WONG TO YICK WOOD LOCK OINTMENT LTD v. SUN ASCENT DEVELOPMENT LTD AND ANOTHER

HCIP 58/2022

[2024] HKCFI 2706

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 58 OF 2022

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REASONS FOR DECISION

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1.  This is the Defendants’ application by summons dated 26 August 2024 (“the Summons”)  seeking, inter alia, to set aside the ex parte order dated 19 July 2022 granting leave to the Plaintiff, Wong To Yick Wood Lock Ointment Limited (“WTY”), to institute committal proceedings and to issue a writ of sequestration on the ground of material non-disclosure. In the hearing on 25 September 2024, I dismissed the Summons. I now give my reasons.

Background

2.  The 1^st and 2^nd Defendants in the present contempt proceedings, namely Sun Ascent Development Limited (“Sun Ascent”)  and Xu Hualong (“Xu”), are the 5^th and 8^th Defendants respectively in the Consolidated Action (“the Consolidated Action”)  comprising HCA 2589/2014, HCA 562/2014 and HCMP 1550/2014.

3.  On 20 May 2020, judgment for infringement of trade marks and passing-off (“the Judgment”)  was entered by consent against Sun Ascent and Xu and some other defendants in the Consolidated Action with consequential order for disclosure of the details of their infringement activities (“the Disclosure Order”).

4.  It is common ground that Xu and members of his family, including his brother, Hui Wa Him Heusen[1], and one of their cousins, Hui Hiu Kan, who has at all material times been General Manager of Sun Ascent[2], have been operating a web of various companies through which their family has been carrying on business in the development and sales of pharmaceutical products.[3]

5.  In purported compliance with the Disclosure Order in §§5 and 6 of the Judgment, Xu, as a director of Sun Ascent, made a disclosure affirmation dated 28 September 2020 (“the Disclosure Affirmation”), in which he claimed in §9 that Sun Ascent had never sold, supplied or offered to sell or supply to anyone; had never ordered, bought and/or obtained from anyone; and had never received order from anyone the infringing products known as Products C and D, which are respectively described as Version 2 in Annex C and Version 3 in Annex D to the Statement of Claim in the Consolidated Action.  On this basis, he gave a zero figure in §16to all the categories of information which Sun Ascent had been ordered to disclose pursuant to the Disclosure Order.  Xu, however, claimed that it was the 6^th Defendant in the Consolidated Action, Treasure Trend Investment Limited (“Treasure Trend”), which had bought 360 bottles of Product C from Sing & Japan International Technology Limited (“Sing & Japan”)[4]and 10,665 bottles of Product D from Shun Fat Trading Co (“Shun Fat”).

6.  WTY is not satisfied that Sun Ascent and Xu have made full disclosure in the Disclosure Affirmation and applied for leave to institute contempt proceedings against them.

7.  In the statement in support of the leave application (“the Leave Statement”)[5], WTY referred the court to the averments or admissions made by Sun Ascent in its Defence filed in HCA 2589/2014 on 4 June 2015, that: (i)  Sun Ascent sold the infringing goods manufactured by Sing & Japan from around October 2008 until around December 2010 in Hong Kong[6]; (ii)  Sun Ascent sold the infringing goods with modified formula and ingredients from around 2011 until 2013 when it returned the unsold infringing goods to Sing & Japan[7]. These pleaded facts were verified by a statement of truth signed by Xu. Similar averments or admissions were repeated in §§20(c)(iv)  and 20(c)(vii)  of the Defence and Counterclaim filed in the Consolidated Action, again supported by a statement of truth signed by Xu.

8.  In the Leave Statement, WTY claims that, in view of the clear admissions made by Sun Ascent and Xu, they could not have complied with their obligations under the Disclosure Order.  This is the charge against Sun Ascent and Xu in the present contempt proceedings.

The relevant legal principles

9.  Before I address the grounds for the complaint of material non-disclosure, I first deal with the relevant legal principles.

10.  The parties have dispute over the legal principles relating to the duty of full and frank disclosure in an application for leave to commence contempt proceedings.  Having considered the authorities cited to me by the parties, I would try to summarize what I consider to be the correct legal principles:

(i)  The function of the court at the ex parte leave application stage is to filter out: (a)  applications obviously unfounded; or (b)  oppressive applications for committal; or (c)  those which have some suspicion of oppression about them.[8]

(ii)  In the ex parte leave application, the applicant has a duty to make full and frank disclosure. This duty applies with full force and rigour to such application because of its penal nature and the serious consequences that may befall the alleged contemnor.[9]

(iii)  In order to satisfy the duty of full and frank disclosure, an applicant must give to the court the relevant information which is material to the consideration as to whether an application for committal should be filtered out, including information material to suspicion of oppression in proceeding by way of committal.[10]

(iv)  Materiality is to be determined by the court, not the applicant or his or her legal advisers.[11]

11.  I do not think that there can be any challenges to these principles, as Lam VP (as he then was)  reinstated the same when he gave guidance to practitioners when dealing with this sort of application in China Metal Recycling (Holdings)  Ltd v Chun Hei Man.[12]

12.  The dispute then turns on the application of these principles and what documents are material for such purpose.  In Tiong King Sing v Sam Boon Peng Yee[13], Anthony To J, after stating that the filtering function of the court, said the following:

“ … … [The court] is not concerned with finding whether committal proceedings are appropriate, which is a matter to be dealt with at the substantive hearing. It is not concerned with admissibility of evidence or whether the applicant can successfully prove his allegations against the alleged contemnor nor is the court concerned with the possible defence of the alleged contemnor or whether such defence will prevail: see Secretary for Justice and Choy Bing Wing. What the court has to do in this weighing exercise is to satisfy itself that the applicant has shown a prima facie case and that the application was not oppressive or has any suspicion of oppression. That is what this weighing exercise is all about. It does not require the court to weigh the relative strength of the parties’case and make findings of fact and credibility of witnesses. Indeed, the court should not engage itself in a mini trial on affidavit evidence.”

13.  In Tiong King Sing v Sam Boon Peng Yee (No 2)[14], Anthony To J, in dealing with the leave to appeal application, also said the following:

“In my view, what is material depends on the nature of the application. The obligation of disclosure imposed on an applicant in an ex parte application calling for more draconian restraints on the respondent’s right must be more onerous than that on an applicant seeking ex parte leave as part of the filtering process before some other proceedings may be commenced. In this regard, I am in general agreement with Mr Coleman SC. Most of these applications for leave are disposed of without a hearing and, if granted, create no restraint on the respondents other than the obligation to answer the allegations upon issuance of the notice of motion. Hence the obligation of disclosure on the applicant must be less stringent than upon an applicant seeking, for example, a Mareva injunction order. As the application serves as a filtering process, the court’s primary concerns are that the applicant has shown a prima facie case justifying the issue of the motion; that there is no oppression or suspicion of oppression in the making of the application; and that the motion is not one which obviously has no chance of success. The court is not concerned with whether the respondent has a defence, even a good defence except if it raises suspicion of oppression or shows that the application obviously has no chance of success. I therefore disagree with Mr Shieh SC’s submission that the chance of success and hence the defence is something to be put in the weighing scale.”

14.  According to these observations made by the learned judge, the question before the court in the ex parte stage is whether the applicant has established a prima facie case against the alleged contemnor, or whether the application is oppressive or has any suspicion of oppression.  The court should not weight the evidence or assess the merits of the possible defence in the leave application.  Hence, if the alleged non-disclosed material only has the effect of making the case of the alleged contemnor more credible (as opposed to showing that the plaintiff’s charge is wholly unarguable or the charge is oppressive or has some degree of suspicion of oppression), then it would not be material in the leave application because the court will not assess the merits of the defence case at that stage.

15.  Mr Clark, Solicitor Advocate for Sun Ascent and Xu, submits that this is no longer good law in view of the dicta of the Court of Appeal in Re: Chu Kong:[15]

“Mr McCoy drew our attention to a number of authorities to the effect that the purpose of the leave application is to filter out obviously unfounded or oppressive applications (see eg Anthony Eric Ryan Hotung v Ho Yuen Ki (unrep, CACV 178 of 2006, 25 September 2009), Tiong King Sing v Sam Boon Peng Yee (unrep, HCMP 1129 of 2015, 21 July 2015)). He drew our attention to Numeric City Ltd v Lau Chi Wing [2016] 4 HKLRD 812 where it was held by the Court of Appeal that leave should be granted only where the court is satisfied that punishment for contempt is proportionate and appropriate, but queried whether this should be confined to contempt proceedings in respect of statements of truth under RHC Order 41A rule 9. I can see no reason why it should be so confined, and I would accept that the court is entitled and required to consider this question, albeit bearing in mind that the application is one for leave, and not the substantive hearing of the contempt proceedings, so that the question is simply whether the proceedings should be permitted to go further, with full consideration of the merits left for the substantive hearing.”

16.  As I see it, the Court of Appeal in Re: Chu Kong actually accepted that the court should not engage in a full consideration of the merits at the leave application stage.  The question by then is simply whether the proceedings should be permitted to go further.  This must be right, otherwise the court would easily be dragged into conducting a mini-trial at the leave application.

17.  There must be some standards in deciding whether the proceedings should be allowed to proceed further.  Given the filtering function at the leave application, the questions before the court should therefore be: (i)  whether the charge for contempt is obviously unfounded;  (b)  whether the contempt proceedings are oppressive; and (c)  whether there is some suspicion of oppression about the contempt proceedings.  In Re: Chu Kong[16], the Court of Appeal mentioned that “leave should be granted only where the court is satisfied that punishment for contempt is proportionate and appropriate”.  As I see it, this factor would be relevant in considering the third criterion mentioned above (i.e. whether there is some suspicion of oppression about the contempt proceedings), and so Re: Chu Kong[17] does not add anything new to the guidance given by Lam VP in China Metal Recycling (Holdings)  Ltd v Chun Hei Man[18].  What is material at the leave application should therefore be judged by reference to the function of the court at the ex parte stage.  The court should avoid weighting the evidence at the leave application or assessing the merits of the possible defence of alleged contemnor, otherwise any complaint for non-disclosure would easily be turned into a mini-trial itself.

18.  Despite the seriousness and the penal nature of the contempt proceedings, the defendant would be given the full opportunity to defend the charge in the substantive proceedings.  The function of the court at the leave application must therefore be a filtering one as mentioned above.

19.  With these principles in mind, I then discuss the merits of the setting aside application.

Discussions

20.  WTY’s complaint in the contempt proceedings is a simple one: in view of the bold and clear assertions in their pleadings that Sun Ascent had sold the infringing goods, what Xu said in the Disclosure Application cannot be true. At least, it deserves a full explanation as to why Xu said so in the Disclosure Affirmation.  As WTY only sought to establish liability by relying on some instances of infringement in the trial on liability, WTY would not be able to know the full extent of the wrongful acts committed by the relevant defendants.  Hence, proper compliance with the Disclosure Order is so important to WTY for the protection of its rights.

21.  As I see it, the grounds for material non-disclosure put forward by Mr Clark can be summarized as follows:

(i)  WTY had known about all the dealings of the infringing goods and materials by reference to the information provided by the manufacturer and distributor of Product D, which were Mega Good Industrial Ltd and Shun Fat respectively, and the manufacturer of Product C which was Sing & Japan.  If WTY had referred the court to the statutory declarations or affirmations made by the responsible persons of these manufacturers or supplier filed in the earlier proceedings, the court should have known that full account of the wrongful activities had been provided.

(ii)  According to the information provided by the said manufacturers and distributor, it was not Sun Ascent who sold or dealt with the infringing goods and packaging materials.  The parties dealt with such items might be the agents of Sun Ascent.  However, since the Disclosure Order does not cover the dealings of the infringing goods or materials by Sun Ascent’s agent, there is nothing wrong for Xu to have stated in the Disclosure Affirmation that Sun Ascent had not dealt with the infringing goods or materials.  In any event, WTY had a duty to inform that the court at the ex parte stage that the Disclosure Order does not cover the dealings conducted by Sun Ascent’s agent.

(iii)  WTY in §§16 and 17 of the Leave Statement stated that in HCA 2589/2014, Wong Wai Shing (“Wong”), the sole director of Sing & Japan, disclosed in his statutory declaration dated 21 February 2017 that Sun Ascent had engaged one 廣州星德商貿有限公司 (“GZ Xingde”)  to print the packaging materials of the infringing goods, and Sun Ascent failed to account for such dealing.  If WTY sought to rely on this particular incident in support of the leave application, WTY should have disclosed all the relevant documents which may advance the defence case on such dealing.  The packaging note relating to such dealing (“the Packaging Note”)  showed that the infringing packaging materials were delivered to Sing & Japan who was identified as the customers.  Had WTY referred the court to such piece of evidence, the court should have known that Sing & Japan was the party dealing with the infringing packaging materials and not Sun Ascent.

22.  In my judgment, these grounds for material non-disclosure have no merit at all.

23.  First, Mr Clark’s submissions are based on the assumption that all the wrongful dealings with the infringing goods and materials have been disclosed in the statutory declarations and affirmations filed in the earlier proceedings and WTY”s witness statements prepared for the purpose of the trial of the Consolidated Action.  However, as pointed out by Mr Yan, SC, counsel for WTY, a plaintiff in an intellectual property litigation will not be able to know the full extent of the wrongful acts committed by a defendant.  The plaintiff will only be able to identify certain wrongful acts of the defendant to establish liability in the first stage of the proceedings.  After liability is established, the defendant will be required to disclose all his or her dealings with the infringing goods and materials in a disclosure affirmation.  In positively affirming on oath that Sun Ascent has not dealt with Products C and D, Sun Ascent is adopting a position diametrically opposite to what it had admitted in the pleadings filed in the earlier proceedings. Under such circumstances, one cannot assume that whatever disclosed in the Disclosed Affirmation and the statutory declarations and affirmations filed earlier in the proceedings were all the dealings that were required to be disclosed under the Disclosure Order.

24.  This is particularly true in the present case.  It is common ground that Xu and his family have been operating a group of retail pharmacy shops.  The fact that Xu affirmed Sun Ascent had no dealing with the infringing goods or materials in the Disclosure Affirmation, while at the same time disclosed in such affirmation some transactions involving Treasure Trend but not the other transactions referred to in the other statutory declarations, certainly calls for an explanation by Xu and Sun Ascent.  One must not forget that Sun Ascent admitted selling of the infringing goods in the pleadings filed in the earlier proceedings.

25.  Xu and Sun Ascent complain that WTY should have referred the court in the leave application to the fact that the Disclosure Order does not cover the dealings of the infringing goods and materials by Sun Ascent’s agent.  In replying to such complaint, Mr Yan submits that it is well-established that a principal is liable for the wrongful acts of its agent instigated, authorized or ratified by it.[19]

26.  In my judgment, the fundamental point here is that Xu made an affirmation denying the dealing of the infringing goods or materials on the part of Sun Ascent which is contrary to the admissions in the pleadings.  This is the charge.  With the admissions made in the pleadings, it was possible that, apart from those transactions handled by “Sun Ascent’s agent”, there were other transactions which had not been disclosed.  Considering the nature of the charge, there is no reason for the court to be concerned at the leave application with an investigation as to: (i)  whether all the dealings already known to WTY were the dealings that need to be disclosed; and (ii)  whether these “known” dealings were dealt with by Sun Ascent or its agents.

27.  The complaint relating to the failure of WTY in referring the court to the agency issue is premised on the fact that the court, in determining whether to grant leave for the commencement of the contempt proceedings, should consider the capacity under which the parties were involved in those dealings. Those dealings might be conducted by Sun Ascent in its own capacity, or by these other parties in their own capacity, or by these other parties as agents of Sun Ascent.  Given that Xu and his family operated a web of pharmacy shops and Sun Ascent’s own case that the acts of its agents are its own acts (as stated in the pleadings), it was not material for the court to consider the agency issue in determining whether to grant leave to institute contempt proceedings.

28.  I also reject Mr Clark’s third submission as mentioned in §21 above. With the clear statement made by Wong in his statutory declaration, there is a prima facie case to support the charge.  To require WTY to refer the court to the Packaging Note in the leave application means that the court should weight the evidence at the ex parte stage.  In my judgment, this is not the function of the court at the leave application, and the Packaging Note is not a material document for the court to determine whether leave should be granted for the commencement of the contempt proceedings.

29.  In my judgment, WTY has clearly established a prima facie case of contempt in the Leave Statement.  WTY and the court would not be able to know whether the “known” dealings (as disclosed in the statutory declarations, affirmations and witness statements)  were all the wrongful acts committed by Sun Ascent.  Neither should the court conduct an investigation at the ex parte stage into the merits of the case by weighting the evidence, which Mr Clark is inviting the court to do by looking at the alleged non-disclosed documents.

30.  It cannot be said, and it has certainly not been submitted by Mr Clark, that WTY’s ex parte application for leave was an oppressive application, exhibited “some suspicion of oppression” or “obviously had no chance of success”.  Given the importance of the full disclosure to WTY, neither can it be said that the alleged non-disclosure materials would be relevant in considering whether the contempt proceedings are disproportionate or inappropriate.  Hence, there is no substance in the complaint for material non-disclosure and I therefore dismissed the Summons.  In any event, given the nature of the charge and the importance of full disclosure to WTY, the court should certainly exercise the discretion to re-grant the leave even if there was material non-disclosure of which I do not accept.

31.  I have not dealt with the question of costs in the hearing, as the parties should be given the opportunity to address me on costs after studying my reasons in dismissing the Summons.  On such matter, I now make a costs order nisi that the costs of the Summons be the Plaintiff’s costs in the cause with certificate for two counsel, which shall be made absolute 14 days after the date of the handing down of this Reasons.