CP SHIPS USA LLC v. CHIEF EXECUTIVE OF THE HKSAR

cacv 204/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 204 of 2007

(on appeal from HCAL NO. 124 of 2006)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Reyes J given on 11 May 2007.  The matter before the judge was an application for judicial review of a decision of the Chief Executive made on 29 August 2006 rejecting the applicant’s petition for the return of articles seized by the Customs and Exercise Department on 30 April 2004 under the provisions of the Import and Export Ordinance, Cap. 60 (“the Ordinance”) and the subsidiary legislation.  At the conclusion of the hearing of this appeal this court reserved judgment which we now give.

Background

2.  On 30 April 2004 officers of the Customs and Excise Department seized a consignment of light machine guns and sub-machine guns which had been brought into Hong Kong without the necessary import licence which would have had to be obtained from the Trade and Industry Department.  There is no dispute that the importation of those guns into Hong Kong, even for the purposes of being shipped out, was prohibited under the Import and Export (Strategic Commodities) Regulations.

3.  The applicant was neither the owner of the goods nor was it the owner nor the operator of the ship which had brought them into Hong Kong.  The circumstances in which the goods had come to Hong Kong and the applicant’s involvement were referred to by Mr Dunlop, the applicant’s solicitor, in his third affidavit.  He exhibited, as HWD-25, a statement of John Quek Chin Chuan, the Vice President Commercial, Asia of the applicant, that had been made on 12 May 2004, about a fortnight after the seizure of the goods.  That statement had been sent to the Customs and Excise Department the day after it had been made.  It was said in the affidavit that the statement describes the circumstances in which the applicant’s senior management came to be aware of the shipment of the goods to Hong Kong.  The following is taken from that statement.

4.  The applicant is a member of a group of companies with its operational headquarters in the United States of America, its corporate headquarters in London and its regional headquarters in Hong Kong.  The applicant is one of the companies within the group which services transpacific shipping routes.  It has an agreement with Sea Consortium Pte Ltd of Singapore, which apparently, no doubt amongst other things, operates feeder vessels, for the carriage of containers on vessels operated by them at a rate which is agreed.  What appears to happen is that a through bill of lading is issued on behalf of the applicant by the agent of Sea Consortium who enters the details of the shipment into the applicant’s group’s computer system at the loading port.  The usual practice is for the applicant’s own agents in Hong Kong, CP Ships (UK) Ltd., another company within the applicant’s group, to arrange and submit import cargo manifests in respect of transhipment cargoes to the relevant authorities, including the Hong Kong Customs.

5.  When a rate is quoted by the applicant’s pricing department it will also specify any conditions which need to be satisfied, in particular any licensing or safety procedures.

6.  An approach was made by a customer in the United States of America to the head office of the applicant in December 2003 for the carriage of the particular consignment from Malaysia to the United States.  Discussions in relation to the shipment were conducted mainly through the head office of the applicant in the United States and a third party shipping agent in Malaysia namely Sea Lord Shipping Services (Malaysia) Sdn Bhd (“Sea Lord”).  The shipment was to be on “freight collect” terms.

7.  The pricing staff of the applicant in Hong Kong became involved in relation to the shipment at the beginning of March 2004.  They immediately raised the issue that the applicant does not carry machine guns.  However, the Hazardous Materials Department of the applicant in the United States advised that if the United States import licences were in order they would have no objection to the shipment.  The import licences were then provided by the customer.  Export permits were also provided to Sea Lord in Malaysia.  Paragraphs 13 and 14 of the statement then reads:

“	13.	Lengthy discussions continued between Sea Lord, the Customer Service Department of [the applicant]and Lily Sit (Ms) of the Pricing Department of the Hong Kong office.  On 13 April the Hong Kong Pricing Department authorised Sea Lord to issue a quotation for the carriage, which was however still subject to various conditions and confirmation being required.  On the same date, the Logistics Department in the USA advised that there was no permit for carriage of the cargo on rail.  Therefore, on 14 April a decision was taken not to accept the consignment
	14.	Lily Sit of the pricing team notified Sea Lord in Malaysia by telephone on 14 April that the previous quotation was withdrawn.  However, on 16 April Sea Lord advised Ms. Sit on the telephone that the cargo had already been shipped on 15 April 2003, which was with neither [the applicant’s] authority nor their approval.”

8.  The statement goes on to state affirmatively that the shipment had been made on the “Hansa Centaur” without the applicant’s authority and that Sea Lord, also without applicant’s approval, entered data regarding the consignment into the applicant’s shipment data system.

9.  It was apparently pure chance that on 17 April 2004 the Customs and Excise Department notified CP Ships UK Ltd. that the “Hansa Centaur” had been selected for a spot check and they requested a set of import cargo manifests covering all import and transhipment consignments.  Although CP Ships (UK) Ltd. was not the agent for the “Hansa Centaur”, since it had the information available, it provided it two days later.  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”.

10.  For some reason, this description did not alert the Customs and Excise Department to the existence of guns.  The reasons therefor and as to why no enquiries were made as to what was meant by the manifest, if the person reading it did not know, are not pertinent to this case.

11.  The shipment arrived in Hong Kong on 20 April.  The applicant did not take delivery of the containers because they were moved into storage.  It may be noted that the “Lykes Racer” on which the containers would have been shipped to the USA did not leave Hong Kong until more than a week later.  At paragraph 19 of Mr Quek’s statement it is said:

“

19.

At this stage, discussions continued at junior level between the USA office, Sea Lord in Malaysia and staff of the Hong Kong Pricing Department about logistical issues and the filing of rates with FMC [the Federal Maritime Commission of the United States with whom, apparently, a rate for the carriage of weapons had to be registered.] On about 28 April, this matter first came to the attention of senior management in [the applicant], in the USA.  The senior management there then contacted me.  This was my first involvement in this shipment.”

12.  Mr Quek then goes on to explain how it was considered that the shipment had to be returned to Malaysia and in paragraph 21 he said:

“

21.

I immediately gave instructions that the cargo must not be shipped on the intended onward carrier “LYKES RACER” for the onward voyage to the USA.  I contacted the Pricing Department and the Transhipment Department in Hong Kong to reject the shipment which had been shipped without acceptance or approval.”

13.  It was in those circumstances that on 29 April the Customs and Excise Department were notified of the shipment and the shipment was seized on the following day.

14.  The applicant appreciated the mandatory nature of the seizure provisions and thus at an early date, namely on 2 August 2004, petitioned the Chief Executive for the return of the goods.  Paragraphs 6 to 9 of the letter of petition read as follows:

“	6.	In December 2003 the consignees of the consignment first contacted Lykes Lines’ Head Office in the USA with a request to quote a rate for carriage from Kelang, Malaysia to Charleston, the USA.  After December 2003 Lykes Lines did not hear from them again until early March 2004, when the shippers or consignees contacted the Malaysian agent of Lykes Lines indicating that they wished to go forward with the shipment.
	7.	Lykes Lines operates in Malaysia through a local independent agent, Sealord Shipping Services (Malaysia) Sdn Bhd (“Sealord”).  Sealord is part of the Jardine Matheson Group.  The Hong Kong Office of Lykes Lines had no dealings with the intended shipper or consignees of the Goods.  The only dealings with the consignees leading up to the intended shipment were by the Tampa Office (in December 2003) and by the agent, Sealord in Malaysia (in March/April 2004).
	8.	On 15 April, without Lykes Lines’ approval, Sealord shipped the consignment at Port Kelang, Malaysia, on a feeder vessel “HANSA CENTAUR” intending (on the part of the consignees and no doubt Sealord) that it would be subsequently transhipped to Lykes Lines’ vessel “LYKES RACER” for onward carriage to the USA.  Transhipment for this purpose would take place in Hong Kong.  There was never at any stage an intention by any of these parties concerned – the shipper, the consignees, and the agent in Malaysia – that the Goods would remain in Hong Kong.
	9.	However, the consignment arrived in Hong Kong without the formalities of obtaining the import permit from the Department of Trade and Industry.  Lykes Lines themselves reported the matter to the Hong Kong Customs.”

15.  Regrettably those paragraphs clearly do not tell the full story.  It is evident from Mr Quek’s statement that the applicant was aware of the nature of the goods that were to be shipped.  The pricing department in Hong Kong raised the issue that the applicant would not carry guns.  It would seem that the Hazardous Materials Department then indicated the acceptability of the cargo, but in the process the Hong Kong regulations were overlooked.  There is no indication that prior to 28 April 2004, when the matter was raised with Mr Quek by senior management in the United States, any consideration had been given to the Hong Kong regulations.  Although paragraphs 11(c) and (g) of Mr Quek’s statement indicate that when a rate is quoted that would include matters relating to licensing in the port of transhipment, a careful reading of Mr Quek’s statement would indicate that consideration was given to the question of the guns constituting hazardous material, and that was the reason for the withdrawal of the quotation on 14 April, but as already stated above, there is no indication that the Hong Kong licensing requirements were considered.

16.  Hence, it was for reasons other than the Hong Kong regulations that it was decided on 14 April that the shipment could not go ahead.  The task of refusing the shipment was then delegated to one of the persons in the pricing department.  Two days later that person was well aware that shipment had been made the day after she had withdrawn the quotation.  Nothing was done about that shipment even though that person had been delegated the task of stopping it.  The inaction of the pricing department might be explicable on the basis that the difficulty which that department was focusing on was the hazardous material aspect which might have prevented the cargo being transported by rail once it reached the United States.  Apart from anything else, in those circumstances, it cannot avail the applicant to say that senior management was unaware of the shipment if the very person who was delegated with the task of stopping the shipment because of the nature of the contents of the cargo knew well that it was on its way.  Furthermore, as paragraph 19 of Mr Quek’s statement makes clear, even after the shipment had arrived in Hong Kong, the pricing department was still concerned to handle the consignment on the basis that it would proceed to the USA.

17.  Paragraphs 6 and 7 of the petition would appear to be misleading to the extent that it has the effect of disguising the applicant’s involvement.  The applicant was clearly involved in the shipment right from the beginning.  The final sentence of paragraph 7 would appear to be misleading to the extent that it completely omitted any reference to the involvement of Ms Sit and the pricing department.

18.  Petitions should be full and frank; matters must be presented fairly, accurately and with candour.  In Chevron Research Company’s Extension [1975] FSR 1 Whitford, J approved counsel’s submission that petitions are not the place for persuasive advocacy.  This matter is important in this case for 2 reasons.

19.  In the first place, it was important because it was the applicant’s case that it bore no responsibility for the shipment having been made via Hong Kong without the necessary permit.  A careful reading of Mr Quek’s statement would seem to lead to a different conclusion.  Whilst that might not benefit the applicant from one aspect, on another it might be important because in the course of argument it was said that the applicant might be at risk of being sued by the owners of the goods.  On the applicant’s arguments as presented any fault would appear to have lain with the agent in the Malaysia.  In the light of what is revealed by Mr Quek’s statement that might not appear to be the case.

20.  The second reason is that it could be anticipated that one of the matters that might be considered important is what systems the applicant has in place to ensure that Hong Kong law is adhered to and as to the effectiveness of those systems.  Apart from paragraph 11(g) of Mr Quek’s statement, there is no indication of what any such systems were.  That paragraph reads:

“

(g)

Once the commercial and logistical stages are determined, all regulatory requirements including licensing procedures and safety conditions at the respective ports of loading, discharge and transhipment (if any) will be identified and complied with.”

21.  Prior to the matter being submitted to the Chief Executive there was exchange of correspondence between the solicitors acting for the applicant and the Commerce, Industry and Technology Bureau.  The Bureau submitted a draft response to the petition to the solicitors for their comment.  Amongst other matters the question of the belated reporting in view of the knowledge of the pricing department on 16 April 2004 was raised.  There was also some correspondence directed to the request by the solicitors that there should be an oral hearing of the petition.  That request was rejected.

22.  The petition was eventually presented to the Chief Executive together with the memorandum which the Bureau had drafted and the correspondence which had taken place between the solicitors and the Bureau.  The Chief Executive refused the petition.  He wrote on the memorandum:

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

23.  After the present proceedings had been commenced the matter was referred to the Chief Executive again with a covering loose minute in which it was said that it was not considered that the Chief Executive was under a duty to give reasons in rejecting the petition but that it might be helpful to the court in considering the application for judicial review if the Chief Executive were to clarify the basis of his decision.  In response to that the Chief Executive sent the following memorandum:

“		I have read M.1 dated 26 April 2006 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, 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.”

24.  The application for judicial review was based on three main grounds.  The first was that the Chief Executive had not given reasons for his refusal of the petition.  The second was that the refusal was based on misstatements of fact and law in the memorandum which had been prepared by the Administration and submitted to the Chief Executive.  Finally it was said that the seizure of the guns was disproportionate in relation to the act of importation without a licence.  The judge rejected all three grounds.  He considered that the Chief Executive was not under an obligation to give reasons in support of an administrative decision and the circumstances of the case did not impel him to do so.  The judge then went on to consider the various criticisms which had been made of the memorandum.  In summary the judge said that he was not persuaded in respect of any of the criticisms of the memorandum and that he considered that the memorandum provided a fair summary of the applicant’s case and was not misleading.  Finally he also did not see that the forfeiture was disproportionate.

This appeal

25.  On this appeal, Mr Dykes SC, who appeared on behalf of the applicant, again took similar points.  The first point was that the Chief Executive was required to give reasons for his rejection of the petition.  I would agree with the judge that for the purposes of deciding whether the Chief Executive should give reasons, the subsequent reasons which were given had to be ignored.  I would merely say that I do not consider that the subsequent reasons which were given should necessarily be ignored for all purposes.  If a comparison is made with judicial proceedings it will be noted that on many occasions courts give their reasons after announcing their decision.  The fact that the equivalent of an appeal had been launched would not necessarily affect that issue.

26.  The applicant's main ground for contending that there should have been reasons given in this case was because of the particular circumstances of the case.  In this regard counsel relied not only on the fact that the goods were said to be valued at US$400,000 but it was said that there was no moral culpability on the applicant and that Sea Lord had shipped the goods to Hong Kong without the applicant’s knowledge or consent.  Stress was also put on the fact that the licences had been obtained both for the export of the goods from Malaysia and the import of them into the United States.

27.  In my view none of these matters are sufficient to make it necessary for the general rule to be departed from, namely that it is not necessary to give reasons for an administrative decision.  I would note in passing that there was some disagreement as to the exact value of the goods.  Furthermore, as has been set out at some length above, the circumstances in which the goods were imported to Hong Kong do not, it would seem absolve the applicant from all responsibility.  Furthermore, although great stress was laid on the fact that “senior management” were unaware of the importation of the guns to Hong Kong, that would seem to be a function of the way in which the applicant arranges its business.  Having chosen to delegate a great deal of responsibility to the pricing department, the applicant is not able to absolve itself from responsibility because of mistakes made by that department.  Whilst it might be accepted that once “senior management” had become aware that the goods have been imported into Hong Kong they took steps to inform the Hong Kong Government, it is also clear that in the period between 20 and 29 April 2004 the pricing department was continuing with the process of having the goods shipped to the United States.

28.  Turning to the question of the memorandum three main points were taken.  First it was said that the memorandum gave the impression that the applicant might have committed an offence.  In the second place it was said that the memorandum did not confirm that there had been no attempt at concealment or dissimulation by the applicant.  Thirdly it was said that the memorandum had, in paragraphs 29 and 30, put forward policy considerations, which appear to have influenced the Chief Executive and that those policy considerations had not been put to the applicant prior to the submission of the memorandum and the applicant could have made submissions in respect thereof.

29.  As regards the lack of any confirmation that there was no attempt at concealment or dissimulation, I consider that the memorandum was fair even on the applicant’s own case.  When the facts set out in Mr Quek’s statement are analysed it appears to me that there can be no grounds for complaint in this regard.  As regards the complaint that paragraphs 29 and 30 put forward matters of policy which stressed the importance of the enforcement of the Regulations it appears to me that matters of policy are matters for the Administration.  There are many facts which weigh in importance to a government which may not seem as important to a commercial entity.  It is for the Administration and the Administration alone to determine what is of relevance and what is important.

30.  The first criticism of the memorandum was that it gave the impression that the applicant might have been guilty of an offence.  The matter probably came about because in paragraph 21 of the petition the petitioner relied on the case of John Richard Lindsay v Commissioner of Customs and Excise [2002] 1 WLR 1766 in relation to whether the decision of the Chief Executive transgressed the principles of proportionality.  From that case there were extracted 5 criteria which were listed as follows

“	(a)	the scale of importation;
	(b)	whether it is a “first offence”;
	(c)	whether there was any attempt at concealment, or its simulation;
	(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.”

31.  Particular exception was taken on behalf of the applicant to paragraph 25 of the memorandum.  That paragraph referred to the argument on behalf of the applicant that the goods should not be forfeited because it had not committed any offence under the relevant legislation.  In referring to that, it was said that it was recognized that no prosecution had taken place against the petitioner “so far”.  The difficulty with that expression is that it would leave open the implication that a prosecution might be brought in the future.  The implication that there might have been an offence committed by the applicant might also be gained from the first sentence in paragraph 27(b) where it was said that this was the first offence by the applicant.  In so saying no reference was made to the fact that a prosecution had been brought against CP Ships (UK) Ltd. in respect of one aspect arising out of the shipment but that that prosecution failed.  The only mitigating factor is that when dealing with the various matters which were put forward as being relevant to proportionality it was said that this aspect was regarded as a positive factor in favour of the applicant.

32.  On this aspect I would finally mention that I would not agree with the approach of the judge in paragraphs 104-5 of the judgment that all that was being said was that someone had imported the goods into Hong Kong without a licence.  Unfortunately, the phraseology used in the memorandum was at the very least ambiguous.

33.  Turning to the last matter raised, namely that a refusal to return the goods which were subject to mandatory statutory confiscation was a disproportionate response, in my view the submissions made come nowhere near to establishing that.  Paragraph 29 of the memorandum sets out cogent reasons why it is important for Hong Kong to have effective customs control.  The Administration would know better than any other party what repercussions and difficulties in the international arena could be caused if the integrity of the system of control of shipments were put in doubt.  In this regard the petition was distinctly coy about the controls which the applicant had in place to ensure compliance with the Hong Kong regulations.  Observations have already been made in respect of Mr Quek’s statement.

34.  The question therefore arises as to whether judicial review should be granted in the present case because the Chief Executive might have gained the misimpression that the applicant had committed an offence.  I would not grant judicial review in the present case for the following reasons.

35.  The reasons set out in paragraphs 29 and 30 of the memorandum appear to me to be cogent.  In so far as the reasons set out in the Chief Executive’s memorandum dated 29 January 2007 spell out the Chief Executive’s reasoning, it would appear that he came to his conclusion on the basis of the broad policy considerations which were set out.  The applicant was in the difficulty that it had not made out a substantial case of hardship on the basis of what was in the petition.  That has to be gleaned from Mr Quek’s statement.  But even then, in view of the important policy considerations, hardship could only carry weight if the applicant had demonstrated a proper and effective system for adhering to the Hong Kong regulations.  That it has not done either in the petition or in any of the material.

36.  If the matter were remitted to the Chief Executive for reconsideration with the clear statement that the applicant had not committed an offence, I cannot see that he would reach a different conclusion.

37.  I would also add that although the point has not been raised so far, the petition itself would seem highly unsatisfactory for the reasons which I have mentioned.  If subjected to careful scrutiny I doubt that it would be considered acceptable on that ground.

38.  I would therefore dismiss this appeal and make an order nisi of costs in favour of the respondent.

Hon Le Pichon JA:

39.  I agree.

Hon Sakhrani J:

40.  I also agree.