HKSAR v. WORLD TRUMP GARMENT (HONG KONG) LTD

HCMA759/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO.759 OF 2006

(ON APPEAL FROM FLS 2349 OF 2006, 2352-2357 OF 2006)

---------------------------

-----------------------

---------------------------------------------------------

REASONS  FOR  JUDGMENT

---------------------------------------------------------

1. The 1^st appellant, who was D1 during the hearing, faced one summons concerning an offence contrary to regulations 6(3B) and 6(4) of the Import and Export (General) Regulations made under the Import and Export Ordinance, Cap.60, whilst the 2^nd appellant (D3) and 3^rd appellant (D4) faced summons for offences contrary to section 36(1)(c) of the said Ordinance.  They admitted to the information laid.

2. The 1^st appellant was fined $170,500 in respect of summons FLS2349/2006; the 2^nd appellant was fined a total of $30,100 in respect of summonses FLS2352-3/2006; and the 3^rd appellant a total of $68,300 in respect of summonses FLS2354-7/2006.  They all appealed against the sentences.

3. After hearing submissions, I allowed the appeal, set aside the fines imposed and substituted with the following :

(1)     1^st appellant — fine $90,850.50;

(2)     2^nd appellant — fine $11,340; and

(3)     3^rd appellant — fine $25,690.50.

I also allow the 1^st appellant 3 months’ time to pay.  I now give my reasons.

Admitted facts

4. The admitted facts disclosed that all appellants were registered textiles traders under the Textiles Trader Registration Scheme (“TTRS”) with the Trade and Industry Department (“T&ID”).  The 2^nd and 3^rd appellants were also registered manufacturers under the Outward Processing Arrangement (“OPA”) with the T&ID.

5. Textile products are prohibited articles under the Ordinance, the import or export of which requires a licence from the T&ID.  Being registered textiles traders under the TTRS, the 1^st appellant could obtain exemption from the licensing requirement, under regulation 6(3A), from the Director-General of the T&ID (“Director”).  The 1^st appellant was required to abide by the conditions contained in an Import Notification (“IN”) to the Director.  The conditions required the 1^st appellant to keep, at its registered address for a 2-year period from the date the consignment was imported/exported, the Importer’s Copy of the IN and other relevant documents, and to produce such documents for inspection upon request by officers of the Customs and Excise Department (“C&ED”).  The C&ED could then verify the source and origin of the imported textiles and to ensure their eventual disposal was not contrary to the law.

6. The 2^nd and 3^rd appellants were required to abide by the conditions contained in Export Notification (“EN”) in respect of textiles products of Hong Kong origin for export to Mainland China.  Condition 5 stipulated that the goods must be of Hong Kong origin, in the sense that the goods must have undergone the principal processes (i.e. origin-conferring processes) in Hong Kong.  For woven pants, the sewing of parts into garments was the principal process.

7. The OPA scheme allowed the 2^nd and 3^rd appellants to contract out minor or subsidiary finishing processes outside Hong Kong for goods claiming Hong Kong origin.

8. On 19 August 2005, C&ED officers at Lok Ma Chau Control Point (“LMCCP”) stopped an inbound lorry for cargo examination.  The driver produced an import manifest and an IN (no. IC1818920) issued by the 1^st appellant for importing 290 cartons of goods : 228 cartons of men’s woven pants (6,186 pairs), 54 cartons of men’s woven jeans (1,068 pairs), and 8 cartons of men’s woven shirts (749 pieces).  After affixing special labels on five different carton boxes for future identification, the officers released the goods to the driver, and then put the lorry under surveillance.

9. After transferring 8 carton boxes to another lorry in Tsuen Wan, the driver picked up an envelope from a person and returned to the LMCCP with the remaining 282 cartons.  There the driver submitted to a C&ED officer an export manifest, nine ENs and nine related OPA Forms together with photographs of the goods, issued by manufacturers including the 2^nd and 3^rd appellant, claiming the goods were of Hong Kong origin and were being exported to Mainland China under the OPA scheme.

10. Upon examination of the 282 cartons of goods for export, C&ED officers found they were actually the previously inspected 282 cartons of men’s woven pants and jeans.  Five of those cartons still had the special labels affixed to the boxes.

11. The 1^st appellant was not able to produce to the officer of C&ED the Importer’s Copy of IN no. IC1818920 and other relevant documents for inspection.

12. The goods under the ENs and OPA Forms issued by the 2^nd and 3^rd appellant were in fact orders received by them from local buyers for exports to the USA.  In the purchase orders, the buyers specified that the goods must be of Hong Kong origin.  By disguising the goods previously imported by the 1^st appellant from Mainland China as their own, and exported the same back to Mainland China under the OPA scheme, the 2^nd and 3^rd appellants paved the way to the subsequent re-importation of the goods as ones of Hong Kong origin.

13. The estimated market value of the goods imported by the 1^st appellant was $426,270.  The estimated market value of the goods exported by the 2^nd appellant was $21,630 and $53,970, and by the 3^rd appellant, $25,830, $20,830, $104,448 and $20,400 respectively.

Mitigation advanced

14. The learned magistrate has referred to the mitigation advanced by Mr Pannu on behalf of all the appellants at the time :

“ 5. In mitigation, Mr. Pannu asked me to note that the Defendants are legitimate textiles traders and garment manufacturers registered with the T&ID.  D1 and D3 had hitherto clear records, and although D4 had 3 previous convictions, the company had been in business, after all, for 10 years.  The convictions were not for similar offences and they only attracted fines of less than $10,000.  Mr. Pannu submitted that the manufacturing skills in Hong Kong had shifted, over the years, to Mainland China.  But the patterns and designs of the goods required by overseas buyers had, on the other hand, become increasingly sophisticated.  And hence, the reality of the situation is that the manufacturers in Hong Kong have much difficulty in finding skilful workers in Hong Kong.  With CEPA and China now being a member of World Trade Organisation (WTO), Mr. Pannu further submitted that the tariffs on trades would soon disappear, and with them offences of this kind.  He said the Defendants were remorseful and saved court’s time by pleading guilty to the offences.”

Reasons for sentence

15. The learned magistrate’s reasons are as follows :

“6. In coming to sentence, I took into account the mitigation advanced by Mr. Pannu.  However, from the facts admitted by the Defendants, it was clear that they all took part in a scheme which, if successful, would enable woven pants from Mainland China to be exported overseas as goods of Hong Kong origin.  Mr. Pannu said this type of offence would soon disappear, as China is now a member of the WTO and the tariffs imposed on her manufactured garments would soon be removed.  He also said that, in reality, Hong Kong manufacturers had long moved their manufacturing processes to China.  All those might well be true, but I did not see them as good mitigating factors, or excuses for abusing the OPA scheme of the T&ID.  Further, there was nothing to show that the woven pants, in the present offences, were of such sophistication that D3 and D4 would have difficulty in completing the principal manufacturing process …”

16. The learned magistrate then referred to the following judgment of Yang J (as he then was) in the case of Yeung Hoi Yuv v. The Queen, CACC121/1979 :

“Trade being the life blood of Hong Kong, any conduct which damages our commercial reputation must be stopped.  More especially, our reputation and image abroad must be resolutely protected, so that the confidence of our trade partners in all parts of the world, built up by our industry and integrity over many years, must not be permitted to be undermined by the dishonest few. …”

The learned magistrate then said :

“In my view, what his Lordship said then is equally valid now.  What is at stake is the reputation of the Hong Kong manufacturers.  Trading partners of Hong Kong are entitled to be sure that if the goods say they are of Hong Kong origin, then they indeed are of Hong Kong origin.  In the circumstances, I was of the view that the sentencing guideline as laid down in The Attorney General v. Marvels Clothing Limited AR No. 7 of 1984, was applicable in the present offences, and I fined the Defendants at 40% of the value of the goods (rounded down to the nearest $100). …”

17. The learned magistrate fined the 1^st appellant $170,500; the 2^nd appellant a total of $30,100; and the 3^rd appellant a total of $68,300.

Grounds of appeal

18. Mr Pannu on behalf of the appellants submitted that the fines imposed were both manifestly excessive and wrong in principle in that the learned magistrate has (a) adopted a starting point higher than was appropriate or adhering to the 40% FOB value which was not the norm; (b) failed to give due credit to the appellants’ plea and their relative good record; and (c) failed to apportion criminal liability amongst the appellants resulting in duplication of penalty.

19. Mr Pannu referred me to the following cases and submitted that the normal fine should be no more than 30% of the FOB value on a guilty plea : The Queen v. Kwok Chiu & others,HCMA1406-1408/1989; The Queen v. Ng Fung King, Cinderella,HCMA364/1993; HKSAR v. Fashion Force (HK) Ltd,HCMA628/2000; and Attorney General v. Marvels Clothings Co. Ltd [1987] HKLR 839 (Court of Appeal); CAAR8/1984.

20. Mr Pannu complained that the learned magistrate, having adopted a 40% starting point, failed to reduce it for the guilty plea and the relative good record.

21. Mr Pannu relied on the authorities of The Queen v. Rice Garment (Int’l) Ltd,HCMA880/1996 and Kwok Chiu and submitted that there should be no duplication of fines and that the criminality should be apportioned amongst the perpetrators.

22. Mr Pannu also submitted that since two of the defendants (i.e. D2 and D5) were not prosecuted before the learned magistrate, there was no evidence of the 1^st appellant’s involvement in breaching the OPA system by those two, therefore the fine of $179,400 should have been deducted from the total FOB value.

Respondent’s response

23. Mr Derek Lai, Senior Government Counsel for the respondent submitted that on the authority of Secretary for Justice v. Yip Chi-tung [1998] 3 HKC 214, the Court of Appeal endorsed in general terms the suggested guidelines laid down in Kwok Chiu, namely, a fine in the order of 30%, instead of 40%, of the value of the goods is appropriate where a defendant with a clear record pleads guilty at an early opportunity.

24. Mr Lai also accepted that when there is only one single transaction involved, the fines should be apportioned amongst the relevant parties in terms of blameworthiness.

25. Mr Lai referred to the particular facts of this case and submitted that what has occurred could not be termed “one single transaction”.  He said the present case was not like ordinary ones involving importation of goods from Mainland China and then exported out of Hong Kong with the false claim that the goods were of Hong Kong origin.  The present case involved a conspiracy requiring highly sophisticated planning.  The facts disclosed that shortly after goods were imported from Mainland China, they were ready for exportation back to Mainland China with all the documentation.  All the appellants took part in such a scheme.

26. Mr Lai submitted that applying the principle propounded in Marvels and Rice Garment strictly here would not properly reflect the gravity of the particular facts of this case.

27. Further, Mr Lai submitted another aggravating feature was the deliberate exploitation of the OPA system by the appellants.

28. Regarding Mr Pannu’s argument that the sum of $179,400 should be deducted from the fine on the basis that D2 and D5 were not prosecuted, Mr Lai submitted such an argument was misconceived.  The case concerned a fraudulent scheme involving the importation of all the goods by the 1^st appellant (D1) and, under the OPA system, subsequent exportation to Mainland China by various parties to the same scheme.  Mr Lai submitted the entire batch of goods was the subject matter of the whole scheme, regardless whether D2 and D5 were convicted or not.

29. Mr Lai submitted that taking into account the aggravating features of this particular case, although the learned magistrate adopted a figure of 40% of the value of the goods, the ultimate fines imposed upon the appellants are not manifestly excessive.

Judgment

30. The learned magistrate found that the sentencing guidelines as laid down in Marvels applicable here.  I cannot find any discernable difference between the exploitation of the quotas system (as in the case of Marvels) and the OPA scheme (as in this case).  The conducts involved clearly damage the international commercial reputation of Hong Kong.

31. I agree with the learned magistrate that the Marvels guidelines are applicable here.  However, the learned magistrate appeared to have overlooked the fact that a fine amounting to 40% of the value of the goods was for a conviction after trial.  As all the appellants pleaded guilty before the learned magistrate, the appropriate fines should be 30% of the value of the goods. 

32. The admitted facts disclosed that the 1^st appellant imported 290 cartons of goods from Mainland China to Hong Kong.  8 cartons were taken away and the remainder (282 cartons) were immediately brought back to the LMCCP to be “exported” to Mainland China with relevant documents.  Although no prosecution was brought against D2 and D5, the facts admitted to by all appellants — in particular the 1^st appellant — was that 282 cartons of goods with value of $426,270 were brought to LMCCP for export.  That being the case there was clear evidence before the court that the 1^st appellant was involved in the exploitation of the OPA scheme to the tune of $426,270, with the 2^nd and 3^rd appellants among a number of ‘exporters’ involved in the same scheme.

33. As these appellants were not charged or convicted of conspiracy to defraud it would not be fair to have all appellants sharing the blame (and therefore the fine) on equal footings, particularly when the prosecution decided not to prosecute D2 and D5.  In my view, the 2^nd and 3^rd appellant should each be criminally responsible for the goods they exported while the 1^st appellant be responsible for the whole lot.

34. In the case of the 1^st appellant, as the total value of the goods is $426,270, 30% of that sum is $127,881.

35. In the case of the 2^nd appellant, the value of the goods involved amounted to $75,600.  30% of that sum is $22,860.

36. In the case of the 3^rd appellant, the value of the goods involved amounted to $171,270.  30% of such sum amounts to $51,381.

37. As between the 1^st and 2^nd appellant, they are equally to blame so I apportioned the fine of $22,860 equally.  Each has to pay a fine of $11,340.

38. As between the 1^st and 3^rd appellants, again they are equally to blame and I apportioned the fine of $51,381 equally.  Each has to pay a fine of $25,690.50.

39. To ensure no duplication and the total amount of fine does not exceed the sum of $127,881, the fines payable by the 2^nd and 3^rd appellants would be deducted from the said sum of $127,881.  The 1^st appellant has to pay a fine of $90,850.50.  I allowed the 1^st appellant 3 months’ time to pay the fine to avoid a voluntary winding-up.