SECRETARY FOR JUSTICE v. LAM CHI WAH

CAAR4/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

APPLICATION FOR REVIEW NO. 4 OF 1999

(ON APPEAL FROM DCCC 355 of 1999)

----------------------

J U D G M E N T

----------------------

Chan, CJHC (giving the judgment of the Court) :

1. This is an application by the Secretary for Justice for review of sentence under section 81A of the Criminal Procedure Ordinance, Cap.221.

The facts

2. The respondent, Lam Chi Wah, pleaded guilty before His Honour Judge Line in the District Court to two charges : possession for sale of goods to which a forged trade mark was applied, contrary to section 9(2) of the Trade Descriptions Ordinance, Cap.362 and possession for the purpose of sale of goods to which a false trade description was applied, contrary to section 7(1)(b) of that Ordinance. On the first charge, he was fined $140,000 and sentenced to 4 months' imprisonment which was suspended for 2 years. On the second charge, he was fined $10,000.

3. According to the agreed Summary of Facts, on 11 May 1998, Customs Officers kept certain premises in Tai Kok Tsui under observation. When the respondent returned to the premises, the officers entered with him. Upon a search therein, they found some goods to which forged trade marks had been applied and other goods bearing false trade descriptions. The respondent admitted under caution that he had rented the premises mainly for storing those goods which he had purchased in China at $50 per item and which he would sell to hawkers in Hong Kong at $70 per item. He knew they were counterfeit items. The total value of the goods was $498,930.

4. The respondent had four previous convictions of a similar nature. On the last occasion, he was given a sentence of 6 weeks imprisonment suspended for 12 months and a fine of $4,000. In passing the sentences in the present case, the judge referred to a number of factors which, he said, when taken together, "saved the respondent from prison". Counsel for the Secretary submits that these factors either taken separately or cumulatively cannot amount to a strong mitigation and that the sentences are wrong in principle and manifestly inadequate.

The sentencing judge's approach

5. The sentencing judge's approach was this. According to the Court of Appeal decision in Secretary for Justice v. Yip Chi Tung [1998] 3 HKC 214, if the respondent had been a man with no previous conviction, he would have expected to be dealt with by a fine in the region of about 30% of the value of the goods. The fact that he had been a hawker who had been convicted on 4 previous occasions of similar offences did not, in the light of his personal circumstances, call for an immediate custodial sentence.

6. The judge had apparently relied on Yip Chi Tung, in which the Court of Appeal did not consider it necessary to impose a custodial sentence on the defendant in that case who had no previous conviction and accepted "in general terms the validity of the suggested guidelines laid down in R .v. Kwok Chiu and Tak Fat Swimwear Manufacturing (MA 1406-1408/89, unreported) that where a defendant with a clear record pleads guilty at an early opportunity, fines should be of the order of 30% of the value of the goods". As the judge in Kwok Chiu appeared to follow the earlier case of AG v. Marvels Clothing Company Limited and Eagle's Eye (HK) Limited [1987] HKLR 839, it is worthwhile examining these two decisions.

Two previous cases

7. The Marvels case was an application for review of sentence by the Attorney General. The two defendants in that case were limited companies. One of them exported under a licence goods which were stated to be "Made in Hong Kong" but were in fact manufactured in China. The other company which was a garment manufacturer in Hong Kong was stated to be the manufacturer of the goods. That company had signed the necessary declaration as the manufacturer. They were charged with offences, five in all, under section 36(1)(a) of the Import and Export Ordinance, Cap.60. Both companies pleaded guilty and each was fined $1,000 on each summons, making a total of $5,000 for each company. The Attorney General sought a review of such sentences saying that they were manifestly inadequate. Since the defendants were limited companies, there was no question of any prison sentence. Previous authorities showed that the usual penalty for this type of offence was a fine which was based on a certain percentage of the profits to be made by the offender. In those earlier cases as well as in the case before the Court of Appeal, the point was made that the offenders would normally have their licences revoked by the Department of Trade. The question arose as to whether such fines, in addition to the revocation of licence, would be sufficient punishment. The Court of Appeal considered that the action taken by the Director of Trade should not prohibit the court from imposing a penalty which it thinks is appropriate. The Court also doubted whether it was right to place any singular emphasis on the profits to be made. It concluded that fines should be based on the value of the goods. It also set a guideline at 40% of the value of the goods.

8. In Kwok Chiu, which was a magisterial appeal heard by a single judge, the appellants had pleaded guilty to 10 charges under section 36(1)(a) of the Import and Export Ordinance and one of the appellants also pleaded guilty to a breach of section 7(1) of the Trade Descriptions Ordinance. The facts of that case were similar to those of the Marvels case, i.e. goods manufactured in China were labelled "Made in Hong Kong" and exported under a licence. In that case, the complaint on appeal was that notwithstanding the appellants' pleas of guilty and lack of similar previous convictions, the magistrate still imposed fines which represented 40% of the value of the goods. It was argued that because of the pleas and clear record, the fines should have been less than 40%. The learned judge concluded that where there had been a plea of guilty at the earliest possible moment, a proper discount should be given and that the appropriate fines "for the Import and Export Ordinance offences", bearing in mind the guidelines in the Marvels case, should have been fines of the order of 30% of the value of the goods. The judge however upheld the fine of $15,000 on the offence under the Trade Descriptions Ordinance.

9. A number of points can be noted from the Marvels case and Kwok Chiu. First, the circumstances in these two cases were clearly different from those in the present case. Secondly, the court in these two cases dealt mainly with offences under the Import and Export Ordinance whereas in the present case, the respondent was charged with offences under the Trade Descriptions Ordinance. In Kwok Chiu, although there was one charge under the Trade Descriptions Ordinance, that was committed in connection with the other offences under the Import and Export Ordinance and was ancillary thereto. Thirdly, the maximum sentence for an offence under section 36(1) of the Import and Export Ordinance is $500,000 and 2 years' imprisonment. The maximum penalty for offences under sections 7 and 9 of the Trade Descriptions Ordinance is $500,000 and 5 years upon a conviction on indictment. Fourthly, the argument before the court in the Marvels case was whether the fines should be based on the profits or value of the goods and in Kwok Chiu, the main dispute was whether a discount should be given for the plea of guilty and clear record. Fifthly, these two cases were decided over 10 years ago in 1987 and 1989.

Offences under Trade Descriptions Ordinance

10. It would seem that the so called "guidelines" in the Marvels case and in Kwok Chiu, which the Court in Yip Chi Tung accepted, related only to offences under the Import and Export Ordinance, and not offences under the Trade Descriptions Ordinance. In Yip Chi Tung, the Court did not rule out the possibility of a prison sentence for offences under the Trade Descriptions Ordinance, but considered that a custodial sentence was not required for the respondent in that case since it was his first offence.

11. It is therefore doubtful whether Yip Chi Tung should be regarded as setting any guidelines for offences under the Trade Descriptions Ordinance.

12. We take the view that offences under the Trade Descriptions Ordinance are more akin to offences under the Copyright Ordinance, Cap.528, than those under the Import and Export Ordinance. Offences under section 118(1) of the Copyright Ordinance are of a similar nature as offences under sections 7 and 9 of the Trade Descriptions Ordinance with which the present case is concerned. In both types of offences, the offender takes advantage of the reputation of the owner of the copyright or the trademark. In copyright cases, the offender copies the products of the owner of the copyright and makes a profit out of selling infringing copies. Sometimes, he sells infringing copies as genuine ones and at the prices of the genuine goods. At other times, he sells the infringing copies not as the genuine products of the copyright owner but as infringing copies and at very low prices. Similarly, the offender under the Trade Descriptions Ordinance copies the products and the trade mark of the owner. Sometimes, he sells his own products as goods produced by the trade mark owner and at the prices of the genuine goods. At other times, he sells his own products not as genuine goods but as counterfeits and at very low prices. Offences under both ordinances cover a variety of goods and products, although compact discs are mostly the subject matter in copyright cases and clothings in trade description cases. However, there is a certain amount of overlapping between the two types of offences because in some cases, the copyright owner would also have a trade mark for his products. Hence, it is possible to charge a person with offences under either or both ordinances.

13. We note that in cases involving offences under section 118(1) of the Copyright Ordinance, the courts usually have no hesitation in imposing custodial sentences, particularly in cases involved the possession and sale of infringing CDs in large quantities. (See for example, the recent case of Secretary for Justice v. Choi Sai Lok, Application for Review No.2 of 1999, unreported). However, the maximum sentence for an offence under that section is a fine at level 5 (which is $50,000) for each infringing copy and imprisonment for 4 years, whereas the maximum penalty for offences under sections 7 and 9 of the Trade Descriptions Ordinance is $500,000 fine and imprisonment for 5 years. Hence, while offenders under section 118(1) of the Copyright Ordinance (which carries a lower maximum penalty) are often sent to prison depending on the quantity of the infringing copies, offenders under sections 7 and 9 of the Trade Descriptions Ordinance (which carry a higher maximum penalty) appear to have a "better deal", if the so called "guidelines" accepted by the court in Yip Chi Tung are adopted. We fail to see the rationale behind this.

14. There were cases which we think are of greater assistance to the type of offences which are now before this Court than the Marvels case and Kwok Chiu. In HKSAR v Fung Kin Chung, Criminal Appeal No. 213 of 1997, unreported, the applicant there was convicted of 3 charges of possession of unauthorised copies of various materials in which copyright subsisted, contrary to s.5(1) of the Copyright Ordinance and one charge of possession for sale of goods to which a forged trade mark was applied, contrary to s.9(2) of the Trade Descriptions Ordinance (which is one of the offences in the present case). The Court of Appeal upheld an 8 month sentence on the copyright charge and a 10 month sentence on the trade mark offence. There were altogether about 12,000 CD-Rom discs and VCDs. Reference was made to another case - R v Ng Wai Ching, MA 1309 of 1996 in which the High Court upheld detention centre orders on two 19 year old shop assistants in small retail shops charged with offences under the Copyright Ordinance and Trade Descriptions Ordinance.

15. In the more recent case of HKSAR v. Wu Wei Cheng, Criminal Appeal No.173 of 1999, the Court of Appeal confirmed a 3 years sentence with regard to an offence under section 118(1)(d) of the Copyright Ordinance. There were 92,242 VCDs which infringed copyright works.

16. During the past many years, offences involving counterfeit goods under both the Copyright Ordinance and the Trade Descriptions Ordinance are becoming more prevalent. Some say it has reached an alarming level. This has damaged and will continue to damage the reputation of Hong Kong. If these types of offences are permitted to become prevalent or widespread, Hong Kong will be regarded as a haven for counterfeit goods. Even if in the past, fines might have been considered as adequate punishment for such offences, much tougher and more severe sentences will be required for the future. Deterrent sentences will have to be imposed.

17. However, we do not think this is the appropriate opportunity to set any guideline for offences under the Trade Descriptions Ordinance. First, we have not been provided with any material from the prosecution as to the extent of the prevalence or seriousness of this type of offences. Secondly, there are no doubt quite a variety of circumstances regarding the possession and sale of counterfeit goods. This would make the setting of guidelines rather difficult. For example, the sale of counterfeit goods as genuine ones and at the prices of genuine goods would seem to be more serious than the sale of counterfeit goods at much lower prices not as genuine goods but as counterfeits. In the former type of situation, there is the additional element of deception on those who really want to buy genuine goods. Thirdly, while there are hawkers or even traders who sell on a retail basis, there are persons who are selling counterfeit goods on a wholesale basis. Naturally, more severe sentences would have to be imposed on wholesalers. However, there must be some hawkers and small traders who are merely put up as foot soldiers for the wholesaler.

18. While we do not think that this is an appropriate case to set any guideline, we would take this opportunity to give a serious warning to potential offenders of such offences. For hawkers and small traders of counterfeit goods, heavy fines which need not necessarily be linked to the value of the goods may have to be imposed in future. The purpose of such fines would be to deliver the message that this type of crime does not pay. Whatever profits they may make out of selling counterfeit goods will be stripped from them by heavy fines. For a repeat offender, an immediate custodial sentence may have to be seriously considered. On the other hand, for wholesalers, they would have to face prison terms unless there are special circumstances. We would hasten to add that financial difficulties and a clear record would be unlikely to be regarded as special circumstances.

The judge's reasoning

19. With regard to the present case, apart from relying on Yip Chi Tung which can hardly be regarded as setting a proper guideline for this type of offence, we think that the reasoning of the sentencing judge in the present case is also flawed. The respondent is a person who is a persistent offender of this type of offence. He has in fact turned from bad to worse in that he used to be a hawker of counterfeit goods and has now become a wholesaler. He has been punished on previous occasions and on the last occasion, given a suspended sentence. That was a stern warning in no uncertain terms that that was to be his last chance. Obviously, he has not learned a lesson. The judge said that he had mended his ways since 1995 because there was no conviction between 1995 and the present offences. As Mr Turnbull, counsel for the prosecution, submits, the lack of any criminal conviction during the meantime is neither here nor there. If one bears in mind that there are over 14,000 pieces of counterfeit goods of different trade marks found in his premises, the present offences could not have been committed without any planning or connection in China. It would not be easy for him to obtain such quantities of goods from his suppliers if this had been his first order. The judge seemed to have accepted the submission that the respondent had committed the present offences because of the economic downturn causing him to have suffered heavy losses in his business. We do not think this is or can be a mitigating factor or even an excuse for repeating the very same offences which he had committed on four separate occasions as a hawker, especially now that he is shown to have become a wholesaler.

20. The judge seemed to suggest in his Reasons for Sentence that if it had been another case of hawking in counterfeit goods or if it had been the respondent's second offence as a wholesaler, then there would be stronger reasons for sending him to prison. With respect, we do not see the logic in such reasoning. If he had been a hawker again this time, the chances of going to prison are no doubt extremely high, particularly in view of the fact that he had already been given a suspended sentence on the last occasion. He is now not only a hawker but has escalated to the more culpable position of a wholesaler. And he is not a wholesaler with a clear record.

21. The judge in passing sentence had also taken note of certain factors. He said at page 14 of the Appeal Bundle :

22. Mr Macrae SC, for the respondent, has very fairly conceded that the judge might be criticized for making these remarks. The truth of the matter is that Hong Kong does suffer internationally in reputation if it is perceived both locally and internationally that these types of counterfeit goods are widespread and tolerated in Hong Kong and are punishable only by fines which represent only a certain percentage of the value of the goods. The truth of the matter is also that these well-known trade names do suffer, both directly and indirectly. The distribution and sale of counterfeit goods does have an adverse effect on the sales and business reputation of these traders. There may be people who obtain counterfeit goods thinking that they are genuine. Alternatively, counterfeit goods may be so cheap or so commonplace that they degrade the genuine goods or people simply do not fancy these genuine goods any more. Time and time again, the Court of Appeal had expressed the concern that this type of offence would adversely affect the international reputation of Hong Kong and the confidence of trading partners in the other parts of the world. We would like to add that this would also ruin the industry and integrity of those honest and diligent traders and manufacturers.

23. It is fair to say that the sentencing judge clearly had a prison sentence in mind. But it was his view that because of the circumstances of this case including the respondent's personal background and circumstances, he could be spared imprisonment. We pause here to say that it seems to have become the practice on applications for review of sentence not to include the transcript of mitigation. We consider that the better practice is to include this, in order to enable this court to acquire the full flavour of the case which was presented to the trial judge. We commend the inclusion of this transcript for future applications of this kind. In the present case, Mr Macrae was able to set out his mitigation in the court below so that no adjournment was required to ascertain the mitigation.

24. We are of the opinion that the respondent should have been sent to prison unless there were extraneous circumstances. The judge described the respondent as basically a success, driven to this type of offence again because of the economic downturn, had a decent family consisting of his wife and children, had a property which is free from mortgage and had a proper job and a good reference from his present employer. Counsel also draws our attention to the fact that the respondent's father was dying at the time he was sentenced in the District Court and has since passed away. While we accept that these are relevant mitigating factors, we do not think that they are sufficiently strong extraneous circumstances to have saved him from an immediate prison sentence. We are mindful of the fact that he is now sentenced to a suspended term of imprisonment and a fine in the sum of $140,000. It may be said that a more deterrent sentence on a trader would be to punish him financially rather than to deprive him immediately of his liberty. However, we think that for this type of offence, it is more important to deter not only the offender in the case before the court but also potential offenders. It is part of the court's duty to do so. The respondent has been warned on the last occasion by a suspended sentence. He has not learned a lesson. He has obviously not been deterred. Another lenient sentence would give the wrong message to potential offenders. In our view, a prison sentence with immediate effect is necessary in the present case. With respect to the judge, we think that his sentences are wrong in principle and manifestly inadequate.

The appropriate sentence

25. The question we face is : what is the more appropriate sentence to be imposed in the present case? On the last occasion, the respondent was given a 6-week suspended sentence. We do not know the scale of his hawking business on that occasion. But the size of the operation involved in the present case cannot be regarded as small. Bearing in mind the maximum penalty for this type of offence and taking the cases of HKSAR v Fung Kin Chung (10 months imprisonment for possessing 12,000 fake VDCs) and HKSAR v. Wu Wei Cheng (3 years imprisonment for an operation of a much larger scale) as references, we are of the view that an overall prison sentence of 8 months after plea, taking a starting point of 12 months, would have been appropriate. We bear in mind that this is an application for review of sentence and that the respondent would have to serve a prison sentence now when he did not have to before his application. We think that the proper sentence should be 6 months imprisonment.

Conclusion

26. For the reasons given above, we allow the application for review, set aside the sentences imposed by the judge and substitute therefor a prison sentence of 6 months for the first offence and 1 month for the second offence, both sentences to run concurrently.