Guess ?. Inc. and Others v. Lee Seck Mon and Others
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1. On the 26th and 30th April 1986, I orally gave my reasons for decisions I had reached after carefully considering the substantial and extensive arguments of counsel and the encyclopaedic affidavit evidence placed before me. I would have preferred to take time to express my reasons in greater detail and in writing. In my view, however, the nature of the applications then before me called for my decisions to be given immediately after submissions had been concluded, if only to enable counsel
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HCA000604A/1986 ----------------------- HEADNOTE ----------------------- Courts practice and procedure - ex-parte Anton Piller order - non-disclosure of material facts - how discretion to discharge ex-party order should be exercised - importance of ensuring that Anton Piller orders are reserved for "extreme or exceptional" cases, where there is a "real risk", as distinct from an extravagant fear, of material evidence or articles being destroyed or suppressed, and need for order to contain proper safeguards for absent party - extent to which court can rely on material obtained as a result of execution of Anton Piller order which has been improperly obtained and eventually discharged. 1986, No. A604 IN THE SUPREME COURT OF HONG KONG HIGH COURT -------------------- BETWEEN
----------------- Coram: His Honour Judge Downey, sitting as a Deputy Judge of the High Court in Chambers Date: 30th April 1986. -------------------------------------- REASONS FOR DECISIONS --------------------------------------- 1. On the 26th and 30th April 1986, I orally gave my reasons for decisions I had reached after carefully considering the substantial and extensive arguments of counsel and the encyclopaedic affidavit evidence placed before me. I would have preferred to take time to express my reasons in greater detail and in writing. In my view, however, the nature of the applications then before me called for my decisions to be given immediately after submissions had been concluded, if only to enable counsel to consider how to approach the next stage of the proceedings. I now propose to incorporate into this single written judgment the reasons, both spoken and unspoken, for all of my decisions. What I said on those occasions has been recorded on tape, and rough transcripts thereof, with all my imperfections intact, have been made available to the parties' legal advisors. 2. The present proceedings can be described as the fourth chapter of a bitter and wide-ranging dispute between two families in the United States, both of whom are prominent in the garment industry. On one side there are the brothers Nakash , viz, Joe, Ralph and Avi ("the Nakashes"). They own and manage Jordache Enterprise Inc. ("Jordache") and operate, or until recently operated, from New York. For all practical purposes, the 7th Defendant ("D7") is a wholly owned and controlled corporate limb of Jordache. It is the corporate vehicle for exporting garments, manufactured in Hong Kong by the 1st to 6th defendants ("the Lees") and for acquiring textile quota. The Nakashes also own 50 per cent of the shares in Gasoline Ltd. ("Gasoline"), a corporation registered in the State of Delaware. 3. On the other side there are the brothers Marciano, viz Georges, Maurice; Armand and Paul ("the Marcianos"). They own 50 per cent of the shares in Gasoline. They arrived in the United States in 1981, and have carried on the business of designing, manufacturing and marketing jeans. Their base is California. Originally, they owned all the stock in the 1st Plaintiff, Guess ? Inc ("Guess"), a corporation incorporated in California. But, in July 1983 the Nakashes purchased 51 per cent of the stock in Guess from the Marcianos for US$4,775,000 (see Exhibit "J.N.1"). Thereafter, the Board of Directors of Guess consisted of 3 nominees of the Marcianos and 3 nominees of the Nakashes. But, with a view to achieving consensus, major policies and decisions required the affirmative vote of two-thirds of the Board or the shareholders. 4. This "partnership" between the Nakashes and the Maicianos was apparently brought about by a broker named Hardof Wolf. Whether he acted entirely on his own initiative, or was initially retained by one of the eventual "partners", is not clear from the evidence before me. (See para. 15 of Georges Marciano's affidavit, para. 4 of Joe Nakash's affidavit and para 15 of the Stock Purchase Agreement (Exhibit J.N.1.)). Answers to these, and possibly other, queries regarding the precise role of Mr. Hardof Wolf, or the timing of his "interventions", may provide solutions to some of the presently unresolved issues in the litigation now pending in Hong Kong , California and Delaware. Did the Nakashes eagerly seize this opportunity to acquire a majority stake in Guess in order to be able to appropriate some or all of the "intellectual property" of Guess to themselves or Jordache N.Y.? Were the Marcianos so desperate or anxious to obtain injections of financial and managerial assistance from a well-established organisation in the same field that they surrendered apparent control of Guess to the Nakashes, without obtaining express warranties or assurances that the intellectual property of Guess would be respected and separately preserved? Indeed, at that time, were the Marcianos aware of the fact or possibility that their designs, etc., were susceptible to legal protection? I entertain certain doubts on these and other aspects of the present dispute. But, upon a full consideration of all the evidence properly before me, I am satisfied that the plaintiffs have shown that there is a serious question to be tried concerning breach of confidence and copyright infringement by all defendants, except the 8th defendant. 5. Gasoline began life as G.M. Gasoline, Inc., a subsidiary of Guess. It later became a "division" of Guess. After the Hakashes acquired their 51 per cent interest in Guess, the operations of the Gasoline division were transferred to the company or corporation registered in Delaware. What precisely, if anything, in the shape of intellectual property, was transferred from Guess to Gasoline as a result of these changes is not clear. No evidence indicating the requirements of the laws of California or Delaware regarding the assignment of intellectual property rights has been placed before me. In view of the reasons for setting up Gasoline and its predecessors, I consider that it would be unwise to assume that the law of the relevant American jurisdictions is the same as that applicable in Hong Kong. But, in the absence of expert evidence of the relevant. American law, I must assume that it is the same as that applicable in Hong Kong. 6. Gasoline was originally set up because it is apparently "lawful" in the United States for a competitor in the garment industry to copy the designs of another producer once the original garment has been placed on the market, even when that is done by "reverse engineering" from the original. This form of copying is known as "knocking-off", and the resultant product is known as a "knock-off". Until this case, I had always understood that these slang expressions referred to killing stealing, or a particular type of human activity usually carried on without garments. I find it difficult to believe that it is wholly lawful in the garment industry in the United States to the extent that the original designer is without any legal remedy. I must, however, accept that sales of "knock-offs" cannot be restrained once the original has been marketed. All that the original designer can do is to get into the "knockoff" market well ahead of his rivals by “knocking-off" his own garments and selling them under a different label. He thus gains access to that market without damaging the image of his original product and, at the same time, does so before his imitators can place their copies on the market. The precept seems to be: if you have to join them, beat them to the start! At all material times Gasoline produced "knock-offs" of Guess' designs as a result of being supplied with patterns, markers, samples, and other confidential information belonging to Guess. 7. Within a few months of the beginning of the "partnership'' the two groups were locked in litigation. On the 1st December 1983, the Marcianos commenced proceedings ("the first suit") against the Nakashes in the Federal District Court in California, seeking rescission of the agreement for the sale and purchase of 51 per cent of the stock in Guess, and substantial damages for fraud, breach of contract, and other wrongs allegedly committed by the Nakashes. The first Amended Complaint (Exhibit RJS-2) is expressed in somewhat general terms, but appears to include allegations which overlap some of those more particularly alleged in the present action, e.g. the alleged quota and exchange-rate frauds by the defendants in the present action. The first suit was settled on the 12th January 1984 on terms, inter alia, that Avi Nakash would give Maurice Marciano one per cent of the stock in Guess. The only written records of that settlement are: a document on the notepaper of Guess, signed by all the parties to the first suit except Paul Marciano, but expressed to take effect upon being signed by the Board of Directors of Guess (Exhibit RJS-3); and a formal dismissal of the suit "with prejudice" (Exhibit RJS-4). There is no evidence to challenge the expert opinion of Mr. Sutcliffe (para 15 of his first affidavit) that such dismissal contains "a permanent waiver by the plaintiffs [i.e. the Marcianos] of any right to bring the action again". It is common ground that the commencement, content, and settlement of the first suit were not revealed to judge O'Dea. Indeed, the only reference to the result of the settlement of this suit is the information placed before Judge O'Dea in paragraph 17 of the affidavit of Georges MarciaNo. In my view, that paragraph was extremely misleading. It suggested that the transfer of the stock in Guess from the Marcianos to the Nakashes was reduced from 51 per cent to 50 per cent as a result of the negotiations initiated by Hardof Wolf. 8. On the 29th November 1984, the Marcianos, individually and derivatively on behalf of Guess and Gasoline, commenced proceedings against the Nakashes, the defendants to the present proceedings, other persons or organisations in the United States, as well as other potential defendants in the Superior Court of California for the County of Los Angeles. (See Exhibits "G. M.4" and 'G. M.5"). In these proceedings ("the second suit") virtually the same allegations were made against the defendants to the present action as are made in the present proceedings. This suit included allegations similar to those made in the first suit. But, curiously, the existence and outcome of the first suit was concealed from the Californian Court. In my view, this concealment was deliberate. Paragraph 9 of Exhibit G. M.4 demonstrates this quite clearly. The commencement and settlement of the first suit, and the possible legal consequences of the manner in which it was brought to an end, were never brought before the Superior Court of California or this Court. One wonders why the first suit and its settlement have been concealed from courts in Hong Kong and California. After all, Georges Marciano felt obliged to place Exhibit G. M.5 before this court, although he considered it "irrelevant" to the present action, "in the interest of full and complete disclosure". (See para. 30 of Georges Marciano's affidavit). It will be necessary to refer later to other steps in the second suit which were not disclosed in the ex-parte application to this Court. 9. The third chapter concerns proceedings in the State of Delaware, where Gasoline had been incorporated in March 1984. On the 11th January 1985, the Marchinos sued Gasoline and the Nakashes in the Court of Chancery of the State of Delaware, in and for the county of New Castle, for the appointment of a custodian director to dissolve Gasoline and for damages for wrongs committed by the Nakashes. The action was stayed because the issues were sufficiently similar to those in the second suit. But on the 9th September 1985, the Vice Chancellor, Carolyn Berger, appointed Mr. Edward Greenberg as custodian of Gasoline to enable the deadlock on the Board to be broken. 10. On the 30th January 1986, the plaintiffs applied ex parte for, and obtained, an Anton Piller order and prohibitory injunction from His Honour Judge O'Dea, sitting as a deputy Judge of the High Court. Between about 12.15p. m. on the 31st January and 3.45a. m. on the 1st February, the order was partially executed. On the 3rd February, the 7th defendant's application to vary the order was dismissed by Bewley, J., but certain additional undertakings not to send copies of documents out of the jurisdiction were given to the court. The matter came before His Honour Judge Saied; sitting as a deputy Judge of the High Court, on the 6th February, the return date for the hearing of the inter-partes summons for an order in similar terms. At the hearing, counsel for the defendants applied to have the order set aside. Several affidavits had been sworn or filed shortly before the hearing. Understandably, the plaintiffs' legal advisors wanted time to consider and answer them. After submissions on forms of undertakings, the hearing of the defendants' application to discharge, and the inter-partes summons, was adjourned to a date to be fixed. It was then estimated that 4 days would be required. One of the undertakings was varied by a consent order made on the 24th March 1986. By the time the matter came before me on the 7th April 1986, further affidavits had been filed or were about to be filed. It took the best part of 4 days for all the affidavits to be read and 9 days for counsel's submissions. On the 26th April 1986 I discharged the Orders of Judge O'Dea and Saied for the reasons I set out below. 11. For reasons which will emerge in due course, the defendants' main attack was launched against the Anton Piller features of the order. They contended that it was obtained without full and frank disclosure of material matters known to the plaintiffs; in bad faith, and upon insufficient evidence. They also contended that the order should have been refused on general discretionary grounds, such as "unclean hands" and delay. 12. Insofar as counsel for the defendants sought to have the Anton Piller order set aside on the basis that the plaintiffs had failed to establish "an extremely strong prima facie case" (per Ormrod, L. J. in Anton Piller K.G. v. Manufacturing Processes Ltd. [1976] 1 Ch. 55 at 62), their arguments necessarily impinged upon matters which were more directly relevant to the hearing of the inter-partes summons to continue the ex-parte order. In order to demonstrate that the plaintiffs had failed to established even a prima facie case of subsisting copyright and infringement thereof, as well as their allegations of conspiracy to defraud, extensive use was made of material which resulted from the partial execution of the Anton Piller order or "the yield", as Mr. Mills-Owens aptly described it. In particular, the affidavit of Maurice Marciano, filed on the 3rd April 1986, was subjected to a long and penetrating analysis by Mr. Garland. Indeed, by the time I was required to rule on the application to discharge the ex-parte order, I had been taken through all the evidence and substantially all the submissions relating to the issues arising out of the inter-partes summons. The order of Judge Saied did not impose any restrictions on any of the parties as to the filing of affidavits or further evidence. Although counsel on all sides have moaned about the late filing or production of additional affidavits, no objections were raised to my hearing the additional evidence and the various submissions thereon. 13. In this somewhat novel and unusual situation Mr. Mills-Ovens submitted that, when considering whether to exercise my discretion to discharge the ex-parte order, I should do so on the basis of all the material before me, including the "yield", and he cited certain dicta of Sir John Donaldson, M.R. in WEA Records Ltd. v. Visions Channel 4 Ltd. [1983] 1 WLR 721 in support of the proposition. After dealing with various procedural matters relating to ex-parte orders, the Master of the Rolls said (at 727):-
The case is also reported in the Fleet Street Reports, where the Master of the Rolls is reported to have contrasted the concern of the courts with a game of chess ([1984] F. S. R. 404 at 410). I do not know which report is accurate, but I would merely express the opinioin that the more appropriate antonymous description of the administration of justice would be playing snakes and ladders, since chess is a far more serious game; and some lawyers who play it, perhaps, take it as seriously as their professional practice, if not more so! In the same case, Dunn, LJ said (at 728-9):
14. The notion that the court or judge, called upon to review an order made ex parte, should look at the reality of the situation is one which readily appeals to me. But, that exercise of looking at the totality of the evidence should not, in my view, be undertaken when it is alleged that the court which made the ex-parte order has been misled in the sense that material facts have been misrepresented or have been withheld. It may be appropriate to adopt that pragmatic approach when it is merely alleged that there was insufficient evidence to justify the order sought by the ex-parte application. But, even in that situation, there may be objections, based upon sound principles, to the reviewing judge or court looking at material brought to light as a result of total or partial execution of an ex-parte Anton Piller order. I will return to this question when I deal with the inter-partes summons. In the present case I considered that the allegations of material non-disclosure were the more important aspects of the applications to discharge the ex-parte order. These allegations should, in my view, be considered in the light of the evidence before Judge O'Dea and such parts of the evidence before me which indicate the nature and extent of the alleged non-disclosure of relevant and material matters. 15. The duty not to mislead the court is well known. The applicant for an ex-parte order must disclose all matters within his knowledge which tend to favour or support the absent party's case. He must supply what is missing by reason of the nature of the application, and must bring forward all material matters which might affect the exercise of the court's discretion. The matters do not have to be decisive of questions before the court; it is enough that they are relevant to the balancing exercise which the court must perform when deciding whether to grant an urgent application without notice to the other party, bearing in mind the possible damage to the applicant by refusing relief, and the possible damage to the absent party by granting it. Where there has been material non-disclosure it is well established that the court will usually discharge the order without investigating its merits, even when the omission was a result of an error of judgment. Cf. Thermax Ltd. v. Schott Industrial Glass Ltd. [1981] F.S.R. 289; Booker McConnell plc v. Plascow [1985] RPC 425, 436. Although discharge usually follows from non-disclosure of material facts, I accept that it is not automatic. The court has a discretion to set aside, or refuse to continue the order, and that must, in my view, include a discretion to uphold and continue the order in its original or modified form. It may be that the order will only be upheld if subsequent evidence shows that the apparent non-disclosure was not material, as in Gallery Cosmetics Ltd. v. Number 1 [1981] F.S.R. 556, 560-561, or if the omission can be rectified and the party at fault given some locus poenitentiae. See Bank Mellat v. Nikpour [1985] F.S.R.87, 90. In other situations, a fresh application for the order may be necessary after it has been discharged. Cf. Yardley & Co, Ltd. v. Higson [1984] F.S.R. 304, 309-310. In effect that was the position before me because, in practical terms, the hearing of the application to discharge the ex-parte order was combined with the inter-partes summons for on order in almost identical terms. 16. When considering how that discretion ought to be exercised in this case, I took into account the very real practical difficulties of acting for parties who are thousands of miles away in a different jurisdiction; the problems of getting full and accurate instructions on the nature and contents of documents and other physical exhibits, which are located elsewhere; as well as the problem of deciding what should be revealed to the court when circumstances of real urgency exist. Notwithstanding these practical difficulties, the court must, in my view, also consider whether its somewhat more stringent requirements for obtaining permission to launch one of the law's nuclear weapons, in the form of an Anton Piller order, have been properly and sufficiently fulfilled. 17. In Dunlop Holdings Ltd. v. Staravia Ltd. [1982] Com L.R.3, Oliver L.J. observed that Anton Piller orders are "very very commonly employed" and have become "almost a commonplace". Some might say that too free and too frequent use is made of this order in copyright and similar actions. Whether that be so, the only way by which the court can control its use is through the exercise of its discretion to refuse the order in the first instance, or to discharge or modify it subsequently, if good cause for doing so has been shown. In this context I would respectfully repeat and adopt what was said by Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd., supra, (at 298):-
The question of what should be disclosed, and whether there has been full disclosure of material matters, must be considered in the light of those requirements, viz that this powerful order should be reserved for extreme or exceptional cases, where there is a real risk that incriminating evidence or infringing articles will be destroyed, spirited away, and the ends of justice defeated, and where the applicant can show an extremely strong prima facie case. To these there must in my view, be added consideration of whether the order sought by the applicant contains all proper safeguards for the absent party Cf. Booker McConnell Plc v. Plascow [1985] R. P. C. 425, 442. What these safeguards should be will depend upon the individual case. The wider the terms of the order; the greater the safeguards. 18. Whereas the ordinary ex-party application for an injunction generally involves no more than the court seeking to preserve the status quo or putting a temporary stop to some wrongful conduct of the absent party, neither of which may cause any real injury or inconvenience to the absent party, the usual Anton Piller order not only involves an obvious invasion of privacy; it requires the absent party to obey, on pain of committal for contempt, a court order which is mandatory, and will result in a radical alteration of the status quo by giving the applicant the very real tactical advantage of obtaining a form of relief, viz inspection of the other party's documents, at a stage well before he is entitled to such relief. Indeed, it may afford him that sort of relief when he is strictly not entitled to it, unless the terms of the order are clearly restricted to documents which would be discoverable, at the normal time, in the light of the issues raised by the pleadings. Until the issues are clearly identified by the pleadings of the parties, our rules and principles of procedure generally recognise that both parties are entitled to keep documents and other matters in their possession or control to themselves. They are not obliged to submit to "fishing" expeditions by their opponents, to ascertain if there is a case for starting proceedings, or amending proceedings already commenced. Furthermore, they are not obliged to allow the invasion of privacy, necessarily involved in the execution of an Anton Piller order. In my judgment, these considerations lie behind the clear indications that the courts are anxious to be vigilant to ensure that the rights and privileges of absent parties are adequately safeguarded when these exceptional orders are sought. 19. In the present case, it is said that there are some dozen items or topics on which there has been material non-disclosure. Before, I deal with these separately, there are two matters which have been touched upon in this regard and generally. It has been pointed out that the hearing before Judge O'Dea lasted 25 minutes, and it has been asked could he have read and fully understood the materials in that time?" Having regard to the time it took for counsel to take me through the same materials, these are, perhaps, valid questions or comments. Apart from the real possibility that I am a slower reader or listener, I conceive that I must assume that my Brother did have sufficient time and opportunity to properly consider the materials before him before making the order. I am told, and I accept, that the material was sent to him before counsel entered his chambers. I do not know when he began to read it; but, again, I must assume that if he required more time, the appearance of counsel would have been postponed until later that day. I note the point; but do not think that it has any real bearing on the question of non-disclosure by the party seeking an ex-parte order. 20. The second matter concerns the manner in which material facts were placed before the court. When faced with an accusation of non-disclosure, is it sufficient for the applicant to show that, although the fact is not mentioned in the body of his lengthy affidavit, it can be found somewhere in an exhibit, which is equally bulky, although there is nothing in the affidavit which serves as a signpost directing the judge's eye and mind to the precise location of the fact in question? In other words, is it enough to demonstrate that there is in fact a needle in the haystack? Counsel for the plaintiffs made the legitimate point that, if the applicant places before the court every fact which may conceivably be regarded as material, he runs the risk of being criticised for "hiding the ball" from the judge. I appreciate the dilemma, but I am not persuaded that it is a sufficient excuse for the absence of some direct reference in the affidavit to a fact which is hidden in some bulky exhibit. Nevertheless, for all practical purposes, I consider that I should treat the material fact as sufficiently disclosed if the needle can be found by searching the haystack. The fact that its discovery may be difficult, because of the manner in which it has been disclosed to the court, poses, perhaps, a case of misleading the court, as distinct from withholding material facts from its consideration. 21. The order in question was in very wide terms. For example, paragraphs (4) and (6), for all practical purposes, authorised the plaintiffs and their agents to enter various premises in Kowloon, without specifying the floors or parts under the control of the defendants. At best, the evidence before Judge O'Dea only showed that one of these premises was wholly occupied by or under the control of some of the defendants. (See para 35(ii) of Georges Marciano's affidavit. ) Furthermore, in the event that the plaintiffs and their agents were permitted to enter the premises between 9 a.m. and 9 p.m., they were authorised to remain thereon until the search for documents and articles had been completed. It is now known that they remained for more than 15 hours. But, the order theoretically allowed them to remain for a longer or indefinite period of time. Paragraph (5) of the order required the defendants, and the persons appearing to be in charge of the said premises, to disclose various kinds of information. That information was not limited to the issues likely to result from the intended action. That information was not even limited in terms of time. Insofar as it was intended that this form of inquiry should be confined to communications between the defendants and the Nakashes, who are not parties to the present action. I would respectfully point out that it extends to a period long before the Nakashes acquired any stake in Guess. Theoretically, the order required Mr. Lee, the first defendant to disclose all of his communications with his wife, the second defendant, irrespective of whether they were connected with the subject - matter of the intended action. It is clear from the evidence before me that the business relationship between the Nakashes and the first to sixth defendants ("the Lees') has existed for some eight years, whereas they only became involved with Guess and Gasoline in 1983. In my respectful view, sub-paragraphs (ii) and (iii) of paragraph (5) of the Order were inordinately wide. They authorised what can best be described as a deep-sea trawling exercise, totally contrary to the spirit and purpose of an Anton Piller order. By seeking an order in these extremely wide terms, the plaintiffs were, in my view, under a severe duty to make the fullest disclosure of all material facts and to satisfy the court that the interests of the absent parties (i.e. the defendants to this action) were adequately safeguarded. In practice, when faced with an urgent ex-parte application, the court has only two choices : to refuse the application or to grant upon certain undertakings by the applicant or modified terms. The order in the present case contained various undertakings. But it is significant that the only undertakings given by the plaintiffs were the usual undertakings as to damages and speedy commencement of the action. They gave no undertakings as to how they would or might use the documents, information, or articles they might obtain as a result of execution of Anton Piller order. In fact, they could use the "yield" for any purposes. There were undertakings by their solicitors to keep the "yield" in their safe custody, and not to use it without leave of the court, save for the purposes of civil proceedings in connection with the subjec matter of the action. These did not prevent documents etc. being sent out of the jurisdiction, which was a matter of considerable concern to the defendants. After the execution of the order, further undertakings to deal with this aspect were given. 22. I will now turn to the specific instances of alleged non-disclosure, dealing with them in no particular order of importance. The first concerns the appointment of Mr. Greenberg as custodian of Gasoline on the 9th September 1985. The only references to Mr. Greenberg and the proceedings in Delaware are in paragraphs 38, 44 and 70(i) of Georges Marciano's affidavit. But these deal with other matters. They do not explain what "custodian" means. The court was never told that he was appointed to break the deadlock on the Gasoline board. The court was never told that the Marcianos had refused to give Mr. Greenberg the guarantees and protection he required for acting as custodian, or "tight-rein" director, of the board of a company in which he had no financial interest. By withholding that protection, the Marcianos effectively disabled Mr. Greenberg from performing the functions for which he was appointed by the Delaware court of Chancery. The plaintiff contend that these matters were not relevant. Since Mr. Greenberg was not in fact acting in January 1986, the failure to make a formal demand on the board of Gasoline, which seems to be one of the requirements of the law of Delaware before a derivative action can be brought, did not mean that the present action was not properly constituted or authorised. In any event, that question was not before Judge O'Dea or before me. I agree that I am not concerned to decide whether these proceedings have been properly instituted or authorised by Guess or Gasoline. But, I respectfully disagree with the suggestion that these undisclosed facts were not relevant to the balancing exercise which Judge O'Dea was required to perform when considering the ex-parte application. In my view, they were relevant for several reasons. 23. Firstly, the general tenor of Georges Marciano's affidavit is that he and his brothers have had great difficulty in getting access to Gasoline's records because of the fraudulent conduct of the Nakashes, who are in direct day-to-day control of Gasoline. Since the disputes arose in 1983, the Nakashes have allegedly used their practical control to "squeeze out" the Marcianos from effective enjoyment of their rights as shareholders of Guess and Gasoline. Accordingly, the only way of breaking the deadlock situation in Guess and Gasoline was to bring a derivative action. If Judge O'Dea had been told that a solution to this alleged problem had already been supplied by the Court of Chancery in Delaware; that, in effect, the persons who were seeking to obtain equitable relief from this court had deliberately prevented a court-appointed "deadlock-breaker" from performing his functions; and that they were, thereby, vetoing that court's selection of Mr. Greenberg, he might have refused to make the order placed before him. Secondly, these matters were relevant since they revealed something about the attitudes adopted by the Marcianos to an order of a court of equity. Thirdly, although authority to sue was not in issue before me, it had some relevance at the ex-parte stage because Judge O'Dea, in my view, should have been told of any fact which might affect the value or validity of the undertakings given by the plaintiffs, limited though they were in this case. Without going into the law of Delaware regarding the institution of derivative actions there, or the question whether this action is governed by the law of Delaware or Hong Kong, I consider that if the true facts regarding Mr. Greenberg's appointment, and the Marcianos' refusal to give him the protection reasonably required by him had been placed before judge O'Dea, he might have had considerable doubt as to whether the undertakings, given on behalf of Gasoline, would be binding upon that company. If so, he might have refused to make the order, or called for stronger undertakings, in order to be satisfied that the interests of the defendants were adequately safeguarded against the Anton Piller order. 24. The second instance of alleged material non-disclosure relates to the failure to exhibit the Stock Purchase and Shareholders' Agreements (Exh.J.N.1), executed by the Marcianos and the Nakashes when the latter acquired the 51 per cent stake in Guess. It is true that these documents were not exhibited, but the terms which might be relevant to the present issues were referred to in paragraphs 22 and 23 of Exh.C.M.5, where the composition of the board and the requirement of a two-thirds majority for major decisions are set out. Mr. Garland submitted that this affected the locus standi of Guess as a plaintiff in this action, because it is undoubtedly a fact that no board meeting was held prior to the making of the present application for an Anton Piller order. Again, the plaintiffs contend that these facts were not relevant. Authority to sue is not now in issue. In any event Georges Marciano, as Chief Executive Officer of Guess; had authority to initiate legal proceedings. Furthermore, when the matter was discussed at a later board meeting, presided over by the Honourable Richard Schauer, a retired judge appointed as the Provisional Director of Guess, Judge Schauer adopted a neutral position, but was not in favour of withdrawing the action because, on the basis of the facts he had seen, he could not say that it was frivolous, (See Exhs. H.N.A. A.7 and J.N.2). If I were concerned with the question of authority to sue, this and other evidence would be extremely important. But that question is not before me. The question which is before me, is whether these undisclosed facts were relevant at the ex-parte stage of these proceedings. Again, I think that they were, perhaps, marginally relevant in the sense that if the judge had been told that no board meeting had been held and, therefore, no two-thirds majority in favour of this massive litigation in Hong Kong, when similar litigation was going on in the United States, he might have had reservations as to the value of the undertaking as to damages given by or on behalf of Guess. Having regard to the court's concern to ensure that the interests of the absent party are adequately safeguarded before an ex-party Anton Piller order is made, it seems to me that any doubts as to the value or validity of the usual undertakings by the applicant are important and relevant matters to the balancing exercise involved at that stage. 25. Like Mr. Greenberg, Judge Schauer had the power to break the obvious deadlock on the board of Guess. Indeed, as long as he was present at a board meeting, the need for a two-thirds majority was suspended (see Exh. DJW-5). Having regard to the views subsequently expressed by Judge Schauer, I have considered whether the failure to mention some of these matters to Judge O'Dea could be regarded in the same way as the omission to mention the mortgage in Gallery Cosmetics Ltd. v. Number 1 [1981] F. S. R. 556. The matter is finely balanced, but, on the facts of the present case, I think the scales must be tipped in favour of concluding that relevant facts were not disclosed at the ex-party stage. In February of this year Judge Schauor and the attorneys representing the other directors were discussing the question of continuing or terminating the present action. Although it stemmed from doubts as to the authority of Georges Marciano to commence this action, that discussion by the board of Guess was not dealing with the question which was theoretically before Judge O'Dea on the 30th January of this year, viz whether the undertakings given might provide adequate safeguards of the defendant's interests before making an Anton Piller order. In my view the institution of these proceedings without prior reference to the board of Guess and Gasoline was a material fact which should have been disclosed to Judge O'Dea. If the terms of the Stock Purchase and Shareholders Agreements did not operate as a constraint upon Georges Marciano's powers, as Chief Executive Officer of Guess, to institute these proceedings without prior authority from the board, one wonders why he waited until the 14th January 1986 before instructing solicitors in Hong Kong. He could have done that in November 1985, when his personal approach to the Lees for assistance in this long standing dispute received an undo-operative response. Indeed, he could have instructed solicitors in Hong Kong shortly after receiving the report from Daryl Rudnick in February 1985, regarding the purchase of "the black pants" (Exh. G. M.25). Bearing in mind the fact that the third suit had been stayed because of the similarity of the issues raised in the California proceedings (the second suit), the sudden decision to litigate virtually the same issues in Hong Kong is very difficult to understand, if the Marcianos were genuinely concerned to protect the interests of Guess and Gasoline, as distinct from pursuing a personal feud between themselves and the Nakashes. In the absence of any clear explanation for suddenly shifting the venue of this dispute from California to Hong Kong, it is difficult to resist the temptation to infer that it was done to achieve some individual. rather than some corporate aim, or done for other motives which cannot be revealed. These tentative or half-formulated assessments of the entire evidence before me have, perhaps, a more direct bearing on the next instance of alleged non-disclosure and one or more of the others. 26. It is next said that there was material non-disclosure because the Marcianos did not fully and frankly disclose their own wrongdoings. I do not think that there is any substance in this complaint. By exhibiting the cross-complaint (Exh. G.M.5) in the second suit, the fact that the Nakashes were making similar allegations of misconduct, fraud, cheating, breach of confidence, etc. against the Marcianos was adequately placed before the court. It was, perhaps, somewhat distracting and misleading to assert (in paragraph 30 of Georges Marciano's affidavit) that the cross-complaint was irrelevant, and the Marcianos were not seeking any relief in their individual capacities, because indirectly they might gain personally from the profits of these proceedings. In paragraph 146 of Exh. G. M.4 they invite the Californian court to order equitable distribution of any award to themselves, because of alleged misconduct by the Nakashes. But if the applicant's faults and misdeeds are placed before the court, I do not think that in general he must shout out loudly - "I am unclean!" - A specific example of non-disclosure of the Marcianos' wrong doing is found in the affidavit of R. A. Spiegelman. He refers to a purchase of "Try Me" jeans from the MGA Store in Los Angeles. It is alleged that these jeans were "knock-offs" of Guess or Gasoline styles produced by the Marcianos, who own the MGA Store. Furthermore Paul Marciano was the applicant for the "Try Me" trade mark. This complaint did not figure very prominently in the argument before me. It is not the subject of any cross-complaint in the second suit. It was very indirectly disclosed to the court in the sense that it was on the agenda for a meeting on the 26th November 1985. In the context of this case, in my view, it carries very little weight. 27. It is said that there was non-disclosure in relation to the name and existence of the eighth defendant, Krio Trading Ltd. ("Krio"), was allegedly acquired to obtain export quota in Hong Kong for the benefit of Gasoline. In my view, this is really not a case of non-disclosure. The complaint is bases on paragraph 34 of Georges Marciano's affidavit, which is perhaps, slightly misleading. It is open to considerable criticism for being carelessly or cunningly expressed; possibly disingenuous. It really goes to the reliability of the deponent; not to non-disclosure of material facts. On the contrary, it may turn out to be a quiver of barbed arrows in the hands of a skilful cross-examiner! In my view, the present stage is not the proper time to assess the credibility of witnesses, whose evidence is in affidavit form, and who may be able to offer reasonable explanations for apparently glaring contradictions or inconsistencies. These are matters to be fully aired and assessed at the trial. 28. There are a number of instances of non-disclosure of facts which, in my considered view, are not material to the question whether the ex-parte order was properly obtained, although they may be relevant to the inter-partes application for its continuance. It is said that substantial sums were owed by Gasoline and Guess to Mr. Lee or his companies for goods supplied. There is a reference to the US$98,260, allegedly owe by Guess, in a letter to the solicitors acting for the first six defendants. The alleged debt is clearly disputed. As to the sum of about $300,000 allegedly owed by Gasoline, the evidence does not show that it was known to the Marcianos. Gasoline was under the day-to-day control and management of the Nakashes from New York. In any event, it seems that this sum represents a line of credit extended by Mr. Lee and his companies in return for the high volume of business with Gasoline and favourable rates of exchange agreed with the Nakashes. The amounts are substantial, but their relevance to the balancing exercise at the ex- parte stage was, in my view, very slight. Insofar as the order was made on the basis of infringement of copyright; complaint is made of the failure to mention that this had been openly discussed between the Nakashes and Marcianos in the summer of 1984, and resulted in an agreement, understanding, or settlement which the Marcianos accepted. That appears to be the time when Guess stopped making its designs or styles available to Gasoline. But, even if the Marcianos were then prepared to overlook past infringements in return for assurances that they would not be repeated, I do not think that the failure to mention these discussions can be regarded as material non-disclosure, when the essence of the plaintiffs' case is that these assurances were broken by repetition of the previous infringements. Complaints of this kind are so obviously susceptible to highly subjective and different interpretations, especially in a litigious environment like that now before me, that I consider that they cease to possess the features normally associated with hard facts. In my view, the criticism that the plaintiffs have not fully and frankly disclosed the extent to which they and their accountants or agents have been given access to Gasoline's documentary records falls into much the same category. It may be that there has been ample and considerable time-consuming access to Gasoline's records, as the affidavit of Joe Nakash and the declaration of Mr. Hayes in June 1983 suggest. But, without seeing the volume of discoverable records, the volume actually disclosed, or the detailed terms of the orders or agreements regarding the same, it is impossible for a judge hearing an interlocutory matter in Hong Kong to say that there has, or has not, been material non-disclosure of relevant facts. The final example of alleged non-disclosure which I include in this category was, with respect, a thoroughly bad point. I refer to the complaint that the receipts exhibited to Mr. Hayes' declaration were not included in Exh. G. M.20. Their presence would have added nothing to the facts contained in the declaration. 29. I now return to the remaining instances of alleged non-disclosure. It has been argued, ably and cogently, on all sides that these were or were not relevant to the weighing operation which Judge O'Dea had to perform. They pose clearly important and difficult issues, to which I have given much anxious, and, I hope, careful consideration. I acknowledge that, to a Large extent, they deal with matters on which legitimate differences of opinion may exist, having regard to the scope of the duty to make full and frank disclosure, and the harsh practicalities of doing so in a situation requiring urgent action, possibly in jurisdictions separated by vast differences in time and space. 30. As I have already indicated, neither the first suit nor its settlement was disclosed. The plaintiffs say that they were irrelevant. The parties are different. The issues are different. Both sides have made the same claims in the second suit; and the settlement has not been pleaded as a defence by D7, D8 and D9 in the present proceedings. Part of the second suit was disclosed in the shape of Exh. G.M.4, presumably because it was thought to be relevant. Part of the second suit was disclosed in the shape of Exh. G.M.5 "in the interest of full and complete disclosure", although it was considered to be irrelevant. If that is the case, one wonders why the "irrelevant" parts of one piece of litigation are disclosed, but the entirety of another allegedly "irrelevant" piece of litigation, dealing with the same or similar subject-matter, was concealed. Although the first suit was for rescission of the Stock Purchase and Shareholders' Agreements for failure of consideration and fraud, the fifth claim (paras 26-34 and p.15 of RJS.2) includes basically the same allegations of over-charging and exchange rate fraud as are made in the present action. For this claim the Marcianos claimed US$15 million by way of damages, or half the total of their claims to damages in the entire suit. The fraud alleged in the first suit seems to be much wider than what we would regard as fraud, and certainly wider than the kind of conduct or activity which, in cases involving Anton Filler orders, will lead to an inference of an intention to destroy material evidence. 31. I accept that the filing and settling of the first suit may not create any estoppel as a matter of law, either in the United States or Hong Kong. Strictly speaking the parties are not the same, but when considering in broad terms the sort of matters which were relevant to the ex-parte application before Judge O'Dea, and having regard to allegations that there has been some kind of world-wide association or partnership between the Nakashes and the Lees and the other Hong Kong companies, might the learned judge have been interested to know that some of the charges now being made by the Plaintiffs had been made before, and withdrawn in a form which suggests some vague or indirect connection with Guess? It is noticeable that Exh. RJS. 3, on which the terms of settlement are recorded, is signed by the Directors of Guess on the latter's notepaper. It was not signed by Paul Marciano although he was one of the plaintiffs in the first suit. It seems to me that the Marcianos and the Nakashes could have settled their then differences simply by agreeing to the mutual promises expressed in the first two paragraphs of that piece of paper. Presumably, by adding the third paragraph they intended the settlement to have some connexion with Guess, or to indicate that Guess was, in some way, interested in or affected by it. 32. I am not concerned with the true legal effect, if any, of that document. It may have been drawn up in that form because the first suit was in a Federal Court, presumably because the parties were residents or citizens of different states or countries, or some of the claims were based upon a federal statute, or dealt with inter-state or foreign commerce. It may be that the Federal Court did not have jurisdiction to deal with internal disputes related to a corporate entity then wholly located legally in California. Gasoline was at that time still a division of Guess. It may be that the relevant American law governing the application of the doctrine of res judicata to persons who were not parties to the previous proceedings is stricter or narrower than that in Hong Kong. Cf. yat Tung Inueetment Co. Ltd V Da Heng Bank Ltd [1975] 33. A.C. 581 Apart from Mr. Sutcliffe's unchallenged opinion on the legal effect of the settlement, I really do not know what if any legal or binding force it has upon the plaintiffs to the present action. I assume that it does not affect their substantive rights if their allegations are ultimately established. But even if these rights are unaffected by the outcome of the first suit, I consider that the first suit was relevant to the ex-parte application before Judge O'Dea, because knowledge of the nature and disposal of the claims made in the first suit might have affected the exercise of the discretion to grant or refuse equitable relief and, more particularly, relief in the form of an Anton Piller order. 34. Assuming that the learned judge inferred that the defendants might destroy relevant documents or articles because of the allegations of fraud, he might not have been prepared to draw that inference if he had been told that basically the same charges had been made before and withdrawn. If he had been shown Exh. RJS-3 and Exh. RJS-4, which would not have overburdened the bulky affidavit of Georges Marciano, he might have asked several questions regarding the application before him, such as: why are these proceedings being brought in Hong Kong? Why are you making basically the same allegations as those which have been dismissed "with prejudice" by one American Court, but are now being litigated before another American Court? Does not the "settlement" impose some sort of restraint on further proceedings? In my view, answers to these questions were very relevant to the exercise of the discretion to grant or refuse the relief sought by the ex-parte application; and to the leave to unleash one of the law's "nuclear weapons". The learned judge might have been satisfied with the submissions which have been made to me on the relevance and effect of the first action. He might have declined to make the orders sought until he had heard argument from the defendants, albeit after very short notice. He might have insisted upon wider and tighter undertakings by the plaintiffs and/or their solicitors, in order to ensure that adequate protection was afforded to the intended victims of an Anton Piller order. He might have refused to make any order at all. Unfortunately, the answers to these and possibly other questions will never be known, because the basic factual material was withheld from the learned judge. 35. The next instance of alleged non-disclosure concerns the failure to place before Judge O'Dea two letters dealing with investigations being carried cut by federal agents of the U.S. customs and Treasury in or about April and May 1985. They are exhibits RJS-6 and RJS-7. They demonstrate quite clearly, in my view, that all parties - the Marcianos, the Nakashes and the Lees - were well aware of the fact that Gasoline's and Jordache NY's dealings with its associates in Hong Kong were under active investigation by U. S. federal agents. Apart from the allegations of breach of confidence, infringement of copyright and generalised fraud, it is fairly clear that the urgency of the application brought before judge O'Dea was justified solely on the basis of the raid by federal agents, adverted to in para. 71 of Gecrges Marciano's affidavit. Reports of the raids were also exhibited to Mr. Anderson's first affidavit (Exh. HRAA-1). The fact that the defendants would know about the raid was put forward as a reason for fearing that they would destroy material documents. Assuming that Judge O'Dea drew that inference from the raid, he may have come to a different conclusion if he had been told that the defendants knew about the investigation for some seven months. 36. Counsel for the plaintiffs contended that there is a vast difference between starting an investigation and carrying out a massive raid by federal agents. In any event, they say that these letters merely show that the plaintiffs were concerned about the investigation, and did not have to be placed before the learned judge, because their concern was already apparent from the affidavit of Georges Marciano and exhibits GM4 and 6M7. That may well be so. But, in my view, these letters were relevant to the knowledge or state of mind of the defendants, and whether they were likely to be disposed towards destroying material documents. In this context I remind myself of, and respectfully adopt, what Dillon LJ had to say about applications for Anton Piller orders in Booker McConnell plc v. Plascow [1985] RPC 425 at 441. After referring to the circumstances in which such orders can properly be sought, and to the need for a real possibility that a defendant may destroy material before an inter-partes application can be made, he said :-
It is, in my view, important that before a judge makes an order he should be given material which might give him some idea of the sort of person against whom the order is going to be executed. Is he a hawker, selling fake watches from an orange box in Temple Street market? Or, is he a substantial businessman with a permanent location and a commercial reputation to be preserved? In the present case, the fact that the defendants knew about this investigation for so long was a material fact, because it was relevant to the balancing exercise. Were they likely to disobey an order of the court and start destroying documents if they were served with a writ and an inter-partes summons? The wide-ranging nature of the litigation in the United States, and the fact that these defendants are parties to the second suit, although only Jordache International (HK) Ltd has been served, suggests that they must have known for several months that there was a likelihood of proceedings being instituted against them in Hong Kong. One wonders whether there was any real urgency to justify an ex-parte application in this case. 37. Finally, I come back to the second suit. As already indicated, part of this was disclosed because it was considered to be relevant; part was disclosed although it was not considered to be relevant. In paragraph 30 of his affidavit, Georges Marciano mentioned an unsuccessful motion by the Nakashes to remove the Marcianos from the Board of Guess. He did not mention that he and his brothers had been enjoined by the same court for conduct similar to what they are alleging in the present action; and he did not mention an important hearing which took place on the 24th January 1986, in the form of a motion to quash on the ground that the Californian court lacked jurisdiction over Jordache International (HK) Ltd. I have had the benefit of reading a full transcript of that hearing in the form of Exh RJS-5. I don't know when that first became available, but I assume that it was not available on the 30th January 1986. I must also assume that Judge O'Dea was not told anything about this hearing, because it is not mentioned in the affidavits which he read, and, despite the undertaking in the order he made, what counsel said to him in chambers has not been verified by any affidavit I have seen. The defendants contend that this hearing was important because, in addition to being relevant to the main ground for seeking to discharge the Anton Piller order, it also relates to Mr. Garland's second line of attack based on bad faith, namely, that the purpose of the present action is not to preserve evidence for this case, but to provide evidence or material which can be used to overcome problems which have arisen in the second suit. 38. I will attempt to summarise Exh RJS-5, which runs to 71 pages. Apparently, the motion to quash was filed by Jordache International (HK) Ltd in September 1985. It was adjourned on two occasions and came on for hearing, together with a demurrer, on the 24th January 1986. On the jurisdiction issue there was a long exchange between the judge and the attorney for the Marcianos, Mr. Shlachter, and the attorney for the defendant, Mr. Woods, as to what was required to establish jurisdiction over a foreign corporation or party; whether it was enough simply to allege the necessary facts or whether prima facie evidence of those facts had to be adduced, and, if so, whether such evidence was before the court. In my view, the judge was clearly putting legitimate pressure on Mr. Shlachter to produce his evidence or run the risk of the motion to quash being granted. There were references to the cumbersome procedures under the Hague Convention for getting evidence from abroad. This had obviously been discussed between the parties for some considerable time, because Mr. Woods indicated that he had been prepared to agree on letters rogatory as far back as January 1985. Doubts were expressed by the judge on the sufficiency of the evidence of conspiracy to defraud over quota and exchange rates. Mr. Shlachter was, perhaps, unsure whether he had sufficient evidence to defeat the motion. He didn't have "the smoking gun" and he was unwilling to run the risks of a final determination without discovery. Eventually, the judge sent the parties away with a firm direction that they should try to reach agreement upon discovery for the purpose of the motion on jurisdiction; and it is quite clear that what they had in mind was getting evidence from the people in Hong Kong in charge of Jordache International (HK) Ltd. 39. I appreciate that this hearing took place ten days after instructions had been given for the present proceedings to be commenced. It is not entirely clear, but I also assume that these instructions included authority to apply for an Anton Piller order. If they did, it is odd that they were extremely limited as to the undertakings to be given by the plaintiffs. But, it is fairly clear that the question of getting evidence from Hong Kong, without going through the cumbersome process of applying under Order 70 of the Rules of the Supreme Court for evidence to be taken in Hong Kong, was under consideration by the attorneys in California in 1985; and before Georges Marciano's unsuccessful attempt to obtain certain documents from the Lees, during his visit to Hong Kong in November 1985. It is also fairly clear, in my view, that the judge and the lawyers in California contemplated a process of discovery which would be much wider than that permitted under the normal procedure followed in Hong Kong. In my view, this is confirmed by Mr. Shlachter's letters to Mr. Woods, dated the 30th and 31st January 1986 (Exh. DJW-7a and 7b). These indicate quite clearly what Mr. Shlachter hoped or expected to obtain by agreement with Mr. Woods. He clearly hoped to obtain evidence which went beyond the limited question of jurisdiction, which apparently depended upon proof of goods being imported into California. It is also clear, in my view, that he wanted to avoid the cumbersome procedures surrounding applications to obtain evidence from persons in a different jurisdiction. I should, perhaps, add that Mr. Paul Samuels, who represented Guess, appeared to take no part in the discussion over jurisdiction or discovery. 40. I consider that the essential features of this hearing should have been disclosed to Judge O'Dea, because it was highly relevant to his duty to ensure, se far as any judge can do so when asked to make an order on an ex-parte application, that the interests of the absent parties are adequately safeguarded by the terms of the order and the undertakings contained therein. Knowledge of this particular hearing might have set off a series of alarm bells. Was the Anton Piller order being sought to avoid going through the cumbersome procedure of an application under Order 70 of the Rules of the Supreme Court and to get round the limitations thereon, imposed by the decision of the House of Lords in Rio Tinto Zinc Corpn v. Westinghouse Electric Corpn [1978] A.C. 547? Should the proposed undertaking by the plaintiff's solicitors, regarding use of documents obtained as a result of the execution of the order, be fortified by a similar undertaking by the plaintiffs? Should that undertaking be tightened by confining the use of such documents to the present action? Should there be an undertaking that neither the documents nor any copies thereof be removed from Hong Kong for such time as might be sufficient to enable the defendants to apply for the immediate discharge of the order? If the learned judge had been told more about the three suits in the United States, and the conduct of the Marcianos, his answers to these kinds of questions might have resulted in a refusal or substantial modification of the order. Or he might have made it only upon notice to the defendants. 41. In the event of my concluding that there had been material non-disclosure (and I am so satisfied in several respects) counsel for the plaintiffs invited me to consider exercising my discretion in a manner which would take account of the particularities of the situation. They pointed to the need to preserve evidence and to ensure proper discovery; the difficulties of making the correct selection from a large reservoir of arguably relevant facts; the absence of any real disruption in, or inconvenience to the business of the defendants; and the fact that the order had been substantially executed. These are all factors which are relevant to the discretion which, in my view, clearly exists. There is nothing automatic about discharging an order where there has been non-disclosure. Indeed, insofar as I have stressed the relevance of certain facts to the cross-undertakings as to damages, there is much to be said for keeping the order in force and leaving such matters to be dealt with at the trial. But, in my view, this was a case where an immediate application to discharge the ex-parte order was properly made. It is unfortunate that it could not be heard earlier, and before the plaintiffs and their legal advisors had made substantial use of, and devoted much time and professional skill to, the yield. 42. I have given very careful consideration to these submissions; but I have come to the conclusion that they are more relevant to a fresh application made after full discovery, and should not deter me from making what appears to be the usual order where there has been material non-disclosure, namely, to discharge the order without investigation of its merits. It is, in my view, important to uphold the principle that a party will not be allowed to gain or retain any benefit or advantage obtained as a result of breaking faith with the court. Cf Castelli v Cook (1849) 7 Hare 89,94. 43. In the present case, I came to the conclusion that the ex-parte order should be discharged because of substantial and serious non-disclosure of relevant facts. Furthermore, with all respect to Judge O'Dea, I do not think that there was sufficient evidence to support the inference that there was a "real possibility", as distinct from an "extravagant fear" of documents or other things being destroyed. It is right that I should acknowledge that my view is no doubt influenced by having before me material which was not before Judge O'Dea, which I consider should have been placed before him. But, it also seems to be the case that Georges Marciano was not apparently concerned about this in February 1985 or November 1985. When considering the likelihood of material evidence being destroyed or spirited away, one is really talking about Mr. and Mrs. Leo, because they would be the people to give instructions to others in Hong Kong. Most Anton Filler orders are aimed at "pirates" - persons whose activities are such as to involve an inherent risk of dishonesty and a disposition to avoid being caught or held liable for any civil wrong or criminal act, by concealing or destroying material documents or things. I doubt whether the Lees could be said to be in that category. They seem to be in business on a substantial scale, occupying the whole of a building, known as the Jordache building. Apart from any damage to their commercial reputation, suddenly to conceal or destroy documents, etc., when they have known about similar proceedings in the United States for so long, seems extremely unlikely and would easily be discovered and lead to the most unfavourable inferences and very serious consequences. 44. After I indicated that I would discharge the ex-parte order, Mr. Mills-Owens applied for a fresh order in much the same terms, on the inter-partes summons, and renewed his submission that I should consider the fresh application in the light of all the evidence I had heard over the space of approximately three weeks. Some of the numerous exhibits placed before me are documents which were obtained by the plaintiffs as a result of the partial execution of the ex-parte Anton Piller order. It is difficult, although not impossible, to tell precisely which exhibits come from that source, or the yield, but I think that it is fair to say that the bulk of Maurice Marciano's very lengthy affidavit consists of documents from the yield. 45. The defendants contend that I should lay aside all evidence obtained as e result of the ex-parte order because; it having been discharged for material non-disclosure, the plaintiffs should no longer derive any benefit or advantage from an order which should not have been granted in the first place. This accords with the principle, already referred to, that a party who improperly obtains an ex-parte order should not be allowed to enjoy the fruits thereof for any purpose in the proceedings. After all, it is said, all copies of documents seized by the plaintiffs on the 31st January 1986 belong to the defendants. Of Att. Gen. v. Ocean Timber Transportation Ltd. [1979] H.K.L.R. 298. Until the proper times for discovery and inspection arrive (if they ever do), the defendants are entitled to keep them to themselves, safe and secure from the prying or inquisitive eyes of all persons, including their opponents in civil litigation. 46. Subject to the qualification that a trespass to essentially private documents may by authorised or justified by legislation, I would not dissent from any of those propositions as general principles of law. I have already indicated some degree of sympathy with the approach which Sir John Donaldson, M.R. would have taken in WEA Records Ltd. v. Visions Channel 4 Ltd. [I983] 1WLR 721, 727, but I recognise that there may be cases where that pragmatic approach must yield to these formidable arguments based upon well-established principles, if only to ensure that the need for proper safeguards for the absent party is adhered to, and to void a situation where this form of legal nuclear weapon is sought and obtained almost as a matter of course. Nevertheless, I find it a little difficult, and somewhat artificial to apply these principles rigorously to the situation before me. The Anton Piller order has been partially executed; the yield or part of it has been placed before me in the form of affidavit evidence; and that evidence has been subjected to the most penetrating analysis and comment by counsel on both sides. It seems to me to be highly pedantic to say that, because the yield was obtained ex-party by material non-disclosure of relevant facts, I should now close my eyes to evidence from that source, which I have been constantly referred to over some three weeks? 47. In addition to the authorities cited earlier, I was referred to Gom Automation Ltd v Giles (24th May 1985; Falconer J), as yet unreported; three reports of ITC Film Distributors Ltd v Video Exchange Ltd [1982] 1Ch 431; The Times, 18th November 1981; The Times, 15th June 1982; and Universal City Studios Inc. v Hubbard, The Times 21st January 1983, which appears to be also reported in [1983] Ch 241. Unfortunately, none of these authorities affords me any direct assistance, possibly because applications to discharge ex-parte orders are normally heard before the party obtaining the Anton Piller order can make use of the yield. But, I think that the following propositions of law or practice can be extracted from these and other authorities. If an ex-party Anton Piller Order is discharged, all documents and copies obtained thereunder should be returned to the other party forthwith. If the original applicant has made notes or comments which might be of a privileged nature on copies of such documents, that party should be given the option of destroying such notes, instead of returning them. Documents or other evidence obtained by virtue of an improperly obtained Anton Piller order are admissible, but their further use should not be encouraged. If, however, such material has been put in evidence, the court should not exclude it when considering whether or how to exercise some discretion which it still possesses. 48. In the present case, I have decided that the ex-parte order should be discharged. I conceive that that decision is not final or absolute in the sense that it deprives me of any discretion to determine the consequences of such discharge. It certainly does not take away my fuller discretion to consider a fresh application for the same or a similar order. In the course of the interlocutory stages of any action, the court will frequently be asked to reach a decision based upon the exercise of a discretion. That always involves a balancing of different or opposing interests. But they are not always the same at every stage, because every discretion must, in my view, be exercised in the light of the circumstances which exist, or are perceived, on the occasion when the exercise of the particular discretion arises. For these reasons, I consider that I should, and am entitled to, look at all the evidence which has been placed before me in the course of hearing the two applications before me. That evidence has been placed before me without any objection by any of the parties or their counsel. That is, in my view, a relevant fact when considering the exercise of a discretion in a particular case. Secondly, in the time that has elapsed since the execution of the order and the start of the hearing before me, it is obvious that the plaintiffs and their legal advisors have invested an enormous amount of time, effort, and expensive professional expertise on material which belongs to the defendants, and strictly should be returned to them. In my view, it would be thoroughly absurd and unjust to now require the plaintiffs to return or destroy all such documents. At the most, the plaintiffs should only be deprived of the product of their lawyers' labours on these documents until the normal time for discovery. That can be achieved by putting them under seal or lock and key until that time. But, I am far from convinced that such a measure would be in the overall interest of the proper administration of justice. The hearing of any interlocutory appeal from any of my decisions might be unduly delayed and prejudiced if the plaintiffs were denied the use of the actual papers on which much work has been done before and during the present hearing. To require them to repeat that considerable exercise of marshalling the basic material and annotating it all over again, using a "clean set" of every document placed before me, would, in my view, be a scandalous and extremely punitive imposition. 49. The plaintiffs sought a fresh Anton Piller order to enable them to complete the operations which they began on the 31st January 1986, and they did so on the ground that they are still apprehensive that documents will be destroyed. Equally, the defendants resist a fresh order because they fear that the plaintiffs will misuse whatever they obtain, in order to serve their interests in civil and possibly other proceedings in the United States. These respective fears have been expressed from the start and immediately after the commencement, of these proceedings. But, since then, and in the course of the hearing before me, they seemed to me to intensify to the point where it was difficult to distinguish between extravagant fears and real possibilities, based on solid facts. A real possibility of destruction or concealment of material documents or articles is an essential requirement of every Anton Piller order. I accept that such can be inferred from evidence which suggests or establishes dishonest conduct, such as fraud, breach of confidence or trust, infringement of copyright, trade marks etc. Assuming, for the moment, that the yield has revealed evidence strengthening the plaintiffs case, as presented to the court in January of this year, it does not follow that the inference of a real possibility or risk of destruction of material evidence becomes stronger. Whether that further inference should be drawn must be considered in the light of all the evidence before me on the inter-partes application, and not on the basis of what might have been the proper inference to be drawn from the evidence before the court earlier this year. 50. Notwithstanding the fact that the main allegations of dishonest or fraudulent conduct have been known to the defendants for some considerable time, because of the extensive litigation in the United States and the investigations initiated by federal agents in April/May 1985; notwithstanding the massive raid in New York two days before this court was first moved for an Anton Piller order; and, notwithstanding the discovery of arguably incriminating documents as a result of execution of that order, there is still no clear evidence that the defendants have destroyed or smuggled away material documents or things, although they have had ample opportunities for doing so. Indeed, there is evidence to the contrary. Documents evidencing mysterious messages between the Lees, Jordache NY, and the Nakashes, involving the use of code names, such as "Mr. Justice", "Combustion", and "Expediter", have been found, (See Exh. MM-1, pp 22-27). These appear to have been sent in April 1985. In one instance, a specific instruction to destroy a prior message was completely ignored. In view of this evidence, and what I have seen regarding the commercial position and standing of the Lees, and the extent to which almost all of their business is dependent on orders from Jordache NY and Gasoline, I consider that there is insufficient evidence to justify the inference that there is a real possibility that the defendants will destroy documents, or hide them away, so that they are not available for the proper purposes of these proceedings. Quite apart from the evidence tending towards a contrary inference, I doubt whether it should be drawn in circumstances such as these before me. It seems to me that it is really no more than an evidential device for legitimising or sanctifying extraordinary ex-parte orders, in cases where there is no evidence to the contrary, or it is most unlikely that the other party will seek to contest the ex-parte order; because he clearly falls into the conventional role of a "pirate". On the basis of all the evidence before me, I am satisfied that there is no justification for a fresh Anton Piller order, because there is no sufficient evidence to justify the inference of a real possibility of documents being destroyed or concealed from the other parties or the court. That does not mean that there is no evidence to justify the granting of an injunction against any of the defendants. I now turn to that question. 51. In many respects, I have found this to be the most difficult aspect of this case. The relevant substantive law is not without some complexities, but is tolerably well settled. As usual, the real difficulty stems from applying it to the facts a difficulty which is enhanced when the evidence is necessarily incomplete and has not been rigorously tested. That is commonly the situation when a court is called upon to make a decision at an interlocutory stage. In most of those instances, it will be fairly clear where "the balance of convenience" lies, and the court rarely has to consider the whole gamut of reasons for refusing equitable relief. In the present case, the dividing lines are not so clearly or easily drawn, because the granting of equitable relief to the plaintiffs has been opposed on many grounds e.g. delay, "unclean hands", non-disclosure, as well as insufficient proof of irreparable damage or any actionable wrongs. 52. As indicated earlier, the main thrust of the defendants' attack has been upon the Anton Piller aspects of the ex-parte order. A considerable amount of time and effort was expended on seeking to demonstrate that the evidence was insufficient to establish the "extremely strong prima facie case", which is, in my view, a clear requirement, according to the locus classicus of this legal nuclear weapon: Anton Piller KG v Manufacturing Processes Ltd [1976] 1 Ch 55. Because of the views I come to on the allegations of material non-disclosure, it was not necessary for me to come to any conclusion on the question whether the plaintiff's' evidence was sufficient to demonstrate an "extremely strong prima facie case". I was merely sceptical of the sufficiency of the evidence in so far as a real possibility of documents being destroyed had to be established. The higher standard or degree of proof, implicit in that phrase, is required to ensure that the interests of the absent party are safeguarded. But, when a non-mandatory injunction is sought the applicant faces a less-demanding test. According to American Cyanamid Co v Ethicon Ltd [1975] A.C. 396, the test is whether the balance of convenience favours the applicant. Although a lot of evidence has been placed before me, this is still an interlocutory application. It is not my function to resolve conflicts of fact, although, I must be satisfied that there is evidence that the applicant has a real prospect of obtaining an injunction at the trial. 53. Numerous points have been made by counsel for all parties on this aspect of the case. The matter is finely balanced. Various factors point towards the grant of an injunction; others suggest a refusal. Mr. Garland has, meticulously and most ably, taken me through the evidence of alleged copyright infringement; and made the general comment that it falls short of what is usually made available to the court in actions of this kind. I have taken careful note of this, and the other contentions that the plaintiffs have not sufficiently proved ownership, or the subsistence, of copyright in any artistic works referred to in the evidence, as well as his detailed arguments on the need for originality, and the difficulty or impossibility of demonstrating that feature or, indeed, any infringement of copyright, on the basis of the exhibits to the affidavit of Maurice Marciano. In my respectful view, many of these are points which would carry much more weight at the trial than at this preliminary stage. They are by no means unimportant. But, it must be borne in mind that this case is not simply one of alleged infringement of copyright. Furthermore, it is vastly different from the usual or average case of infringement of copyright or trade mark, or passing-off. The defendants are not complete strangers to the plaintiffs. They have been supplied, in confidence, with materials, in which copyright does or may subsist, by Guess and/or Gasoline, the apparent owners or authors thereof. The material potentially protected by copyright includes things like cutting patterns, markers, styles and specifications. It is true that some of these have not been produced by the plaintiffs and, although there may be reasonable excuses for that and other omissions on their part, no explanation has been given to the court. Equally, the defendants did not fully comply with Judge O'Dea's order, in that markers and cutting-patterns have not been disclosed to the plaintiffs. 54. In the course of the proceedings before me, it emerged that Stephen Baum, supposedly the designer of Gasoline styles, had informed Joe Nakash that he thought that 3 or 4 items being manufactured for Jordache NY were, or might be, copies of Gasoline styles; and that Joe Nakash had indicated that further production of these styles would be stopped. (See para. 24 of Stephen Baum's affidavit. ) As a result of this revelation, Mr. Mills-Owens asked for further and better particulars or precise identification of these styles. In my view, that request was reasonable and fair, and should have been answered before I gave my decision on the inter-partes summons. It was never answered; and, in my view, no satisfactory explanation has been given for this failure to deal with that relevant and reasonable inquiry. It is therefore not known, at this stage, whether the alleged copying of Gasoline's styles is limited to the 4 or 5 dealt with in Maurice Marciano's affidavit, or whether others were also being copied. I realise that copying as such is not necessarily infringement of copyright. But, there is the "rough practical test that what is worth copying is prima facie worth protecting" (Cf University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601, 610). In the present case, the plaintiffs seek protection on the basis of alleged infringement of copyright and breach of confidence. In my view, either will suffice to justify the modified form of injunction sought by Mr. Mills-Owens. It must not be forgotten that the defendants are almost totally committed to producing and exporting garments for Jordache and Gasoline. Ninety per cent of the production of Mr. Lee's factories are devoted to producing garment for Jordache, and eight per cent for Gasoline. 55. Whilst I think that there may be reasonable explanations for not placing before the court the kind of evidence usually filed in actions for infringement of copyright brought against complete strangers, I was a little concerned that the exercise of taking a garment to pieces and matching it to a cutting pattern or other copyright material was not carried out in the case of Exhibit GM25 - the "black pants". These were alleged to be copy of Gasoline style No. 2025, and were purchased by an agent or former employee of Guess in February 1985 from the Jordache store in Nathan Road, Kowloon. There has been ample time for the usual examination and comparison to be carried out. But, no explanation for the failure to do so has been put forward, except possibly the fact that the original Guess sketch of this design cannot be found. I have given considerable and anxious thought to this matter, because it is relevant, not only to the question whether the plaintiffs have demonstrated that there is a serious question to be tried, but also to the question of delay and whether irreparable damage has or might have been suffered by the plaintiffs. 56. Having borne in mind everything that has been said about the evidence, or the lack of evidence, I think the plaintiffs have established that there is a serious question to be tried. The defendants have not denied that materials, in which copyright potentially subsists, were supplied to them in confidence. There is evidence of messages passing between New York and Hong Kong in which the Lees were instructed to use Gasoline's styles to produce garments for Jordache. There is evidence of the use of code names, such as "Mr. Justice" ''Expediter" and "Combustion" in some of these messages. Statements, made on oath by the Nakashes and others in the United States are, to some extent, inconsistent with documents from the yield. There is some evidence of sales in Hong Kong of garments which are Gasoline garments or garments produced from Gasoline's styles. I realise that much of this direct and circumstantial evidence focusses on the conduct of the Nakashes. The Lees contend that if they have infringed anyone's copyright they have done so innocently. I am not impressed by their professed ignorance of the precise relationship between the Nakashes and the Marcianos, or those between them and Guess and Gasoline. I also find it difficult to accept Mr. Lee's explanations regarding the use of what is alleged to be an excessive or contrived rate of exchange. The optimistic belief, expressed in the last sentence of paragraph 22 of his first affirmation, that the Nakashes would bear him out, has not been confirmed. Joe Nakash's four word emphatic denial was deposed to, in Hong Kong, on the day following Mr. Lee's first affirmation. But, no further affidavit was sworn by Joe Nakash to support Mr. Lee's explanation on this issue. The further explanation, in paragraph 5 of Mr. Lee's second affirmation, likewise is not supported by any evidence from the Nakashes. Ralph Nakash, whose affidavit was sworn in Hong Kong on 3rd April 1986, is equally reticent. 57. Although this action may be regarded merely as a change of venue for a longstanding and on-going dispute between the Nakashes and the Marcianos, I do not think that the Lees can realistically be treated as total innocents caught in the cross-fire. Even if instructions to use Gasoline's style numbers to produce garments for Jordache did not alert them to the possibility of breach of confidence or copyright infringement, their agreement to go along with the suggestions that code-names be used is highly suspicious. Furthermore, their unco-operative attitude when served with the Anton Pillar order is; in my view, significant. The court must allow for some degree of tolerance of disobedience to its mandatory order because it comes as a complete surprise, and is understandably resented because of the inevitable invasion of privacy. But, in the present case the level of reasonable tolerance was exceeded. Articles and documents which should have been delivered up have not been delivered up, despite the ample opportunities afforded to the defendants to consult their lawyers. The contents of a file of Panafaxes for 1985 are unknown, as it is being looked after by solicitors acting for the Lees, pursuant to an agreement reached with the plaintiffs' solicitors at a late stage of the execution of the Anton Piller order. Cutting patterns and markers relating to Gasoline's styles have not been disclosed. The only conclusion which can properly be drawn from all the evidence now before me, and reasonable inferences therefrom, is that the plaintiffs have demonstrated that there are serious questions of infringement of copyright and breach of confidence, which ought to be tried. Indeed, I would prefer to state that they have shown a prmia facie case of copyright infringement and breach of confidence. But, I am less sure about the alleged conspiracy to defraud by means of exchange rates or quota. Nevertheless, the defendants' failure and refusal to yield to the plaintiffs, or place before the court, artistic works in the form of cutting patterns and, possibily, markers, which they have received in confidence from the plaintiffs, constitutes a substantial ground for believing that there has been sufficient infringement of copyright or breach of confidence to justify the granting of an injunction in the terms now asked for by the plaintiffs, if the balance of convenience is in favour of the plaintiffs. 58. There has been no suggestion that any of the defendants would suffer any hardship if an injunction were granted. On the evidence before me it is difficult to point to any hardship or loss which would not be adequately covered by the undertaking as to damages. The order sought would not bring the legitimate activities of the defendants to a standstill. The production and export of Jordache's garments would not be affected. The Lees can continue to produce garments for Gasoline, until such time as the deadlock on the board can be resolved, and a decision to change manufacturer can be made, if that is desirable. 59. It has, however, been submitted that the relief sought should be refused because the formal plaintiffs approach the court through the real plaintiffs, i.e., the Marcianos, who do so with dirty hands. There are certainly indications that the Marcianos have been engaging in conduct similar to that of which they now complain in this action. They have been enjoined by the Californian court. In my view, the other side or parties are not without fault or blame. At this stage, I am not in a position to assess, fairly or properly, whether the degree of blame, in a dispute of this kind, is sufficient to justify the refusal of equitable relief. 60. I have been much more concerned with the question whether the plaintiffs would be adequately compensated by an eventual award of damages. My concern stems from the fact that there is no direct evidence that the plaintiffs have suffered, or might suffer, what has conveniently been referred to as "irreparable damage" and also from the instances of delay on the part of the plaintiffs. I have already adverted to the delay over the "black pants" instance of alleged infringement. In November I985, no immediate action was taken in Hong Kong, despite Georges Marciano's failure to obtain any assistance or co-operation from Mr. Lee regarding sales of Gasoline's garments to countries other than the United States. These, and possibly other, examples of delay are not trivial, because they tend to suggest that the plaintiffs have not suffered irreparable damage, quite apart from casting doubt upon their allegations of copyright infringement or other wrongful conduct on the part of any of the defendants. 61. With regard to the first matter, I consider that the plaintiffs have shown that damages would not be an adequate remedy in this case. Having regard to the nature of the allegations in this case, the relationship between the parties, and the activities of the various defendants, I consider that there is sufficient to infer unquantifiable loss of goodwill. Cf. Slick Brands (Clothing) Ltd. v. Jollybird Ltd. [1975] F.S.R. 470 at 475. Such evidence as I do have suggests that the Guess/Gasoline styles have some distinctive appeal or popularity. It is, perhaps, a small point, but there is no indication or suggestion that the Lees were asked or instructed to use Jordache's styles to produce garments for Gasoline. 62. The fact of delay is ostensibly more serious. Proceedings of this nature in Hong Kong are normally launched much earlier than the present action. No action was taken here after the purchase of the "black pants" in February 1985. In November 1985, Georges Marciano was in Hong Kong; trying to get information from the Lees. He did not then instruct lawyers in Hong Kong to commence proceedings or investigations here. No explanation for the delay has been given other than pressure of work and pre-occupation with proceedings in the United States. I have already expressed the view that this aspect of the case is finely balanced. I have not overlooked the possibility that this action is merely part of a tactical game being played by the Marcianos, or, as Mr. Woods described it during the hearing in Los Angeles on the 24th January 1986, a case of the Marcianos, yet again, trying to beat the Nakashes to the courthouse. That my be so. But, the fact that so much time has been devoted to litigating much the same issues in three jurisdictions and two geographical locations in the United States is, in my considered view, a sufficient explanation for the delay in commencing these proceedings. The evidence before me shows a serious intention on the part of the plaintiffs not to allow the alleged infringements to pass unnoticed. The Hong Kong connection or source has been known for some time; but the plaintiffs have, until January 1986, assumed that it could be handled in the course of pending suits in the United States. It seems to me that their understandable desire to avoid multiplicity of suits is a valid reason for not commencing proceedings in Hong Kong earlier. I think that it is more probable that they only realised that it would be necessary or prudent to do so, when they realised the difficulties of proceeding against foreign parties in the Superior Court of California. On the evidence before me, I think that the need to go to the considerable expense and inconvenience of litigating in another, and more distant, jurisdiction was not realistically appreciated until after Georges Marciano's visit to Hong Kong in November of 1985. In the context of the broad and complicated issues of this case, the interval between that visit and the 14th January 1986, when the solicitors for the plaintiffs were first instructed, is not sufficiently cunctative to justify the refusal of equitable relief. Subject to one item, which I deal with in the next paragraph, I am satisfied that the balance of convenience lies in favour of granting the relief sought by the plaintiffs in this case. 63. What I would now call the final lingering or nagging doubt is the uncontradicted statement in paragraph 24 of Mr. Lee's first affirmation, filed on the 6th February 1986. It is somewhat terse, but basically it asserts that, as recently as December 1985, the Marcianos were asking Mr. Lee to produce garments for Guess. It would be somewhat surprising for a shareholder and chief executive officer of a corporation, whose copyright material is allegedly being infringed, to approach that particular wrongdoer with such a request, especially when the alleged wrongdoer has been made a party to litigation based on the same subject-matter, albeit in a different jurisdiction. It is not a trivial matter, but I consider that it is an instance of something which has been overlooked in the course of the "tennis-match" which has taken place in the form of the contents and timing of the affidavits filed in this case. In the course of this forensic activity, mistakes have been made on all sides. Mr. Lee's second affirmation, filed on the 4th April 1986, included some 500 pages which turned out to be totally irrelevant! In my view, many of these mistakes could have been avoided if the deponents had confined themselves to facts within their knowledge, instead of resorting to expressing opinions on issue, which are for the court to resolve, or engaging in comment or argument on the evidence placed before the court. I think that this gap or omission in the evidence before me is important. But, it seems to me that, if it poses a serious issue in this case, it is one which can only be resolved at the trial. I am far from convinced that it tips the balance of convenience in favour of the defendants. Having given it very careful consideration, I do not think that it is sufficient to Justify refusing the plaintiffs the order they seek. They have, in my view, demonstrated that the balance of convenience lies in their favour.
Representation: Mr. Richard Mills-Owens, Q. C., Mr. Robert Ribeiro and Mr. A. Barma, counsel instructed by Messrs. Herberts Smith & Co. for Plaintiffs. Mr. Charles Ching, Q. C., Mr. Edward Chan and Mr. Kenneth Yuen, counsel instructed by Messrs. Iu, Lai & Li for 1st to 6th Defendants Mr. Peter Garland, counsel instructed by Messrs. Denton Hall Burgin & Warrens for 7th to 9th defendants. |