XCHRX NINTENDO OF AMERICA INC v. BUNG ENTERPRISES LTD.

HCA 1189/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1189 OF 2000

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J U D G M E N T

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1. In 1997 the plaintiff brought an action against amongst others, the defendant in the United States District Court Central District of California, Western Division in the United States of America under Case no. 97-8511GAF(VAPx). The subject matter of that action was the claim for contributory and vicarious liability for copyright infringement, trademark infringement and unfair competition in connection with the manufacture, marketing, sale and distribution of videogame copying devices. The action was defended by the defendant who also brought a counterclaim against the plaintiff. For the purpose of this hearing, it is conceded that the defendant had a meritorious defence in the US proceedings. The action proceeded to a stage where the Court in the United States had made certain order of discovery against the defendant which the defendant thought was too onerous and unfair. The defendant decided not to comply with the order and not to take any further part in the proceedings. As a result default judgment was entered against the defendant in September 1999. The defendant after consulting its lawyers in the United States decided to apply to set aside the default judgment and on 20 October 1999 succeeded in doing so on terms. The terms were that (a) the defendant would have to pay the sum of US$50,645.98 being the legal cost incurred by the plaintiff between 1 August 1999 to 14 October 1999 to the plaintiff before 29 October 1999; (b) providing all documents previously ordered by the Court to be disclosed by 22 October 1999; and (c) making all witnesses available for dispositions be taken in Los Angeles by 13 December 1999. The defendant did not consider that the terms of the order were right and fair and decided not to comply with the order. In particular the defendant considered that the imposition of the term of payment of US$50,645.98 was too onerous in that such payment would deprive the defendant with funds to continue to fund its litigation in the States. As a result the Court ordered judgment be entered against the defendant again on 15 December 1999.

2. By the terms of this judgment, the Court ordered that the plaintiff be entitled to recover the sum of US$7,480,980.00 and interest on the said sum as provided by law and cost from the defendant. The Court also granted an injunction against the defendant.

3. In this action brought by the plaintiff in Hong Kong, the plaintiff sought to recover from the defendant the amount of US$7,480,980.00 awarded by the judgement of the Court in the United States. The plaintiff also asked for interest under Section 48 of the High Court Ordinance.

4. The plaintiff applied for summary judgment against the defendant.

5. It is trite law that a judgment of the Courts in the United States for a monetary sum may be enforced by an action suing on the judgment at common law in Hong Kong. There are a few requirements for the action to succeed. First the Court granting the judgment must have the jurisdiction to adjudicate on the cause giving rise to the judgement. Secondly the judgment must be final and conclusive according to the law of the Court granting the judgment, and in this case, it is California of the United States. Thirdly the judgment must not be impeachable according to the private international law here.

6. Insofar as jurisdiction of the Court in California is concerned, plainly that Court has the jurisdiction to adjudicate on the action brought by the plaintiff. To say the least, the defendant must have submitted to the jurisdiction of that Court by bringing a counterclaim and by using its procedure in applying to set aside the judgment of September 1999.

7. The main contention of the defendant in this case is that the judgment is not final and conclusive. The defendant contended that the judgment was not given by the Court after a consideration of the merits of the claim and in fact there was no investigation by the Court of the merits of the claim at all. It was also contended that the judgment was not final and conclusive because it may be set aside by the trial Court upon a reconsideration motion or overturned on appeal.

8. The defendant relied on the observation of Lord Watson in Nouvion v Freeman (1889) 15 App. Cas. 1 at page 13 that the Court would refuse to recognise a judgment because it is not final and conclusive on the ground that "it might be at any time recalled or modified by the Court of Session on just cause shown". However I am of the view that the observation must be looked at in the context of the judgment which Lord Watson had to consider. In Nouvion's case, the Court would have to consider a judgment of the Spanish Court which was known as a "remate" judgment which was a judgment after consideration of limited issues and which was liable to be reconsidered in "plenary" proceedings where the whole merits of the matters might be gone into. Likewise the order of the Court of Session spoken of by Lord Watson as one which the Court would not recognise was one which the Court had retained the power to alter.

9. The defendant also relied on the observation of Lord Diplock in The Sennar (No.2) where he said (at 494A) :

"It is often said that the final judgment of the foreign court must be "on the merits". The moral overtones which this expression tends to conjure up may make it misleading. What it means in the context of judgments delivered by courts of justice is that the court has held that it has jurisdiction to adjudicate upon an issue raised in the cause of action to which the particular set of facts give rise, and that its judgment on that cause of action is one that cannot be varied, re-opened or set aside by the court that delivered it or any other court of co-ordinate jurisdiction although it may be subject to appeal to a court of higher jurisdiction."

In the same case, Lord Brandon commented on the issue whether a judgment which is procedure in nature could be final and conclusive on the merits. He said (at page 499E) :

"The argument in relation to the first contention was that the judgment of the Dutch Court of Appeal was procedural in nature in that it consisted only of a decision that a Dutch court had no jurisdiction to entertain and adjudicate upon the appellant's claim and did not pronounce in any way on the question whether the claim itself, or any substantive issue in it, if it were to be entertained and adjudicated on, would succeed or fail. In my opinion, this argument is based on a misconception with regard to the meaning of the expression "on the merits" as used in the context of the doctrine of issue estoppel. Looking at the matter negatively a decision on procedure alone is not a decision on the merits. Looking at the matter positively a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned."

10. However it is well established that for the purpose of enforcement by an action in Hong Kong, a foreign judgment may be final and conclusive even though it is an default judgment liable to be set aside in the very Court which rendered it (see Dicey & Morris The Conflict of Laws 13th edition paragraph 14-021). In Vanquelin v Bouard (1863) 15 C B (N S) 341, Erle C J held that it was no defence to an action based on a judgment given by a Court in France that the judgment was a judgment by default for wanting of an appearance by the defendant in the Court and by the law of France, the judgment would become void as of course on an appearance being entered. In so holding, the Chief Justice said (at page 367-368) :

"I apprehend that every judgment of a foreign court of competent jurisdiction is valid and may be the foundation of an action in our courts, though subject to the contingency, that, by adopting a certain course, the party against whom the judgment is obtained might cause it to be vacated or set aside. But until that course has been pursued, the judgment remains in full force and capable of being sued upon."

Thus the fact that the judgment is a judgment by default whereby the Court may have the power to set it aside is no ground for saying that the judgment is not final and conclusive for this purpose. The defendant cannot improve its position by refusing to comply with the procedural requirement of the foreign Court or refusing to defend an action properly brought against him in a foreign Court.

11. In my view the apparent conflict between the observation of Lord Diplock quoted above and the observation of Erle C J could be reconciled. In my view when Lord Diplock said "its judgment on that cause of action is one that cannot be varied, re-opened or set aside by the Court that delivered it or any other Court of co-ordinate jurisdiction" he was referring to cases where the Court delivering the judgment had intended that the effect of its judgment was merely provisional such as in cases when the Court had reserved the jurisdiction to vary or set aside the judgment. Certainly he could not be referring to situations where the judgment was obtained in default of defence or when one party failed to appear and thus was liable to be set aside under Order 19 rule 9 or Order 35 rule 2.

12. In the present case, it would appear that after the default of the defendant, the Court in California directed the plaintiff's counsel to draw up the judgment and finding for the Court's consideration and the Court after consideration pronounced the judgment with finding of facts. The uncontradicted evidence before me is that it was possible to file a motion to alter or amend a judgment in that Court, however this would have to be done within 10 days after entry of the judgment. The time for so doing had expired. Although there was also power under Rule 60 of the Federal Rules of Civil Procedure to obtain relief from a final judgment on some very narrowly defined grounds by filing a motion for such relief within a reasonable time, no step had been taken at all. All that the defendant had adduced before me by way of evidence was a statement from its attorney in the US that the defendant planned to seek reconsideration of the default judgment and planned to appeal if the reconsideration motion should fail.

13. In all the circumstances I am of the view that there is no triable issue that the judgment sued upon was a final and conclusive judgment on the merits in the sense that it was res judicata by the law of California and had determined the controversies between the plaintiff and the defendant in the proceedings in California.

14. It is also argued that the judgment ought not to be enforced here because the proceedings in which the judgment was obtained were opposed to natural justice in that the defendant was not given an opportunity to present its case on the merits before the Court in California. On the evidence put before me, I am of the view that there is completely no merit in this point. As I have briefly summarised above, the defendant instructed its attorney to apply to set aside the default judgment and had succeeded in so doing on terms. Plainly the defendant had ample opportunity of presenting its case on the setting aside of the order. The terms of the order setting aside the default judgment were known to the defendant. The fact that the defendant thought that the order was wrong does not mean that the judgment given in default of compliance with the order is rendered unenforceable because it was unfair. It was not suggested that there was no machinery of appeal against the terms imposed by the Court. However the defendant deliberately decided not to comply with the terms of the order well knowing that the consequence must be that default judgment might be entered against it. Indeed even though the order provided the opportunity for the defendant to make submission, according to the 2nd affirmation of Mr Leung Yiu Choy, the defendant had decided not to take up that opportunity. However from exhibit LYC-30 of the 3rd Affirmation of Leung Yiu Choy it would appear that the defendant's attorney in the US did take the opportunity of raising certain objections to the draft of the plaintiff's counsel before the judgment was finalised by the Court. In the circumstances, I am not convinced that there is even a triable issue on whether the defendant was given a fair opportunity to present its case on merit.

15. The defendant further contended that the defendant was not given a fair opportunity to present its case on merit because the Court in California had ordered the defendant to pay a large sum of money as cost before the defendant would be allowed to continue to defend the action. It is said that this would tantamount to shutting out the defendant altogether because of the financial inability of the defendant to meet the payment. There are two answers to this contention. First, on the facts before me, the evidence filed in the Mareva proceedings did indicate that although the defendant as a company might not have the means of meeting the payment, the shareholders and directors of the defendant certainly would have the means of meeting such payment. Hence it is not a case that the defendant could not even raise the money to comply with the Court's order. Secondly in any case, I would consider that the question of the means of a party is something personal and peculiar to the litigant, and even though because of this personal financial constraint a party could not participate in the litigation it does not mean that in that litigation the litigant did not have the opportunity to present its case. It certainly has the opportunity although for reason peculiar to him, he would not be able to take it up.

16. However the defendant contended that breach of natural justice was not limited to the requirements of due notice of the hearing to a litigant and opportunity to put a case to the foreign Court. The defendant went on to contend that what happened in this case and particularly the way that the judgment was drawn up would indicate that there was a breach of the English Court's view of substantial justice in that the finding of facts recorded in the judgment as well as the assessment of the damages was not done by the Judge but was done by the plaintiff's attorney.

17. The defendant relied on the decision of Adams v Cape Industries Plc [1990] Ch 433. In Adams' case the plaintiff obtained a judgment against the defendant in the Court of Tyler in the USA and sought to enforce the judgment in England. The defendant resisted the claim on the ground that the Court of Tyler did not have jurisdiction. Also as an additional ground, the defendant contended that the way that damages was in fact assessed was done not by the Judge in the light of the evidence put before him as required by the laws of the United States but was done by the plaintiff's counsel in a rather arbitrary manner. The Court of Appeal upheld the decision of Scott J and took the view that there was a breach of natural justice where the foreign legal system contains provisions for judicial assessment of damages and the system was not followed. The reason being that the defendant had a reasonable expectation that there would be a judicial assessment. The Court of Appeal further took the view that the situation was not saved by the fact that the defendant was notified of the assessment and further had the opportunity of applying to set aside the assessment subsequently and had chosen not to do so, because at the time of the service of the default judgment on the defendant, the defendant was not aware of the irregularity.

18. I think however the present situation was quite different from the case of Adams. It is to be noted that the relevant part of the order of 1 November 1999 merely said :

"counsel for Nintendo are ordered to prepared a judgment resolving the entire action and to submit that proposed judgment to the Court no later than November 8, 1999. Bung will have until November 15, 1999, to file any objections it may have to the proposed judgment. Thereafter, judgment will be entered in favour of Nintendo on its complaints and on Bung's counterclaims."

Even assuming that the judgment in its current form was in fact the same as the draft provided by the plaintiff's attorney, there is nothing to show that the Judge in the United States had not exercised his judicial function in approving the judgment. In fact, a cursory comparison of the judgment as approved and delivered by the Court and the draft submitted by the plaintiff's attorney indicated that there were very substantial revisions of the terms and contents on the part concerning the assessment of damages. Furthermore, the defendant was given the opportunity of actually seeing the draft judgment and as I have pointed out there was evidence to suggest that the defendant had raised objections to the issue of damages. In any case even assuming that the defendant had not done so, it was a case that the defendant had chosen not to make any representation on the quantum or indeed on any other part of the findings in the judgment.

19. The defendant had also drawn my attention to the Judge's reasoning on the issue of damages in the judgment and submitted that the reasoning demonstrated that the Judge had acted rather arbitrarily in coming to his conclusion. In my view this contention merely serves to demonstrate that the Judge was wrong in his assessment and it is trite law that in an action brought to enforce a foreign judgment, it is not defence to say that the foreign Court was wrong.

20. In these circumstances, I do not think that the defendant had raised any triable issue and there will be summary judgment against the defendant in the sum of US$7,480,980.00. Insofar as interest is concerned, I think that interest in US dollar is somewhat lower than in Hong Kong dollar. In exercise of my discretion under Section 48 of the High Court Ordinance, I ordered that interest at the rate of 8% per annum be paid from the date of the writ until the date hereof. The plaintiff will also have his cost of the application.

21. There is also a summons for the continuation of a Mareva injunction obtained against the defendant returnable before me. On that issue the defendant would ask for 21 days to file affidavits in support of its application to resist and to set aside the injunction. I will give such direction, and I will further direct that the plaintiff be given 14 days to file any affidavits in reply. The plaintiff had indicated that if I should give summary judgment against the defendant the plaintiff is happy that the Mareva injunction be continued for 21 more days so as to enable the plaintiff to make preparation for execution. I will extend the Mareva injunction for 21 days from the day of handing down of this judgment. Of course the continuation of the injunction is without prejudice to the defendant's right to make an application to have it set aside. There will be no order as to cost for the application for direction and also for the continuation of the injunction before me.