Emagist Entertainment Ltd v. Nether Games (Hong Kong) Ltd and Others

HCA 1659/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

ACTION NO. 1659 OF 2012

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BETWEEN

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REASONS FOR DECISION

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1.At the conclusion of the hearing, I granted the injunctions sought. I now hand down my reasons.

Introduction

2.This is a success story where the relationship of the contributors has turned sour.  Mr Boniface Lee Shiu Yin (“Boniface”) of the plaintiff Emagist Entertainment Limited (“the plaintiff” or “Emagist HK”), Mr Alvin Law Chi Man (“Alvin”) the 2^nd defendant, Mr Ryan Ip Chi Yung (“Ryan”) the 3^rd defendant and Mr Terry Man Chi Wai (“Terry”) the 5^th defendant were the four persons who were involved one way or another in conceiving, creating and developing an online role playing game (“RPG”) called Ninja Saga (“the Game”) which was run on Facebook (“NS on Facebook”).  I shall call these three defendants collectively “the 3 defendant creators” as it is alleged they are the owners of the copyright of the Game.  Mr Eric Cheng Tak Kwong (“Eric”) the 4^th defendant was invited by Boniface to join the plaintiff for introducing capital injection or funding, and Mr Simon Lo Kwong Man (“Simon”) the 6^th defendant also joined the plaintiff at the invitation of Boniface to be an administrator who was, inter alia, responsible for human resources, accounts and administration of the plaintiff.  At all material times before the activities of the defendants complained of and more specifically described below, Eric and Simon, together with Boniface, were the only three directors of the plaintiff. 

3.The plaintiff was incorporated on 25 March 2009 under a different name and it changed into the present name on 19 May 2009.  It has been running a business of developing and publishing online games, social games on the web and mobile platforms.  NS on Facebook was officially released in July 2009.  Ninja Saga on App Store under the iOS system (“NS on iOS”) as well as on Google Play under the Android system (“NS on Android”) were also launched by the plaintiff as separate and distinct games respectively in May 2011 and around April 2012. The plaintiff had also in a joint venture with Mr Dary Lee, its Chief Technology Officer (“Dary”), developed a multiplayer war game under the title of Age of Heroes (“AOH”), although the game had not yet been published. 

4.NS on Facebook became a huge success, bringing to the plaintiff net profits in the tune of tens of millions of dollars.  While Boniface was on a business trip to Germany from 8 August 2012, planning to return on 22 August 2012, the 3 defendant creators and Eric removed the source code of the Game from the workstations in the office of the plaintiff and migrated it to the office of the 1^st defendant Nether Games (Hong Kong) Limited (“Nether”) which was incorporated at their behest only a short time before on 10 August 2012.  Boniface received an email on 19 August 2012 from a staff of the plaintiff which informed him that there was an unscheduled shutdown of the Game.  This shutdown was unusual and the informer was unable to find out the reason.  Boniface cut short his trip and returned to Hong Kong, arriving at the plaintiff’s office at about 8 am on 20 August 2012. There, he saw Alvin, Ryan and a staff Gary Leung working on something.  He also noticed that there was an external disk connected to a notebook.  When he enquired, they did not tell him what they were doing.  When Boniface was not paying attention to them, they left.  Simon and separately Eric with a solicitor also showed up for a time.  Then Boniface saw Ryan and Alvin packing up their personal belongings and they left.  Ryan removed the said external disk earlier seen to be connected to a notebook before leaving.  All data in this notebook were later found to be deleted.

5.After initial checking by Dary, it was discovered that

(a)  The running of NS on Facebook and its database, used to be stored in the local SVN server within the plaintiff and in Softlayer, which contained all the source codes and graphic artworks (graphic source files) had been taken over by a different server and was no longer under the administrative control of the plaintiff.  (It was considered that the source codes and the Game’s seven associated databases (storing the character’s profile, accessories, inventories, transactions and balance of virtual currencies of each and every player of the Game) must have been copied to this new server and were not controlled by the plaintiff, or otherwise the Game could not be run.)

(b)  Two of the seven databases stored in Softlayer had been removed.  (These two databases are for capturing and storing the features of the players, ie, their outfit and appearance and the transactions in and balance of tokens of players.  Without these two databases, the source codes do not know how a player is supposed to look like and how much tokens he is supposed to have.)

(c)  All the source codes in the SVN server for NS on Facebook, on iOS and Android in the plaintiff’s office had been removed. 

(d)  The source codes and graphic files of AOH stored on github.com in the account of the plaintiff were also deleted.

6.The 3 defendant creators, Eric and Simon all left the plaintiff’s office.  Later they met with a number of the plaintiff’s employees or ex-employees at Nether’s office, informing them that the plaintiff would not be able to pay their salaries/wages while they were welcome to join Nether.

7.In the following days, Boniface found that some of the plaintiff’s documents, such as the company kits of Funracing (a company wholly owned by Boniface), the employment contracts and non-disclosure agreements (“NDAs”) of Ryan, Alvin and some other employees of the plaintiff, were missing.  These documents were locked in cabinets to which only Simon had a key.  The remaining company documents were all mixed up making it very difficult to trace documents such as the employment contracts and NDAs with employees.

8.Upon final checking, the damage done to the plaintiff so far as the Game was concerned was as follows:

(a)  The server settings to NS on Facebook had been modified so that the Game was run from another server amazonaws.com (“AWS”) not under the administrative control of the plaintiff.

(b)  The Game’s seven databases were also transferred to AWS for its maintenance outside the reach of the plaintiff.

(c)  Two of the seven databases with Softlayer, CharacterDB and AccountDB, had been deleted.  The SlaveDB, MapDB and LogDB were transferred to a server at AWS.  An external USB device had been plugged into the SVN server, and the files and backup files in the SVN server were deleted and the structure of the SVN server destroyed.

(d)  The source codes in the SVN service for NS on Facebook, NS for iOS and NS for Android including their backups were deleted.

(e)  The source codes stored in ten of the workstations were deleted.

(f)  The contents of the said ten workstations were completely deleted, including the accounting ledgers of the plaintiff.

(g)  The master passwords to access the ten workstations had been changed so that they could not be accessed.

9.Boniface explained in his affirmation made on 11 September 2012 the unscheduled shutdown on 19 August 2012, as follows:

“30. As the database are updated continuously by players round the clock while the game is on, it is necessary to shut down Ninja Saga on Facebook completely in order to copy the database from Softlayer to AWS. Since Ryan Ip and Alvin Law were in possession of the root passwords of the database servers, I believe that it was Ryan Ip and Alvin Law who made use of the unscheduled shut down of Ninja Saga on Facebook to copy the database to AWS. They also made use of the time slot to delete AccountDB and CharacterDB from Softlayer with the intention to remove the control of Ninja Saga on Facebook from Emagist HK. The unscheduled shut down lasted for about 10 hours.”

10.By an inter partes summons dated 14 September 2012, the plaintiff seeks injunctions to enjoin the defendants to deliver up to the plaintiff the source codes of the Game and associated databases as well as to restrain the defendants from damaging or disposing of them.  The summons was eventually adjourned to be heard by me.  In the meantime, on 14 September 2012 when appearing before Au J, the defendants gave undertakings to the Court for maintaining the status quo pending the determination of the summons.

11.There is also an inter partes summons dated 14 December 2012 taken out by the defendants to seek an order to amend the sealed order of Au J dated 14 September 2012 which recorded the said undertakings of the defendants.  I shall return to this later.

The essence of the parties’ cases

12.The plaintiff claims to be the copyright owner of the Game and complains that the 3 defendant creators, Eric and Simon in the period between 4 and 20 August 2012 committed torts of infringement of copyright, trespass to chattels, conversion, detinue, breach of employment contracts, breach of confidentiality, breach of fiduciary duty, acts injurious to the plaintiff, etc and seeks injunctions from the court for the purposes of restoring the status quo ante bellum, ie, before the activities of the defendants complained of. 

13.On the other hand, the defendants do not dispute that they had copied (not removed) the source codes of the Game and associated databases but claim that they were entitled to do so.  It is alleged that the copyright in the Games at all material times belonged to the 3 defendant creators and it was they who licensed the plaintiff to publish the Game, being NS on Facebook.  However, Boniface did not keep his promise of giving them the proper quantity of shares in the plaintiff and they therefore terminated the licence of allowing the plaintiff to publish the Game or make profit from it. They say that the plaintiff had repudiated the licence agreement and they merely took steps in the way they did to terminate the licence in August 2012.

Serious questions to be tried

14.Mr Neville Sarony SC, leading Miss Angel Lau, for the plaintiff, submits that there is a serious question to be tried and the balance of convenience is clearly in favour of the plaintiff, so that an injunction should be ordered.  He puts the following questions as serious questions to be tried and contends that the plaintiff has a very strong case which justifies the granting of the injunctions, including mandatory injunctions, he seeks, namely,

(1)  Whether the 3 defendant creators were employees of the plaintiff or its predecessors so that the copyright in the Game to which they contributed their efforts, service, skill, labour and judgement belongs to the plaintiff.

(2)  Whether the 3 defendant creators or the plaintiff were the copyright owner.

(3)  Were the acts of removal of the source codes justified in light of the alleged termination of the licence agreement?

(4)  Regardless, who is the owner of the associated databases, notably the Account DB?

Employees or self-employed?

15.Mr Sarony relies heavily on section 14 of the Copyright Ordinance, Cap 528 which reads:

“(1) Where a literary, dramatic, musical or artistic work, or a film, is made by an employee in the course of his employment, the employer is the first owner of any copyright in the work subject to-

(a) any agreement to be contrary; and

(b)  subsection (2).”

16.Subsection (2) is not relevant for our present purposes. Insofar as the 3 defendant creators were under the employ of Boniface or the plaintiff, so Mr Sarony argues, the copyright in the Game which was created, produced or developed by them in the course of their employment is owned by Boniface or the plaintiff.  Whatever interest in that copyright that Boniface had was transferred to the plaintiff after its incorporation in March 2009. That was why the 3 defendant creators have been denying vehemently that they were at any material time the employee of Boniface or the plaintiff; but these were bare denials without any substance.

17.As far as the plaintiff’s interest and right to the Game is concerned, Boniface affirms as follows:

“8. The whole idea behind Ninja Saga originated from me in the middle to late 2008. The computer graphic works, animation and the writing of the computer codes of Ninja Saga on Facebook were done at my commission since in late 2008 before the incorporation of Emagist HK. I was the owner of the copyright of Ninja Saga on Facebook as created up to the stage of incorporation of Emagist HK. After the incorporation of Emagist HK, I transferred my ownership of Ninja Saga on Facebook to Emagist HK. Emagist HK published Ninja Saga and thereafter continued to develop it by adding new features and updating the game on a weekly basis. Ninja Saga under iOS system and under Android system were created, developed and published by Emagist HK at a much later stage. Evidence of the copyright ownership in me and in Emagist HK over Ninja Saga on Facebook, for iOS and Android will be fully set out in later part of the affirmation. Suffice it to say at this moment that as at the time of this affirmation Emagist HK is their owner in copyright and otherwise.”

18.Mr Sarony draws my attention to various documentary evidence lending strong support to the contention that the 3 defendant creators were under the employ of the plaintiff, namely,

(a)  an employer’s return by the plaintiff on employee’s remuneration and pensions to the Inland Revenue Department for the period 1 April 2009 to 31 March 2010 in respect of each of the 3 defendant creators;

(b)  an MPF (Mandatory Provident Fund) membership application form (relevant employee) regarding the employer’s and the employee’s respective contribution towards the fund each respectively signed by the 3 defendant creators in August 2011, all stating that the employment date was 1 January 2010;

(c)  copies of autopay instructions for MPF of the plaintiff’s employees for March to May 2012, showing that the 3 defendant creators were included in the employees list for MPF contribution by the plaintiff; and

(d)  a Manulife Employee Enrolment Form dated in December 2011 each regarding the 3 defendant creators on health insurance to be taken out by the plaintiff, signed by both the employee and the plaintiff, with the employment date of 1 April 2009, describing Alvin as Technical Director, Ryan as Director of Development and Terry as Animator.

19.Regarding Ryan, it was shown in the employees list for March 2012 under para 18(c) above that his salary was $20,000 but in the list for April 2012, it was $30,000.  This corresponds with an email dated 10 April 2012 from Boniface to the Human Resources Officer of the plaintiff asking the latter to “adjust Ryan’s salary from $20K to $30K starting from this month”.

20.According to Boniface, all 3 defendant creators had signed contracts of employment as well as NDAs with the plaintiff but he was unable to find them, and he attributed the cause to the removal of documents by the defendants on or before 20 August 2012.  He is only able to produce an NDA signed by Terry, which is undated.  This NDA was apparently also signed by Alvin on behalf of the plaintiff as its Technical Director.

21.The defendants’ response to these items of documentary evidence is contained in Ryan’s affirmation filed on 5 October 2012, which was adopted by Alvin and Terry, as follows:

“39. Alvin Law, Terry Man and I never signed any employment contracts with Emagist HK because we were never employees – we were Shareholders and/Founders of the company. Paragraphs 107 and 114 to 117 [paragraphs of Boniface’s affirmation] are denied. Our employment relationship ended since February 2009. …

40. …

41. Alvin Law and I never signed any Non-Disclosure Agreement. Only Terry Man signed such a document upon Boniface Lee’s request in or about July/August 2010 for people involved in graphics (whether employees or not) to sign a Non-Disclosure Agreement to prevent them from selling the graphics to a third party.

42. Signing of a Non-Disclosure Agreement is not very significant because it is very common for persons involved in graphics design to sign such agreements even if they are not employees of a company.

43. During the early stages of the business, from April 2009 onwards, Alvin Law, Terry Man and I were paid (by way of cheques) modest sums of money as consultants' fees and bonuses to meet our daily expenses. The payments were not for the same amount each time. There is now shown and produced to me marked exhibit “ICY-1” a true copy of a record of payments of consultants’ fees to us with the dates and amounts paid.

44. Although such payments are included in Emagist HK’s employer tax returns (signed by Boniface Lee) (exhibit “LSYB-32”) and we paid MPF contributions (exhibit “LSYB-33”), we were not employees of Emagist HK.

45.  In August 2011, the Bank of Asia suggested to our Human Resources Officer Jennifer Yu Wai Ming that Alvin Law, Terry Man and I that we should contribute towards MPF as long as we received any sort of income, whether we are employed or not. Based on the Bank of East Asia’s suggestion, Jennifer Yu then arranged for us to contribute to MPF and our contribution were dated back to 1st January 2010. We were not employees of Emagist.”

22.Mr Sarony points out that the MPF form to be signed by an employee (as those referred to para 18(b) above) is different from the form to be signed by an independent contractor and that the excuse given in paragraph 45 of Ryan’s affirmation cited above is very thin.  Moreover, there has been no explanation from the defendants why the 3 defendant creators were included in the Manulife health insurance scheme as employees.  Each of the 3 defendant creators signed an employee enrolment form respectively describing himself as Technical Director (Alvin), as Director of Development (Ryan) and as Animator (Terry).  These job titles are significant indicia that they were employed by the plaintiff to occupy those positions, and in my view, their denials of being employees of the plaintiff lack credence.  It is always difficult to use bare denials to counteract contemporaneous documents, especially those signed by the makers whose signatures are not challenged. 

Ownership of the copyright

23.Apart from the statutory provisions based on employment, Mr Sarony also addresses me on the evidence of the ownership of the copyright.  The 3 defendant creators say that they are the owner of the copyright in the Game, being its creators and developers.  The relevant parts of Ryan’s affirmation are as follows:

“7.  In 2008, Boniface Lee came up with the concept of developing an online Role Playing Game (“RPG game”) which eventually became the game Rival Saga.  Alvin Law and I developed the game Rival Saga, the game engine, the design documents and the system architecture.

8.  Near the end of 2008, Boniface Lee, Alvin Law, Terry Man and I were working together to develop the game Rival Saga:

(1)  Alvin Law and I developed the game engine, the design documents and system architecture;

(2)  I was the team leader and director of the development teams.

(3)  Terry was in charge of the graphics and animation for Rival Saga.

9.  Alvin Law, Terry Man and I were employed and paid a salary by Key Value Business Ltd (an offshore BVI company).  The three of us and Boniface Lee came up with the concept of a ninja-based RPG game while brainstorming together.

10. Around December 2008, Boniface Lee, via Puffin HK Ltd, hired a team of part time illustrators in the Philippines to work on the Rival Saga game as graphic illustrators to create graphics based on my game design concept.  I led the whole team as developer director.  We recruited Ralph Rex as a Game Designer/QA Tester to assist me with the game design documents and English copy-writing.  Erich Rafer was not the team leader of the Philippine staff and he was only a part-time illustrator.

11.  The Philippine staff would send the graphical source to Terry Man and me to fine tune the graphics, complete animation and then I implemented them into the game engine.

12.  …

Setting up the new company (eventually Emagist HK)

13.  In February 2009, Boniface Lee held an informal meeting with Alvin Law, Terry Man and I in a restaurant in North Point and told us that he could not find any more investors and that he could no longer employ us and pay us a salary.  Keyvalue stopped paying us any more salary after February 2009.  This is why the cheque stubs for salary payments as exhibits … all end at February 2009.

14.  Our employment relationship and contracts with Keyvalue thus terminated as of February 2009.

15.  … Alvin Law, Terry man and I were not employees of Emagist HK.  We were promised equity interests in Emagist HK/Cayman as Founders and Shareholders of the company and business.  …

16.  In February 2009, Boniface asked the three of us if we wanted to set up a new company together to develop a new ninja-based RPG game:

(1)  The four of us would not get any salary and would not be employed by the new company.

(2)  Instead, the four of us would be the Shareholders and/or Founders of the new company and would get shares in the new company and be entitled to dividends for profits generated.

(3)  The contribution and/or posts of the Shareholders and/or Founders would be:

i.  Boniface Lee – Chairman and Managing Director; in charge of the company set-up, marketing, business development and searching for potential investors.

ii.  Alvin Law – Chief Technical Officer who creates and develops the game back-end system, system architecture and database;

iii.  Ryan Ip – the Development Director and Chief Game Designer who creates and develops the front-end game engine and the game design;

iv.  Terry Man – the Graphics Designer and Animator who creates and develops all the graphics and animations for the online game;

…

21.  … Alvin Law, Terry Man and I would be (and now are) the actual authors of the new online game (i.e. the game back-end system and database, the front-end game engine and the game design, the graphics and animation for the online game), so we would (and now do) own the copyright to Ninja Saga on Facebook.  In particular:

(1)  Alvin Law owns the copyright (literary work) to the game back-end system, system architecture and database of Ninja Saga;

(2)  Terry Man owns the copyright (artistic and/or literary work) to all the graphics and animations of Ninja Saga;

(3)  I own the copyright (literary work) to the front-end engine and the game design of Ninja Saga.

22.  The three of us expended skill, labour and judgment in creating, developing and maintaining Ninja Saga on Facebook.

23.  The three of us (as copyright owners) agree with Boniface Lee that we would grant the new company (Emagist HK) a license to publish the Ninja Saga game as a game publisher – i.e. a licence to make it available to the public on conditions that –

(1)  The new company (Emagist HK) would provide office premises and supporting staff for developing the game;

(2)  Alvin Law, Terry Man and I would be named as consultants to continue developing Ninja Saga;

(3)  Alvin Law, Terry Man and I would get an agreed portion of shares in the new company (Emagist HK);

(4)  We would be given an agreed portion of profits generated from the Game.

24.  Once we were allotted our agreed shares in the new company, we would assign the copyright of Ninja Saga (including Ninja Saga on Facebook) to Emagist HK and hand over control of the same to Emagist HK.  As will be later seen, Boniface Lee never allotted us our agreed shares, so the copyright in Ninja Saga was never transferred/assigned to Emagist HK and remains with Alvin Law, Terry Man and I as the authors and first owners.  Furthermore, I have retained control over Ninja Saga on Facebook all along and never transferred control over it to Emagist HK.  …

25.  Alvin Law, Terry Man and I are the authors and first owners of the copyright to Ninja Saga on Facebook.  At most, Boniface Lee brainstormed together with us and we collectively came up with the concept of creating a ninja themed online game.  Simply being part of a team that comes up with such a concept cannot form the basis of any copyright.

26.  We agreed the proposed division of responsibility and the fact that we would be paid no salary.

27.  …

28. Initially, we had not agreed on the actual figures for the shareholding we would each get, but we subsequently agreed on the actual figures at a later stage.  See later at paragraph 66 below.

29.  Alvin Law, Terry Man and I have retained the copyright in Ninja Saga all along, which is why the Facebook developer account for the Ninja Saga Facebook game has always been registered in my name.” 

(Emphasis added.)

24.Paragraph 66 and other relevant paragraphs of Ryan’s affirmation are as follows:

“66. In May 2010, after moving to the 8/F of Cyberport, I spoke with Boniface Lee in the corridor and asked for my share in Emagist HK. Boniface Lee then promised me a 9% shareholding in Emagist HK, which he calculated was worth around US$5,000,000.00.

67. I agreed with being allotted a 9% shareholding.

68. However, Boniface told me that the corporate structure for Emagist HK was not fully set up yet, so he would give me the documents and share certificates at a later date.

69. At different points in time, Boniface Lee promised the other Shareholders their shareholdings.

(1) Alvin Law – 14% (see Alvin Law’s Affirmation)

(2) Terry Man – 7% (see Alvin Law’s [should read Terry Man’s] Affirmation)

(3)  Simon Lo – 5% (refer to Simon Lo’s Affirmation).”

25.What Ryan seems to be saying is that the 3 defendant creators were originally under the employ of Keyvalue Business Ltd (“Keyvalue”), a company wholly owned by Boniface.  Their employments with Keyvalue were only terminated at the end of February 2009.  Near the end of 2008, Boniface and the 3 defendant creators worked together to develop an RPG game Rival Saga, the concept of which originated from Boniface: Alvin and Ryan developed the game engine, the design documents and system architecture, while Terry was in charge of the graphics and animation.  Around December 2008, Boniface via Puffin HK Ltd (a company owned by him), hired a team of part time graphic illustrators in the Philippines to work on Rival Saga.  While they were working for Rival Saga and paid a salary by Keyvalue Business Ltd, they and Boniface came up with the concept of a ninja-based RPG game while brainstorming together.  In February 2009, Boniface Lee held an informal meeting with the 3 defendant creators in a restaurant in North Point and told them that he could not find any more investors and that he could no longer employ them or pay them a salary.  Keyvalue stopped paying them after February 2009.  In February 2009, Boniface asked the three of them if they wanted to set up a new company together to develop a new ninja-based RPG game and they agreed that the four of them would not get any salary and would not be employed by the new company; instead they would be the shareholders or founders of the new company and be entitled to dividends from the profits generated.  Thus, the defendants’ case seems to be that the concept of ninja saga came up during brainstorming amongst the 3 defendant creators and Boniface, that that was in February 2009 about the time when their employment with Keyvalue was about to be terminated, and that before then when they were employed by Keyvalue (as in the position of the Filipino illustrators), they were only working on the RPG game Rival Saga, not Ninja Saga.  It was Boniface who agreed with them that they were to develop this new ninja-related game and all of them should not be paid a salary but instead should have a new company formed in which all of them would become shareholders or founders.  Thus the copyright in NS on Facebook was owned by the 3 defendant creators who had spent skill, labour and judgement, while Boniface who participated in coming up with the concept in the brainstorming did not qualify as a copyright owner of the Game. 

26.Miss Janine Cheung, Mr Alvin Tsang with her, for the defendants, draws support from Copinger & Skone James on Copyright, 16^th Ed, para 3-18 which reads:

“… it is not the concern of copyright to protect ideas unless and until the ideas have found expression in the form of a work of a category recognised as deserving of protection. … once the ideas have been expressed in the form of literary work, it is the form of expression which is the subject of protection, not the ideas, which themselves may be freely extracted from the work and absorbed and used by others to produce their own works so long as the form of expression of the copyright work is not also taken.”

27.Without analysing Ryan’s story in great detail, it suffices for me to say at the present moment that the 3 defendant creators were merely trying to stress the point that they were the copyright owners of the Game; however, it was difficult to try to cut out Boniface, the person who came up with the idea and who suggested to them to develop this new game together under the structure of a new company, of any entitlement as a partner in the intellectual property.  Moreover, Mr Sarony has drawn my attention to the emails from the Filipino illustrators in November and December 2008 that they were already working on the graphics of male and female ninjas.  Infinity Sound Production Ltd, the company that produced the background music for NS on Facebook, wrote in October 2012 to confirm that the copyright of the background music is owned by the plaintiff and that “Starting from 2009, Infinity Sound Production Ltd was appointed by Emagist Entertainment Ltd. as a contractor to create and produce the background music for Ninja Saga titles.”  These are items of strong documentary evidence that support the plaintiff’s claim of ownership of the Game.

28.Looking at the defendants’ case, nowhere is it specifically claimed that the 3 defendant creators were the exclusive copyright owners of the game.  Their agreeing to have merely shareholding and profit sharing is indicative that they are on their own case not the 100% owner.  How about Boniface’s interest in the copyright, which they have never expressly denied?  On the contrary, they recognise his contribution as a participant in coming up with the concept (see para 9 of Ryan’s affirmation) and suggesting in setting up a company to develop the Game (see para 16 of Ryan’s affirmation).  How about their respective percentage in the shareholding?  Their agreement with Boniface seem to be only bipartisan, between each of them individually and Boniface but not amongst all involved. How sound is this basis when they do not have a say regarding each other’s proportion in the contribution towards the creation, production and development of the Game?  The situation is more complicated when the proportions of the shareholding of Simon and Eric are considered.  These two defendants did not contribute to the copyright of the Game, and were brought in by Boniface for financial, administrative and management purposes.

29.On the other hand, Boniface’s story of the shareholding of the 3 defendant creators sounds more reasonable.  In his affirmation of 11 September, Boniface states:

“81. Ryan Ip, Alvin Law and Terry Man were employed by me to develop Ninja Saga on Facebook, which turned out to be very profitable, and accounts for around 99% of the revenue of Emagist HK. At the early stage of the development of Ninja Saga on Facebook, Emagist HK was not yet incorporated. I told them that I would put the business into a corporate vehicle and then they would become the employees of this corporate vehicle. I also told them that I would give them some equity interest in this corporate vehicle at an appropriate time as part of the employees’ benefit for their contributions to Ninja Saga on Facebook, but I never agreed with them or told them the quantity of the equity interest that they would receive.”

30.Boniface then talks about the restructuring of the corporate vehicle, having a Cayman Island company established as the holding company for the business of the plaintiff. Emagist Cayman was thus incorporated to which Boniface, Eric and Simon transferred all their shares in the plaintiff, and in return Emagist Cayman issued shares to them.  Boniface continues:

“87. As there was going to be a major restructuring of Emagist HK, I decided that it was the right time to fulfill my promise to Eric Cheng, Simon Lo, Ryan Ip, Alvin Law and Terry Man. I decided to allot some shares of Emagist Cayman to them.

88. Emagist Cayman was incorporated on 1st June 2011 with authorized share capital of USD 50,000 divided into 50,000 shares of USD 1 each. A total of 30,000 shares of USD 1 per share were allotted on 1 June 2011. As a result of the allotment, distribution of the shareholding in Emagist Cayman were:

Allottee	No. of Shares
Funracing [Boniface’s own company]	20,808 (69.3%)
Cherubic [an equity investor]	750 (2.5%)
Eric Cheng Eric Cheng [Eric]	5,250 (17.5%)
Man Chi Wai [Terry]	108 (0.36%)
Lo Kwong Man [Simon]	480 (1.6%)
Ip Chi Yung [Ryan]	897 (2.99%)
Law Chi Man [Alvin]	1,707 (5.69%)”

31.Boniface reiterates in para 91 of his affirmation that the above allotment of shares in Emagist Cayman was “something I had promised them at the time when they entered into employment by me before incorporation of Emagist HK.”  The essence of the parties’ differences is in the quantity of the shareholding.  The defendants say that Boniface promised them at different points of time the following: Ryan 9% (as opposed to 2.99%), Alvin 14% (as opposed to 5.69%), Terry 7% (as opposed to 0.36%) and Simon 5% (as opposed to 1.6%) (see what is cited from Ryan’s affirmation under para 24 above).

Termination of licence

32.I now turn to the questions relating to the licence agreement as claimed by the defendants. This is so crucial to the defendants’ case that I may be forgiven for repeatedly citing what Ryan says in paragraph 23 of his affirmation:

“23. The three of us (as copyright owners) agree with Boniface Lee that we would grant the new company (Emagist HK) a license to publish the Ninja Saga game as a game publisher – i.e. a licence to make it available to the public on conditions that –

(1) The new company (Emagist HK) would provide office premises and supporting staff for developing the game;

(2) Alvin Law, Terry Man and I would be named as consultants to continue developing Nin Saga;

(3) Alvin Law, Terry Man and I would get an agreed portion of shares in the new company (Emagist HK);

(4)  We would be given an agreed portion of profits generated from the Game.”

33.The main conditions that matter and appear not to have been satisfied are (3) and (4): the agreed quantity of shares and the agreed portion of profits.  Yet it seems to me that the two conditions are one and the same thing, because there is no specific complaint from the defendants that they were not given an agreed portion of the profits; their complaint is that they have not been given the correct portion of shares that will bring the correct portion of profits by way of dividends on those shares.  As their counsel Miss Cheung puts it, Boniface never having honoured his promise, the 3 defendant creators were entitled to withdraw the licence.  At the present stage, never mind whether the licence agreement sounds unreasonable or wants certainty or lacks documentary support or leaves a number of details undecided, even if the defence case is accepted without further ado, the defendants would be entitled to a claim to be allotted or distributed with the proper quantity of shares and, for that matter, profits.  They may claim that if they are not given those shares and profits, the licence would have to be determined.  However, there is not a single word in writing of any notice given to the plaintiff or Boniface that they were going to terminate the licence agreement.  Instead, they took action to migrate all the source codes and various softwares necessary for the operation of the Game from the plaintiff during Boniface’s expected absence on a foreign business trip. 

34.Their alleged licence agreement allowing the plaintiff to publish the Game and collect profits out of it and then terminating the licence appear to me to be an attempt to cloak their activities at the plaintiff’s office during the absence of Boniface on the days before 20 August 2012 with excuse or justification.  I consider that they were not justified to do so even if they were actually terminating a licence.  They took the law into their own hands.  Indeed, I consider that they were acting in an underhand and oppressive manner, trying to reap some strategic advantage over Boniface. 

35.In Ryan’s 4^th affirmation filed on 27 December 2012, it is disclosed that on 17 August 2012, he, being “the owner of the developer’s account for NS on Facebook”, directed Facebook to pay the revenues from the Game to his own bank account instead of the plaintiff’s which had always been the recipient allegedly pursuant to the licence agreement.  This evidence is intended to show that Ryan has always retained the control over the Game and the fact that he owns the developer’s account supports the defendants’ allegation that the 3 defendant creators were and are owners of the copyright.  However, this evidence rather shows that the defendants, especially Ryan, control the purse strings of the plaintiff, the revenue from the Game constituting about 99% of its income, and that there was no sound reason for them to take the matter into their own hands by grabbing the Game from the plaintiff and migrating it somewhere else when they were dissatisfied with Boniface’s not keeping his promise of giving them a quantity of shares.

36.Even Miss Cheung describes this matter as “not merely a copyright dispute but in essence a shareholder’s dispute”.  There was no proper reason for the defendants to take the law into their own hands and shut down the running of the Game for 10 hours at the expense of the plaintiff, a company in which they claim they are entitled to have substantial shareholding.

The associated databases

37.There appears to be no dispute that the databases associated with the Game are necessary for the running and updating of it.  There are seven databases, storing the character’s profile, accessories, inventories, transactions and balance of virtual currencies of each and every player of the Game.  Although without these databases, the Game cannot be run, what the 3 defendant creators contributed was their skill, labour and judgement in creating and developing the Game.  These seven databases were built up while the plaintiff was operating the game on Facebook when the players were playing the game.  I do not understand on what basis the 3 defendant creators say that these databases belong to them or they are attached to the copyright of the Game so that they are entitled to deal with or dispose of them as they wish to the exclusion of the plaintiff.  But of course, these databases had to be removed so that the defendants could replace the plaintiff in operating and administering the Game.

Mandatory injunction

38.Miss Cheung submits that it is exceptional for the court to grant a mandatory injunction in the interlocutory stage because it would render quite futile the defendant’s attempt to fight the eventual trial. As a matter of law, she contends, where the grant or refusal of an injunction at an interlocutory stage will in effect dispose of the action finally – in such cases where there would be nothing left to which it was in the successful party’s interest to proceed to trial, the American Cyanamid ‘balance of convenience’ test does not apply and there should be additional considerations as set out in the cases of NWL Ltd v Woods [1979] 3 All ER 614, Cayne v Global Natural Resources Plc [1984] 1 All ER 225 and in the Hong Kong case of Music Advance Limited v Neway.com Technology Limited, HCA 2574 of 2002 (30 August 2002, Ma J).  In Music Advance, Ma J (as he then was) stated under paragraph 12 of his judgment:

“(1) In the case of interlocutory mandatory injunctions, it is often said or assumed that a court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted: see Shepherd Homes Ltd v Sandham [1971] Ch 340 at 351. This has been explained and sometimes understood as meaning that in the case of an interlocutory mandatory injunction, the applicant’s case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction: see the Court of Appeal’s observations in TKI Limited v New Happy Limited [1995] 1 HKC 551 at 554 B‑D.

(2) Broad statements such as the above must, however, be properly put in context.

(3) The basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same. Section 21L of the High Court Ordinance, Chapter 4 makes no distinction between these two types of injunctions and simply states that interlocutory injunctions may be granted if it appears to be just or convenient to do so.

(4) At the interlocutory injunction stage, the principal concern of the court is that it might make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose or the party who has been refused one, may win. The court will therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. This “fundamental” principle is the source of the guidelines that have evolved for the determination of interlocutory injunctions (included are, of course, the American Cyanamid guidelines) and therefore, in the application of any guidelines, sight must not be lost of this principle. See here: Films Rover International Ltd v Cannon Films Sales Ltd [1987] 1 WLR 670 at 680 D‑G, in a passage from the judgment of Hoffman J which was approved by the House of Lords in R v Secretary of State for Transport ex parte Factortame Limited (No 2) [1991] 1 AC 603 and recently reiterated in the English Court of Appeal decision of Zockoll Group Ltd v Mercury Communications Ltd [1998] FSR 354 (which Mr Au was kind enough to place before me).

(5) Two common guidelines are of course the consideration of the merits of the plaintiffs’ claim and the balance of convenience. Here, it is of course easy to see at once how they are linked to the fundamental principle: there must be a risk of injustice if the plaintiff cannot even establish a serious question to be tried or that one or the other party will be put to substantial inconvenience or prejudice if an interlocutory injunction were or were not granted.

(6) In the case of interlocutory mandatory injunctions, the risk of injustice (being wrong in the sense referred to above) can be quite acute. In Films Rover International Limited, it was put thus by Hoffman J at 681 B‑E:

“In Shepherd Homes Ltd v Sandham, Megarry J spelled out some of the reasons why mandatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage: they usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past; an order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in the writ and makes it unlikely that there will be a trial.  One could add other reasons, such as that mandatory injunctions (whether interlocutory or final) are often difficult to formulate with sufficient precision to be enforceable.  In addition to all these practical considerations, there is also what might be loosely called a ‘due process’ question.  An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action.  The court is there more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.”

(7) This passage in my view explains just why it is that generally a court will have to feel a high degree of assurance that at the trial of an action it will be shown that the interlocutory injunction was rightly granted before an interlocutory mandatory injunction will be given; all this being an exercise in assessing the strength of the plaintiffs’ case: see sub‑paragraph (1) above. However, I emphasize that this is only generally the court’s approach. Where it is shown, as an exception to this general approach, that the case is one in which the withholding of an interlocutory mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel the “high degree of assurance” as aforesaid, it would be right to grant an interlocutory mandatory injunction: see Films Rover International Limited at 681 A‑B.

(8) This of course brings into focus the balance of convenience. Thus, if a plaintiff in seeking an interlocutory mandatory injunction cannot demonstrate more than a serious question to be tried, it will have to show that the balance of convenience tilts so much in its favour that justice requires such an injunction to be granted, even taking into account those aspects of an interlocutory mandatory injunction expressed Hoffman J in Films Rover International Limited.

(9)  At no stage, however, in the consideration of the matter does the court lose sight of the practical realities of the situation to which the injunction will apply: see NWL Limited v Woods [1979] 1 WLR 1294 at 1306C per Lord Diplock.” 

(Emphasis added.)

39.Miss Cheung submits that the matter is more fully expressed in the head note to the report on Cayne, which reads:

“Where the grant or refusal of an interlocutory injunction will have the practical effect of putting an end to the action, the court should approach the case on the broad principle of what it can do in its best endeavour to avoid injustice and to balance the risk of doing an injustice to either party. In such a case the court should bear in mind that to grant the injunction sought by the plaintiff would mean giving him judgment in the case against the defendant without permitting the defendant the right of trial. Accordingly, the established guidelines requiring the court to look at the balance of convenience when deciding whether to grant or refuse an interlocutory injunction do not apply in such a case since, whatever the strengths of either side, the defendant should not be precluded by the grant of an interlocutory injunction for disputing the plaintiff’s claim at a trial. …”

40.Kerr LJ analysed the matter further in his judgment at 236D‑F with reference to the facts of the dispute before him:

“As was pointed out during argument, if this position were viewed as an application for summary judgment under RSC Order 14, then it would be clear beyond argument that Global must be given unconditional leave to defend because it would obviously be entitled to a full trial. However, the grant of an injunction would preclude this so far as can be foreseen at present for the reasons already stated.

In these circumstances it seems to me that it would be wholly wrong for this court, in effect, to decide the entire contest between the parties summarily in the plaintiff’s favour on the untested material before us.  This does not present any overwhelming balance on the merits in the plaintiff’s favour or any other overriding ground for an immediate injunction without a trial.  There is only a triable issue whose outcome is doubtful and that issue should be tried and not pre‑empted.”

The main thrust of the defence case

41.Miss Cheung makes a number of points.  First – In the present circumstances, the orders for delivery up, if granted, will have the effect of disposing of the action entirely.  Once the defendants deliver the source codes and control of NS on Facebook to the plaintiff, the plaintiff will have already substantially obtained the relief they sought and there would be no incentive at all for the plaintiff to proceed to trial.  Ultimately, there will be no chance to determine whether the injunctions were properly granted since the matter would very unlikely proceed to trial.

42.Second – The defendants would not have the opportunity to be compensated in damages if it turns out that the interlocutory injunctions were improperly granted.  The damage and loss of profits caused to the defendants will be so great such that it may not be commercially viable for the defendants to press the matter to trial.  There is no assurance whatsoever that the plaintiff is in a position (with its lack of staff) to properly administer and market the game in the time it would take for the matter to go to trial, if there is a trial ― this is confirmed by Boniface who says that there are currently only 11 staff left in the plaintiff and “there is simply not enough manpower to restore the games and keep it developed and updated as before”.  Apart from a bare assertion by the plaintiff’s staff in the second round of affirmations filed that it can very quickly hire a staff to take up the running of the game, the plaintiff has not given any specifics as to how it would be in a position to train an entire new team of staff in short enough a period of time to protect against the loss of users ― again, on Boniface’s own claim, any short disruption in the operation of the game may have (allegedly) catastrophic effects on player revenue.  Should it transpire that the injunctions were wrongly granted and the game misadministered by the plaintiff’s new team (if they manage to procure one), the defendants would be left with a valueless asset.

43.Third – The damage caused to the defendants will also be irreparable because of the way the plaintiff has been run by Boniface, who has been spending the company’s money in an irresponsible manner and misappropriating it for his own use in breach of his fiduciary duties to the company.  It calls into serious doubt whether the plaintiff would be able to honour its undertaking in damages.  This is also a good reason for refusing to grant equitable injunctive relief because Boniface does not come with clean hands.

44.Fourth – Taking into consideration the merits, it can hardly be said that there is a high degree of assurance that the court would have found at trial that the injunctions were rightly granted: At its very highest, the plaintiff has only been able to establish that there is a dispute over ownership to the copyright of NS on Facebook.  The evidence shows that, on the most fundamental level, Ryan Ip, Alvin Law and Terry Man have good evidence in support of their case that they were not employees of the plaintiff or Boniface when they developed the Game.  The plaintiff is far from being able to establish clear rights to the Game on the evidence.

My view

45.I am afraid I do not accept an analogy with rules relating to summary judgment in the sense that only when the plaintiff’s case is so strong as entitling it to succeed in obtaining summary judgment against the defendant or that the defendant’s defence is such that no unconditional leave to defend is given that a mandatory injunction should be ordered.  It all boils down to whether it is just and convenient for an injunction to be granted, prohibitory or mandatory.  The court must be prudent to always bear in mind that it should only take a course that appears to carry the lower risk of injustice if its decision, to grant or refuse the injunction sought, should turn out to be wrong.

46.I am here confronted with the principle that the court only grants a mandatory injunction at the interlocutory stage with great caution before the court has heard viva voce evidence adduced by the parties, and is reluctant to make an order against a party who has not had the protection of a full hearing at trial.  However, I consider it important that the court should not and should not be seen to countenance a party taking the law into its own hands and taking advantage of a situation created by its own fault or blameworthy conduct.  Although the defendants claim that their activities in August 2012 were steps taken to terminate the licence to the plaintiff, they do not deny that they had copied (not removed) the source codes and associated databases of the Game, and for whatever reason, that was done while Boniface was out of Hong Kong.  One can discern the rationale behind the rule against ready granting of an interlocutory mandatory order which, if I may say so, comes down to whether it is just and convenient for the court to grant the relief or remedy when it so does at the interlocutory stage.  In the present case, even if I grant the mandatory injunction as sought by the plaintiff, I do not see that the defendants will be discouraged from coming to court to prove their claim to a certain percentage of the shares in the plaintiff or Emagist Cayman or in the profits from the Game being published on Facebook.  I do not see that their pursuit of what they are entitled to would be rendered futile. 

47.I will deal with Miss Cheung’s four points briefly but specifically.  The last point first.  I have already dwelled in some detail on the strength of the plaintiff’s claim to copyright of the Game as the employer, as compared with the defendants’ bare denials of their being employed. 

48.The first and second points of her arguments can be dealt with together.  While the injunctions that are sought by the plaintiff may have the effect of disposing of the action entirely in the sense that the plaintiff having obtained the injunctions may have little interest or incentive to pursue its action to the trial, it does not mean that the defendants may not wish to proceed to trial.  Indeed, according to their assertions, they have a claim against the plaintiff and/or Boniface for a substantial quantity of shares in the plaintiff or Emagist Cayman.  I do not see any possibility that such a substantial claim will be thwarted or discouraged by the injunction orders.

49.I do not understand why Miss Cheung argues that the defendants would not have the opportunity to be compensated in damages if it turns out that the interlocutory injunctions are wrongly granted, or that it may not be commercially viable for the defendants to press the matter to trial.  The plaintiff had the track record before the defendants’ activities in August 2012 complained of in administering and updating the Game profitably, and it is well prepared to continue to do so when the control of the Game is returned to it.  Indeed Miss Cheung’s argument or comments could well be made if the Game remains to be controlled, administered and updated by the defendants.  The recent figures after their taking over in August 2012 tell against them rather than the plaintiff.  I have something further to say on this under the heading of “Balance of convenience” below.

50.Regarding the opportunity to be fairly compensated, by itself and linked together with Boniface’s alleged misappropriation of the plaintiff’s money, which is argued as casting serious doubt on whether the plaintiff would be able to honour its undertaking in damages, I consider that this worry would be fairly and safely addressed by ordering the fortification of the undertaking by having a large sum of money kept untouched in a bank account.  During argument, I have already suggested a substantial sum of $23 million be kept in a fixed deposit account in a bank as fortification for the plaintiff’s undertaking as to damages.  I consider this sum would be sufficient to put the personal defendants’ hearts at ease because it represents roughly the plaintiff’s profits for the past years plus two more years’ net profits from the operation of the Game for their alleged total shareholding of 52.5%.  The sum would be good enough for compensating them, if I am wrong, for their loss of profits for about two years, the generously estimated time span required for an action to reach trial.

Balance of convenience

51.Furthermore, the balance of convenience is also in favour of the plaintiff.  Miss Cheung has told me, in support of her summons for altering the undertaking given by Ryan, that the 3 defendants creators were working flat out to keep the Game on Facebook running, because they did not have the permission of the court to withdraw the money in the bank account run by Ryan into which all the income from the Game has been deposited to employ others to do the job, especially that for updating the Game.  On the other hand, the plaintiff’s case is that there is no difficulty for Boniface to get qualified personnel, including some of the deponents of the affirmations filed on behalf of the plaintiff, to look after the Game and update it so as to maintain its popularity amongst online players.  Miss Cheung’s argument based on the reference to the plaintiff currently only having 11 staff left and that “there is simply not enough manpower to restore the games and keep it developed and updated as before” takes the matter entirely out of context.  It seems to me that what is important to both parties to this case is not who is in charge of running the Game; what actually matters is that profits can be maintained or even improved.  Since the defendants have been running this game at the end of August 2012, income from Facebook has been on a sharp decline, except for the last period, ie, the second half of November 2012, but nothing has been said as to the reason why.  I consider this a significant factor to weigh against allowing the defendants to retain the control of the Game.

52.Where the profits from the operation of the Game by the defendants are decreasing, the claim of the plaintiff for damages (if injunctions are not now granted) would grow and no evidence has been adduced by the defendants to show that they are financially sound enough to be able to pay such damages as may be found payable to the plaintiff.  This is to be contrasted with the plaintiff’s undertaking as to damages, which is fortified with a fixed deposit of $23 million with a bank.

Conclusion

53.In all the circumstances of this case, I propose to grant both the mandatory and prohibitory injunctions sought by the plaintiff.  I ask assistance of counsel for both parties to put their heads together to draft the orders that will cover all practicalities and workable with their clients, and in the event of their failing to do so, at least disputes and differences can be crystallised for my decision.  I am grateful to counsel for the drafts prepared by them based on which I make an order. 

54.Since injunctions are to be granted, the defendants’ undertakings given to the court on 14 September 2012 are no longer needed.  However, these undertakings should continue to be extant and valid until the completion of the handover referred to in the order I make.  The summons dated 14 December 2012 to alter the terms of one of the undertakings is rendered unnecessary and futile.  It is dismissed.

55.Having heard counsel on costs, I make the following orders.  There be no order on the costs of the said summons dated 14 December 2012.  There be no order as to costs on the proceedings before Au J on 14 September 2012 and before Deputy High Court Judge Sakhrani on 17 October 2012.  The costs of the application for interlocutory injunctions, excluding the costs aforesaid, be the plaintiff’s costs in the cause, with a certificate for two counsel.

Mr Neville Sarony SC and Miss Angel Lau, instructed by Or & Lau, for the plaintiff

Miss Janine Cheung and Mr Alvin Tsang, instructed by S H Chan & Co, for the 1^st to 6^th defendants