R. v. Phen et al Date:, 2010 BCPC 425

Citation: R. v. Phen et al Date: 20101129 2010 BCPC 0425 File No: 50690-2-C Registry: North Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA REGINA v. MICHAEL PHEN MICHELLE LUO PHEN ORAL REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE C. BAIRD ELLAN Counsel for the Crown: G. Sair Counsel for the Defendant: J. Doyle Place of Hearing: North Vancouver , B.C. Date of Judgment: November 29, 2010 [ 1 ] THE COURT: This case is about a store called Expression Stylewear that the defendants, Michael Phen and Michelle Phen, operated in Park Royal North during the relevant time in early 2008.

It is largely established that they were selling counterfeit articles of clothing under the brand names, Abercrombie & Fitch, True Religion, Columbia, and 7 for All Mankind; at least. [ 2 ] The sole issue is whether either of the defendants knew the items were counterfeit. The trial occupied the better part of about 10 days over a period of something like 15 months. [ 3 ] It appears that the Crown may have had a statement at the outset in which Mr. Phen, Michael Phen, professed his innocence, or at least perhaps to some extent explained how he acquired the merchandise from outlets in China.

I think it is clear the police and the Crown were aware by the time the charges were laid that on several occasions when patrons had asked about the genuineness of an

article at the store, the Phens had said they were genuine, but were seconds or old season stock, thereby explaining the fact that the prices were somewhat lower than seasonable merchandise. [ 4 ] I might add that the garments were being sold quite openly in the store, displayed prominently, and organized by brand name. I say all this because it was likely apparent at the outset or at least by the time the charges were laid that the sole issue in the case was going to be the truthfulness of the Phens' denial of knowledge that the articles were counterfeit.

[ 5 ] I have previously ruled on the circumstances under which the store was closed and almost the entire inventory seized. The defendants were put out of business by the seizure which I ruled lawful. [ 6 ] There were 15 counts laid originally including several other brands of merchandise, but those merchants chose not to send representatives to testify in the proceedings and Mr. Sair for the Crown stayed those charges. The four that did send experts to testify are the remaining counts, and those have to do with the sale of four separate brands of merchandise. [ 7 ] Mr. and Mrs. Phen testified. Mr.

Phen outlined the process by which he went to China, his original home country, and acquired garments in bulk purchases, understanding that they were seconds, old stock from prior seasons, used or damaged items; which had to be laundered, he noted; before shipping them to his shop in Canada from China. [ 8 ] His understanding when he bought them was that only a small percentage would, in fact, be marketable due to damage and sizing and available markets and that sort of thing.

After the items arrived, he would pick through them to label and display those that were marketable. [ 9 ] Evidence was given by Detective Findlay of the West Vancouver Police Department about misspelling and improper English on some of the labels of the items. Of course, those were noted, as well, by the experts as they testified. In one case, for instance, a button from one brand of jeans was on another. [ 10 ] Mr. Phen explained the button, in particular, saying that often the clothing he received was missing buttons and he would have to replace things.

If they were damaged, then he might repair it and, in that case, he likely replaced the button himself using the wrong brand name. He thought that there might, in fact, be markings on that button from when he had done that. [ 11 ] As for the misspelling and improper English, it is apparent that neither of the defendants are proficient in English. Perhaps to a person more schooled in English, looking at the labels, in particular, it might have been evident that they were not properly spelled and did not involve proper English. [ 12 ] Mr. Phen noted in his evidence that he filled out all the proper Customs forms.

In at least one case, he believed the shipment had been inspected by Canada Customs and let through without intervention. As I understand his evidence in that respect, it is not that he was misled by that action into believing that the items were genuine; rather, that he was never disabused of that mindset by any indication from any source that would have led him to conclude they were not genuine. [ 13 ] Mr. Phen said he was not familiar with the particular brands that he sold until he found that they were available for sale in China.

He then did some Internet research into the brands that would be most saleable, as I understood it, and the prices applicable to them. [ 14 ] Because of the "grab-bag" approach by which the items were sold, he did not consider them to be sold at inordinately low prices. He outlined the pricing system and his marketing costs including laundering, discards, taxes, and duties, et cetera. His evidence negated any allegation of exorbitant profits. [ 15 ] On behalf of Mr. Phen, Mr.

Doyle made the point during the proceedings that information about how to determine whether an item is counterfeit is essentially jealously guarded by the manufacturers as indicated by the representatives that did testify. While they provide the information to law enforcement personnel, they do not provide it openly to the public, perhaps for obvious reasons. However, that of course makes it difficult or impossible for a merchant to perform due diligence with respect to imported goods. [ 16 ] As a final point, I note that Mr.

Phen also produced certificates of authenticity for several of the brand names that he purchased in China received from the supplier when he made his purchases. Further, as he stated in his evidence, if he was aware that counterfeit items are readily available for sale in China, he was not aware and did not expect that they would be sold openly in a store of the type he patronized; that is, the Shanghai Market. Photographs of the Shanghai Market were filed in evidence and it does appear to be a publicly accessible kind of department store from which he says he obtained these items. [ 17 ] As for Mrs.

Phen, she did not participate in these buying trips and relied on her husband's business expertise and assurance that the items were seconds or old stock. That is what she told the customers and employees when they asked why the prices were so low. I might add that I would not characterize them as low, in particular.

People were still paying over $100, I think it was, for a pair of what they believed to be designer jeans, and apart from a few notable exceptions, it appears that many of the customers were content not knowing whether they were genuine or not. [ 18 ] Indeed, from the evidence of the experts and as well that of Detective Findlay, I would conclude that one cannot be entirely certain in some cases whether these are, in fact, counterfeit or just badly made cast-offs from factories. The testimony established that it was apparent to the experts from the labels, buttons, logos, or zippers that the

article was not made the way it should have been. Without knowing more about the manufacturing process, however, I am not entirely sure the Crown had negated poor workmanship, contamination from other brands in the manufacturing setting, deficient typesetting for labels, for instance. None of the experts could rule out entirely that seconds or rejected stock might be sold by the factories in China, as well. [ 19 ] Not a lot turns on that and I think it is essentially common ground that it has largely been established that these items were, in fact, knockoffs or counterfeit.

As I say, the issue in this particular case really became and was perhaps from the outset one of the intention of the defendants. [ 20 ] The Crown, Mr. Sair, in his able submissions previously conceded that full mens rea was an element of the offence and that the offences must therefore have been committed willingly and knowingly.

In his able submissions today, he invited the court to acquit in light of the fact that in his view the case no longer meets the charge approval standard; quite reasonably, appropriately and professionally, in my view. [ 21 ] Accordingly, then, the issue was whether there was a strong body of evidence on which to base a rejection of the defendants'

testimony, and there simply was not. In my view, we would not have even gotten into the realm of wilful blindness or officially induced error, given what I heard from Mr. and Mrs. Phen. In my view, they actually exercised due diligence and exhibited every indication that they believed the goods were genuine. As I have said, they sold them openly and gave to their customers the same explanation they have given the court. [ 22 ] There is really just, in the end, no basis on which to show that it must have been obvious to them that the goods were fake.

It is an unfortunate set of circumstances as far as their investment in the business and their investment in the community in Canada; a personal and emotional investment; which was evident from their testimony. It is unfortunate that Mr. Phen appears to have placed his reliance on people outside the country that were, in fact, not reliable, as it turns out. In terms of receiving the certificates of authenticity and proceeding on the basis that the items were genuine; in fact, they were not. [ 23 ] Nonetheless, each of the remaining charges is dismissed against Mr. and Mrs. Phen.

I will adjourn to a certain date the aspect of what to do with the property pursuant to s. 490 of the Criminal Code . We will pick a date a few months down the road in case counsel are unable to work out a consent order under that section. [REASONS FOR JUDGMENT CONCLUDED]