THE QUEEN v. DUTTON TRADING LTD AND ANOTHER

1988, No. 189

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H E A D N O T E

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Sentence - false statements in export licence applications - unusual case - Marvels guidelines not applied.

1988, No. 189

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

MAGISTRARY CRIMINAL APPEAL NO. 189 OF 1988

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J U D G M E N T

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1. The appellants were convicted on ten summonses of making false statements in applications for export licences contrary to section 36(l)(a) of the Import and Export Ordinance, Cap. 60. 1st appellant (the Company) was fined a total of $728,000. 2nd appellant (the Director) was fined $25,000 on each summons. The appeal_. is against sentence only.

2. The magistrate found the following facts:-

"(1)      The Company applied for ten Export Licences (Exhibits P.2 to P.11) on applications Form 5.

(2)     Each application related to textile goods for export to the United States of America and such exports were subject to the quota restrictions set out in the Notice to Exporters (Exhibit P.1).

(3)     To obtain the requisite licences the Company was required to comply with condition (3) on the reverse of each Form 5 application, condition (3) incorporating the contents and requirements of the Notice to Exporters (Exhibit PA) into each Form 5; the Company being able to select any four of the functions in condition (3).

(4)     The Director was a director of the Company when each Form 5 application was made and the Company was a Limited Company.

(5)     The Company through the Director represented in the Exporter's Declaration on each of the ten Form 5 applications the Company was supplying the quota for the export of the specified goods and had complied with Condition (3).

(6)     The Director made each representation in his position as a Director of the Company, was authorised so to do and did so on behalf of the Company.

(7)     The Company was a registered quota holder and entitled to apply for the ten Export Licences Exhibits P.2 to P.11.

(8)     In reliance upon the correctness of the Exporters Declaration on each of the ten Form 5s the export licences Exhibits P.2 to P.11 were issued and the goods specified in each licence left Hong Kong.

(9)     The Company had not complied with condition (3) in either of the ten applications leading to the issue of the licences Exhibits P.2 to P.11.

(10)     The representations on each of the Form 5s P.2 to P.11 of compliance with condition (3) were false or misleading in a material particular.

(11)     The Director and the Company ).new the statements of compliance with condition (3) on each of the Form 5s Exhibits P.2 to P.11 were false or misleading in a material particular.

(12)     The Director fell within the provisions of section 36:3 of Cap. 60.

(13)     The Company's offences were not committed without the knowledge of the Director nor could the Director show he had used all due diligence to prevent the commission of the offences by the Company covered by the summonses KS 11559 to KS 11568 inclusive."

3. Condition 3 of the export licence provides:-

    "(3) The company supplying the quotas for the goods covered by this licence must:

4. Either (i) : perform at least: four of the following functions:

(a)     receive order from the overseas buyer.

(b)     receive payment from the overseas buyer.

(c)     purchase or supply the raw materials for the manufacture of the goods.

(d)     contract with manufacturer for the manufacture of the goods.

(e)     stake payment to the manufacturer for the goods; and

    cr (ii): perform the terminal processes in the manufacture of the consignment in question."

5. The magistrate was satisfied the Director had embarked on a deliberate course of conduct to obtain the maximum possible benefit from the quota allocations held by the Company. He approached sentence by applying the guidelines laid down in A.G. V. Marvel's Clothing Co. Ltd. and Eagle's Eye (Hong Kong) Ltd.⁽¹⁾, that is to say 40% of the value of the exported goods.

6. The Company is wholly owned by overseas interests. The Director was responsible for all its operations in Hong Kong. In addition the Director owned several other companies, which were engaged in the same business of exporting textiles. All the companies shared the same address and office facilities. Alka, Mollison and Gallop Fashions were three of the companies owned by the Director.

7. The company was the quota holder. The offences were committed because the majority of functions set out in Condition 3 were carried out in the name of one or more of the Directors companies, not the quota holder.

8. At first blush it would appear that the offences were committed in order to ensure that the company utilised its full quota for the year, thus guaranteeing its quota for the following year. This is certainly how the magistrate viewed the matter. The Director gave evidence at length and in cross-examination he said:-

"     I agree Dutton at the time had more quotas than it could use. I agree that Mollison did not have enough quota. The excess quota for Dutton was not effectively transferred to Mollison, cannot be transferred."

Yet earlier he said.:-

"    All the conditions could have been complied with by Dutton, the quota holder. All the work performed by these companies could have been performed by Dutton. I don't want to concentrate all the business in one company ... I don't want to have all my eggs in one basket."

He also said:-

"     I did not contract directly Dutton - Keytex (the local manufacturer) for two reasons. One is that I felt that all companies are the same. Second is that the establishment of Mollison was to trade. As I felt that it was the same company so I gave it some business to do. I needed to give it some business to do for no special. reason. I did not want that company to have nothing to do. I had noticed the Conditions say the contract must be entered into by the quota supplier direct with the manufacturer yes. As I used the same order number, style number and shipping marks, so I felt they were just the same and that, no matter which company through which I made the contract, made no difference as to the profit I made and as to the organisation and structure of our Companies."

9. Thus if the Director wished merely to safeguard his quota, there was no reason not to contract for these orders in the Company's name. What benefit accrued to the Company as a result of these transactions? It received 10% of the FOB value of the goods, a total of $182,739. The actual profit on the transaction, which would be included in the FOB price, presumably went to the companies such as Alka, the names of which appear on the contract documents. Although the Letters of Credit were in the Company's name, the other bank documents indicate payment was made by the purchaser in USA to Alka, Mollison etc., via the Company's New York office and its New York bankers.

10. Litigation between the Company and the Director is contemplated and I propose, therefore, to say no more on this aspect of the case. it is clear, however; that, whatever the Director`s motives, the only benefit to the Company was a 10% commission.

11. In these circumstances I do not think it is appropriate to apply Marvel and impose a fine of 40% of the value of the goods. This is an offence of strict liability, which the Company has committed through the acts of its agent, the Director, and should suffer a penalty.

12. In Attorney General v. Chan Kin Yam⁽²⁾, the Court of Appeal, confirming the guidelines in Marvel, also said that each case must be dealt with on its merits. This is an unusual case. Ensuring that the Company derives no benefit from these transactions and imposing an additional penalty that I consider properly reflects its culpability for the offences, I allow the Company's appeal and reduce the fine on each summons to $25,000.

13. The Director, perhaps wisely, withdrew his appeal in the course of the hearing and it is dismissed accordingly.

(1) Applications for Review Nos. 7 & 8 of 1984

(2) (1986) H.K.L.R. 115