HKSAR v. WILLTOO CO LTD

HCMA1222/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO.1222 OF 2003)

(ON APPEAL FROM TSW21785-8 OF 2002)

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J U D G M E N T

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1. The appellant was convicted on 24 November 2003 by Magistrate, J.T. Glass of four charges of making a statement that was false or misleading in a material particular, namely, in a Manufacturer's Declaration on four applications for the issue of Export Licence (Textiles) Forms, contrary to Section 36(1)(a) of the Import & Export Ordinance, Cap.60. It now appeals each of those convictions.

2. It was admitted that the appellant was a garment manufacturer with a factory in Hong Kong. That export of most textiles products to the USA must be covered by export licences against quotas, and the quotas can only be utilized to cover the export of textiles products of Hong Kong origin.

3. At the end of November 2001, the appellant made four applications for Export Licence (Textiles) covering a total of 2,297.17 dozen ladies' 100% cotton knitted headbands under quota category No. 359 for export to USA. It was further agreed that the defendant company contracted out the cutting of the fabric to a factory on the mainland. The export licences were issued and the goods were exported to USA under those licences.

4. It was further admitted that in the manufacturer's declarations in support of each of the four applications for export licences, the appellant declared that it was the manufacturer of the goods covered by the licence application and that the goods were of Hong Kong origin.

5. To comply with the requirements that the goods be of Hong Kong origin, the goods must comply with circulars issued by the Trade & Industry Department setting out what was required by way of processing of materials to constitute a process which 'permanently and substantially changed the nature, shape, and form and utility of the raw material used'. This process had to be carried out in Hong Kong so as to entitle the manufacturer to a label of Hong Kong origin. The requirement for manufacturers to conform to the circulars issued by the Director General of Trade and Industry is set out as a condition to the licence application submitted by the appellant in each case. The applications were made on or about 27 November 2001.

6. In June 2001, that the Department of Trade & Industry issued circular number 05/01 that set out in detail the criteria for determining the country of origin for manufactured goods. It stated that those products that involved multiple country processing must be the products of a manufactured process in Hong Kong, which has changed and permanently and substantially the shape, nature, form and utility of the basic materials used in manufacture.

7. Appendix 1 of the circular sets out the necessary criteria. In the appendix, headbands, which were the subject of these applications, are treated differently from bathrobes and bathrobe belts. It is to be noted that the headbands manufactured by the appellant was to form part of a set, which included bathrobes and bathrobe belts. In the circular it sets out that the headband must have been manufactured from material and its principle processes must have been its cutting and sewing in Hong Kong.

8. For the bathrobes, the requirement was assembly of the component parts into a garment and the principle process must be the sewing, linking, stitching of parts into the garment. The headbands exported by the appellant were in breach of the circular as they had been a cut on the mainland and sewn in Hong Kong. Had they been manufactured before the issue of circular 05/01 they would not have breached the requirements of the Department of Trade & Industry.

9. The offences are ones of strict liability and on the admitted facts the appellant was guilty of the offences charged unless it fell within the statutory defence set out in s.36(1) of the Ordinance. The words of the defence are :

"unless he satisfied the court or magistrate he did not know and had no reason to believe the statement or information to be false or misleading or the omission to be material."

10. It is not in dispute that there was no intention by the appellant to make false statements in the application forms. This was not a case of a deliberate attempt to avoid the export rules by false labeling. It was the case for the appellant that the company had been in business for 30 years and that the person in charge of making the applications, who was the first defence witness, believed the headbands were a garment product that were part of one garment set and that the cutting process could be done outside Hong Kong but the sewing process must be done in Hong Kong. She testified that was the first time the appellant had produced headbands independent of other garments and confirmed she made no enquiry with the Trade & Industry Department as to which processes had to be carried out in Hong Kong for headbands.

11. The magistrate found that she knew there was no one category for bathrobes and headbands and she knew that different categories of goods sometimes had different principle processes and that there were exceptions. She knew also that the Trade & Industry Department in Hong Kong stipulated the principle processes and that she could approach them at any time for help and guidance.

12. Those employed by the appellant knew that circulars were issued by the Trade & Industry Department from time to time and that those circulars made it clear to traders that it was their responsibility to make sure the information and the declaration in electronic submissions for licences was accurate.

13. The test in determining whether the appellant had, on the balance of probabilities, made out the defence set out in the statute is a two-part test. Firstly, it is for the appellant company to prove subjectively that it did not know that the information was false in a material particular in respect of these charges.

14. The magistrate was satisfied that the appellant had made out that limb of the defence. It is the second part of the test that is at issue. That is that the appellant must prove that it had no reason to believe the statements to be false and that is an objective test.

15. The same words were considered in HKSAR v. Tan Say Seng, [2000] 3 HKC 236, where Beeson J considered the statutory defence contained in section 118(1)(6) of the Copyright Ordinance, there it was a defence for a defendant to prove that he had no reason to believe that the copy in question was an infringing copy of a copyright work. She said this :

"In stating the test the magistrate relied on a case of R. v. Chan Shing Kau, MA1234/1990 (unreported) wherein the test for a similar provision was stated by Wong J (as he then was) to be an objective test."

A similar two-limbed statutory defence, albeit the more onerous one of due diligence, in section 18(2) the Import & Export Ordinance, Cap.60, was examined by Stock J in R. v. Chan Kim Fai, MA982/1993 (unreported). He endorsed the objective test adopted by the magistrate in his Statement of Findings:

"In my view reasonable diligence does not mean the doing of everything possible, like the thorough search by the Customs Officers. That standard would be too high; but it must mean such diligence as an ordinarily prudent and diligent man would exercise under the circumstances of his case."

16. The first ground of appeal was that the magistrate erred in determining that the statutory defence to s.36(1) of the Ordinance had not been made out in that :

(1) There was no evidence upon which to make a positive finding that the appellant had received the Trade Department Circular 05/01 and that DW1 had simply "not read the circulars carefully" and being seized with relevant knowledge overlooked it;

(2) that the Magistrate erred in respect of his approach to recklessness. Mere of recklessness on the part of DW1 did not negative the statutory defence;

(3) that he placed insufficient weight upon the fact that DW1 had relied on the expert advice of a surveyor;

(4) that he placed too much weight on the various warnings in Trade & Industry Department circulars that the content of the circulars may change;

(5) that he erred in considering it relevant that the Director General of Trade & Industry has authority to impose conditions on the issue of a licence.

17. It is clear that the appellant company was in receipt of circulars when they sought to fill in the application forms for export licence because they did so by reference to Certificate of Origin circular 3/96. That was the circular that declared the origin of goods as Hong Kong upon the basis that the sewing process took place in Hong Kong.

18. The evidence of DW1 was that she was the only person in the appellant who dealt with country of origin matters and that she received the circulars that her company was sent. She gave evidence that her company had not received the circular 05/01 and that assertion in her evidence was rejected by the magistrate.

19. Having found that the company must have received the circular, he drew the inference that she had not consulted it or if she had did not read it carefully. He drew that inference from her lack of knowledge of its contents. The magistrate heard the evidence, the transcript is not before me, and I can see no reason to take issue with the magistrate on this matter of fact.

20. The magistrate found the appellant to be reckless. The magistrate said this :

"I found the word 'false' used in this context was one which covered either a dishonest declaration or a reckless one, as otherwise it could only be said to have been a wrong declaration. I did not find the word 'misleading' was a correct word for this case. As I have found the declarations were not misleading but false. I found, however, I was satisfied beyond reasonable doubt that the defendant had been proved beyond reasonable doubt to have been reckless for these due declaration about headband."

21. I was referred by Mr Bruce to the case of R. v. G & anor, [2003] AELR p.765, that case concerned a charge of recklessness, contrary to section 1 of the Criminal Damage Act 1971, and the court considered the issue of recklessness :

"... It is a salutary principle that conviction of serious crime should depend upon proof not simply that the defendant had caused (by act or omission) an injurious result to another, but that his state of mind when so acting was culpable. Although the most obviously culpable state of mind was an intention to cause the injurious result, knowing disregard of an appreciated and unacceptable risk of causing an injurious result or a deliberate closing of the mind to such would be readily acceptable as culpable also. It was clearly blameworthy to take an obvious and significant risk of causing injury to another. It was not, however, clearly blameworthy to do something involving a risk of injury to another if (for reasons other than self-induced intoxication) one genuinely did not perceive the risk. Such a person might fairly be accused of stupidity or lack of imagination, but neither of those failings should expose him to conviction of serious crime or the risk of punishment. ..."

22. Mr Bruce argues the appellant could not have been reckless given its belief that the headband comprised with the rest of the bathrobe one set of garments, a lack of knowledge of the contents of circular 05/01 and in the general circumstances of this case genuinely did not perceive the risk, and was therefore, not reckless.

23. The magistrate found that that the circulars issued by the Trade & Industry Department particularly No. 7/98 made it clear that Hong Kong origin criteria were subject to periodic review and that from time to time, trade circulars would be issued to inform the trade of up-to-date information in respect of Hong Kong's origin criteria, and corresponding principle manufacturing processes in respect of individual products.

24. Although Mr Bruce argues that the learned magistrate placed too much weight on the various warnings in the Trade & Industry Department circulars that the circulars may change from time to time the fact remained that a company dealing with these sort of garments was put on notice that changes would be made from time to time, that those changes may affect the country of origin criteria and that accurate information had to be put in the applications for export licences to avoid prosecution.

25. It is hard in the face of that knowledge to argue that the appellant genuinely did not perceive a risk that the criteria in respect of the headbands may have been introduced or changed or even that the country of origin requirements in respect of a whole set of bathrobes and headbands may have been changed. Failure to appreciate the risk in these circumstances could not be said to be a result of stupidity or a lack of imagination, but rather a disregard for warnings given on a number of occasions that circumstances might change and that manufacturers must be on their guard to check for such changes.

26. The magistrate was therefore entitled to come into conclusion notwithstanding the recent pronouncement in R. v. G that in these particular circumstances, the appellant had been recklessness to whether the material particulars in the declarations were false. A further argument in this ground of appeal, relates to the expert advice given to the appellant by a surveyor retained to by the importer to check the origin of the goods.

27. The nub of this argument must be that the appellant was entitled to rely upon that advice and to therefore, in the words of Stock JA in R. v. Chan Kim Fai, not use "such diligence as an ordinarily prudent and diligent man would exercise under the circumstances of his case". Even when such advice was available the Magistrate was entitled to find that the appellant, knowing where the information to satisfy the origin criteria lay, could not argue it had no reason to believe the particulars were false just because it had not used "the diligence an ordinarily prudent and diligent man would exercise" to ascertain what those criteria were.

28. Ground 2 was that the magistrate erred in holding that the prosecution need only prove recklessness in determining whether an offence is made out under section 36(1) of the Import and Export Ordinance. Whilst there was no intention by the appellant to falsify the declaration there was an obligation upon it to take care that they were up-to-date in respect the requirements or information for such applications contained in circulars from the Trade & Industry Department.

29. Having been made aware of the risk that criteria might have changed and then to proceed with the applications without checking whether change had occurred was to advert to the risk but to go ahead and take it. The Magistrate found in those circumstances the appellant had not discharged the second limb of the test and with that I agree.

30. Mr Bruce argues that given the complexity of the rules relating to country of origin criteria and the fact that the Department of Trade can effect change in those criteria at will inadvertence by a manufacturer in being wholly up to date with those criteria should not attract a criminal sanction. With that view I have some sympathy but to avoid liability the appellant must show objectively that it had no reason to believe the particulars were false. The Magistrate was right to find they had not done so.

31. The appeal against conviction is dismissed.