THE QUEEN v. WINGKASON BROTHERS CO. LTD.

BETWEEN

_________________________

JUDGMENT OF THE COURT

_________________________

Silke, V.-P.:

1. I am authorised to say that Macdougall, J.A. who cannot be with us today has seen this judgment in draft and is in agreement with it.

2. Wingkason Brothers Co. Ltd. - "Wingkason" - appeared for trial before Mr. Britton sitting in the Magistrates Court at Western on two informations. The first alleged that between July 1986 and August 1988 at Flat C, 21st floor, Melbourne Industrial Building, they had manufactured a cosmetic namely hair setting/styling mousse without a cosmetic manufacturer's licence : this contrary to section 17(3) of the Dutiable Commodities Ordinance, Cap. 109. The second alleged, between the same dates and at the same place, they had dealt with goods namely 279,302 bottles of hair setting/styling mousse to which the Dutiable Commodities Ordinance applies without discharging obligations imposed namely the payment of duty of HK$1,110,790. 90 in respect of those goods: this an offence under section 17(1) of the Ordinance read with regulation 10(h) of the Dutiable Commodities Regulations.

3. On 1st June, Wingkason was convicted on both summons and was granted absolute discharges. On 3rd October 1989 the matter cane before Bokhary, J. by way of appeal against those convictions. The judge directed, under the provisions of section 113(1)(d) of the Magistrates Ordinance, Cap. 227, that the appeal he argued before the Court of Appeal.

4. The basic facts are not in dispute  Wingkason has a sister company Double Household products - "DHP". DHP manufactures hair setting lotions. Cosmetics became subject to duty as from February 1985. Until 1st June 1986, DHP did its own bottling. From then on, DHP sold the hulk liquid hair setting lotion to Wingkason. Duty on the hair setting lotions Was paid by DHP. Wingkason then prepared the saleable product called "Elegant Setting Mousse".

5. The process the lotion wont through was described by Miss So Yin Yee, the representative of Wingkasmon, follows: The setting lotion is filled into an aluminium can by machine. Then a valve is placed over the can and another machine tightens the valve on the top of the can. This is called "crimping". The can is then filled with Freon 12 gas. Then an expeller valve nozzle is fitted. Then a plastic cap. The lotion is, in liquid form before it is placed in the can. By reason of the process described it is released from the can by pressure upon the expeller valve and emerges as foam.

6. The end product was for oale in, the domestic market. It is accepted that rates of duty differ as between the lotion it self and the end product. We have seen, as did the trial magistrate, photography showing the process. The costs to the consumer of the mousse is higher than that of the lotion.

7. Before Wingkason acted to process the lotion in this way, which process had been carried out by DHP prior to 1986, those who ran the firm sought advice. They also considered the definition of "manufacturing" contained in the Ordinance. The reason for the change from DHP to Wingkasnn was that it was thought that duty could be saved.

8. Enquiries then made were of the Customs and Excise and of the Trade Department, which is a separate entity, of the Hong Kong Government. Wingkason were given a circular from the Trade Department, dated 30th July 1986, exhibit D2, which concerned Certificate of Origin and referred to the criteria for the issue of such certificates and to the principle processes of manufacture. Paragraph 3 of the circular reads:

"A Certificate of Hong Kong Origin is issued only when it has been established that the goods are the product of a manufacturing process in Hong Kong which has changed permanently and substantially the shape, nature, form or utility of the basic materials used in manufacture. Such processes as simple diluting, packing, bottling, drying, assembling, sorting or decorating, are not regarded by themselves as genuine manufacturing processes. Goods claiming to be the natural produce of Hong Kong, such as vegetables and mineral ores, must have been wholly grown or mined in Hon Kong:”

9. In its paragraph 6, it defined "principal" and "subsidiary processes". The "principle process of manufacturing" is the "principal process of manufacture in meeting the origin criteria". The principal processes in respect of individual products are listed in the third column of the Appendix. "Subsidiary process" is any process, except the principal Process, which contributes, towards the manufacture of an article. Examples were given of electroplating and button-holing.

10. The reason for the existence of the definition was subcontracting arrangements which were permitted by the Trade Department who drew the distinction between, the two processes and applied different control measures. Certificates of Origin referred only to goods for sale outside the territory by reason of their export.

11. On 16th September 1988 Wingkason wrote again to the Trade Department explaining what they were doing and giving a brief discription of the process. They had posed two questions: first: would their company be regarded as. the manufacturer and could they apply for factory registration:  second: could they apply for a Certificate of Origin? On 10th October 1988 the Trade Department replied. In the view of the Trade Department that which they had described

"only involve packing, bottling and simple assembling,".

It was not regarded as a genuine manufacturing processes. A Certificate of Origin was refused. The company y was however informed that they could register with the Department and apply for a "Certificate of Origin - processing".

12. Mr. Britton had, in the course of his considerations , to construe the word "manufacture". He had before him scientific evidence which was very similar for both sides. Mr. Ng Kai Wing, who was an Assistant Chemist of the China Manufacturer Association, for Wingkason tested two samples, Sample A being a pale yellow liquid and Sample B a white foam. Both showed identical infra-red , spectra before and after drying in an experimental oven. His conclusion was that, from the results of the tests conducted, it was highly possible that chemical compositions of Sample A and gas-free liquid of Sample B were identical. The Government laboratory test, exhibit P3, also examined a pale yellow liquid (Sample A) and a white foam (Sample B). It is not suggested that identical examinations were carried out .In Sample B, Freon 12 gas detected. It seems clear that Mr. Ng had also detected a gas by virtue of his reference to "gas free liquid".

13. The definition of manufacturing in section 2 of the Ordinance reads as follows:

" manufacture' includes every kind of preparation, mixing and treatment except packing and unpacking."

14. It is the contention of Mr. Eddis, who appeared for the Applicants in this Court, that the process carried out by them did not extend beyond packing and unpacking. Up further submits that the definition, and the relevant sections of the Ordinance, are sufficiently lacking in clarity so that taxes and duties should not be imposed. The tax payer must be able to ascertain its position with clarity and precision and the lack which he submits exists should have brought the trial magistrate to a finding of not guilty.

15. On Mr. Eddis' contention that process here is no more than packing, we have been asked to look at the. references to "manufacture" in McNicol v. Pinch [1906] 2 KB 352. There the Divisional Court was concerned with the Finance Act of 1901 and the Revenue Act of 1903. The issue being the making or "manufacture of saccharin" or the "bringing into being as saccharin". What the appellants did was to subject 330 saccharin - that is saccharin 330 times as sweet as sugar - to a chemical process. This resulted in the production either of 550 saccharin - that is saccharin 550 times as sweet as sugar - or of a mixture which was sweeter than 330 but not so sweet as 550 saccharin or, in a few cases, a mixture less sweet than 330 It was held by a majority that the appellants were not manufacturing saccharin. It was the view of Bray, J. who gave the first judgment that the appellants were:

"dealing with saccharin, and with saccharin only. They applied chemical treatment to it, and it remained saccharin afterwards. It was saccharin of a different strength, and that was the only alteration which they made in it.

 

16. He regarded the word "manufactured" in the finance Act of 1901 as meaning bringing into being as saccharin. This he held the appellants were not doing. Ridley, J. in a dissenting judgment while finding it difficult to define the word "manufacture" did not, as the other members of the Court, consider it synonymous with "make", another expression used in the statute and held to the contrary.

17. We have also been referred to Gamble v. Jordan [1913] 3 KB 149 where, the Divisional Court was considering the provisions of the Rag Flock Act of 1911. It provided that it was not lawful for any person to use for the purpose of making any article of upholstery, cushions, or bedding flock manufactured from rags or to have in his possession flock manufactured from rags intended to be used for any such purpose unless the flock conformed to the prescribed standard of cleanliness. The Court was concerned with the definition of the phrase "making any article of bedding". They held that this did not include the process of taking flock out of the covering of a mattress and refilling the covering with the same and no other flock.

18. Phillimore, J. in, his judgment said that the Court was not to decide the case on the balance of public advantage, but upon the words of the statute. He went on the say that a man who picks to pieces a manufactured article and put s it together again does not make it Bankes, J. made reference to McNicol v. Pinch for the proposition that there should be no difference between the word, "manufacture" and the word "make". And concurred with the view expressed by Bray, J. in McNicol v. Pinch that the word "manufacture" there meant "the bringing into being as saccharin". Bankes, J. found this to he the true meaning of the expression make or manufacture.

19. On the point of certinty gad precision, Mr. Eddis had referred us to, that passage in the judgment of Avory, J. in Gamble v. Jordan where he said at page 135:

"We have only to give effect to the words of the Act and not to strain them to cover other cases although to do so would have the desirable affect of preventing people from sleeping on unwholesome mattresses."

Pace, the desirable affect of having people pay duty on hair styling mousse.

20. For the manner in which we should approach our task Mr. Eddis has referred us first to Magor and St. Mellons Rural District Council v. Newport Corporation [195] AC 189, the headnote of which reads:

"In the construction of a statute the duty of the court is limited to interpreting the words used by the legislature and it has no power to fill in any gaps disclosed. To do so would lie to usurp the function of the legislature."

21. Then, to Johnson and Another v. Moreton [1980] AC 37 where at page 50 Lord Salmon set out three principles of construction. Briefly:

22. Lastly, he refers us to Wentworth Securities and Another v. Jones [1989] AC 75 where, at pages 105D to 106A, Lord Diplock made reference to his lack of reluctance to adopt a purposive construction where to apply the literal meaning of the legislative language used would lead to results which would clearly defeat the purposes of an Act. But he then went on to qualify that statement, setting out his reasons for so doing, and in, particular in relation to the filling of gaps. This could only be done when it was possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law. Unless this condition was fulfilled any attempt by a Court of Justice to repair the omission could not he justified. It would usurp the function vested in the legislature to the exclusion of the Courts.

23. Mr. Eddis enjoins us not to fill any gaps which may exist in the definition of manufacture which falls for consideration. We are not here to enhance the revenues of the Territory. That by the very definition itself, or in the alternative, by the lack of precision in the drafting generally of the Ordinance, we should apply a liberal construction and should find that merely changing from bulk into the salable package is no more than "packing".

24. We reject Mr. Eddis' argument that there is any gap in the definition or lack of clarity in the ordinance generally. Mr. Saw, who appeared in this Court for the Crown, has drawn our attention to the provisions of section 26A of the Ordinance which deals with the assessment of duty. Subsection (1) of section 26A provides that the value of goods for the assessment of ad valorem duty:

"shall be the normal price which the goods would fetch, at the relevant time, on their sale in the open market between a buyer and seller independent of each other."

This, he argues, underlines the the difference between the duty to be payable on the bulk hair setting lotion and the duty to be payable on the final marketed product and explains it.

25. For the avoidance of doubt, it should be said that it is not contested that duty is payable on the product delivered, to the buyers and that the mousse, by virtue of its higher cost, attracts a higher duty than does the lotion.

26. He says that the essential scheme of the Ordinance is evidenced by provisions of section 17 and that no product should go into the open market without duty having been paid upon it and further that any process other than that of simple packing is caught.

27. Mr. Eddis criticises Mr Saw's use of the word "simple" in this connection as being an attempt to fill a gap which exists in the definition. We do not consider this to be so. Mr. Saw was using that expression in respect of packing in contra distinction to the other words used there "preparation, mixing and treatment". The whole of the definition falls to be construed. Mr. Saw further submits that, while Wingkason may have got from the Trade Department information which conflicts with the view taken by Customs and excise of the process gone through, this is easily explainable in that the Trade Department is concerned only with Certificate of Origin for matters to be exported and what was said in their circular does not assist in the construction of the word "mnufacture" in the Ordinance. He says that any form of preparation or mixing or treatment catches the commodity and makes it dutiable. This contra to Mr. Eddis' submissions that preparation, mixing and treatment must be read together as one process.

28. In this regard, we accept the argument of Mr. Saw for by reason of the qualifying words in the definition "every kind of" appearing before words "preparation, mixing and treatment" these indicate separate matters. If the process entered into here can be described by the use of any of those three words individually then the mousse is caught.

29. Having considered the interesting arguments advanced to us, in our judgment the process here clearly falls within the definition of a preparation or a treatment to the exclusion of its being "packing".

30. While Mr. Britton in clear and well set out Statement of Findings concluded that, had he been trying the case in an English Court, he would have found the defendant not guilty, he was fully aware that be was dealing with the laws of Hong Kong. In none of tile English Acts which fell for consideration in the authorities to which we have been referred was there a definition of manufacture. He concluded his Statement by saying:

"The true point of manufacture in an everyday sense of the word is, it seems to me, when the customer presses the valve in her own home thus converting the setting lotion in the can into setting mousse in her hand. However, what the defendant company was doing was preparing the ingredients into a state where they were ready for such conversion."

To that, we would simply add by the addition of Freon 12 gas which, while it might dissipate itself upon the product being used, nevertheless was something which prepared the setting lotion to emerge from the nozzle of the can as mousse. This in our judgment falls within the definition of manufacturing, and the appeal must be dismissed.