HKSAR v. KONG HING AGENCY LTD

HCMA 144/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MAGISTRACY APPEAL NO. 144 OF 2006

(ON APPEAL FROM ESS NO. 27509 OF 2005)

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REASONS FOR JUDGMENT

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Hon Ma CJHC (giving the judgment of the Court) :

1.  In this appeal, the Appellant (Kong Hing Agency Limited) appealed against its conviction for attempting to import goods bearing a false trade description contrary to section 12(1) of the Trade Descriptions Ordinance, Cap.362 (“the TDO”).  That provision states : -

“12.  Prohibited import and export of certain goods

(1)    Subject to section 13, no person shall import or export any goods to which a false trade description or forged trade mark is applied.

(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.

(3)    This section shall not apply to any goods in transit.”

2.  The main issue in this appeal is whether the reasonable diligence defence in section 12(2)(a) of the TDO was available to the Appellant.

3.  On 24 January 2006, the Appellant was, together with another defendant (Sea Wheel Container Service (Hong Kong) Limited, who was the 1st Defendant), convicted in the Magistrates Court and fined $12,000.  It was named as the 2nd Defendant.  The Appellant (but not Sea Wheel) appealed pursuant to section 113 of the Magistrates Ordinance, Cap.227.  On 18 May 2006, Waung J (in the Court of First Instance) referred the appeal to be heard by this court under section 118(1)(d) of the Magistrates Ordinance.  It will be necessary in due course to examine this aspect of the proceedings more closely when we come to deal with the question of costs.  On 27 September 2007, this court allowed the appeal with reasons to be provided later.

Relevant facts

4.  On 10 July 2005, customs officials boarded the “Hui Xin Hui 28” (a river trade vessel) at the Western Quarantine and Immigration Anchorage.  That vessel had arrived in Hong Kong from Beijiao (near Shunde).  On board, there were found two sealed containers each with 420 cartons of water dispensers.  The cartons contained on their face the words “Made in Korea” and upon further inspection, the water dispensers themselves also bore this statement on labels attached at the back.  The remarkable feature of the containers was that when they were opened, the cartons stuffed in the front row (being therefore the first to be seen) all had blue adhesive tape covering the words “Made in Korea”.

5.  The cargo manifest for this shipment named as the consignee     “香港美的家用電器有限公司” (Xianggang Meide Household Electrical Appliances Limited).  This was said to be a non-existent company (the Inland Revenue Department had confirmed this in a memorandum to the Commissioner for Customs and Excise).  The Appellant, however, did not have sight of this manifest at the material time and so was unaware that the consignee was this non-existent entity.

6.  Following the inspection of the two containers and the manifest, the Appellant and Sea Wheel were charged with the section 12(1) offence.  In the circumstances I have described, the suspicion was that the description of the goods being “Made in Korea” was false.  Here, I should mention the effect of section 24A(1) of the TDO : -

“24A.  Rule of evidence regarding imported goods

(1)    In any prosecution for an offence under this Ordinance in respect of the import of goods to which a false trade description of the place of manufacture, production, processing or reconditioning is applied, evidence that the goods were imported from a place shall be prima facie evidence that the goods were manufactured, produced, processed or reconditioned, as the case may be, in such place.

…”

7.  The Appellant is a shipping agent who arranges the carriage of goods by sea.  In relation to the shipment to the two containers, the Guangzhou office of the Appellant first received instructions from a freight forwarder, Wing Trans Limited, to arrange the shipment of water dispensers from Beijiao to Inchon in Korea.  The Appellant had dealt previously with Wing Trans without incident.  The Appellant in turn instructed Sea Wheel to deliver two empty containers to be stuffed and sealed by the shipper at the place specified by Wing Trans.  Neither the Appellant nor Sea Wheel was instructed to have any part in stuffing of the containers or in supervising the loading of the same.

8.  As there was no direct route from Beijiao to Inchon, the containers had first to be sent to Hong Kong where they would be transshipped on an ocean going vessel to Korea.

9.  This arrangement just described can be seen from the shipping order that was prepared by Wing Trans (using the Appellant’s standard form).  In it, Wing Trans is described as the shipper, the consignee was named as Joo Sung Sea and Air Freight Company Limited (evidently a freight forwarder).  The port of loading was stated to be Beijiao and the final destination, Inchon.  The carriage was stated to be “CY-CY” (container yard at loadport to container yard at the port of destination).  The named vessel was the “Jubilee Glory” (this being the vessel from Hong Kong to Inchon).

10.  If the carriage of the two containers had fully materialized, a bill of lading covering the carriage as described above would have been issued.  We have been provided with a sample of such bill of lading (which would have been issued by Heung-A Shipping Company Limited, the Appellant’s parent company).  Clause 11 on the reverse of the bill of lading (which is relevant in the context of containers having been stuffed and sealed by the consignee) states : -

“11.    CONTAINER PACKED BY MERCHANT.  If the cargo received by the Carrier is container(s) into which contents have been packed by or on behalf of the Merchant, (1) this Bill of Lading is prima facie evidence of the receipt only of the number of container(s) as shown on the face hereof, and the order and condition of the contents and any particulars thereof (including marks and numbers, number and kind of packages or parcels, description, quality, quantity, gauge, weight, measure, nature, kind and value) are unknown to the Carrier, who accepts no responsibility in respect thereof and (2) the Merchant warrants that the storage of the contents of container(s) and their closing and lashing are safe and proper and also warrants that the container(s) and contents thereof are suitable for handling and carriage in accordance with the terms hereof including Article 15, in the event of the Merchant’s breach of said warranties, the carrier shall not be responsible for any loss of or damage to or in connection with the Goods resulting from said breach and the Merchant shall be liable for loss of or damage to any other property, or for personal injury or the consequences of any other accident or events whatsoever and shall indemnify the carrier against any kind of loss or liability suffered or incurred by the Carrier on account of the said accidents or events, and (3) the Merchant shall inspect the container(s) when the same are furnished by or on behalf of the carrier, and they shall be deemed to have been accepted by the Merchant as being sound and suitable condition for the purpose of the transport contracted herein, unless he gives notice to the contrary in writing to the Carrier and (4) if the container(s) are delivered by the Carrier with seals intact, such delivery shall be deemed as full and complete performance of the Carrier’s obligation hereunder and the Carrier shall not be liable for any loss of or damage to the contents of the container(s), and (5) the carrier shall be at liberty to open the container(s) and to inspect the contents of the container(s) without notice to the Merchant at such time and place as the Carrier may deem necessary and all expenses incurred shall be borne by the Merchant, in case the seals of container(s) are broken by the customs or other Authorities for inspection of the contents of the said container(s), the Carrier shall not be liable for any loss, damage, expenses or any other consequences arising or resulting therefrom.”

11.  Given this clause and the “CY-CY” terms of the carriage, the stuffing of the containers in the present case was entirely the responsibility of the shipper; in other words (and this was confirmed by one of the witnesses called by the Appellant at trial), the containers were under “shipper’s load, count and seal”.  This is fairly standard in arrangements for carriage of goods by sea.  One of the effects of Clause 11 is that if the seal on a container is not broken during that part of the carriage undertaken by a sea carrier, the delivery of the container will be deemed to be full and proper performance of the contract of carriage.

12.  As mentioned above, the containers were first to be shipped to Hong Kong before transshipment to Inchon.  For this purpose, a bill of lading was prepared by Sea Wheel covering the carriage from Beijiao to Hong Kong.  The shipper was named as “Foshan City Meide Household Electrical Appliances Limited (the named consignor in the cargo manifest), the consignee was the Appellant.  On its face, the bill of lading also stated that the two containers of water dispensers would be carried from Beijiao to Hong Kong on board the “Hui Yin Hui 28” where they would be transshipped on board the “Jubilee Glory” onwards to Inchon.

13.  We have set out in some detail the facts of the present case to underline in particular two points.  First, the role of the Applicant in the present carriage is quite typical of that of shipping agents the world over, not just Hong Kong.  Shipping agents are instructed (often by freight forwarders or other shipping agents) to make the necessary arrangements (or a part of the arrangements) for the carriage of goods by sea.  Normally, shipping agents like the Appellant will not in the absence of a specific contractual obligation have any responsibility for the loading, supervision of loading or inspection of goods or, as in the present case, for the stuffing and sealing of containerized cargos.  One of the legal questions that arises in the present case is whether the TDO might impose such a duty.

14.  Secondly, and this will be relevant when we come to consider the issue of reasonable diligence, it is perhaps useful to summarize just what was the Appellant’s state of knowledge regarding the two containers : -

(1)        From the initial instructions to arrange carriage, the Appellant was aware of the involvement of Wing Trans, a company it had dealt with previously.

(2)        From the shipping order, (paragraph 9 above), the Appellant was aware that the relevant cargo comprised two containers of water dispensers to be sent from Beijiao to Inchon, that the shipping arrangement was to be “CY-CY” and of the involvement of a freight forwarder, Joo Sung Sea and Air Freight Company Limited.

(3)        From the bill of lading issue by Sea Wheel (see paragraph 12 above), the Appellant would in addition have been aware of the fact that the goods were to be transshipped in Hong Kong before on carriage to Inchon.  The consignor was also named as Foshan City Meide Household Electrical Appliances Limited (apparently a well-known company in the Mainland).

(4)        The Appellant was not at the material time aware that the water dispensers were said to have been manufactured in Korea.

Section 12 of the TDO

15.  The intention behind section 12 of the TDO is clear : to combat the problems of goods bearing false trade descriptions or forged trade marks (in common parlance ‘fake goods’) both in Hong Kong and worldwide.  The language used in section 12 to attach liability is for this reason deliberately wide, but the available defences are narrow.  For example : -

(1)        The definition of “import” in section 2(1) means “to bring, or cause to be brought, into Hong Kong”.  This would include many different persons who may have a responsibility in bringing goods or causing goods to be brought into Hong Kong.  There is no doubt that shipping agents like the Appellant are included within this definition.

(2)        Section 24A of the TDO (paragraph 6 above) creates a statutory presumption in favour of the prosecution regarding false trade descriptions of the place of manufacture, production, processing or reconditioning.  In the present case, this provision had the effect of providing prima facie evidence that the water dispensers were manufactured in the Mainland.

(3)        Section 12 provides two possible defences.  One, the section 12(2), will be dealt with presently.  The other is set out in section 12(3) in respect of “goods in transit”.  It may be thought that this defence might have been open to the Appellant in the present case since the containers were afterall destined for Korea, Hong Kong being merely the port of transshipment.  However, the definition of this term in section 2(1) is narrow :-

“‘goods in transit’ (過境貨品) means goods which –

(a)   are brought into Hong Kong solely for the purpose of taking them out of Hong Kong; and

(b)   remain at all times in or on the vessel or aircraft in or on which they are brought into Hong Kong;

‘import’ (進口) means to bring, or cause to be brought, into Hong Kong.”

This definition was clearly inappropriate in the present case since it was intended that the containers would at some stage be offloaded in Hong Kong and then loaded onto the ocean going vessel bound for Korea.  They would therefore not have remained “at all times” on board the river trade vessel that brought them into Hong Kong from Beijiao.  I should perhaps just mention at this point (though it is not really material to any issue) that it was probably because the containers were on board the “Hui Xin Hui 28” when the inspection took place (and not yet offloaded in Hong Kong) that the Appellant and Sea Wheel were charged with an attempted import into Hong Kong rather than the substantive offence.

16.  The other defence identified in section 12 is the relevant one for the purposes of this appeal.  This is the reasonable diligence defence.  There are three elements of this defence that have to be made out (as far as an accused is concerned, on the balance of probabilities) : -

(1)        The importer or exporter must have no actual knowledge that the relevant goods bore a false trade description or a forged trademark;

(2)        The importer or exporter must have no reason to suspect either; and

(3)        The importer or exporter could not with reasonable diligence have found out that the goods had a false trade description or forged trademark.

17.  All three elements must be made out before the defence is available.  It is therefore not enough for an importer or exporter simply to demonstrate that there was no actual knowledge or suspicion on his or her part.  It must also be shown that with the exercise of reasonable diligence, any false trade description or forgery could not have been discovered.  It is this third element that often causes the most difficulty in application in practice.

18.  The following observations can be made regarding this third element : -

(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.

(3)        We have found of great assistance the analysis of this statutory provision by Stock J (now Stock JA) in R v Mulitex (Exports) Ltd [1996] 4 HKC 422.  There, the court was concerned with the reasonable diligence defence in the context of a Hong Kong buyer of goods (toothbrushes) from the Mainland.  The goods contained a false description of having been manufactured in Thailand when they were not.  We agree with the following statement of principle at 430I-431A : -

“… it is ‘not the doing of everything possible, but the doing of that which, under ordinary circumstances, and having regard to expense and difficulty, can reasonably be required.’  (See Dear v Richards, The Europa (1863) 2 Moo PCCNS 1, 15 ER 803).  As I commented in R v Chan Kim Fai (MA 982/93, unreported), what are reasonable steps, and what is reasonable diligence will vary with the facts and with the legislative context in which those words appear.”

In Mulitex, the court found that there was a positive duty on buyers of goods in Hong Kong to take steps to ensure that goods were genuine.  In the present case, the Magistrate interpreted what was said as being of universal application, namely, that it was incumbent on all persons coming into contact with goods to check that they were not false.  With respect, all that Stock J was doing was to hold that in the circumstances of the case before him (dealing with a buyer of goods from the Mainland), that obligation was appropriate.

19.  The issue for determination is whether this defence is available to the Appellant in the present case.

Application of section 12 in the present case

20.  On appeal, Mr Kenneth Ng (who appeared for the Appellant) advanced three main arguments to suggest that the Magistrate had erred in convicting the Appellant : -

(1)        There was insufficient evidence that the relevant goods were manufactured in the Mainland and therefore of the fact that the description of their being made in Korea was false.

(2)        The Appellant was entitled to succeed on the reasonable diligence defence.

(3)        In any event, the Appellant was but an innocent agent and therefore should be treated as an aider or abetter.  As such, liability could not arise unless the requisite knowledge was proved (in this case, of the falsity of the trade description).

21.  The first and third arguments can be disposed of shortly : -

(1)        The relevant goods should be presumed to have been manufactured in the Mainland : - see section 24A(1) of the TDO (see paragraph 6above).  There was no evidence to suggest the contrary.  Mr Ng faintly suggested that the water dispensers could have been made in Korea, found their way to the Mainland and then shipped from Beijiao.  There was simply no evidence to support this.

(2)        The innocent agent argument does not apply either.  The Appellant was not an aider or abetter.  By reason of the wide definition of the word “import” (see paragraph 15(1) above), the Appellant was an importer for the purposes of the Ordinance.

22.  This leaves the reasonable diligence defence.  In our judgment, this was open to the Appellant and ought, in the circumstances of the present case, have provided a valid defence : -

(1)        It was not in dispute that the Appellant did not have either actual knowledge or suspicion that the two containers carried goods that bore or might bear a forged trade description or forged trademark.

(2)        In the normal course of a shipping agent’s duties, it is not concerned with the goods at all other than as relate to their actual carriage, delivery or freight.  The shipping agent is not concerned with the identity of the consignor or consignee, the quality of the goods (he may be concerned with the condition of the goods on shipment but not beyond this) or even what the goods are. Another way of testing this is to ask whether normally, a shipping agent would be contacting the consignor or consignee about the goods being carried other than as relate to their carriage, delivery or questions of freight.  The shipping agent may have an involvement in the loading or packing of the goods but only if it has a specific contractual responsibility in these respects.

(3)        Of course, where a shipping agent becomes aware of or suspects certain facts about the goods arranged to be carried, then he may have to take action.  For example, if the shipping agent knows or suspects that the relevant goods may be illegal or dangerous, then he would be expected to make the necessary inquiries to deal with these situations.  In the context of the TDO, we think it incumbent on shipping agents to bear in mind this Ordinance so that where there may be indications that the goods that are carried may bear a false trade description or false trademark, it will be reasonable to expect them to make further inquires or take further action.  This is reasonable in view of the fact that they are importers or exporters (as the case may be) as defined in the TDO.  As to what these inquiries or actions might be, this will of course depend on the circumstances.  Where there are indications along the lines just described, it will not do for the shipping agent simply to make no inquiries or take no action at all.  However, we think it really to be asking too much to expect shipping agents to embark on an extensive inquiry (which would likely be out of all proportion to the remuneration they receive) when there are no indications that there has been any infringement of the TDO.

(4)        In the present case, there were in our view, no indications that the relevant goods might have had false trade descriptions, forged trademarks or indeed have any other suspicious features.  The state of knowledge of the Appellant (see paragraph 14 above) would not indicate there were any suspicious features at all to put it on alert.  This being the case, there was nothing in the normal course of its duties that would have required the Appellant to make further inquiries or take some other action in relation to the goods.

(5)        The Magistrate was of the view that there were sufficient indications at least to arouse suspicion.  He pointed to the fact that the Appellant was not familiar with the consignor of the goods.  It is difficult to see why this should be itself a suspicious factor.  Then he points to the fact that the consignee was a non-existent company with whom neither the Appellant nor Sea Wheel had had any previous dealings.  He was of the view that the Appellant should therefore have made inquires about the goods.  Even if this was a relevant factor, as seen above, the Appellant had no knowledge of the manifest and therefore no knowledge of the fact that the consignee was the apparently non-existent entity.

(6)        The Magistrate also held that in any event the Appellant did not carry out any inspection whether at loading or in Hong Kong.  If it had, it would have seen the way that the cartons in the front row of the containers were packed (see paragraph 4 above).  This would also have aroused suspicion.  We agree that if such inspection had taken place, suspicions might well have been aroused.  However, we question why the Appellant would or should have inspected at either of these locations at all.  Shipping agents in the normal course of things will not inspect or supervise the goods at loading.  In the present case, the shipper of the goods had the responsibility for loading (see paragraph 11 above).  In Hong Kong, inspection by the Appellant (or indeed anyone else) would have required the breaking of the seals in the containers in order to carry out any inspection.  There was no reason to do this.  And, it is right to emphasize, it would not be expected or desirable for carriers or shipping agents to break the seals of containerized cargos for no reason.  We have already referred to the effects of this as far as carriers are concerned (see paragraph 11 above).

23.  We recognize that in the analysis of what was expected of the Appellant in the present case as far as the reasonable diligence defence is concerned, we have linked the aspect of suspicion with the duties that could reasonably expected of shipping agents like the Appellant.  This is not always going to be appropriate where the reasonable diligence defence is run (since afterall, the absence of suspicion is one of the three requirements – see paragraph 16 above) but in the present context, there is a connection between these two aspects.

24.  For these reasons, we are of the view that the Magistrate erred and that the conviction must therefore be set aside and the appeal allowed.

25.  This leaves the question of costs.  At the conclusion of the hearing when the appeal was allowed, Mr Ng asked for the costs of the hearing below and of the appeal, such costs to include specifically the hearing before Waung J on 18 May 2006 (paragraph 3 above).  Mr Hayson Tse (who appeared for the Respondent) submitted in relation to this hearing that the Respondent had objected to the appeal being heard by the Admiralty Court.  This had indeed originally been the stance taken by the Appellant.

26.  We have since the hearing been provided with copies of the relevant correspondence between the Appellant’s solicitors and the Respondent regarding the present appeal.  In summary, it is clear that the Appellant’s original position was that the appeal ought to be heard by the Admiralty Court since there was involved what were described as “shipping, technical and commercial issues and practice”.  The following was also said in the letter dated 28 February 2006 from the Appellant’s solicitors to the “Clerk to the Admiralty Court” : -

“We are instructed that the said verdict will have significant impact on the shipping and logistics industry and practices in the region, and to Hong Kong as the shipping and logistics centre.  We are further instructed that the Magistrate has imposed onerous and unreasonable duty on the carriers, notwithstanding that in The Queen v Mulitex (Exports) Limited [HCMA 516/1996], it was held that ‘Whilst reasonable diligence is not a counsel of perfection, it is not doing the everything possible, but doing of that which, under ordinary circumstances, and having regard to expense and difficulty, can be reasonably required’.  The duty so imposed will handicap the whole shipping industry in Hong Kong.”

27.  While there was some retreat from the position that the appeal should be heard by the Admiralty Court (the view was eventually expressed that the appeal should be heard by the Admiralty Judge rather than the Admiralty Court as such), the point as to general public importance was maintained, so much so that the Appellant’s solicitors sought to have an order for leave to appoint the Hong Kong Shipowners Association Limited as amicus curiae.

28.  Waung J, no doubt being persuaded by the submissions on public importance, ordered that the appeal be referred to the Court of Appeal.  I too was similarly persuaded in ordering on 13 October 2006 that an amicus curiae be appointed.

29.  As the appeal progressed, however, it became clear that there were no issues of public importance involved at all and that this claim was somewhat exaggerated.  As Mulitex makes clear, the application of the reasonable diligence defence very much depends on the individual circumstances of any given case.  And so it was with the present appeal.  There was in fact no need for the matter to be dealt with by the Court of Appeal at all.

30.  In these circumstances, we are of the view that while the Appellant should have the costs of the trial in the Magistrates Court, no order for costs should be made in relation to the appeal.  The appeal ought to have been dealt with in the Court of First Instance and the Appellant ought not have exaggerated the importance of the case with the consequence that the matter, after some delay, was heard in this court.

31.  Finally, we should record our gratitude to all counsel for their helpful submissions, especially those of the amicus curiae, Mr Alexander Stock.