AQUA-LEISURE INDUSTRIES INC. AND ANOTHER v. AQUA SPLASH LTD.

CACV 175/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 175 OF 2002

(ON APPEAL FROM HCA NO. 18928 OF 1998)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1. Prior to the appeal hearing, the plaintiffs had filed the following applications which, in chronological order, are (i) a summons to vary the costs order nisi made by this court on 30 October 2002; (ii) a notice of motion for leave to appeal to the Court of Final Appeal; (iii) a summons for leave to amend the notice of motion; and (iv) a summons (1) for an order that the appeal heard by this court on 3 and 4 October 2002 be reinstated and reheard as an alternative to an order granting leave to the plaintiffs to appeal to the Court of Final Appeal; and (2) that the plaintiffs be at liberty upon the hearing of their application for leave to appeal to the Court of Final Appeal (alternatively, their application for reinstatement and rehearing of the appeal) to adduce and rely on the affirmation of Ian Kao Jian Yin ("Mr Kao") dated 24 January 2003 and the affirmation of Douglas D Clark dated 5 February 2003 ("the new evidence") as additional evidence under the Ladd v Marshall principle.

2. At the outset of the hearing, the parties were informed that the court considered that for applications for the reinstatement and rehearing of an appeal, the procedure laid down by the English Court of Appeal in Taylor v Lawrence [2002] 3 WLR 640 at paragraph 56 should be followed. The court had, accordingly, treated the summons and the written submissions for the application in (iv)(1) above as a paper application for permission to reopen and reinstate the appeal heard and determined in October 2002. That application had been refused and the court indicated that it would not entertain oral submissions on the reinstatement application.

3. Save for the application under (iii) which was not opposed, at the conclusion of the hearing, the other applications were dismissed with costs for reasons to be handed down later which we now do.

Background

4. The background facts are to be found in the judgment handed down on 30 October 2002 and I do not propose to repeat them here. Suffice to state that the proceedings before Deputy Judge To were committal proceedings brought against the defendant ("the company") and its directors Impag HK Limited and Connie Lin Ya Ling ("the directors"). However, the company had gone into liquidation prior to the institution of the committal proceedings. Deputy Judge To had found the company and the directors in breach of paragraphs 5 and 7 of the order of Keith J made on 14 May 1999 ("the Keith order") for delivery up within 7 days of the service of that order, certain articles "in the possession, custody, power or control" of the company and also of paragraph 9 relating to an affirmation confirming compliance with the orders in, inter alia, paragraphs 5 and 7 of the Keith order. The directors' appeal from the finding that they had breached paragraphs 5, 7 and 9 of the Keith order was successful. The plaintiffs seek leave to appeal to the Court of Final Appeal and for that purpose that the new evidence be admitted.

The application to admit new evidence

5. It is common ground that for fresh evidence to be adduced before this court, the plaintiffs must satisfy the three conditions laid down in Ladd v Marshall [l954] 1 WLR 1489 at 1491. They are that (1) it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; (2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; (3) the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

6. Substantively, the fresh evidence sought to be admitted was an affirmation from Mr Kao the sales manager of the Guan Pin Factory. At the committal proceedings, the plaintiffs did not adduce any evidence from Mr Kao. Rather, they chose to rely on hearsay evidence from him introduced through their PRC lawyer Lu Fang Ming. See paragraphs 7-12 of Mr Lu's affirmation dated 5 August 2000 where Mr Lu described the raid by the TSB officers on the Guan Pin Factory on 5 July 1999 on which occasion Mr Kao had allegedly made the statements attributed to him in Mr Lu's affirmation. Given those facts, there were obvious difficulties in the plaintiffs' path in terms of satisfying the Ladd v Marshall conditions.

7. Mr Kotewall SC for the plaintiffs submitted that the new evidence does satisfy the first condition because the reason why it was not possible to get Mr Kao to give evidence for the plaintiff at the committal proceedings or before the Court of Appeal was that the plaintiffs had arranged the raid on Guan Pin in 1999 and that Mr Kao had thought that the plaintiffs might take action against Guan Pin and hence, practically speaking, would not have been willing to assist. It was said that two matters have brought about a change in the situation: first, the fact that Guan Pin has terminated its business relationship with the Impag Group and, second, the undertaking given by the plaintiffs not to take further action against Guan Pin if Mr Kao agreed to provide evidence for the plaintiffs to substantiate the plaintiffs' complaint against the company and its directors.

8. It is apparent from the new affirmations that the first time the plaintiffs made contact with Mr Kao was on 12 December 2002 which was one and a half years after the trial and some six weeks after this court had rendered its decision on the appeal. On the evidence, Guan Pin had terminated its relationship with Impag as long ago as August 2000 which was a year before the committal proceedings. There was no evidence that any positive steps had been taken by the plaintiffs, whether prior to the proceedings in August 2001 or the appeal in October 2002, to contact Mr Kao. Equally there was no evidence before us to explain why the offer which the plaintiffs saw fit to make to Mr Kao in December 2002 could not have been made earlier. It is not as if the plaintiffs have only just discovered the existence and whereabouts of Mr Kao and the position he held. In the circumstances, it is plainly not arguable that the first condition laid down in Ladd v Marshall has been satisfied.

9. The third condition proves equally problematic for the plaintiffs: the evidence shows that the plaintiffs did not approach Mr Kao originally because it was not thought that his evidence would be favourable. Mr Kao's apparent willingness to assist now is, in part, attributable to the fact that High Crown, the owner of the Guan Pin Factory, is no longer well-disposed towards the Impag Group whose unpaid invoices allegedly total over US$900,000. In addition, Mr Kao has now been offered an undertaking or guarantee on the part of the plaintiffs that they will not take any further action against High Crown in relation to the production of Aqua Splash products. This involves the abandonment by the plaintiffs of a potentially substantial claim inasmuch as damages of over HK$63 million have been assessed against the company for infringement. In the circumstances, putting it at its lowest, one would need to approach the evidence of Mr Kao with a great deal of circumspection. In other words, it is less than obvious that his evidence is "apparently credible".

10. In my view, the Ladd v Marshall conditions have not been shown to be satisfied and the application for leave to adduce new evidence must be refused.

The application to vary the costs order nisi

11. As noted above, the company was the only defendant in the action but contempt proceedings had been brought not only against the company but also its directors. Having found that the company and the directors had been in contempt of paragraphs 5, 7 and 9 of the Keith order, Deputy Judge To imposed a fine on the company and on each of the directors. The directors but not the company appealed to this court. Paragraph 2 of the order reads:

"2. The Order for contempt of court be set aside save that the order granting the Defendant and the Appellants leave to enforce the costs order awarded in their favour on the application for an order of committal in HCA 18928 of 1998 heard before the Honourable Mr Justice Yeung on 18 April 2001 shall not be set aside;"

12. As drawn, the order has the effect of setting aside the judgment even as against the company which had not brought nor participated in the appeal. Whilst it is true that the company was dissolved long before the appeal hearing which might account for the fact that it took no part in the appeal, no request or submission was made at the appeal hearing to the effect that should the court allow the appeal of the directors, it should exercise its powers under Order 59 rule 10(3) and (4) to set aside the judgment made by Deputy Judge To against the company as well. In these circumstances, Mr Kotewall SC submitted that an error must have occurred in expressing the manifest intention of the court in paragraph 2. I agree. An appellate court would not normally of its own motion interfere with an order made against a party where that party had not participated in an appeal by other interested parties save in exceptional circumstances. No such special circumstances existed in the present case.

13. In my view, there is jurisdiction to correct the error which has arisen under the slip rule since the error was an error in expressing the manifest intention of the court. See 2001 Hong Kong Civil Procedure at 20/11/1. Although the summons as framed was one to vary the costs order nisi, this was on the basis that paragraph 2 was to stand in its present form. The real complaint was about paragraph 2. Accordingly, the order of 30 October 2002 is to be amended by inserting the words "as against the Appellants" in paragraph 2 immediately after the words "contempt of court".

Leave to appeal to the CFA

14. The application is grounded on section 22(1)(b) of the Court of Final Appeal Ordinance. Four questions of great general or public importance as set out in the amended notice of appeal are said to arise. Pausing here, the third question set out in the amended notice of motion no longer arises in view of the amendment to paragraph 2 of the order considered in paragraphs 12 and 13 above. I now turn to consider the remaining 3 questions said to arise.

Question 1

15. The question is framed thus:

"(1) Where peculiar goods manufactured to a defendant's specific order have been produced by a third party factory for the defendant and are in the possession of the third party factory or some other third party, and there is no evidence of payment having yet been made by the defendant for the goods :-

(a) is it impossible as a matter of law for the defendant to have 'control' of and/or 'power' over the goods?

(b) or is the question whether the defendant has 'control' of and/or 'power' over the goods one of mixed law and facts such that whether the defendant has 'control' and/or 'power' in any given case depends upon all the particular circumstances of that case?"

16. As Mr Westbrook SC for the directors correctly pointed out, the question posed in paragraph (a) above simply does not arise: the court did not hold that it was "impossible" to have control over articles where there had been no evidence of payment. The issue was treated as a mixed question of fact and law: factors such as the relationship (if any) between Guan Pin and the company, the absence of evidence of the terms of the contract between Guan Pin and the company, the discretionary nature of the power to order specific performance under the Sale of Goods Ordinance and whether payment had been made were all taken into account in determining whether the company had a right to tell Guan Pin what was to be done. Thus, payment was but one of the matters considered.

17. That a person who has a legal right to the goods would have "control" of the same is a proposition that reflects the test adumbrated by Lord Diplock in Lonrho Ltd v Shell Petroleum Co. Ltd [1980] 1 WLR 627 at 635H. Later Australian cases such as Palmdale Insurance Ltd. v L. Grollo and Co. Pty. Ltd. [1987] VR 113 at 116 and Re McGorm, Ex parte Co-operative Building Society of South Australia (1989) 86 ALR 275 at 278-279 were said to have expressed reservations about the Lonrho test. However, no alternative legal test of "power" and "control" has been proffered based on these authorities. That being the case, I do not see that any clarification of the test arises.

18. Mr Kotewall also submitted that a manufacturer who is asked to produce goods bearing a trademark is arguably under an implied negative covenant not to distribute or sell such goods without consent. Whilst in a passing off action between the manufacturer and the trademark owner, the manufacturer might well face a prohibitory injunction and ancillary order for delivery up, the relationship between Guan Pin and the company was not as between manufacturer and trademark owner, but between manufacturer and the company that had ordered the infringing goods. Quite apart from the fact that Mr Kotewall's proposition is not supported by authority, a covenant not to distribute or sell goods is markedly different from an undertaking to deliver up possession on demand (with or without payment).

19. As for paragraph (b) of question 1, I can discern nothing there that is "general", "public" or "important". It is nothing more than whether, on the facts as proved, a breach of the order for delivery up had been made out.

Question 2

20. This reads as follows:

"Does a delivery up order, made ancillary to an injunction order restraining a defendant from passing off goods, requiring the defendant to deliver up to the plaintiff within a specified time limit goods in his possession, power or control falling within a specified description impose upon the defendant a continuing obligation to deliver up goods falling within the specified description that may come into his possession, power or control after the specified time limit?"

21. The orders for delivery up in paragraphs 5 and 7 of the Keith order were in the following terms:

"5. The Defendant do within 7 days of service of this order deliver up to the Plaintiffs' solicitors all articles ... bearing the name or mark 'Aqua Splash' or any name or mark of which the name 'Aqua' forms part thereof in the possession, custody, power or control of the Defendant.

...

7. The Defendant do within 7 days of service of this order deliver up to the Plaintiffs' solicitors or destroy upon oath or affirmation all articles ... in the possession, power, custody or control of the Defendant, its directors, servants or agents or any of them the use or retention of which would be a breach of the foregoing injunctions."

As a matter of pure construction, the order for delivery up required the act of delivery up to be performed within a specified time. In my view, paragraphs 5 and 7 of the Keith order are not capable of the construction sought to be put upon them by the plaintiffs. See M Petrushkin Limited v Stark's (London) Limited and Another [1971] FSR 310. In that case, the court was faced with a similarly phrased order. In determining whether the order had been breached, Whitford J proceeded on the basis that the relevant articles had to be in existence at the time when the order was made.

22. If, as is suggested by the plaintiffs, such an order for delivery up is unlimited in duration and extends to infringing articles which come into the possession, custody, power or control of the company at any time after the time specified in the order for delivery up, it is unclear what time frame would apply for the performance of the 'continuing' obligation. The absence of a specific time frame for delivery up would mean that there would be no jurisdiction to commit under RHC order 45 rule 5(1)(a).

23. In my view, question 2 does not raise any questions of general or public importance. If the plaintiffs had wanted to prohibit infringing articles from coming into existence after the date of the order or service thereof, a suitably framed prohibitory injunction, sufficiently wide to cover the handling, dealing with, commissioning the manufacture of etc., as opposed to merely the passing off of infringing articles could have been obtained. But that was not the order the plaintiffs sought and obtained from Keith J. They cannot now complain.

Question 4

24. This reads as follows:

"On the issue of hearsay evidence:-

(i) Whether it is mandatory for a trial judge to make express reference to section 49 of the Evidence Ordinance (Cap. 8) ('the Ordinance') in his evaluation of the weight of the hearsay evidence;

(ii) Whether it is mandatory for a trial judge to take into account such circumstances set out in section 49(2) of the Ordinance in his evaluation of the weight of the hearsay evidence even if he has satisfied himself from the other circumstances in the evidence that such hearsay evidence is reliable.

(iii) Whether the failure on the part of the trial judge to make express reference to section 49 of the Ordinance or to one or more of the circumstances set out in section 49(2) of the Ordinance automatica1ly renders his reliance on the hearsay evidence ineffectual."

25. The real question is whether there were sufficient grounds for this court to have come to the view that the Deputy Judge's treatment of the evidence had been defective. It is incontrovertible that in coming to his finding that the directors had breached paragraphs 5, 7 and 9 of the Keith order, the Deputy Judge relied on evidence that not only contained multiple hearsay but which also failed to identify the source of information or chain of evidence. A further consequence was that it rendered ineffectual the rights conferred by section 48 of the Evidence Ordinance on the party for whose benefit that section was enacted. But there was no indication that the judge was even conscious of the fact that the evidence upon which he relied had these problems. Given that the proceedings before him were contempt proceedings and thus quasi-criminal in nature, the lack of any reference to the statutory criteria set out in section 49(1) and (2) of the Evidence Ordinance suggested that no apparent consideration had been given to them. The Deputy Judge's treatment of the evidence was, accordingly, seriously wanting. So, even if the legal issues identified actually arise, they cannot become matters of great general or public importance as they would have no impact on the outcome.

Hon Yuen JA:

26. I agree.

Hon Waung J:

27. I agree.