THE QUEEN v. MAK SHUI CHO & SON LTD

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

Magistracy Criminal Appeal No. 22 of 1987

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JUDGMENT

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1. The appellant Company pleaded guilty to two offences contrary to regulation 2 of the Import and Export (Strategic Commodities) Regulations, Cap. 60. The first offence alleged that on or about the 21st October, 1984 the company imported strategic commodities, namely 300 sets of IBM PXCT computer system, not under and in accordance with an import licence granted by the Director of Trade. The second offence related to the export of those same goods by the company on the 26th October 1984 again without the required licence. The value (FOB) of the goods involved was $10,998,000.

2. The penalty on summary conviction for breach of the regulation is a fine of $500,000 and imprisonment for 2 years. For each of these offences, the magistrate imposed a fine of $50,000 and it is against the amount of the fine that the appeal is entered.

3. The facts of the case were agreed between counsel for the Crown and the solicitors for the appellant under section 65C of the Criminal Procedure Ordinance, Cap. 221.

4. Those facts are as follows:-

“The defendant company is e shipping agent situated at 19/F., Asian House, 1 Hennessy Road, Wanchai, Hong Kong.

2. Under the Import & Export (Strategic Commodities) Regulations, no person shall import or export strategic commodities into or from Hong Kong except under and in accordance with import and export licences granted by the Director of Trade. Strategic commodities are specified in the Schedule to the said Regulations. The Schedule is based on a list formulated by the Co-ordinating Committee for Multilateral Export Controls (COCOM), which comprises North Atlantic Treaty Organization and Japan as members, with the responsibility to restrict strategically - sensitive high technology equipment, such as electronic computers and computer parts, from being exported to proscribed countries, including the People's Republic of China.

3. Acting on information, officers of the Customs and Excise Department carried out an investigation into the defendant company regarding a shipment of 300 sets of IBM PCXT computer system imported into Hong Kong from Singapore and re-exported to the People's Republic of China. As a result, it was revealed that the shipment arrived Hong Kong on 21.10.1984 and was re-exported to China on 26.10.1984. The defendant company received the goods in three sealed containers and then arranged the onward delivery of the same to China and also prepared and handled all the shipping documents. The said containers were described in all shipping documents including the Bill of Lading as containing 'one lot of power supply' which would require an export licence for electrical products. The goods were at the time exported under the cover of an Export licence for Transhipment Cargo for Foodstuffs and Electrical Products. There was no Import Licence nor Export Licence applied for to cover the import and export of the computer systems.

4. As confirmed by the Postmaster General, the computer systems were classified as strategic goods under the Schedule to the Import and Export (Strategic Commodities) Regulations. Therefore, the goods should be covered by relevant import and export licences granted by the Director of Trade. Although the goods are classified as strategic, they have been and are on sale to the public in Hong Kong.

5. The value of the consignment in question was HK$10,998,000. The defendant company was established on 27.6.1980 with 8 paid up capital of HK$200,000. The business turnover from 1.7.1984 to 30.6.1985 was about HK$118 million.

6. The Crown has no evidence to establish that the defendant company at the material time has knowledge that the said containers contained computers."

5. As it can be seen then, the appellants were purely forwarding agents who did no more than arrange for the goods to be off-loaded in Hong Kong and transhipped to the consignees. The goods remained throughout in the same containers.

6. In their dealing with the goods the company relied on their description as set out in the bill of lading which was prepared by the deceitful consignors in Singapore. That bill of lading was deliberately misleading and complaint is made that the magistrate has visited the sins of the consignor upon the affidavit company, a mere unsuspecting shipping agent. It was argued by the appellant’s counsel that the magistrate was unfair in doing this and that he did not have sufficient regard to ordinary shipping practice as it exists in Hong Kong.

7. I am informer that such civil action which the appellant company would have had in damages against the consignors ceased after one year from the date of consignment and that because this offence did not come to light until after the expiration of that period no recourse is open to the appellant company.

8. It has been argued that there would be a serious and unacceptable delay in shipping business if forwarding agent, to avoid the draconian effect of heavy fines, had to open up and check the contents of each container arriving in Hong Kong before forwarding the goods to the consignee.

9. Mr. Poll argued that the appellant company was totally blameless in this case. He says the company had not deliberately imported or exported the prohibited commodities nor had it acted recklessly in the sense that it thought such goods might have been included in the containers but deliberately closed its eyes to that risk. He says the appellant company was duped. He also pointed out that although the freight charge was US$810 the company only made 2% of that sum. Their profit, it is said, was in the region of $65. This court sees no reason to dispute these figures.

10. In looking at the matter overall it seems clear that the consignors practised deceit on the appellant company which accepted the integrity of the consignors with whom it had not done business before. No system of on-site inspection was carried out even if that could have been a practical measure in the circumstances.

11. However, the legislation imposes strict liability (see The Queen v. Lau Sai-wai [1985] HKLR 423) and the purpose of the legislation would be totally defeated if the punishment for infringerment of the regulation were watered down to that extent which effectively deprived it of its bite. This class of legislation can be found the world over and it behoves the shipping community to introduce its own measures to counteract or prevent or minimise abuses of the kind which have fallen on this appellant. The courts arc concerned with the just enforcement of the law. The fact that goods of the kind in this case are available to the public in Hong Kong is neither here nor there. The law prohibits their import end export except under licence and it is not open to the courts to question the wisdow of the legislature in extending the regulation to any particular commodity.

12. In assessing the fine to be imposed the magistrate had regard to the unreported cases or Popular Machinery Co. Ltd. v. The Queen (Crim. App. 950/71, Full Court) and The Attorney General v. Marvels Clothing Co. Ltd. (Review App. 7/84). The latter case was heard jointly with the case of The Attorney General v. Eagle's Eye (Hong Kong) Ltd. (Review App. 8/84) and is sometimes cited by that name. I might add that both these cases should be reported in the law reports notwithstanding that magistrates are familiar with their content. Be that as it may, the Pull Court in the Popular Machinery Case did not regard as excessive a penalty where the ratio of penalty to disclosed net profit was 2½ : 1.

13. The Court pointed out -

“In the present case the ratio of penalty to disclosed net profit was 2½ : 1 and we are of the opinion that such a ratio is by no means excessive. Indeed in Criminal Appeal No. 411/71 the appeal judge, though regarding the ratio of 8½ : 1 adopted by the learned magistrate in that case as excessive and allowing the appeal against sentence, substituted fines which bore the ratio of 5:1.”

14. In the Marvels Case the Court of Appeal looked at the matter afresh and in the delivering the judgment, Cons, J.A. said:-

“We agree that as a general rule it is undesirable to assess fines upon a purely mathematical basis. Nevertheless, in the interest of uniformity there must be some basic guideline, which can then be adapted by the individual court to the individual circumstances. We would suggest as that guideline a figure of 40% of the value of the goods. We appreciate that this will result in substantial fines, but in our view these are substantial offences and the action of the legislature in 1980 indicates that the legislature intended them to be treated as such.”

15. The offences under consideration in the Popular Machinery Case and the Marvels Case were not the same as that in this case but the guideline suggested in the Marvels Case was applied in the Attorney General v. Chan Kin-yam [1986] HKLR 115 (C.A.) which concerned a prosecution for exporting strategic commodities. The facts of that case however differ from these in this particular appeal in that the appellant herein was unaware that the goods concerned Here strategic commodities.

16. The magistrate had those cases in mind when he said:

“The guidelines on cases of this type give the Court the possibility of basing any fine on 40% F.O.B. or 2½ times the net profit. The freight charge here was $810.”

17. He was not provided with the net profit figure which was but a few dollars but instead selected the freight charge. Either way he considered those figures inappropriate. He said:-

“The appellant company could have been fined 40% of the value of the goods FOB being $10,998,000 which would result in a fine of $4,400,000 or 2½ x US$810 (the freight charge) = US$2,025.”

18. Both calculations seemed inapposite to him and with that conclusion this court agrees. The magistrate ended by saying -

“No authority was given to the Court which deals with the position of the Shipping Agent in relation to the contents shipped in sealed containers.”

Thus, the issue in this appeal is: on the facts of the case ware the fines imposed manifestly excessive or unjust?

19. The range of strategic commodities falling within the regulation varies from munitious, nuclear materials, chemical equipment, electronic and precision instruments and so on. Obviously no inflexible rule of thumb can be laid down as a sentencing policy. Each case must depend on its own facts. What is clear in this case is that the appellant company did not knowingly import or export the goods as strategic commodities. Also it is perfectly clear that the fine imposed was one tenth of the maximum allowed by law. There was no evidence before the court how sensitive IBM PXCT computer system are. All one can say is that they are strategic commodities. The appellant company was bound by law to ensure such were not imported into or exported from Hong Kong. It chose to deal with a customer with which it had no previous business experience. By virtue of the law it had thrust upon it the duty to make certain the documents it received were genuine. So far as law enforcement is concerned in cases of this kind the authorities in Hong Kong can only proceed against the local forwarding agents and it is they who must inevitably shoulder the responsibility to see the law is complied with. This is one of the risks of their business.

20. When considering sentence I do not think I should look at the act of importing and the act of exporting as a single activity. Each constituted a separate offence. After the goods arrived in Hong Kong the appellant company had possession of those goods with all the concomitant powers of inspection prior to exportation. It is contender that it is not feasible for forwarding agents to examine all the goods they deal with and that if they were required to check all goods in transit the shipping industry would grind to a halt. This is an argument against strict liability which can have no place in the enforcement of a regulation which imposes strict liability. It is a risk of the industry which the industry itself must seek to cater for.

21. Having regard to the nature of the goods involved, the fact they were a strategic commodity, the value of those goods, the size of the transaction and the fact that the appellant was a forwarding agent who has unsuspectingly used by a firm abroad I cannot say that the fine imposed on each summons was manifestly excessive when looked at in the light that each amounted to no more than one-tenth of the maximum fine permissible.

22. According this appeal against sentence is dismissed.