The Commissioner of Customs & Excise v. Golden Science Technology Ltd. and Others

HCMP006968/1998

HCMP No. 6968 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

NO. 6968 OF 1998

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Coram: Deputy Judge A. Chung in Chambers

Date(s) of Hearing: 18 March 1999

Date of Decision: 18 March 1999

Date of Handing Down Reasons for Decision: 26 March 1999

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REASONS FOR DECISION

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Introduction

1. The 1st Respondent ("R1") operated a plant which produced video compact discs ("VCDs") and the like. R1's plant was located in 4 different places in the New Territories. In April, 1998, a raid was made by the I.C.A.C. at these places. It was said that products which were copyright infringements were found there and it was believed that R1, being one of the largest plants producing authorized copies in Hong Kong, was engaged in the production of unauthorized infringing copies of VCDs.

2. Investigation work was handed over to the Applicant ("C & E"). Machinery, raw materials and products inside R1's plant were seized by C & E. The main machinery inside the plant was the production lines for producing VCDs. As they consist of highly precise and delicate machines, it was agreed between C & E and R1 that they should not be dismantled at this stage. As a result, they were in effect detained in situ at the plant when C & E locked it up and security guards were placed there to prevent access thereto. Such has been the state of the plant and the machinery for the last 11 months or so.

Nature of the Application

3. R1, 6 and 7 ("the Respondents herein") were dissatisfied with this state of affairs. In June, 1998, a notice was given to C & E asking for the return of the seized VCDs and the machines. In October, 1998, the Respondents herein made an application for judicial review of C & E's failure to issue forfeiture proceedings and for the return of the seized items. On 27 October, 1998 (some 6 months after the raid), charges were made against R1 and other persons for alleged offences related to the Copyright Ordinance.

4. The application for judicial review was heard before Mr. Justice Keith on 18 December, 1998. At the end, an order was made compelling C & E to apply for forfeiture of the seized items by certain time. This was duly complied with by C & E. As a result of another hearing before Mr. Justice Keith on 27 January, 1999, an order was made regarding the return of certain VCDs.

5. Hence, by the time of this application, there are two sets of pending proceedings: a criminal proceeding and an application for forfeiture of the seized items. As regards the hearing of the forfeiture application, in an affirmation dated 24 December, 1998, Senior Inspector Wong of C & E stated that the Commissioner considered the forfeiture proceedings should be adjourned pending the result of the criminal trial. Mr. Fitzpatrick maintained that stance at the hearing.

6. Without the fault of any party, there has been and will be a time lapse between the time of commencement of these 2 proceedings and their determination by the Court. Mr. Fung for the Respondents herein informed me that the hearing of the criminal proceedings would be about 2 years from now, while Mr. Fitzpatrick for C & E said that the hearing would probably be sometime this autumn.

7. The reason given by Senior Inspector Wong for postponing the forfeiture application was that the outcome of the criminal trial would have a substantial bearing upon the likely outcome of the application. Further, it seems that it would be fairer to the accused for the forfeiture proceedings to be heard after the criminal trial because the accused can concentrate on its defence. It will not be forced to make disclosure regarding its defence in the criminal proceedings which it otherwise will not be obliged to make. For these reasons, C & E cannot be flawed for adopting such course.

8. However, this does not change the reality, which is that the forfeiture application will therefore have to await a considerable period of time before it can be properly determined. The Respondents herein on 5 March, 1999 took out an application for the following interim relief:-

(a) C & E do remove the security guards posted at R1's plant;

(b) C & E do permit the Respondents herein to enter and use R1's plant in the course of their lawful businesses or for any other lawful purpose;

(c) C & E do permit the Respondents herein to use the machines and materials.

The Respondents offered a list of undertakings to the Court essentially to ensure that:-

(1) their proposed activities would be lawful;

(2) there will be no or minimal risk of destroying any evidence, or removal of the items seized;

(3) the plant would be properly maintained; and

(4) R1's legitimate business could continue at the plant.

9. Mr. Fitzpatrick informed me at the hearing that C& E's objection to this application was not related to the adequacy (or otherwise) of the undertakings, or the kind of relief asked for. C & E's stance is this application should not be granted irrespective of the number, kind or extent of the undertakings offered.

The Issues

10. As both parties accepted, it is a matter of discretion in deciding whether this application should be granted. Mr. Fung argued that it is an exercise which strikes at balancing the interests of C & E (and public interest) against the legitimate interest of the Respondents herein in the meantime when the final outcome of the 2 proceedings remains unknown.

11. I remind myself that an application for forfeiture has already been made herein and to this extent, the circumstances of this application are different from those in Lo Yu Shing v. Commissioner of Customs & Excise, A.L. No. 98 of 1997 (although the learned Judge there raised the question of whether the Applicant should be able to use the machine in the interim (at p. 8M-P)) or those in Best Talent International Investment Ltd. and anor. v. Commissioner of Customs & Excise, A.L. No. 97 of 1997.

The Interest of the Respondents Herein

12. Mr. Fung submitted the interest of the Respondents herein relevant to this application is in short the need for R1 to continue its legitimate business in the interim to enable it to meet the recurrent expenses. The converse of that is if an interim order is not made, R1 will suffer irreparable damage, no matter what the final outcome of the two sets of proceedings may be. This arises from the disruption of R1's business by reason of the closure of its plant.

13. The affirmation filed on behalf of the Respondents herein showed that R1 needed to incur quite substantial amounts of recurrent expenses every month. The more important items were monthly sums of HK$13 million for machine rental, HK$750,000 for rents of the plant and HK$100,000. I also understand from the evidence that because of the need to keep a stable environment for the machinery, very substantial charges for electricity supply have to be paid by R1 (and since the plant's closure, paid by C & E). There is also evidence that because of the degree of sophistication of the machinery, they need to be operated regularly to prevent damage.

14. Mr. Fung argued that if R1 is prevented from operating its business, it may suffer from irreparable damage, possibly to the extent that the company may not be able to survive until the time of the criminal trial. This would render the trial meaningless from a practical point of view.

The Interest of C & E (and Public Interest)

15. The interests of C & E (and public interest) relevant to this application are its need to:-

(a) preserve the evidence which may be material to the criminal proceedings;

(b) preserve the seized items for the purpose of the forfeiture application;

(c) ensure that the seized items will not be used for illegal purposes.

16. As stated above, C & E asked for the forfeiture application to be dealt with only after the criminal trial. Despite this, Mr. Fitzpatrick submitted that I ought to refuse this application by considering the merits of the forfeiture application. The first limb of his argument was the merits of the forfeiture application are totally against the Respondents herein.

17. He submitted that the Respondents had failed to address the merits of the forfeiture application. When Mr. Fung pointed out that his clients had in fact filed affirmations regarding this aspect, Mr. Fitzpatrick criticized this evidence (a) as having been contradicted by the evidence filed for C & E and/or (b) was raised belatedly and/or (c) was inconsistent with earlier evidence.

18. The difficulties I face at present when dealing with this aspect of the argument (relating to merits) are due to the two pending sets of proceedings. First, I have not been asked, and am in any event not in a position, to consider the forfeiture application itself. Secondly, it would be highly undesirable and inappropriate for me even to set out the nature of the arguments advanced by either C & E or by the Respondents herein, let alone set out how I considered the arguments made by the parties. I will therefore only mention that in coming to a decision in this application, I have taken into account the points advanced by both parties regarding the merits of the forfeiture application.

19. The second limb of Mr. Fitzpatrick's argument relating to the evidence filed for the Respondents herein is that since (he argued) this evidence has been shown to be incredible, it makes the promises made by the Respondents herein (by way of undertakings) unreliable as well. Thus, there is a risk of (a) evidence being tampered with, and (b) unlawful activities continuing at the plant.

Balancing the Conflicting Interests

20. As stated above, the Respondents herein offered a list of undertakings to the Court in this application. As they are important to the balancing exercise, I propose to set them out in full. These undertakings are:-

(a) to set aside 1 set of optical disc production machines, namely, 1 optical disc replicating machine for producing VCDs, 1 silk screen printing machine and 1 off-set printing machine, at the plant;

(b) not to carry on any production with the aforesaid machines pending the determination of the application for forfeiture and the criminal proceedings Case No. ESCC 3613 of 1998;

(c) to make formal written admissions under s. 65C of the Criminal Procedure Ordinance in the said criminal proceedings that the process performed by the aforesaid machines is identical in all material respects to that performed by each of the remaining sets of the said machines;

(d) to permit C & E to make such photographic, video and/or other records of the present state and condition of each of the said machines, articles and things located at the plant;

(e) to make formal written admissions under s. 65C of the Criminal Procedure Ordinance in the said criminal proceedings regarding the aforesaid;

(f) to procure that the same admissions as set out in (c) and (e) above be made by the 2nd to 6th Defendants in the said criminal proceedings;

(g) to permit C & E to remove and retain all used stampers, offset plates, silk screens and master VCD copies found at the plant by officers authorized by C & E on 29 April, 1998 pending the determination of the said forfeiture application and the said criminal proceedings;

(h) not to use the said machines, articles and things except for the lawful purposes of their business;

(i) without prejudice to the generality of (h), not to begin production by using the said machines, articles and things until the Respondents herein have obtained the requisite licence(s) under the Prevention of Copyright Piracy Ordinance;

(j) not to remove any of the said machines from the plant without the prior consent of C & E and shall maintain them in good order and condition;

(k) not to dispose of the said machines or, subject to the existing encumbrances, in any way encumber the same in favour of third parties;

(l) to allow C & E's officers to access the plant and permit them to inspect the said machines, articles and things at any time;

(m) to allow an officer of the Motion Picture Association to have access to the plant, the said machines, articles and things at any time and to bear the reasonable costs of such officer posted at the plant.

21. I consider that the risks relied upon by Mr. Fitzpatrick for C & E have been sufficiently dealt with by the above undertakings. It is to be noted that the undertakings do not rest on the credibility or reliability of the Respondents herein. Quite on the reverse, they were offered to provide a means of ensuring that undesirable activities will not be undertaken at the plant. Undertakings (h), (i), (l) and (m) above are especially important to ensure that only lawful business is conducted.

22. On the other hand, if relief were to be refused, there is no suggestion as to, and I cannot see, how the potential irreparable damage to the Respondents herein (which I consider to be real) can be avoided. In considering this aspect (and the merits of the forfeiture application), I already bore in mind there is a degree of common directorship among the Respondents herein. It is possible (and I go no further than that) the rental payable for the machinery was nothing more than an accounting exercise.

23. My attention has been drawn to s. 190 of the Copyright Ordinance by Mr. Fung. S. 190(1) in effect confers an immunity on the Commissioner and his authorized officers from any claim resulting from action or non-action on their part in carrying out their duties. S. 190(2) stipulates that the protection conferred by s. 190(1) shall not affect any liability of the Government for that action or non-action. It appears that the effect of these provisions is that Government may still be liable to a civil claim although the Commissioner of his officers may not. This may be relevant to the financial prejudice which the Respondents herein may suffer. However, no matter what is the true meaning of s. 190, one has to bear in mind that a right in strict theory may not be of use in reality. Just as a financial disaster to R1 may render the criminal trial meaningless, a possible civil claim against the Government in some distant future (after the determination of criminal trial and the forfeiture application) may not be of much help to R1 for the same reason.

24. For the above reasons, I find in favour of the Respondents herein in this application. I now turn to consider the relief to be granted herein.

Nature of the Relief

25. Mr. Fung informed me that he would not pursue para. 1(1) of this application. No order is therefore made on this paragraph. It follows that security guards can still be posted at the plant if C & E so wish. The original relief asked for in the other sub-paragraphs was worded in the form of an injunction. There could have been difficult arguments as to whether such form of relief is available against C & E. Counsel have, with good sense, agreed that if I am minded to grant relief herein, C & E would have no objection to relief being granted by way of C & E permitting the Respondents herein to do the things set forth in para. 1(2) and 1(3) of the summons. This was the form of order I made.

Conclusion

26. To conclude, subject to the undertakings by the Respondents herein to the Court (as last proposed by Mr. Fung at the hearing), an order in terms of para. 1(2) to 1(3) of the summons (as amended) should be made.

Costs

27. Mr. Fung asked for costs of this application to be paid by C & E to the Respondents herein. Mr. Fitzpatrick submitted that the order should be costs in the cause of the forfeiture application. He argued that this is because (a) the affirmation relating to merits was only filed by the Respondents herein recently and (b) the affirmation may contain false statements.

28. C & E has opposed this application from beginning to end. They took the stance that the application should be refused whatever undertakings might have been offered. They have been unsuccessful in the application. In these circumstances, I do not see any valid reason not to apply the normal rule of costs following the event. Costs of this application are therefore to be paid by C & E to the Respondents herein in any event. I will not go further into the other details regarding costs.

Representation:

Mr. D. Fung, S.C. leading Mr. J. Mok and Mr. C.W. Ling i/s by Messrs. George Tung, Jimmy Ng & Valent Tse for R1, R6 and R7

Mr. D. Fitzpatrick i/s by Department of Justice for C & E

Remarks:
On appeal by the Applicant to the Court of Appeal: Additional undertaking provided. Appeal as to costs allowed, costs in the cause of the forfeiture proceedings. Please refer to judgment CACV000104A/1999.