A-TARGET INC v. KALON LTD t/a CITITIME CORP AND OTHERS

Headnote

                More on section 9 of the Copyright Ordinance (Cap. 39): consideration of situation where both parties claim benefit of presumption of ownership of copyright in a work.

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JUDGMENT

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Clough, J.A.:

1. The defendants appeal against the summary judgment given against them on the 22nd June 1989 by Deputy Judge Findlay in favour of the plaintiff whereby (1) injunctive and the usual other forms of relief were given to the plaintiff in respect of the infringement by the defendants of the plaintiff's copyright in four drawings of a fog proof mirror and (2) the plaintiff was awarded damages to be assessed in respect of the breach by the first defendant of an exclusivity agreement made between the plaintiff and the first defendant on the 5th October 1988. As regards the second head of relief, the judgment, as entered, is expressed to give liberty to the plaintiff to apply "as to whether the Plaintiff is entitled to further relief on this point or whether the judgment should be against the other Defendants".  We understand that no application has been made for any further relief.

2. The appeal raises two issues, namely whether the judge should have held that the defendants had succeeded below in raising any triable issue in relation to the ownership of the subsisting copyright in the relevant drawings, and whether he should have held that the first defendant had raised any such issue in relation to the subsistence of a legally binding written agreement made between the plaintiff and the first defendant in a document dated the 5th October 1988.  The judge dealt with the contractual issue first in his reserved judgment, as did Mr. Horace Wong for the defendants on appeal.  I will therefore take the same course in this judgment.

The background

3. The plaintiff is a Californian company incorporated on the 23rd June 1988. Mr. Michael Treger ("Treger") is the President of the plaintiff and was its sole shareholder until the 13th January 1989 when he transferred a one per cent non-voting interest to Mr. Avi Sivan ("Sivan"). Treger had met Sivan in or about April 1988 in the United States of America. Sivan had gone to the USA in September 1987 from South Africa where he had various business interests.  The idea of manufacturing and marketing a fog resistant mirror, primarily for use in a shower, came from Sivan who introduced it to Treger.  It was common ground that Treger and Sivan agreed that they would market the mirror through a company to be formed for that purpose which was to be financed by Treger.  The company was to be called Creative Power U.S.A. Inc.  The evidence of Treger was that when the company came to be incorporated it was given the name A-Target Inc. because the name Creative Power U.S.A. Inc. was not available for registration in California.

4. On the 5th June 1988 Treger and Sivan signified their approval on behalf of Creative Power U.S.A. Inc. (which was not then in existence) of a quotation for the preparation of design drawings for the mirror by Mr. Isaac Zaksenberg.  The drawings were paid for by Treger through one of his companies called American Kango Inc.  They were dated the 27th May 1988 and recorded Creative Power U.S.A. Inc. as the client.

5. The next material event was that through Mr. Stanley Blaustein of Hanna Enterprises Inc. ("Hanna"), a New Jersey Company the Zaksenberg drawings and a sample mirror were sent to the defendants with a view to obtaining quotations of prices, shipment dates and mock-up samples to be made from the drawings.  The first defendant is a Hong Kong company and the second and third defendants are its active directors. On the 7th June 1988 Treger received a quotation from the defendants through Hanna in respect of the cost of the mould for the mirror. This was followed on the 30th June by a more comprehensive quotation from the third defendant regarding the price of the mould and other matters which are not now relevant.

6. By the 13th July 1988 the defendants were encountering plastic injection problems in connection with the manufacture of the mirror in accordance with the Zaksenberg drawings.  In the same month Mr. Bruce Kapilevitch ("Kapilevitch"), who resides in South Africa, was commissioned to prepare new drawings for the mirror.  The defendants sought below and on appeal to contest Treger's evidence that he had commissioned Kapilevitch to make the drawings. Suffice it to say at this stage that Kapilevitch produced four drawings (MT 18-21 to Treger's first affidavit and AS 7-10 to Sivan's affidavit) of various aspects of the revised design for the mirror. MT21 was dated the 14th July 1988 and indicated the client as "Creative Power U.S.A. Inc.". MT 18, 19 and 20 were dated the 20th July 1988 and indicated the client as "A. Target".

7. The fees of Kapilevitch were paid by Treger. He deposed that he made the payment on the plaintiff's behalf. On the 20th (it could be the 27th) July 1988 Kapilevitch executed an acknowledgment in manuscript under his hand confirming that he had been commissioned by Treger to "design the fog-free mirror.... according to his specifications".  He went on to say "Therefor Mr. Treger owns all the rights of the above mentioned device and sale rights for distribution and marketing."

8. Thereafter, by an "Assignment of Invention" dated the 15th August 1988 Kapilevitch, describing himself as the inventor of an invention entitled fog resistant mirror, assigned to the plaintiff ".... the entire right, title and interest in and to the said invention and all rights, emoluments and advantages whatsoever under or in respect thereof together with the right to apply for the grant of Letters Patent in any country in the world ....".  For the sake of completeness I mention that, much later, on the 17th February 1989, Kapilevitch executed another Assignment under which he assigned to the plaintiff all his interest in his design for the mirror frame "and all improvements therein and all Letters Patent which may be granted therefor throughout the world."   

9. In the meantime the defendants, who were still proceeding with work on the mould work based on the Zaksenberg drawings, indicated, by a fax dated the 27th July 1988 from the second defendant to Treger, that the defendants would complete the mould drawing on approval of the mock-up sample, which was despatched to Treger on the 1st August. However, on the 10th August 1988, after studying the mock-up sample, Treger abandoned the Zaksenberg design drawings and instructed the defendants to produce moulds for the design based on the Kapilevitch drawings of which he sent copies to the defendants.

10. Earlier, on the 26th July 1988, Treger had sent the first defendant and Hanna a copy of a non-circumvention agreement which he had executed on behalf of the plaintiff.  This was rejected by both the recipients as being too harsh in its terms.  Indeed it contained a provision to the effect that the ownership of the moulds would be in the plaintiff who could uplift the tooling and machinery whenever it wished, there being no provision obliging the plaintiff to permit the first defendant to manufacture a minimum number of units before the uplifting. 0n the 19th September the third defendant sent a fax to Treger indicating that the defendants wanted to add three additional clauses to the non-circumvention agreement providing that:

11. Treger countered with a revised non-circumvention agreement expressed to be made between the plaintiff and Cititime Corporation (the trading name of the plaintiff) which he signed on behalf of the plaintiff on the 27th September and sent to the first defendant on the next day.  This form of agreement, like the first draft, was an exclusivity agreement for a renewable period of one year but it included a concession to the first additional clause sought by the third defendant in that it would have precluded the uplifting of the moulds by the plaintiff until it had ordered 100,000 units from the first defendant. There was also provision made to the effect that the 100,000 units were to be ordered at "the agreed price" therein specified.

12. Having been given to understand from the defendants that, whilst they agreed that the plaintiff owned the tooling and the mould and that the first defendant would make the mirror only for the plaintiff, they were reluctant to sign any agreement to that effect because that was not the practice in Hong Kong, Treger sent a fax memorandum in the following terms to the second and third defendants on the 5th October 1988:

                 "Dear Linus/Kenneth,

 

Re the agreement I sent you. I understand that you are wary of signing an agreement with me as this is not usually done in Hong Kong. There are two points that I feel are important that I get in writing and they are

A) That A-TARGET owns the tooling and that A-TARGET will give Cititime a minimum of 100-000 units before moving tooling.

 

B) That Cititime will make the mirror only for A-TARGET exclusively and will not make or assist in making a similar product for anyone else anywhere in the world.

 

Please understand that the two points listed above are purely to safeguard A-TARGET on exclusivity and ownership of the tooling. I would appreciate if you would draft and sign an agreement regarding this matter."

13. The response to this letter was the return of Treger's fax indorsed in type, together with the impressment of the first defendant's chop in the following manner, there appearing also the signature of the second defendant in the space for the authorised signature:

 

"We agree to the above, save and except the agreed payment has not been made to CITITIME, if any, For and on behalf of

CITITIME CORPORATION
(wholly owned by Kalon Ltd.)

 

.............................

Authorised Signature."

14. It is this fax and the indorsement thereon which gives rise to the second issue on this appeal.

15. From the 24th November 1988 until the 12th January 1989 Sivan maintained to the defendants that they should be dealing with him concerning the mirror and that inter alia he was a partner with Treger in the plaintiff company.  This caused considerable difficulties in the negotiations between the plaintiff and the defendants.  The correspondence shows that the defendants were at this time pressing Treger for indemnity against infringement claims.

16. On the 2nd December 1988 Sivan's lawyer in California sent a letter to Treger accusing him of unethical and possibly criminal behaviour in failing to transfer shares in the plaintiff company to Sivan in accordance with a shareholder agreement alleged to have been drafted by Treger's lawyer on the 20th September 1988.  Treger was accused of appropriating Sivan's product and marketing plan and threatened with proceedings to inter alia restrain him selling the mirror in the United States if he did not meet Sivan's demands. Sivan sent a copy of this letter to the defendants who threatened by a fax letter dated the 12th December 1988 to stop the project until matters were "100 % clear".

17. The problem stemming from Sivan's claim against Treger was not resolved as between Treger and the defendants until the 12th January 1989 when Sivan sent a fax letter to the second and third defendants informing them that the dispute between Sivan and Treger was over.   They were now urged by Sivan to go ahead with the project as fast as possible "as we have little time before the Chinese New Year".  The dispute between Sivan and Treger was compromised under a shareholders agreement made between them dated the 13th January 1989 under which Sivan was to be paid U.S.$9,000 over a period of four months "arising out of his services for A-Target Inc." and a percentage of the moneys arising from the gross sales of the fog mirrors which Treger promised under the agreement to employ his best efforts to market, distribute and sell in the best interests of the plaintiff.

18. Despite the resolution of the dispute between Sivan and Treger, the plaintiff's subsequent correspondence with the defendants failed to achieve any effective results. By earlier January 1989 Treger was surprised to discover that mirrors were being marketed in the U.S.A.  He set in train inquiries which ultimately established that, as pleaded in the plaintiff's statement of claim and now admitted by the defendants, they had, without the plaintiff's licence, (1) authorised the manufacture of 38,000 mirrors or parts of such mirrors in accordance with the Kapilevitch drawings between a date prior to the 8th December 1988 and a date prior to the issue of the plaintiff's writ on the 9th March 1989; and (2) sold 22,000 odd mirrors (made in accordance with the same drawings) between a date prior to the 4th November 1988 and a date prior to the 24th February 1989.

19. The plaintiff obtained an Anton Piller order against the defendants on the 9th March 1989 before issuing its writ. Having filed and served its Statement of Claim on the 17th April 1989 the plaintiff duly issued its summons for summary judgment under Order 14 on the same day, the defendants having given notice of intention to defend on the 16th March 1988. At the hearing of the   application the judge had before him a welter of evidence which included Treger's lengthy affidavit in support of the plaintiff's Anton Piller order and evidence of the fruits of the execution of that order. The defendants indicated the matters upon which they sought to rely if given leave to defend by exhibiting a draft defence to the affirmation of the third defendant. The defendants also relied, on the copyright issue, on the affidavits of Sivan filed on the 3rd June 1989 and of his friend Mr. Avrham Ovadia ("Ovadia") a resident of South Africa, in respect of which the court file discloses no record of filing.

20. It was common ground below and on appeal that Sivan's affidavit complied with the formalities required by section 9(l) and (3) of the Copyright Ordinance (Cap. 39). For purposes of section 9 the plaintiff initially relied on an affidavit of Kapilevitch made on the 12th April 1989, a faxed copy of which was exhibited to the affidavit of Mr. Irvine, the plaintiff's solicitor, filed on the 17th April 1989. However at the beginning of the hearing below, on the 6th June 1989, Mr. Garland for the plaintiff conceded that the Kapilevitch affidavit was not duly notarised. He applied successfully to the judge to file a further affidavit of Mr. Irvine exhibiting a faxed copy of a duly notarised affidavit of Treger which defence counsel below (who opposed the admission of the evidence unless the defendants were given an opportunity to reply) and on appeal agreed had been made in compliance with the requirements of section 9 of the Copyright Ordinance.

The document dated the 5th October 1988

21. By the draft defence the first defendant denied that this document created a binding contract. Supported by an affidavit in forensic terms by the third defendant it was proposed to plead in the defence that the first defendant had merely agreed to Treger's request that it should draft and sign an agreement, adding that such agreement was given subject to payment being made to the first defendant for 100,000 pieces. The third defendant also relied on the course of the negotiations before and after the document in question as indicating that it did not create a binding agreement and was at the most an agreement to enter into an agreement.

22. The judge concluded that the document, as indorsed on behalf of the first defendant, did create a binding contract and that the defendants had raised no issues of fact or circumstances that would assist in the interpretation of the document at a trial. He could not find any triable issue on this aspect of the case.

23. The judge made short shrift of the first defendant's contention that it had merely indorsed on the document its agreement to Treger's request that it should draft and sign an agreement.   He considered that if that argument were accepted it would leave the words "save and except the agreed payment has not been made to Cititime, if any" without sense or meaning.  As to the defence argument that (as pleaded in the draft defence) the "save and except" clause meant that the agreement to "draft and sign an agreement" was also subject to payment being made for 100,000 mirrors, the judge concluded that this condition only made sense ".... if one refers back in the document of 5 October to the reference to A-Target giving Cititime a minimum of 100;000 units, and this involves an assumption that this offer was being accepted." The judge's conclusion on this point was:

 

"In the result, what the Defendants appear to be saying is that the endorsement accepts the Plaintiff's undertaking to give the First Defendant 100,000 units before moving the tooling, agrees to the Plaintiff's request to draft and sign an agreement  regarding the recognition that the Plaintiff owns the tooling, regarding the Plaintiff's offer to give the First Defendant 100,000 units before moving the tooling and regarding the matter of exclusivity some time in the future, but will only agree to draft and sign an agreement relating to those matters some time in the future if the Plaintiff agrees to pay for 100,000 mirrors that the Plaintiff has agreed to allow the First Defendant to make before moving the tooling. This proposition only has to be stated to ensure, in my mind, its rejection."

24. The judge said that he would have had no difficulty in coming to the conclusion that the document comprised a binding agreement if the first defendant's indorsement had been confined to "We agree to the above".  As to the following words "save and except the agreed payment has not been made to Cititime, if any " the judge (ignoring initially the words "if any") concluded that they required the indorsement of agreement by the first defendant to be construed as an expression of agreement to Treger's two points but stipulating (as the defence proposed to plead in paragraph 12 of the draft defence) that they would be binding only if the first defendant was paid for the products. This would have been implicit any way, in the judge's opinion, even if the additional words beginning with "save and except" had not been there.

25. As to the words "if any", the judge related them to "agreed payment" and therefore construed the words "if any" as meaning "if any agreed payment". We mention that the judge inadvertently omitted the word "not" between "has" and "been" in the relevant passage, but nothing turns on that.

26. In the agreed absence of any evidence that the price for the 100,000 units had been agreed it was argued below by counsel for the defence that this was fatal to the enforceability of any agreement in the document. The judge rejected this argument in the following passage in his judgment:

 

"I do not believe that this argument is valid. The document of 5 October did not purport to make definitive proposals regarding the price, delivery, quality or any other terms relating to the right to make the "minimum of 100,000 units" offered to Cititime, and Cititime did not respond on such terms. Indeed, the document did not seek to impose any obligation on Cititime to make the units at all. In my view, Cititime said, by the endorsement, quite reasonably - "All right, we agree to your proposals, but if we make the units for an agreed price, and you do not pay that price, the deal is off." That is a perfectly valid agreement, and does not mean that, in the absence of an agreed price, the other terms agreed are unenforceable.  In fact, one would expect Cititime to rely on the agreement in disposing of the mirrors if the Plaintiff did not pay.".

27. Counsel for the first defendant argued below that the document in question could not have created a binding contract because it contained no provision for either commencement or duration and so if it were given effect it would subsist in perpetuity. The judge rejected this argument, saying:

 

"In so far as the agreement recognised the Plaintiff's ownership of the tooling and prevents the Defendants from supplying others, there is no reason why this should not bind the Defendants permanently, providing that the Plaintiff complies with its bargain.  Apart from this, the agreement does not impose any positive obligations on the Defendants. Even if it did, these positive obligations could be shed on reasonable notice to the Plaintiff. There is certainly no obligation, arising from this agreement, requiring the Defendant to make mirrors for the Plaintiff for ever."

28. On appeal Mr. Wong for the defendants argued that the judge was wrong to find that there were no triable issues raised by the first defendant as to whether the parties had made or intended to make any binding contract by the document in question.  He contended that, objectively considered, the conduct of the parties before and after the 5th October 1988 showed that the document of that date was not intended by the parties to be a binding contract.  The document was, he contended, written and indorsed in the course of negotiations.  He argued that after the defendants had rejected the two draft exclusivity agreements which he had sent to them on the 26th July and 28th September 1988, Treger was prepared to leave the future drafting of an agreement to the defendants but intended by his letter dated the 5th October 1988 merely to highlight two important points to be included in the agreement. Furthermore, the defendants had, Mr. Wong submitted, indicated what they wanted by the third defendant's fax dated the 19th September calling for three additional clauses, but these demands were not met or not fully met by the document of the 5th October 1988.

29. It was contended that the pattern of the parties conduct indicated that they contemplated a formal and not a casual agreement dealing with exclusivity. Reliance was sought by Mr. Wong to be placed on a fax which the second and third defendants sent to Treger on the 27th December 1988 at his hotel in Hong Kong suggesting that Treger should get his solicitors to draft an indemnity agreement and send it to the first defendant's solicitors for approval. Mr. Wong submitted that this fax could be related back to the third defendant's fax dated the 19th September 1988 calling for three additional clauses, the third of which related to the defendants' requirement of indemnity against infringement claims.

30. In my judgment this argument has no substance and could not usefully be left to trial. By the 5th October 1988 the defendants had rejected the terms of two formal draft exclusivity agreements and had given Treger to understand that it was not the practice in Hong Kong to execute such agreements. In such circumstances Treger made it clear to the defendants that what was important to him was to get in in writing terms A and B in his letter. He explained the reason for this in the letter and asked the defendants to "draft and sign an agreement regarding this matter".

31. Objectively considered, the conduct of the first defendant in making the indorsement of agreement above the formal chop of Cititime was, in my opinion, consistent only with an intention to agree as legally binding terms A and B in Treger's letter subject only to the saving words which the judge found, and Mr. Wong agreed, added nothing of any significance to the words of agreement. Treger clearly understood this to be the position, because he never came back to the defendants for any formal or other exclusivity agreement.

32. Moveover the defendants did not themselves raise the matter again. Having perused all the correspondence from the 5th October 1988 to the defendant's fax of the 27th December (which is solely concerned with indemnity for infringement claims) it seems to me abundantly clear that the latter document came into being solely as a result of the open dispute between Sivan and Treger over the rights in the mirror. That dispute was not brought to the defendants' notice until on or about the 24th November 1988 and it clearly revived the defendants' interest in the question of indemnity against infringement claims which had not been dealt with in the document of the 5th October 1988.

33. If the words of agreement indorsed on the letter in question resulted in a binding contract, the conduct of the parties thereafter was in in any event neither. here nor there. It may well be that the first defendant now considers that it was imprudent to have indorsed its agreement on the letter, but, in my opinion, it would be unrealistic in a commercial context to conclude that the document dated the 5th October 1988 did not make a binding contract.

34. The second limb of Mr. Wong's argument was in support of the contention that the relevant document gave rise to no more than an agreement to agree. The argument was put in two ways. First it was contended, as it had been contended below, that the effect of the first defendant's indorsement was merely to express agreement to Treger's request that the first defendant "would draft and sign an agreement regarding this matter".   I confess that I have had greatly difficulty in comprehending how it can be said that the judge was wrong or arguably wrong in rejecting this argument in the passages of his judgment I have cited above. It seems to me that his reasoning cannot be faulted. I am unable, with respect, to accept Mr. Wong's argument that the judge when dealing with this point was wrong to consider seriatim the various matters which Treger was putting to the first defendant in his letter of the 5th October 1988; nor am I persuaded that the basis for the judge's conclusion on this point was destroyed by his subsequent conclusion that the words "save and except" etc. effectively add nothing to the words "We agree to the above".

35. The second basis for the "agreement to agree" argument was reliance on all the uncertainties, namely the absence of any provision for the date of commencement, the duration of the agreement, the delivery of the tooling in good condition or the price of the 100,000 units. The question of the delivery of the tooling in good condition seems to me to give rise to no difficulty as it must be the subject of an implied term. As regards the other matters, I agree with the basic conclusions, set out above by the the judge when rejecting the same argument. In particular I agree with his conclusion that the agreement imposed no positive obligation on the first defendant but I prefer to express no opinion regarding possible termination by notice.

36. It was accepted by both counsel on appeal that the transaction was not a contract of sale of goods within section 3 of the Sale of Goods Ordinance (Cap. 26). It seems to me that on final analysis the document in question did not give rise to an agreement to agree of the kind considered in cases such as May and Butcher Ltd. v. The King [1934]2 KB 17 (C.A.) relied upon by Mr. Wong. In my judgment the document gave the first defendant what is called a right of first refusal subject to the exclusivity obligations which it undertook. This type of transaction is recognised by the law as an exception to the general rule that a contract to make a contract is not binding. In Halsbury's Law of England, 4th Ed., Vol. 9 at paragraph 261 the law is stated thus, when dealing with incomplete contracts:

 

"This general rule is sometimes expressed in the form that a contract to make a contract is not binding; but this is misleading, because at common law a contract to make a contract may well be binding".

37. Note 12 to his passage includes a reference to contracts of first refusal which are dealt with at paragraph 236 as follows:

 

"236.         First refusals. Similar to the contract of option is the contract of "first refusal or "pre-emption", whereby one person enters into a contract with a second which provides that if the first person contemplates entering into a certain defined contract or type of contract with anyone, he will first offer to do so with that second person. That type of contract differs from the contract of option in that the first person has made no positive offer; his duty will usually be the purely negative one of not contracting with any third person in the defined respect unless and until he has first offered to do so with the second person; but it is conceivable that his duty may merely be that, if he does so contract with any third person, he will make that contract subject to the second person's right of first refusal."

38. Accordingly I agree with the judge that the absence of an agreed price for the 100,000 units and the absence of a commencement date or term for the agreement do not prevent it from being legally binding. No argument was raised below or on appeal to the effect that the agreement was void for perpetuity under the Perpetuities and Accumulations Ordinance (Cap. 257). Mr. Wong did submit that the first defendant's right of first refusal could have no commercial value because it would have been open to the plaintiff to offer to purchase units at a derisory price and thus stultify the right. Apart from the fact that the law does not concern itself with the adequacy of consideration, it seems to me that there must be an implied term in the agreement that the plaintiff, if he treats with the first defendant under the agreement, must offer a reasonable price and not a derisory price for the units: see Manchester Ship Canal Company v. Manchester Racecourse Company [1901]2 Ch. 37 (C.A.).

39. Accordingly I agree with the judge that the first defendant has not succeeded in raising any triable issue regarding the binding contractual nature of the document dated the 5th October 1988 and that no circumstances are likely to arise which would put a trial judge in a better position to consider this issue.

Ownership of the Copyright in the Kapilevitch Drawings

40. The judge appears to have dealt with this issue, very understandably, on the basis that Treger's section 9 affidavit gave rise to a presumption under section 9(2)(a) of the Copyright Ordinance that Treger's assertion in that affidavit that the plaintiff was the owner of the copyright in the Kapilevitch drawings was true unless he found the contrary proved.

41. Before considering the evidence in his judgment the judge observed that Miss Priscilla Wong, counsel for the defendants, relied on Sivan's section 9 affidavit. In that affidavit Sivan had deposed that the copyright in the drawings was owned by Creative Power Inc., a New Jersey company, which was incorporated on the 28th December 1988 and in which Sivan and a Mr. Amir Benish were the shareholders. The judge mentioned that Miss Wong had also relied on the presumption under section 9(2)(a) for the proposition that he must accept, until the contrary were proved, that Creative Power Inc. owned the copyright in the drawings. Miss Wong evidently submitted that there were two competing presumptions of ownership which meant there must be some uncertainty, and so that matter should proceed to trial to resolve the conflict.

42. After commenting that "The matter is not, unfortunately, as simple as that" the judge went on to consider the relevant evidence and came to the following conclusion:

 

"I conclude that the Plaintiff has established ownership of the copyright in the Kapilevitch drawings. There is nothing in the Defendants' case upon which I can find that there is a triable issue on the allegation of ownership vesting in Creative Power Inc.."

43. It seems therefore that the judge never actually dealt with the question whether there were conflicting presumptions under section 9 in this case, one way or the other, although he initially put the onus on the defendants on this issue.

44. On appeal this aspect of the case gave rise to difficulties. It was mutually conceded by counsel for both sides that Treger's and Sivan's relevant affidavits respectively complied with section 9(l) and (3) of the Copyright Ordinance. It was common ground that section 9 permits any party to proceedings under the Copyright Act 1956 or. the Ordinance to rely on an affidavit made by a deponent in compliance with the formal requirements of that section. Any party to such proceedings is therefore entitled to pray in aid the benefit of the rebuttable presumption arising under Section 9(2): c.f. the terms of section 20 (1) (b) of the Copyright Act 1956 which only confer the benefit of a different kind of statutory presumption on the plaintiff and not the defendant in an action under the Act.

45. For the plaintiff Mr. Garland contended that it would be a bizarre result if the fact that Sivan's section 9 affidavit was filed before that of Mr. Irvine, exhibiting a fax copy of Treger's section 9 affidavit (to replace the defective section 9 affidavit of Kapilevitch which preceded that of Sivan), were allowed to give the benefit of the presumption of ownership to Creative Power Inc. and therefore to the defendants, thereby putting the onus on the plaintiff to rebut the presumption. Mr. Garland said that any "first come first served" approach to the construction of section 9 would reduce copyright litigation to a farce. He submitted that in the present situation both sides must be regarded as having the benefit of a presumption in their favour under section 9, so that there were concurrent presumptions which had to be rebutted in each case by the opposite party.

46. For my part I prefer the argument advanced by Mr. Wong for the defendants to the effect that the section 9 affidavit which is the first to be admitted by the court obtains the advantage of the presumption. Doing my best to construe section 9 (which I understand to be unique to Hong Kong) in the light of section 19 of the Interpretation and General Clauses Ordinance (Cap. 1), it seems to me that this construction does the least violence to the purpose of section 9 which another division of this court held in Phonographic Performance (South East Asia) Ltd. v. California Entertainments Ltd. [1988] 2 HKLR 237 (C.A.) at p.242 I-J to be to provide ".... a convenient shortened procedure for proving copyright and its ownership in the absence of effective opposing evidence." In that case it was held that section 9 did not require a deponent to particularise the grounds for his statement that a named person was the owner of a subsisting copyright. Provided the formalities of section 9 were complied with the presumption arose. The bare denial by the defendant's evidence of the plaintiff's unparticularised evidence of ownership of the copyright was held insufficient to establish a triable issue for purposes of Order 14.

47. If the section is to be construed as permitting competing section 9 affidavits filed on behalf of two or more litigating parties to give rise to conflicting presumptions relating to the same issue, namely the ownership of the subsisting copyright in a particular work, the result must, in my opinion, be the effective stultification of the purpose of the section, because the means would be available to, in effect, cancel out the presumption. As soon as one party filed its section 9 affidavit the other party or parties could do likewise.

48. If the benefit of the presumption goes to the first party to file its section 9 affidavit the result would, in my opinion, not be disastrous to plaintiffs or prosecutors who conducted their litigation with diligence and expedition. The plaintiff or the prosecutor has the initiative at the outset of copyright proceedings. In the present case a problem has arisen because the Kapilevitch section 9 affidavit was defective. If it had complied with the formal requirements of section 9 when originally admitted by the court, the plaintiff would, on the construction of section 9 which I favour, have had the benefit of the presumption and the onus of rebuttal would have been on the defendants.

49. I am fortified in this approach by the wording of section 9(2) which provides that where the affidavit is admitted the court ".... shall presume, until the contrary is proved" inter alia that the statement regarding ownership of the copyright is true. Thus in the Phonographic case at p.243 H-I it was held that section 9 ".... positively required proof to the contrary before the presumption of ownership arising in favour of the plaintiff could be rebutted.". "Proved" is a word with a decisive connotation. It follows, in my opinion, that if party A files a section 9 affidavit in copyright proceedings against party B stating that the subsisting copyright in the relevant work is in A, then party B is required by section 9(2) to prove that the ownership is not in A but in some other owner. If B files an affidavit, albeit in compliance with the formal requirements of section 9, stating that B is the owner of the copyright in the work, any rebuttable presumption arising to that effect cannot be regarded as proof contrary to and effectively rebutting the presumption which has previously arisen in favour of A.

50. I accept that the existence of conflicting presumptions on what is in substance the same issue is not unknown. Thus the presumptions arising under sections 46, 47 and 48 of the Dangerous Drugs Ordinance (Cap. 134) conflict with the common law presumption of innocence. However I am unable to accept that it could have been the intention of the Hong Kong legislature to permit or create a situation where there could be concurrent conflicting statutory presumptions regarding ownership of copyright in proceedings under the Act or the Ordinance.

51. Accordingly I have approached this appeal on the footing that the judge should have considered the evidence concerning the the ownership of copyright in the drawings on the basis that the defendants had the benefit of the section 9 presumption. I hasten to add that he was never asked to do this by counsel for the defendants, but it seems to me that, in a situation where all the evidence was on affidavit, it was open to the defendants to take the point on appeal, particularly as it was raised by the court.

52. Mr. Wong contended that if the court favoured his argument on the section 9 issue, the the defendants were automatically entitled to leave to defend. I am unable to accept that proposition. The plaintiff having complied with the requirements of Order 14 rule 1 and duly applied for summary judgment on the ground that there was no defence to the action, the effect of rule 3 was to shift the onus to the defendants to satisfy the court that there was "an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial" of the plaintiff's claim. In deciding whether or not the defendants had discharged that onus in relation to the copyright ownership issue the court was required to give full weight to the fact that if there were a trial of that issue the onus of proving ownership would be on the plaintiff which would have to rebut the presumption that had arisen in favour of the defendant.

53. If the only evidence on this issue had been formal section 9 affidavits filed on behalf of each party, without any evidence to substantiate the competing assertions of ownership, I accept that the defendants, having the benefit of the section 9 presumption, would have been entitled to leave to defend on the copyright issue. However that was not the position. The plaintiff had filed the detailed evidence of Treger on the copyright issue before the section 9 affidavit of Sivan was filed. Both Sivan's affidavit and Ovadia's affidavit contained evidence of the facts and matters relied upon by the defendants as the basis for their assertion that the ownership of the copyright in the drawings was in Creative Power Inc.

54. The court's determination whether this was a case where there was no defence to the action on the copyright issue or whether the defendants had raised a triable issue with the assistance of the section 9 presumption, had therefore to depend on its assessment of all the evidence adduced on both sides on the footing that the onus would be on the plaintiff at any trial of the action - as indeed it would ordinarily be in every trial where no section 9 affidavit has been filed and the defence has put the ownership of subsisting copyright in issue.

55. Although the judge seems to have considered the evidence on the footing that the onus would be on the defendants on this issue at the trial, his assessment of the evidence for the purposes of Order 14 was so strongly against the defendants as to make onus not a decisive matter. I agree with the judge's assessment of the evidence before him and consider that even if at the trial of the action the onus were to be upon the plaintiff to rebut the section 9 presumption arising for the defendants' benefit, the evidence as a whole was so overwhelmingly in favour of the plaintiff that the judge was right to conclude, for Order 14 purposes, that there was no defence to the action and that the defendants had not raised a triable issue, even with the aid of the section 9 presumption.

56. The detailed evidence of Treger on the copyright issue was certainly evidence in rebuttal of the section 9 presumption in favour of the ownership by Creative Power Inc. of the copyright in the drawings. He had acknowledged, in his evidence in support of the Anton Piller order, that the idea of manufacturing and marketing the mirror came from Sivan and that they had agreed to market it through a company to be called Creative Power U.S.A. Inc. to be formed for the purpose, which Treger was to finance. He also acknowledged that the Zaksenberg drawings had been purportedly commissioned for the benefit of the proposed company which was intended to be named Creative Power U.S.A. Inc.

57. Treger explained that when the company came to be incorporated in California the name Creative Power U.S.A. was not available for registration in that State and so he had procured the incorporation of the plaintiff company with the name A-Target Inc.. He deposed that he had consulted Kapilevitch in about July 1988 with a view to the preparation of the Kapilevitch drawings and that he had paid Kapilevitch for and on behalf of the plaintiff. The fact that three of the drawings showed "A-Target" as the client and one indicated "Creative Power U.S.A. Inc." certainly indicated a degree of confusion but was not in the circumstances inconsistent with Treger's evidence that Kapilevitch had been instructed by Treger on behalf of the plaintiff which had been originally intended to be called Creative Power U.S.A. Inc.

58. Treger had exhibited to his Anton Pillar affidavit Kapilevitch's manuscript acknowledgment and assignments referred to in the early part of this judgment. He gave a clear account in that affidavit of the dispute between himself and Sivan which had resulted in Sivan's lawyer's letter dated the 2nd December 1988 and ultimately in the shareholders agreement dated the 13th January 1989 by which the dispute had been settled.

59. However all this evidence by Treger on affidavit, although on the face of it credible evidence in support of the plaintiff's pleaded claim that it was the owner of the copyright in the Kapilevitch drawings and in rebuttal of the section 9 presumption in favour of Creative Power Inc.'s ownership of the copyright, had to be assessed for Order 14 purposes against the evidence adduced on behalf of the defendants which went beyond the mere formal assertion of Creative Power Inc.'s ownership sufficient to satisfy the requirements of section 9.

60. The third defendant made an affirmation exhibiting a draft defence which he verified to the best of his knowledge information and belief. He referred to the draft affidavits of Sivan and Ovadia and affirmed his belief in the truth of those affidavits. He went on to contend that those two affidavits showed that Creative Power Inc. was the owner of the copyright in the Kapilevitch drawings. The second defendant made an affirmation in which he formally expressed his belief that the contents of the third defendant's affidavit was correct.

61. In paragraph 3 of the draft defence the defendants denied that Kapilevitch was commissioned to prepare drawings for the plaintiff. It was pleaded that ".... Kapilevitch was in fact commissioned by one Avi Sivan to prepare such drawings. The said Sivan so commissioned Kapilevitch for and on behalf of one Creative Power Inc. whose business was subsequently incorporated in December 1988.". The same paragraph of the draft defence goes on to plead that Sivan and Kapilevitch had known each other since at least 1987 when they were in South Africa and that Sivan had then been involved in a closed company in South Africa called A-Target Import Export CC. In paragraph 4 it was pleaded inter alia that Creative Power Inc. was the owner of the copyright in the drawings.

62. However, in paragraph 8 of the draft defence, after a denial that the Kapilevitch drawings indicated that they had been made for the plaintiff and an averment that Kapilevitch had knowledge of the South African company A-Target Import Export CC, it was pleaded that ".... Kapilevitch was instructed some time in or about May, 1988 in Johannesburg , South Africa, by one Avahram Ovadia, a shareholder of the said A-Target Import Export CC to make" the Kapilevitch drawings.

63. In support of these pleadings on the copyright issue the defendants relied on the evidence of Sivan and Ovadia. In his affidavit Sivan deposed inter alia that he and Ovadia had been involved in several business ventures and that they were partners in the South African company A-Target Import Export CC formed in early April 1987. He mentioned that he and Ovadia had had dealings with Kapilevitch who had dealt with their South African A-Target company. Sivan also deposed that when in the United States in New York City (whence he had gone in September 1987 inter alia to market his mirror) he had conducted some of his business under the name of Creative Power Inc. or Creative Power U.S.A. Inc.

64. Sivan's evidence was that soon after April 1988 he reached agreement with Treger whereby the latter would invest $200,000 in Creative Power Inc. for the purpose of marketing the mirror and Sivan was to provide the idea and manufacturing and marketing information "and work in those areas". After dealing with the Zaksenberg drawings and pointing out, as had Treger, that they were prepared for "Creative Power" as the client, Sivan concluded his evidence in a passage the substance of which the judge set out as follows in his judgment:

"13.     In about June or July 1988, I introduced Treger to Kapilevitch. The latter was instructed to make further drawings for the fog free mirror. Naturally, the work was to be done for Creative Power Inc.

 

14.        Kapilevitch was provided with drawings of Zaksenbery and copies of his drawings [are produced and identified]. This Honourable Court will see that 3 of these drawings bear "A-Target" as their client. I verily believe that since Kapilevitch had always dealt with me via my South African company A-Target, the A-Target therein referred to was the South African Company.

 

15.     After the completion of the Zaksenberg and Kapilevitch drawings, disagreement arose between Treger and myself. I was not consulted when he set up the Plaintiff.

 

16.     Creative Power Inc. was formally incorporated in December 1988....

 

17.     From the above, it can be seen that Creative Power Inc. is the owner of the copyright in the Zaksenberg and Kapilevitch drawings. At all times material, Creative Power Inc. is the owner of the copyright therein subsisting."

65. The judge looked in vain for any indication in this evidence as the the manner in which it was being alleged that the copyright in the Kapilevitch drawings had become vested in Creative Power Inc. which had not been incorporated until December 1988. He made the following comments on Sivan's evidence:

 

"          Paragraph 13 states the fact of the instructions to Kapilevitch in the passive voice. No attempt is made to inform me who gave those instructions, and this in the face of specific statements in Mr. Treger's affidavit that he consulted Mr. Kapilevitch with a view to preparing the drawings, that he paid for them on behalf of the Plaintiff and that Mr. Kapilevitch gave an acknowledgment that it was he (Mr. Treger) who had commissioned them. It certainly does not follow "naturally" from the fact that some unnamed person instructed Mr. Kapilevitch to prepare the drawings that this work was. to be done for a then non-existent corporation.

 

        While maintaining that the copyright vests in Creative Power Inc., in paragraph 14 of his affidavit, Mr. Sivan seems to be suggesting that, in fact, the work was done for his South African A-Target company. Without explanation, there is a degree of inconsistency in Mr. Sivan's allegations.".

66. I entirely agree with these comments and I regard the evidence of Sivan as thoroughly evasive in the context of Order 14 proceedings where a defendant is required to condescend to particulars of the matters which it relies on as raising any triable issue. It seems to me that the judge could not have put it better when he observed:

 

"          Where I cannot accept the reasoning as to an assertion of copyright, I cannot accept the assertion itself. If the reasoning is faulty, or absent, the statement that 'At all times material, Creative Power Inc. is the owner of. the copyright therein subsisting.' can be given no weight.. Mr. Sivan has not said, and seems deliberately to avoid saying, that he or anyone on behalf of the non-existent Creative Power Inc. was instrumental in having the Kapilevitch drawings created. He has not said in what manner and by what means, if this is what is suggested, Creative Power Inc. acquired copyright in the Kapilevitch drawings at some time after their creation. Where a claimant makes no specific allegations of fact from which the court can find, or infer, authorship or some other basis for a claim of copyright, a court should not accept a bare assertion of ownership where that ownership is in dispute; and this must be especially so where the person in which it is alleged the copyright was vested was a person not in existence when the work concerned was created.".

67. Treating as allegations the somewhat oblique indications in the pleadings and Sivan's evidence to the effect that the copyright in the drawings was owned by the South African A-Target company, there is likewise a complete lack of positive evidence from Sivan that Kapilevitch was instructed by anyone to make his drawings on behalf of that company. Moreover such an allegation must imply that Treger (who is the only person who positively deposes that he instructed and paid Kapilevitch) went all the way to South Africa to instruct Kapilevitch to make drawings for a South African company in which he had no interest whatsoever. Furthermore there is no denial from any defence witness that Treger actually paid Kapilevitch's fees.

68. Ovadia's evidence was of no value to the defendants on this issue. He deposed that in about May 1988 he had been sent the Zaksenberg drawings by Sivan and gave them to Kapilevitch on Sivan's instructions. This is to be contrasted with paragraph 8 of the draft defence which alleges that Kapilevitch was instructed by Ovadia in or about May 1988 to make his drawings. Ovadia refrained from saying positively that he gave such instructions at any time or from denying that Treger instructed Kapilevitch. He confines his evidence on this crucial matter to the following paragraphs:

 

"6.      On or about the 24th June 1988 Sivan personally went back to Johannesburg to discuss with me and Kapilevitch the details of the construction of the fog mirror. Initial drawings were prepared by Kapilevitch and various amendments made.

 

7.       In about early July 1988, Treger arrived in Johannesburg and was introduced to Kapilevitch by me and Sivan."

69. Again this evidence, in so far as it is meant to be relied upon to controvert Treger's assertion that he instructed and paid Kapilevitch on behalf of the plaintiff, simply evades the issue.

70. As the judge emphasised, Sivan did not even condescend to refer to the letter dated the 2nd December 1988 sent by his lawyer to Treger or to the compromise reached between them by the shareholders agreement dated the 13th January 1989. The lawyers's letter did not allege any infringement of copyright in the drawings or that such copyright was owned by Sivan or Creative Power Inc. (which was not then incorporated) but was directed to the failure' by Treger to transfer to Sivan his "shares of stock" in the plaintiff company in accordance with a draft share agreement prepared on the 20th September 1988. Sivan's claim was settled by the shareholders agreement under which Sivan received compensation and the right to a percentage of the plaintiff's receipts for sales of the mirror which Treger undertook to employ his best efforts to market and distribute and sell in the best interest of the plaintiff.

71. The effect of all this on any claim by Sivan or any company of his to the copyright of the Kapilevitch drawings from which the plaintiff was to make the mirror was not even touched upon by Sivan. Furthermore he did not give any evidence to support the contention in his lawyer's letter that he had patented the mirror in South Africa or to controvert the plaintiff's evidence (supported by appropriate documentation) that the plaintiff had registered the design of the mirror in South Africa on the 18th August and applied for letters patent in respect of it in that country on the 17th August 1988.

72. In my judgment, in this state of the evidence before the judge the section 9 presumption in favour of the defendants became academic. It merely put the onus on the plaintiff to rebut it by positive evidence. Not only was positive credible evidence adduced in rebuttal by the plaintiff but the evidence contained in Sivan's section 9 affidavit and in Ovadia's affidavit was confused and evasive.  Although Sivan's affidavit complied with the formal requirements of section 9 it also contained the matters which was relied upon as the basis for the assertion that the copyright in the drawings was owned by Creative Power Inc. or possibly A-Target Import Export CC. Those matters must be taken to have been the matters the defendants proposed to rely upon if given leave to defend the action. They themselves were wholly unsustainable and in a trial the scales must therefore have tipped in favour of the plaintiff on this issue.

73. Mr. Wong for the defendants acknowledged that he was in some difficulty on this issue but contended inter alia that, although the draft defence had not made the point, the defendants should be given leave to defend on this issue because it was not clear how the copyright in the drawings became vested in the plaintiff in the absence of any evidence of any assignment by Treger to the plaintiff before the action began. He also contended that as Mr. Treger wore many company hats it might be that the copyright had become vested in one of his other companies.

74. For my part I am unable to accept these arguments. There was no effective attempt by the defendants to deny that Treger it was who instructed Kapilevitch. In view of his acknowledgment and assignments there could be no realistic possibility of his claiming the copyright in his drawings. For reasons already given, Treger could not have given instructions on behalf of Creative Power Inc. or A-Target Import Export CC. Treger himself has deposed that at the material time he acted for the plaintiff and on behalf of the plaintiff he has sought to exploit the copyright.

75. In these circumstances it seems to me that to give leave to defend to the defendants on this issue would be to permit them to succeed in resisting summary judgment under Order 14 by putting forward a case that was, in the words of Megarry V.C. in The Lady Anne Tennant v. Associated Newspapers Group Ltd. [1979] F.S.R. 298 cited in the Supreme Court Practice Vol. 1 at paragraph 14/3-4/3, "all surmise and Micawberism". As Megarry V.C. observed in that case at p.303:

 

"A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff."

76. Accordingly I would dismiss this appeal and make an order nisi awarding the costs of the appeal to the plaintiff.

Penlington, J.A.:

77. I agree with the judgment of Clough, J.A. and as he has considered the evidence sworn on both sides so fully there is little I can usefully add. I was initially concerned as to the position if conflicting affidavits are filed, relying on the presumption raised by section 9(2) of the Copyright Ordinance. The section is clearly not satisfactory as it stands but I am satisfied that the presumption is raised as soon as any affidavit is filed which complies with. the requirements set out. Any subsequent affidavit must, in itself or together with other evidence, rebut that presumption but, if it does so, I consider it would then be entitled in its turn to raise its own presumption of ownership. That is the case here. The evidence of ownership on behalf of the plaintiff is overwhelming and clearly rebuts the presumption which, by a stroke of good luck, the defendants were able to raise. That being so the plaintiff did not need to rely on any presumption but in my view it was available. Consideration should however be given to amending the section so as to give clear effect to the purpose for which it was based, as set out in Phonographic Performance (South East Asia Ltd). v. California Entertainments Ltd.

Barnett J.:

78. For the reasons given by my Lord Clough, I agree that this appeal should be dismissed.

79. I would add that I am in complete agreement with my Lord's construction of s.9 of the Copyright Ordinance. I do not accept that affidavits, each complying with s.9, will without more effectively cancel each other out. The party which first files such an affidavit will obtain and retain the benefit of the presumption as to ownership.

80. In practice, where ownership is a live issue, the matter becomes largely academic. A properly advised party will place the full range of his evidence before the court. He would be ill-advised to rely on an affidavit which does not more than comply with the bare essentials of s.9. Had this case gone to trial, the plaintiff would undoubtedly have led all available evidence. Had the defendants done no more than rely on their s.9 affidavit, they would have committed forensic suicide.

81. Clearly, disputes as to ownership of copyright will be decided on evidence not on a statutory presumption which was devised as a convenient way of establishing ownership where ownership is not, or not seriously, in dispute.

Clough, J.A.:

82. The appeal is therefore dismissed and we make an order nisi awarding the costs of the appeal to the plaintiff.