R. v. MULITEX (EXPORTS) LTD.

1996, MA No. 516

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H E A D N O T E

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Trade descriptions - importation of goods with false descriptions - sale by sample.

The fact that goods of a particular description bear a defect or attribute which does not comply with the attributes expected by the importer does not negate the act of importation. Furthermore the mere fact that a sale is by sample and that the delivered product does not accord with the sample does not of itself absolve the purchasing importer from liability under section 12(2) of the Trade Descriptions Ordinance. Since it is common knowledge that parts of this region have an unhappy reputation for the production of goods with false trade descriptions, there is a very clear and strong burden on businesses in Hong Kong that import goods to ensure that the goods they import do not bear false trade descriptions.

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 516 OF 1996

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J U D G M E N T

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1. This is an appeal against conviction.

2. The appellant is a company registered and doing business in Hong Kong. It trades in garments, electronics, toys and household items. It was charged and convicted of an offence contrary to the Trade Descriptions Ordinance. The charge was that on 9th January 1995 the company attempted to import about 1.3 million toothbrushes to which a false trade description had been applied. The toothbrushes had been manufactured for the company in mainland China, but when they were examined by customs officials in Hong Kong, they were found to bear a label which said that they were "Made in Thailand". That was the false trade description.

3. There were two contentions put forward at trial; first, that the offence was not made out, for what had to be shown was that not only did the company intend to import the brushes but also that it intended to import brushes to which, to its knowledge, false trade marks had been applied. The contrary argument which found favour with the magistrate was that all that had to be shown was that the company had attempted to import the toothbrushes, and that whether the company knew it or not, those turned out to be toothbrushes to which in fact false trade marks had been applied. So long as that was shown, then, subject to the reasonable diligence defence provided by the Ordinance, the offence was made out.

4. The second line of defence at trial was the due diligence defence. Section 12 of the Ordinance provides as follows :

"12 Prohibited import and export of certain goods

(1) 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.

(2) Any person who imports or exports any goods contrary to subsection (1) commits an offence unless he proves that -

(a) he did not know, had no reason to suspect and could not with reasonable diligence have found out that the goods are goods to which a false trade description or forged trade mark is applied; or

(b) the goods are not intended for trade or business.

(3) This section shall not apply to any goods in transit."

5. The argument was that the company through its officers did not know of the false marks, had no reason to suspect that they had been applied, and could not by the exercise of reasonable diligence have discovered the fact that false marks had been applied. Since it exercised due diligence the point was proved. So went the argument. The magistrate accepted that the company did not know nor had reason to suspect that the marks had been applied, but found that no diligence was exercised by the company, reasonable or otherwise, and that reasonable diligence would have revealed what had happened.

6. Accordingly, the magistrate convicted the company of the offence.

7. In the course of the prosecution case, there was produced a statement of agreed facts. It was agreed that on 9th January 1995 at Hung Hom Railway Station, customs officers examined a consignment of toothbrushes which had been imported into Hong Kong and which were on a train wagon, having arrived from Jiangsu. According to the inward manifest, the appellant company was the consignee. It was also agreed that on 23rd January 1995, Mr Mohinani, the manager of the company was interviewed, and he conceded that the goods "should belong" to the company; he said that they had not been checked before coming to Hong Kong; had been manufactured in China, and were intended for delivery to customers of the company in Panama and the Netherlands; and asserted that he did not know that a false trade description had been applied.

8. There was produced by agreement and as part of the prosecution evidence, a record of the interview with Mr Mohinani, and Mr Mohinani said in evidence that its contents were true. In it, he explained that the goods "should belong" to the appellant company, but were not ordered with the marking "Made in Thailand". He said "the ownership of these goods was unknown to me". The rest of the interview made perfectly clear, however, that he was accepting that the consignment were the toothbrushes his company had ordered. For example, he was asked "Who is the responsible person in placing order to the company in China for production of the seized toothbrushes?" and he answered that he had instructed his merchandising staff to place the order. He had not requested the labels "Made in Thailand", and thought it may have been a mistake by the factory. Quite how such a mistake could occur is difficult to imagine, for the act of placing in China labels on 1.3 million toothbrushes which said that they were made, not in the place they were made, but in Thailand, must have been a very deliberate act of falsification. One might expect that the appellant company would then move heaven and earth, especially after it was in trouble with the authorities in Hong Kong over the matter, to find out precisely what had happened. But, as we shall see, the efforts made to this end were feeble. Nevertheless, the magistrate believed, as he was entitled to, that the company did not know what had happened. The manufacturer was asked what had happened, and they said they would investigate, but the manufacturer's personnel changed so the appellant company did not pursue the matter. I am not sure that I understand what the change in personnel had to do with it. He then said that he did not deploy any staff of his company to check the brushes before they were delivered to Hong Kong. He also answered questions about sales invoices which evidenced the orders abroad for the toothbrushes. Some sample toothbrushes were shown to the magistrate. That was the evidence for the prosecution.

9. A submission of no case to answer was made. It was directed at the question of the requisite mens rea for the attempt alleged, and further argued that there was no evidence that the appellant company arranged for the goods to come in. It was not a successful application.

10. Evidence was given on the company's behalf by Mr Mohinani. He said - and this is important - that what he had said to the customs officers in the interview was true. He told the Court that he was responsible for placing the order with the company in China. He believed it to be a state owned operation. It was, however, not their usual supplier of toothbrushes. The factory or company with whom the original order had been placed did not deliver in accordance with the order, so someone else had to be found. There had been a trade fair in Canton in October 1994 when the appellant company's personnel had come across the new manufacturers. There they saw samples of toothbrushes manufactured by them. In about November, they placed the order with them. They had never before conducted business with them. The sale of the toothbrushes to the appellant company was a sale by sample, in that the order was to produce toothbrushes in accordance with samples which had been supplied. There was no label on the samples stating the place of manufacture, and the manufacturers were not asked to provide any such label. On the contrary, the company requested that no markings appear.

11. There was, said Mr Mohinani, no reason to believe that the goods were not to be made according to the sample. In terms of the company's overall business, the transaction was said to be a small one, albeit that the toothbrushes cost USD54,000. It would not, said Mr Mohinani, therefore be practical to send someone from Hong Kong to the factory in Hunan to inspect the toothbrushes before they were delivered. The sample he had seen in November had been the only one seen before the toothbrushes were imported into Hong Kong.

12. He testified that a few days before the toothbrushes were shipped, he knew they were complete and were ready for importation into Hong Kong. The letter of credit by which payment was to be made by the appellant company to the manufacturer, a copy of which was placed before magistrate, stipulated that a certificate was required to be issued by the manufacturer that shipment samples had been sent to the appellant before shipment without, be it noted, any stipulation as to how long before shipment. However, the evidence in cross-examination was that in this case the samples were not received before the goods arrived in Hong Kong. The practice was that when goods arrived in Hong Kong, a sample was drawn and then sent to the appellant company's customers abroad. In re-examination, Mr Mohinani said that he did not know whether the shipment samples were received before or after shipment; and still later in re-examination he said that someone did check the samples received for shipment, but no difference was reported by him - he did not, however, specify when this examination took place. The evidence was that only when the goods arrived in Hong Kong was it that sample toothbrushes would be removed. Apart therefore from the original inspection of samples before the placing of the orders, no steps were in fact taken to supervise what was to be delivered.

13. Then the following question was put to Mr Mohinani in cross-examination :

"Since the Chinese manufacturer, it was the first time you encountered him, don't you think that you should have suspected that he may not comply with instructions, or may not be reliable?"

"I agree," responded Mr Mohinani, but added that as the supplier was a State run organisation, the chances of it being unreliable were minimal. It was then put to him that the company had not used reasonable diligence to prevent the application of a false trade description, and he agreed; although in re-examination he disagreed with the suggestion that the prosecutor had made that he had not used reasonable diligence.

14. That was the evidence before the magistrate. Ms Liang representing the company then, as she does today, advanced closing submissions which were restricted to the due diligence defence. The magistrate found that Mr Mohinani was a truthful and accurate witness and he accepted his evidence, but concluded that the steps taken by the company "did not begin to approach the 'reasonable diligence' which, if proved on the balance of probabilities, can provide a defence". I shall not here rehearse the several factors to which the magistrate referred in support of that conclusion.

15. The fact that the offence here charged was not the full offence, but an offence of attempting to import goods to which a false trade description had been applied, arose in this way. The brief facts suggested that at the time that the goods were seized by the Customs and Excise officers, they were still on the vehicle in which they were brought into Hong Kong. That is relevant because of the provisions of section 12(3) and section 2 of the Ordinance. Section 12(3) provides that :

"(3) This section shall not apply to any goods in transit."

Section 2 defines "goods in transit" as follows :

" 'goods in transit' means goods which -

(a) are brought into Hong Kong solely for the purpose of taking them out of Hong Kong; and

(b) remain at all times in or on the vessel, aircraft or vehicle in or on which they are brought into Hong Kong."

16. Now, it would appear from the record, as I have read it, that it was common ground at the trial that it was the intention to unload the goods and then ship them to Panama and the Netherlands, and clear therefore that there would come a time when the goods would no longer remain on the vehicle (the train) that brought them into Hong Kong. Ms Liang today argues a fresh point - not argued before the magistrate - that the intention to unload was conditional on the goods complying with sample. So I proceed for the moment on the footing that it was at least the Crown's contention that the evidence was clearly that it was intended in any event that the appellant would take possession of the goods had not the customs officers intervened. From that moment the goods would have been imported, because they would then no longer be in transit. But whilst they still remained on the train that brought them in, they were in transit.

17. That analysis of the situation and the proper interpretation to be placed on the section comes from the judgment of the Court of Appeal in R. v. Keening Industrial Limited and Yeh Shih Chun, Cr.App.No.653 of 1993. The Court, however, concluded that that did not preclude a charge of attempting to import goods to which a false trade description had been applied, so long as the act of causing the goods to come into Hong Kong was an act sufficiently proximate to the completed offence. That is why an attempt was charged in this particular case.

18. The first ground of appeal advanced before me today is that the magistrate should have found that there was no case to answer. The company, it is said, could not have attempted to have imported the goods unless there were acts sufficiently proximate to the full offence. In the statement of facts there was disclosed no act at all, it is said, on behalf of the appellant company. This point arises perhaps because of a question and answer in the interview of Mr Mohinani. He was asked in Question 21 :

"Which company was responsible for arranging the importation of the seized toothbrushes from China to Hong Kong?"

to which he replied :

"Yangzhou WRD Toothbrushes Co Ltd arranged the transportation."

19. "Import" is defined in the Ordinance as meaning "to bring, or cause to be brought, into Hong Kong." There was evidence that the goods had been imported into Hong Kong - that was clear from the statement of admitted facts. There was evidence that the consignor was the company from whom the appellant had ordered goods. There was evidence that the appellant had ordered toothbrushes from the consignor; and that the goods manifested to the appellant were toothbrushes. There was evidence that the model ordered and the model delivered were the same. There was evidence that the appellant company had entered into contracts for the onward sale "of the seized toothbrushes". Mr Mohinani had said in his statement that the company responsible for arranging the importation of the seized toothbrushes was the Yangzhou Toothbrush Company. He also said that he had instructed his staff to place the order. It is very difficult to see how it can be said that there was no prima facie case that the appellant company had caused the seized toothbrushes to be brought into Hong Kong. The fact that the company across the border made all the arrangements does not derogate from the appellant's role in the importation. Indeed but for their role, the toothbrushes would never have arrived here with them as consignees. The suggestion that the appellant through Mr Mohinani was not accepting the goods as its goods is to ignore the reality of the statement made by Mr Mohinani. What he was there saying was that they had indeed ordered those toothbrushes but not with those labels.

20. As for acts proximate to the completed offence, that too is a point which, in my judgment, is bereft of merit. All that remained in this case to complete the act of importation was clearance by the customs authority and unloading. The act of bringing them into Hong Kong was an overt act which went beyond the preparatory stage. It was part of a series of acts with the requisite intent, namely, to import, which would constitute the actual commission of the offence of importation had the acts not been interrupted. (See Stephen's Digest of Criminal Law, cited in Keening.)

21. There is one further argument in this regard raised today by Ms Liang. It is said that it was not shown that these goods were ordered at all by the appellant. The appellant did not order toothbrushes with these markings. Yet the toothbrushes which arrived had the markings. It is therefore suggested that the appellant did not import these toothbrushes. I note from the sales confirmation with the customer in Panama that the customer required toothbrushes without "Made in China" markings. Still the evidence accepted by the magistrate was that the "Made in Thailand" markings were not ordered by the appellant. The point made by Ms Liang is, with respect, bad. The fact that goods of a particular description have a defect or particular attribute which does not comply with the attributes expected does not negate the act of importation by the consignee. In any event, section 12 itself presupposes the application of false trade descriptions to goods imported, and presupposes that importation includes an act of bringing in goods which, unbeknown to the person who brings them in, has a false trade description.

22. That disposes of this appeal in so far as it is directed at the argument that the magistrate should have acceded to a submission of no case to answer.

23. Then it is said that in relation to the case as a whole, it was not shown that the act of the appellant was sufficiently proximate to the commission of the offence. Quite apart from the matters to which I have already referred and which are relevant to this further submission, by the end of all the evidence Mr Mohinani had made perfectly clear that it was his doing or that of the company through him, that the goods had been brought into Hong Kong. One has also only to look at the letter of credit drawn in favour of the manufacturers to see what role the appellant company played in the importation of the goods. Subject only to one matter to which I shall now refer, there is no question but that the goods were to be off-loaded. One does not carry goods from Hong Kong to Panama and the Netherlands by train.

24. The one point is this. It is said by Ms Liang who appears today on behalf of the appellant company that section 12 does not apply because the goods were still in transit. That would hold good if the charge had been one of actual importation. It is clear, however, that once it is shown that it was intended that they would be unloaded, a charge of an attempted offence is properly founded so long, of course, as it is shown that a defendant has committed acts sufficiently proximate to the completed offence. Keening is clear authority for that proposition.

25. Ms Liang said today however that it was not shown that the appellant was going to off-load. Off-loading was only conditional upon the goods not having the false trade mark, or conditional upon approval of the goods. There was no evidence to that effect, nor do I think it implicit in the evidence that was given, though there is reference to the normal practice of pulling out a sample to see if it complied with the original sample. There was no evidence that Mr Mohinani would not have kept the goods and obliterated the marks; there was no evidence that the end buyer would not have accepted them; and there was no evidence about the procedures he was to adopt for the inspection of the goods. The clear inference from the evidence is that when the appellant caused the goods to be brought in, it intended to take possession of them and that, in my judgment, would have meant taking them away.

26. A number of other points have been advanced which in my judgment have no substance. I shall deal however with one, which constituted the major part of the attack launched against the magistrate's findings. It is that the magistrate erred in finding that the appellant had not shown that it had exercised due diligence.

27. The provisions of section 12(2) bear repeating :

"(2) Any person who imports or exports any goods contrary to subsection (1) commits an offence unless he proves that -

(a) he did not know, had no reason to suspect and could not with reasonable diligence have found out that the goods are goods to which a false trade description or forged trade mark is applied; or

(b) the goods are not intended for trade or business."

28. In my judgment, the magistrate was clearly right in his conclusion that it was not shown that the company could not with reasonable diligence have discovered that the goods were goods to which false trade descriptions had been applied. The facts, as were urged upon me, that the sale was a sale by sample; that there was no reason to suspect that false trade descriptions might be applied; that the supplier was a PRC government factory; and that the supplier was not authorised to apply false labels were, with respect, all beside the point. The section does not absolve an importer only because he had no reason to suspect anything would go amiss - that is but one of the conditions precedent to exemption from criminal liability. The aspect of section 12(2)(a) which has not been satisfied in this case is the third : has the company shown that it could not with reasonable diligence have found out that which it found out too late in Hong Kong after the goods had arrived? The answer is : of course it could. There was nothing to stop it finding out. A mere inspection by an agent a week before shipment would have found it out; and that can hardly be said to be requiring too much; that degree of diligence can hardly be said to be unreasonable. Or there might even have been a condition of the letter of credit that a sample be sent to and be approved by the appellant company before shipment, and that a certificate of approval by the appellant company be presented. Whilst reasonable diligence is not a counsel of perfection, it is "not the doing of everything possible, but the doing of that which, under ordinary circumstances, and having regard to expense and difficulty, can reasonably be required." (See the The Europa 15 ER 803). As I commented in Chan Kim Fai MA982/93, what are reasonable steps, and what is reasonable diligence will vary with the facts and with the legislative context in which those words appear. In the context of the statutory framework before me and of section 12, when it is common knowledge that parts of this region have an unhappy reputation for the production of goods with false trade descriptions, there is a very clear and strong burden on businesses in Hong Kong that import goods to ensure that in so far as is at all practicable, the goods they import do not infringe this law. That requires positive action on their part; and the requirements of the section are not fulfilled by an attitude which says that it was not unreasonable to make this assumption or that. In this case, nothing at all was done to inquire and to ensure, and the appellant has not, as the magistrate rightly put it, made even the beginnings of a defence under section 12. Such steps were especially called for in this case when the supplier had never before been used by the appellant. It is also evident from the testimony at trial that the samples requested were for onward transmission to buyers. Although there was a hint of some examination of samples sent, it was not established when they were examined, and the bulk of the evidence was to the effect that they were not examined until after arrival in Hong Kong. The burden of establishing reasonable diligence was on the appellant and it failed to do so.

29. There is, in my judgment, no merit at all in this appeal and it is dismissed.