STEELTEX HONG KONG LTD v. STEELTEX SCAFFOLD SERVICES LTD. AND OTHERS

1988, No. A1215

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HEADNOTE

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CIVIL PRACTICE AND PROCEDURE - ANTON PILLER ORDER - INTERLOCUTORY APPLICATION TO DISCHARGE FOR MATERIAL NON-DISCLOSURE - STANDING THE APPLICATION OVER TILL TRIAL.

Where the only discernible purpose of seeking the discharge of an Anton Piller order by reason of material non-disclosure is to enforce the cross-undertaking as to damages, the application will lack the necessary urgency justifying its being dealt with at the interlocutory stage, and should, instead, be stood over until the trial, when not only will the trial judge be able to deal with it more conveniently and without unnecessary waste of court time, but also, he will be in a better position to resolve disputed factual issues.

1988, No. A1215

IN THE HIGH COURT OF JUSTICE

HONG KONG

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BETWEEN

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JUDGMENT

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1. The plaintiff is a company incorporated In Hong Kong. Since 1981, it has been in the business of selling and hiring out scaffolding and formwork materials to construction companies in Hong Kong. An indication of the size of its business can be gathered from the following figures for its annual sales turnover:-

2. From 1982 until at least the end of April 1987, the 2nd defendant was an employee of the plaintiff. While starting off as a clerk with the plaintiff, he in due course became their sales manager. The 3rd defendant joined the plaintiff as a draftsman in 1984, and in due course moved over to the sales side, becoming a technical sales executive.

3. There is a dispute as to the role of the 2nd and 3rd defendants from the beginning of May 1987 onwards. They claim they ceased to be employees of the plaintiff as at the end of April 1987, whereas the plaintiff says that the 2nd defendant continued as its employee till his services were terminated on the 31st December 1987, and the 3rd defendant continued as their employee until 6th February 1988 when his services were terminated.

4. According to the 2nd and 3rd defendants, from the beginning of May 1987 onwards, they were directors of a company known as Willingkon Company Ltd. ("Willingkon") which acted as agent for the plaintiff in finding it customers. Whether the 2nd and 3rd defendants were employees of the plaintiff, or found customers for it through the agency of their company, Willingkon, makes no practical difference for present purposes : whichever role they filled, they would have owed the plaintiff the same duty of fidelity and confidentiality.

5. The 1st defendant is a Hong Kong company which was not incorporated until the 15th May 1987. It, too, is in the business of selling and hiring out scaffolding and formwork materials to construction companies in Hong Kong.

6. Quite what the relationship is between the 1st defendant on the one hand, and the 2nd and 3rd defendants on the other, is not entirely clear from the material so far before the court, but it at least discloses that such relationship was a very close one. The 2nd and 3rd defendants were both sales representatives of the 1st defendant. (See Exhibits "OCK-5" and "OCK-57"). Scaffolding material owned by the 2nd and 3rd defendants was treated as if it were owned by the 1st defendant (see the 2nd defendant's affirmation made the 28th April 1988, at page 15 where it makes reference to Exhibit "CWKS-16"). The 2nd defendant, using the firm name "Luen Lick Eng. Co.", besides being the sales representative of the 1st defendant, is also its agent (see Exhibit "CWKS-20").

7. Despite the fact that both the plaintiff and the 1st defendant have the made-up word "Steeltex" in their names, the 1st defendant is in no way related to the plaintiff, whether as a subsidiary, associate, or otherwise. How it came about that the Registrar of Companies ever allowed the 1st defendant to be registered with a name so nearly resembling that of the plaintiff is not explained on the material before me.

8. Besides being in exactly the same line of business as the plaintiff, the 1st defendant has touted customers of the plaintiff, and got them to become customers of the 1st defendant (Exhibits "OCK-3", "OCK-5" and "OCK-57" illustrate how the 1st defendant did this). Moreover, besides using sales representatives who had also been sales representatives of the plaintiff, the 1st defendant showed on its letter-head a phone number which had been the phone number of the plaintiff.

9. On 11th February 1988, the plaintiff went ex parte before Macdougall J., and got an Anton Piller order, which, inter alia, prohibited the defendants from passing off any business not connected with the plaintiff by the use of the name. "Steeltex" or any colourable imitation of it.

10. At the inter partes hearing before me, the defendants, through their counsel, have indicated their willingness to give an undertaking against passing off. Of course, such an undertaking has the same effect as the continuation of the part of the injunction to which that undertaking relates.

11. Besides the matter of passing off, there is a massive dispute between the plaintiff and the defendants about the ownership of scaffolding material. The defendants contend that scaffolding, hired out by the plaintiff to various customers, really belonged to the 1st defendant which, allegedly, had, in the first place, hired it to the plaintiff. The plaintiff denies ever having hired anything from the defendants, and contends that scaffolding material collected by the defendants from the plaintiff's customers has all along belonged to the plaintiff.

12. The plaintiff further contends that the defendants have plundered the plaintiff's warehouse, whence scaffolding belonging to the plaintiff has been moved by the defendants to premises known as "the Vector Warehouse". On the 19th March 1988, the plaintiff got an order, ex parte, from Garcia J. as the result of which it seized scaffolding material from the Vector Warehouse which the plaintiff says is its. That material seized from the Vector Warehouse is now being held for safe-keeping by the plaintiff's solicitors.

13. There is no application before me to discharge Garcia J.'s order. I am, however, asked to set aside Macdougall J.'s order of 11th February 1988, except insofar as the defendants are agreeable to undertake not to engage in any acts of passing off until the trial.

14. Firstly, I will deal with the remaining injunctions in Macdougall J.'s order, namely, those covered by paragraph 1(b) to (e). Those parts of the injunction forbid the defendants from doing various things in relation to the plaintiff's scaffolding equipment. For example, the defendants must not represent that they are entitled to possession of the plaintiff's scaffolding equipment, nor that the plaintiff has authorised them to resume control of it.

15. The problem with paragraph 1(b) - (e) is that no court can say whether those injunctions have been broken until a trial has resolved the issue of whether the plaintiff or the 1st defendant owns the scaffolding equipment. Thus, those injunctions raise the very issue of conversion which the trial itself will ultimately have to decide. Interlocutory injunctions in such form are impractical by reason of uncertainty. No court can possibly police them until after the trial. The same applies to paragraph 4 of the order which requires the defendants to state in writing the names and addresses of all persons from whom the defendants have obtained scaffolding equipment belonging to the plaintiff and/or any payment for the hiring or use of any of the plaintiff's scaffolding equipment. Naturally, the defendants have not supplied any names and addresses to the plaintiff because the whole case of the defendants is that all the scaffolding equipment in issue belongs to them : that is what the case is largely about. In my view, the orders in paragraphs 1(b) - (e) and paragraph 4 can no longer stand because of the nature of the issues in the present case, and I discharge them.

16. The defendants, in their turn, by their summons, ask me to make directions which are as impractical as the injunctions which I have just said should be discharged. Each defendant asks me to make orders along the following lines, namely, that each defendant should :

17. Customers who have dealt both with the plaintiff and the 1st defendant are already sufficiently bewildered about what is going on, as evidenced, for example, by the letter Exhibit "CWKS-41". If I were to make a direction along the lines now prayed by the defendants, I do not doubt that this would only add to the bewilderment of any such customers who were shown a copy of any such directions.

18. Of course the defendants can deal with their own scaffolding equipment and belongings : they do not need any order from me embodying such a declaration of the obvious. Likewise, subject to one point I am about to make in relation to the 1st defendant, they can collect all debts due to them. The big question, of course - and that is largely what the present case is about - is : What scaffolding equipment belongs to the defendants and which debts are payable to them, rather than to the plaintiff? If I were to make a direction of the type the defendants ask for, I fear some customers might imagine I was declaring that I have found on the ownership issue in favour of the defendants, whereas, the reality is the court has not been seized of that question yet.

19. That one point on which I have reservations about the 1st defendant being at liberty to repossess its own scaffolding equipment and collecting debts due to it, is that, if it wants to pursue either of those courses, it should change its name for the purpose of so doing, because it is difficult to see how it can do anything under its present name without passing itself off as the plaintiff. In this matter of encountering obstacles to the gathering in of its own property and collecting debts due to it, the first defendant is really the author of its own misfortunes for having chosen a name so nearly resembling that of the plaintiff. For a company to change its name is not difficult. Once the name has been changed, then the 1st defendant under its new name can go ahead, gathering in its property and debts without running the risk of passing off its services for those of the plaintiff.

20. Although the 1st defendant is entitled to gather in its own property and collect debts due to it, (so long as it does not pass itself off as the plaintiff), there are in practice going to be impediments in the 1st defendant's way. Any customer which has been common both to the plaintiff and the 1st defendant is likely to interplead in the face of an action from the 1st defendant brought before the conversion issue between the parties to the present proceedings has been resolved. Because of the chaos caused by the similarity in the names of the plaintiff and the 1st defendant, it is conceivable that at some stage it might become appropriate for a receiver to be appointed to sort out the mess. The appointment of a receiver might be particularly appropriate in a case like the present where the goods in issue are in the nature of fungibles. Steel scaffolding equipment and formwork are manufactured in standard sizes according to standard specifications. As I was given to understand the situation, these types of goods lack identifying marks whereby one could tell which load of scaffolding equipment or formwork is yours and which is mine. In the same way that someone with money in the bank does not expect to be paid with the very coins or banknotes he deposited, an owner of scaffolding does not care whether he gets back the very scaffolding he hired out; as long as he gets its equivalent, he should be perfectly happy.

21. The fact that one is dealing with fungibles here goes a long way towards explaining why paragraphs 1(b) to (e) of the order of 11th February 1988 were so impractical to enforce - one would be likely to encounter great difficulty in identifying a particular item of scaffolding or formwork as belonging to the plaintiff or the 1st defendant. There should be no great problem in the court ultimately deciding what volume of those bulk goods belong to each of the plaintiff and the 1st defendant, but the court will not have to concern itself with which one owns a particular piece of scaffolding or formwork.

22. Having dealt with the matter of discharge of the injunctions, I now turn to the second matter which is whether the ex parte Anton Piller order should be discharged.

23. Counsel for the defendants addressed the court for over a day in support of his summons that the ex parte Anton Piller order should be discharged on the ground of material non-disclosure. There was absolutely nothing urgent about that application for the discharge of the Anton Piller order. The Anton Piller order was executed as long ago as 12th February 1988. On that occasion, solicitors for the plaintiff seized a large quantity of documents such as customer lists and quotations belonging to the plaintiff from the 1st defendant's premises and from the brief-cases of D2 and D3. What significance there was in such documents of the plaintiff being in the possession of the defendants will be for the trial judge to decide. The only question arising now, as far as I was made aware, is whether the plaintiff should make good on its cross-undertaking as to damages if it turns out that the Anton Piller order was wrongly obtained through material non-disclosure. The sort of non-disclosure alleged is whether, for example, Mr Ong, the director of the plaintiff who made the affirmation in support of the ex parte Anton Piller order, knew fully about the activities of Willingkon at the time he made that affirmation. In that affirmation, he said, "I vaguely recall having heard about this company before", whereas the defendants dispute that his knowledge at the time he made his affirmation was vague, because he had previously signed cheques in favour of Willingkon. When Mr Ong spoke about Willingkon in his affirmation, it was in the context of Willingkon having taken over the plaintiff's telephone. Whether his knowledge of that company should have been better than vague in the context of the taking over of the plaintiff's telephone is something very difficult for a judge to determine on the strength of affidavit evidence alone. The judge who, in due course, conducts the trial will be in a far better position to decide on the state of Mr Ong'sknowledge at the material time than I am now. The situation before me is indistinguishable from that in Dormeuil Freres SA and Dormeuil Limited v. Nicolian International (Textiles) Limited⁽¹⁾, a case heard by Sir Nicolas Browne-Wilkinson, V-C, where it was agreed an inter partes injunction should continue until trial, and the issue was whether an Anton Piller order should be discharged for non-disclosure. Because of the lack of urgency, and because of the difficulty of arriving at findings of fact in interlocutory proceedings, the Vice-Chancellor ordered that the issue of the discharge of the Anton Piller order should be stood over until trial. That is the order I am going to make in the present case. I do not think that such an order would in any way conflict with Hong Kong Court of Appeal cases by which I am bound. The cases I have in mind are Peter Oswald Scales & Anr. v. William H.H. Wong & Anr.⁽²⁾; Intercontinental Housing Development Ltd. v. Quek Teck-huat & Ors.⁽³⁾; and Citibank N.A. v. Express Ship Management Services Ltd. & Anr.⁽⁴⁾. In those cases, the issue was whether an ex parte order should be discharged, and not when. Moreover, none of the defendants in those cases agreed that they should be bound by an injunction (or its equivalent, an undertaking) until trial.

24. In support of his views in the Dormeuil case, the Vice-Chancellor was able to pray in aid the support of Lord Justices Kerr and Dillon in Booker McConnell plc & Anr v. Plascow & Ors.⁽⁵⁾.

25. As I have already indicated, over a day of court time was taken up in the present case by counsel for the defendant arguing that the Anton Piller order should be discharged for material non-disclosure. Anyone familiar with the courts will be aware that frequently much longer periods than that are spent on this type of issue in interlocutory proceedings. An awareness is now dawning that, by allowing protracted argument at the interlocutory stage over whether there has been material non-disclosure on applications for Anton Piller orders, the courts have, in effect, created something in the nature of a Frankenstein which is consuming vast amounts of valuable court time to very little worthwhile purpose. Such applications for discharge can be dealt with far more expeditiously and conveniently at trial. Had I been aware of the Dormeuil decision at the beginning of the hearing before me, I would, at the outset, have stood the application to discharge the ex parte order over until the trial. That is what I intend to do in future if similar applications come on before me.

26. The only question remaining is the precise terms of the order I should make. Normally, I would have been prepared to accept the defendants' undertaking to refrain from any acts of passing off until trial and have discharged the injunction. In the present case, I am not disposed to discharge the injunction. If I were to discharge the injunction, it would create opportunities for the defendants to engage in the type of psychological warfare which the plaintiff's solicitors have seen fit to engage in under cover of orders from the court. The particular instance I have in mind is the plaintiff's solicitors' letter, Exhibit "CWKS-40". Instead of simply sending copies of the court orders to speak for themselves, the plaintiff's solicitors have sent a letter which could easily be interpreted by recipients to mean that the 2nd and 3rd defendants would somehow be doing something wrong if they carry on any business in relation to scaffolding equipment. I do not condone that letter. Nor do I grant to create a situation where the defendants might see fit to inform customers common to both the plaintiff and the 1st defendant that the injunctions have been discharged. If the defendants were to say that, the statement would be literally true, but would he highly misleading unless the defendants went on to explain how they were still bound by an undertaking not to pass off the services they offer as though they were the plaintiff's. To forestall the possibility of confusion becoming worse confounded, I think the safest course is for me to order that paragraph 1(a) of the order made by Macdougall J. on 11th February 1988 is to remain in force until trial or further order, and I order accordingly.

27. As requested by both sides, I also direct that there should be an early trial.