ATTORNEY GENERAL v. IKEDA INTERNATIONAL (H.K.) LTD.

                Trade Descriptions Ordinance Cap. 362 - Quartz Clock movements assembled in China from parts made in Japan - Descriptions of "MADE IN JAPAN" and "TAKANE JAPAN" constitute false trade descriptions.

                Costs - Section 28 gives a magistrate jurisdiction to award costs in excess of $5,000 as prescribed in section 69 of the Magistrates Ordinance Cap. 227.

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

MAGISTRACY CRIMINAL APPEAL NO. 87 OF 1986

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JUDGMENT

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1. This is an appeal by way of case stated by the Attorney General against the decision of a magistrate (1) in dismissing two summonses brought under section 12(1) of the Trade Descriptions Ordinance, Chapter 362 and (2) in making an order for costs against the prosecution in the sum of $17,000 pursuant to section 28 of the same Ordinance.

2. The facts which were not in dispute are fully set out in the case stated. Suffice to say that officers of the Customs and Excise Department seized a large quantity of quartz clock movements, 199,000 pieces of which were marked "TAKANE JAPAN", and another 1,000 pieces had on them the mark or description "MADE IN JAPAN". These quartz clock movements were assembled in China from parts made in Japan by a Japanese Company called Takane Sogyo Company limited and subsequently formed the subject matter of the two summonses. It was admitted that the respondent owned the goods and imported them from China after they had been assembled there. Having rejected pleas of guilty offered by the respondent, the magistrate ruled, after hearing legal arguments and on the basis of the agreed facts before him, that the words "MADE IN JAPAN" and "TAKANE JAPAN" constituted trade descriptions but they did not constitute false trade descriptions. His reasons are to be found in paragraph 9 of the case stated and these are:

3. Paragraph 10 deals with costs and paragraph 11 poses the questions of law for determination as follows:-

4. Section 12(1) of the Ordinance under which the two summonses were brought provides:-

"Subject to section 13, no person shall import or export any goods to which a false trade description or forged trade mark, which expression shall be construed in accordance with section 9(3), is applied."

"Trade description" is defined in section 2 as an indication, direct or indirect, and by whatever means given, of any of the matters with respect to any goods or parts of goods and one of the matters is the place or date of manufacture, production, processing or reconditioning. "A false trade description" is, inter alia:

Section 2(2) goes onto say:

(i)manufactured in the country in which they last underwent a treatment or process which changed permanently and substantially the shape, nature, form or utility of the basic materials used in their manufacture or

5. Mr. Bharwaney for the respondent submitted that paragraphs (a) and (b) were mutually exclusive and this case fell within the second limb of the subsection. In my opinion, the two paragraphs are not mutually exclusive and should be read together. So far the Director has not made any order and until he has done so any suggestion in this connection is purely speculation. I am satisfied that the present appeal comes within the ambit of paragraph (a).

6. The real issue in this appeal is whether the clock movements had undergone treatment or processing in China to such an extent that there had been permanent and substantial change in shape, nature, form or utility of the basic materials so that the clock movements can be said to have been manufactured in China.

7. In Bischop v Toler (1895) 65 L. J. M. C. 1, oleo-margarine manufactured in Paris was mixed at a factory in Southampton with about 10 per cent of imported Danish butter and English milk. The mixture was sold in England in boxes marked "Le Dansk, French factory, le Dansk, Paris." This was held to be a false trade description since the mixture was produced not in Paris but in England.

8. In Williamson v Tierney (1900) 17 T. L. R. 174, an English watch maker manufactured watches with parts both from England and abroad and sold them as "English levers." He was convicted. It was held on appeal by the Divisional Court that "English Lever" was not as a matter of law a false trade description, but if the magistrate considered that as a matter of fact this was a statement false in a material respect as to the place in which the watch was produced, there was evidence on which he could do so and the court would not interfere with his finding.

9. Donnelly v Rowlands (1971) 1 All E. R. 9 was another decision of the Divisional Court. A milk retailer sold milk in bottles which were closed with foil caps bearing the words 'Untreated milk Produced from T. T. Cows", followed by his name and farm address. The bottles themselves were embossed with several names, other than the retailer's, of well-known milk suppliers to whom the bottles belonged. It was held that the words on the foil caps were an accurate trade description of the milk but Lord Parker C. J. observed that if there was evidence that the public were misled there would be some ground for saying that there was a false trade description.

10. In the law of Merchandise Marks by Fletcher Moulton, 1954 edition at page 21, it is stated: "A difficulty which often arises is the case of an article part of which is manufactured in one country, and part in another. In Bischop v Toler, the general rule was laid down that a manufactured article is "produced" in the place where it undergoes the final process in its manufacture by which it assumes the form in which it is sold!" After outlining the facts in Bischop's case, the learned author continued: "If the place where the final process is carried out is the true test then it would seem that a mere assembling of mechanical parts may not be regarded as a process of manufacture in this sense."

11. Unfortunately this passage and the authorities to which I have referred do not provide any clear-cut answer to the problem which confronts us. The question remains whether the clock movements were manufactured in China so as to fall within the terms of the Trade Descriptions Ordinance. Mr. McCoy urged me to give the Ordinance the meaning that is consistent with section 19 of the Interpretation and General Clauses Ordinance, Cap. 1 which states:-

"An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

In support of this,. he further relied on the speech of Lord Scarman in Wings Ltd. v Ellis (1985) 1 AC and at page 293 his Lordship said: "The Trade Descriptions Act 1968 is plainly a very, important safeguard for those members of the public (and they run into millions) who choose their holidays in this way. If the protection is not to be undermined, the Act must be widely known (as indeed it is), easily understood (as, having heard the arguments in this case, I fear that it may not be), and must be of general application save in situations specifically excepted by the statute itself. The Act is not based on the law of contract or tort. It operates by prohibiting false description under the pain of penalties enforced through the criminal courts. But it is not a truly criminal statute. Its purpose is not the enforcement of the criminal law but the maintenance of trading standards. Trading standards, not criminal behaviour, are its concern."

12. I am in complete and respectful agreement with this pronouncement. In determining the issue raised in this appeal, it is necessary to adopt a realistic, practical and common sense approach. I was invited and so was the magistrate to look at one of the clock movements having its cover removed. From what I saw, it is quite plain that the assembling or putting together, whatever you may call it, of the component parts certainly requires a considerable amount of labour and perhaps some skill as well, not to mention expense. It is also obvious that the assembling could not have been done by hand alone: it would have to go through some form of manufacturing or even mechanical process before the many small component parts could take the form of a clock movement.

13. In a decision of the Court of Appeal in England in Prestcold (Central) Ltd. v Minister of Labour (1969) W. L. R. 89 Lord Denning M. R. said at page 93: "It seems to me that when a person makes a machine, by getting component parts from elsewhere and assembling them together himself, he can properly be said to be "manufacturing" that machine. Take some of the large works where motorcars and aircraft are assembled. Those establishments are engaged in "manufacturing" the machines even though all the components come from other places." Lord Diplock took the same view at page 97: "The first inquiry is: Is heading 339.3, viz., "REFRIGERATING MACHINERY. Manufacturing all types of refrigerators (including domestic) and refrigerating machinery", wide enough to cover the activity of assembling from its component parts, at the site on which it is to be installed, a complete refrigerating plant? This question I would answer: Yes."

14. Shorter Oxford Dictionary defines "process" as a particular method of operation in any manufacture. "Process" includes, in relation to the making of goods, the assembling of parts of the, goods, it is so stated in section 40 of the Purchase Tax Act, 1963.

15. The magistrate was in error when he said. that once the clock movement is disassembled one is left with the component parts and therefore there is no change in shape, nature, form or utility of the basic materials which were the component parts. The view taken by him was too narrow and restricted indicating a degree of loss of touch with reality. He drew an unrealistic and wrong inference from the facts. When the component parts were assembled, they were no longer small, individual component parts they once were. They have become a clock movement, a different commodity in a different shape and form, having a separate identity and an utility of its own. It would require some effort and I should think difficulty as well to dismantle it and to dismantle 200,000 pieces would certainly require a great deal of effort and enormous difficulties. It is quite clear that the respondent was not going and never intended to dismantle them and common sense suggests that to do so is both financial suicide and commercial lunacy. Once the component parts have become clock movements they would remain as clock movements and there must be a permanent and substantial change in the shape, nature, form or utility of the basic materials used in their manufacture. The most obvious, logical, reasonable and indeed natural and inevitable conclusion to be further drawn is that these clock movements would be fitted as clocks by the addition of dials, hands and cases and passed on for sale to the ultimate consumers if they had not been intercepted.

16. For the reasons which I have given, I conclude that the words "TAKANE JAPAN", and "MADE IN JAPAN" are false trade descriptions.

17. On the question of costs, section 28 provides:-

"In any proceedings under this Ordinance, the magistrate or court hearing the proceedings may, not-withstanding any provision of any other Ordinance, make such order as to costs as he or it may think fit.

 

The law is too clear to require explanation or elaboration. In view of the conclusion I have reached on the main issue, it is not strictly necessary for me to deal with the question whether the magistrate properly exercised his discretion to award $17,000 costs against the prosecution but I would like to say that this is not at all an easy case and this has been the view shared between myself and both counsel. This is also a matter of considerable public importance and the Crown were perfectly entitled to proceed and have a ruling from the court. The reasons given by the magistrate are therefore not valid.

 

18. To summarize, the answers to the questions raised in paragraph 11 are:

(a)     No.

(b)     No.

(c)     Yes.

19. Mr. McCoy informed me from the outset that the Crown were not seeking forfeiture in this case. He further indicated that in the event this appeal being successful but in view of the delay he would not wish the matter to be remitted back to the magistrate and simply asked me to record a conviction against the respondent on both summonses with no penalty to be imposed. That being so, I accede to his request and convict the respondent on both summonses and further direct that the convictions be recorded. The order for costs made by the magistrate is quashed.