German Pool (Hong Kong) Ltd v. Dong Woo Industrial Co Ltd

HCA 166/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 166 OF 2008

----------------------

----------------------

Before: Deputy High Court Judge Carlson in Chambers

Date of Hearing: 18 August 2008

Date of Delivery of Judgment: 19 August 2008

----------------------

J U D G M E N T

----------------------

Introduction

1.Both of these parties are in a substantial way of business in the production of household appliances.  This particular case relates to electric oven hoods which are common enough domestic appliances designed to extract cooking odours, grease, steam and so forth from kitchens.  Both parties are manufacturers of these appliances which they sell widely through department stores and other outlets selling kitchenware.

2.In this action, the Plaintiff complains that the Defendant has breached its copyright in respect of its new series of oven hood called the “Typhoon” series which it launched in 2002.  The Defendant is alleged to have done so by producing and selling its “Pacific” range of oven hood.  I don’t think it is necessary to get over technical in this case.  A brief summary will suffice.  The Plaintiff says that the industry standard before the launch of the “Typhoon” series was to use a “4 pole” electric motor which would produce 1,400 revolutions per minute which is more than sufficient to do the job of extracting odours, heat, grease and steam from a kitchen.  The “Typhoon” adopted a “2 pole” electric motor which is more powerful and efficient and can produce up to 2,800 rpm for the extractor fan.  By December 2007, the Plaintiff had sold in 23,345 “Typhoon” units for a turnover total of $36.6 million.  It had put in much research and development work into producing the “Typhoon”.

3.In January 2008, the Plaintiff discovered that the Defendant had come out with its own “2 pole” electric motor for its “Pacific PR-8100” model which produces 2,000–2,400 rpm which the Plaintiff says infringes its “Typhoon” models.  Having obtained a “Pacific PR-8100” model, the Plaintiff’s engineers took it apart and discovered that a substantial part of the motor, the fan coil and the oil tray had been copied from the Plaintiff’s designs.  It sought legal advice, and without writing a letter before action demanding that the Defendant “cease and desist” from selling its allegedly infringing version, the Plaintiff issued its writ on 29 January this year and applied for an interlocutory injunction by a summons, initially returnable before me as the summons judge, on 1 February.  The purpose of the summons was to obtain orders preventing the Defendant from further sales of its “Pacific” model until the trial of the action. 

4.The Plaintiff’s solicitors indicated to the Defendant’s solicitors that they would be seeking substantive orders on the 1 February rather than obtaining directions and an adjournment for argument.  The Defendant was able to instruct counsel on 1 February and after I heard out the matter I took the view that there was no immediate need for the injunction sought by the Plaintiff and adjourned the summons having given directions in the expectation that the Plaintiff would be anxious to restore the matter in the near future.

5.Contrary to that expectation, the Plaintiff has not done so and the present situation is that it is now applying to have its summons stood over to the trial of the action with a suggestion that there be a direction for a speedy trial.  The Defendant, with much “corporate anger”, if I may so describe it, seeks to have the Plaintiff’s summons for the interlocutory injunction struck out as an abuse of process with an order that it should have an order for costs in its favour and, that those costs should be taxed and paid forthwith.

6.The fact is that once it had been served with the summons for the injunction, the Defendant has taken umbrage that its good name is being called into question by the Plaintiff, with whom it is in competition in the sale of these products and has mounted a rapid and stout defence which I am told by Miss Tam SC, who appears for it, that it has spent in excess of $800,000, so far, in proving its innocence of any breach of copyright of the Plaintiff’s products.

7.Part of its defence has been to ask for production by the Plaintiff and inspection by it of the originals of the Plaintiff’s drawings from which the fan, the oil tray and the electric motor have been manufactured.  The Plaintiff has in correspondence responded to say that the original drawings have been lost in the course of business and has therefore only produced copies of the drawings.  Given the atmosphere of this litigation, the Defendant was not satisfied with that sort of response and has insisted on the Plaintiff going on affirmation about this.  Thinking that this would be sufficient, the Plaintiff has left this to its solicitor Mr Kong to make the affirmation on its behalf setting out the circumstances of the loss.  The Defendant’s solicitors say that this is not good enough, the affirmation should come from an accountable person from the Defendant who is in the know as to what has happened to these original drawings.  In such circumstances, the Defendant has taken out a summons for inspection of the original drawings.

8.These therefore are the three matters which I am required to deal with.  I take the inspection summons first because this is a discrete matter and relatively straightforward.

The Inspection Summons

9.Mr Chang, who has dealt with this case on the Plaintiff’s behalf with considerable skill and moderation, submits that there really is no useful purpose to be served in the pursuit of this order by the Defendant.  It has had its answer firstly, in correspondence which should have been enough and now, upon its insistence that the matter of the loss of the drawings should be dealt with on oath, by way of Mr Kong’s affirmation.  What else can the Plaintiff do to satisfy the Defendant, he asks rhetorically?

10.Miss Tam says that it can start by doing things properly, which requires a responsible person with first hand knowledge of what happened to the original to go on oath and say so.  Mr Chang has submitted that the Plaintiff has done more than enough in circumstances where what is asked for is premature discovery.  The Defendant ought to wait until discovery is due.  It cannot insist on inspection of these drawings now which for this reason alone should result in the dismissal of the summons.

11.For my part, I accept Miss Tam’s submission that in a case such as this a Defendant should, if it requires it, be able to ask for a sight of the original drawings upon which copyright is asserted so that it can test the validity of a vital part of the Plaintiff’s claim at the outset.  It should have the opportunity of putting the Plaintiff’s case to proof where copyright is asserted and an injunction is being sought to prevent the Defendant from selling its product at this very early stage of the litigation.

12.I am bound to say that had this litigation not gone sour from the outset because of the Plaintiff’s attempt to catch the Defendant cold and get its injunction on the shortest allowable notice, it is highly likely that the Defendant would have at worst accepted Mr Kong’s affirmation setting out the circumstances of the loss of the originals.  It has chosen to be awkward about his, which it is perfectly entitled to do if it so wishes, with the result that I need to deal with this matter strictly on its legal merits.

13.Faced with this summons, the Plaintiff says it will provide another affirmation from a member of the Plaintiff’s staff who has knowledge of this matter which should be enough.  Notwithstanding this offer, the Defendant has decided to press the issue.

14.It seems to me that whilst the Defendant is right about who should have prepared the affirmation on behalf of the Plaintiff, the obvious candidate being Mr Edward Chan who has already provided the Plaintiff’s main evidence in support of the injunction because he is best placed to give as close to first hand evidence as one might reasonably expect on an issue such as this and he is the person accountable for the Plaintiff’s affairs, the truth of the matter is that the Defendant is being gratuitously difficult which is something which I can best reflect in the order for costs on the summons.  What I propose to do is to address the reality of the situation, recognizing that the Defendant already knows the Plaintiff’s case on the original drawings which is that they are lost, and make no order on the summons save that the Plaintiff should file and serve an affirmation by Mr Edward Chan attesting as to the full circumstances of the loss of the original drawings within 14 days of today.  There will be no order as to costs in relation to the costs of and occasioned by the summons.  Whilst the Defendant has been substantively correct on the argument, I am of the view that the overall circumstances surrounding this matter do not require me to penalise the Plaintiff in costs.  As I have already said but for the unpleasantness attending the litigation, I would have expected the Defendant to have accepted the position as to the lost originals rather than to pursue the matter in this way.  From this, I can now turn to the main dispute concerning the fate of the Plaintiff’s summons for the interlocutory injunction and the Defendant’s summons to have it struck out.

The Interlocutory Injunction

15.Mr Chang says that having launched the application, the Plaintiff decided not to press it because firstly, the Defendant’s product needed some safety modifications which prevented its sale before these had been carried out and it appeared to it that the product had been withdrawn from sale even after the modifications had been made.  The Plaintiff had reported safety failings in the Defendant’s product to the EMSD and had thought that the EMSD had embargoed further sales until these defects have been corrected but it now appears that this was never the case.  Be that as it may, Mr Chang submits that the Plaintiff had behaved reasonably in making its application for an injunction in the first place and that thereafter, faced with a situation where the “Pacific” hood was no longer on sale it has adopted a perfectly reasonable stance in not wishing to press the matter by applying to have the injunction stood over until the trial.

16.Miss Tam submits that the Plaintiff’s conduct in this matter has been nothing less than disgraceful.  It sought to ambush the Defendant by attempting to get an injunction without warning, well knowing that it did not have a sufficiently good case to obtain such an order which, if granted, would have had very serious consequences for the Defendant and would have damaged its standing and reputation which it greatly values and which it has built up and earned over many years, longer than the Plaintiff, of doing business in this industry.

17.For this reason, she seeks the dismissal of a summons for an injunction as one which should never have been brought and an order for the immediate taxation and payment of her client’s costs.  The approach on the question of costs in these circumstances has been very concisely expressed by Auld LJ in Bushbury Land Rover Ltd v Bushbury Ltd (1997) FSR 709 at 712, where he said that:

“… where a judge on an interlocutory application considers, in applying the American Cyanamid test, that it falls so far short of satisfying the criteria for the ground of interlocutory relief that the Plaintiff should never have sought it, he may in his discretion, penalise him in costs.” 

The usual order when an applicant fails to get an injunction is costs in the cause or Defendant’s costs in the cause.  In this case, Miss Tam submits that this is so far removed from the usual circumstances where an unsuccessful applicant can be said to have acted reasonably that I should make an order such as that made by Hoffmann J (as he then was) in Kickers International SA v Paul Kettle Agencies Ltd & Anr (1990) FSR 346 which Auld LJ had made reference to in Bushbury Land Rover Ltd supra.  Hoffman J’s approach and reasoning can be found in the following passage of his judgment at pages 438 and 439

An order for a party’s costs to be ‘in the cause’ is made because the court has not investigated the merits and considers that it would not be fair for him to recover those costs unless he succeeded at the trial.  But the fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs.  The question cannot be settled simply by reference to practice; it must be answered on the facts of the individual case.  Would it be unfair in this case for the defendants to have the costs of the motion even if they lost at the trial?  On balance I do not think that it would.  Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion.  I do not think it was. Therefore whatever the outcome of the trial, the motion which has now been abandoned has put the defendants to a great deal of unnecessary expenses.

One solution sometimes adopted is to reserve the costs of the motion to the trial judge.  There is a superficial attraction about this course because the trial judge will have all the facts and be in the best position to decide whether a party should have interlocutory costs despite the fact that he has lost at the trial.  But in practice it has serious disadvantages.  One is the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application, particularly when it involved questions of balance of convenience which were irrelevant at the trial.  But the more important reason is that very often there is no trial.  In such a case, an order that costs be in the cause or reserved to the trial judge is in practice a decision that there should be no order as to costs.  Not many defendants, even with the encouragement of success at the interlocutory stage, are willing to insist on a trial for the purpose of recovering their interlocutory costs.  But unless they do, the costs are left in limbo, as in Stratford v. Lindley (No. 2) [1969] 1 W.L.R. 1547.  This gives the unsuccessful plaintiff a powerful bargaining weapon.  He can face the defendant with the alternative to accepting a substantial discount on the interlocutory costs or having to incur the trouble, expense and risk of a trial.  Furthermore, the existence of an order for substantial costs contingent upon the outcome of the trial, or reserved to the trial judge, may push the parties into a trial of an action which would otherwise have settled.

Thus it seems to me that in making a costs order at the interlocutory stage, there are two risks of injustice which have to be balanced against each other.  On the one hand, a final order might award a party costs which, upon fuller consideration at the trial, he would not have been given.  On the other hand, failure to make a final order might have the practical effect of depriving a party of some or all of the costs which he should in fairness have recovered.  I think it is possible that in the past the courts may have been more impressed by the first risk than by the second.

The plaintiff says that it is not abandoning the action and that it intends to pursue a claim for damages to trial.  Nevertheless, I think I should take into account first, the possibility that it may change its mind and secondly, the effect that a contingent order for costs would have upon any settlement negotiations. Having regard to all these matters, I think that the proper exercise of the discretion is to deal finally with the costs now.  I shall therefore order the plaintiff to pay the defendants’ costs in any event.

The next question is whether they should be taxed and paid at once or only after the conclusion of the trial.  There are several reasons why the court might not think it right to order immediate taxation.  The amount involved might be too small to justify a separate taxation.  Or it might be unfair to order immediate payment by a party who might, as a result of the trial, become entitled to set off an award for costs in his favour.  Such unfairness may arise either from the effect upon his cash flow (an order for immediate payment might, for example, hamper his further conduct of the action or destroy his business) or because he might find that the opposing party does not have the means to repay the money if there should be a subsequent order against him.  These reasons are not intended to be exhaustive.  On the other hand, even if such reasons exist, they must be balanced against the prejudice which may be caused to the successful party if he is kept out of his money until the trial.  And once again, the possibility that there may be on trial has to be borne in mind.  Some of the reasons for making a final rather than a contingent or postponed costs order are equally good reasons for an immediate taxation.  I therefore do not think that it would be right to reserve an order for immediate taxation only for cases in which the court wishes to show disapproval of the way in which the proceedings have been conducted.”

18.Miss Tam has taken two points.  Firstly, that the affirmation of Mr Edward Chan in support of the injunction is defective because it falls foul of the requirements of O.41 r.5(2). These being interlocutory proceedings an affidavit:

“may contain statements of information or belief with the sources and grounds thereof.”

In this regard objection is taken to paragraphs 17 and most particularly paragraph 18 of Mr Chan’s affirmation which relate to proof of the copyright drawings.  At paragraph 17, he produces as exhibit CKME9 the drawings which relate to the motor, copyright to the fan and the oil tray now having been abandoned.  They had been referred to in the writ but make no appearance in the statement of claim.  At paragraph 18 of his affirmation he refers to the creation of the drawings in this way:

“The drawings A1 to A10 were created on commission basis by ‘陳村鎮振華電子廠’ and/or ‘振華電機有限公司’ (hereinafter collectively referred to as ‘Chun Wah’) in the PRC upon the instruction of Wah Hoi International Co. (華凱國際公司) (hereinafter referred to as ‘Wah Hoi’), which in turn was commissioned by the Plaintiff to make the said design.  I understand that the said drawings exhibited in ‘CKME-9’ were all created by Chun Wah’s employees (who were at all material times resident and domiciled in the PRC) in the course of their employment with Chun Wah.  I have further been informed and verify believe that the authors had exercised independent and substantial skill, labour and judgment in creating those drawings without copying from any antecedent materials, articles or documents.  At all material times, all the authors of the said drawings were domiciled and ordinarily resident in the PRC.”

19.In setting the matter out in this way Mr Tam submits that Mr Chan has failed to identify the maker of the drawings and the source of his information and has left the matter in this indeterminate and nebulous way.  Where there has not been compliance with the rule I should therefore refuse to admit this part of the affirmation with the consequence that there will be no proof of copyright and the application for an injunction must therefore fail.

20.Mr Chang concedes that the matter could have been dealt with better and relies on O.41 r.4 which provides that an affidavit may, with leave of the court, be filed or used in evidence notwithstanding any irregularity in its form.

21.Mr Chang has referred to the fact that as the drawings are exhibited to the affirmation, the drawings form part of the affirmation and that accordingly, I can look at the drawings and see the name of the artist who made that drawing.  For this proposition he relies on the case of In Re Hinchcliffe [1895] 1 Ch 117.  Be that as it may Miss Tam refers to the case of Commissioner of Police v Lin Xin Nian [2000] 4 HKC 404 which concerned an application under the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap.405.  Evidence relating to such proceedings is regulated under O.115 r.29 and by O.41 r.5(2) as to the form and content of the affidavit.  Deputy Judge McMahon (as he then was) held that documents annexed (I presume meaning exhibited) to the affidavit were not evidence in their own right.  They simply demonstrated the source of the affirmant’s belief.  As the judge put it at page 409C:

“Identification of the grounds for the deponents belief enables the contesting party to explore those grounds and perhaps evidentially counter them.”

As to the status of an exhibit, as distinct from the words of the maker of the affirmation itself he said this at p.409E-G.

“In the event that that document contains more factual information than does the deponent’s statement of belief or fact, does the document’s additional statement of fact have an evidential status independent of the deponent’s own evidence in the body of the affidavit?

In other words, is a court entitled to regard any such document as evidence in its own right?

I do not think so.  The deponent’s statement of fact or belief is sworn.  The contents of any exhibited document are not.  There is lacking, without the deponent’s sworn statement of belief, an essential guarantee of evidential reliability so far as any one document or part thereof annexed to the affidavit is concerned.”

This I think sufficiently deals with Mr Chang’s point that all I need to do is to look at the drawing itself where I will find the artist’s signature.  Mr Tam says that the signature is illegible and where the body of the affirmation is singularly lacking in terms of providing the sources of Mr Chan’s belief for the provenance of the drawings and nothing as to the identity of the artist, paragraph 17 is irredeemably defective.  The defendant has no way whatsoever of investigating the drawings or locating the artist if it considered that an advisable thing to do and thereby test the Plaintiff’s evidence on this crucial limb of the case.

22.Whilst one would not wish to be unduly technical, on this occasion I feel constrained to uphold Miss Tam’s submission.  I rule paragraph 18 inadmissible in the form that it is and I take the view that the omissions are too grave to be forgiven under O.41 r.4.  In such circumstances, the Plaintiff’s case must fail, lacking as it does proof of copyright.  It cannot, in such circumstances, rely on the generous provisions contained in section 121, Copyright Ordinance.  Nor do I consider that there can be any substance in Mr Chang’s complaint that it is somehow unfair that the objection to the affirmation has been taken so late.  The Defendant is entitled to take such point or points as it considers are open to it.  On this occasion, the point has been taken and succeeded with fatal consequences for the Plaintiff.  For this reason alone, the summons for the injunction must stand dismissed.

23.In any event it seems to me that even if I were wrong to have treated Mr Chan’s affirmation in this way, the application for the injunction would have failed on its merits.  It strikes me that when faced with the detail of the Defendant’s evidence in reply as to how it came to manufacture the component parts of its hood, which show that its production of these items pre-dates those of the Plaintiff and how its oven hood in this case has been manufactured without any reference to the Plaintiff’s product, I am satisfied that an injunction would not have gone to restrain the Defendant from selling its model.  Unfortunately, this has been an ill-considered application by the Plaintiff.  Having seen the weight of the case against it, it has held off from having its case tested in court and now wishes to put it off to trial which I am bound to say is now unlikely to take place.  I find that it was unreasonable to have launched these proceedings.  I decline to accede to the Plaintiff’s summons to put matter over to the trial.  Nor do I believe that this calls for a speedy trial.  I will make no order on the Plaintiff’s summons save that the Plaintiff must pay the Defendant’s costs.  As to the Defendant’s summons, I will make the order asked for, which is to strike out the application for the injunction with costs.  In this instance both sets of costs should be taxed and be paid forthwith.  This case falls within the reasoning given by Hoffman J in the Kickers case supra.  It was simply unreasonable of the Plaintiff to have brought the application for the injunction on this evidence and the consequences as to costs must therefore follow. 

Jonathan T Y Chang, instructed by Messrs Benny Kong & Yeung, for the Plaintiff

Winnie Tam SC and Douglas Lam, instructed by Messrs T C Foo & Co., for the Defendant