R. v. WONG TAK CHOY

IN THE HIGH COURT OF JUSTICE

Magistracy Appeal

No. 111 of 1994

- Headnote -

Criminal law - Reg. 3 and 4 Import and Export (General) Regulations - Meaning of 'to cause' in s.2 Import and Export Ordinance - No vicarious liability to be implied, so employer is not criminally liable for employee's act of importing and exporting - AG v. Tse Hung-lit [1986]3 WLR 320 applied.

Appeal allowed. Convictions quashed.

IN THE HIGH COURT OF JUSTICE

Magistracy Appeal

No. 111 of 1994

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J U D G M E N T

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Litton, J.A.:

1. The appellant, Wong Tak-choy, was convicted by Mr Bryan Chau in the North Kowloon Magistracy on 29th December 1993 on two charges: (1) that on 16th March 1993 he exported 14,535 sets of knitted panels for ladies' sweaters to China, otherwise than in accordance with an export licence, contrary to regulation of the Import and Export (General) Regulations, Cap.60; (2) that on 16th March 1993 he imported the identical goods referred to in the first charge otherwise than in accordance with an import licence, contrary to regulation

2. The appellant is one of three equal partners of Sun Hing Woollen Weaving & Knitting Factory ("Sun Hing"). It is a family business. The three partners are brothers; the appellant is the youngest. Sun Hing had at the material time about 100 employees and occupied premises measuring about 20,000 sq.ft.

3. Although the two charges brought against the appellant seem on its face to be straightforward, there was before the Magistrate a considerable amount of background material to this effect: The Trade Department has a special import and export scheme which enables "knit-to-shape" panels knitted in Hong Kong to be sent to China for looping and stitching. The finished garments made from the knitted panels can then be brought back to Hong Kong and then exported to the USA under the textiles quota system. The US government accepts that knitted garments manufactured in this way would satisfy the rules for Hong Kong origin.

4. The prosecution case rested almost entirely upon a statement of agreed facts signed by counsel for the parties. The Magistrate has helpfully summarised the effect of this in his statement of findings. It is in essence as follows:

(I) Under the Special Export and Import Scheme, a Special Export Licence in Form 8a is used to export the knitted panels for the purpose of looping and stitching outside Hong Kong. The finished garments made from the knitted panels originally exported under Form 8a are then imported back to Hong Kong under a Special Import Licence in Form 8b. Finally, the completed garments, will be exported to the USA under an Export Licence in Form 8;

(ii) When the knitted panels are exported the duplicate copy of Form 8a is stamped by the Customs and Excise Department and returned to the exporter so that it can be used to support the application for the Import Licence when the finished garments made from the knitted panels are brought back to Hong Kong.

(iii) On 10.3.93 "Sun Hing" submitted to the Trade Department an application for an Export Licence in Form 8a in respect of 989 dozen (11,868) sets of knit-to-shape panels for ladies' cardigans for export to China. The licence was issued on 11.3.93. On the licence (Ex P3) the defendant made the following declarations:

(a) Panel knitter's Declaration (date 23/2/93) 'I, Wong Tak-choy, signing for and on behalf of Sun Hing, hereby declare that I am the knitter of the knit-to-shape panels covered by this application; that the panels are knitted in Hong Kong; that I have read and understood and agree to abide by the conditions overleaf and that the particulars given herein are true.'

This is signed by the appellant over the chop of Sun Hing.

(b) Exporter's Declaration (date 23/2/93) 'I, Wong Tak-choy, signing for and on behalf of Sun Hing, hereby declare that I am the exporter of the knit-to-shape panels covered by this application; that I have read and understood and agree to abide by the conditions overleaf and that the particulars given herein are true. I further declare that the knit-to-shape panels exported under this licence will not subsequently be exported to the USA in whatever form other than under an Export Licence issued by the Director General of Trade.'

This is signed by the appellant over the chop of Sun Hing.

(iv) On 15.3.93 Sun Hing submitted to the Trade Department two applications for import licences in Form 7 (Ex P4 & P5) in respect of a total of 12,000 sets of knit-to-shape panels of China origin. Each form related to 85 packages. The two import licences were issued on the same day. It was Tsang Tak-lung, the Senior Shipping Manager of Sun Hing who signed the applications as follows:

'Importer's Declaration

I, Tsang Tak-lung, officer of Sun Hing, hereby declare that I am the importer of the 85 packages of goods in respect of which this application is made and that the particulars given herein are true.'

This is signed by Tsang Tak-lung over the chop of Sun Hing with the date 15/3/93.

(v) On the morning of 16.3.93, a lorry driver with goods on board submitted the duplicate copy of Ex.P3 at the Man Kam To Control Point. The licence was stamped and given back to the driver and the lorry was seen driving away into China.

(vi) An hour later the same lorry returned and the same driver submitted exhibits P4 and P5. As the declared exporter of the goods was in Wai Yeung which was about 60 kilometres from Shenzhen, the Customs Officers became suspicious. When the lorry was searched it was found to contain 14,535 sets of knitted panels for ladies sweaters instead of 12,000 sets. The goods the driver had taken into China an hour earlier under exhibit P3 were the same goods.

5. Plainly, upon these facts, there were material differences between the terms of the licences and the actual goods exported and imported. In relation to exhibit P3 what were declared to be exported were 989 dozens (11,868 sets) of knit-to-shape panels for ladies' cardigans. What the driver had taken into China were 14,535 sets of knitted panels for ladies' sweaters. In relation to exhibits P4 and P5, what were declared to be imported were 12,000 sets of knitted panels of China origin. What were actually imported were the knitted panels of Hong Kong origin and, of course, the quantities varied. Clearly the export and subsequent import of the articles were not in accordance with the licences, and the provisions of regulations 4(1) and 3(1) of the Import and Export (General) Regulations had been breached. The only question was: who was criminally responsible? Under s.2 of the Import and Export Ordinance, Cap.60, 'export' means to take or cause to be taken out of Hong Kong any article; 'import' means to bring or cause to be brought into Hong Kong any article.

6. Not surprisingly, having regard to the declarations made by the appellant on exhibit P3, suspicion fell on him. The declarations he had signed did not comply with the goods exported. Since the identical goods were within an hour imported, it is not surprising that suspicion fell on him in relation to the import licences, exhibits P4 and P5 as well, even though he did not sign the import declarations.

The Defence Case

7. At the trial counsel for the appellant made a submission of no case to answer at the conclusion of the prosecution case which the Magistrate rejected. I cannot see how the Magistrate can be faulted in that regard. There was clearly a prima facie case against the appellant.

8. The appellant then gave evidence the effect of which may be summarised as follows. Sun Hing had a number of departments each with a department head. The departments were respectively sales, production, accounts and shipping. The three brothers were at the head of the hierarchy, one brother being the chairman, another brother the president, and the appellant the vice-president of 'the group of companies' of which Sun Hing formed a part. (Sun Hing is a partnership, not a limited company and the evidence is unclear as to what the appellant meant by 'the group'.) Mr Tsang was in charge of the shipping department assisted by three employees.

9. As to the two charges, the appellant's case as summarised by the Magistrate was as follows. It was only after the matter had been uncovered on 16.3.93 that the appellant knew Tsang had carried out sham import and export transactions. Neither he nor his brothers had approved or had prior knowledge of what Tsang had done. As for exhibit P3, it was Tsang who had produced the typed application and asked him to sign. Before doing so he had asked Tsang whether the knitted panels had been made and he signed only after he had received an affirmative reply. As for exhibits P4 and P5 he was unaware of their existence prior to the matter being uncovered. Tsang had signed the two import applications without his authority or knowledge. Neither he nor his brothers knew or had authorised the actual export and export activities carried out by Tsang on 16.3.93.

10. When asked by the Court, the appellant said at the time when he signed exhibit P3 he knew to which order the 989 dozens of knitted panels related but he did not know that owing to a tight production schedule Tsang had at that time already arranged for the 989 dozens of cardigans to be manufactured in China. He said the cost of manufacturing the 989 dozens in China was about $50,000. When asked if Sun Hing would pay for the manufacture of the 989 dozens in China, he said no; he would have expected Tsang to have paid the amount from his own pocket. He said that 'Sun Hing' was managed jointly by all three brothers. Although each department had its own head, they could not implement anything without his approval. He said he believed Tsang when he signed exhibit P3 because it was presented to him in a folder containing the contracts and production information relating to the knitted panels. It was after reading those documents and believing that the information in them to be true that he signed exhibit P3. He said Tsang had to co-ordinate with the head of the Production Department. Normally he would be informed of any difficulty in meeting the due date but in this case it was not done.

He said Tsang was still employed but had been given a warning for what he had done.

11. Tsang also gave evidence at the trial. His testimony backed the appellant's to the hilt. Tsang's evidence was that he had been the Senior Shipping Manager of Sun Hing for two years. His job was to prepare all shipping documents and to make all necessary arrangements for shipment. He confirmed the appellant's evidence that he could only sign licence applications for non-quota products with the prior approval of the appellant or his brothers. He was not authorised to carry out the export and import of goods or make arrangements to do so without the prior approval of his employers. He had, however, arranged the export and import of the goods on 16th March without authority. He did that in order to enhance his own standing in the eyes of his employers. There was a deadline to be met and he believed his company would be grateful if it could be met smoothly. He did not tell the appellant about his plans when he got him to sign exhibit P3. He did not have the prior approval of the partners when he signed P4 and P5. What he had hoped to gain was a larger year-end bonus. When he placed the order for the making of the 989 dozens of cardigans in China he did so in his personal capacity. The contract was verbal because the boss of the Chinese factory trusted him and there were no documents. The Chinese did carry out the manufacture of the 989 dozens and they had not asked for a deposit before commencing work. The Chinese were to charge him $20 per dozen, making a total of $19,780.

12. That in essence was the sum total of the evidence before the Magistrate. There was in truth only one issue before the Magistrate - Has the prosecution proved, upon all the evidence, that the appellant caused the goods to be taken out of Hong Kong and then brought them back to Hong Kong?

Vicarious Liability

13. The Magistrate, I regret to say, was not greatly assisted by the way counsel acting on fiat for the Crown presented his case. He submitted to the Magistrate that the principle of vicarious liability applied and that upon Tsang's admission that he, Tsang, had caused the goods to be exported and then imported Sun Hing, (meaning presumably 'the partners' of Sun Hing), were criminally liable. This was an unfortunate error, and muddied the waters in what should have been a straightforward case.

14. The general principle of our criminal law can hardly be in doubt. A man is not liable to be charged criminally for the act of his servant unless a particular statute imposed this liability upon him by express terms or by implication: see for instance Collins J. in Hardcastle v. Bielby [1892] 1QB 709 at 712.

15. The Import and Export (General) Regulations do not by express terms make an employer liable for his servant's act of taking articles out of Hong Kong, contrary to the provisions of the Export Licence unless he has caused the servant to do so. The effect of the verb 'to cause' in the context of the Import and Export Regulations has been exhaustively analysed by the Privy Council in AG v. Tse Hung-lit [1986] 3WLR 320. There the Privy Council expressly approved of a passage in the judgment of the High Court of Australia in O'Sullivan v. Truth and Sportmans Ltd (1957) 96 CLR 220 at 228 where the High Court was dealing with the offence of 'causing' a newspaper to be offered for sale containing certain prohibited matters. The passage is in these terms:

"[The expression 'to cause'] should be interpreted as confined to cases where the prohibited act is done on the actual authority, express or implied, of the party said to have caused it or in consequence of his exerting some capacity which he possesses in fact or law to control or influence the acts of the other. He must moreover contemplate or desire that the prohibited act will ensue."

Obviously when it comes to offences created by statute, the general principle of law that an employer is not made criminally responsible for the acts of his servant may be displaced. In order to guard against the happening of a prohibited act, a statute can impose liability upon an employer even though he does not know of and is not a party to the act done by the servant. The question in this case is - Do the Import and Export (General) Regulations go this far? In my judgment the analysis is not advanced by saying that regulations 3 and 4 create strict liability. Assumed they do that was common ground in AG v. Tse Hung-lit (see p.325G). All that means is that a person can be guilty of taking an article, such as textiles, to another country otherwise than in accordance with an export licence without criminal intent. For instance, he may not realise that the article was prohibited, or may have thought that the export licence covered the article exported, he is still guilty. To say that a person can be criminally liable under regulations 3 and 4 without criminal intent does not answer the question in this case - Who caused the prohibited act?

The Magistrate's Decision

16. The Magistrate accurately identified the issue by saying:

"They (the defence) do not dispute that regulations 3 and 4 had been breached. The question was by whom were they breached. Their contention is that the defendant had nothing whatsoever to do with the illegal enterprise. He had not authorised it and knew nothing about it. The sole culprit was the Senior Shipping Manager Mr Tsang Tak-lung. It was Tsang who had hatched the scheme and put into operation after he had deceived the defendant into signing the two declarations on exhibit P3."

Upon Tsang's evidence, the object of exhibit P3 was simply to get the Customs and Excise Department's stamp upon the duplicate copy of Form 8a so that later on when the 989 dozen ladies' cardigans had been manufactured in China, they could be imported under a matching import licence Form 8b, thus deceiving the Customs and Excise Department into thinking that the garments were manufactured by using knitted panels manufactured in Hong Kong. Since the goods taken into China on 16th March 1993 were to be brought back almost immediately again in the same lorry, why it was not arranged so that those goods matched all the particulars in the export licence Form 8a, exhibit P3, remains a mystery. Had this been so, the appellant would clearly have committed no offence regarding the export of the goods and would not have been guilty under charge 1.

17. As regards the evidence led by the defence this was what the Magistrate found:

"Having seen both defendant and Tsang in the witness box, I am neither impressed by their demeanour nor by the contents of their evidence. The defendant was actively engaged in the running of his family business and kept a tight rein on matters relating to import and export licences. As I have said, he was in his firm every day. For someone who is engaged in the export of garments, the meeting of export deadlines is of crucial importance especially when the order is a large one involving 4,989 dozens. I do not believe he could have been so remiss as not to know that his production department was unable to make a sizeable quantity such as 989 dozens on time. Nor do I believe that he had not been informed of the difficulty. His evidence was that he was normally informed of such difficulties but in his case he was not. I do not believe that. I do not believe that an employee in the position of Tsang would take it upon himself to instruct the mainland manufacturer to make the 989 dozens without the approval of the defendant. Sooner or later the defendant will find out because the mainland manufacturer must be paid for what he has produced. I do not believe Tsang would place the order with the mainland manufacturer without any thought as to who was to pay for the work nor do I think he would take a leap in the dark and run the risk of having to pay for it himself. I have watched Tsang when he was giving evidence. He impressed me as a very shrewd individual. He has plenty of experience in handling import and export matters, having worked in the shipping department of textile factories for 15-16 years. I have no hesitation in rejecting his claim that at the material time he was so engrossed in his 'secret plans' that he gave no thought to their ramifications. I am sure he would not, for the sake of a larger year-end bonus, run the risk of being held accountable, not only by the law, but by the defendant as well. I do not accept Tsang's evidence that he was able to give verbal instructions only to the mainland producer and to have him start work on a large quantity of garments without paying any deposits. I reject his evidence that the price charged by the mainland manufacturer was $20 per dozen. This works out to no more than $1.60 per garment. As stated in paragraph 9 of the agreed facts (exhibit P1), this time the mainland manufacturer was not merely stitching or looping the knit-to- shape panels sent in from Hong Kong. They had to make the entire garment and the processes included knitting, stitching and looping. Tsang has admitted under cross-examination that the 989 dozens involved 10 different colours and 14 different measurements. On this aspect of the matter the estimate given by the defendant in respect of the overall contractual price, namely $50,000 for the 989 dozens which works out to about $4.20 per garment, is much more realistic."

At the conclusion of his statement of findings, the Magistrate said this:

"I have found that the defendant has committed both offences with mens rea. Even if I had given the defendant the benefit of the doubt that he was unaware of Tsang's scheme, I would still have convicted the defendant of both offences. At the end of the Prosecution's case I had followed the views expressed by the Court of Appeal in R v. Lau Sai-wai (M.A.659 of 1984) that regulation 4 created an offence of strict liability. I also held that the same applied to regulation 3 which dealt with the other side of the coin. I am aware that a statute may create strict liability without imposing vicarious liability. I am also aware that unlike section 46A of the Dutiable Commodities Ordinance, Cap.109, the Legislature has not made express provisions for vicarious liability in the Import & Export Ordinance, Cap.60. however, there is a line of English cases to the effect that a master may be held liable because the acts which are done physically the servant may, in law, be the master's acts. In the present case, 'Sun Hing' was named as the exporter and importer in the relevant licences and in law only 'Sun Hing' may make use of the licences to export and import the articles therein stated. Thus when exhibits P3, P4 and P5 were used to export and import goods, it was 'Sun Hing' which was carrying out the activities of 'exporting' and 'importing'. If 'Sun Hing' was strictly liable, the defendant, being one of its partners, was also liable."

In referring to the 'lines of English cases' the Magistrate may have had in mind cases dealing with the management of licensed premises and the like, where the relevant statute places personal responsibility upon the licensee. If the prohibited act is done by his servant, the act is imputed to him under the doctrine of delegation: see for instance R v. Winson [1969] 1 QB 371 where the manager's knowledge was imputed to the licensee. See also the observations of Viscount Reading C.J. in Mousell Brothers v. London & North-eastern Railway [1917] 2 KB 836 at 844.

18. In my judgment the 'doctrine of delegation' as exemplified by these cases has limited application and cannot be applied in construing the statute in this case. Crown Counsel, Mr W.S. Cheung, at the hearing before me, conceded that the Magistrate was wrong in this regard, a concession which in my judgment was properly made.

19. Upon the Magistrate's conclusion that the appellant would have been liable even if he was unaware of Tsang's scheme, it follows that if the other two brothers were charged before him, they would have been convicted as well. This erroneous conclusion might well have diverted the Magistrate's mind from what, in my judgment, was the only issue before him, namely, can it be inferred from the whole of the evidence, beyond a reasonable doubt, that the appellant caused the goods to be exported and then imported? There can logically be no finding that he did so without finding at the same that he was a party to Tsang's scheme of deception. The Magistrate was rightly sceptical of Tsang's claim that he initiated the whole scheme on his own. But nevertheless that possibility was not so fanciful as to be totally unbelievable, and had to be weighed in the scales against the positive evidence before the court that the appellant knew nothing of the scheme. The Magistrate said this:

"I do not believe that an employee in the position of Tsang would take it upon himself to instruct the mainland manufacturer to make the 989 dozens without the approval of the defendant." (Emphasis added).

Assuming that the conclusion that Tsang would not have done it on his own were justified, why must he necessarily have sought the appellant's approval rather than others in senior management? It was put to the appellant in cross-examination that he had told the Trade Department that he was responsible for running the factory and his brothers only contributed capital, but the appellant denied the suggestion. The matter was not pursued. The effect of the appellant's evidence was that all three brothers ran the business with the assistance of a total of a hundred employees. The Magistrate's reasoning was this:

"As the Chinese garments would have been paid for and Tsang was not going to pay for them out of his own pocket, sooner or later the appellant must find out about the scheme."

In effect, what the Magistrate found was that the appellant must have been told sooner rather than later by Tsang: that is, before 16.3.93.

20. With respect to the Magistrate, this conclusion does not necessarily follow. If the scheme were successful, then 989 dozen garments would have been exported to the USA as goods of Hong Kong origin, but manufactured in fact in China, probably at a somewhat lower price. Obviously, the accounting documents would have been falsified to hide the scheme. Someone would have made a profit on the difference between the cost of production in Hong Kong of the 989 dozen garments (except for looping and stitching) and the cost of production in China. Why must it be inferred, beyond a reasonable doubt, that the appellant was the intended beneficiary?

21. As regards Tsang's evidence that the production schedule for the 4,989 dozen ladies' cardigans was tight, and that was why he arranged for 989 dozens to be made in China, the appellant's evidence was that usually he would have been told of such difficulties but in this case he was not. The Magistrate said he disbelieved that answer. With respect, the approach would have been better if the Magistrate had looked at the evidence as a whole. What precisely was the appellant's function in the management structure? To whom would the production manager have gone for advice if there was insufficient capacity to make the 4,989 dozens in Hong Kong? What did the production records show? Who was in charge of the correspondence with the American buyer? Was the appellant involved in any of these matters? None of these questions were addressed at the trial and none answered. There was, in my judgment, simply insufficient evidence for the Magistrate to safely conclude, as he expressed it, that "both the employer and employee had acted in concert in the implementation of the sham export and import transaction which took place on 16th March 1993".

22. When the evidence from the only witnesses expressly negatived such a conclusion, it is a bold thing for a court to find that, simply because parts of the defendant's testimony were rejected, the prosecution case was proved. In my judgment, the appeal must be allowed for the reasons I have given.

Material irregularity

23. This makes it unnecessary for me to deal with two complaints of material irregularity at trial, which in fact were at the forefront of counsel's submissions on behalf of the appellant. The first was that the Magistrate was biased against the appellant or at least gave the appearance of bias. The second was this: in cross- examining the appellant prosecuting counsel asked this question: "Mr Wong, do you know that some of the staff in your factory previously were convicted of offences of giving false information for licence applications?" The question was immediately objected to and disallowed, and therefore, understandably, did not appear in the Magistrate's notes.

24. As to the second matter, I cannot in fact see why the question was objected to. The question did not seek to incriminate the appellant. If the thrust of it was that, given this history, the appellant would have held the employees, including Tsang, under a tighter rein and been aware of what was going on, it was a perfectly legitimate question to put in cross-examination.

25. As to the first, the complaint related solely to questions asked by the Magistrate of the appellant and of Tsang. Four questions were put to the appellant concerning his knowledge of the goods being manufactured in China even before cross-examination had begun. All questions were said by counsel to be hostile. It is said that, by the way the questions were framed, the Magistrate expressed disbelief and the questions were designed to discredit the appellant as a witness. Similar complaints were made regarding Mr Tsang. I should say right away that I would not have allowed the appeal on ?? of ?? grounds, though the first is somewhat more substantial than the second.

Conclusion

26. Magistrates are given considerable latitude in the way they conduct proceedings before them. Trial courts, in an endeavour to get at the truth, may sometimes be over-enthusiastic, or seem to be over-enthusiastic, in the way particular points are pursued. This would not constitute, generally, a material irregularity; although I would observe in passing that in this case, the Magistrate might perhaps have reserved his questions to the appellant and to Mr Tsang at the end of the cross-examination. If he had done that most of them would probably have been unnecessary.

27. For the reasons I have given the appeal is allowed, the convictions against the appellant are quashed. If the fines have been paid, the money must be returned to the appellant or his solicitors.