BEST TALENT INTERNATIONAL INVESTMENT LTD AND ANOTHER v. COMMISSIONER OF CUSTOMS AND EXCISE

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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JUDGMENT

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Background

1. Mr Kwan Chi Hung (Mr Kwan) is a Senior Inspector with the Customs and Excise Department. On 20 September 1997, at about 7:30 p.m., he received information from a reliable source that persons concerned with the second applicant (Winners) were producing infringing copies of compact discs in a large quantities at premises in Kowloon. He decided that it was appropriate to search these premises to see if the information was correct and to halt the production of infringing copies. He related the information to a senior officer of the Department at 7:45 p.m. He told this officer that, in the light of the information he had received, he had grounds for suspecting that there were in their premises things which were liable to seizure, removal or detention under section 122(1) of the Copyright Ordinance, 1997. This office granted an authorisation under section 123 to enter and search the premises. Mr Kwan executed the authorisation by entering the premises at 8:20 p.m. on the same day.

2. Mr Kwan says that what he saw on the premises made it appear to him that infringing copies of compact discs were being produced in very large quantities. He does not say why this appeared to him, but, by implication, this was because they were no identification sources or distributor's logos on the discs. He says he was fortified in this belief because a person from the International Federation of the Phonographic Industry examined the discs and told him that they were unauthorised copies. It seems to me remarkable that such a person could, on the spot, say that the discs were pirate simply by looking at them, but I suppose it could be so. Mr Kwan then seized these infringing copies.

3. Mr Kwan goes on to say that it also appeared to him that the there compact disc production plants in the premises had been used to produce the seized discs because used tampers and silk screens, which matched the seized discs were found in the premises. In fact, he says, one of the plants was producing suspected infringing copies when he entered the premises. He formed the view that the plants were the subject matter of, and key evidence to, offences under section 118 of the Ordinance and the chances of them being forfeited were very high. He seized the three plants under section 122(1)(b)(ii) of the Ordinance. He says he formed the view that the plants needed to be removed because -

4. On 21 September 1997, he was told by the Government Chemist that it was necessary to dismount the mould heads of the plants in order to conduct an analysis at their laboratory.

5. In connection with these judicial review proceedings, the applicants served copies of what appeared to be authorisations for the production of the seized discs. Mr Kwan has started to examine these, and, so far, he has found two documents he regards as highly suspicious because a distributor told him that they had not entered into a licence agreement regarding them. Mr Kwan says "I have now formed the view in the light of this that the documents claimed to be authorisations are in fact forged and that the reproduction of discs of that title is unauthorised and illegal". He refers to another set of discs and says that the applicants have not produced any authorisation letter for these. In fact, this is not so.

6. On 29 September 1997, the solicitors for Winners wrote to the respondent arguing that the seizure of the plants were not covered by section 122(1)(b)(i) and asking that Winners be allowed to use the plants subject to any reasonable conditions the respondent may impose. The solicitors made detailed proposals in this regard. The respondent was told that only one of the plants was being used for the production of the suspected infringing copies; the other two being used to copy works the ownership of which was vested in Winners or its associated companies. The solicitors offered formal admissions under section 65C of the Criminal Procedure Ordinance that could obviate the need to remove the plants. The solicitors also pointed out the difficulties involved in dismantling and moving the plants.

7. There is no doubt that Winners made it perfectly clear in this letter that there would be no need for the respondent to prove that, in any proceedings, that Winners was using the plants to produce the alleged pirate copies.

8. On 13 October 1997, the respondent replied saying "we are not prepared to accede to your request. The three (3) CD-production lines concerned are now seized and will be removed as soon as practicable.".

9. On 15 October 1997, the solicitors for the applicants wrote to the respondent asking him to specify which of the discs seized were alleged to be infringing copies.

10. On 18 October 1997, the first applicant (Best Talent) wrote to the respondent saying that it was the owner of the plants, and that Winners was the lessee. The letter claimed the return of the plants and maintained that they were not liable to forfeiture. The respondent gave a holding reply on 20 October 1997. This letter said that "Your request is now receiving attention. You will be informed of the outcome in due course.". It was signed by Mr Kwan. As far as I can see, no substantive reply was given to the solicitors' letter.

11. On 20 October 1997, the respondent replied to the letter of 15 October 1997 saying that the solicitors had asked for a list of the discs seized. This was not what they asked for. The respondent gave a list of the discs seized, but did not specify which of these he alleged were pirate.

12. On 21 October 1997, the solicitors for the applicants wrote to the respondent. In his letter, they asked again for the respondent to say which he alleged were the infringing copies and that the respondent would not seek to remove the plants.

13. The respondent replied on the same day. He refused to say which of the discs seized were alleged to be infringing copies, and said that "the seized CD plants will be removed from scene as soon as practicable.". This letter is signed by Mr Kwan.

14. It is the decision recorded in this letter that the applicants seek to review.

15. In a further affirmation, Mr Kwan says that, when making his decision of 21 October 1997, he remained of the same mind; that the plants had to be removed from the scene for the reasons that he gave in his first affirmation, save that he does not repeat the view that the chances of forfeiture were very high.

Rationality

16. The main ground on which Mr Liao challenges the decision of 21 October 1997 is that it was irrational. He argues that the respondent's decision to dismantle and remove the three production lines from the premises was not one that any reasonable Commissioner, on the material then before him, and having regard to the consequences of his decision, could have made. Mr Dykes frames the test in this way: Was the decision so unreasonable that no reasonable Commissioner would ever have made the same decision? I see no difference between these tests in the circumstances of this case.

17. What was the material before the Commissioner on 21 October 1997?

18. This, as I see it, is what he knew at that time -

The Reasons

19. The reasons given by Mr Kwan for wishing to dismantle and remove the production lines, including his reasons for the decision on 21 October 1997, were -

Evidence

20. The first two reasons are one; that the dismantling and removal of the equipment was necessary to provide evidence that they were used for the production of the discs thought to be infringing copies. Whatever the position might have been when Mr Kwan first thought that the equipment should be dismantled and removed, it must have been perfectly obvious to him by 21 October 1997, when he made his final decision, that this was not needed. He must have known then that, if and when he was able to show that some of the discs removed were pirate, the respondent would have no difficulty at all in proving that the equipment had been used to produce these copies, and this without the need to go through the costly, difficult and potentially ruinous exercise of dismantling and removing the equipment from the premises. In my view, no Commissioner in his right mind, taking proper account of the factors I have mentioned above, could have reasonably concluded that, balancing the public interest and the interests of the applicants, this was the right thing to do for this reason.

21. In any event, on the respondent's case at its highest, Mr Kwan could not possibly have believed that it was in the slightest necessary to dismantle and remove these three large pieces of equipment in their entirety for this purpose. The respondent's own evidence is that it was only the mould heads that might reveal anything of value as evidence.

22. It must be said that this demonstration of lack of sensible judgment by Mr Kwan does not give me much confidence in his ability to make a rational decision in this matter.

Liability to Forfeiture

23. The other reason why Mr Kwan decided to dismantle and remove the equipment was because it was liable to forfeiture. It was, of course, liable to forfeiture, but that is not the end of the matter. Whether or not the equipment was dismantled and removed, it remained liable to forfeiture. I must assume that implicit in this reason is the unexpressed fear that, if the equipment was not dismantled and removed, and it was forfeited in due course, it would not be available. This, of course, is possible.

24. Mr Kwan says that, at the time of the raid, he formed the view that "the chances of [the equipment] being forfeited were very high". That was before he knew of the claim to ownership by Best Talent. When he recites his reasons for his decision on 21 October 1997, he does not repeat this view. He says, simply, that "they were liable to forfeiture".

25. It is not for me to consider whether or not the equipment will be forfeited, but it seems to me that the respondent should have taken into account the factors I have mentioned and concluded that there was, at least, some doubt that there would be an order of forfeiture. With this lack of certainty, the respondent should have sought to balance the public interest in ensuring the equipment was available in the event of an order of forfeiture being made against the very serious consequences to the two applicants if the equipment was dismantled and removed. He should have considered whether there was any sensible way of avoiding those serious consequences while providing reasonable protection against the equipment being spirited away, bearing in mind that the equipment is very bulky and not easily moved. There is no evidence that the respondent ever thought this way. To the solicitors very full and careful letter of 29 September 1997 proposing just such a solution to the competing interests, Mr Kwan dismissed the proposals in a cursory manner, saying only that "we are not prepared to accede to your request".

26. I conclude that no reasonable Commissioner would have made his decision without properly considering the material before him, and seeking to weigh up the competing interests. I believe that, if a reasonable Commissioner had done this, he could not have concluded other than that it would not be reasonable, in all the circumstances, to dismantle and remove the equipment simply to ensure that it was available in the event that an order of forfeiture being made. The respondent having failed to give proper consideration to this matter, I quash the decision made on 21 October 1997 to dismantle and remove these pieces of equipment, although, of course, the equipment will remain seized and liable to forfeiture. However, in making this order I make conditions that seek to pay reasonable regard to the public interest in preserving the equipment, but avoid the very real disastrous consequences to the applicants. I envisage conditions along the following lines -

27. I leave it to the good sense of the parties to work out the details of such conditions. Failing such agreement, it will be necessary to bring the matter back before me.

The Costs

28. It seems, on the face of it, that the applicants have been successful in this matter. It is not obvious to me why costs should not follow the event. I make an order nisi that the respondent pay the applicants costs.