UNIMIX LTD. v. THE DIRECTOR-GENERAL OF TRADE

1994, No.M.P. 394

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. I have before me an application for Judicial Review of a decision of the Director-General of Trade dated 26th November 1993. Leave to apply for Judicial Review was granted by Liu J. on 16th February 1994.

2. This application arises out of the admitted breach by the applicant of the terms of the Trade Department's Textile Export Control System implemented pursuant to S.3 of the Import & Export Ordinance, Cap. 60, which has as its objective the ensuring of optimum utilization of export quota.

3. There are 3 categories of free quota and this application concerns the third of these being the Trade Department "Year-end Special Shipment Scheme" which is designed to utilize all unused quota by year end. Conditions are imposed for utilizing free quota and these are:

(a) the goods must be of Hong Kong origin and shipped before year-end;

(b) the applicant must undertake at least 4 out of 6 functions and

(c) the applicant must perform "the principal processes of manufacture" themselves.

4. This latter condition is to prevent speculation and abuse.

5. The applicant is one of the largest textile manufactures and exporters in Hong Kong. It has never previously transgressed the quota system and thus was, in relation to these matters, a first time offender.

6. In 1991, the applicant experienced an exceptionally high turnover in staff. In its Sweater Division the turnover was as high as 70%. On 3rd October 1991, the applicant contracted with Woolrich Inc of the U.S.A., through Woolrich's local agent, for 3 orders of men's and ladies' sweaters. The applicant intended to utilize its own quota such that it was not required to undertake the principal processes of manufacture, and sub-contracted these 3 orders.

7. On 9th December 1991, the applicant received the Trade Department's Notice to Exporters dated 2nd December 1991 inviting applications for free quotas for the 1991 Year-end Special Shipment Scheme. Forms were submitted via the Shipping Department that same day. Unfortunately when these forms were completed, it was overlooked that the Production Department had contracted out these 3 orders in October, and thus the applicant had not themselves performed the principal processes of manufacture.

8. In 1992, the Customs & Excise Department investigated the matter and the applicant admitted that it had contravened a condition of the free quota system, as it had not undertaken the principal processes of manufacture. The applicant pleaded guilty to two summonses dated 26th March 1993 and was fined the sum of HK$74,000 in respect of its entire profits in respect of the contraventions. In fact the profit was some HK$83,437 which had been offered to the Court as a suitable figure for the fine.

9. On 7th July 1993, the Trade Department wrote to the applicant stating that the Department was considering 3 administrative actions including:

(a) Permanent surrender of the relevant quotas;

(b) Deduction of these quotas; and

(c) Debarring the applicant from participating in all free quota schemes for all 80 categories of garments in respect of the USA market for 12 months.

10. It is important to note that the only issue between the parties is whether the decision made by the Director-General of Trade to debar the applicant from participating in all free quota schemes for all 80 categories of garments in respect of the USA market for 12 months is valid.

11. It is also important to note that the letter of 7th July did invite the applicant to make representations, and in addition to the 3 sanctions above referred to, it is fair to point out that reference was made to further action which might be taken in certain circumstances. The applicant was given 14 days within which to refute the allegations or to give reasons why the Director-General should not take the administrative actions outlined in the letter and any further relevant matters were also invited to be stated.

12. Unfortunately, the applicant did not reply with its observations until the 27th August 1993, by which time on the 28th July 1993, the Director-General had decided to take the action set out in (c) above.

13. On 27th August 1993, the applicant wrote to the Director-General of Trade seeking a waiver of (c) and setting out various matters including the following:

(i) The contraventions were unintentional, and were caused or exacerbated by unprecedented staff turnover, and the year end rush;

(ii) It was a first contravention;

(iii) It had already been fined and paid the sum of HK$74,000 in respect of its profits;

(iv) It relied on free quotas to supplement its quotas, and to meet business commitments.

14. On 31st August 1993, the Trade Department stated that it would consider the representations and would reply.

15. It is common ground, for reasons which I will also go into in due course, that this particular case was given some prominence within the industry, and there were a number of approaches to the Department of Trade including a direct meeting with the Director-General himself to consider the representations made by the applicant.

16. However, despite all these representations, on the 26th November 1993, the Director-General issued a confirmatory decision to the effect that he was obliged to maintain the debarment as the contravention had been established and he would not take into account the fact that it was the applicant's first contravention.

17. I already made clear that there are some 80 categories of quotas for the USA market and the applicant participates in some 30 categories. This case only concerns 2 categories.

18. Mr. Chua, who has appeared on behalf of the applicant, contends that the Director-General unlawfully fettered and failed to exercise his discretion. The decision implemented a policy that once the contravention was established, the Director was obliged to maintain the debarment, no matter the circumstances, or the consequences. Mr. Chua further argued that as a result of a letter dated 11th June 1991 to which I will make reference shortly, the applicant had a legitimate expectation that as a first offender, it would be treated leniently. Finally, it is contended that the Director-General acted unreasonably as he failed to take into account a number of factors, and thus it is said his decision is unreasonable or out of proportion.

19. I must now turn to the letter from the Department of Trade dated 11th June 1991. This letter was in response to a letter dated the 26th March 1991 from the Textile Council of Hong Kong Ltd. Under the heading "Textile Quota Control System" Administrative Actions, the Council stated that it had received complaints from its members about the application of the administrative actions under the "Textile Quota Control System". It was suggested in this letter that the Department should adopt" a more sympathetic and flexible approach to such transgressions" and a suggested approach was made in this letter.

20. On 11th June 1991, the Department of Trade replied to the letter from the Chairman of the Textile Council of Hong Kong Ltd. The applicant placed great reliance upon this letter because contained within it are a number of statements which indicate that in future cases a somewhat more lenient view would be taken by the Department. I propose to give a few examples:

"It should however be stressed that the application of the administrative action is not automatic. First time offences are generally dealt with leniently and settled with warning."

"Given the present acute labour shortage situation, it is difficult to avoid occasional slip-ups."

"It is recognised that in times of acute labour shortage and high staff turnovers, occasional hiccups without any intention to defraud might occur more frequently than before. The first time warning, while appropriate for small companies, may be a bit too harsh for large organisations would submit a large number of applications per day."

"... the Director-General of Trade is of the view that the administrative actions should be applied more flexibly, say e.g. more lenient consideration be given to the first three offences within a 12 months period in cases where fraudulent extent is absent. Lenient to say that Director-General of Trade retains the discretion to take action in each and every case despite above the general guideline if he considers the circumstances so warrant."

21. The major issue between the parties is whether this letter is intended to relate to the application of the 3 categories of free quotas, the Year-end Special Shipment Scheme being the relevant one for present purposes. Miss Shine, who appears on behalf of the Attorney General, has submitted that the letter of 11th June 1991 does not relate to the free quota system, but applies to the General Textile Quota Control System. She also points out that free quota is not even mentioned in the letter of 26th March 1991 from the Textile Council and the Quota Supply System is very different from the free quota utilization scheme.

22. I have considerable doubt as to whether the letter from the Department of Trade dated 11th June 1991 which did indicate that the Department would adopt more flexible approach in cases where quota supply conditions were breached by first time offenders has any application at all to the present case which deals with the breach of free quota utilization conditions.

23. I am told, and I accept, that the Director-General takes a very serious view of breach of free quota utilization conditions. As appears from the affirmation of Marilyn Hung, Principal Trade Officer of the Trade Department:

"By obtaining free quotas which they should not have been entitled to, the unqualified free quota applicants have deprived other legitimate traders of the right to utilize the quotas and more importantly the chance to build up their own quota holdings through free quotas shipment performance. It is extremely unfair that those applicants which comply strictly with the free quota utilization conditions and desire to obtain more free quotas to enable them to increase production or to start up business in the textiles industry are prohibited from doing so by other applicants which do not observe the rules. The proliferation of such malpractice will jeopardize the integrity of the textiles export control system and cast doubt on the fairness of the system.

....."

"Having breached the free quota utilization condition, the offending company has misused that parcel of free quota and it is therefore reasonable to request it to surrender permanently the amount of misused quota to the Department for subsequent distribution to other eligible traders through free quota schemes. Similarly, such improperly utilized quotas will not qualify for subsequent quota allocations on the basis of past performance and therefore nullification of shipment performance will also be taken. Finally, since the participation in free quota schemes is a privilege to traders rather than a right, in order to prevent traders from exploiting such a privilege and abusing the system, and to protect the interests of legitimate and honest traders, the offending company that breaches the free quotas utilization condition will also be debarred from participation in free quota schemes in respect of the market concerned for 12 months. The debarment action is compensatory in that by having deprived others of the opportunity to utilize the free quotas, the offending company should likewise be deprived for the privilege to participate in free quota schemes. The debarment action is reasonable and necessary to bring forth a deterrent effect to prevent traders from abusing the system and to maintain the integrity of the system."

24. As I have said I am quite satisfied to the letter of 11th June 1991 did not contain a promise on the part of the Director-General that in free quota cases he would take a more lenient cause of action than hitherto.

25. However, even if I were wrong about that I have the greatest difficulty in seeing how the applicant places his claim within the concept of legitimate expectation. Reliance is placed on the case of the Attorney General of Hong Kong v. Ng Yuen-shiu [1983] 2 AC 629. That was a case where, although an alien did not have a right to a hearing, nevertheless, because the Court was satisfied that he had been promised a hearing, good Government required that the promise should be kept and that he had an enforceable legitimate expectation that he would have a hearing. In the present case, it is quite clear that the applicants were given every opportunity to present their case and make representations. It is clear from the evidence, as I have said, that the case was taken to the very highest level within the Department of Trade. The applicants made their representations in a clear and forceful way and the Director-General took a considerable length of time to consider these representations. Even if the letter of the 11th June 1991 was to be construed to the effect that consideration would usually be given to taking a lenient course, nevertheless, it would not have been possible for the Director to have fettered his general discretion. In any event, the letter makes it perfectly plain that the Director-General retains the discretion to take action in each and every case despite the guidelines set out in the letter. I fail to see how the applicant had a genuine expectation over and above the expectation that its case would be fully considered which on the facts presented to me it seems to have been. It would be quite absurd to hold that the Director had, in a letter in June 1991, stated the sort of administrative action he would take in all future cases and had by this letter bound himself so to do. I cannot think that that this is a correct construction to place upon this correspondence.

26. The main thrust of the applicants argument is that the Director- General has fettered his discretion by applying an over-rigid policy and he failed to take into account sufficiently, if at all, the circumstances of each particular case. At the end of the day, I have come to the conclusion that what this really means, despite how it is dressed up, is that the applicant is seriously aggrieved with the result of the decision. I find it difficult to see how they can maintain that the case was not considered by the Director- General. The Director-General is entitled to have a policy, but of course, he has to listen to anything new. (See British Oxygen v. Board of Trade [1971] A.C. 610). The Director-General takes a strong view about the enforcement of the free quotas system and it is not for this Court to say that he should not do so. I am quite satisfied on the evidence that all the representations made by the applicants were considered but at the end of the day, exercising his discretion, and bearing in mind the need to ensure the integrity of the whole quota system the Director-General decided to impose these administrative actions. He could, of course, have imposed more onerous sanctions. Mr. Chua's reliance on the words used in the affirmations does not establish that no consideration was given to the representations made.

27. It is suggested that no reasonable Director-General of Trade could have come to this decision on the facts of this case. It is not for this Court to state what it would have done in similar circumstances. The legislature has vested the discretion in the Director of Trade and has entrusted the exercise of that discretion to him. As I have said I am satisfied that he did consider this matter on the facts of this case and also in the light of the overriding importance of ensuring that the scheme is effectively and fairly implemented, I fail to see how it can be said that this was a decision which was so unreasonable that no reasonable Director-General of Trade could have come to it nor is it one, in my view, that can be said to be out of all proportion to the facts of the case.

28. Naturally, I have some sympathy with the applicants because on the evidence, which I have accepted, it does seem that all this arose from an unfortunate administrative error at a time of high turnover of staff and considerable business activities. Nevertheless, it is essential that this scheme be implemented in accordance with all its conditions and the Director- General will have a far wider knowledge of the impact of breaches of condition than the Court can ever have. So, although I express a certain degree of sympathy, nevertheless, the Director-General has a much wider responsibility in attempting to ensure the proper implementation of this system which is very much in Hong Kong's trading interests.

29. In the ultimate analysis I can find no grounds upon which the decision of Director-General of Trade can be judicially reviewed. Mr. Chua has presented all these arguments with great force and clarity, but at the end of the day I am forced to conclude that this decision, however, unpalatable it is for the applicant, cannot be challenged in these proceedings. In those circumstances, therefore, I propose to dismiss this application for judicial review and I will make a costs order nisi in favour of the Respondent.