HONGER MUSIC VENTURE LTD v. LAM ANDREW

HCA 2092/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2092 OF 2009

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JUDGMENT ON COSTS

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The background

1.  This is an application by the defendant for a variation of the Order nisi that the defendant should bear the costs of the proceedings and the application for summary judgment. 

2.  In the amended Statement of Claim dated 12 February 2010, the plaintiff complained that the defendant infringed the copyright of the plaintiff in certain recordings of the defendant’s performance.  The plaintiff alleged that the defendant was in possession of 2 DVD Roms and the defendant uploaded the content therein to the website YouTube in breach of their agreement dated 30 June 2009 (“the Agreement”).

3.  On 22 March 2010 the plaintiff issued a summons for summary judgment.  After hearing arguments on 24 August 2011, I allowed the application on 28 October 2011.  I also ordered that the defendant should bear costs for the proceedings and for the summary judgment application.  The defendant issued a summons dated 24 November 2011 to apply for a variation of the costs order.

The grounds for application

4.  The first contention by Ms Annie SM Lai for the defendant is that the Court should consider the wide range of matters below in making costs order :

(1) The plaintiff did not obtain any damages, which was one of the reliefs sought in the amended Statement of Claim.

(2) The plaintiff wrongfully or unreasonably refused to settle by accepting the HK$30,000 already paid into Court as sanctioned payment.

(3) The plaintiff wrongfully or unreasonably refused the terms of settlement communicated to it by the “without prejudice save as to costs” letter dated 17 November 2009.

5.  Ms Lai’s second contention is that in any event costs should be assessed on District Court scale because the plaintiff exaggerated the extent of damage caused by the infringement of copyright.

6.  Ms Leona PM Chan for the plaintiff did not contend that any of the 3 matters above should not be considered.  She submitted instead that all of the above matters should have little effect on the general rule that costs should follow the event, particularly :

(1) In the application for summary judgment, the plaintiff conceded that it would only receive nominal damages. Accordingly little time was wasted on the issue of damages.  The plaintiff was largely successful in obtaining the remedies sought.

(2) Sanctioned payment should have no effect on costs in proceedings such as these where, inter alia, an injunction and a delivery order are sought.

(3) The defendant’s terms of settlement in the letter dated 17 November 2009 were unreasonable.  The offer of HK$30,000 was insufficient and the term of settlement prohibiting “any commercial exploitation purpose” of the recordings in the DVD Roms defeated the very purpose of the Agreement.

7.  In her reply, Ms Lai conceded that in proceedings such as these, where additional reliefs other than damages are sought, sanctioned payment is not the only factor to consider.  She reiterated that the plaintiff unreasonably demanded HK$1.2 million as settlement condition by a letter dated 23 November 2009.  She submitted that this figure was exaggerated and was far from the actual losses suffered by the plaintiff.  Also, while the plaintiff ultimately abandoned the claim for damages in the summary judgment application, before then both parties treated that part of the claim as a live issue and conducted the proceedings accordingly.  Therefore the plaintiff should bear the costs consequences of its claim for damages.

The first contention

8.  Both parties did not dispute the applicable law to the first contention.  Thus the only issue is how I should exercise my discretion in light of the facts before me.

9.  Regarding the claim for damages, I find it perfectly normal for the plaintiff to make such a claim in the first place.  This is because the plaintiff’s pleaded case, in essence, was that the defendant made available on the internet for free those works the plaintiff intended to sell.  On the pleaded facts, the plaintiff undoubtedly suffered damage as a result, although such damage could not be quantified easily.

10.  The claim for damages might have been abandoned for reasons other than merit such as the desire to resolve the case expeditiously.  The plaintiff cannot be said to have failed in this part of the claim or did not succeed in a significant part of these proceedings.

11.  Regarding the submission that the plaintiff unreasonably refused to settle, the defendant has failed to show either :

(1) the offer of HK$30,000 exceeded or matched the losses suffered by the plaintiff; or

(2) the counter‑offer of HK$1.2 million far exceeded the losses suffered by the plaintiff.

12.  In other words, in order to succeed on this ground the defendant must be able to show what losses the plaintiff suffered.  The plaintiff never quantified its losses, and the defendant was unable to point to any figure.  The defendant only submitted that the losses could not be HK$1.2 million, but this submission was not backed by any evidence.

13.  There is also no evidence to support Ms Lai’s contention that the plaintiff did not have any reasonable chance of obtaining damages of over HK$1 million (§15 in her reply). She submitted that as the plaintiff had no plans to release the recordings on DVD or sell the copyright any loss must be fanciful.  She also relied on a letter dated 26 November 2009 in which the plaintiff admitted that 1.2 million was estimated on obtaining all or part of the performing artists’ consents and the plaintiff had not begun negotiation with these artists.

14.  With respect, Ms Lai’s submissions overlooked the very purpose of the Agreement.  The recordings were meant to be commercialised so the plaintiff’s answer that it had no plan to release the recordings on DVD or sell the copyright must be taken to mean that it had no plan at the moment. This is normal when the recordings are the subject matters of a lawsuit and does not mean that the recordings have no commercial value.  Regarding the letter dated 26 November 2009, again it is normal for the plaintiff to withhold negotiations with artists because of these proceedings.

The second contention

15.  In determining whether the District Court scale should be applied, the defendant must be able to show that the plaintiff exaggerated its claim for the losses suffered.  For the reasons above the defendant failed to establish that the plaintiff exaggerated its claim in any way and this contention must fail.

Conclusion

16.  Both parties invited me to take a broad overview of the matters that led to the current proceedings and I have taken this course when deciding the current application. 

17.  In my judgment, the defendant breached the Agreement by uploading the recordings to YouTube, refused to return the DVD Roms, filed a defence with no merits and resisted the summary judgment application.  These acts significantly delayed and hampered the commercial exploitation of the recordings.  It is probable that the value of these recordings has diminished as a result of the defendant’s conduct in these proceedings.

18.  The defendant cannot say because the recordings currently have little or no value, the refusal to settle must be unreasonable and the claim should have been issued in the District Court.  This is because he was the cause of the diminished value of the recordings.

19.  In any event the proper focus should be on the damage suffered by the plaintiff, not the current value of the recordings.  Damage may be calculated by comparing the value of the recordings with and without the defendant’s breach of the Agreement.  Therefore in order to succeed on either contention the defendant must at least show that even without the defendant’s breach the value of the recordings would still be less than $1 million.  This is a difficult, if not impossible exercise as the plaintiff would have taken an entirely different course of action.  Ms Lai’s submissions regarding the actions in fact taken by the plaintiff is unhelpful for the purpose of ascertaining the actions it would have taken had there been no breach.

20.  Since costs payable to the plaintiff will certainly exceed $30,000 paid by the defendant into Court, this sum should not be paid out to the defendant.

21.  I therefore dismiss the defendant’s application with costs to the plaintiff.