HKSAR v. Y & FUNG GARMENT COMPANY LTD

HCMA 439/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO 439 OF 2013

(ON APPEAL FROM KTMP NO 81 OF 2013)

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J U D G M E N T

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1. This is an appeal against the order of Permanent Magistrate Mr Anthony Yuen ordering the Appellant to pay costs in a forfeiture application under section 28 of the Trade Descriptions Ordinance, Cap 362 (“TDO”). Such costs include the staff costs, storage costs, transportation costs and labourer costs incurred by the Custom & Excise Department (“C&E”) for the retention of seized goods totalling HK$278,331.06.

2. The complaints of the Appellant, both before the learned Magistrate and in this appeal, are that:

(1) The costs awarded include costs in relation to a portion of the seized goods which are not subject of any prosecution;

(2) The retention of the seized goods by the C&E was for a period unjustifiably long such that it would be unfair to make the applicant liable to pay for the costs incurred during such period;

(3) Ancillary to (1) and (2) above, as the limitation for prosecution under section 19(b) of the TDO is 1 year after the offence was discovered, it would be unfair to make the applicant liable to pay for the costs incurred in relation to the non-prosecuted goods after 1 year of the seizure.

3. Mr Andrew Bruce SC, counsel for the Appellant, intimated that he would invite this court to adopt a broad brush approach to assess, by way of a gross sum, what amount of the costs is to be deducted should this court find in favour of the appellant on their arguments.  It is Mr Bruce’s view, which I respectfully agree, that it would be difficult to do a microscopic quantification in view of the number of products and the items of costs involved during different periods of the proceedings lasted for some years.

Factual background

4. In an operation conducted on 14May 2009, the C&E seized from the Appellant’s various premises[1] a large quantity of suspected counterfeiting clothing products.  In respect of part of the products, prosecution was brought against the Appellant and its directors for “sale of goods to which forged trade marks were applied”, contravening section 9(2) of the TDO.

5. The cases against the Appellant and the 2 directors were later consolidated and heard before Permanent Magistrate Mr D Dufton (as he then was) which were concluded on 6 May 2010, after a trial lasted for 30 days.  The Appellant and the directors were convicted of some of the charges.

6. The Appellant and the directors appealed against their convictions first to the Court of First Instance (“CFI”), and then to the Court of Final Appeal (“CFA”).  Their appeals were finally dismissed by the CFA on 30 March 2012.

7. It was some time after the determination of the CFA that the C&E, on 5 June 2013, applied for the forfeiture of the seized goods under section 30 of the TDO, including those which were not the subject of the prosecution and those which were later verified by the C&E as not counterfeiting products. 

8. In his very succinct Statement of Findings, the learned Magistrate explained the reasons of his decision on costs as below:

“11. After considering submissions from both sides, I found that:

(a) It’s not unreasonable for the prosecution to wait until the conclusion of appeal of the Appellant and it’s 2 directors of their conviction to Court of Final Appeal before making this forfeiture application because the end result of their appeals might affect this court’s decision as to which articles be liable to be forfeited.

(b) As to those articles which were not subject matter of any summonses or charges, prosecution was entitled to further collecting evidence in order to prove that they’re counterfeit goods and therefore liable to be forfeited.

12. I therefore found that although there was some delay by Customs & Excise in making the present forfeiture application, such delay was not unreasonable nor unnecessary.  I therefore granted Customs & Excise’s application for costs up to date of the present application i.e. 5 June 2013.  These costs including costs related to those articles not subject matter of any summonses or charges.”

The law

9. Section 28 of the TDO provides that :

“In any proceedings under this ordinance, the magistrate or court hearing the proceedings may, notwithstanding any provision of any other Ordinance, make such order as to costs as he or it may think fit.”

10. The power under section 28 of the TDO to award costs is not limited to counsel’s fees, solicitors’ costs and/or witnesses’ expenses.  In AG v COVO Knitters Ltd[2], Stock J (as he then was) had this to say[3]:

“The power in this Ordinance to award includes, in my judgment, the costs necessarily incurred in the investigation, the cost of preserving evidence which a prudent and cautious prosecutor reasonably adjudges may be required as proof in the prosecution of the alleged offender, and the cost of preserving evidence in so far as such preservation is necessary for the purpose of an application which is consequential upon a conviction. There is nothing in the section itself, nor in the scheme of the Ordinance as a whole, which warrants a restriction of costs to legal fees and witnesses’ expenses.”

11. Thus, the magistrate hearing the proceedings under the TDO has a rather wide discretion on awarding costs.  In my judgment, there is nothing in the provision to restrict in any way the court’s power to award the costs for preservation of seized goods which are later not subject to any prosecution.

12. Mr Bruce brought to my attention legal authorities on the property rights of the owner of goods seized by law enforcement agencies, and on the duty of the seizing agencies to act diligently.  The principles set forth by these cases are not controversial. However, in my judgment, for the purpose of the present matter, it all boils down to whether the C&E has acted reasonably in retaining the goods for such period of time.

13. The learned Magistrate has exercised his judicial discretion in giving the costs order.  Unless the Appellant can show that the learned Magistrate was wrong in principle in so exercise of his discretion or that he has failed to consider relevant factors, it is not for this court to disturb his decision merely because it would have exercised the discretion differently if it were to hear the application. 

14. The learned Magistrate had in his mind the alleged delay in making forfeiture application and the fact that no prosecution has been brought in respect of some of the seized items.  He however considered it not unreasonable for the C&E to wait until after the determination of the CFA to apply for forfeiture and the retention of non-prosecuted goods was justifiable, with the reasons given by him. 

Chronology of events

15. Mr Cliff Ip, Public Prosecutor for the respondent, has given a full account of the events transpired after the conviction of the Appellant.

16. As revealed by the transcripts of proceedings of the hearing on 6 May 2010, after the conviction of the Appellant and the directors, Magistrate Mr Dufton invited the parties to deal with the disposal of the exhibits right away.  Counsel (Ms Sujanani) for the prosecution indicated that she has already a list on the proposed disposal of the exhibits shown to the defence counsel (Mr Khosa) for consideration.  At that point Mr Khosa expressed that he has yet received instructions from his clients on the list.  The court then decided that the disposal of the exhibits, which necessarily involved an application for forfeiture, was to be dealt with 14 days thereafter, being the same date as the directors will return for sentence pending reports.

17. On their return on 20 May 2010, Mr Khosa asked the court to deal with the forfeiture of goods which are subject of the prosecutions separately from goods which are not subject to any prosecution. Although the magistrate, Mr Dufton, agreed that the application concerning the non-prosecuted goods should be adjourned for adducement of evidence, he took the view that the applications for forfeiture of both kinds should be dealt with together.  He ordered that the forfeiture applications be adjourned to a date to be fixed.  It was then fixed to be heard on 15 July 2010.

18. On 5 July 2010, knowing that the appellant and the directors have lodged an appeal to the CFI against their convictions, the C&E proposed to adjourn the forfeiture applications until after the appeal hearing.  By a letter dated 6 July 2010, the then solicitors of the appellant and the directors agreed to adjourn the applications “since the result of the Appeal may affect the substance of the forfeiture hearing”.  The forfeiture hearing was then re-fixed to 1 November 2010.  The hearing was later further adjourned by consent to a date to be fixed, pending the decision of the CFI. It transpired that the hearing was then fixed to be heard on 20 April 2011.

19. By 2 “Memo” to the Kwun Tong Magistracy on 1 and 8 March 2011, the C&E informed the court that the appellant was applying for leave to appeal to the CFA and the application was set down to be  heard on 10 June 2011.  In view of this Mr Dufton directed that the forfeiture hearing on 20 April 2011 be vacated and adjourned to a date to be fixed.  A letter was sent on 8 March 2011 to the then solicitors for the Appellant, informing them of the court’s direction.

20. The appeals were heard before the CFA on 13 March 2012 and the decision was given on 30 March 2012, dismissing the appeal.

21. In or about September 2012, the Appellant enquired by telephone to the C&E on the way to retrieve the seized goods.  On the advice of the C&E, the appellant sent a letter to the C&E on 3 September 2012 requesting for the return of the seized goods which are not subject matters of the prosecutions. 

22. On 25 October 2012, the C&E returned a bulk of goods, namely “the Disney Goods”, which were confirmed to be genuine items, to the Appellant[4].

23. On 9 January 2013, the C&E applied to resume the forfeiture hearing and a date was fixed on 20 March 2013 for the hearing. In the mean time, the C&E applied for transcripts of proceedings at all levels for the purpose of the forfeiture application. 

24. On 25 February 2013, the C&E applied to adjourn the forfeiture hearing as transcripts of proceedings were not ready. Magistrate Mr Anthony Yuen allowed the application and directed that the forfeiture hearing be adjourned to 5 June 2013.

Discussion

25. The C&E has in the operation seized a vast number of suspected counterfeiting goods and upon the seizure, they are to investigate, amongst others, on the originality of the seized goods and consider whether charges should be laid upon any person in respect of particular goods.

26. In some cases all seized goods will be made subject of prosecutions and in the others, as in the situation of the present case, part of the seized goods will be and part will not. 

27. Who should be the one to bear the costs for the preservation of the seized goods which were later found out not to attract any criminal liabilities?  The law enforcement agencies?  Or the owner, who is found to be guilty of infringement offences in respect of some of the seized goods?

28. The fact that no prosecution is carried out for some of the seized goods does not necessarily mean that the costs for preservation of those goods should be borne by the law enforcement agency concerned. Otherwise the law enforcement agencies will be placed with a too heavy burden to decide at scene on what goods to seize.  It goes without saying that reasonable time should also be allowed for the enforcement agencies to investigate and decide on what goods to prosecute upon. 

29. For cases involving infringement of intellectual property (“IP”) rights, much time is needed to liaise with copyright or trademark owners to ascertain what goods are counterfeiting products and to prepare for the evidence, like IP owners’ affirmations and expert’s reports, to prove the ownerships of the IPs and the infringement of the same.  Therefore, sufficient time should be allowed to make this exercise possible, bearing in mind that the time required for the IP owners to give their responses would not be entirely within the control of the law enforcement agencies.

30. In this matter, 19,833 of clothing items were seized involving at least 15 different IP owners.  Approximately half of the seized goods were prosecuted upon and nearly 90% of those goods were subject to forfeiture.  The remaining goods, together with the non-prosecuted goods, were returned to the Appellant in the end.

31. The Respondent has prepared a flowchart on how the IP owners responded at different stages.  Many of the IP owners gave their response before the trial and some gave it after.  It was the case of the Respondent that the C&E has all along been liaising with the IP owners on the authenticities of the unprosecuted goods until near to the forfeiture hearing.

32. The Appellant’s reference to the 1 year limitation period is misconceived.  The limitation period is not applicable to forfeiture proceedings.  The fact that no prosecution can be brought in respect of certain goods does not mean that no forfeiture proceedings can be brought against them.  Furthermore, there was no sufficient evidence yet to prove that those goods are counterfeiting products.  I am not convinced that it can be said that an offence under the TDO is “discovered” at that time.

33. I agree with the learned Magistrate that it is not unreasonable for the prosecution to wait until the conclusion of the appeal of the appellant and the 2 directors to the CFA to resume the forfeiture application.  The Appellant had agreed all along to the postponement of the forfeiture hearing after the appeals as it was the parties’ view that the result of the appeals may affect the forfeiture hearing. 

34. The question as to whether to deal with the forfeiture applications of the “prosecuted goods” and the “non-prosecuted goods” together has been dealt with by the trial magistrate, and it was his view that they are to be dealt with together.  Since the last hearing before Mr Dufton, unless contrary directions are given by the court, the parties are bound to proceed with the forfeiture applications on that basis. 

35. With the above background, in my view, it would be reasonable for the C&E to retain all the seized goods at least until the determination of the CFA of the Appellant’s appeal.  And thereafter, reasonable time should be allowed for the C&E to ascertain the actual scope of their forfeiture application.

36. There is one factor, however, the learned Magistrate has failed to consider.  Albeit that, as pointed out by the learned Magistrate, the C&E is entitled to retain the non-prosecuted goods to further collecting evidence in order to prove that they are counterfeiting goods and therefore liable to be forfeited, there should be a time when the C&E should appreciate that the emergence of further evidence would be unrealistic and consider returning those goods which are not liable to forfeiture because of lack of evidence.

37. In my view, at least at the time of the C&E’s application to resume the forfeiture application, they should have made up their mind as to the scope of their application and decided what goods are to be returned to the Appellant.  It would be apparent then to the C&E that those items not liable to forfeiture, some 9,545 pieces of clothing products, will have to be returned to the appellant in the end.

38. In my judgment, the learned Magistrate has failed to consider this relevant factor in exercising his discretion on awarding costs.

39. Mr Bruce has provided an estimate of the amount of costs incurred at different stages.  For the 9,545 pieces of returned goods, the pro-rated costs incurred for the whole period of 1,483 days amounts to HK$158,342.47.  Adopting a broad brush approach, 5 months should be deducted for calculation of the costs, and assessing on a gross sum basis, HK$15,800 should be deducted.

40. The appeal is allowed to this limited extent.