CP SHIPS USA LLC (formerly known as LYKES LINES LTD LLC) v. CHIEF EXECUTIVE OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION

HCAL 124/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 124 OF 2006

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J U D G M E N T

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I.  Introduction

1.  In 2004 consignments of machine guns and sub-machine guns were imported into Hong Kong from Malaysia without a licence.  The guns were to be transshipped from here onto a US-bound vessel operated by the Applicant (CP Ships).  Once in the US, the guns were to be made non-functional and their parts sold to collectors.

2.  CP Ships’ senior management had been unaware of the consignments prior to their entry into Hong Kong.  When senior management learned of the cargoes, they promptly informed the Government.  This led to the seizure of the guns.

3.  CP Ships then petitioned the Chief Executive for the return of the guns in order to send them back to their owners.  The Chief Executive refused the petition.

4.  It is against that refusal that CP Ships now seeks judicial review.  In particular, CP Ships advances the following complaints:

(1)     The Chief Executive did not give reasons for his refusal.

(2)     In any event, the refusal was based on misstatements of fact and law in a briefing memorandum dated 26 April 2006 (the Memo) prepared by the Administration for the Chief Executive.

(3)     The seizure of the guns was a disproportionate response to their importation without a licence.

5.  The Government disputes CP Ships’ grounds.  It also raises a preliminary issue.  That issue is whether CP Ships (not being the owner of the guns) had any locus to petition the Chief Executive for the release of the machine guns seized.

II.  BACKGROUND

6.  CP Ships operated as Lykes Lines Ltd. LLC in 2004.  It is a Delaware company, registered in Hong Kong as an oversea company under Part XI of the Companies Ordinance (Cap.32).

7.  In 2004 CP Ships ran a container shipping business as part of the CP Ships Group (the Group) of companies.  CP Ships (UK) Ltd. is a company within the Group.

8.  In 2004 the Group had its regional headquarters in Hong Kong.  It had offices in a number of port cities.  But it did not have an office in Malaysia.  Instead, it appointed Sealord Shipping Services Sdn Bhd (an independent company not belonging to the Group) as Malaysian agent.

9.  On 15 April 2004 Sealord shipped 2 containers on board the “Hansa Centaur” (a feeder vessel) at Keelung. 

10.  The “Hansa Centaur” is owned by a German company.  It was on time charter to Sea Consortium Pte Ltd.  The latter had an agreement with CP Ships for the carriage of relevant cargoes.  The “Hansa Centaur” had its own agent in Hong Kong, Ben Line Agencies Ltd.  Ben Line is not part of the Group.

11.  The containers were stuffed with Bren light machine guns, Sten and Sterling sub-machine guns, and machine-gun magazines and fillers (collectively, the goods) to a value of about US$400,000.  The goods were being shipped by Tame Consult Sdn Bhd to Pacific Armament Corporation and Sarco Inc. in the US.

12.  The goods were obsolete stock of the Malaysian police force.  They were being sent to the US for disassembly and reduction to non-functional parts.  The parts would then be sold to collectors.

13.  Sealord intended the goods to be transshipped from the “Hansa Centaur” to the “Lykes Racer” in Hong Kong.  The “Lykes Racer” would then on-carry the goods to the US consignees.  CP Ships operated the “Lykes Racer”. 

14.  Export licences from Malaysia had been granted by the Malaysian authorities.  Import licences into the US had been granted by the US authorities. 

15.  But, for reasons unknown, neither the Malaysian consignor nor US consignees obtained licences to import the goods into Hong Kong.  Further, again for reasons unknown, Sealord did not obtain prior approval or authority from CP Ships or the Group for the transshipment of the goods in Hong Kong on the “Lykes Racer”.

16.  Until the arrival of the goods in Hong Kong on board the “Hansa Centaur”, CP Ships had minimal dealings with the consignor or consignees of the goods. 

17.  CP Ships’ only involvement had been limited to dealings between Sealord and CP Ships’ pricing department as to whether CP Ships could quote a freight for the carriage of the goods from Hong Kong. 

18.  On 14 April 2004 Ms. Lily Sit of the pricing department had told Sealord that CP Ships could not accept the cargoes of machine guns.  Nonetheless, on 16 April 2004 Sealord informed Ms. Sit by telephone that the cargoes had been shipped on the previous.

19.  Having shipped the goods on board the “Hansa Centaur”, Sealord entered details of the consignment into LYNX.  LYNX is the Group’s data management system.  The information in LYNX is used to produce cargo manifests and bills of lading for a consignment.

20.  Sealord had not informed CP Ships’ transshipment department about the goods.  The transshipment department apparently did not know about the nature of the goods being imported until about 29 April 2004, by which time they were already in Hong Kong.  Further, as information about the consignments had been entered into LYNX, it was wrongly assumed that the shipments (whatever they comprised) had been authorised.

21.  Thus, shortly before the “Hansa Centaur” arrived in Hong Kong, following its normal practice, CP Ships UK submitted a cargo manifest for the goods and other cargo to the Hong Kong Customs and Excise Department.

22.  By fax dated 17 April 2004 Customs and Excise notified CP Ships UK that the “Hansa Centaur” had been selected for a spot check.  Customs and Excise requested a set of import cargo manifests from CP Ships covering all import and transshipment consignments.

23.  Accordingly, on 19 April 2004 Ms. Wendy Wong of CP Ships UK obtained details of the goods (among other cargo) from LYNX.  She submitted a document entitled “Import Cargo Manifest (including transshipment)” to Customs and Excise.  Ms. Wong was not aware that CP Ships had not authorised the shipment of the goods on board the “Lykes Racer”.

24.  The Import Cargo Manifest described the goods as follows:

(1)     “LMG BREN 303 MK II MAG BREN”

(2)     “SMG 900 STERLING, SMG STEN 9MM MKV, MAG FOR STEN, MAG FOR STERLING”.

25.  It will be noticed that, unless one knew that Bren, Sten and Sterling were types of machine guns, a lay person might not realise on perusing the Import Cargo Manifest that it was describing machine guns and their magazines.

26.  Later that day Customs and Excise informed Ms. Wong that the “Hansa Centaur” had passed its spot check.

27.  On 20 April 2004 the “Hansa Centaur” arrived in Hong Kong.  The goods were taken from the vessel to a storage facility of Floata Consolidation Ltd. at Stonecutters’ Island to await transshipment on the “Lykes Racer”.

28.  On about 29 April 2004 the Group’s senior management became aware that the goods had been shipped to Hong Kong without CP Ships’ prior approval or authority.  Precisely how senior  management became aware is unclear.

29.  Realising that the goods had been brought into Hong Kong without the necessary Trade and Industry Department import licence, CP Ships instructed Floata to hold onto the goods and not to load them on board the “Lykes Racer” for the US.  It was CP Ships’ intention to cause the goods to be returned to Malaysia instead.  CP Ships also reported the matter to Customs and Excise.

30.  On 30 April 2004 Customs and Excise seized the goods pursuant to Import and Export Ordinance (Cap.60) (IEO) s.27(6).  This was because the goods were strategic commodities.  Import of such goods into Hong Kong without a licence is prohibited by the IEO and the Import and Export (Strategic Commodities) Regulations (Cap.60 sub leg G). 

31.  Customs and Excise gave a receipt for the seized goods.

32.  On 3 July 2004 CP ships’ solicitors informed Customs and Excise that a petition would be submitted to the Chief Executive for the return of the goods.  This would be done pursuant to IEO s.30. 

33.  In its petition, CP Ships contended that the forfeiture of the goods was out of proportion to any wrong done and would not further IEO’s objects.  CP Ships also said that it may suffer undue hardship if the Goods were not returned to their owners.

34.  Between mid-2004 and late 2005 a lengthy correspondence took place among CP Ships; the Commerce, Industry and Technology Bureau (the Bureau); and Customs and Excise about the merits of the petition. 

35.  The correspondence culminated in repeated requests by CP Ships for an oral hearing in respect of the contentions in the petition.  The Bureau refused such hearing.

36.  The petition and the ensuing correspondence among CP Ships, the Bureau and Customs and Excise were all placed before the Chief Executive for his consideration.  In addition the Bureau put the Memo before the Chief Executive.

37.  By letter dated 29 August 2006 the Bureau informed CP Ships’ solicitors that on 15 August the Chief Executive had rejected the petition under IEO s.30.

38.  Originally, the Chief Executive signified his refusal of CP Ships’ petition by simply writing the following at the head of the Memo:

“Reject the petition.  Continue to forfeit the confiscated goods except the magazine fillers which should be returned to the consignees.”

39.  The magazine fillers were ordered to be returned pursuant to a recommendation in the Memo.  The fillers were returned because, as the Memo pointed out, they “should not be classified as controlled item under Hong Kong’s strategic commodities list”.

40.  Much later, on 29 January 2007, in response to this judicial review application, the Chief Executive issued the following memo explaining his decision:

“I have read M.1 dated 26 April 2006 [the Memo] again.  I confirm that I had carefully considered the facts and submissions set out in M.1 before I decided to reject the petition.

2.      I had considered the representations submitted by the petitioner [CP Ships], as well as the responses from the Administration.  In particular, I had taken into account those factors in favour of the petitioner in my consideration.  I agreed with the Administration’s observations and accepted the Administration’s recommendation, since I was of the view that the considerations set out by the Administration outweighed those advanced by the petitioner.”

41.  Note that the US consignees apparently also submitted petitions to the Chief Executive.  It appears that those petitions were likewise rejected.  However, the reasons for the Chief Executive’s rejections of those petitions are not in evidence before me.

42.  On 26 February 2005 a summons was issued against CP Ships UK for the offence of omitting a material particular in an import cargo manifest contrary to IEO s.36(1).

43.  On 17 October 2005 the magistrate dismissed the charge. 

44.  This was because (the magistrate reasoned) all parties accepted that CP Ships UK was not the owner, master or agent of the “Hansa Centaur” on which the goods had been imported into Hong Kong.  Therefore, CP Ships UK had not been legally required within the terms of the IEO to provide a cargo manifest in relation to the goods to Customs and Excise.  If Ms. Wendy Wong had done so, that would only have been on a voluntary basis.  Such conduct could not be subject to penal sanction under the IEO.

II.  Discussion

A.  Preliminary issue: Whether locus to petition

45.  By IEO s.30, where goods have been seized under s.27(6), a “claimant” may petition the Chief Executive for the return of the same.

46.  IEO s.2 defines a “claimant” as a person:

“(a)    who claims to be the owner of an article, vessel or vehicle liable to forfeiture under Part VI [where ss.27 and 30 are contained];

(b)     who is the authorized agent of a person claiming to be the owner of an article, vessel or vehicle liable to forfeiture under Part VI;

(c)     who was in possession of an article, vessel or vehicle at the time of seizure of the article, vessel or vehicle liable to forfeiture under Part VI; or

(d)     who claims to have a legal or equitable interest in an article, vessel or vehicle liable to forfeiture under Part VI,

and who makes a claim or petitions under that Part.”

47.  Mr Anderson Chow SC (appearing for the Government) submits that CP Ships cannot be a “claimant” as defined in the IEO for various reasons.

48.  First, CP Ships plainly is not the owner of the goods.

49.  Second, CP Ships cannot have any legal or equitable interest in the goods.

50.  Upon loading of the goods on board the “Hansa Centaur,” Sealord issued bills of lading for the goods which named CP Ships as carrier.  The bill of lading evidences a contract of carriage between a shipper and carrier.  However, this would not by itself (Mr. Chow says) give CP Ships a right to petition as a “claimant”.

51.  This is because under the definition of “claimant” in IEO s.2 does not include a person who merely has a contractual right to sue or be sued in relation to articles seized. 

52.  Third, in any event, on CP Ships’ own case, Sealord had no actual authority to enter into a contract of carriage in respect of the goods on behalf of CP Ships.  The loading of the goods on board the “Hansa Centaur” was done without CP Ships’ approval.

53.  Fourth, CP Ships never became a bailee of the goods. 

54.  The goods were never carried on board a vessel which it owned, managed or controlled.  The goods were instead carried on board the “Hansa Centaur” over which CP Ships held no right of ownership or control. 

55.  When the goods arrived in Hong Kong, they were transferred to Floata’s facility and never actually loaded on board CP Ships’ vessel “Lykes Racer”.  On the contrary, CP Ships expressly directed Floata not to load the goods on board the “Lykes Racer”.

56.  It follows that, up to the time of seizure, the goods never were in CP Ships’ possession.

57.  Fifth, insofar as CP Ships claims to have a right of petition because it was given a receipt by Customs and Excise for the seized goods, the receipt was made out to Lykes Lines (HK) Ltd.  The latter is on the face of it a different company, although presumably within the Group.

58.  It is true that the receipt bears CP Ships’ chop.  But (Mr. Chow stresses) the document is ambiguous as evidence that CP Ships comes within the IEO s.2 definition of “claimant”.

59.  Mr. Chow accepts that Government only raised the question of CP Ships’ locus to petition as a “claimant” at a late stage.  But he contends that, under IEO s.30, the Chief Executive cannot order the return of the goods to someone who does not qualify as a “claimant”.  Government’s delay in taking the point cannot confer a jurisdiction on the Chief Executive that he does not have under the IEO.

60.  In response to Mr. Chow, Mr. Philip Dykes SC (appearing for CP Ships) emphasises the Customs and Excise receipt as showing that the goods were seized from CP Ships.  Mr. Dykes also relies on the fact that Customs and Excise notified CP Ships and its solicitors of the seizure of the goods.

61.  Mr. Dykes says that CP Ships qualifies as a “claimant” by reason of “its contractual obligations as a carrier (‘legal or equitable interest in an article’) or by virtue of the fact that it was in possession of the Goods when they were seized while in secured storage”.

62.  In my view, it is unnecessary for me to decide whether CP Ships’ contractual rights and obligations under the bills of lading give it any legal or equitable interests in the goods shipped.

63.  I am satisfied that CP Ships was in possession of the goods at the time of their seizure.

64.  Whether or not Sealord was authorised to accept the specific consignment of goods here, there is no doubt that it did so on behalf of CP Ships as stated in the bills of lading.  It would have had usual or apparent authority so to act on behalf of CP Ships.  It is not apparent, for instance, that the shippers were aware of the restriction on Sealord’s authority arising from Ms. Sit’s communication to Sealord on 14 April.

65.  Thus, despite the restriction on Sealord’s authority, as between CP Ships and the shippers, there would have been a bailment relationship.  CP Ships would have obtained possession of the goods as bailee through its agent Sealord.

66.  It is true that Customs and Excise’s receipt of seizure was addressed to Lykes Lines (HK) Limited.  That company was dissolved in 2001. 

67.  The more pertinent fact would therefore appear to be that the receipt was received (and chopped as such) by CP Ships.  This indicates that at the time of receipt CP Ships was in possession and Customs and Excise so acknowledged.

68.  Mr. Dykes alleges that CP Ships had custody of the goods through the goods being held in Floata’s facility. 

69.  It seems that CP Ships initially caused the goods to be deposited with Floata.  There is further evidence that, following an instruction from CP Ships, subsequently Floata did not load the goods on board the “Lykes Racer”.  That is additional evidence of CP Ships’ possession or control of the goods, Floating holding the same as sub-bailee of CP Ships.

70.  Consequently, CP Ships has locus to bring this judicial.

B.  Issue 1: Whether reasons required

71.  In fact reasons were given by the Chief Executive, albeit after the event, in January 2007.  I will assume for the purposes of this issue that, on some basis or another, I should ignore those subsequent reasons.

72.  There is no general duty at common law for reasons to be given in support of an administrative decision. 

73.  But the particular circumstances of a case may require that exceptionally reasons should be given.  An example of such situation is where a decision appears on its face to be so contrary to common sense that fairness dictates that the person affected should be told the rationale for the seemingly aberrant decision.  See Cheng Chui Ping v. Chief Executive and another HCAL 1366 of 2001, 7 January 2002, at §§92-98 (Hartmann J).

74.  Mr. Dykes suggests that the Chief Executive’s refusal to release the goods is on its face just such an aberrant decision.

75.  Mr. Dykes stresses the following 3 factors:

(1)     CP Ships is not morally culpable for the import of the machine guns.  CP Ships did not solicit the goods, which were shipped without its knowledge.  Once it became aware of the goods in Hong Kong, it informed Customs and Excise.

(2)     CP Ships has a good record.  It has never been prosecuted for a breach of the IEO.

(3)     The machine guns were not intended for any unlawful use.  There is no question of the guns being smuggled or being used for terrorist activities.

76.  Given the 3 factors, Mr. Dykes argues that in the normal course of events the Chief Executive ought to have returned the weapons to CP Ships.  In the absence of reasons, the Chief Executive’s refusal (Mr. Dykes concludes) can only be regarded as aberrant.

77.  I am unable to agree.  I make 2 observations.

78.  First, as Mr. Chow points out, while Mr. Dykes’ 3 factors might (in isolation) favour the return of the goods, there were many other factors which the Chief Executive was entitled to balance.

79.  For example, in deciding whether to order the return of strategic commodities (here comprising a large quantity of over 2,800 guns) the Chief Executive was exercising a discretion involving substantial policy considerations.  Such policy content took this matter well beyond the immediate interests of CP Ships.

80.  Relevant policy considerations would include:

(1)     preventing Hong Kong from being used as a conduit for proliferation of controlled strategic commodities;

(2)     protecting domestic and regional security;

(3)     protecting Hong Kong’s reputation in the internationally in relation to the control of strategic commodities;

(4)     protecting Hong Kong’s reputation as a regional trading and financial centre; and,

(5)     deterring consignors, consignees, carriers or their agents from non-compliance with the IEO.

81.  Given the matters of policy involved, requiring the Chief Executive to give reasons in a situation such as this may lead to unfortunate results. 

82.  Such requirement may force him to “legalism”.  He may be compelled to express a subtle or difficult balancing of a wide range of non-legal considerations (some of which may only be intuitively grasped by virtue of his experience as an administrator) in a legal language which is wholly unsuited to the task.  Indeed, even if he were able sufficiently to articulate his motivations, ultimately they could not be justiciable by a Court in a judicial review.

83.  Second, I do not think that the decision is on its face aberrant.

84.  In the course of oral submissions, I asked Mr. Dykes whether the conduct of parties other than CP Ships was a relevant factor to take into account when deciding whether to return the goods.  Mr. Dykes replied that the conduct was not relevant.

85.  But I do not think that can be right. 

86.  Thus, for example, CP Ships’ ultimate objective in claiming the goods is to return them to their owner, whoever that might be, possibly the consignee or consignors of the goods.

87.  However, there is no evidence of the degree to which parties other than CP Ships (such as the consignor, consignees and Sealord) were or were not at fault in causing machine guns to be imported into Hong Kong without a licence.

88.  It must be relevant to consider whether, by releasing the goods to CP Ships so as to facilitate their return to consignor or consignees (and thereby possibly relieve Sealord of a problem which was its making), Government would be failing to deter third parties from complying with the IEO.

89.  Even excluding policy considerations, Mr. Dykes’ focus on the conduct of CP Ships (to the exclusion of all else), is too narrow.  I believe that one needs to look at a bigger picture.

90.  One must be able to take account of CP Ship’s avowed objective of obtaining the goods to return them.  One cannot help but note the lack of any explanation as to how consignor, consignees or Sealord came to import controlled goods into Hong Kong without a licence in the first place. 

91.  Looking at the wider canvas, I am far from persuaded that the Chief Executive’s decision can be described as something “aberrant” which cries out for explanation.

92.  In light of my observations, I conclude that the normal principle in relation to administrative decisions applies here.  There was no duty in the circumstances of this case for the Chef Executive to give reasons for his refusal.

C.  Issue 2: Whether the Memo was misleading

93.  CP Ships did not have an opportunity to respond to the Memo.  Indeed, it only learned of the Memo’s existence in the course of these judicial review proceedings.

94.  Mr. Dykes accepts that, given the lengthy correspondence (including enclosures) placed before the Chief Executive in relation to CP Ships’ petition, it would have been perfectly proper for the Administration to have prepared a document fairly summarising the arguments being made for and against the release of the goods to CP Ships.

95.  Mr. Dykes’ criticism is that the Memo went beyond such a summary.  The Memo was instead (Mr. Dykes suggests) a partisan document which was advocating a position.  Had CP Ships known about the Memo and its contents, it could have (Mr. Dykes contended) responded to its misstatements in a material way.  In so doing, CP Ships might have swayed the Chief Executive to take a different view.

96.  Therefore, Mr. Dykes contends that the process whereby the Chief Executive came to a decision was flawed and unfair.

97.  In this section, I will examine each of Mr. Dykes’ complaints of the Memo.  I shall assess the extent to which each complaint is justified and (if justified) might have had an effect on the Chief Executive’s thinking.

C.1  Criticism 1:  The Memo wrongly characterised CP Ships as a party which had broken the law.

98.  Mr. Dykes refers to §§25 and 27(b) of the Memo.  Those respectively state:

“The Petitioner considered that it was not an ‘importer’ and a law breaker, but the victim of the unauthorized act by a third party (its Malaysian agent).  It therefore considered that you [the Chief Executive] should not use forfeiture of the goods as a sanction on it in a situation where it had not committed any offence under the relevant legislation.  In this regard, we recognize that no prosecution action has been taken against the Petitioner so far.  However, it does not imply that there was no non-compliance of the law in respect of the importation of the goods concerned.”

“Whether it is a ‘first offence’

The present case is the first offence of the Petitioner.  We acknowledge that it is a positive factor to the Petitioner in this case.”

99.  Mr Dykes says that the passages suggest the CP Ships had actually offended against the IEO. 

100.  Had it known about the above passages, CP Ships (Mr. Dykes says) would have wished to point out the following:

(1)     That the offence of importing strategic commodities without a licence under the IEO could not be committed by a recipient of unsolicited items;

(2)     That the Department of Justice had considered the prospects of a prosecution of this offence and had decided not to go ahead; and

(3)     CP Ships UK had been prosecuted for an offence under the IEO but the charge was dismissed by the magistrate.

101.  I am unable to agree with Mr. Dykes that the passages were misleading.

102.  First, Memo §25 expressly states that CP Ships has never been prosecuted. 

103.  It is true that paragraph’s last sentence states that the non-prosecution of CP Ships “does not imply that there was no non-compliance with the law”.  But read in context I do not see any implication that CP Ships is guilty of or responsible for an actual offence under the IEO. 

104.  At most the last sentence is saying something like this: “In breach of the law, someone has imported strategic goods into Hong Kong without a licence.  Those goods have been rightly seized.  There can be no debate about the goods having been rightfully seized.  The question is whether the goods should now be released to CP Ships.”

105.  I do not think that such implication can be characterised as tendentious.

106.  Second, Memo §27(b) mentions “first offence” in quotations.  The use of quotations appears to have been picked up from CP Ships’ own petition.  There CP Ships’ wrote at §21:

“In the case John Richard Lindsay v. Commissioner of Customs and Excise [2002] 1 WLR 1766, the Commissioner in England forfeited a vehicle carrying a substantial quantity of cigarettes and tobacco in attempted evasion of duty.  The English Court of Appeal held that for forfeiture cases, the demands of proportionality would be borne in mind.  In that particular case (smuggling to evade duty), it was held that the principle of proportionality requires that each case should be considered on its particular facts, which include:-

(a)     the scale of importation;

(b)     whether it is a ‘first offence’;

(c)     whether there was any attempt at concealment, or its simulation [dissimulation?];

(d)     the value of the vehicle which was the property in question in that case; and

(e)     the degree of hardship that will be caused by forfeiture.”

107.  Lindsay involved a driver returning to England from Calais.  His car was found to have a substantial quantity of undeclared cigarettes and tobacco.  The latter should have been subject to customs duty.  The items and the driver’s car were forfeited.

108.  At §4 of his judgment Lord Phillips explained the prosecution policy of the English Commissioners of Customs and Excise as follows:

“Their policy is, however, only to bring a criminal prosecution in the most serious cases.  Their normal course is to rely, by way of sanction, upon statutory powers of forfeiture and condemnation, which do not involve a finding that a criminal offence has been committed.  That is the course they adopted in the present case.”

109.  Given the absence of a prosecution, Lord Phillips appears to have consistently used quotation marks around the words “first offence” in his judgment.  Consequently, in assessing the proportionality of a seizure such as that in Lindsay, it was relevant to consider whether it was the “first offence” of the person claiming the goods seized.

110.  Reading Lindsay, I take the quotations around “first offence” to mean that the person claiming return of seized goods has not actually been found guilty of an offence.  The person has simply found himself in a situation where undeclared goods in which he claims an interest have been seized.  The question whether it is a “first offence” effectively asks whether this is the “first time” that the person finds himself in such a situation.

111.  Viewed in context, all Memo §27(b) does is to ask whether this is the first time in which CP Ships finds itself in such a situation.  The paragraph expressly concludes that the answer to the question is “a positive factor to the Petitioner in this case”.  Memo §27(b) being in CP Ships’ favour, I do not see how it can be regarded as unfair to CP Ships.

112.  Mr. Dykes suggests that, possibly unaware of Lindsay, the Chief Executive casually glancing through the Memo may have read it as asserting that CP Ships was an offender.

113.  But that is speculative.  Looking at Memo §§25 and 27(b) in context, I do not think that the Chief Executive would have misapprehended CP Ships’ position.

C.2  Criticism 2: The Memo wrongly described CP Ships as the “local handling agent for the intended transshipment of the goods in questions from Hong Kong to the US”.

114.  The complaint is made in relation to Memo §4.

115.  I do not think that the description was wrong or misleading.  On the face of the bills of lading for the goods, CP Ships had undertaken to cause them to be transshipped in Hong Kong on board a ship bound for the US. 

116.  Even if the description were somehow in error, I do not see how the description can be regarded as materially prejudicing CP Ships’ case.

117.  In any event, for what it was worth, Memo §14 expressly noted that “the Petitioner pointed out that it was neither the local handling agent nor the importer of the forfeited articles”.

C.3  Criticism 3: The Memo wrongly stated that it was “not a foregone conclusion” that the Hong Kong Government would have issued an import licence.

118.  Memo §§13 and 24 stated:

“The Petitioner claimed that a licence would have been issued in normal course if an application for the import/export licence for the transshipment in Hong Kong had been made to TID.  In response, TID said that in determining whether a licence application should be approved, they took into consideration a number of factors.  Such factors include, for example, the use to which the commodities can be applied, the business nature of the consignee and end-user, and whether the export from the originating country or the import into the country of destination is authorised by the control authorities of the originating/ destination countries concerned.  Depending on the sensitivity of the goods, documentary proof of import or export authorizations from overseas authorities might be required to support a licence application.  The availability of such supporting documents was, however, only one of the factors to be considered by TID in the licensing process.  TID looked into every application and took into account the circumstances of individual cases before approving a licence application.  It could not be assumed that the granting of licences covering the seized goods was automatic or a matter of simple formality.  TID in the subsequent response in March 2005 considered that whether a licence would have been issued did not alter in any way the fact that a breach of the Ordinance due to unlicensed importation had been made.

....

The Petitioner claimed that a licence would have been issued in normal course if an application for such for the transshipment in Hong Kong had been made to TID [Trade and Industry Department], given that the import and export permits and documentation from the exporting country and the importing country in this case were all in order.  We recognise that these permits and documentation, if submitted by the Petitioner, might help address our concern over possible smuggling and proliferation.  However, we consider the Petitioner’s view in respect of the success of the application for the import/export licence pre-mature.  As pointed out in paragraph 13 above, TID would take into account a wide range of other factors as well when considering each application.  The granting of the licence should therefore not be taken as a foregone conclusion.”

119.  Mr. Dykes argues that, in all likelihood, had application been made to import the goods into Hong Kong, a licence would be granted.  He complains that the Memo did not state this, but to the contrary suggested that the granting of a licence in the circumstances of this case could not be assumed.  Rather than leave the question unanswered, the Administration (Mr. Dykes says) ought to have taken a definitive view on whether a Hong Kong import licence would have been granted.

120.  I do not see anything unbalanced in the passages which I have just quoted.

121.  I do not think that the Administration should be required to speculate in the Memo on whether a Hong Kong import licence would have been granted had an application been made.  The simple, unavoidable fact is that no licence was ever sought from the Hong Kong authorities and none was granted.

122.  Note that, as the Bureau pointed out to CP Ships, there were discrepancies in the Malaysian export and US import licences.  Thus, the Malaysian export licence only covered the machine guns (as opposed to ancillary items).  On the other hand, the import licence obtained by Pacific Armament did not cover the quantity of magazines actually being consigned.

123.  There may be valid explanations for these discrepancies.  But in its response to the Bureau, CP Ships’ solicitors could only speculate on possible explanations for the anomalies.  No hard information was put forward to explain the omissions in the licences. 

124.  In light of such correspondence (which came before the Chief Executive), a person might reasonably conclude that the issue of an import licence by the Hong Kong authorities was far from a certainty.  I therefore doubt that the grant of a Hong Kong licence may be regarded as the real or practical likelihood that Mr. Dykes suggests.

125.  I note in passing that Mr. Dykes submits that Memo §24 falsely suggests that there was no documentary evidence that the goods had been cleared for export from Malaysia or import into the US.

126.  I do not think that is right.

127.  As Mr. Chow points out, Memo §§10(a) and 13 expressly refer to CP Ships’ case that import and export permits and other relevant documents were in order.  Those materials were exhibited to the petition.  Memo §24 concerns the different issue of whether a Hong Kong import licence would have been granted, had one been applied for.

C.4  Criticism 4: The Memo assessed proportionality by reference to only a limited number of factors.

128.  Memo §§19 and 27 stated:

“On the principle of proportionality, DoJ [Department of Justice] has advised that in the present case, the petition to you under section 30 of the Ordinance would be the first opportunity in which consideration could be given as to whether the ‘fair balance’ had been achieved in the forfeiture.  It would be prudent that, in assessing the petition to you under section 30 of the Ordinance, the authorities involved acknowledge and properly take into account the property rights of the Petitioner and also adopt a fact sensitive approach taking into account all relevant factors, including the scale of the importation, whether it is a ‘first offence’, whether there was an attempt at concealment or dissimulation, he value of the forfeited articles, and the degree of hardship that will be caused by forfeiture.

....

In view of DoJ’s advice in paragraph 19 above, we have assessed the proportionality of the forfeiture decision:-

    (a)     The scale of importation

              ....

    (b)     Whether it is a ‘first offence’

              ....

    (c)     Whether there was an attempt at concealment or dissimulation

              ....

    (d)     The value of the forfeited articles

              ....

    (e)     The degree of hardship that will be caused by forfeiture

              ....”

129.  It will be seen that the Memo applied the proportionality factors listed in Lindsay and referred to in CP Ships’ own petition.

130.  When asked how then it could be said that proportionality had been assessed by reference to only a limited number of factors, Mr. Dykes replied that the Memo omitted to say that the factors in Memo §§27(a)-(e) were not exhaustive.

131.  But there is no substance in that complaint.  Memo §19 explicitly stated that the 5 factors from Lindsay were only inclusive and not exhaustive.

C.5  Criticism 5: The Memo emphasised that a large number of machine guns were involved.

132.  According to Mr. Dykes, the Memo ought to have (but did not) observe that “the matter should be seen in the context of the articles involved: obsolete armaments destined for decommissioning and conversion into collectors’ items”

133.  There is nothing in this criticism.

134.  The quantity of weapons being imported is obviously a relevant factor to take into account.

135.  Further, Memo §10 expressly noted CP Ships’ case that:

“The shipment was made pursuant to a legal and proper sale and purchase of the goods, as collectors’ items.”

C.6  Criticism 6: The Memo declined to confirm that there was no attempt at concealment or dissimulation.

136.  Memo §27(c) stated:

“Whether there was an attempt at concealment or dissimulation

We note that the Petitioner took the initiative to report the matter to [Customs and Excise] on 29 April 2004, which indicates that prima facie the Petitioner did not conceal or dissimulate the unlicensed shipment.  However, as pointed out by [Customs and Excise] in paragraph 12 above, the Petitioner’s report was a belated one in view of the admission of the Petitioner that on 16 April 2004 the Malaysian agent of the Petitioner did inform the Petitioner of the shipment of the forfeited goods from Malaysia on 15 April 2004, and the fact that the forfeited goods did arrive in Hong Kong on 20 April 2004.  In view of the gap of 14 days between 16 and 29 April 2004, we are not in a position to confirm whether there was no attempt at concealment or dissimulation on the Petitioner’s side.”

137.  Mr. Dykes says that the mere fact that Sealord entered the goods into LYNX upon shipment would not mean that CP Ships became operationally aware of the implications of the cargo at management level.  Further, the mere fact that the pricing department was informed of the goods, would not mean that the transshipment department would have become aware of the licensing implications.

138.  Consequently, there is simply no basis for suggesting (Mr. Dykes concludes) that CP Ships attempted to conceal or dissimulate.  Had CP Ships been aware of the Memo, it would have wished to point this out unequivocally to the Chief Executive.

139.  I do not find that the Memo gives an unbalanced view.  It seems to me that it accurately reflects both CP Ships’ case and that of Customs and Excise. 

140.  It may be that entering data into LYNX does not equate to actually alerting management at CP Ships.  But how did senior management at CP Ships eventually become aware of the shipment and its implications?  Why was there some delay after the arrival of the goods before senior management became fully aware of what had happened? 

141.  What procedures were in place at CP Ships to ensure that strategic commodities were not imported into Hong Kong without a proper licence?  It is not sufficient to say that the wrong department was told.  What system (if any) is there at CP Ships so that relevant information is relayed to the correct department at an early stage to prevent cargoes from being imported without a proper licence?

142.  Given queries of this nature, it was reasonable for the Memo to point out to the Chief Executive that the Administration could not categorically confirm an absence of concealment or dissimulation.

C.7  Criticism 7: The Memo referred to an alleged discrepancy in the value of the goods.

143.  As we have seen, in keeping with CP Ships’ petition, Memo §27 stated that the value of the goods was relevant to determining whether seizure was a proportionate response by the Administration.

144.  It was therefore important to identify the value of the goods.  But on this there was apparently some doubt.

145.  Memo §27(d) noted:

“According to the documents submitted by the Petitioner, the total cost of the goods was US$391,966, over HK$3 million.  However, we note from the information provided by the two US consignees in their petitions that the total costs of the goods should be US$219,430, i.e. around HK$1.712 million.”

146.  All Memo §27(d) was doing then was pointing out that the value of the goods may be less than CP Ships has suggested in the documents accompanying its petition.

147.  I do not see anything unfair in Memo §27(d).

C.8  Criticism 8: The Memo suggested that CP Ships would not suffer direct financial loss.

148.  Memo §27(e) stated:

“The degree of hardship that will be caused by forfeiture

In view of the role of the Petitioner as a carrier but not the owner of the goods concerned, we do not see that the Petitioner would suffer any direct financial loss due to the forfeiture of the goods.  However, we acknowledge that the Petitioner’s reputation might be damaged to a certain extent due to the forfeiture of goods.  We do not preclude the possibility that there might be claims and legal proceedings against the Petitioner depending on the terms of the contract(s) between relevant parties either.  However, as we have no knowledge about the contract terms, we are unable to estimate the degree of hardship to the Petitioner due to the possible claims and legal proceedings if the goods were not recovered.”

149.  Mr. Dykes submits that, had it known about Memo §27(e), CP Ships could have identified the categories of loss to which it would be exposed if the goods were not returned.

150.  I am not persuaded by Mr. Dykes’ summary.  On the contrary, I believe that Memo §27(d) was a fair summary of the situation. 

151.  Thus, for instance, I myself find it difficult to see precisely how CP Ships might suffer direct financial loss from the incident.

152.  Assume that Sealord had apparent authority to sign the bills of lading on CP Ships’ behalf.  Depending on the terms of the bills of lading, the consignor or consignee may then possibly sue CP Ships for failing to arrange for an import licence.  But CP Ships would merely join Sealord as a third party.  CP Ships would seek an indemnity against Sealord for any damages payable to the consignor or consignees as a result of Sealord exceeding its actual authority as agent.

153.  As Mr. Chow points out, it is significant that up to now CP Ships is unable to particularise the precise categories of direct loss to which it would be exposed if the goods are not returned.  There is simply a vague assertion that direct loss will ensue in CP Ships’ application for leave to apply for judicial review.

154.  As for indirect or intangible loss, CP Ships’ leave application identifies these as follows: “loss of business and damage to reputation and business confidence, the potential monetary exposure to litigation costs in several jurisdictions, and the unquantifiable loss in reputation and business confidence”.  But these factors are referred to in essence in Memo §27(e), which is careful to observe that such loss cannot be estimated at this stage.

C.9  Criticism 9: The Memo did not include CP Ships’ written submissions for an oral hearing.

155.  I do not see how it would have been relevant to the Chief Executive’s decision to include such written submissions by CP Ships.

156.  Memo §22 stated that CP Ships had requested an oral hearing.  But that request was turned down as:

“there has been an extensive exchange of written representations and responses on all of the material issues to which an oral hearing would not usefully add.”

C.10  Criticism 10: The Memo referred to the absence of a notice of claim.

157.  Memo §18 stated that CP Ships had not lodged a notice of claim for the return of the goods.  Instead CP Ships had petitioned the Chief Executive straightaway to save time and cost.

158.  The Memo does not say that CP Ships was wrong to have taken this course.  I see nothing unfair or misleading in the Memo stating this background fact to the petition.

C.11  Criticism 11: The Memo annexed press cuttings which were sensational and unbalanced.

159.  Mr. Dykes complains that annexed to the Memo were newspaper clippings which might have coloured the Chief Executive’s through a sensationalist slant on the discovery of the machine guns.

160.  I am unable to agree. 

161.  I have read the newspaper articles and find nothing in them that might have conveyed a wrong or misleading impression on the Chief Executive.

162.  When asked by me to identify passages in the newspaper articles which were sensational, Mr. Dykes pointed to the following passages:

(1)     From Apple Daily dated 3 May 2004 (in translation):

“The Hong Kong Customs and Excise Department (C&ED) together with the US customs anti-terrorist personnel stationed at Hong Kong have seized two containers loaded with firearms at the Kwai Chung Container Terminal, revealing the possible largest arm smuggling case in Hong Kong.  They found in the two containers more than 2,800 pieces of heavy and light machine guns and rifles shipped in from Malaysia for transshipment to the United States.  C&ED has investigated the shipping company which shipped the firearms to Hong Kong but has not caught any suspects involved in the case last night.  Investigation is till under way ....

....

....  Considering that the firearms were not free from suspicion of involvement with terrorism, the department in charge believed the case to be a serious one.  They lost no time to notify the US and Malaysian authorities to undertake investigation in their localities and C&ED went to a shipping company on the same night to check relevant documents.  They found the two containers did not have the necessary import and export licence but only warehouse bills.  Meanwhile, C&ED and the United States are joining hands in trying to find out the source and destination of the smuggled firearms. But so far no arrest has been made ....”

(2)     From Wen Wei Po dated 4 May 2004 (in translation):

“....

Malaysian Authorities Assisted in the Investigation

[Kuala Lumpur, May 3]  In response to an enquiry by the Nanyang Siang Pau, Director-General of the Malaysian Royal Customs Department, Tan Sri Abdul Halil Mutalib said today that he would order an urgent investigation into this incident to find out the facts upon returning to his country tomorrow.  He said that it would be a very serious case if substantiated, and that the Royal Customs Department would collaborate with the Police and other authorities to conduct a thorough and detailed investigation.

He said, ‘We will take this case seriously and fairly, since it involves foreign allegations that lawless elements are suspected to have used our ports for smuggling firearms.’  He said that the Royal Customs Department would have to investigate the case ....”

163.  I do not find anything sensationalist in the 2 passages singled out by Mr. Dykes.  He says that the passages may have suggested to the Chief Executive that the guns forfeited were involved in terrorism or smuggling.  He submits that the impression may be given that the US government had praised their confiscation.  This cannot have been the case in actuality since US import licences had (Mr. Dykes stresses) been granted.

164.  In actuality, the 3 May 2004 report from Apple Daily expressly pointed out that “the evidence so far available does not amount to show the firearms seized are connected with international terrorism”.

165.  The passage from Wen Wei Po comes at the end of an article which included the following:

“Upon investigation, the C&ED had ruled out any connection with terrorism or smuggling activities and would contact the line, the consignor and the US consignee concerned for a follow-up investigation.”

166.  If the Chief Executive had been in any doubt about this, he would presumably have noticed the following report (in translation) from Ming Pao dated 4 May 2004, also annexed to the Memo:

“Secretary for Security Ambrose LEE reiterated that no terrorist activity is believed to be involved in the case.  C&ED further elaborated that smuggling is not involved as the firearms in question were specified in the manifest, implying that C&ED was informed of the carriage of guns inside the containers when importing to Hong Kong.”

167.  Accordingly, it seems to me that the articles singled out by Mr. Dykes gave a fair picture of what was known in the course of ongoing investigations on 3 and 4 May 2004.

C.12  Criticism 12: The Memo recommends the rejection of the petition

168.  The Memo did not only state the parties’ various contentions.  It expressly recommend in its §2 that the Chief Executive reject the petition.

169.  Mr. Dykes submits that, even if the Memo gave a fair summary of both sides’ position, in recommending a particular action, the memo was unacceptably partisan.  It should simply have set out the arguments pro and con rejection and left it to the Chief Executive to decide without making any recommendation.

170.  I do not think that Mr. Dykes’ position is realistic.

171.  The Memo is not a judicial document, but an administrative brief.  It would have been obvious to the Chief Executive from reading the summary of views in the Memo that the Administration was advocating a rejection of the petition.

172.  Provided CP Ships’ stance was fairly set out in the Memo, it is hard to see how the Memo’s explicit recognition of what the Administration was obviously recommending somehow rendered the process unfair to CP Ships.

173.  Here I accept Mr. Chow’s submission.

174.  The IEO vests the power to accept or reject a petition in the Chief Executive alone. 

175.  But in coming to a decision the Chief Executive must be entitled to have the help of the relevant policy bureau to digest and analyse the materials involved and summarise the arguments for or against a petition. 

176.  He is entitled to draw on the collective knowledge and expertise of the bureau’s officers and receive their recommendations as to the appropriate course for disposing of a petition. 

177.  Any other system would be administratively unworkable, given the myriad responsibilities and matters to which the Chief Executive must attend on a day-to-day basis.  See, for example, Lau Kwok Fai Bernard v. Commissioner of Police and another HCAL No.95 of 2003, 29 December 2004, at §§74-78 (Chu J).

C.13  Summary on the Memo

178.  Mr. Dykes’ criticisms of the memo have not persuaded me.  In my judgment, the Memo provided a fair summary of CP Ships’ case and was not a misleading document.

D.  Whether forfeiture proportionate

179.  Mr. Dykes submits that I should find the rejection of the petition to have been disproportionate response in light of his 3 factors referred to above and the Memo’s inadequacies.

180.  However, I have concluded that Mr. Dykes’s 3 factors are too narrow.  I have also concluded that there is nothing so aberrant or counter-intuitive about the Chief Executive’s decision as to cry out for reasons.  I have also rejected Mr. Dykes’ case that the Memo was flawed.

181.  In those circumstances, I am unable to hold that the Chief Executive’s refusal was disproportionate.

IV.     CONCLUSION

182.  The judicial review fails.  CP Ships is a “claimant” within the terms of the IEO.  But its grounds for substantive review have not been made out.  In my judgment, there has been no unfairness in the process leading up to the Chief Executive’s decision.

183.  CP Ships’ application is therefore dismissed.

184.  There will be an Order Nisi that the costs of the judicial review are to be to the Government.  Such costs are to be taxed if not agreed.