cast upon a defendant by section 92(5), which as I say provides a statutory defence for present purposes of similar effect to section 26(4) of the Ordinance, was evidential only.  The court in R v S was able to distinguish Johnstone as the point had not been argued in Johnstone but had been conceded by the prosecution. 

31.In R v S the court heard full argument as to whether section 92(5) imposed a persuasive burden upon a defendant, and if so, whether that burden was necessary (i.e. proportionate) given the subject matter and nature of the offence.  It concluded that a persuasive burden was imposed and that that burden passed the test of proportionality.  That reasoning was subsequently endorsed by the House of Lords when Johnstone’s case came before it : see R v Johnstone (2003) 3 All ER 884.  

32.On that latter occasion Lord Nicholls said this :

“[52] I turn to s 92. (1) Counterfeiting is fraudulent trading. It is a serious contemporary problem. Counterfeiting has adverse economic effects on genuine trade. It also has adverse effects on consumers, in terms of quality of goods and, sometimes, on the health or safety of consumers. The Commission of the European Communities has noted the scale of this ‘widespread phenomenon with a global impact’. Urgent steps are needed to combat counterfeiting and piracy (see the Green Paper, Combating Counterfeiting and Piracy in the Single Market (COM(98) 569 final) and its follow up (COM(2000) 789 final)). Protection of consumers and honest manufacturers and traders from counterfeiting is an important policy consideration. … (4) Those who trade in brand products are aware of the need to be on guard against counterfeit goods. They are aware of the need to deal with reputable suppliers and keep records and of the risks they take if they do not. (5) The s 92(5) defence relates to facts within the accused person’s own knowledge : his state of mind, and the reasons why he held the belief in question. His sources of supply are known to him. (6) Conversely, by and large it is to be expected that those who supply traders with counterfeit products, if traceable at all by outside investigators, are unlikely to be co-operative. So, in practice, if the prosecution must prove that a trader acted dishonestly, fewer investigations will be undertaken and fewer prosecutions will take place.

[53] In my view factors (4) and (6) constitute compelling reasons why the s 92(5) defence should place a persuasive burden on the accused person.  Taking all the factors mentioned above into account, these reasons justify the loss of protection which will be suffered by the individual.  Given the importance and difficulty of combating counterfeiting, and given the comparative ease with which an accused can raise an issue about his honesty, overall it is fair and reasonable to require a trader, should need arise, to prove on the balance of probability that he honestly and reasonably believed the goods were genuine.”

33.Ms Chan adopts that reasoning and the factors enunciated as constituting compelling reasons as to why a persuasive burden should be placed upon a defendant under section 26(4) of the Ordinance.  She adopts also the detailed factors set out by Rose J in R v S at paras. 10 and 48 of which I think the most cogent to be :

“… We accept, for present purposes, that there is a heavy burden on the prosecuting authorities to justify a reverse legal burden provision in s.92 as necessary, justified and proportionate. In our view they discharge that burden.

Our reasons (which to an extent reflect some of our earlier observations) are these.

(1) First, there are the factors which we have already mentioned relating to considerations of policy, the purpose of the legislation and the mischief at which it is aimed. These provisions of the 1994 Act are designed not only to protect proprietors of registered trade marks but also to protect (and safeguard) consumers from the activities of counterfeiters. There is a very important element of consumer protection here. We consider this a point of significance.

(2) Second, the subject matter of subsection (5) is liable to be peculiarly within the knowledge of the accused… The accused is, after all, particularly well placed to advance (and seek to show) the matters raised in subsection (5).

(3) Third, an effective and workable regime in this context cannot sensibly depend on proof by the prosecution in every case of a trader’s absence of belief on reasonable grounds that goods were genuine …

(4) Fourth, whilst an offence under s.92 is potentially a serious offence and in a bad case will in practice involve serious dishonesty, it is, as we have already said, in the nature of a regulatory offence, (cf the observations of Lord Clyde in Lambert at paragraph 154 : p258A-D). Moreover, the moral obloquy involved will normally be likely to be rather less than in what have been styled ‘truly criminal’ cases.

(5) Fifth, it must not be overlooked that important matters have to be proved by the prosecution beyond reasonable doubt before any liability can attach to the accused…

(6) Sixth, s.92 provides for a sentence of 10 years’ imprisonment (with or without a fine). That is to be contrasted to Lambert, where it was clearly regarded as a significant factor that the maximum available sentence was life imprisonment: … it is, indeed, an important point. But we do not think it unprincipled also to have regard to the reality of the matter : which is that most cases under s.92 are brought in the magistrates’ court and, of those, the majority result (in the case of conviction) in a fine…

(7) Seventh, and in amplification of the foregoing, Mr Swift stressed what he said were the enormous (if not, in some cases, insuperable) obstacles for trading standard departments if the burden imposed by s.92 (5) on the accused was to be treated as only an evidential one.  We agree that it would not necessarily take that much for an issue to be raised by a defendant in this context.  It might be capable of being raised, for example, by an assertion in interview that he believed the goods were genuine, because they looked it or because they had come from a supplier whom he believed reputable.  The issue once sufficiently raised, it would be for the Crown to prove beyond reasonable doubt the negative of an absence of belief, and the more elusive negative of an absence of reasonable grounds for such belief…”

34.I think Ms Chan is right to adopt both judgments rationale.  I might emphasise the factor of safety which in my view may well apply to some section 9(2) prosecutions.  The goods the offence deals with are not limited to clothing but may include items, which if counterfeit, may have serious safety ramifications, such as electrical appliances and motor vehicle parts. 

35.Perhaps as cogent a factor, is that Hong Kong shares a trade border with a region of China where historically counterfeit products have been a serious trade problem.  Our proximity to that problem creates a greater societal need for regulatory legislation such as section 9(2) of the Ordinance and a greater justification for the persuasive onus in respect of section 26(4) being placed on a defendant. 

36.Mr Bruce’s best argument requiring section 26(4) to be read down to an evidentiary burden is that an offence under section 9(2) of the Ordinance may attract a penalty of up to 5 years’ imprisonment.  He suggests, quite rightly, that it is unpalatable to contemplate that a defendant who may fall within the terms of the section 26(4) defence could be imprisoned for up to 5 years.  

37.I note however that the English Trade Marks Act 1994 provides for a maximum penalty of 10 years’ imprisonment for an offence contrary to section 92.  That, in the House of Lords ultimate analysis in Johnstone, as well as in the analysis of Rose J in R v S, did not undermine the necessity (or proportionality) of the persuasive burden being placed upon a defendant. 

38.I think the same also applies to the argument advanced by Mr Bruce concerning the 5-year maximum penalty allowed by our legislation.  That is a potentially severe penalty but it should be borne in mind that there are safeguards.  A first offender is unlikely to attract that maximum.  A defendant who is unable to convince a court that he probably did fall within the parameters of section 26(4) may still, in sentencing, receive credit for whatever he had done, or what safeguards he had set up in his business, to minimise the risk of its dealing with counterfeit goods. 

39.I am satisfied that the arguments relied upon by Ms Chan are compelling and that it is both rational and proportionate for the onus placed upon a defendant by section 26(4) of the Ordinance to be persuasive and to be established on the balance of probabilities.  I might add that in my view the questions of proportionality and necessity as referred to in R v S in the circumstances of the section 26(4) defence and the matters we are dealing with in this appeal really go hand in glove.  This ground must fail. 

Ground 3 “Reasonable diligence”

40.Mr Bruce complains that even if a persuasive onus was correctly placed upon the appellants by section 26(4), the magistrate “set the bar too high” in respect of the component of reasonable diligence. 

41.Mr Bruce makes no complaint either in his written or oral submissions concerning the magistrate’s explicit and well-reasoned finding, that there was cause for the appellants to suspect that the goods were counterfeit.  In that regard, the magistrate said inter alia :

“107. … I reject the evidence that they had no reason to suspect they may have been counterfeit.

…

109. In my view the fact Abercrombie & Fitch were not sold in Hong Kong, a fact known to D1 and D2, raises suspicion that the garments were counterfeit. At the very least this should have put them on notice to make enquiries whether they could sell them in Hong Kong.

110. Specifically with regard to Lacoste, the neck labels, as seen earlier, all state the garments were made in Indonesia. DW3 said she sourced all garments in China ... This alone, in my view, would lead one to be suspicious whether the Lacoste garments were genuine…

111. In addition I note of the three Reuhl t-shirts (exhibit P26) found in the registered office of Y & Fung (Place A) where D1 was arrested, P26A and P26C state on the neck label the garments were made in Peru. The Reuhl t-shirts, exhibits P47C and P80A found in the warehouse (Place C) and from the test-buy in Place G respectively, state the garments were made in Hong Kong. I also note the neck labels of the Hollister t-shirt (exhibit P49B) found in the warehouse (Place C) and the Levi’s shirts (exhibits P94A, P94B, & P94C) found in Place G, also state made in Hong Kong. Other Reuhl t-shirts, exhibits P47A, P47B and P47D, and P59B and P59C state made in Macau on the neck labels. Made in Macau is also seen on the neck labels of Abercrombie & Fitch garments, exhibits P24B, P48A, P48B P48D, P58B, P62A, P84A(2), and P86A(1). If all these garments were sourced as DW3 said from various factories in China, although I note D1’s evidence he bought the garments P48 in Macau, this again would lead one to be suspicious whether the garments were in fact genuine.

112. Further on his own evidence D1 was clearly alert to the possibility of counterfeit garments…

114. The evidence that they were bought at very low prices, prices less than cost of the genuine garment in my view raises concern that the garments may be counterfeit. I reject the evidence of the defence that they believed they were genuine because a counterfeiter could not afford to sell at such a low price.”

42.Given that the burden is upon the appellants to establish all three elements of the section 26(4) defence and no challenge has been made as to this aspect of the magistrate’s findings, which are self-evidently correct and with which I agree, that would in the normal course be sufficient to dispose of this ground.  

43.I will however briefly deal with the appellants’ arguments concerning “reasonable diligence”. 

44.The magistrate, in his findings, said :

“117. Even if it can be said there was no reason to suspect, the defendants have in my view singularly failed to take any steps to ascertain whether the garments were genuine. All the witnesses who testified for the defence including D1 and D2 took no steps whatsoever to ascertain whether the factories were contracted to make the garments and, if so, were authorised to sell them to D3. DW3 said she did not enquire of the factories whether they were authorised to manufacture the garments and authorised to sell them to Y & Fung. The fact the factories had according to D1 been asked in the past and refused to provide documents verifying they were contracted to make the garments or would not answer even if asked also raises suspicion about the genuineness of the garments.”

He then went on to say :

“121. Further, and most importantly, at no time have any of the defendants ever checked with any of the trade mark owners, whether in Hong Kong or elsewhere. As for Abercrombie & Fitch, Reuhl and Hollister I reject D1’s evidence that because the garments are not sold in HK or China he did not know they had an office in HK and that he was told they did not have a website. Paragraph 3 of the supplemental affirmation of Mr Milano (exhibit P153), makes clear that they do have websites for selling casual apparel.

122. In the modern day of advance telecommunications it is not very difficult to find out whether there was an office in Hong Kong or indeed how to contact the company in the United States. One e-mail, one telephone call, would have quickly set in motion proper enquiries as to the genuineness of the garments bought by D3.  The defendants would then have been told that Abercrombie & Fitch, Reuhl and Hollister garments are not to be sold in China by the factories, the labels are never cut and specifically with regard to P48, which D1 says he bought from Sambro in Macau, he would have been told these were not manufactured by Sambro.”

and in respect of other labels, the magistrate went on to say :

“124. Enquiries made with the trade mark owners in Hong Kong would have revealed for example in the case of Timberland that the Limited Collection was not on sale in Hong Kong; that Lacoste polo shirts were not made in Indonesia; that the buttons and neck label were for two different products of Tommy Hilfiger; Agnes b products can only be sold in official Agnes b outlets; and the wrong labels and hang tags had been used on the Levi garments.”

45.A further evidential matter relied upon by the magistrate in rejecting the defence case in respect of “reasonable diligence” was that :

“127. … save in the case of Polo by Ralph Lauren, no invoices have been provided showing the purchase of any of the garments subject of the charges. Even this invoice (exhibit D18) does not mention Polo by Ralph Lauren on the invoice itself, although according to D1 the exact quantity of Polo by Ralph Lauren garments purchased by D3 is stated therein and not included in a mixed/assorted collection. D1 has at length emphasised [the] purchase of assorted garments [so that] it [was] unknown at the time what exactly [was] being purchased. Yet here where the quantity is specified no mention is made of the brand…”

46.In my view the totality of the reasoning of the magistrate is unimpeachable.  It is quite clear that, given the factual circumstances of the appellants’ possession of the counterfeit clothing considerably more than what was done (or not done) was required to satisfy the element of “reasonable diligence”. 

47.Mr Bruce argues that the magistrate’s finding was out of step with commercial reality. His particular complaint is that the magistrate was wrong to rely upon the decision in HKSAR v Tsui Sin Yee HCMA409/2009 as authority for the proposition that the appellants (or any of them) should have, as part of satisfying the requirement of reasonable diligence, contacted the trademark holders to determine whether the goods the subject of the charge were infringing or otherwise. 

48.Each case is different as to what pro-active steps are required to be taken by a defendant so as to amount to due diligence.  It may well be that where a trader has in place a reliable system of procurement which, it can be established has for a long time successfully ensured that only genuine goods are supplied, and there is nothing unusual about a particular transaction, that the trader could successfully rely upon the section 26(4) defence without taking any further precautions; whereas if the transaction or the goods themselves were out of the normal course (perhaps because a different supplier was used, or because the goods were different in nature) it may be that the trader had a higher standard of diligence to meet.  In my view issues relevant to the elements of the section 26(4) defence of “no reason to suspect” and “reasonable diligence” may overlap and that where there are aspects of a defendants’ dealings with goods, or of the characteristics of the goods themselves which lie outside that which would be expected in a typical obtaining, possession or sale of genuine goods, then it could well follow that a greater degree of diligence will be required. 

49.In the present case there were aspects of the appellants’ possession of the goods and characteristics of the goods themselves which would as a matter of common sense have required a higher degree of diligence than that which was appropriate to a more typical transaction. 

50.Such matters as the very low price paid for the goods, the fact that they were purchased in assorted batches, that other goods in those batches were regarded as of doubtful provenance, and finally the knowledge of the appellants that the factories in China from which the goods were purchased would or could provide no confirmation of the legitimacy of the goods would, at the least, have required the appellants to have taken matters further.  As the magistrate said, had they done so and responded with an appropriate degree of diligence (which simply required them to contact the factories or the agents of the trademark owners) the appellants would have readily discovered the garments were counterfeit.  Again as the magistrate said, in this modern day and age with the standard of communication facilities available to businessmen in Hong Kong, that in the present case was not the imposition of too great a degree of diligence. 

51.It should be remembered that, as was said in R v Mulitex (Exports) Ltd (1996) 4 HKC 422, concerning that which is imported by the concept of reasonable diligence :

“… when it is common knowledge that parts off this region have an unhappy reputation for the production of goods with false trade descriptions, there is a very clear and strong burden on businesses in Hong Kong that import goods to ensure that in so far as is at all practicable, the goods they import do not infringe the law. This requires positive action on their part; and the requirements of the section are not fulfilled by an attitude which says that it was not unreasonable to make this assumption or that. (see pages 430I-431D)…”

52.That case was dealing with section 12 of the Ordinance, but the principle is the same.  

53.This third ground must also fail and the appeals against conviction are dismissed. 

Sentence

54.I turn now to the 1^st appellant’s appeal against sentence. 

55.Mr Bruce’s primary submission is that as the evidence of the appellants’ witnesses was that there were, amongst the total stock of counterfeit items, a number which had been set aside for return to the mainland as the appellants (or at least the 1^st appellant) had been concerned as to their provenance, these items should not have been included in considerations of sentence. 

56.The submission, with respect, overlooks the magistrate’s rejection of the defence case in this regard.  His finding, which was entirely open to him on the evidence and with which I agree, was that there was no substance to this aspect of the defence case. 

57.In any event even if there had been merit to the suggestion that some of the counterfeit items of clothing were intended to be returned to the mainland there were sufficient counterfeit items remaining for sale (a total still of thousands) to warrant the sentence imposed on the 1^st appellant. He had a prior conviction for just such an offence (and indeed the 3^rd appellant had its own prior convictions for similar offences under his administration), the 1^st appellant was not a small trader but a trader in bulk and in my view a significant term of imprisonment was warranted : see Secretary for Justice v Lam Chi Wah (1999) 4 HKC 343.  The total sentence of 8 months’ imprisonment after trial cannot be regarded as excessive and the appeal against sentence is also dismissed.  

Ms Alice Chan, SPP of the Department of Justice, for HKSAR

Mr Andrew Bruce, SC, Mr Sammy Ho and Mr David Khosa, instructed by Messrs Anthony Kwan & Co., for the Appellants

Appellant's application for leave to appeal to Court of Final Appeal granted by Court of Final Appeal. Please refer to FAMC99/2010 and FAMC9/2011