HKSAR v. TELEPHONE EST (HK) COMPANY LTD

HCMA 781/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO 781 OF 2011

(ON APPEAL FROM KCS NO 19566 OF 2011)

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1.  The appellant was the 2^nd defendant in the trial. It faced a summons of “possession for sale or for any purpose of trade or manufacture goods to which a forged trade mark was applied”, contrary to section 9(2) as read with section 18(1) of the Trade Description Ordinance, Cap 362 (“TDO”). The 1^st defendant, Mr Summy Jamal (“D1”) faced a charge of a similar offence.

2.  The particulars of the summons and the charge are the same, alleging that the appellant and D1 on 6 September 2010 at Rooms 1203‑1204 King’s Commercial Building, 2‑4 Chatham Court, Tsim Sha Tsui had in their possession for sale or for any purpose of trade or manufacture goods, namely:

(a) 182 numbers of battery;

(b) 52 numbers of battery;

(c) 46 numbers of chargers;

(d) 82 numbers of headsets;

(e) 8 numbers of headsets;

(f) 292 numbers of mobile phones;

(g) 68 numbers of mobile phones;

(h) 10 numbers of mobile phones; and

(i) 24 pairs of shoes;

to each of which a false trade mark, namely:

(a) Motorola;

(b) Nokia;

(c) Nokia;

(d) Motorola;

(e) Nokia;

(f) Samsung; and

(g) Gucci,

was applied.

3.  They were respectively convicted of the charge and summons after trial.  The appellant was fined $60,000 while D1 was sentenced to imprisonment for five months and two weeks.  Originally they both appealed against their convictions and sentences.  D1 later abandoned his appeals.  The appellant abandons its appeal against sentence during the present hearing, proceeding only with the appeal against conviction.

Evidence of the prosecution

4.  According to the two sets of admitted facts made pursuant to section 65C of the Criminal Procedure Ordinance, Cap 221 the appellant was a limited company incorporated in Hong Kong and D1 was its manager.  It was not in dispute that the items set out in the summons all bore false trade marks as detailed in the summons and were estimated to be in the value of $126,900. They were among the items seized by Customs and Excise officers during the execution of a search warrant at the registered address of the appellant at Rooms 1203‑4 King’s Commercial Building, 2-4 Chatham Court, Tsim Sha Tsui, Kowloon in the presence of D1 on 6 September 2010.

5.  The prosecution called two witnesses. The 2^nd prosecution witness was Senior Customs Officer 8340 (“PW2”).  He and his team arrived at the registered address of the appellant at 17:30 hours.  He saw mobile phones and mobile phone accessories inside and there were also a lot of goods, some were packed in carton boxes and some were not.  He only opened a box containing shoes which was closed but not sealed with plastic tape.  He did not open the other boxes which were not sealed and he could see the contents from outside.  There were also plastic bags inside the premises.  PW2 opened some of the plastic bags and found that they contained mostly chargers.

6.  The 1^st prosecution witness was Customs Officer 9208 (“PW1”).  He arrived at the premises at 20:20 hours where he seized, interalia, 10 carton boxes and four plastic bags.  He gave details of the locations where the boxes and bags were found and what were inside each one of them.  A total of four mobile telephones bearing “Nokia” trade mark found in three of the boxes and four chargers bearing the trade mark “Nokia” found in one of the remaining boxes were confirmed to be genuine after examination.

Defence case

7.  D1 elected to give evidence.  He was the sole employee and marketing manager of the appellant which engaged in mobile phone accessories, charger production and trading business.  The appellant also had employees in China.  He said that the counterfeit mobile phones and accessories had been sent to the appellant by a Polish client, Mr Jakub, pending collection by UPS and onward shipment.  D1 was doing Mr Jakub a personal favour and would be paid $1,000 by Mr Jakub for the service.  Mr Jakub asked him to pack the goods nicely prior to collection by UPS. 

8.  As regards the two boxes of Gucci shoes, they were left there by a client of the appellant, Chen Hua, John, for collection by others. The client did not tell him what were inside the boxes and he did not open the boxes to find out.

9.  According to D1 the appellant had nothing to do with all these goods which bore counterfeit trade marks.

Reasoning of the Magistrate in Convicting A1 and A2

10.  The magistrate accepted the evidence of PW1 and PW2 but rejected the evidence of D1.  He found that D1 and the appellant possessed the counterfeit goods for the purpose of trade and that they failed to satisfy on a persuasive basis the requirements of the statutory defences under section 26(1) and (4) of the TDO.  He accordingly convicted D1 and the appellant.

Grounds of appeal

11.  The grounds of appeal of the appellant are as follows:

(a) the magistrate erred in rejecting D1’s evidence;

(b) the magistrate failed to consider sufficiently or at all whether the counterfeit goods were at the appellant’s premises in the course of its trade or business;

(c) the magistrate failed to consider sufficiently or at all whether the counterfeit goods were in possession of the appellant;

(d) the magistrate failed to consider or at all whether the appellant was liable for the acts of D1;

(e) the magistrate erred in finding the appellant had to discharge on the balance of probability the requirements under sections 26(1)(a), 1(b) and (4) of the TDO.  

Wrongly Rejecting D1’s Testimony

12.  The appellant complains that the reasons provided by the magistrate for the rejection of D1’s evidence were deficient, setting out the conclusion instead of the basis of rejection.  He cites the case of HKSAR v Egan and Others (2010) 13 HKCFAR 314 to illustrate the point that a tribunal must evaluate the disputed evidence to reach the conclusion of whether a witness was truthful or not.

13.  The court has no quarrel about this principle, but does not agree that the magistrate had not done the evaluation in the present case.  The magistrate rejected D1’s evidence on the basis that his evidence did not make sense, that D1 was evasive in giving evidence and that his evidence was contradictory.  The magistrate set out all the relevant instances in the statement of findings.  The court is of the view that the conclusion of the magistrate cannot be faulted.

14.  Ground of appeal (a) fails.

Possession for the Purpose of Trade and Corporate Liability

15.  The grounds of appeal (b), (c) and (d) can be dealt with together.  The appellant submits that the magistrate made a blanket finding that all the counterfeit goods found in the premises were in the possession of the appellant for the purpose of trade without sufficient evaluation.

16.  Although D1 gave evidence that the appellant knew nothing about the counterfeit goods, his evidence was rejected by the magistrate and the court has found the findings of the magistrate a correct one.  Giving the amount of counterfeit goods involved and that they were found inside business premises the only reasonable and inevitable inference to be drawn is that they were for the purpose of trade.  This was so obvious that it was not necessary for the magistrate to specifically spell out how he came to such a conclusion in the statement of findings.

17.  The question of whether the counterfeit goods were in the possession of the appellant for the purpose of trade is not so straight forward.  It called for an analysis of the meaning of possession and the evidence which proved that the appellant had possession of the goods for the purpose of trade.  The magistrate simply said in the statement of findings that he found proved beyond a reasonable doubt that D1 and the appellant possessed the goods in question for the purpose of trade.  The reasons he gave were apparently that the goods were found inside the premises of the appellant and that D1 was the sole employee and manager of the appellant.  He did not, however, specify on what basis he came to such a conclusion.  It is not known whether it was an inference which he drew or whether his conclusion was based on corporate liability in that D1 acted as the appellant or both.

18.  In Tesco Supermarket Ltd v Nattrass [1972] AC 153 the English House of Lords discussed how a limited company would be held criminally liable for acts done by its officers or employees.  The relevant passages are quoted by both the appellant and the respondent:

“ Where a limited company is the employer difficult questions do arise in a wide variety of circumstances in deciding which of its officers or servants is to be identified with the company so that his guilt is the guilt of the company.

I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these; it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company’s servant or agent. In that case any liability of the company can only be a statutory or vicarious liability …

Reference is frequently made to the judgment of Denning LJ in H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159. He said, at p172:

‘ A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more that hands to do the work and cannot be said to represent the mind or will. Others are directors and mangers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by law as such.’

There have been attempts to apply Lord Denning’s words to all servants of a company whose work is brain work, or who exercise some managerial discretion under the direction of superior officers of the company. I do not think that Lord Denning intended to refer to them. He only referred to those who ‘represent the directing mind and will of the company, and control what it does.’

… Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference they were given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instruction from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation he can act as the company. It may not always be easy to draw the line but there are cases in which the kina must be drawn …

 … one has in relation to a company to determine who is or who are, for it may be more than one, in actual control of the operations of the company, and the answers to be given to that question may vary from company to company depending on its organisation.”

19.  It can be seen from the judgment that although D1 was the sole employee and marketing manager of the appellant it did not follow automatically that he was acting as the company.  He might or might not be so acting.  There was no analysis of this issue by the magistrate and there was in fact no mention at all of the circumstances under which the servants or officers of a company are to be identified with the company as discussed in the case of Tesco Supermarket Ltd case.

20.  If the magistrate had come to his conclusion as a result of an inference drawn by him, he had not spelt it out.  He also had not analysed the circumstances and set out the reasons why this was the only reasonable conclusion that could be drawn.

21.  As this issue was an important aspect of the case it was incumbent upon the magistrate to go through the process of analysis and evaluation and give reasons for his conclusion.  In the case of HKSAR v Chou Shih Bin [2005] 8 HKCFAR 70 it was held by the Court of Final Appeal that appeals from magistrates’ convictions were dealt with by the Court of First Instance as re‑hearings.  This court is, however, of the view that as the drawing of inference and the issue of corporate liability in the present case both involve finding of primary facts it is inappropriate and, indeed, unfair for the appellate court to make a finding of the reasons to substantiate the conclusion of the magistrate basing on the materials available on appeal.

22.  It is the view of the court that grounds of appeal (b), (c) and (d) are substantiated.  This renders the conviction unsafe and unsatisfactory.

Standard of Proof in Statutory Defences

23.  The appellant complains that the magistrate erred in imposing a persuasive burden on the appellant in respect of the statutory defences in sections 26(1) and (4) of the TDO.  The two sub-sections read as follows:

“(1) In any proceedings for an offence under this Ordinance, it shall, subject to subsection (2), be a defence for the person charged to prove—

(a) that the commission of the offence was due to a mistake or to reliance on information supplied to him or to the act or default of another person, an accident or some other cause beyond his control; and

(b) that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence by himself or any person under his control.

(4) In any proceedings for an offence under section 9(2) it shall be a defence for the person charged to prove that he did not know, had no reason to suspect and could not with reasonable diligence have ascertained that a forged trade mark had been applied to the goods or that a trade mark so nearly resembling a trade mark as to be calculated to deceive had falsely been applied to the goods.”

For the purpose of the present appeal section 26(2) is not relevant.

24.  In view of the conclusion of the court in respect of grounds of appeal (b), (c) and (d) the ground of appeal (e) can be dealt with briefly as the statutory defences are no longer an issue.

25.  The Court of Final Appeal has in fact held in the case of Lee To Nei & Another v HKSAR [2012] 2 HKC 553 that in respect of the defence under section 26(4) the standard of proof imposed on the defendant is one of evidential burden instead of persuasive burden as adopted by the magistrate.

26.  The magistrate also adopted the same persuasive burden in respect of the defence under section 26(1). The respondent contends that the decision of the Court of Final Appeal only applies to section 26(4) and there is still no ruling on the standard of proof for section 26(1).  This is indeed the case.  But applying the rationality and proportionality tests used in and the rationale of the Lee To Nei case to the present case the court is of the view that the standard of proof in respect of the defence under section 26(1) should also be one of evidential burden on the appellant.

27.  Ground of appeal (e) is substantiated.

Conclusion

28.  The appeal against conviction of the appellant is allowed.  The conviction is quashed and the sentence set aside.