Polydor Ltd and Others v. Hong Kong Records (A Firm)

Case No.HCA 2601/1976

Court

High Court CFI

Date—

Judge—

Case Document

100%Judiciary

HCA002601/1976

IN THE HIGH COURT OF JUSTICE

ORIGINAL JURISDICTION

ACTION NO. 2601 OF 1976

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BETWEEN
	POLYDOR LIMITED	1st Plaintiff
	DEUTSCHE GRAMMOPHON GESELLSCHAFT	2nd Plaintiff
	PHONOGRAM INTERNATIONAL B.V. LIMITED	3rd Plaintiff
	and
	HONG KONG RECORDS (a firm)	Defendants

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Coram: Li, J. in Chambers

Date of Judgment:

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JUDGMENT

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1. In this case the plaintiffs apply for an interim injunction pending trial or until further order against the defendants restraining the defendants whether by them selves or their servants or agents or otherwise from importing, selling, offering for sale by way of trade the sound recordings recorded on the gramophone records as set out in Schedule (I) and Schedule (II) of the Writ of Summons issued herein on 3rd December, 1976, without the licence of the 1st, 2nd or 3rd plaintiff.

2. The 2nd plaintiff is a foreign corporation by the name of Deutsche Grammophon Gesellschaft incorporated in Germany. The 3rd plaintiff is the Phonogram International B.V. Limited incorporated in the Netherlands. The 1st plaintiff is a company incorporated in Hong Kong and was appointed by the 2nd plaintiff and the 3rd plaintiff as sole licensee to sell the aforesaid sound recordings in Hong Kong and was appointed by the 2nd plaintiff and the 3rd plaintiff as sole licensee to sell the aforesaid sound recordings in Hong Kong and Macau in the customary manner in trade; that is, sale through retailers. I shall refer to their contracts of appointment in due course. The 2nd plaintiff appoints the 1st plaintiff as the licensee in respect of the records set out in Schedule (I) of the Writ. The 3rd plaintiff appoints the 1st plaintiff as a licensee in respect of the records set out in Schedule (II) of the Writ.

3. The defendant firm is owned by one Mr. Klaus Heinz Heymann and has been engaged for some years in importing, wholesaling and retailing of gramophone records amongst other things.

4. The plaintiffs complain that the defendant caused to be published in the November issue in 1976 of the Hong Kong Hi-Fi and Music Review and offered for sale by mail order of the records of which the plaintiffs have the copyright, without the plaintiffs' consent or licence. The plaintiffs' case is that the 2nd plaintiff is the copyright owner of the records in the First Schedule of the Writ and the 3rd plaintiff is the copyright owner of the records set out in the Second Schedule of the Writ. The 1st plaintiff is the exclusive licensee of the 2nd and 3rd plaintiffs for Hong Kong and Macau and the 2nd and 3rd plaintiffs never granted any such right to anyone else except the 1st plaintiff.

5. The Defence is that the records proposed to be imported for sale by mail order were imported from the United Kingdom, some from the Netherlands and some from Germany. In so far as those imported from the United Kingdom they were obtained from a United Kingdom exporter who in turn obtained their supply from a company by the name of Phonodisc Limited, U.K. Phonodisc U.K. obtained their supply of records similar to those set out in Schedule (I) from the Polydor Limited U.K., who is the exclusive licensee of the 2nd plaintiff in the United Kingdom. The Phonodisc U.K. also obtained supply of records similar to those set out in Schedule (II) from a firm by the name of Phonogram Limited, United Kingdom, who is the exclusive licensee of the 3rd plaintiff in the United Kingdom. There were some other records obtained from Germany or the Netherlands which the defendant claimed were either manufactured by the 2nd or the 3rd plaintiff or by the licensees or agents of the 2nd and 3rd plaintiffs. Thus, the records offered for sale were offered for export with the consent of the United Kingdom licensees of the 2nd and 3rd plaintiffs who have the right probably to export to other parts of the world and probably including Hong Kong. The United Kingdom licensees advertised these records for export for a long time and they were never stopped by the plaintiffs. Thus, the defendant had the belief that an importation for sale by mail order of such records to Hong Kong was no infringement. Further, it is part of the defence case that by the contracts, the 1st plaintiff has no exclusive right to import or to sell by mail order.

6. A number of authorities have been cited in relation to the principle of granting of an interlocutory injunction. It is not necessary to refer to them all. The plaintiffs rely strongly on the case of American Cyanamid v. Ethicon 1975 A.C. 396. The defendants rely on the case of J.T. Stratford & Son Ltd. v. Lindley and another 1965 A.C.269. The question is whether the plaintiffs must show a strong prima facie case. There is some conflict - apparent conflict - between these cases. The point has been considered by Mr. Justice Huggins, as he then was, in the case of J.C. Penney Co. and another v. Penneys Ltd. and another 1975 5 H.K.L.R.598. It is quite sufficient to cite the judgment of Mr. Justice Huggins who referring to Lord Diplock's judgment in the Cyanamid case at p.603 said:

"That is the error into which a court may readily fall if it speaks of finding a prima facie case and it seems to me that the sole purpose of all that Lord Diplock said on this matter was to avoid such errors in future. If it had been clear that courts, when they talk of finding a prima facie case, had always meant that the plaintiff's evidence was such as might properly have been left to a jury, I suspect that the case would never have found its way into the law reports, for Lord Diplock said at p. 323: -

The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.'

There are possibly two reasons why a court may decide that there is a serious question to be tried: first there may be a triable issue on one or more questions of material facts and secondly there may be disputed questions of law even where the facts are undisputed. Thus in the Cyanamid Case the issues were substantially questions of fact: the defendant sought a narrow interpretation of the chemical term 'Polyhydroxyacetic ester' in a patent and argued, in the alternative, that if the term bore the wider interpretation contended for by the plaintiff the patent was invalid on grounds of inutility, insufficiency, unfair basis and false suggestion. Sir John Pennycuick in Fellowes v. Fisher at p.200 suggested that the House of Lords may not have had in mind a case where the issue was substantially one of law, as where the court was called upon to construe a written instrument. In Fellowes v. Fisher itself the primary facts were common grounds. J.T. Stratford & Sons Ltd. v. Lindley the earlier decision of the House of Lords, was a case where the substantial questions were ones of law, namely whether the respondents had established a prima facie case that there was a trade dispute in existence or in contemplation within the meaning of s.5(3) of the Trade Disputes Act 1906 and whether it could be a proper inference from the evidence of primary facts that the defendants had knowingly induced breaches of contract, and intended to repeat such conduct. In practice I do not think that the Cyanamid Case, when properly understood, will present any problems. I respectfully adopt Sir John Pennycuick's summary of that case (1975 3 W.L.R. 199): -

(1) Provided that the court is satisfied that there is a serious question to be tried, there is no rule that the party seeking an interlocutory injunction must show a prima facie case. (2) The court must consider whether the balance of convenience lies in favour of granting or refusing interlocutory relief. (3) 'As to that' the court should first consider whether, if the plaintiff succeeds, he would be adequately compensated by damages for the loss sustained between the application and the trial, in which case no interlocutory injunction should normally be granted. (4) If damages would not provide an adequate remedy the court should then consider whether if the plaintiff fails the defendant would be adequately compensated under the plaintiff's undertaking in damages, in which case there would be no reason upon this ground to refuse an interlocutory injunction. (5) Then one goes on to consider all other matters relevant to the balance of convenience, an important factor in the balance, should this otherwise be even, being preservation of the status quo. By the expression 'status quo' I understand to be meant the position prevailing when the defendant embarked upon the activity sought to be restrained. Different considerations might apply if the plaintiff delays unduly his application for relief. (6) Finally, and apparently only when the balance still appears even:

it may not be improper to take into account in tipping the balance the relative strength of each party's case as revealed by the affidavit evidence.'

The first step is, therefore, to ascertain that there is a serious question to be tried. Where the only possible issue is one of law and the court is satisfied that that issue ought clearly to be decided against the plaintiff I do not read the decision of the House of Lords as holding that the court must go on to consider the rest of the procedure just outlined: there is then no serious issue still to be tried."

7. Adopting this passage as a guide, I now proceed to find out if there is a triable issue, whether of law or facts, in the present application.

8. For the Defence it is contended that the 2nd plaintiff, first of all, is not the right plaintiff. If one looks at the exhibit of Li Chi Wing of the 8th of February, 1977, it will be observed that in "LCW-1", the Schedule attached thereto, cites an agreement between Polydor Limited, namely, the 1st plaintiff, and the Polydor International GmbH of West Germany, described as a success or in the rights of Deutsche Grammophon Gesellschaft mbH. Thus, it is contended that when the cause of action arose the 2nd plaintiff had no standing in law at all to sue. On the other hand, the affidavit as filed by Vincent Ko asserts that the 2nd plaintiff is the copyright owner in respect of the records set out in Schedule (I). Even in Mr. Heymann's affidavits for the Defence filed on the 22nd of December and 11th of January, 1977, respectively the 2nd plaintiff was referred to at random as the copyright owner of the records as well as the copyright owner who granted licence to Polydor Limited in the United Kingdom to manufacture and, to be an exclusive licensee, to manufacture those records in England. However, learned counsel for the defendant seized upon the exhibit I have just cited and attached to the affidavit of Li Chi Wing and queried the title of the 2nd plaintiff.

9. Looking at the description of the Schedule to Exhibit "LCW-1" it appears that Polydor International GmbH is the successor in the rights of the 2nd plaintiff in respect of those records. It is only a Schedule attached to the original agreement which is signed between the 2nd plaintiff and the 1st plaintiff in 1970. This Schedule refers to this contract in Clause 3, and provides that:

"In all other respects the terms and conditions of The Agreement shall remain unchanged."

By "The Agreement" it refers back to the agreement on the 1st January, 1970. When one refers to Clause 20 of this agreement, the applicable law and place of jurisdiction of this agreement is to be:

"	1.	German law shall be applied.
	2.	If individual provisions of this agreement should be found to be invalid, then the remainder of the agreement shall remain valid in law. The parties shall replace the invalid provisions by valid ones to the same effect.
	3.	.....
	4.	The place of jurisdiction for all disputes which may arise from this agreement shall be Hamburg."

There is no evidence as to what the law in Germany is in relation to the interpretation of the agreement. This application is an interlocutory application and the matter should be dealt with expeditiously. It is not for me to try the issue as such, be it an issue of law or an issue of fact, without hearing the law as applicable in Germany as to the respective rights of the parties in the agreement be they the original party or the success or of the original party. Thus, there is a triable issue. There is no denial that it is the copyright owner at all material times of the records set out in the 2nd Schedule of the writ of summons.

10. I shall come now to the 1st plaintiff's right to sue. The 1st plaintiff's right depends on two contracts. As far as the records in the 1st Schedule is concerned, it depends on the contract between the 1st plaintiff and the 2nd plaintiff and the successor of the 2nd plaintiff. By Clause 1 of the agreement between the 1st plaintiff and the 2nd plaintiff, which is referred to as DG throughout the contract provides:

"DG grants to Licensee ....."

that is the 1st plaintiff -

"	..... the exclusive right to exploit within the Territory of the agreement the recordings of DG in the manner customary in the trade and to sell the accessories stocked by DG as well as the right to permit broadcasting and public performance of DG's recordings.
	The Territory of the agreement is: Hong Kong and Macao.
	Recordings of DG shall include all recordings with the trade marks DEUTSCHE GRAMMOPHON GESELLSCHAFT (yellow label), and inter alia, also the trade marks listed in the schedule, to the extent that DG possesses such rights.
	The manner customary in the trade shall mean sales through retailers. Other methods of distribution (such as sales to clubs, mail order sales, etc.) however, shall be reserved for DG."

Then there is this extension I have cited a bit earlier in Schedule (III) attached to this agreement. Clause (1) reads:

"This Schedule No. 3 is attached to and forms part of the above mentioned agreement."

Clause 2 provides that:

"In modification of clause 1 of The Agreement the rights granted hereunder by Polydor to Licensee shall also include the distribution rights through non-traditional outlets, such as clubs, mail-order sales and TV merchandising. Such rights to be effective as of July 1st, 1976."

Thus, the 1st plaintiff, in so far as Hong Kong and Macau are concerned, should be the exclusive licensee of the 2nd plaintiff in the territories of Hong Kong and Macau to sell such records, whether by retailers or by mail-orders.

11. The right of the 1st plaintiff in respect of the records set out in the 2nd Schedule of the writ depends on the contract exhibited as "VK-3" in the affidavit of Vincent Ko dated 3rd December, 1976. Clause 2A of the contract reads:

"So far as Phonogram is permitted by its contractual commitments Phonogram herewith grants to the Company for the term of this Agreement the exclusive non-transferable right to manufacture, use and sell the Records in the Territory. The Company is entitled to make available the Records to third parties in the Territory for public performance or broadcasting purposes in accordance with the terms and conditions of the International Federation of the Phonographic Industry."

Clause 2A, paragraph (c) provides that:

"The aforementioned right to sell the Records is granted only for the traditional methods of distribution through retail outlets. In the event of the Company desiring to market the Records through record clubs or other non-traditional methods of distribution a separate agreement to that effect may be entered into by the parties hereto."

Thus, it appears that the 1st plaintiff, by virtue of this contract, is the exclusive licensee for the manufacture and sale by traditional methods of the records set out in Schedule of the Writ.

12. The Defence is that, although the 1st plaintiff has the right to sell by traditional methods and the right to import the records into Hong Kong and Macau, the 1st plaintiff had not the exclusive right to do so and therefore the import and sale by mail order of the records, particularly the records from the United Kingdom licensees, was not an infringement of the copyright or the right of the 1st plaintiff. The Copyright Act of 1956, which has been extended to Hong Kong, provides by Section 16, sub-section 2, as follows:

"Any copyright subsisting by virtue of this Part of this Act is infringed by any person who, without the licence of the owner of the copyright, imports an article (otherwise than for his private and domestic use) into the United Kingdom ....."

which can be substituted as Hong Kong

"..... or into any other country to which the relevant provision of this Part of this Act extends, if to his knowledge the making of that article constituted an infringement of that copyright, or would have constituted such an infringement if the article had been made in the place into which it is so imported."

There is no dispute that the defendant threatened to import to Hong Kong for sale by mail order. Those copyrights were either in the person of the 1st plaintiff or in the person of either the 2nd or the 3rd plaintiff. The fact that the records were imported from the product of an exclusive licensee in the United Kingdom did not alter the picture. Take the records of Schedule II, for instance. These are the records in respect of which the 1st plaintiff has an exclusive right to manufacture in Hong Kong. Had the United Kingdom licensees started to manufacture such records in Hong Kong it would be, in my opinion, an infringement and a contravention of the copyrights and a contravention against the provision of sub-section 2 of section 16 of the Copyrights Act of 1956. As to the knowledge, there is no evidence to substantiate the belief that the United Kingdom licensees have any right to export the records to Hong Kong at all. I refer to paragraphs 9 and 10 of Mr. Heymann's affidavit dated 22nd December, 1976, in which he says:

"the records which I propose to bring into Hong Kong are respectively manufactured in the United Kingdom by an English Company called Polydor Ltd. which is the exclusive licensee of the 2nd plaintiff and which are distributed by Phonodisc Limited under strict observation of the United Kingdom copyright law including the payment of royalties and by the exclusive licensee of the 3rd plaintiff, Phonogram Limited and also distributed by Phonodisc Limited in England also under strict observation of the United Kingdom copyright law including payment of royalties. The records which I propose to sell in Hong Kong are therefore copies of sound recordings made under the licence of the 2nd and 3rd plaintiffs."

To this I must add "only within the territories of the United Kingdom." Paragraph 10 goes on to read:

"The records which I propose to sell in Hong Kong and those of other United Kingdom licensees, are offered for export by exporters with the consent of the United Kingdom licensees who have the right to export them to certain areas of the world, probably including Hong Kong. There are many similar cases ....."

Then he started to cite examples of the other cases. That is his belief as to the knowledge.

13. As to this luck of knowledge such evidence is contradicted by two affidavits filed by the plaintiffs. The first one I will take is that of the affidavit of Vincent Ko dated 11th of January, 1977. In paragraph 3 of the said affidavit he says:

"I am informed by the 2nd and 3rd plaintiffs that neither of them has ever authorised their licensees in the United Kingdom or otherwise to export any of the sound recordings in question to anyone in Hong Kong or Macau apart from the 1st plaintiff."

Paragraph 4 reads:

"The exclusive licensee of the 2nd and 3rd plaintiffs in the United Kingdom is Polydor Ltd., an associate company of the 1st plaintiff. A Mr. Gufuther Wunderwald of the Polydor Ltd. has informed me and I do verily believe that Polydor Ltd. has never consented to the exportation of any of the said sound recordings to Hong Kong or Macau to anyone at all and that they have no right under their respective agreements with the 2nd and 3rd plaintiffs to export such sound recordings to anyone in Hong Kong apart from the 1st plaintiff. Further I was similarly informed and do verily believe that Polydor Ltd. did not have the right to permit and did not permit the sale of any of the said sound recordings in Hong Kong by mail order by the defendant or at all."

Paragraph 5:

"So far as the 2nd and 3rd plaintiffs are concerned, they have never authorised anyone in Hong Kong or Macau to offer for sale or to sell any of the said sound recordings by mail order and they have certainly never authorised such offer for sale by the defendant."

Then paragraph 3 of the affidavit of one Peter D'Almada a Castro dated 11th January, 1977 says:

"On learning of the advertisement of the Defendants in the November issue of the Hong Kong Hi-Fi and Music Review I sought advice from Lo and Lo, the former solicitors of the 1st plaintiff as to whether or not the defendant could be stopped from offering for sale or selling the sound recordings the subject matter of the present action. The 1st plaintiff was advised that the plaintiffs herein may have a cause of action based on their copyright in those sound recordings but that in view of their age it was necessary to ascertain the years of publication of those sound recordings. And further that it was necessary to inform the 2nd and 3rd plaintiffs of the advertisement and to enlist their help in the matter. Thereupon, the 2nd and 3rd plaintiffs were so informed by telex and they indicated by telex that they were willing to join in such action as co-plaintiffs against the defendant. The 2nd and 3rd plaintiffs were asked to and did confirm that the defendant has never been authorised by them to offer for sale or to sell such sound recordings as their agent in any way or at all. They were further asked to and did confirm that their United Kingdom licensees were not authorised to export and/or sell to the defendant."

Thus, there is a conflict of a question of fact - whether the United Kingdom licensees of the 2nd and the 3rd plaintiffs were ever authorised to export phonograph records to Hong Kong. I have referred to the contract between the 1st plaintiff and the 2nd plaintiff. That is to be governed by the law in Germany. I have now to refer to the contract as between the 1st plaintiff and the 3rd plaintiff and their respective rights under the agreement and I find that Clause 18 provides:

"All disputes arising in conmection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one arbitrator to be appointed according to said Rules. Arbitration may be initiated forthwith by either party in the event of any dispute not being satisfactorily resolved by the parties hereto. The arbitration shall be held in Amsterdam, the Netherlands. This Agreement is subject to Dutch Law."

There, again, there is no evidence as to the entitlement as to the right of the parties that is to be determined and whether the 1st plaintiff is granted an exclusive right under this agreement as to anything else. That is a question to be tried should the defendant wish to impede the title of the 1st plaintiff. On this point, I am of the opinion that there is a serious question to be tried - in questions of fact as well as questions of law concerning the rights of the 1st plaintiff under these two contracts. Even if I were wrong, it appears that, as far as some of the records are concerned, particularly the records set out in Schedule II of the Writ, the 1st plaintiff being the exclusive licensee to manufacture records in Hong Kong, it certainly has a right that anyone importing for sale such a record to Hong Kong not manufactured by the licensee in Hong Kong would constitute an infringement of the copyright that is enjoyed by the 1st plaintiff as an exclusive licensee.

14. Having decided this question I shall consider the balance of convenience. From the affidavits it appears that the 1st plaintiff has been enjoying the position of an exclusive licensee in these records or in these copyrights for some years in Hong Kong. They have been able, by virtue of such licence, to build up a sales record and have been able to maintain rather high prices for the sale of such records. Whether that is a good thing for the general public of the Colony is not to be decided by me. A lot of material contained in the affidavits of Mr. Heymann and indirectly referred to by some affidavits filed by the plaintiff are more suitable, to my mind, to the eyes of the members of the Consumer Council. I am not to decide on the merit of high prices or low prices here. If the defendant were permitted to continue advertising and practising the sale by mail order, I am of the opinion that there will be a damage not only to the financial aspect or monetary aspect of the 1st plaintiff's sales but it would undermine the confidence of the other retailers who would be facing very strong competition by such sale by mail order. The goodwill of the 1st plaintiff will suffer. On the other hand, the defendant has just started his sales as from November when he advertised. I have no evidence as to how many orders he has received. He started to receive the orders as from the 1st of November last year. Presumably if the defendant were stopped as such, then the defendant will not be able to fulfil or honour the orders placed by his various clients. That, again, the defendant would suffer a form of damage which would ruin his reputation. If the defendant were allowed to fulfil the orders he had received in the month of November and before the Writ is issued this could mean only a delay of a few months of the defendant's new enterprise. I gather this form of sale is new to the defendant in respect of these records. Whatever damage that the defendant suffers can be gauged by the mail order he has received for the first month, subject to the allowance for increases and expansion in the subsequent months depending on the length of delay. His damages can be quantified because there is no goodwill to be lost and, in fact, it means only a delay in establishing a goodwill. Even if I am wrong in this - that the inconvenience and damage would be just as irreparable on the part for the defendant, I find that there is merit in preserving the status quo. As the defendant is just beginning sales in this way, it is not unduly hard on the defendant that the status quo be preserved.

15. In summary, I find that there is a serious question for trial in this case and, in fact, I will go on to say further that, in respect of the records set out in Schedule II of the Writ, there is a prima facie case for the plaintiff to establish their claim for this injunction. I shall not say more in order not to prejudice the issue at trial. Suffice it is to say that there is a serious question for trial and that on the balance of convenience, having considered the affidavits, I come to the conclusion that the interim injunction should be granted, subject to the limitation that the defendant should be permitted to complete the orders he had received during the month of November up to the date when the Writ was issued. The costs will be the costs in the cause.

Representation: