California Red Ltd v. Neway Karaoke Box Ltd and Others

HCA748/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 748 OF 2008

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Before : Deputy High Court Judge Bharwaney SC in Court

Date of Hearing : 13 May 2009

Date of Ruling on Costs : 26 May 2009

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RULING ON COSTS

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1.The trial in this action commenced on 4 May 2009 when Ms Priscilla Wong, counsel appearing with Mr Norman Hui, for the plaintiff, opened the plaintiff’s case before me.  After opening her case for the greater part of the day it became apparent, at about 4 p.m., that the plaintiff was no longer maintaining the full extent of its claims as set out in the Amended Statement of Claim and was prepared to limit its relief to a continuation of the interim injunction granted by The Honourable Mr Justice Andrew Cheung on 27 July 2008, with some amendments thereto.  At that point in time, I invited Mr Ashley Burns SC, leading Ms Grace Chow, for the 1^st and 3^rd defendants, to ascertain whether the parties could come to terms and avoid the costs of an 8-day trial, given the plaintiff’s indication that it would be prepared to limit its claims as aforesaid.  Mr Burns SC accepted my invitation and I adjourned the matter to the next day to permit him to take instructions.  On 5 May 2009, the parties sought repeated extensions of time in order to try to resolve the matter amicably and which I granted to them.  Late in the afternoon on 5 May 2009 I adjourned the matter further to 10 a.m. on 6 May 2009.  I was pleased to note that the time granted to the parties had not been wasted because, by 11 a.m. on 6 May 2009, the parties reached settlement in the following terms, which I accepted and was prepared to make an order of court :

1.   Undertakings to the High Court to be given by the 1^st defendant essentially in terms of the order made by Mr Justice A. Cheung with (i) amended to delete words “… or seeking to …”; (ii) amended as indicated by the Deputy High Court Judge Bharwaney as on 4 May 2009 and to limit it in time, i.e. until the expiry or earlier determination of the JPAs.

2.   The parties having agreed that the words “complained of herein” in paragraphs 38 and 39 of the Amended Statement of Claim mean “pleaded in this Amended Statement of Claim” and save as otherwise provided in this order, no further order be made on plaintiff’s claims noting paragraph 6 of the order of Mr Justice A. Cheung on 31 March 2009 but otherwise on the basis that the alleged breaches of duty and/or alleged misconduct pleaded in paragraphs 1 to 42 of the Amended Statement of Claim in this action cannot be re-litigated.

3.   A declaration that the joint venture which previously subsisted between CR and NW no longer subsists and is at end.

4.   Without prejudice to the termination of the joint venture previously subsisting between the plaintiff and the 1^st defendant, the plaintiff and the 1^st defendant shall henceforth uphold and complete the remaining extant JPAs on the basis that each shall pay their respective contributions to licence fees (based on the number of outlets of respective party out of the total number of outlets of the plaintiff and the 1^st defendant) provided therein direct to the record companies concerned AND OBSERVE THE TERMS OF THE SAID JPAs until the end of their respective terms.

5.   Subject to the above and paragraph 6, no order be made on the counterclaim.

6.   Costs of this action and of counterclaim to be determined by Deputy High Court Judge Bharwaney SC after further argument.

NW is a  reference to the 1^st defendant and CR is a reference to the plaintiff.  JPAs are Joint Promotion Agreements which are referred to below.

2.I gave directions for the exchange of written submissions on costs and heard the parties on the matter on 13 May 2009.  This is my ruling on costs.  

3.Mr Burns SC submitted to me that the undertakings offered by his client, the 1^st defendant, were offered without any admission of liability and accordingly, there was no “event” which would enable the court to apply the usual principles governing the award of costs and, in particular, the general principle that costs followed the event.  Mr Burns SC directed my attention to the Hong Kong Civil Procedure 2009 at marginal note 62/3/3 where it is stated that :

“Notwithstanding the general proposition that a court did not sit to determine a substantive question of law which had become academic because there was no dispute to be resolved between the parties, where there was an outstanding issue as to costs the court was entitled to determine the substantive issue so as to decide the liability as to costs.”

4.I accept that submission and I turn to determining whether I would have given an injunction in terms of the undertakings given by the 1^st defendant, namely :

“That the 1^st Defendant whether acting by itself, its directors, officers, servants, agents or any of them or otherwise howsoever be restrained until the expiry or earlier determination of the existing Joint Promotion Agreements (“JPAs”) from directly or indirectly:

(i)  obtaining the exclusive licences for any karaoke music videos of songs that, when released, will be covered by any of the existing JPAs entered into by the 2^nd Defendant with any record company (which are to be scheduled to the order) other than through the 2^nd Defendant under the said JPAs, provided that this Order shall not apply to (a) those new songs, even though covered by the said JPAs, that the Plaintiff shall have decided not to select, and (b) any new song the exclusive licence to which pursuant to a JPA shall have expired – in either of which events the 1^st Defendant shall be at full liberty to approach the record companies for the exclusive licences to the songs; and/or

(ii)  representing to the record companies involved in the said JPAs or any of them that the 2^nd Defendant will in any way refuse or fail to honour the said JPAs or any of them or that the 2^nd Defendant will cease business or be wound up prior to the expiry of the said JPAs.”

5.The facts and background of the case are clearly set out in the judgment of Mr Justice A. Cheung dated 23 July 2008.  I quote from that judgment as follows :

“2. The plaintiff and the 1^st defendant belong to the California Red and Neway groups of companies respectively.  California Red and Neway are the two largest karaoke operators in Hong Kong.  They are competitors and to a limited extent, joint venturers.  Essential to their operations is the obtaining of copyright licences from record companies for playing karaoke music videos and songs (“songs”) in the karaoke “outlets” operated by the groups.  In particular, exclusive licences, albeit for a finite period of time (say three months), to play newly released songs are of great commercial importance to attracting and keeping customers.

3.   Since 2000, the two groups have joined forces in negotiating with record companies for securing licences for songs owned by the companies.  For that purpose, the two groups, through the plaintiff and the 1^st defendant, have entered into two joint venture agreements, one in 2000 and the succeeding one in 2001, and formed a joint venture company, namely, the 2^nd defendant, for use as the vehicle to obtain the licences from the record companies.

4.   Under both joint venture agreements, the term of the joint venture was for one year (subject to renewal in writing) and it could be terminated on one month’s notice.  After expiry of the term of the 2001 agreement, there was no formal renewal and no new joint venture agreement was signed.  However, it is common ground that both parties have continued with the joint venture via the 2^nd defendant “much as before”.

5.   The co-operation is said to have been smooth and successful.  The 2^nd defendant has managed to sign “joint promotion agreements” with a number of record companies in Hong Kong to secure licences for songs released by these companies.  Invariably, the licences are exclusive for an initial period and thereafter they become non-exclusive and, very often, perpetual at no extra cost.  For present purposes, the important thing to note about these joint promotion agreements is that they do not cover individual songs as such.  Rather, a joint promotion agreement typically covers a term of several years, during which the 2^nd defendant may select from songs released by the record company during the term for the grant of (exclusive and then non-exclusive) licences for use at the karaoke outlets of the two groups.  Licence fees are calculated by reference to the selections.

6.   As of the present, there are 9 extant joint promotion agreements between the 2^nd defendant and a number of record companies.  The terms of two of these joint promotion agreements are due to expire this year, five will expire in 2009, one in 2010 and one in 2011.

7.   There is no dispute that these joint promotion agreements are valuable assets.  Given the nature of pop music, the ability to secure the licences for playing newly released songs from active record companies in Hong Kong, particularly on an exclusive basis during the initial period, ensures the two groups of companies an unassailable edge over all possible competitors.

8.   The present dispute arose following the receipt of a letter from the 1^st defendant to the plaintiff dated 31 March 2008, which sought to terminate the joint venture agreement by giving one month’s notice.  On 19 April 2008, the 1^st defendant issued a further letter to the plaintiff saying that the 2^nd defendant should be wound up.  On 22 April 2008, the 1^st defendant issued 7 letters to record companies which have on-going joint promotion agreements with the 2^nd defendant to inform them that the joint venture between the plaintiff and the 1^st defendant (namely, the 2^nd defendant) would be terminated effective on 31 April 2008, the 2^nd defendant would cease to serve its purpose and would therefore be wound up in due course, and the 1^st defendant would be in touch shortly with the record companies with regard to “follow up further co-operation”.  The letters were signed by the 3^rd defendant as director of the 1^st defendant.

Proceedings and injunctions

9.   This led to the commencement of proceedings and application for interlocutory injunctions by the plaintiff against the 1^st and 3^rd defendants.  Holding injunctions have been granted and this judgment deals with the application for injunctions on an inter partes basis.

…

11.    On the facts of the present case, the major fight is over the licences to the so-called new songs.  And they are divided into two categories – those that, when released, will be covered by the extant joint promotion agreements and those that will not.  It is the plaintiff’s application, in essence, that in relation to the first category of new songs, the 1^st and 3^rd defendants cannot “touch” the joint promotion agreements, which have already secured the right for the licences to these songs in favour of the 2^nd defendant and thus the two groups of companies.  In relation to the second category of songs, the plaintiff’s application is basically that the 1^st and 3^rd defendants must obtain the licences to those songs via the joint venture vehicle, the 2^nd defendant.

…

20. In my view, it is at least arguable that clause 17.4 requires the 1^st defendant to honour subsisting licences that the 2^nd defendant has obtained before the termination of the joint venture agreement.  Here, it should be noted that “licences” have been defined in the 2001 agreement to mean exclusive licences with record companies.  Although the joint promotion agreements are not licences for individual songs as such, I take the view that it is arguable that they are “licences” within the meaning of the 2001 agreement and are covered by clause 17.4.

21. In those circumstances, notwithstanding (as per the 1^st defendant’s case) the termination of the joint venture agreement, under clause 17.4, the 1^st defendant would still need to honour the licences obtained by the 2^nd defendant from record companies, for so long as they are still subsisting (after the termination).  And in this regard, although technically, with the exception of one joint promotion agreement, the plaintiff and the 1^st defendant are not parties to these agreements, I take the view that it is at least arguable that the 1^st defendant is still caught by clause 17.4 in the sense that it must, via the 2^nd defendant, honour the joint promotion agreements so as not to jeopardise the right for the licences obtained thereunder.

22. In my view, to that limited extent, the plaintiff has shown a serious question to be tried.  However, it is important to note that clause 17.4 only applies to the subsisting joint promotion agreements.  Moreover, it does not apply, given the definition of “licences” in the joint venture agreement, beyond the period of time when the songs in question are to be exclusively licensed to the 2^nd defendant pursuant to the joint promotion agreements.

23. In other words, it does not apply to new songs that are not covered by any subsisting joint promotion agreements, i.e. the second category of songs I have identified above.  Nor am I concerned with songs to which the 2^nd defendant’s right is only limited to non-exclusive licences.

24. Clause 17.4 has not been specifically pleaded by the plaintiff.  But its implications have been fully explored at the hearing and no pleading point has been taken.  In any event, it is a matter of amendment and does not affect the substance of the matter.

…

30. The situation is different in relation to those new songs that will be covered by the existing joint promotion agreements.  In relation to these songs, the joint promotion agreements are already in place.  All that remains for the parties to do is to select the songs by agreement.  Of course, if the parties cannot come to any agreement, no song is selected.  But as a matter of practical reality, given that the 2^nd defendant has through these joint promotion agreements secured the exclusive rights to these new songs, commercial considerations would dictate the parties’ reaching reasonable agreement on the selection of these new songs.

31. For that reason, I am not troubled by the degree of co-operation that will be required from the parties in order for them to honour clause 17.4 in terms of the new songs that will be covered by the existing joint promotion agreements. That is not an absolute bar to granting the interlocutory injunction prayed for.  It is really a matter of degree, to be considered in conjunction with all other relevant discretionary considerations.”

6.Clauses 17 and 18 of the Joint Venture Agreement (“JVA”) dated 17 November 2001 provided as follows :

“Termination

17.1   Either party shall be entitled to terminate this Agreement by giving the other party one (1) month’s prior notice in writing.

17.2   This Agreement shall terminate immediately if an effective resolution is passed to wind up the Company or if a liquidator is otherwise appointed (but without prejudice to any rights either party may have against the other arising prior to such termination).  

17.3   Despite its termination, this Agreement shall continue to bind the parties and the Directors and the Company to such extent and for so long as may be necessary to give effect to the rights and obligations embodied in it.

17.4   For the avoidance of doubt, termination of this Agreement in accordance with this clause will not affect or prejudice the rights and obligations of either CR or NW under this Agreement nor will it affect or absolve the parties’ obligation and commitment in respect of the Licenses and/or the Projects and/or any promotional plans prior to such termination.

18. Consequences of notices under clause 17.1

18. If either party shall serve a valid notice of termination under clause 17.1 the parties shall be bound to procure a winding up of the Company upon expiration of the termination notice.”

7.Mr Burns SC submitted that I could not grant permanent injunctions in the absence of a cause of action and in particular, in the absence of an established duty on the part of the 1^st defendant and/or breach of such duty.  On my reading of the Amended Statement of Claim, the duty on the part of the 1^st defendant is expressed in section 29A in these terms :

“29A.  The Plaintiff avers that despite Clause 17.1 of the JV Agreement and irrespective of the notice which a party may give thereunder, Clause 17.4 of the JV Agreement required the Plaintiff and the 1^st Defendant to honour subsisting licences which the 2^nd Defendant had entered into with record companies during the subsistence of the said joint venture agreement.  Furthermore, it was the intention and understanding of the Plaintiff and the 1^st Defendant that notwithstanding any notice of termination issued by one party to another under the said joint venture and quasi-partnership, the Plaintiff and the 1^st Defendant were to honour subsisting licences which the 2^nd Defendant had entered into with record companies.”

8.However, Mr Burns SC submitted, inter alia, that :

(1) clause 17.4 of the 2001 JVA did not provide that CR and NW should “honour” subsisting licences.  As observed in paragraph 24A.1 of the Amended Defence, in so far as it has any relevance at all, the clause merely provides that termination of the agreement would not “… affect or absolve the parties’ obligations and commitment in respect of [inter alia] Licenses [as defined in the 2001 JVA] …”;

(2) as is observed in paragraph 24A.2 of the Amended Defence, with the exception of the JPA entered into with Emperor Entertainment (Hong Kong) Limited (to which the plaintiff and the 1^st defendant were respectively parties, together with the 2^nd defendant), neither the plaintiff nor the 1^st defendant were parties to any of the other JPAs which were extant at the time of the termination of the joint venture and accordingly had no obligations or commitments in respect of them;

(3) moreover, none of the provisions of the 2001 JVA imposed obligations on the parties vis-à-vis such JPAs as had been entered into pursuant to the joint venture agreement.  As appears from clause 3.1 of the 2001 JVA, the joint venture operation was confined to “obtaining” licences (as defined) — obviously, through the 2^nd defendant as the joint venture vehicle.  Clause 4.1 required the parties to “… agree on Karaoke songs the Licenses of which are intended to be obtained” but clearly that provision was concerned with a process of selection prior to entering into any particular licence and in any event would have been unenforceable on the basis that it constituted an agreement to agree in the future;

(4) in any event, clause 17.4 of the 2001 JVA cannot be construed as imposing any obligation on the parties to incur further liabilities (as would be the case if they were required to continue to “honour” JPAs to the extent of incurring further liabilities after termination of the JV).  This would be contrary to the express terms of clause 17.4, the effect of which is to preserve the parties’ rights and obligations which have accrued prior to the termination of the JVA.  It would also be contrary to clause 18 requiring the parties to procure the winding up upon expiration of the termination notice; and

(5) whatever the true construction might be of clause 17.4 of the 2001 JVA (and it may well be that its meaning is so uncertain as not to be enforceable or capable of enforcement), the important point, for the purpose of considering the question of costs in this action, is that no alleged breach of this clause has been pleaded (or even ever suggested).

9.I do not agree with these submissions.  I construe the words in clause 17.4 of the JVA that the termination of the JVA will not “affect or absolve the parties’ obligations and commitment in respect of the Licenses … prior to such termination” as creating a positive duty on the part of the plaintiff and the 1^st defendant to honour subsisting licenses that the 2^nd defendant has obtained before the termination of the JVA.  I also construe the word “Licences” in the JVA as including the JPAs albeit that those agreements are not licenses for individual songs.  That conclusion is buttressed by the terms of clause 17.3 which state that, despite its termination, the JVA shall continue to bind the parties and the directors and the 2^nd defendant to such extent and for so long as may be necessary to give effect to the rights and obligations embodied in it. 

10.Those rights and obligations include, by clause 3.1, the obligation on the parties to use their best endeavours to cooperate with each other to negotiate and obtain licenses in accordance with the terms of the JVA and, by clause 4.1 thereof, to agree on the karaoke songs the licenses of which are intended to be obtained.  It is clear from these terms and from the subsequent conduct of the parties, in pursuance of the terms of this and the previous JVA, that the obligation of co-operation is and has been extended to entering into JPAs and to selecting new songs being offered under those JPAs.  Therefore, there is a positive duty, notwithstanding the termination of the JVA, to pay for the songs already selected through the vehicle of the 2^nd defendant and to select new songs being offered under extant JPAs, also through the vehicle of the 2^nd defendant, and to pay the license fees for the same.  Notwithstanding the termination of the JVA, under clause 17.4, the plaintiff and the 1^st defendant would need to honour subsisting licenses obtained by the 2^nd defendant by funding the payment for the same in their agreed proportions.  In this connection, I am in agreement with Mr Justice A. Cheung that, although the plaintiff and the 1^st defendant are not parties to the JPAs, with the exception of one JPA, the plaintiff and the 1^st defendant are required by clause 17.4 to honour JPAs, via the vehicle of the 2^nd defendant, so as not to jeopardise the right to the licenses obtained or obtainable thereunder.

11.So far as the selection of new songs to be released under the JPAs is concerned, clause 4.2 of the JVA which, in my view, also survives the termination, provided that if the parties were able to reach agreement as to some but not all of the karaoke songs, the licenses of which were intended to be obtained, they should obtain licenses on the agreed karaoke songs and either party might at its own costs and expenses, obtain exclusive licenses under remaining or other karaoke songs on which no agreement had been reached.  Accordingly, there is no positive obligation on the part of the 1^st defendant to agree to take up any new song offered under the JPAs, but, of course, if it does not do so, then the plaintiff is entitled to take them up for its own use.  As Mr Justice A. Cheung observed, as a matter of practical reality, commercial considerations would dictate the parties reaching reasonable agreement on the selection of these new songs.  Accordingly, Mr Justice A. Cheung was not troubled by the degree of co-operation that would be required from the parties in order for them to honour clause 17.4 in terms of the new songs that would be covered by the existing JPAs.  He was therefore prepared to grant the interim injunction in the terms that he did.  Likewise, I would have granted injunctions in similar terms up to the expiry of the JPAs in question, notwithstanding Mr Burns SC’s submission that a court should not grant a prohibitory injunction if the effect of that would be to force the parties to cooperate with each other against their wishes.  The 1^st defendant is not forced to accept brand new hit songs.  It can refuse to accept them, in which case the plaintiff can enjoy the exclusive license for those songs if it chooses to take them up for itself.  However, it would appear to be commercially irrational for the 1^st defendant to take such a stance. 

12.The submission that there was no breach of the alleged duty to honour subsisting licenses and JPAs can be dealt with shortly.  On 22 April 2008, the 1^st defendant issued 7 letters to record companies which had existing JPAs with the 2^nd defendant to inform them that the joint venture between the plaintiff and the 1^st defendant, Twin Success (the 2^nd defendant) would be terminated effective on 30 April 2008, that the 2^nd defendant would cease to serve its purpose and would therefore be wound up in due course, that the plaintiff and the 1^st defendant would separately pay directly to the record companies monies due, that the 2^nd defendant would cease all activities on 30 April 2008 and the 1^st defendant would not be liable for any dealings and documents entered into by the 2^nd defendant on or after that date, and that the 1^st defendant would be “in touch shortly with regard to follow up future co-operation”.

13.Another round of letters was sent on 2 June 2008 to the record companies.  This letter referred to the earlier letter of 22 April 2008 informing them that joint venture was terminated effective on 30 April 2008 and that the 2^nd defendant should have ceased business.  The letter went on to state that, “in the premises, the 2^nd defendant is unable to accept any further new KMVs from the addressee or to make any payment of licence fees.”   The letter went on to inform the record companies that the plaintiff could not on its own undertake any action concerning or representing the 2^nd defendant. 

14.In my view, these letters clearly threatened breach of the existing JPAs by expressly stating that the 2^nd defendant would not continue to make payment of license fees in respect of songs licensed for the use of the plaintiff and the 1^st defendant.  This information, together with the statement that the 2^nd defendant would no longer be making any selection of any future songs, could have entitled the record companies in question to terminate the existing JPAs, to the detriment of the plaintiff.  This risk of termination in fact materialised, as can be seen from the letters received from the record companies at the end of April 2008 appearing at pp.1121, 1124, and 1141 of Trial Bundle B.

15.In issuing the said letters of 22 April 2008 and 2 June 2008, the 1^st defendant acted in breach of the duty to honour subsisting JPAs.  However, it is true that, after the interim injunction granted by Mr Justice A. Cheung, the solicitors for the 1^st defendant wrote to the plaintiff’s solicitors under cover of a “without prejudice save as to costs” letter dated 1 August 2008 offering to continue with the selection and utilizing of new songs to be provided by the record companies under the existing JPAs and paying its due proportion for the licence fees for such songs on the basis that the plaintiff would pay its due proportion, and that such contributions be paid directly by the plaintiff and the 1^st defendant to the record companies.  In a further “without prejudice save as to costs” letter dated 15 August 2008, the 1^st defendant’s solicitors reiterated that the proposal was a workable arrangement in the interest of all parties which enabled new songs to be selected and utilized under the JPAs and that they were not aware that the record companies would not accept their clients’ proposal that the plaintiff and the 1^st defendant paid them directly (as opposed to payment being made through the vehicle of the 2^nd defendant). 

16.Apparently, the record companies have been willing to accept payments directly from the plaintiff and the 1^st defendant and, therefore, the failure of the 2^nd defendant to make the payments is no longer a matter of concern. 

17.Obviously, if the offer contained in the said letter of 1 August 2008 had been on the basis that the arrangement would last until the expiry of the existing JPAs, there would no longer be any basis to provide injunctive relief in favour of the plaintiff.  However, it is clear from the terms of the said letter that the offer was made “pending the trial of the captioned action or the winding up of Twin Success (the 2^nd defendant) whichever is earlier”.

18.Mr Burns SC made the further submission that there was no basis to grant injunctive relief preventing the 1^st defendant from winding up the 2^nd defendant or representing that the 2^nd defendant would cease business or be wound up prior to the expiry of the existing JPAs.  In support, he relied on clause 18 of the JVA stating that if either party shall serve a valid notice of termination under clause 17.1, the parties shall be bound to procure a winding up of the 2^nd defendant upon expiration of the termination notice.  I do not accept this submission.  On my construction of clause 18, the clause is subject to clauses 17.3 and 17.4 so that the winding up of the 2^nd defendant must be postponed until such time when the 2^nd defendant’s obligations in respect of licences and existing JPAs have come to an end. 

19.For these reasons, I conclude that the plaintiff has partially succeeded in its claims.

20.I can now proceed to exercise my discretion on the award of costs in this case.  In doing so, I am guided by the oft cited statement of principle of Nourse LJ in In re Elgindata Ltd (No.2) [1992] 1 WLR 1207 at p.1214A-D :

“The principles are these.  (i) Costs are in the discretion of the court.  (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.  (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.  (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.  Of these principles the first, second and fourth are expressly recognised or provided for by rules 2(4), 3(3) and 10 respectively.  The third depends on well established practice.  Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

21.In this case, it is clear to me that the plaintiff’s claim was framed on a much wider basis.  In particular, the plaintiff sought an injunction against the 1^st defendant from directly or indirectly negotiating, entering into or performing any licensing agreement, involving the licensing of any musical works or karaoke music videos with any record company otherwise than for or on behalf of the 2^nd defendant.  For the reasons made apparent in the judgment of Mr Justice A. Cheung dated 23 July 2008, the plaintiff had no basis for contending that the termination of the JVA by the service of the one month’s notice by the 1^st defendant did not bring the joint venture to an end in respect of the future commercial activities of the plaintiff and the 1^st defendant.  The JVA dated 17 November 2001, which was designed to create a duopoly of the plaintiff and the 1^st defendant in the karaoke market and to drive smaller operators out of business, would have been declared in many other jurisdictions as being contrary to the competition law in force in such jurisdictions.  Although Hong Kong prides itself as a world city and one of the world’s financial centres, we have yet to introduce a competition law.  However, even absent a competition law, the court is likely to lean against upholding the continuing validity of joint venture agreements such as the one in question dated 17 November 2001.  Competition law apart, Mr Justice A. Cheung clearly explained in paragraphs 14 to 18 of his judgment dated 23 July 2008 why the plaintiff’s wider claims were untenable.  Notwithstanding that judgment, the plaintiff has maintained its wider claims up until the 1^st day of trial on 4 May 2009.  If the plaintiff had limited itself, after the judgment of 23 July 2009, to the reliefs it sought on the 1^st day of trial, substantial costs would have been saved.  I find that this is a case where the plaintiff has raised issues and claims on which it would have failed had it maintained them to the end of trial, and that the plaintiff’s stance has caused a significant increase in the costs of the proceedings.  Therefore, I am minded to award the plaintiff only a part of its costs of the action.

22.Ms Wong sought at least two-thirds of the costs of the action.  Mr Burns SC, on the footing that the plaintiff had partially succeeded and which, of course, he did not accept, submitted that the proportion of costs must weigh heavily in the favour of the 1^st defendant. 

23.Having given careful and anxious consideration to the matter, I come to the view that the plaintiff ought to be awarded 40% of the costs of the action against the 1^st defendant.  The previous costs in the case were ordered to be costs in the cause.  The plaintiff can recover 40% of those previous costs from the 1^st defendant.

24.I should make mention of the submission that was made that until the amendment of the Statement of Claim on 2 April 2009, which introduced section 29A, the plaintiff could not have succeeded even on the limited basis that it did.  It is clear to me that the amendment was prompted by the views expressed by Mr Justice A. Cheung on clause 17.4 in his judgment dated 23 July 2008 and that, without such amendment, the plaintiff could not have succeeded.  However, the effect of the amendment is to include it retrospectively from the date of the Writ and it matters not that the amendment is prompted by submissions made from the Bench.  The plaintiff is still entitled to its costs of the action if it succeeds as a result of the amendment.   Mr Burns SC, however, submitted that the costs of the action should be awarded to the 1^st defendant up to the date of the amendment made on 2 April 2009 as the plaintiff could not have succeeded without such amendment.  Support for such submission can be found in the Hong Kong Civil Procedure 2009 at marginal note 20/8/28 :

“Where the amendment amounts to the assertion of a new claim and abandonment of the original claim in the writ, leave is only granted on payment of defendant’s costs to date of amendment with a stay until payment.”

However, the time for making such a submission was when the application was leave to amend was made.  The order made by Mr Justice A. Cheung in respect of the said amendment dated 31 March 2009 was that the costs of and occasioned by the amendments be to the defendants in any event.  Either there was no application for costs of the action up to the date of the amendment or such an application was not allowed.  In any event, it is too late to take the point now. 

25.The corollary of my ruling on costs is that the 1^st defendant has partially succeeded on its counterclaim in obtaining a declaration that the JVA of 17 November 2001 is at an end.  Notwithstanding that the terms of the settlement agreement do not set out a date on which the joint venture agreement is said to have ended, had that the matter remained in issue, I would have found in favour of the 1^st defendant on the issue and concluded that the JVA was validly terminated on 30 April 2008.  However, the 1^st defendant would not have succeeded on that part of its counterclaim seeking an order requiring the plaintiff to procure or assist in procuring the winding up of the 2^nd defendant before the expiry of the existing JPAs.  In the circumstances, I award the 1^st defendant 60% of the costs of the 1^st defendant counterclaim against the plaintiff.

26.The costs that I have awarded to the plaintiff and the 1^st defendant include the costs of the claims up to the 1^st day of trial on 4 May 2009 and the costs of the argument as to costs on 13 May 2009.  I make no order as to costs in respect of the costs of the 2^nd and 3^rd day of trial which were spent entirely by the parties in negotiating terms of settlement and which were expended for the benefit of both parties.

27.The plaintiff would not have succeeded against the 3^rd defendant.  Although the 3^rd defendant signed the letters of 22 April 2008, he did so as director of the 1^st defendant and not in any personal capacity.  Mr Justice A. Cheung did not grant any injunctive relief against the 3^rd defendant and neither would I have, had this matter proceeded to trial.  It therefore follows that the plaintiff must pay the costs of the action to the 3^rd defendant.

28.I also direct that there be certificate for two counsel.

29.It remains for me to thank all counsel involved in the case for their helpful oral and written submissions and in particular, for procuring the parties’ agreement to the terms of settlement, which has saved a substantial amount of the court’s time and costs.

30.After completing the draft of the above ruling, I received letters from the parties’ solicitors dated 15 May 2009.  I make no comment on those letters save to note that their contents have not caused me to vary my ruling on costs.

Ms Priscilla Wong and Mr Norman Hui, instructed by  Messrs Fung Wong Ng & Lam, for the Plaintiff

Mr Ashley Burns, SC, leading Ms Grace Chow, instructed by  Messrs Lily Fenn & Partners, for the 1^st and 3^rd Defendants

2^nd Defendant in person, absent