Tan Un Tian v Public Prosecutor

• Jurisdiction: Singapore
• Judge: Yong Pung How CJ
• Judgment Date: 10 June 1994
• Neutral Citation: [1994] SGHC 162
• Docket Number: Magistrate's Appeal No 433/93/01
• Date: 10 June 1994
• Year: 1994
• Published date: 19 September 2003
• Plaintiff Counsel: John Mathew QC, Alvin Yeo and Edwin Lee (Wong Meng Meng & Partners)
• Citation: [1994] SGHC 162
• Defendant Counsel: Jennifer Marie and Palaniappan Sundararaj (Deputy Public Prosecutors)
• Court: High Court (Singapore)
• Subject Matter: Multi-Level Marketing And Pyramid Selling (Prohibition) Act,"Pyramid selling scheme",Criminal Law,"Benefits referred to in paragraph (a) or (b)",Words and Phrases,s 2(1) Multi-Level Marketing And Pyramid Selling (Prohibition) Act (Cap 190),Definition of pyramid selling,Promoting pyramid selling scheme,ss 2 & 3 Multi-Level Marketing And Pyramid Selling (Prohibition) Act (Cap 190),Pyramid selling,Holding out,"Promote",Statutory offences,Elements of the charge

This was an appeal from the decision of district judge Wong Chian Hon. The appellant was charged with and convicted of an offence under s 3(1) and punishable under s 3(2) of the Multi-Level Marketing and Pyramid Selling (Prohibition) Act (Cap 190) (`the Act`). He was accordingly sentenced to six months` imprisonment.

The charge

The appellant was convicted on the following amended charge:

[T]hat you, between 1988 and 1991, at No 1 Sophia Road #07-13, Peace Centre, Singapore, as a director of Success Motivation Institute (S) Pte Ltd ... did promote a multi-level marketing scheme, for the distribution of Success Motivation Institute programs, whereby a person, to wit, a distributor, may for valuable consideration, in any manner acquire the said programs for sale, where the said distributor, may be paid a commission, as a result of a sale of the said programs by a sales associate, and under circumstances where part of the commission accrued to a sales manager participating in the scheme ...

The statutory provisions

As a matter of introduction, before looking at the evidence, it is necessary to bear in mind the relevant provisions in the Act, so that the mind can be focused on what is to be proved by way of the evidence adduced. Section 3(1) provides:

It shall be unlawful for any person to promote or participate in a multi-level marketing scheme or arrangement or pyramid selling scheme or arrangement or hold out that he is promoting or participating in such a scheme or arrangement.

The word `promote` has been defined in s 2 (1) as:

... includes to manage, form, operate, carry on, engage in or otherwise to organise;

The words `multi-level marketing scheme or arrangement` and `pyramid selling scheme or arrangement` bear the same meaning and are defined in s 2(1) as:

any scheme or arrangement for the distribution of a commodity whereby a person may for a valuable consideration in any manner acquire a commodity or a right or a licence to acquire the commodity for sale, lease or otherwise -

(a) where that person receives a gratuity or consideration, directly or indirectly, as a result of the recruitment, acquisitions, actions or performances of one or more additional participants; or

(b) where that person is or may be paid, directly or indirectly, commissions, cross commissions, bonuses, refunds, discounts, dividends, gratuities or other consideration as a result of sale, lease or other distribution of such commodity by any additional practicipant [sic],

and under circumstances where any part of benefits referred to in paragraph (a) or (b) accrue to any other person participating in the scheme or arrangement.

As a preliminary observation, it should be noted that, subject to what is meant by the word `promote`, three separate but conjunctive conditions have to be fulfilled before a scheme or arrangement can be labelled as `pyramid selling`. In other words, at the risk of over-simplification, it seems to me that the definition requires three conditions to be simultaneously fulfilled:

(i) A person, X, pays to buy goods or pays to acquire a right to buy goods from the organiser of the scheme; and

(ii) X either receives a gratuity for recruiting an additional participant Y or earns a commission from sales made by an additional participant Y; and

(iii) X shares his gratuity or commission with yet another participant Z.

The trial

The prosecution called a total of 15 witnesses. Among them, only PW2, PW7, PW9 and PW13 proved to be material witnesses. The remaining witnesses were either unreliable or found to have only superficial knowledge of the appellant`s modus operandi. The facts were, in any event, not seriously disputed. At the close of the prosecution case, the district judge found that a case had been made out against the appellant and accordingly called for the defence to be entered. Apart from the appellant who took the stand and gave evidence, the defence called no other witnesses. Although the substantial dispute in this appeal, as was the case in the court below, revolved around questions of law, it is nevertheless necessary first to give the evidence more than a cursory treatment.

PW13`s evidence

In 1988, PW13 responded to a direct mail card from Success Motivation Institute (Singapore) Pte Ltd (`SMI`) and joined SMI as a sales associate in December the same year. The appellant was the general director, with a distributor, a sales manager and six sales associates. SMI was marketing three types of programmes, namely, The Dynamics of Personal Goal Setting (`DPGS`), The Dynamics of Creative Selling (`DCS`) and The Dynamics of Personal Leadership (`DPL`). DPL cost $1,500 while DPGS cost $1,100. PW13 only sold DPGS. When he first started off as a sales associate, SMI had ten programmes available for sales staff to utilize. At that time, the appellant conducted training sessions. There were also workshops for clients. PW13 was told that to become a sales manager, he had to sell about 30 to 40 programmes. If 60 or more sales were made, he could be appointed as a distributor. Initially he received an allowance of $250 pw, independent of sales commission, for conducting a minimum of 12 sales presentation. As a sales associate, PW13 was working under a sales manager, Abel Soh, who earned 10% of the retail price as commission whilst PW13 earned 20%. The sales manager was in turn under a distributor, Galvin. Although PW13 did not know how Galvin benefited from the sales of programmes, he later found out that a distributor received 50% of the retail price if he concluded the sales personally. If his sales manager concluded the sales, the distributor would get 20% and the sales manager 30% of the retail price as commission. If a sales associate under the sales manager sold a programme, the distributor received 20% and the sales manager received 10% of the retail price whilst the sales associate himself received 20% of the retail price as commission. Payments were always made to SMI which in turn paid out the commission to its sales personnel at different levels. After Abel the manager and Galvin the distributor left SMI, PW13 worked directly under the appellant.

In June 1989, PW13 was appointed a sales manager after having sold 40 programmes. A minimum of 30 sales must have been made before one could be promoted to a sales manager. PW13 then had about two to three sales associates under him. During the period between June 1989 and June 1990, there was no distributor in SMI. PW13 also helped the appellant in conducting sales sessions. In June 1990, PW13 was appointed as a distributor as well as a marketing director. There was no sales manager below him, though there were four to five sales associates under him. At the time of his new appointment, there was in fact only one sales manager, PW2, who worked directly under the appellant. PW2 was appointed a distributor sometime either in late 1990 or early 1991. During the period between June 1990 and June 1991, the priority was to recruit people at the level of distributorship, though several associates were also recruited. At this time, SMI no longer provided programmes for the use of its sales staff. Interested persons might attend training sessions as observers until they were convinced that they wanted to join, at which time they had to buy the programmes, which at that time cost $1,300, of which 58% went to the distributor who recruited the associate, and the sales training kit, which cost $200. If however the person was interested to sell but reluctant to buy a programme, he could become an `introducer`. An introducer was described in P11 as a level 1 or 2 sales associate who only received 10 to 15%, depending on the effort put in by the introducer, as commission, instead of the usual 20% given to full-fledged sales associates. The scheme of introducers was however not very common in practice.

It was also at about this time that the idea of a distributor agreement came about. Under such an agreement, the distributor was obliged to make an initial purchase of $10,000 worth of programmes. However, SMI did not always insist on a distributor fulfilling his contractual obligation. In fact, it was not uncommon that distributors were allowed to `invest` a lesser sum ranging from $2,500 to $5,000. The `cost price` of the programmes was $550. The number of programmes each distributor may obtain, either upfront or as and when he made a sale, depended on the amount of his `investment`. The proceeds of the sales of the initial stock went absolutely to the distributor as he had already pre-paid for the programmes. When they finished their initial stock, they could obtain additional programmes as and when they managed to find buyers. In such a situation, the payment from the buyer would be directed to SMI which would in turn pay the commission to the distributor. If for some reasons a distributor decided to quit without having sold his entire initial stock, SMI would oblige him with a refund of his `investment` less the cost of any programmes he had already obtained and sold.

At some point in time, there was an attempt to introduce into the hierarchy the position of a development manager whose job was mainly, though he could also make personal sales, to recruit distributors. A development manager was of equal standing as a marketing director. The scheme, however, did not take off because it failed to recruit the right sort of people for marketing.

As a distributor, PW13 received 58% of the retail price as commission when he made a personal sale. The distributor`s cost price was therefore 42% of the retail price. As a marketing director, he obtained 20% of the distributor`s cost price of the programmes as commission. These two types of commission were however mutually exclusive. In other words, if he was the distributor himself, PW13 could not also claim the 20% of the distributor`s cost price as...