CHEK KU LOON LTD. v. CHUNG YUEN NEWSPAPER & MAGAZINE AGENCY (a firm) AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiffs are or were publishers of a magazine called "The Best Magazine". The 1st Defendant was the distributor of the Magazine and the 2nd Defendant is a Proprietor of the 1st Defendant.

2. The Plaintiffs obtained an Ex-parte injunction against the Defendants restraining them from distributing the magazine. Mr. Justice Wong made the order on 3rd March 1988.

3. The Defendants made an application to Mr. Justice Godfrey on 7th March to discharge the injunction and he basically treated the summons as a summons for Directions.

4. I accept for the purpose of this exercise that I am in effect hearing an interparties summons in this matter and that I am not deciding whether or not to continue the ex-parte injunction.

5. The relevance of this is that I do not consider that I need concern myself with allegations on non-disclosure. I think Mr. Xavier for the Defendants did acknowledge that this was the case.

6. "The Best Magazine" has been described in some of the supporting affidavits as an adult magazine. It contains photographs of young ladies in various states of undress. It has been the practice of the Plaintiffs to submit samples of the various issues to Tela the T.V. & Entertainment Licencing Authority. When that has been done, certificates have been issued to the effect that the material in the magazine has been classified as class II material under the Control of Obscene and Indecent Articles Ordinance which is Ordinance No. 9 of 1987.

7. This would seem to indicate that the contents of the publication comes within the description of material being considered as indecent.

8. A great deal of documentation has been placed before me for consideration. One of the more difficult tasks I have faced is in determining the extent to which it is necessary for me to investigate and scrutinize all of the background material as having a bearing on the present application.

9. I have come to the conclusion that it will suffice for me to consider the material in its broad outlines and that there is no necessity for me to immerse myself in a lot of detail.

10. In essence what has happened is that the parties who claim to have a beneficial interest in the shares of the Plaintiff have fallen out.

11. It is by no means a simple matter to determine who in fact are the beneficial owners of shares in the Plaintiff.

12. Two of the parties who have had an interest in the publication have been prosecuted and convicted of offences relating to th publication of indecent material. Perhaps understandably there is a reluctance on the part of the participants to go publicly on record as being involved in the venture.

13. It does however appear to be common ground that at the present time, a Mr. Law and a Mr. Lau are Directors of the Plaintiff.

14. Mr. Rogers for the Plaintiffs submitted most forcefully that he represented the company and had taken his instructions from the Directors. He further contended that what I must be concerned with was the interest of the company and that I should not take cognisance of the position of Mr. Wai who claimed to be the beneficial owner of all of the Plaintiff. He was not and is not a Director of the Plaintiff. 

15. According to the present management, Mr. Wai only owned a beneficial interest in 50% of the shares of the Plaintiff.

16. I do not think that it has been seriously contested that up until the end of last year, Mr. Wai was responsible for the financial affairs of the company and a Mr. Wan has been responsible for editorial policy.

17. Again I think it is common ground that a dispute arose at the end of the year between the interested parties. Issue has however been taken over the cause of the dispute and the various actions which it has been alleged have been taken by the parties.

18. I accept Mr. Rogers' submission that in accordance with the principle laid down in American Cynamide v. Ethican. I must not attempt to adjudicate at this stage on the issues which have been contested. I would however add that I do consider that it is necessary for me to have regard to the contents of the various affidavits and in particular where evidence is on its face unsatisfactory or explanations are not forthcoming I should not automatically accept the validity of the evidence.

19. It is the Plaintiffs' case that as a result of the said dispute between the parties, the management decided to assign to a company called Honorfaith the right to publish "The Best Magazine". It would however change its title to "The Original".

20. Although the English name is entirely different, the Chinese characters are very similar in appearance. It may be of assistance to extract a copy of the translation of the assignment which reads as follows:

21. Mr. Xavier made a number of pertinent observations concerning this assignment.

22. In the first place no information has been forthcoming as to who are the owners of Honorfaith. He submitted that on the basis of the material before me, it appeared that the Directors of the Plaintiff had acted with the gravest impropriety and indeed had been guilty of a breach of their fiduciary duties.

23. No satisfactory reason had been given for assigning the right to publish the magazine to a Third Party.

24. Certainly the dispute between the parties was insufficient justification.

25. Mr. Wai and his party were not Directors of the Plaintiff and the Directors could have continued to publish the magazine notwithstanding any dispute.

26. In effect what had happened was that the Directors had assigned to Honorfaith all of the Plaintiff's assets.

27. The Plaintiff's main source of revenue was the receipt of the proceeds of the magazine when it was distributed. After the assignment came into effect the proceeds of the magazine would be received by Honorfaith. There was nothing in the papers to indicate that Honorfaith would at any time reimburse the Plaintiff with the moneys it had received.

28. Mr. Xavier then pointed out the difference between the magazine which had been published by the Plaintiff and Honorfaith. He referred to the 38th, 39th, 40th and 41st Issues.

29. It is immediately obvious even for someone such as myself who does not have the advantage of being literate in Chinese characters that the format and layout of the Issues is very similar. In fact the differences are so slight that in all probability the majority of purchasers would not notice the difference.

30. It is very difficult not to be sympathetic to Mr. Xavier's submission that the reality of the situation was that the Directors of the Plaintiff had assigned to Honorfaith substantially its whole undertaking.

31. On the evidence produced by the Plaintiff, it was apparent that Honorfaith had paid for the printing charges of the publication. However there was no evidence whatever to show that any consideration had moved from Honorfaith to the Plaintiff for the editorial work which had been provided by the Plaintiff. It had been stated in one of the affidavits that the members of the Plaintiff's staff had worked for Honorfaith.

32. Mr. Xavier further submitted that the Plaintiff had as a result of the conduct of its Directors been placed in a highly invidious position. On the evidence available - that is not knowing who were the Directors of Honorfaith - it was impossible to have any assurance that the Plaintiffs could exercise any controls or restraints over Honorfaith. In other words if Honorfaith fell foul of the provisions of the Control of Obscene and Indecent Articles Ordinance, there was nothing the Plaintiff could do about it. This was clearly an unsatisfactory and unacceptable situation and all went to support his contention that the Defendants had not been acting in the Plaintiff's interests.

33. Mr. Rogers submitted that this was the wrong approach to the problem.

34. It was inappropriate at this stage to attempt to adjudicate in any way upon the various issues which had arisen on affidavits and which were keenly contested. All of these matters could and should be ventilated at the trial of the action.

35. What remained clear was that the Plaintiffs were entitled to the relief they were seeking.

36. Evidence had been produced to me that a further two issues of the magazine had been published after the issues I have previously referred to and that the Directors of the Plaintiff had no definite knowledge where these had eminated from.

37. Certainly they had not been published by the Plaintiff's editorial team. Equally certain they purported to be published by the Plaintiffs and indeed the Plaintiff's name had been inserted in the issues as the publisher.

38. There was no valid reason why the Defendants who were only distributors should not be restrained from distributing magazines which were being passed off as the Plaintiffs.

39. It was in everyone's interests that the market for these magazines should not be spoilt as a result of there being a disorderly market with the two different publications being produced which in fact derived from different sources.

40. Mr. Rogers asked rhetorically what harm could be suffered by the Defendants if the injunction was granted in terms.

41. The Defendants were only distributors of the magazine. They would suffer no loss if the injuction was granted.

42. No one had come forward with any assertion that they were entitled to publish magazines in the Plaintiffs' name in accordance with the complaint which was being made by the Plaintiffs. It was accordingly only logical that the relief should be granted in terms.

43. Mr. Rogers further submitted that any misconduct on the part of the Directors of the Plaintiff was not relevant to the resolution of this summons. If the Defendants had misbehaved themselves, they would no doubt be called to account in due course. That would be an entirely separate and independent issue. What was important was to have regard to the company's interests and I should make the necessary order to protect these.

44. I think that this is one of the main difficulties facing the Plaintiff. Namely is it possible or realistic to distinguish between the interests of the Directors when they claim to be representing the company and the interests of the company itself. I do not think that it is. Certainly not on the basis of the evidence before me.

45. I am faced with a situation where it is apparent on the Plaintiffs own case that the company - apparently acting by its duly authorised Directors - have in effect assigned to another company Honorfaith the whole of its undertaking. I say this on account of both evidence of the assignment to Honorfaith and the evidence conerning the publication of the 38th to 41st issues of the magazine. The reasons given by the management of the Plaintiff for this cannot in my view withstand any serious scrutiny. Although claimed to be a temporary expedient there is no evidence whatever that the Plaintiff would ever be in a position to require Honorfaith to reassign back to the Plaintiff its rights to publish the magazine particularly if Honorfaith was not minded to do so.

46. This leads me to a conclusion that in any event at the present time the Plaintiff is an empty shell.

47. One consequence of this is that so far as I can ascertain the Plaintiff does not presently have any regular source of revenue. I accept Mr. Xavier's submission that one of the matters I must be satisfied upon is that the Plaintiff will be able to implement the undertaking it would be required to give to indemnify the Defendants from any losses they may sustain as a result of it eventually transpiring that the Plaintiffs were not in fact entitled to the injunction in the first place.

48. I think that I would be justified on this ground alone in declining to grant the relief which is being sought. I would however state that notwithstanding this I would not have been prepared to grant the injunction. Mr main reason for coming to this conclusion is that I am satisfied that the Plaintiffs have in reality already disposed of their rights to publish the paper. I have been able to come to this conclusion on the basis of the evidence presented by the Plaintiffs and without adjudicating upon issues of fact which are in dispute.

49. This application is accordingly dismissed. The defendant's costs to be costs in the cause.