Chua Hock Soon James v Public Prosecutor and other appeals

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 26 September 2017
• Neutral Citation: [2017] SGHC 230
• Docket Number: Magistrate’s Appeals Nos 2, 4 and 5 of 2015
• Date: 26 September 2017
• Published date: 29 September 2017
• Plaintiff Counsel: Philip Fong Yeng Fatt, Nicklaus Tan, Sui Yi Siong and Chie Zi Han (Harry Elias Partnership LLP)
• Defendant Counsel: Lee Chia Ming (Dentons Rodyk & Davidson LLP) as Young Amicus Curiae.,Hon Yi, Kok Shu-En and Nicholas Lim (Attorney-General's Chambers)
• Court: High Court (Singapore)
• Hearing Date: 10 April 2017,03 April 2017,04 November 2016
• Subject Matter: Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order,Statutory offences,Onus of proof,Elements of crime,Mens rea,Commercial Transactions,Evidence,Purposive approach,Multi-level marketing,Construction of statute,Statutory Interpretation,Strict liability,Criminal Law,Multi-Level Marketing and Pyramid Selling (Prohibition) Act,Proof of evidence

Chan Seng Onn J: Introduction

The origins of multi-level marketing can be traced back to as far as the 1920s. As its name suggests, it is a marketing mechanism which utilises multiple tiers of promoters, with each tier receiving a proportion of the proceeds of sales made to consumers by the salespersons under them. While there is nothing inherently illegitimate with this structure, a multi-level marketing business becomes repugnant if it is predicated on generating profits through the recruitment of new salespersons who pay significant upfront costs for rights under the scheme as well as the right to receive rewards for recruitment subsisting up to several layers downstream. These persons at the top tiers, whom I shall refer to as the uplines, can therefore earn income from the recruitment efforts of their team members, whom I shall refer to as the downlines. A business built on this model is unsustainable. As logic dictates, the pool of potential recruits will eventually run out and the scheme will collapse upon itself, causing the new entrants to suffer significant losses. Underlying the prohibition against this form of multi-level marketing is the policy need to protect members of the public, who might be lured into joining these schemes as salespersons by the prospect of extraordinary financial gains, from such high-risk and unsustainable schemes. When such schemes are deceptively cloaked and packaged into various forms of innocuous marketing or sales programmes by the scheme promoters, it may sometimes be difficult to discern the legitimate from the illegitimate.

Against this backdrop, when is it permissible for a business to be built on a multi-level marketing or a pyramid selling scheme or arrangement? This is the central question that arises from the joint appeals before me. It requires the court to interpret the Multi-Level Marketing and Pyramid Selling (Prohibition) Act (Cap 190, 2000 Rev Ed) (“the Act”) as well as the Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order (Cap 190, O 1, 2002 Rev Ed) (“the Exclusion Order”).

The appeals are brought by the first appellant, Chua Hock Soon James (“Chua”), the second appellant, Harriet International Network Pte Ltd (“HIN”) and the third appellant, Harriet Education Group Pte Ltd (“HEG”) (hereinafter collectively referred to as “the Appellants”). The Appellants appeal against the orders of conviction (“the Appeals”) recorded by the district judge (“the District Judge”) in PP v Chua Hock Soon James, Harriet International Network Pte Ltd & Harriet Education Group Pte Ltd [2016] SGDC 71 (“the GD”).

After a trial that spanned 16 days, the District Judge convicted the Appellants of the following charges (“the Charges”):

Chua’s Charge

are charged that you, between December 2007 and September 2008 or around the same period, in Singapore, were the Managing Director of one Harriet Education Group Pte Ltd (“the company”), during which period the said company did promote a pyramid selling scheme or arrangement as defined in section 2 of [the Act], namely the Global Edupreneur Program scheme, which scheme is not an excluded scheme or arrangement as defined in Paragraph 2 of [the Exclusion Order], and you have thereby committed an offence punishable under Section 3(2) read with Section 6(1) of [the Act].

HIN’s Charge

are charged that you, between December 2007 and September 2008 or around the same period, in Singapore, did promote a pyramid selling scheme or arrangement as defined in section 2 of [the Act], namely the Global Edupreneur Program scheme, which scheme is not an excluded scheme or arrangement as defined in Paragraph 2 of [the Exclusion Order], to wit, you allowed your UOB bank account No. [xxx] to be used to receive monies paid by participants of the said scheme and to pay out monies being commissions to participants of the said scheme, and you have thereby contravened Section 3(1) of [the Act] which is an offence punishable under Section 3(2) of [the Act].

HEG’s Charge

are charged that you, between December 2007 and September 2008 or around the same period, in Singapore, did promote a pyramid selling scheme or arrangement as defined in section 2 of [the Act], namely the Global Edupreneur Program scheme, which scheme is not an excluded scheme or arrangement as defined in Paragraph 2 of [the Exclusion Order], and you have thereby contravened Section 3(1) of [the Act] which is an offence punishable under Section 3(2) of [the Act].

Chua was sentenced to a fine of $50,000 (in default three months’ imprisonment). HIN and HEG were each sentenced to a fine of $20,000 and $50,000 respectively, with in default orders of attachment made against both. Since there is no appeal against sentence by the Appellants or the Prosecution (“the Parties”), I will only deal with the propriety of the Appellants’ convictions in this judgment.

Having considered the GD, the Parties’ submissions, and the evidence adduced at the trial below, I dismiss the Appeals and uphold the respective orders of conviction made by the District Judge.

Undisputed facts

Chua is the Managing Director of both HIN and HEG.¹ HIN held a bank account with United Overseas Bank Limited (“HIN’s bank account”) which was used to perform money transactions for HEG and its related businesses.²

The impugned scheme in question is the Global Edupreneur Program (“GEP”), which was administered and run by HEG. The GEP came into existence in 2006 and was terminated in late 2008.³ The Parties agree on the following facts regarding the GEP: The GEP was accredited as an educational programme by the Lyles Centre for Innovation and Entrepreneurship of the California State University, Fresno.⁴ Anyone interested in joining the GEP had to pass an interview conducted by Chua in order to be accepted into the GEP.⁵ Under the GEP, the participants (“GEP participants”) entered into a licensing agreement (“Licensing Agreement”) with HEG for a specified period. The GEP participants could choose from one or more of the following packages with different licensing periods:⁶ a Consultant (10 months); a Global Consultant (24 months); a Senior Global Consultant (36 months); and a Global Manager (60 months). GEP participants were required to pay a sum of fees in order to join the GEP, which included:⁷ registration fees; training fees; licensing fees; and miscellaneous fees.⁸ GEP participants were licensed by HEG to use HEG’s name to market HEG’s various educational programmes (“HEG’s educational programmes”) as well as the GEP.⁹ GEP participants received commissions when they successfully enrolled new participants in HEG’s educational programmes as well as the GEP (“direct commissions”).¹⁰ Global Managers: In addition to receiving commissions upon the recruitment of a new participant, a Global Manager was also entitled to a 15% overriding commission on the direct commissions earned by the GEP participants whom the said manager recruited into the GEP.¹¹ Country Managers: HEG introduced the position of “Country Manager” in or around December 2007. In addition to the benefits earned through their personal recruitment efforts, Country Managers were entitled to a 30% overriding commission on the direct commissions earned by the GEP participants under them. Existing GEP participants could become Country Managers after passing an interview and paying additional licensing fees to extend the period of their licence with HEG. Country Managers were required to provide training and coaching to the GEP participants in their team.¹²

The statutory provisions

At the outset, it is useful to set out the legislative framework which is the backdrop to the Appeals. Section 3 of the Act provides that it is an offence for a person to promote or participate in a multi-level marketing scheme or arrangement (“MLM scheme”) or a pyramid selling scheme or arrangement (“pyramid selling scheme”). The Act makes no substantive distinction between a MLM scheme and a pyramid selling scheme and both these expressions bear the same meaning in the Act: see the definition of a MLM scheme in s 2(1) of the Act. As to what constitutes a pyramid selling scheme, s 2(1) of the Act provides as follows:

“pyramid selling scheme or arrangement” means any scheme or arrangement for the distribution or the purported distribution of a commodity whereby — (a) a person may in any manner acquire a commodity or a right or a licence to acquire the commodity for sale, lease, licence or other distribution; (b) that person receives any benefit, directly or indirectly, as a result of — (i) the recruitment, acquisition, action or performance of one or more additional participants in the scheme or arrangement; or (ii) the sale, lease, licence or other distribution of the commodity by one or more additional participants in the scheme or arrangement; and (c) any benefit is or may be received by any other person who promotes, or participates in, the scheme or arrangement (other than a person referred to in paragraph (a) or an additional participant referred to in paragraph (b)).

Section 2(2) of the Act goes on to state that a pyramid selling scheme does not include schemes or arrangements excluded by the Minister (“excluded schemes”). These excluded schemes are the subject matter of the Exclusion Order. For present purposes, the following provisions of the Exclusion Order are central:

Excluded schemes and arrangements

2.—(1) The definition of “pyramid selling scheme or arrangement” in section 2 of the Act shall be taken not to include any of the following schemes or arrangements: ... (b) any master franchise scheme or arrangement, or any class of such scheme or arrangement, whereby a person is given the right to sub-franchise a franchise, subject to the scheme or arrangement satisfying the terms and conditions in sub-paragraph (c)(ii), (iii), (iv) and...