HKSAR v. TONG CHIU WAI

HCMA490/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 490 OF 2006

(ON APPEAL FROM ESS 36930 OF 2004)

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J U D G M E N T

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1. The appellant was convicted after trial of one count of ‘giving valuable consideration to an individual in order to induce him to buy a particular tobacco product or otherwise to promote to him that tobacco product’ contrary to section 15A(3)(c) of the Smoking (Public Health) Ordinance, Cap. 371.  He was sentenced to a fine of $50.  He now appeals against the conviction by way of case stated.

The facts

2. On 13 July 2004, Ms Poon, the only prosecution witness and an Assistant Tobacco Control Officer, entered the appellant’s 7-11 store and purchased a double pack of Marlboro cigarettes for $56 (Exhibit P2) and a single pack of Marlboro cigarettes for $32 (Exhibit P3).  The relevant receipt (Exhibit P4) read “1 Red Marlboro box two packs” and “1 Marlboro box”.

Defence contentions

3. There was no dispute between the parties as regards the primary facts.  Nor did the appellant testify or call any witnesses.  It was however contended through counsel that : 

(a)      The appellant’s act of merely placing double packs in his shop did not constitute an “inducement” to buy the tobacco product.

(b)     The double packs were differently packaged from the single packs.  The price of $56 was a displayed price for this particular product.  The consideration that passed upon purchase was this price.  The fact that the double pack was cheaper than buying two single packs was irrelevant as the price displayed was for this particular product.

(c)     The selling of the double-pack at $56 was not the selling of two single packs at a discount.  It was simply the price of this particular product.  There is no rule or regulation which stipulates that cigarettes are to be sold at a standard price and that the said standard price was to be determined on the basis of a single pack of that brand or any other brand of cigarettes.

(d)     It is fundamental to a free economy that a shopkeeper should be entitled to set his own price over his goods.  It would be repugnant to the concept of free trade that the statute be interpreted to prohibit a seller of cigarettes from setting their own prices for single packs or multiple packs of the same or separate brands.

(e)      It was never the intention of the legislature to institute price controls and to legislate that every packet of cigarettes must be sold at the same price.

(f)      It was never the intention of the legislature to prohibit the discounting of cigarettes that were purchased in bulk.  Otherwise wholesalers and middlemen would be in breach of the law if they sold bulk cigarettes at a price lower than a single pack.

(g)     Section 15A(3)(c) does not contain the word “discount” in its wording.

(h)     A discount does not amount to “valuable consideration” within the meaning of section 15A(3)(c).

The magistrate’s findings

4. In the end, the magistrate convicted the appellant, stating :

“	(i)	On the question of ‘inducing’, the focus is on the appellant’s conduct and not on the customer’s state of mind.  I found that the appellant has placed the double packs in a prominent place in his shop and I found such an act had ‘influenced’ a customer to buy.
	(ii)	I found the double-pack a ‘bulk purchase for a lower price’, as the double pack was labeled ‘Special Offer’ and ‘2 Marlboro HK$56’.  I also found the discount to be the appellant saying to customers ‘Come, buy two together, packed like this, and you get a discount of HK$8 compared to buying two single packs.’
	(iii)	As to which price should be used as the standard, I found that the standard price should be that on the single pack.  The answer comes from the label on the double pack, namely ‘Special Offer’.  If the standard price was set on the double pack, the label ‘Special Offer’ on the double pack would be meaningless, because a standard price would be nothing ‘special’ at all.
	(iv)	As to the question of free trade, I found that statutory prohibition on discounting on tobacco does not impede the concept of free trade, as it does not stop a manufacturer from selling tobacco to a retailer, or stop a retailer from selling to a customer.  I found the statute did not prohibit any manufacturer or retailer from setting his price on an item of tobacco, as the term ‘discount’ in ordinary language does not apply to inter-retailer prices, but intra-retailer, ie only to prices within the same shop, or within the same chain of shops.  In other words, I found that a ‘discount’ refers to the cutting a price by the same retailer or chain of retailers.
	(v)	I found that section 15A(3)(c) does not exclude the meaning of ‘discount’ because the same word in the context of paragraph (e) of the same subsection refers to a ‘return discount’ and not a ‘straight discount’ offered by the seller on the same product.
	(vi)	As to the question of whether, even if there is a case of ‘discount’, it is a ‘valuable consideration’ within the meaning of section 15A(3)(c), I was of the view that the question should be split into two stages, namely (a) whether a discount was a ‘valuable consideration’, and (b) if the answer to (a) is yes, was the intention of the legislature to include a ‘discount’ into the meaning of a ‘valuable consideration’ within section 15A(3).
		(a)	Regarding question (a), I found that the term ‘consideration’ under common law very broad, including not only positive values but also negative forbearances.  I did not find any legal difference between a shopkeeper charging HK$8 less and his charging the full price but immediately refunding HK$8.  I had no problem in finding a discount valuable as it concerns money.  I found that a discount in price is a ‘positive consideration’ to the customer, although it is a ‘forbearance’ to the retailer, both being ‘valuable consideration’.  The valuable consideration moves from the shopkeeper to the customer in return for the customer paying him the price of the double pack.
		(b)	Regarding question (b), I found that although the word ‘discount’ does not appear in paragraph (c) of section 15A(3), one should read into the term ‘valuable consideration’ to include ‘discount’.  Exceptionally I considered the situation to be one where looking at the Amendment Bill was appropriate because it would assist in interpreting the statutory meaning properly.  The Smoking (Public Health) (Amendment) (No 2) Bill 1997 has an Explanatory Memorandum, of which paragraph 12 says that clause 18 of the Bill amended the then Ordinance by adding the now section 15A(3) ‘to prohibit the giving of any tobacco product to any person for the purpose of promotion or advertisement.  This clause also prohibits the giving of a tobacco product in exchange for a token, as a prize, at a promotional discount or with any gift attached, or attached to any non-tobacco product sold’ (my emphasis).  I was satisfied that the discount on Exhibit P2 was a promotional discount, namely to promote Marlboro sales.  I therefore found that the term ‘valuable consideration’ in section 15A(3)(c) includes the price discount involved in the case.”

The questions posed

5. As a result, two questions are posed for this Court for determination :

“FIRSTLY WHETHER, according to the rules of statutory interpretation, I was correct in finding section 15A(3)(c) of Cap 371 prohibits a seller of cigarettes from selling multiple packets at an average price which is lower than if the same number of packets were sold individually.

SECONDLY WHETHER I was correct in holding that the appellant’s act in charging HK$56 for a double pack, amounted to the giving of valuable consideration under section 15A(3)(c) of Cap 371, on the basis that a single pack of the same brand cost HK$32.”

Analysis

6. For a short point of construction such as required by the present case stated, I do not propose to set out the arguments of the parties before me which, for the appellant, consists of a repetition of their contention at trial, plus a point-by-point reply to the magistrate’s reasoning as quoted above, and for the respondent, a simple and sustained insistence that the magistrate’s interpretation of the provision is correct.

7. On the contrary, I have the following observations the setting out of which is in my view important to this appeal.

8. The first is that Exhibit P2, the double pack, looks every way a stand-alone product to me.  It consists of two single packs held together in a colour holder made of laminated paper depicting the traditional Marlboro man on horse scene — a holder though not elaborately constructed cannot be described as makeshift.  It had its own bar code which is why Exhibit P4, the receipt, recorded it as a separate item.  There was never any suggestion that the double pack was the brainchild of the appellant.  Quite the opposite, there is no dispute at least before me that this product came from somewhere high up in the chain of distribution.

9. The question thus arising is on what basis was the double pack called a “bulk purchase”, by which I take the magistrate to mean not a stand-alone product?  Would it make any difference if the holder were of a different design, one that consists of a sealed box?  As regards the words “Special Offer”, or “2 Marlboro $56”, it is not uncommon to find liquid products marked ‘__ % Extra Free’ on their different size bottles.  So where does one draw the line?  But the best example must be the multiple pack cartons of cigarettes.  The respondent is fair enough to concede as common knowledge that they sell at a cheaper average price per pack than the single pack products.  Presumably they are “bulk purchases” that should be caught by section 15A(3)(c)?  These are not easy questions for the respondent.

10. But even assuming for the sake of argument that the magistrate is correct, that the double pack Marlboro is but a way of discounting the purchase of two single packs, and that the discount amounts to “valuable consideration”, the question still arises as to where that proposition would take us.  The very drastic answer seems to me to be a complete ban on discounts on cigarettes, irrespective of circumstances (like in a closing down sale), and in whatever way they are packaged (single, double or multiple packs), for there is no escaping the conclusion that any discount is intended to “induce” purchase.  As a matter of fact, I am not sure section 15A(3)(c) thus interpreted should not catch the shopkeeper who pitches the price of his tobacco products below the market level.  It should if by implication the term “valuable consideration” is given the meaning of consumer savings (as in a discount), and/or if the respondent is right that discount equals asking for less than what one is “entitled” (counsel’s words exactly).  Any attempt at making a distinction between pronounced discounts and quiet competitive pricing is artificial.  But these are drastic conclusions bearing in mind that there is no government stipulated price for tobacco products, or other consumer products for that matter.

11. Having made my observations, I turn to the provision in question.  Its true construction determines what applications it has in real life situations, whether or not drastic.  Section 15A is set out below in its entirety :

“15A.     Prohibition on Selling or Giving of Products, etc.

(1)	No person shall sell any cigarette, cigarette tobacco, cigar or pipe tobacco to any person under the age of 18 years.
(2)	No person shall, for the purposes of promotion or advertisement, give any cigarette, cigarette tobacco, cigar or pipe tobacco to any person. (Amended 93 of 1997 s. 19)
(3)	No person shall—
	(a)	sell, offer for sale or give a tobacco product to any person in exchange for a token;
	(b)	give to any person a tobacco product as a prize in any event or competition;
	(c)	give valuable consideration to any individual in order to induce him to buy a particular tobacco product or otherwise to promote to him that tobacco product;
	(d)	sell, offer for sale or possess for the purposes of sale a tobacco product which includes or is accompanied by a gift;
	(e)	sell, offer for sale or possess for the purposes of sale a tobacco product which includes or is accompanied by a token, stamp or raffle ticket, which may be exchanged for a gift, prize or discount on any product;
	(f)	sell, offer for sale or possess for the purposes of sale a non-tobacco product which includes or is accompanied by a tobacco product as a gift; or
	(g)	give to any person any object which contains the name or trade name of any person associated with the marketing of cigarettes, cigarette tobacco, cigars or pipe tobacco or contains any trade mark or brand name of a tobacco product or any pictorial device or part thereof commonly associated therewith, and which is intended to be shown in public.”

12. On my reading, everything else that is prohibited under subsection (3) pertains to an act or matter extraneous to the tobacco product — the substitute token in sub-subsection (a), prize-giving event in sub-subsection (b), accompanying gift in sub-subsection (d), accompanying token, stamp or raffle ticket in sub-subsection (e), sale of non-tobacco product in sub-subsection (f) and object to be shown in public in sub-subsection (g).  In the circumstances, it is not unreasonable to ask if “valuable consideration” in sub-subsection (c) should mean something less intrinsic than a discount.  That is the first point.

13. Both sides agree that in order to ascertain the mischief aimed at by legislation, I should have regard to the Explanatory Memorandum attached to the Smoking (Public Health) (Amendment) (No. 2) Bill 1997 enacting the provisions.  This is what the passage explaining the then new subsection (3) says :

“Clause 18 amends section 15A(2) to prohibit the giving of any tobacco product to any person for the purpose of promotion or advertisement.  This clause also prohibits the giving of a tobacco product in exchange for a token, as a prize, at a promotional discount or with any gift attached, or attached to any non-tobacco product sold.”

The same passage was relied on by the magistrate to arrive at his conclusion in paragraph (vi)(b) of his findings (see paragraph 4 above).

14. Admittedly, taking into account what the passage says in seriatim, and the number of sub-subsections and their contents, “promotional discount” does seem to correspond roughly to sub-subsection (c) and its purview, which opens the way to the magistrate’s conclusion.  There is of course this question of how something can be “given” at a discount but since reference is made to giving (as opposed to selling) tobacco products in other prohibited situations (when the seemingly parallel sub-subsections are all about selling), I am prepared not to read the passage with the kind of exactitude that written law should. 

15. The real difficulty arises however when one looks at the Chinese rendering of that passage :

「草案第18條修訂條例第15A(2) 條，以禁止為推廣或廣告的目的而給予任何人任何煙草產品。該草案第18條亦禁止給予任何煙草產品，以換取憑證、作爲獎品或推廣折扣或連同任何禮物或連同任何作售賣的非煙草產品。」 [my emphasis]

It is clear from the words underlined that be it giving or selling (although it says “giving”), it is the tobacco product itself that cannot be turned into a “promotional discount”.  Whatever that means (could it mean the “return discount” in sub-subsection (e), to use the word of the magistrate?) one thing is clear — it is not the discount in price that is prohibited.  To insist on that meaning is to disregard the syntax of what is said.  The respondent does not argue otherwise.

16. Again for identifying the mischief, the parties are in agreement that I should look at the reading debate on the 1997 Bill.  I find the following passages most instructive.

17. In opening, in respect of what obviously falls within the purview of the now section 15A, this is all that the relevant policy secretary (Secretary for Health and Welfare) said :

“Apart from advertising, tobacco promotion can also take the form of giving cigarettes out as free samples, attaching free or discounted-price items to tobacco products or exchange packages for gifts or entry to various events.  We propose to ban all such forms of tobacco promotion.”

18. Likewise, the Chairman of the Bills Committee identified for the debate four main issues none of which concerns anything anywhere near the subject matter of this appeal.  This is how she summed up the position :

“The Bill before us today is a carefully formulated proposal which contains measures that are already widely implemented elsewhere.  It is by international standards, Mr President, a very mild Bill.”

19. In short, there was not a single reference in the entire debate to the discount of cigarette prices as a promotion tactic, or any legislative proposal installed to counter it.  Had outlawing discounts been one of the purposes behind section 15A(3)(c), I would be extremely surprised that there should be such silence.  Given its far-reaching implications, I would expect a much more lively debate over a much more clearly worded provision.

20. The remaining question is — if the term “valuable consideration” in sub-subsection (c) does not cover monetary discounts, what will it cover?  Will the whole of the sub-subsection be rendered meaningless?  On this I agree with the appellant that it will not, and that it may cover such things as services.

Conclusions

21. To recap, I disagree that Exhibit P2, the double pack, is not a stand-alone product.  But insofar as I am bound by the magistrate’s finding to the contrary (this being a case stated) I am nevertheless satisfied that banning discounts is not the intention behind section 15A(3)(c).  Neither the statutory framework nor the legislative council debate concerned supports such a contention.  The results that that interpretation will lead to are also too extreme for me to be differently persuaded.  In the circumstances, I will answer both the questions posed in the negative.  If the legislature wants to achieve the policy objective the respondent now advances, it will have to make it crystal clear in the ordinance.

Judgment

22. The appeal is allowed.  The conviction of the appellant is quashed and his sentence set aside.