HKSAR v. KHAN IJAZ AHMED

HCMA808/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 808 OF 2008

(ON APPEAL FROM KCCC 2191 OF 2008)

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J U D G M E N T

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1. The appellant appeals against his conviction at Kowloon City Magistrates’ Court of the offence of attempting to export goods to which a forged trade mark was applied, contrary to section 12(1) of the Trade Descriptions Ordinance, Cap. 362 (“the Ordinance”).

2. The charge alleged that on 25 July 2007 the appellant, trading as Masha Trading, had attempted to export 399 mobile phone sets to which a forged trade mark “Motorola” had been applied.

3. It was common ground that the appellant was the person in Masha Trading responsible for arranging through UPS, a courier service company, the delivery by air of a consignment of 399 mobile phones which bore the forged trade mark “Motorola”.  He had been personally involved in the packaging of the five cartons which contained the phones and preparing the US waybill form (Exh. P6) prior to UPS collecting the cartons and delivering them to the airport for export to the consignee.  On the waybill the consignee was said to be a Mr Jalal of a company known as “Wireless Way” in Dallas, Texas, USA.  It was at the airport that the cartons had been intercepted by the Customs and Excise officers.

4. It is also common ground that although Masha had prepared an invoice to Wireless Way in respect of the phones (Exh. P12), they were not being supplied to Wireless Way by way of sale and purchase but were part of a consignment of goods which had been supplied by Wireless Way to a company known as Hipson Trading (“Hipson”) and that Masha Trading was simply the company which had been requested by Wireless Way to arrange their shipment by air back to Wireless Way, the supplier, because it was able to secure a discounted shipping rate from UPS.

5. It follows from the foregoing facts that the appellant would be guilty of an offence under section 12(1) of the Ordinance unless he could bring himself within section 12(2) of that section.  That subsection provides :

“(2)  Any person who imports or exports any goods contrary to subsection (1) commits an offence unless he proves that­—

(a)    he did not know, had no reason to suspect and could not with reasonable diligence have found out that the goods are goods to which a false trade description or forged trade mark is applied; or

(b)   the goods are not intended for trade or business.”

6. The appellant gave evidence of the circumstances in which he had become involved, and the part he played, in the shipment of these goods. 

7. It was submitted that the appellant had established a defence under both limbs of section 12(2).  The magistrate rejected that submission and convicted the appellant.

8. It is against that decision and the reasons given by the magistrate that the appellant now appeals.

The appellant’s evidence

9. The appellant’s evidence was that he had established Masha Trading, which he operated in partnership with his brother in 2002.  He had bought new goods from Jalal’s company (Wireless Way) in the USA on almost 15 occasions since 2006.  The total value of these purchases was around US$2 million.  On two or three occasions he had supplied goods to that company.  To his knowledge Jalal’s company had an account with the Motorola company which only opened accounts for substantial dealers.  He had never had any problems with Jalal’s goods in the past.

10. Two days before the day to which the charge relates, Jalal had called him, informing him that Wireless Way had supplied 1,200 mobile phones, which had been refurbished by Motorola and which he had bought from Motorola by private auction, to Hipson.  Jalal had said that Hipson had sold 800 of the phones but wished to return the balance of 400 phones because of an issue related to the price.  Jalal asked the appellant if he could obtain a discount from UPS and, when the appellant said that he could, Jalal had asked him to do him a favour and arrange to send the goods back to Wireless Way through UPS.  The appellant gave evidence that he was able to get a discount of 39% off UPS’s normal rate.  Jalal had said that he would ask Hipson, a company of which the appellant had no knowledge, to deliver the phones to Masha.

11. The appellant agreed to this request whereupon Jalal had said that he would send him an email which he should show to representatives of Hipson when they delivered the goods.  The appellant had agreed to the request purely as a favour to Jalal.  He would not obtain any benefit.

12. It was agreed that upon receiving the UPS receipt the appellant would forward it to Jalal, and Jalal would either send him cash or offset the amount against the price of any goods supplied to Masha.

13. On 23 July 2007, he had received an email from Jalal (Exh. D1) in which Jalal had said :

“Please show them this invoice at the time of delivery and only thanthey will deliver you 400 mpx 220 phones, thanks for your help.”

However no invoice had been attached to the email.

14. The appellant said that although he was not selling the goods to Jalal, he had prepared an invoice (Exh. P12) showing Masha Trading as the consignor and Wireless Way as the consignee of the goods because he believed UPS would need to see an invoice from Masha, otherwise he might not obtain the discount from them, and because an invoice would be required for US Customs.

15. At around 3 p.m., on 25 July 2007, two women and a “trolley man” from Hipson had delivered cartons containing the phones.  They had asked the appellant to show them the invoice to which Jalal had referred in his email but the appellant had told them that there had been no invoice attached to the email.  He had shown them the email on his computer and the fact that no invoice was attached.  He was not aware of the nature of the invoice being referred to but in any event its purpose was simply to demonstrate that he had authority to accept delivery of the goods.  He offered to telephone to Jalal later when it became daytime in the US but the representatives of Hipson were prepared to deliver the goods immediately. 

16. He said that there were 40 cartons, each containing 10 phones.  Initially he checked 13 to 14 of the cartons but did not open the rest.  He and his staff packed the 40 cartons into five big cartons for collection by UPS.  While he did so he had the opportunity to inspect 13 to 14 cartons again but did not check the rest because UPS had a deadline of between 5 and 6 p.m., after which he believed the shipment of the goods would be delayed.  He believed that 10 to 11 cartons remained unchecked.

17. The appellant said that he could not tell from his check that a forged trade mark had been applied to these phones.  He conceded that he had not attended any course in identifying the genuineness of the phones.  There was no reason to suspect that they were items to which a forged trade mark had been applied bearing in mind the size of Jalal’s business with Motorola, the fact that the goods were from the USA, were said to be refurbished goods from Motorola and were in Motorola packing with an ME label bearing ME numbers.  He had no doubts as to the  genuineness of the goods. 

18. The goods were collected by UPS at 5 p.m.  He said that Jalal would not have been concerned if the shipment had been delayed for a day but there were three reasons for arranging for the goods to be collected by UPS that day :

(1) because in their business they would try to deal with goods the same day;

(2)  because of limited space in their premises; and

(3)  because of the security of the goods.

The appeal

19. The first and third grounds of appeal are connected.  It is alleged that the magistrate erred in finding that the statutory defence under section 12(2)(a) of the Ordinance had not been made out and that it was unclear from the reasons for verdict whether the magistrate had applied the proper test of “reasonable diligence” under that subsection.

20. Although there were aspects of the appellant’s evidence which the magistrate said that he disbelieved, to which I will refer later in this judgment, it is important to bear in mind what the magistrate said he did accept :

“ …. In reaching my decision I had regard to all of the evidence in the recorded proceedings and have set out here only sufficient to outline the nature of the evidence.  Here clearly I find the goods in question come from a supplier (Jalal) and are being returned to that supplier through the appellant’s company (Masha) by Hipson.  The appellant could get Jalal a 39% discount in returning the goods to him, and it was hoped that for so doing the appellant (Masha) would perhaps in the future get a cash payment from Jalal, or an offset against goods purchased from him. ….”

21. Although Mr Wong, for the respondent, has sought to argue that the goods to which the charge relates might not or could not be the ones sent by Jalal to Hipson, that was not the prosecution case and the magistrate clearly found that they were. 

22. Referring to the appellant’s evidence of the checks which the appellant said he had made, the magistrate said :

“   I am satisfied the appellant could have and should have done more checks than the ones that he said he did do. ….”

The inference must be that he was satisfied that the appellant had done some checks, though not enough.

23. In finding that the appellant had not established a defence under section 12(2), the magistrate did not specify which of the three elements of that defence the appellant had failed to prove.  He simply stated that in his judgment the appellant had failed to prove on the balance of probabilities that he did not know, had no reason to suspect and could not with reasonable diligence have found out that they were goods to which a forged trade mark was applied.

24. However, bearing in mind the fact that the magistrate appeared to have been satisfied that the appellant did undertake some checks, though insufficient, it would follow that it was not the first limb of that defence (knowledge of the falsity) which troubled the magistrate, but either the second or third limbs.

25. Bearing in mind the appellant’s evidence that he had no suspicion that the phones bore a forged trade mark, it is important to bear in mind what the appellant had to establish in order to satisfy the third limb .

26. Ma CJHC in HKSAR v. Kong Hing Agency Limited, HCMA 144/2006 said this :

“(1)  It is important to bear in mind that the requirement is to demonstrate ‘reasonable diligence’, not ‘due diligence’ or ‘all due diligence’.  The use of the word “reasonable” connotes an objective test and requires the court to examine just what could reasonably have been expected of the importer or exporter in the circumstances to find out about the description or trademark of the goods.  The inquiries is therefore : what could the importer or exporter have been reasonably expected to have done in the circumstances?

(2)    It is this objective test that is relevant rather than what an importer or exporter in any given case has actually done.  Conceptually, what an importer or exporter has actually done will not assist him if he could or ought reasonably have done more; equally, even if nothing has been done, an accused may escape liability where the exercise of reasonable diligence would not have resulted in the discovery of the use of false trade descriptions or forged trademarks.  The test is subjective only in that one must of course look at the particular circumstances of the accused.”

27. The magistrate identified a number of areas as reasons for rejecting the appellant’s defence under section 12(2).  It is the magistrate’s reasoning in relation to those matters that were criticised by Mr Grossman SC for the appellant.

28. The first reason given by the magistrate was an alleged discrepancy between what the appellant had said to a Customs and Excise officer in a caution statement written out by an officer in the officer’s notebook on 3 August 2007 when they visited his premises.  

29. In that statement, which was recorded in English, the appellant was recorded in saying that two ladies and a man had delivered the consignment in five cartons to them.  They (Masha Trading) had then opened one to two carton boxes “to see whether there are Motorola mobile phones or not.  However we didn’t check it and count the numbers.”  He said after that he had repacked the five cartons and UPS had come to take them away.

30. While on its face there was a discrepancy between this statement and his evidence of the number of boxes delivered and the number of boxes initially opened, this discrepancy may well be more apparent than real.  It is apparent from the boxes shown to me in court that there were 40 small boxes which had themselves been packed into five larger cartons.  The apparent difference as to the number of cartons delivered and the number opened could well be the result of a misunderstanding as to whether it was the bigger or smaller cartons that were being referred to, particularly as neither the officer nor the appellant were talking in their native languages. 

31. The appellant had referred to opening cartons to see if there were Motorola phones inside.  The words “However we didn’t check it and count the numbers” are at best ambiguous.  The appellant had referred to repacking the five boxes.  The fact that he did not refer to further checking when he did this cannot safely lead to the conclusion that it was inconsistent with his evidence in court.

32. However, even if there was a discrepancy in the account given by the appellant, the magistrate appears to have accepted that the appellant did check some of the mobile phones.  The appellant’s evidence was that there was nothing to suggest that there was a forged trade mark attached to the phones.  Indeed his evidence was that the packing confirmed their authenticity.  This evidence was not challenged in cross-examination.

33. The magistrate had the opportunity of inspecting at least one of the phones.  There was no suggestion that all the phones were not similar.  The magistrate made no finding that it would have been apparent that the phones bore forged trade marks or that they appeared suspicious.  Having seen one of the phones, I do not believe it would have been possible for him to come to such a finding.  Accordingly, even if the appellant had inspected all the phones, the phones themselves and their packing would not have aroused his suspicion. 

34. The second reason given by the magistrate for not accepting the appellant’s account was the absence of an invoice from Jalal despite the fact that Jalal had emailed the appellant telling him to show an invoice, which he purported to have attached to the email, to the representatives of Hipson who would deliver the goods.  

35. Coupled with this was a third reason, namely the fact that the phones were delivered by Hipson to Masha and then delivered to UPS within two hours.

36. The magistrate dealt with both these points.  Having referred to the fact that there was no invoice and that there was no enquiry made with respect to it at the time, he continued :

“…. I am satisfied the appellant’s mind as a businessman, would have clicked then, as the goods were to be in and out within two hours, he getting rid of them quickly. ….”

What the magistrate meant by this is not clear.

37. I do not consider that it would be fair to draw an inference adverse to the appellant from the absence of this invoice.  This was not a sale and purchase transaction nor was it the forwarding of goods to a customer of Jalal, but simply returning them to Jalal.  As far as the appellant was concerned, the invoice referred to by Jalal was simply to demonstrate to the representatives of Hipson that he had authority to receive the goods.  Those representatives were ultimately prepared to deliver the goods without seeing this invoice after they had seen the email from Jalal.  The fact that the representatives of Hipson had initially asked to see the invoice would, if anything, have reinforced the appellant’s view that this was a legitimate transaction.

38. In so far as the short period of time between the delivery of the goods by Hipson and their delivery to UPS is concerned, if the magistrate meant by his use of the word “clicked” that that would have arouse the appellant’s suspicion, then he must have misunderstood the evidence.  It was the appellant who arranged UPS to collect the goods, not Jalal or Hipson.  The magistrate did not refer to the reasons given by the appellant for arranging delivery at the time he did. 

39. None of the three reasons given by the appellant for asking UPS to collect the goods at that time was, in my view, implausible or improbable.

40. A further reason given by the magistrate for disbelieving the appellant is that there was no warranty or certificate of approval with the goods.  He said that that should have put the appellant on notice straightaway.  There was no evidence before the court that a warranty or certificate of goods was necessary or even usual in the mobile phone business, in particular for refurbished phones.  On the contrary the appellant, when asked about the certificate of approval, had denied that there were any such certificates in the mobile phone trade.  There was no evidence to contradict him in this regard, and therefore no basis for the magistrate to draw the conclusion that the absence of these documents should have put the appellant on notice that there was something irregular about this transaction. 

41. It appears that the magistrate may have formed the impression that a certificate of approval was necessary from a passage from the judgment of R. v. Mulitex (Exports) Limited, HCMA516/1996 which was read to him by prosecuting counsel, without giving the name of the case or supplying the court with a copy.  That case was decided on its own facts and is no authority for a proposition that every importer or exporter should obtain a certificate of approval or certificate of warranty for each shipment of goods.

42. A further ground put forward by the magistrate in rejecting the appellant’s evidence is that :

“…he had done business with Jalal many times previously and on prior occasions had got the right documentation, but not this time. ….”

43. It is unclear why the magistrate should have thought that there should be a link between trade documents between Jalal and Masha since 2006 and this re-shipment as a favour to Jalal of the 399 phones back to Jalal which Jalal had sold to Hipson.  

44. It appears that the magistrate may also have rejected the appellant’s case because he did not accept the appellant’s evidence as to why he had prepared an invoice (Exh. P12) showing Masha Trading as the consignor and Wireless Way as the consignee of the goods.  He commented :

“   …. His explanation was he did it because he wasn’t sure if he got the discount from UPS if he used anothers invoice.  I don’t believe his evidence and reject it.”

45. While this was one of the reasons the appellant gave for preparing the invoice, he also gave two others that were not mentioned by the magistrate, namely, that if he was to send goods through UPS they would need three copies of an invoice and also that an invoice would be necessary to clear customs in the USA.  Bearing in mind that the magistrate expressly accepted that the appellant’s company was being utilised by Jalal to return goods that it had supplied to Hipson and that the appellant’s company would obtain a discount from UPS if it arranged the shipment of goods, I do not see any basis for the magistrate’s finding that the appellant’s reasons for preparing the invoice were implausible.

46. Although I do not accept the magistrate’s reasons for finding that the appellant had not discharged the burden of satisfying a defence under section 12(2), it is incumbent on this court to reach its own conclusion as to whether the appellant had discharged the burden.

47. I find no reason to believe that the appellant knew or had reason to suspect that the goods bore a forged trade mark.

48. Bearing in mind the requirements of “reasonable diligence” enunciated by Ma CJHC in Kong Hing which I have referred, I am satisfied that the appellant could not with reasonable diligence have found out that the goods were goods to which a forged trade mark was applied.

49. Bearing in mind the circumstances in which the appellant was simply being asked as a favour to assist in returning to Jalal part of goods which had been shipped by Jalal to Hipson, the appellant’s position was little different to a shipping agent.  He could not be expected to engage a trade mark expert or indeed do more than check the appearance and packing of the phones.  They appeared legitimate.  Even if he had checked all the phones individually and had requested the original invoice from Jalal to Hipson which Jalal ultimately forwarded to him (Exh. D6), it would still not have resulted in the discovery of the use of forged trade marks.

50. I find that the appellant had discharged the burden of proving the defence under section 12(2)(a) of the Ordinance.  It is not therefore necessary for me to consider whether he established a defence under section 12(2)(b).  

51. I accordingly allow the appeal and set aside the appellant’s conviction. 

52. I make the following order as to costs that unless either party applies to be heard on the question of costs within 14 days, the appellant’s costs here and below be paid out of public funds.

53. The party wishing to be heard on the question of costs should make their submissions in writing, copied to the other party within 14 days.  The other party should reply within 14 days thereafter.