THE QUEEN v. LAM YIN SANG AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

MAGISTRACY APPEAL NO. 46 OF 1993

___________

___________

________________

J U D G M E N T

________________

1. The appellants were convicted before a magistrate of the offence of promoting a pyramid selling scheme contrary to section 3 of the Pyramid Selling Prohibition Ordinance, Cap. 355. Each was fined $800 and they now appeal against conviction. A female, Lee Lai-chun was jointly charged with them but was acquitted after trial. A charge of improper use of the word "Limited" contrary to section 350 of the companies Ordinance, Cap. 32 against the appellants was dismissed by the magistrate for duplicity.

2. The facts were agreed and not in dispute. It is not necessary for me to go into them for the purposes of my decision. This appeal centres on the question and meaning of "reward" and whether there is evidence to support such a finding made by the magistrate. A "pyramid selling scheme" is defined by section 2 of Cap. 355 as meaning

"(a) a participant in the scheme is granted a licence or right to introduce another participant into the scheme who is also granted such licence or right and who may further extend the chain of persons who are granted such licence or right, notwithstanding that there may be a limitation to the number of participants or that there may be any further conditions affecting eligibility for such licence or right; and

(b) a participant receives a reward on, or at the time after, the introduction into the scheme by him of another participant which reward is based, whether wholly or in part, otherwise than on the fair market value of goods or services actually sold by him or by or through that other participant."

3. "Reward" includes refund, commission, discount or allowance but does not include payment for sales demonstration equipment and materials supplied at not more than their fair market value and not resold.

4. Mr. Lui, who appears for the appellants, does not seek to argue that paragraph (a) has not been satisfied, but contends that paragraph (b) has not been proved by the prosecution beyond reasonable doubt. His argument is that the reward was based on the fair market value of the goods sold by sub-participants introduced by a participant in the scheme. In support of this, Mr. Lui drew my attention to some passages in the evidence and one passage comes from Miss Ong Gwat-giem at p.43 of the appeal bundle which reads :-

"I was a member of Longstand. During that time I did introduce others to be members of Longstand. When I introduced new members I did not receive anything. As far as I aware whenever a member introduces a new member then if the new member sells any products I will receive a commission. This commission will depend upon the amount of the goods sold. When I bought goods it was cheaper then."

At p. 27 Chung Chun-wah, PW2 says :-

"Whatever these friends or persons sell goods, I obtain a percentage of the commission. This depends on the volume of the sale of goods provided the goods are sold by a person I introduced."

But this same witness says at p.28 :-

"The new member need not sell any goods so long as new member buys goods."

Miss Yip Hiu says at p.47 :-

"When I introduced a new member to Longstand I will obtain a percentage of the sales made by members whom I introduced to Longstand. That is the main benefit."

But she also says immediately afterwards at the same page :-

"After introducing new members to Longstand I get a discount on buying goods. After I am a member I get a discount. After introducing new members to Longstand I would be given a greater discount."

5. Miss Hartstein rightly points out that the offence is proved if the reward is based at least in part and not necessarily wholly on something other than the fair market value of goods or services actually sold by him or by another participant introduced by him. There is overwhelming evidence pointing to this direction. For instance, Miss Wong Kwai-ying says at p.32 :-

"Member can get discount when buying things. Members buy things from "Longstand" and took them away. A commission will be given."

Cheuk Kwan-wah says at p.34 :-

"When I introduced persons to "Longstand" and when these people buy goods I get a commission."

Kong Kwan at p.37 says :-

"I understood that if I introduced new members, I will get bigger discounts if I bought goods.  I do not know how to calculate these benefits.  I only know I will get a bigger discount.  I obtain a commission depending on goods sold.  When I introduced a new member, I get a bigger discount and a commission."

Ling Wai-sze says this at p.53 :-

"Apart from this $50 if the new member buys goods I would then benefit from such sale or purchase of goods from such new member I introduced. Whatever such new member buys I also benefit. Whoever such new member introduces as a new member and buys that such new member would also benefit. I would also benefit from the new (second) member."

Under cross-examination, this witness agrees that her discount depends on the volume of sales by the new members she introduced.

6. On the evidence before him, I am satisfied that the learned magistrate was entitled to the conclusion that the reward was based at least in part on something other than the fair market value of goods or services actually sold by a participant or by or through another participant introduced by him. The appeal by both appellants against conviction is accordingly dismissed.