HKSAR v. Ho Hon Chun, Danel and Others

CACC000269A/2000

CACC 269/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 269 OF 2000

(ON APPEAL FROM DCCC 626 OF 1999)

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Coram: Hon Stuart-Moore VP, Mayo VP and Stock JA

Date of Hearing: 11 December 2001

Date of Judgment: 22 February 2002

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J U D G M E N T

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Stuart-Moore VP (giving the judgment of the Court):

Introduction

1.This matter comes before us as an appeal by way of case stated under the provisions of section 84 of the District Court Ordinance, Cap. 336, against verdicts of acquittal recorded on 15 March 2000 by Judge Wright on the 2nd, 3rd, 4th, 5th and 7th charges variously faced by some or all of the Respondents (R1, R2 and R3 respectively). There is no appeal by the prosecution (the Appellant) against the acquittal on the 6th charge.

2.Arising from the case stated, there are now three questions of law on which the opinion of this court is required. We shall turn to these in due course. A fourth question, which was originally posed, requires no answer from this court as the Appellant no longer seeks to argue that the judge erred in relation to the issue raised in that question.

The charges

3.There were originally seven charges before the District Court. The prosecution did not proceed with the first charge of conspiracy, having elected to proceed on the substantive charges (2 to 7) only. The charges, which were brought under various provisions of sections 118 and 119 of the Copyright Ordinance, Cap. 528 (the Ordinance), arose from raids on two different premises conducted by Customs officers.

4.The first raid, on 1 August 1998, was on premises which were referred to at trial, in convenient shorthand, as the "Kwai Chung premises". Some of the items found there became the subject of charges 2 to 5.

5.Charge 2, against R1 and R2, alleged the possession of three sets of compact disc production machines, one set of printing machines for manufacturing CD-ROM discs and compact discs, knowing that these articles were used to make infringing copies of copyright works for sale or hire or for use for the purpose of trade or business, contrary to sections 118(8) and 119(2) of the Ordinance.

6.One of the production machines in charge 2 was operating at the time. Video Compact Discs (VCDs) were found on this machine as well as a stamper for the film entitled "Bodyguard". These findings led to the allegation in charge 3 against R1, R2 and R3 that they were making, for sale, infringing copies of copyright works ("Bodyguard" and "Batman Forever") without the licence of the copyright owner, contrary to sections 118(1)(a) and 119(1) of the Ordinance.

7.Amongst the many other items seized by customs officers at the Kwai Chung premises were five more stampers which were the subject of charge 4 against R1, R2 and R3. This charge alleged the possession of articles specifically designed or adapted for making copies of particular copyright works, namely films, which were used or intended to be used to make infringing copies of the works for sale or hire or for use for the purpose of trade or business, contrary to sections 118(4)(d) and 119(2) of the Ordinance.

8.Charge 5 also concerned all the Respondents and alleged the possession, for the purpose of trade or business, of infringing copies of copyright works with a view to committing an act infringing the copyright without the licence of the copyright owner, contrary to sections 118(1)(d) and 119(1) of the Ordinance. The particulars of the charge set out the nineteen film titles and the quantities of the VCDs which were said to be infringing copies. This charge had to be amended to delete two of the film titles following the judge's ruling that an affirmation, which was intended to prove copyright ownership over those films, was inadmissible. We shall later return to this aspect as this ruling gives rise to the first question of law which we have to determine.

9.During the time customs officers were at the Kwai Chung premises, R1 and R2 came onto the scene. R1 described himself as the "general manager" of Maytronic Industrial Company Limited (Maytronic). Later, in the course of an interview, R1 said that he operated two companies which were linked. These were Maytronic, which was "the factory", and Metronic Multimedia Company Limited (Metronic) which was used for "marketing and administrative" purposes.

10.Three days later, on 4 August 1998, customs officers raided premises which again, for the sake of convenience, were referred to during the trial as the "Kwun Tong" premises. R2 was arrested on these premises and questioned about the VCDs which were found there. These were suspected to be infringing copies of copyright works and ultimately became the subject of charge 7 against R2 and R3. This was set out in similar terms to charge 5. The three film titles particularised in this charge were common to three of the titles in charge 5.

11.While customs officers were at the Kwun Tong premises, R3 arrived on the scene. He identified himself as a director of Wah Lee Multimedia Limited (Wah Lee) whose premises were being raided. Documentation produced at trial described this company as being "incorporated in the British Virgin Islands with limited liability".

The defence

12.The interviews of the Respondents had a common theme to them. In each case, it was claimed that they had been duly authorised to produce the VCDs which had been seized. R1 said that his authority came from Wah Lee whereas R2 and R3 said that the authority came from Deltamac (Taiwan) Company Limited (Deltamac Taiwan). We shall need to deal with the inter-relationship of these companies and others later when we consider the second question of law on which the opinion of this court is sought. It suffices to say at this stage that what purported to be "authorities" to produce the VCDs, the subject-matter of these charges, were amongst the documentation seized by customs officers.

Copyright Ownership

13.The evidence at trial established that the copyright in all except two of the films referred to in charges 3, 5 and 7 was owned by Warner Brothers or Time Warner Entertainment Company, L.P. or Kennedy Miller Entertainment Pty. Ltd. which we shall collectively refer to as "Warner". The copyright in the other two films belonged to New Line Production Inc. (based in the United States of America). These two were deleted from the particulars in charge 5 when this charge was amended. It is in respect of this deletion from the charge of those two films ('Mortal Kombat Annihilation' and 'Spawn') that the first question of law arises.

First question of law

14.In the course of the proceedings in the court below, the judge ruled that an affirmation made by an officer of Hong Kong Film and Video Security Limited on behalf of New Line Production Inc., the owners of the copyright in the films 'Mortal Kombat Annihilation' and 'Spawn', was inadmissible. As a consequence of this ruling, the prosecution was unable to establish that New Line Production Inc. were the owners of the copyright in those films. In these circumstances, following agreement between the prosecution and defence, those film titles were removed by amendment from the particulars of charge 5.

15.The first question of law which is posed in the case stated for our opinion relates only to charge 5. It is in these terms:

"Did I err in law in ruling that an affirmation made pursuant to s.121 of the Copyright Ordinance was inadmissible to establish the subsistence of copyright in a work where the deponent to the affirmation did not state the basis of his statement that a named person was the owner of copyright in a work and that copyright subsisted in that work?"

16.For practical purposes the point is academic to the Respondents because we are not asked by the Appellant to make any consequential order relating to this even if we were to answer the question in the affirmative. Nevertheless we are asked to deal with this question as the answer to it has important ramifications for future cases.

17.Section 121 of the Ordinance, so far as it is relevant to these proceedings, provides:

"(1) An affidavit which purports to have been made by or on behalf of the owner of a copyright work and which states -

(a) the date and place that the work was made or first published;

(b) the name, domicile, residence or right of abode of the author of the work;

(c) the name of the owner of the work;

(d) that copyright subsists in the work; and

(e) that a copy of the work exhibited to the affidavit is a true copy of the work,

shall, subject to the conditions contained in subsection (4), be admitted without further proof in any proceedings under this Ordinance.

(3) The court before whom an affidavit which complies with the conditions in subsection (4) is produced under subsection (1) or (2) shall presume, in the absence of evidence to the contrary -

(a) that the statements made in the affidavit are true; and

(b) that it was made and authenticated in accordance with subsection (4).

(4) An affidavit may be tendered in evidence under subsection (1) or (2) if -

(a) it is made on oath -

(i) before a solicitor or a commissioner as defined in the Oaths and Declarations Ordinance (Cap. 11), if it is made in Hong Kong; or

(ii) before a notary public, if it is made outside Hong Kong;

(b) it is authenticated, so far as relates to the making thereof, by the signature of the solicitor, commissioner or notary public before whom it is made;

(c) it contains a declaration by the deponent to the effect that it is true to the best of his knowledge and belief; and

(d) subject to subsection (6), not less than 10 days before the commencement of the hearing at which the affidavit is tendered in evidence, a copy of the affidavit is served, by or on behalf of the prosecution or plaintiff, on each of the defendants."

18.It is apparent from a reading of the affirmation with which we are presently concerned that there had been full compliance with the matters set out in section 121(1), taken together with the conditions in subsection (4). It is equally apparent from a reading of the section that there is no requirement on the part of the person swearing the affidavit (the deponent) or, as in this case, making the affirmation to provide the basis of the statement that a named entity was the owner of the copyright in a work, and that copyright existed in that work.

19.The written arguments of Mr Philip Wong on behalf of R2 to the effect that if the judge had ruled the affirmation to be admissible this would have resulted in an unfair utilisation of what amounted to hearsay evidence or even, as Mr Wong also suggested in his written submissions, would have contravened, in some ill-defined way, the Hong Kong Bill of Rights, were not in our judgment of any substance. The 'hearsay' issue was not pressed and Mr Wong made no mention at all, rightly in our opinion, of the 'Bill of Rights' point in the course of his oral argument. Perhaps it only needs to be emphasised that section 121(3) (above) provides that once an affidavit is admitted, the court shall "in the absence of evidence to the contrary" presume the statements in the affidavit are true. Furthermore, the Ordinance specifically provides that the statements in the affidavit can be tested by cross-examination when either the defendant on whom the affidavit is served requires the deponent to the affidavit to attend court [s. 121(5)], or the party seeking to rely on the affidavit wishes to call the deponent [s. 121(8)(a)], or the court of its own motion calls the deponent [s. 121(8)(b)].

20.Although we were invited, in Mr Turnbull's written argument, to consider certain aspects of the legislative debate with a view to discovering the legislative intent behind section 121 of the Ordinance, we do not consider such a course to be necessary. The intent is plain from the section and, in saying this, we have also in mind the terms of section 19 of the Interpretation and General Clauses Ordinance, Cap. 1, which provides that:

"An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

21.The purpose of section 121 of the Ordinance being clear, it seems to us that on a fair, large and liberal construction, it would not facilitate the proof of copyright in Hong Kong if a deponent, in an affidavit which purports to have been made by or on behalf of the owner of the copyright work, had to set out how he or she came by the knowledge of copyright ownership.

22.Mr Turnbull, who did not appear in the proceedings in the court below, also relied on the judgment in Phonographic Performance (South East Asia) Ltd v California Entertainments Ltd, 14 IPR 163 for support for his contention that the judge had erred in law by ruling the affidavit in question to be inadmissible. Unfortunately, counsel who had appeared in the court below did not draw this authority to the judge's attention or it would probably be that he would have given a different ruling. This was a civil appeal which addressed section 9 of the Copyright Ordinance, Cap. 39, the forerunner to section 121 of the Ordinance we are now considering. Section 9 was drafted in very similar terms to section 121. It was contended in that case that section 9 required the deponent to state the grounds for his belief in the ownership of copyright. The court did not agree. Part of the headnote in that case reads:

"s. 9 of the Copyright Ordinance is not a mere presumption but in fact reverses the onus of proof in respect of subsistence of copyright and ownership. Once a s. 9 affirmation is filed by a person purporting to be the owner of copyright or someone acting on his behalf, asserting that copyright subsists and that he is the owner and exhibits a copy of the work asserting it to be a true copy, the burden of proof moves to the defendant to disprove subsistence of copyright and that the plaintiff is not the owner."

23.Of particular relevance to the first question of law in the present proceedings, Clough JA said:

".... I am unable to accept Mr Fung's argument that s. 9(1) is to be interpreted as impliedly requiring a deponent to particularise the grounds for his statement that a named person is the owner of a subsisting copyright. I understand the provision to be intended to provide a convenient shortened procedure for proving copyright and its ownership in the absence of effective opposing evidence. I can see no reason justifying the gloss which Mr Fung sought to place on the actual provisions of s. 9(1)."

Later, Clough JA went on to say:

"Searching for the true intent, meaning and spirit of s. 9, I can identify no more than an intention to provide a simpler way for an owner to prove his title in copyright proceedings, bearing in mind that the common experience in the courts in Hong Kong is that the owner of the copyright in such proceedings, be they civil or criminal, is usually resident outside Hong Kong. The inconvenience to the non-resident owner of proof of title to copyright in the usual way with production of all relevant documentation is obvious." (Emphasis added)

24.There are no significant differences between the current Ordinance's provisions in section 121 and the terms of section 9, Cap. 39. This is not surprising bearing in mind that the present-day Ordinance sets out in the preamble that it is:

"An ordinance to restate the law of copyright, with amendments ...."

25.Section 121 does include a number of amendments but these are by way of requiring additional matters to be included in an affidavit produced under the section.

26.It is plain to us that the judgment in Phonographic Performance (South East Asia) Ltd v California Entertainment Ltd as to the meaning of section 9 of the old ordinance is also applicable to section 121 of the Ordinance with which we are presently concerned.

27.The affirmation in question fulfilled all the requirements under section 121. This being so, nothing further was required. The Ordinance permits the deponent to state facts which he is authorised by the owner of the copyright to state. Once that is understood, there is no room for a requirement to state the basis of knowledge and belief.

28.It may well be that when the judge referred to the need for a deponent to state his grounds of belief, he had in mind Order 41 r. 5 of the Rules of the High Court, which is a permissive provision in interlocutory applications. This reads:

"5. Contents of affidavit (O. 41 r. 5)

(1) Subject to Order 14 rules 2(2) and 4(2), to Order 86, rule 2(1), to paragraph (2) of this rule and to any order made under Order 38, rule 3, an affidavit may contain only such facts as the deponent is able of his own knowledge to prove.

(2) An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof."

29.Mr McLanachan, on behalf of R3, sought to use the terms of Order 41 r. 5(2) in support of the judge's ruling. This argument, however, misses the point because Order 41 r. 5(2) is designed specifically to admit hearsay evidence in the limited circumstances of interlocutory proceedings and to require, when that is done, that the source of the hearsay or grounds for belief in the information are specified. What the court looks for in those circumstances is a chain of information.

30.It is not suggested that in this case it was sought to establish some chain of information; nor could it validly be contended that the evidence tendered was inadmissible as hearsay, for the evidence was that of the copyright owner itself, through its authorised spokesman, the deponent. This is what the Ordinance expressly permits.

31.In all the circumstances, we take the view that the judge's insistence on a statement of the basis of his assertion of copyright ownership belief by the deponent who made the affirmation on behalf of New Line Productions Inc., U.S.A., was misplaced. In our opinion, the judge should not have ruled that this affirmation was inadmissible. Accordingly, we must therefore answer the first question which is posed in the affirmative.

32.We should add, for the sake of completion, that Mr Allman-Brown, for R1, did not seek to support Mr Wong or Mr McLanachan in their arguments on this question. He did, however, submit that as the prosecution had allowed charge 5 "to be amended by consent during the trial to exclude those (film titles)", they could not now change their stance by suggesting that the amendment should not have been made.

33.This argument is wholly misconceived. Once the judge had ruled the affirmation which established ownership in the copyright over the two films to be inadmissible, the prosecution had no case against the Respondents regarding those films. We are told, and we accept from Mr Turnbull, that the deletion of the two film titles from charge 5 arose well after the judge had ruled the affirmation, made on behalf of New Line Production Inc., to be inadmissible. Apparently, the judge deleted these titles at the stage when 'no case' submissions were made to him. However, at this stage, the Appellant is fully entitled to complain that when the judge ruled the affirmation to be inadmissible, he had misconstrued the law. If it had not been for this erroneous ruling, the affirmation would have been admitted and there would have been no necessity for any amendment to charge 5.

Second question of law

34.Before we examine the second question of law, it is worthwhile considering the nature of the charges, in their overall effect, together with some of the relevant legislative provisions relating to them. The Respondents were variously charged with possession of an article used or intended for use to make infringing copies of a copyright work (charge 2), making infringing copies of copyright works without the licence of the copyright owner (charge 3), possession of an article specifically designed for making infringing copies of copyright works (charge 4) and possession of infringing copies of copyright works without the licence of the copyright owner (charges 5 and 7).

35.Section 35(2) of the Ordinance states that:

"A copy of a work is an infringing copy if its making constituted an infringement of the copyright in the work in question."

36.Section 22(2) of the Ordinance provides that:

"Copyright in a work is infringed by a person who without the licence of the copyright owner does, or authorizes another to do, any of the acts restricted by the copyright."

37.The copyright owner in the present case was Warner. Clearly, therefore, the first question to be answered in each of these charges was whether the Respondents had the licence of Warner to possess or to make the articles to which the charges refer.

38.The case presented for the Respondents was that they had a licence. Alternatively, it was contended, using the statutory defence provided under section 118 of the Ordinance, that they did not know and had no reason to believe that the articles were infringing copies or were articles designed to make infringing copies and that they do not know they were acting without the licence of the copyright owner.

39.At page 17 of the Reasons for Verdict, the judge made plain his view that the statutory defence had not been made out. The Respondents however succeeded before the judge on the first limb of their defence, and it is this to which we need now to return when examining the second question posed for the opinion of this court.

40.This affects all the charges with which we are now concerned. The question reads:

"Did I err in law in concluding there was a relationship of principal and agent between Warner Brothers and Deltamac (Taiwan) Co. Ltd?"

41.This question arises from the judge's findings in relation to what we shall call for present purposes the chain of licensing. Summarised in the case stated, at paragraph 10.6, are what the judge found to be the essential features of the VCD distribution agreement between Warner and KPS Retail Stores (Taiwan) Ltd. (KPS (Taiwan)) which is where the chain begins.

42.The agreement itself was dated 1 July 1996. This licensed KPS (Taiwan) to act as the distributor of VCDs in Taiwan and Hong Kong. KPS (Taiwan), as distributor, had the right to manufacture, distribute, advertise and sell VCDs in Taiwan and Hong Kong. It was also given the right to appoint its affiliates Deltamac (Taiwan) and Deltamac Ltd. as its sub-distributors in Taiwan and Hong Kong respectively.

43.However, in order to appoint one of its affiliates as a sub-distributor, KPS (Taiwan) had to enter into a sub-licensing agreement with each of the sub-distributors in a form and in substance which was acceptable to Warner. The sub-licensing agreement would have had to contain terms and conditions similar to those in the agreement between KPS (Taiwan) and Warner. The assignment of any rights under the agreement by KPS (Taiwan), including the appointment of a sub-distributor, required the prior written consent of Warner. The precise terms, so far as they are relevant to this analysis are set out in clause 13 and 13(e) of the agreement which were as follows:

"WARNER APPROVALS: Warner shall have complete and unqualified approval over the manner, extent, and terms on which the Rights Granted hereunder shall be exercised by Distributor including, but not limited to, Distributor's manufacturing of Devices, release scheduling, marketing strategy, pricing of Devices, and all of Distributor's terms of trade. All of Warner's approval rights under this Agreement shall be exercisable by Warner in its sole discretion, unless otherwise specifically provided for herein, and shall further include, without limitation, the following:

(a) ....................

(e) Distributor Operations Owned or Controlled by Distributor: Distributor or any affiliate of Distributor shall obtain Warner's prior written approval before establishing wholesalers, racking operations, retail stores and/or any other related business for the rental or sale of Devices. Furthermore, all prices (including, but not limited to, discounts and free goods) of Devices sold or distributed to stores owned or controlled by Distributor or affiliates of Distributor, shall be subject to Warner's prior written approval.

Distributor may appoint its affiliates, Deltamac (Taiwan) Co., Ltd. and Deltamac Limited, as its subdistributors in Taiwan and Hong Kong, respectively, (Deltamac (Taiwan) Co., Ltd. and Deltamac Limited each a 'Subdistributor' and together the 'Subdistributors'), by entering into one or more sublicensing agreements with each Subdistributor, each sublicensing agreement to be in form and substance acceptable to Warner and to contain terms and conditions similar to those herein, and executed copy(ies) of which is (are) attached as Exhibit D hereto (such sublicensing agreement(s) being the 'Sublicensing Agreement(s)'."

44.There were other extensive controls besides these which Warner retained over KPS (Taiwan). The relationship of the parties was also described in the agreement, and as this has a bearing on the questions of law we have to decide, it is convenient to deal with this here. Clause 31 was in these terms:

"31. RELATIONSHIP OF PARTIES: This Agreement shall not be deemed to create any partnership, joint venture, agency, fiduciary or employment relationship between the parties and neither party shall hold itself out as the agent or partner of the other."

45.The evidence given at trial on behalf of Warner came from Ms Molly Kellogg whose undisputed evidence is summarised in the case stated in this way:

"10.15 In relation to the lack of licence from the copyright owner to produce the copyright works the subject of charge 3, amended charge 5 and charge 7 on the charge sheet the representative of Warner Brothers (Molly Kellogg) made an affirmation pursuant to s 121 of the Copyright Ordinance (Exhibit 21) and also testified in relation to that affirmation and to the agreement between Warner Brothers and KPS Retail Stores (Taiwan) Ltd. She stated that Warner Brothers:

10.15.1 had not received any application from KPS Retail Stores (Taiwan) Ltd. seeking their written consent for the appointment of Deltamac (Taiwan) Co Ltd. or Deltamac Ltd. as sub-distributors or sub-licensees; further, Warner Brothers had not received any application from KPS Retail Stores (Taiwan) Ltd., Deltamac (Taiwan) Ltd. or Deltamac Ltd. seeking their written approval for appointment of Maytronic Industrial Co. Ltd., Metronic International HK Ltd., Wah Lee Multimedia Co. Ltd. or any of the respondents as sub-distributors/sub-licensees.

10.15.2 Warner Brothers had not agreed to the appointment as manufacturers, sub-distributors or sub-licensees of any of the respondents.

10.15.3 Warner Brothers had not agreed to the appointment of Maytronic Industrial Co. Ltd., Metronic International HK Ltd. or Wah Lee Multimedia Co. Ltd. as manufacturers, sub-distributors or sub-licensees."

It follows from the evidence of Ms Kellogg, when examined in conjunction with the agreement between Warner and KPS (Taiwan), that none of the companies which had a connection with the Respondents, namely, Deltamac (Taiwan), Deltamac Ltd., Wah Lee, Maytronic or Metronic was in fact licensed by the copyright owner to possess or to manufacture any of the copied works, whatever the so-called "authorities" relied on by the defence at trial may have purported to authorise.

46.In spite of this, although on what basis we do not know, the judge concluded (as set out at paragraph 19(i) of the case stated) that:

"Deltamac (Taiwan) Co. Ltd. was the duly licensed sub-distributor of KPS Retail Stores (Taiwan) Ltd. which was the duly licensed distributor for Warner Brothers of the copyright works, the subject of charge 3, amended charge 5 and charge 7."

47.When we sought to find out how the judge had been able to come to this conclusion, a suggestion was put forward by Mr Wong, who had appeared for R2 in the trial, that the prosecution may have conceded this point. Mr Turnbull did not accept that any such concession was or, in the light of the evidence of Ms Kellogg, could have been made. We observe also in this context that although there were facts admitted under section 65C of the Criminal Procedure Ordinance, Cap. 221, which were reduced to writing, there was nothing to suggest that the prosecution had made an admission that Deltamac (Taiwan) was the duly licensed sub-distributor of KPS (Taiwan).

48.However, following the alleged licensing agreements further along the chain which were said to have eventually involved the companies with which the Respondents were concerned, it can easily be observed that many links in the chain were missing. Even if Deltamac (Taiwan) was the duly licensed sub-distributor for Warner, which we have to say it was plainly not, there could be no proper basis for an authorisation to distribute copyright works as between Deltamac (Taiwan) and Wah Lee.

49.It is again all too clear that Warner had not given their approval for Wah Lee to be authorised to distribute their copyright works in Hong Kong. The company which could have been authorised, under clause 13(e) of the agreement (above), to distribute in Hong Kong was Deltamac Ltd. No one has suggested that Deltamac Ltd granted the alleged licence to Wah Lee to distribute in Hong Kong. It seems, in this context, that the judge had overlooked the fact that Deltamac (Taiwan) could only have been authorised to distribute in Taiwan.

50.The route by which the judge arrived at his conclusion that Deltamac (Taiwan) had been licensed as a sub-distributor by KPS (Taiwan) apparently arose from the fact that he did not believe the evidence of a Mr Chester Chan, the general manager of Deltamac (Taiwan) when Mr Chan claimed to have no knowledge of the document, exhibit 15B, which purported to be an "authorisation" between Deltamac (Taiwan) and Wah Lee. From his disbelief of this evidence, and from the existence of exhibit 15B, the judge apparently assumed that there was, or that there may have been, an authorization from Deltamac (Taiwan) and that it was in breach of the agreement between KPS (Taiwan) and Warner. As to this, the judge said:

"If Deltamac (Taiwan) granted or purported to grant authority to Wah Lee without obtaining the approval of Warner, it would be in breach of the agreement between KPS and Warner."

51.Deltamac (Taiwan) itself could not, of course, be in breach of an agreement to which it was not a party. As to this, the judge may have had in mind the reference in the agreement at clause 13(e) (above) to affiliates of KPS (Taiwan) and their ability, subject to prior written approval, to establish stores and other related businesses. If so, this was not to the point. Deltamac (Taiwan) was not a party to the agreement. Deltamac (Taiwan) was not, under the agreement which was in existence, in fact appointed by KPS (Taiwan) as a sub-distributor and, in any event, the agreement made no provision whatsoever for any further licensing by KPS (Taiwan)'s sub-distributors, even if they were duly appointed by KPS (Taiwan).

52.Three further points can also be made which, although perhaps of greater relevance to the statutory defence which was raised, have some relevance to the question we are now addressing. Firstly, as an affiliate company, Deltamac (Taiwan) should have been well aware of the limits placed by Warner on KPS (Taiwan's) authority to appoint a sub-distributor. Secondly, Deltamac (Taiwan) had been licensed by various film companies to distribute films, indicating an awareness on their part of the necessity of being licensed by the film companies. Thirdly, Deltamac (Taiwan) had used factories to produce films. Those factories had to be licensed. Approval for the use of those factories always had to be obtained from the film companies concerned.

53.These were powerful points and, in combination, Mr Turnbull argued that even if Deltamac (Taiwan) purported to accept an appointment as sub-distributor, this was done, to their knowledge, in excess of KPS (Taiwan's) authority. In such circumstances, there could be no relationship of principal and agent between Warner and Deltamac (Taiwan) based on any actual or perceived authority.

54.Bearing in mind all of the matters we have considered under the second question posed in the Case Stated, we conclude that the judge erred in deciding that there existed a relationship of principal and agent between Warner and Deltamac (Taiwan). The agreement between Warner and KPS (Taiwan) was not an agreement between Warner and Deltamac. Furthermore, clause 31 (above) in that agreement specifically disavowed an "agency" relationship between the parties to that agreement. Warner had not conferred its consent, expressly or impliedly, for Deltamac (Taiwan) to act as its agent in the licensing of others to copy its work and Warner had also not held out Deltamac (Taiwan) as its agent for the purposes of creating any licences. On any view, Deltamac (Taiwan) could only have been an agent of Warner, for any purpose at all, if KPS (Taiwan) had entered into a written sub-licensing agreement to which Warner had given its approval. This, of course, never happened.

55.It follows, therefore, that in relation to the second question we must again answer in the affirmative.

Third question of law

56.At paragraph 31 of the Case Stated, the third question of law which is set out for our opinion is in the following terms:

"3. Did I err in law in applying the principle that an agent who acts in fraud of his principal and in his own interests, will bind that principal to the facts of this case, thereby entitling me to find that the copyright works the subject of charges 3, 5, 7 were produced pursuant to the licence of the copyright owner?"

57.In view of our answer to the second question of law, the third question does not really arise for consideration. If there was no agency relationship between Warner and Deltamac (Taiwan), the application of the principle enunciated in the third question had no relevance at all to these proceedings. However, if the judge had been correct in deciding that there was such a relationship between Warner and Deltamac (Taiwan), he was then perfectly justified in embarking upon a consideration of the principle encapsulated in the third question. When he did so, he relied on the decision of Lloyds Bank Ltd v Chartered Bank of India [1929] 1 KB 40. Scrutton LJ (at p. 56) stated the principle which emerges from that judgment in these terms:

"In my view it is established that a third party, dealing in good faith with an agent acting within his ostensible authority, is not prejudiced by the fact that as between the principal and his agent the agent is using his authority in such a way that the principal can rightly complain that the agent is using his authority for his own benefit and not for that of his principal." (Emphasis added)

58.However, in the Case Stated, at paragraph 20, the judge expressed the rationale of the Lloyds Bank Ltd case in the following manner:

"An agent who acts in fraud of his principal and in his own interests will bind the principal if the act is within the agent's actual or apparent authority." (Case Stated, paragraph 20).

59.In simple terms, the judge in the present case never, in this context, addressed the question of good faith. Not only was he bound to do so, but it was a most pertinent issue as his comments about this in relation to the statutory defence illustrate.

60.We are satisfied, therefore, that the judge did err in his application of the principle set out in the third question. Accordingly, the answer must again be in the affirmative.

Conclusion

61.Having decided that the answer to each of the questions posed is "yes", we are left having to decide what course of action we should now adopt.

62.Section 84(c) of the District Court Ordinance, so far as it is relevant to these proceedings, provides that:

"at the hearing of the appeal, whether or not the respondent appears, the Court of Appeal shall-

(i) if it is satisfied that there is no sufficient ground for interfering, dismiss the appeal; or

(ii) reverse the verdict or order and direct that the trial be resumed or that the accused be retried as the case may be, or find him guilty, record a conviction ...............; and

(iii) give all such necessary and consequential directions as it shall think fit."

63.Although we were invited by the Appellant to reverse the verdicts and to send the matter back to the District Court for sentence, we are not satisfied that this would be a just solution. There were several fundamental errors of law in the judge's approach with which we have dealt in this judgment. Arising from these, the judge focused on a number of irrelevant issues and, in doing so, he omitted to address particular issues which required specific findings on the facts.

64.Without such findings, it is not possible to say that guilty verdicts would inevitably have been returned against all the Respondents on all the charges they faced. In saying this, we specifically refer to the issue of "possession" which arose on charges 2, 4, 5 and 7 which the judge did not address in relation to any of the Respondents charged with those offences. Equally, in charge 3, the judge did not make a specific finding against any of the Respondents that they had "made" infringing copies of copyright works.

65.Accordingly, we propose to order a retrial before a different judge in the District Court on charges 2 to 5 inclusive and charge 7, as all counsel for the Respondents invited us to do in the event that we were satisfied that there were sufficient grounds for interfering with the verdicts.

66.In the result, therefore, this appeal is allowed and we order a retrial in the terms we have set out.

Representation:

Mr R.G. Turnbull, SADPP, of the Department of Justice, for the Appellant.

Mr Andrew Allman-Brown, instructed by Messrs Y.T. Szeto & Co., for R1.

Mr Philip Wong, instructed by Messrs K.B. Chau & Co., for R2.

Mr John McLanachan, instructed by Messrs Wong, Hui & Co., for R3.