HKSAR v. LAU LAP KIN AND ANOTHER

HCMA991/2005

IN THE HIGH COURTI OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO.991 OF 2005

(ON APPEAL FROM TMCC 648 OF 2005)

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J U D G M E N T

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1. The appellants were convicted after trial of six joint charges of ‘possession for sale or for any purpose of trade or manufacture goods to which a false trade description was applied’ contrary to section 7(1)(b) of the Trade Descriptions Ordinance (Cap.362).  Both were sentenced to a fine of $25,000 for Charge (1) and one of $1,000 for each of Charges (2) to (6).  The appellants appeal against both conviction and sentence.

The charges

2. All six charges in the case were identical except for the locations in which the offences were said to have been committed and the quantity of goods involved :

“Lau Lap kin and Lau Lai-wai, trading as Better House Furniture Square, you are charged that on the 6^th day of October 2004 at ________ you had in your possession for sale or for any purpose of trade or manufacture goods, namely, ________ numbers of bed mattresses to which a false trade description, namely, ‘Beautyrest’ was applied.”

The law

3. For the meaning of “false trade description”, one has to look at section 2 of Cap.362 :

“‘false trade description’ means—

(a)   a trade description which is false to a material degree;

(b)   a trade description which, though not false, is misleading, that is to say, likely to be taken for such an indication of any of the matters specified in the definition of ‘trade description’ as would be false to a material degree;

(c)   …

(d)   …

(e)   …”

4. “Trade description” in turn means :

“… an indication, direct or indirect, and by whatever means given, of any of the following matters with respect to any goods or parts of goods, that is to say—

(a)   quantity (which includes length, wideth, height, area, volume, capacity, weight and number), size or gauge;

(b)   method of manufacture, production, processing or reconditioning;

(c)   composition;

(d)   fitness for purpose, strength, performance, behaviour or accuracy;

(e)   any physical characteristics not included in the preceding paragraphs;

(f)    testing by any person and results thereof;

(g)   approval by any person or conformity with a type approved by any person;

(h)   place or date of manufacture, production, processing or reconditioning;

(i)    person by whom manufactured, produced, processed or reconditioned;

(j)    other history, including previous ownership or use; …”

The facts

5. The basic facts of the case were simple and uncontested.  This is how the magistrate summarized them in his statement of findings :

“2.   The two defendants – who are brother and sister – are jointly charged with a series of offences under section 7(1)(b) …

3.    They are the proprietors and the directors of a firm called ‘Better House Furniture Square’, which is, as its name applies, a retail furniture business with roughly 16 outlets in various places in the New Territories, mainly in public housing estates.

4.    According to the admitted facts in this case – Exhibit 20 – on 6^th October 2004, Customs & Excise officers raided the office and warehouse premises of the company and five of its retail outlets, ie six premises in all.  They seized a number of mattresses, each of which had a label containing the name ‘Beautyrest’.  ‘Beautyrest’ is a registered trademark in Hong Kong which belongs under licence to a well-known mattress maker or bed maker called Simmons.  It is admitted that the mattresses were not in fact genuine ‘Beautyrest’ mattresses: they were counterfeits.

5.    The prosecution case is that the labeling of the mattresses with the term ‘Beautyrest’ amounted to the application of a false trade description.  It is accepted that the mattresses in question were possessed by the defendants’ company and that they were possessed for sale or for the purpose of trade.

6.    There are six charges, but they are in series.  Charge 1 relates to 31 mattresses seized from the warehouse; Charges 2 to 6 relate to mattresses seized from retail outlets.”

Issues & findings

6. In the end, the magistrate identified three issues that would affect the outcome of the matter.  They were (a) whether there was a false trade description on the mattresses within the meaning of the Trade Descriptions Ordinance; (b) whether the defendants were in possession of the mattresses; and (c) whether the defendants were entitled to avail themselves of the statutory defence to the charge.

7. Below is his finding on (a) :

“8.   … Mr Richard Donald on behalf of the defendants … says that the prosecution have preferred the wrong charge.  He submits that ‘Beautyrest’ is a trademark which, on the prosecution case, is forged, and that it is not a trade description.  Trade description is defined in section 2 of the Ordinance.  It is an exclusive description, but it is widely phrased.  It means, ‘an indication, direct or indirect, and by whatever means given’ of any of a list of matters with respect to any goods.  The list of 10 items includes at (c) [sic] ‘an indication of any person by whom the goods in question are manufactured, produced, processed or reconditioned’.

9.    The prosecution pointed to the unchallenged evidence of the labels on the mattresses, an example of which was produced as Exhibit 11 in court.  When compared with the genuine label – example, Exhibit 12 – the similarity of the word ‘Beautyrest’ in terms of its script and dimensions is striking.  The labels are not otherwise the same, and indeed the word ‘Simmons’ does not appear on the counterfeit as it does on the genuine label.  Exhibit D5 is a photocopy representation of the labels in question, in which the similarity of the word ‘Beautyrest’ can be discerned …

10.  The defence say, firstly, that the word ‘Beautyrest’ on the label is merely to be taken as an adjective, a description of the quality of sleep which a user of the mattress can expect.  They point out the differences between the genuine and counterfeit labels, and they point to the use of the word ‘Elegant’ as an identification of the model.  Simmons does not have a model called ‘Elegant’.  It is submitted that, taken together with the absence of the name Simmons, that should lead to the conclusion that ‘Beautyrest’ is not a trade description, and therefore the case should fall at this first hurdle.

11.   My judgment is that the term in question is indeed a trade description.  I reject the claim that it is merely descriptive of a good sleep.  That, in my judgment, is straining credulity to breaking point.  The Ordinance requires no more than an indication of the manufacturer or producer, direct or indirect, and by whatever means.  ‘Beautyrest’ is in fact a trademark.  I accept the evidence that it is, and was at the time, heavily promoted as a trademark.  The fact that it is written in the same distinctive script as on the genuine label can be no coincidence; it is plainly indicative of the manufacturer being the same as the manufacturer of the geuine ‘Beautyrest’ products.  The use of the word ‘Elegant’ does not undermine this.

12.  Furthermore, if one were to take a wholly indirect approach, it can be seen that reference to the register of trademarks would show that ‘Baeutyrest’ is a registered trademark in Hong Kong and would show the ownership of the trademark, and by that route, the person by whom it was manufactured or produced.  I am not suggesting that the average consumer would follow such a route, but the Ordinance does not require that.  Thus the term ‘Beautyrest’ is undeniably a trade description.

13.  And given that it is a trade description which is false to a material degree, because the mattresses in question had not been manufactured or produced by or on behalf of Simmons or the trademark owner, it is properly called a ‘false trade description’.  It may well be that the prosecution could have charged a trademark offence, but the fact that a concurrent offence may have been committed is immaterial to the finding that I have indicated.”

8. Regarding (b), this is what he said generally, and of the 2^nd appellant (D2) in particular :

“17. It is accepted that the defendants’ company was found to be in possession of the mattresses … at the various locations set out in the charges.  And the first question therefore is whether that possession can be imputed to these defendants personally.  The ordinary rules and principles of possession apply to this case.  The defendants must know that they are in possession of the goods even if they do not know all the exact characteristics of those items.

18.  It does not need to be proved, for example, that they knew that they were counterfeit, otherwise it would convert a strict liability offence into one requiring ordinary mens rea.  But it must be proved, independently in each of their cases, that they knew of the existence of the mattresses in question in the company, and that they participated in some way in their possession by the company, if no other way than by the exercise of control as directors.  Of course their status as joint proprietors and directors of the company is relevant in this regard.

…

20.  In 2004, the company was engaged in a promotional exercise whereby customers who bought a bed over a certain value were given a mattress to go with it.  To that end, staff in mainland China were instructed to order mattresses from a supplier which had been introduced to the company by a delivery contractor.  There had been no prior dealings with this company.  There was an exchange of correspondence … Express reference was made in this correspondence to the question of ‘copyright’, ie trademark infringement, and appropriate assurances were given …

…

28.  D2 also testified.  She said that she was responsible for personnel and accounting matters in Hong Kong only.  She had nothing to do with the promotional exercise which led to the purchase of these mattresses.  The promotion had been arranged by store managers and district managers, with the agreement of the accounts department.  Although D2 might have been informed at a monthly meeting about this promotion, she had no part in the purchase of the mattresses and was not aware of their purchase until after the Customs & Excise raid.  It followed that she was not – she said – aware of the existence of the mattresses, let alone the ‘Beautyrest’ label.

29.  D2 agreed that she would have signed a cheque in respect of the purchase of the mattresses, to which some documentation – a purchase order or an internal receipt – would have been attached.  But since she signed up to 50 cheques a day, this one, which was for what she regarded as a relatively trivial sum, would not have stood out.  She did not produce any documentation associated with the transaction.  There was no evidence of any search for documentation either in Hong Kong or in the mainland China.  She agreed that the staff in Hong Kong were under her supervision, but she insisted that she would not be consulted in advance about a promotional exercise such as this, other than being informed of it at some stage.

30.  In her interview with the Customs – Exhibit 8 – D2 consistently denied knowing of the existence of the ‘Beautyrest’ brand name, referring to it as a ‘slogan’ – answer 179.  She did not deny knowing of the existence of the mattresses.  Indeed, the tenor of her account was to admit knowing about them.  She said she would recognize the colour of the cloth if she was shown the mattresses – answer 119.  And it was evident from her answer that she was very well aware of the use of the mattresses as gifts – see for example answer 239 etc.  She said more than once that she was responsible for sales and personnel – answers 54 and 127, for example.  Her answers which tended to thrust responsibility for matters onto D1 – answers 133 etc – are not evidence against him.  She was not asked about those answers in court.

31.  The evidence in D2’s case left me in no doubt that she was aware of the existence within the company of the mattresses the subject of this case, and indeed that she had seen them, and in her capacity she must – as an owner of the company and a director of the company with specific responsibility for sales and accounts in Hong Kong – have known about the details of this promotional exercise by company branches.  To think otherwise would, in my judgment, a flight from reality.  She was – like D1 – exercising a measure of control over the mattresses in her capacity as director of the company.  She was therefore in possession of the mattresses.”

9. There is no need to labour on the magistrate’s finding on the statutory defence vide section 26 of the Ordinance except to say that he found it not to have been made out.  He was not satisfied that the defendants had “taken all reasonable precautions” and “exercised all due diligence” to avoid the commission of the offences.

The appeal against conviction

10. Only parts of the statement of findings have so far been reproduced but they are all that is required to deal with these, the grounds of appeal :

“1    (a)   The learned magistrate erred in law in holding that the presence of a trade mark affixed to goods is to be regarded, for the purposes of paragraph (i) of the definition of ‘trade description’ in section 2 Trade Descriptions Ordinance Cap 362, as an indication of the person by whom the goods were manufactured.

       (b)   Alternatively, if the presence of a trade mark affixed to goods is capable, for the purposes of paragraph (i) of the definition of ‘trade description’, of being taken as an indication of the person by whom the goods were manufactured, the learned magistrate erred in failing to consider whether in the circumstances of the particular case the forged trade mark should be so taken.

       (c)   Alternatively to (b), the learned magistrate erred in finding that in the circumstances of the particular case the forged trade mark should be taken as an indication that the goods were manufactured by the owner of the trade mark.

2.    The learned magistrate erred in fact and law in finding the second appellant had the requisite knowledge to be guilty of the offence.”

i) Ground 1

11. Having heard submissions, I am satisfied that there is nothing to this ground.

12. There is nothing in Cap.362 that puts trade marks and trade descriptions in strict compartments.  Quite the contrary, section 32 provides that false trade descriptions shall remain false even if they happen to be trade marks.  The existence of such a provision supports the view that overlapping is possible for so long as the object of discussion fits both definitions.  It does not however mean that trade descriptions alone can amount to trade marks and not vice versa.  The fact that no specific provision exists in the opposite direction may be as readily explainable as the lack of need for one.

13. Admittedly, offences in respect of false trade marks are separately provided for in the Ordinance (see section 9).  Given the case law on what is required, these offences may in general be more difficult to prove than those under section 7.  I cannot however accept this as proof that for Cap.362, the legislative intent was never to catch trade mark infringements under the trade description provisions.  It is not uncommon for criminal acts to attract a concurrency of chargeable offences one of which may be tactically advantaged for the prosecution.  In each case, the ultimate question is whether the act satisfies the provision.

14. Turning to “Beautyrest”, it is a name coined by putting two words together.  As a trade mark, it was heavily promoted.  When used on the appellants’ mattresses, it was written out in the same style, design and proportion as that in the Simmons labels.  All this is supported by evidence where evidence is required.  In the circumstances, I agree with the magistrate that its very application alone would amount to an indication of who the product maker might be.  It is not unlike what one may think of when one sees the mark of a bitten apple on a computer.

15. In this regard, I share the magistrate’s reliance on section 2 where it is stated that such indications may be “direct”, “indirect” and “by whatever means given”.  These words in quotes should put to rest any suggestion that to qualify as a trade description under paragraph (i), an indication must on its face contain such details as name, address and country.  Quite the opposite, they allow for the checking of the register of trade marks which the magistrate was citing but as an example of the things that an interested person may do under the “wholly indirect approach” — see paragraph 12 of the statement of finding.  That is my judgment.  Only in this way can true meaning be given to this widely worded provision.

16. While on the point, I am satisfied that the magistrate was not saying that a trade mark owner must also be the manufacturer.  What he meant was — “by that route”, i.e. by first looking up the register of trade marks, one should eventually be able to trace a product to its maker.

17. Finally, I am aware of the words “Elegant Mattress” on the infringing labels; and beneath them, “we make the world’s best mattress” in even smaller print.  Arguably, they give the impression that “Elegant Mattress” is the product maker in this case.  Like the magistrate, however, I have found this to be ultimately insignificant.  Given the visual prominence of the word “Beautyrest” — largest in size and runs the length of the label - I am not convinced that its effect can be diminished by such ambiguities, or, for that matter, the fact that these were plain-looking mattresses to be given away in a promotion.  It is, I find, a trade description that is “false to a material degree”. 

18. In reaching this conclusion, I am assisted by the case of Divisional Trading Officer v. Kingsley Clothing Ltd [1989] RPC 695 where not only a trade mark (“Marc O Polo”) was accepted unquestionably as a trade description (hence an indirect authority on the possibility of overlap) but its application across the front of an infringing sweatshirt was held to be offensive notwithstanding the host of contra-indications that could be found on and in respect of the garment.  The key here is that despite the incongruent neck label (read “Haines” instead of “Marc O Polo”), different sleeve-type (set-in instead of raglan), different composition (not 100% cotton) and different price (cheaper by 30%) etc., the mark in front swung the case because “its lettering was large, distinctive and in very similar format to that which appeared in the genuine article”.

ii)      Ground 2

19. In my judgment, there is nothing to this ground either.

20. It is said that the magistrate had failed to give weight to certain matters that came out in the 2^nd appellant’s oral evidence : (a) Better House Furniture Square was the largest furniture chain store in the housing estates under the Housing Authority; (b) the 2^nd appellant was based in Hong Kong and had nothing to do with the mainland side of the company’s operation; (c) her main function was that of management of personnel and account; (d) she had nothing to do with the promotion and was not aware of it until the incident had taken place; and (e) in five years there had only been one occasion when a genuine Beautyrest mattress had been sold by the company and the 2^nd appellant had no knowledge about it.

21. Admittedly, the magistrate had never specifically rejected what the 2^nd appellant said in the witness box.  But he did summarize the salient points, and follow that up with an evaluation of the 2^nd appellant’s cautioned interview which made it quite clear that the latter was to be accepted over the former.  That this is so is clear from paragraphs 28 to 31 of the Statement of Findings.  I should add that having read the cautioned interview, I can find no criticism of the magistrate’s evaluation of it.  Over all, the fact that the 2^nd appellant had knowledge and was therefore in possession is a finding that I see no reason to disturb.

The appeal against sentence

22. No perfected grounds have been filed for the appeal against sentence, and the appellants’ final position is that the overall culpability of the 2^nd appellant was smaller, which means that she should be given a lighter sentence.

23. In my judgment, no meaningful distinction can be drawn between the appellants.  As joint proprietors of the company, the 1^st appellant was responsible for purchases whilst the 2^nd appellant was responsible for sales.  Both knew about the mattresses and their use in the promotional exercise but failed to do anything that could avail themselves of the statutory defence under section 26.  This is what the magistrate had found and this is the basis on which the magistrate had, quite rightly in my view, sentenced the appellants.

Judgment

24. Both the appeal against conviction and the appeal against sentence are dismissed.