NAGRAVISION SA v. ZHUHAI GOTECH INTELLIGENT TECHNOLOGY CO LTD AND OTHERS

HCA 2297/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2297 OF 2016

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DECISION

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Introduction

1.  The plaintiff in these proceedings sought, and obtained an ex parte Mareva injunction against the 1^st, 2^nd and 3^rd defendants (“the defendants”) on 5 September 2016.  That order was considered inter partes and continued on 9 September 2016 and further continued on 29 September 2016.  The injunction order affected funds held in a bank account owned by Fullbox Electronic Technology Ltd (“the Fullbox account” and “Fullbox” respectively).

2.  Fullbox took out an application by way of a summons seeking to discharge the part of the Mareva injunction affecting its bank account (that is, paragraph 1(b)(ii) of the Order) on 29 September 2016.  This will be referred to as “the Discharge Application”.  That paragraph prohibited the disposal or diminution of the assets of the defendants up to the value of US$101,851,800.  Directions were given for the exchange of evidence to allow the Discharge Application to be considered, and affirmations (which included a substantial volume of exhibits) were filed during December and January.

3.  On 16 December 2016, the plaintiff took out a summons seeking an order that Fullbox be joined as the 4^th defendant to the action.  This will be referred to as “the Joinder Application”.

4.  Both of these matters were listed for consideration by the court on the same occasion.  The parties were agreed that the Discharge Application be heard first, followed by the Joinder Application. Argument centred on the Discharge summons, with relatively little time spent over joinder.

5.  The defendants were not represented at the hearing, however the submissions made by counsel on behalf of Fullbox, of necessity involved considerations relevant to those defendants.  Shortly before the hearing of the Discharge and Joinder applications the 3^rd defendant was made the subject of a default judgment in these Hong Kong proceedings.  The 1^st and 2^nd defendants have made an application seeking to challenge jurisdiction on grounds of forum non conveniens, but this is not due for hearing, as I understand, for some time.  Counsel for Fullbox helpfully appended to his submissions a chronology of the litigation and the matters which had led up to it.

Background

6.  This action in Hong Kong has been brought by the plaintiff seeking to enforce an award of damages made in its favour by a court in the United States of America (specifically, the District Court of the Southern District of Texas) against the defendants.  In essence, the proceedings before the Texas courts concerned alleged infringements by the defendants of statutory provisions in the Digital Millennium Copyright Act, and the Federal Communications Act.  This is expanded upon below, but in essence the defendants were accused of facilitating and profiting from the unauthorised viewing of subscription television services by enabling the circumvention of security software.

7.  The defendants did not contest the proceedings, in Texas, and nor did they accede to the jurisdiction.  Judgment in default was entered against them (“the US Judgment”).  The damages award was substantial, being calculated at a statutory rate of US$200 per violation in respect of 509,259 individual violations.    This amounted to US$101,851,800 therefore.

8.  The plaintiff is a Swiss company engaged in designing and providing licence security systems to companies engaged in the sale of subscription-based television programming to consumers and businesses, and it was their security software which was said to have been bypassed by the actions of the defendants.  The plaintiff’s business operates in many countries worldwide, and this business includes the design and licensing of security software and the manufacture and provision of associated hardware (so-called “smart cards” used in the receiving digital set-top boxes (“STBs”)). 

9.  The software and hardware, in combination allows for the encryption and subsequent decryption of television programming so as to ensure that this is accessible only to paid subscribers.  Control words, referred to as “Keys” are encoded in the signal transmitting the television programmes and these correspond to control words pre encoded in the receiving hardware (and updated on a frequent basis) to enable decryption to take place.  The plaintiff owns the copyright which subsists in the computer programs which are encoded onto the smart cards.

10.  The 1^st defendant is a company incorporated in the People’s Republic of China, with a principal place of business in Zhuhai.  The 1^st defendant’s business includes the manufacture and sale of digital set-top boxes.  Its STBs are said to incorporate anti-piracy technology from the plaintiff’s biggest competitor.  The 2^nd defendant is a Hong Kong company which is wholly owned by the 1^st defendant.  The 2^nd defendant’s business is the manufacture, import, sale and export of such STBs.  The 3^rd defendant is also a Hong Kong company, said by the plaintiff to be part of the same group of companies, and at the lowest, a company which is closely associated with the 1^st and 2^nd defendants. The 3^rd defendant is also in the business of the sale and supply of STBs worldwide.

11.  Fullbox describes itself as a Hong Kong trading company engaged in various businesses, including the buying and selling of new and old electronic components and products such as STBs and chipsets. 

12.  As referred to above, the plaintiff’s Mareva injunction against the defendants extends to money in the Fullbox account said to be the money of the defendants.  Immediately after Fullbox took out the Discharge summons on 29 September 2016, the plaintiff consented to a variation of the injunction providing for the withdrawal of funds from the Fullbox account for the purposes of legal and operating expenses.

13.  When the Mareva injunction was continued inter partes on 9 September 2016 Fullbox did not participate in that return date, not being a party to the litigation.  It was common ground between the parties therefore that Fullbox, as a third party directly affected by the terms of the injunction order, had locus to seek its discharge, at least as it affected Fullbox.

The Discharge Application

14.  The challenge of Fullbox to the injunction was summarised by counsel as involving the following major considerations:

(1)   That the plaintiff’s action was based upon a default judgment entered in the courts in Texas in the United States which the courts of Hong Kong would not enforce.  It was suggested, but not pursued at the oral hearing, in addition that the plaintiff did not have a good arguable case before the US court.

(2)   Moreover, the plaintiff had not shown any real risk of dissipation of assets by Fullbox.

(3)   The injunction was against a third party and the plaintiff was required to show that the funds enjoined by the injunction were those of the defendants.  The plaintiff had been unable to do so.

(4)   There had been material non-disclosure by the plaintiff at the ex parte stage.

(5)   The balance of convenience favoured Fullbox.

The approach to a discharge application

15.  In the ordinary course of events, where an injunction order has been made inter partes, there is no ‘as of right’ entitlement to seek the variation or discharge of the order, and either strong grounds, or a change in circumstances would normally be a prerequisite. Equally, where an injunction has been granted which affects a third party such as Fullbox, then the third party affected may apply for the discharge of the injunction: Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966; Lo Yu Chu v Kam Development Co Ltd [1994] 3 HKC 18.  As referred to above however, Fullbox did not take part in the inter partes hearing, and accordingly no such objection was taken to its application.

16.  The plaintiff did however urge the court to follow the approach adopted in Dormeuil Freres v Nicolian International (Textiles) [1988] 1 WLR 1362, of ‘looking forward’ to consider the correct form of relief to be granted to the plaintiff, rather than ‘looking back’ to consider whether the relief previously granted should perhaps not have been granted.  The Court of Appeal in England in that case were of the view that this latter exercise was not an urgent matter (at least as regards Anton Piller relief), being directed more to the question as to whether or not any liability under the cross undertaking in damages may have arisen.  An interlocutory application to discharge an injunction is not an appropriate forum in which to seek to disentangle factual disputes which might emerge from the affidavit evidence filed by the parties subsequent to the grant of the original injunction.

17.  In the present case the affidavit evidence before the court was substantial and there were indeed factual disputes, particularly those as to the relationship between Fullbox and the defendants, and as to the “ownership” of the funds held in the Fullbox account.

18.  The determination of such factual issues is of course a matter for another day.  The discharge application primarily requires consideration as to the existence of an appropriate arguable case on the part of the plaintiff, and consideration of the balance of convenience between the relevant parties, and the risks inherent in relief not being continued.

The US Judgment

19.  It is appropriate for me to record at the outset that the plaintiff relies, in addition to the US Judgment, on ‘domestic’ remedies and damages available in respect of alleged breaches of the Copyright Ordinance (sections 30, 31 and 275).  The plaintiff relies upon the same facts and matters as were relied on in the US proceedings.  In the circumstances however, I find no necessity to consider the strength or viability of these claims for the purposes of this decision.

20.  In reliance upon the judgment of the Court of Final Appeal in Compania Sud Americana de Vapores v Hin-Pro Logistics Ltd (2016) 19 HKCFAR 586 (FACV 1/2016) Fullbox contended that a precursor to any consideration of the grant or continuation of an injunction pursuant to section 21M of the High Court Ordinance was the consideration of whether the relevant foreign judgment would be enforced in Hong Kong.  As was stated by the Court of Final Appeal:

“ If the nature of the foreign proceedings is such that the Hong Kong court will not enforce any judgment to which they give rise — e.g. because the exercise of the foreign jurisdiction is exorbitant or for some other reason of public policy, then there can be no question of granting relief under section 21M.”

21.  Only if this led to the conclusion that the foreign judgment would be enforced in Hong Kong would it be necessary to consider the questions that arise in ‘ordinary’ Mareva injunction cases, namely whether the plaintiff has a good arguable case, and whether there is a real risk of dissipation of assets by the defendant if the injunction is not ordered, and to consider the balance of convenience.

22.  There is then a “second stage” of consideration in a section 21M application; the court being required:

“ …to consider whether ‘the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings concerned’ makes it ‘unjust’ or ‘inconvenient’ for the court to grant the application. Mareva relief is discretionary in any event, but this provision in section 21M(4) underlines the fact that the court has a wide discretion to refuse to make the order sought if the fact that the substantive claim is being litigated in a foreign court has consequences that make the grant of a Mareva ‘unjust’ or ‘inconvenient’….”

23.  Fullbox contended that the US Judgment would not be enforced in Hong Kong.  This is because, firstly, the defendants did not respond to the US proceedings and had not acceded to the jurisdiction of the courts in Texas.  The defendants, it was said, were not subject to the jurisdiction of the court because they maintained no fixed place of business in the United States.  Accordingly, it was submitted, the US Judgment was not obtained from a court of competent jurisdiction.

24.  Secondly, matters of public policy were prayed in aid in support of the contention that the courts in Hong Kong would not enforce the US Judgment.  It was said that the damages awarded (in default) in the United States did not represent compensation for actual loss suffered by the plaintiff.  Rather their nature was penal, being set so as to punish parties for breaches of the relevant United States copyright laws.  This is an aspect which will be considered below.

Does the US Judgment bind the defendants?

25.  Fullbox argued that the plaintiff had relied on 3 matters in support of its contention that the courts in Texas had jurisdiction over the defendants.  These were said to be that the defendants utilised computer servers in the United States; that the defendants had been selling equipment into the USA through distributors; and had maintained a bank account with a bank in New York.

26.  The latter point regarding the bank was given short shrift by Fullbox, it being suggested, and not really disputed, that the bank in question was merely a correspondent bank involved in a payment to the 1^st defendant.  There was no question of an account maintained by the defendants in the United States.  The plaintiff accepted this, and did not seek to suggest in argument that the defendants had any such US bank account.

27.  Fullbox contended, relying on Lucasfilm v Ainsworth [2010] 1 Ch 503 (a decision of the Court of Appeal in England) that use of a website in order to sell goods in the USA did not amount to establishing a presence sufficient to found jurisdiction.  Moreover, as the English Court of Appeal had held in Adams v Cape Industries [1990] Ch 433 (at 530) that it was only when a company established and maintained a fixed place of business from which it carried on its business for more than a minimal period of time in the relevant jurisdiction, that it would be treated as being present in that jurisdiction and, therefore, subject to the jurisdiction of its courts.  It was contended on behalf of Fullbox that the defendants had not maintained any such fixed place of business, nor indeed were there distributors or agents with authority to subject the defendants to jurisdiction.  Once again it follows, according to Fullbox, that the US Judgment was not obtained from a court of competent jurisdiction because the defendants had not subjected themselves to such jurisdiction.

28.  The plaintiff however contends that the evidence shows that the defendants went considerably further than simply establishing a website to sell products in the United States.  The defendants, it is said, set up servers through which to conduct business.  Evidence of this was set out in a “Declaration” made by Pascal Metral, the Vice President, legal affairs of the plaintiff for use in the Texas litigation.  That Declaration was exhibited to the affirmation of Mr Low dated 5 September 2016.  In the Declaration M Metral identified numerous servers located throughout the United States which were providing authentication services and “control words” which facilitated users with unauthorised access to programming.

29.  The affirmation made by M Laurent Ebener, an employee of the plaintiff with expertise in its security systems, summarised this information, and also summarised information indicating that an online bulletin board support service for purchasers of the defendants’ services was established on servers which were also located in the United States. 

30.  In brief this evidence was to the effect that the defendants operated, among other things, a subscription service known as “G Share”.  Subscribers to this service were able to connect STBs to servers supporting the G Share service.  Payment for the G Share service was made in some cases via a website registered in the name of Zou Shaojian, the vice general manager and a shareholder of the 1^st defendant.  A bulletin board service was provided under the name of “G-Team”, and this provided technical support for the G Share service.  This included, according to M Ebener, reporting on the investigations carried out by and on behalf of the plaintiff, making firmware updates available to customers, which updates were required to circumvent security updates made by the plaintiff.

31.  Pursuant to court orders obtained in the United States in proceedings ancillary to the action in Texas, the plaintiff had obtained access to certain servers based in the United States, one of which hosted a website through which payment for G Share services could be made.

32.  Counsel for Fullbox contended that this evidence, even if accepted as being accurate, which Fullbox did not, amounted to no more than the Internet equivalent of advertising of services or the provision of a sales service, and as such constituted the type of activity which the courts have hitherto consistently held to be insufficient to show the establishment of a business presence sufficient to subject a party to the jurisdiction of the courts.

33.  For my own part, and as I believe may be apparent from the brief overview of the affirmation of M Ebener above, this evidence is indicative of a far deeper involvement in business activities in the United States than simply advertising the availability of a service.  The analogy of the provision of a serviced office as opposed to an advertising service was discussed in the course of oral argument, and while such an analogy may be sufficiently loose as to call for caution, it seems to me to be clear on the present evidence that G Share was doing far more than the advertising analogy would suggest.

34.  The court in Lucasfilm noted that, while the internet may be said to be ubiquitous, servers required a physical location.   The defendants appear to have operated through a substantial network of servers and, as I understand the position, could have chosen to locate these servers almost anywhere, and certainly elsewhere than in the US.  However they did in fact choose to locate or utilise many servers in the United States.

35.  Also to be considered in this context, it seems to me, is that the courts in Texas have formed the conclusion that jurisdiction exists over these defendants.  It is true to say that this was in the context of the non-appearance of those defendants, and there has been, so far as I am aware, no argument on the point in that jurisdiction to date.  This is nevertheless, in my judgment, a factor which may be taken into account.  In any event, in the circumstances, and for the reasons summarised above, I conclude that the evidence before me demonstrates for the purposes of this application that the defendants established a place of business in the United States, and thereby subjected themselves to jurisdiction of the courts there.

36.  Correspondingly, it seems to me to be, at the least strongly arguable that this judgment would be enforced (as, indeed it has been against the 3^rd defendant in its absence), and therefore the “precondition” referred to in Vapores is met.  It follows that the court next has to consider the strength of the case and the risk of dissipation:

“ .. form a view, on all the available material, including any findings of the foreign court itself, whether the plaintiff has a good arguable case before the foreign court and whether there is a real risk that the defendant will dissipate his assets if the Mareva is not granted.” (Vapores paragraph 53).

Statutory damages

37.  Fullbox submit that, in any event the US Judgment will not be enforced in Hong Kong because the damages award is in the nature of a penalty, not an assessment of compensation for proven loss. 

38.  It is correct to say that the damages award in the US proceedings was based upon a statutory rate or, more precisely, upon a rate selected from a statutory range available to the judge in Texas.  As I understand the position, the rate selected was at the bottom of that range.  Be that as it may, as pointed out by counsel for the plaintiff, statutory damages are no more than a form of pre-established damages which are specifically provided for by article 45 of the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”).  Hong Kong is a party to that Agreement, and I agree with Mr Clark that enforcement of the type of remedy provided for by the WTO Agreement is not a matter which can be said to be contrary to Hong Kong public policy.  Accordingly, I reject suggestion that the US Judgment would be unenforceable for this reason.

Good arguable case?

39.  In the circumstances little more need be said about this.  Judgment has been entered as referred to above and it is clear on the authorities that in such a circumstance the conclusions drawn by the court exercising jurisdiction will normally carry weight with the Hong Kong court.

40.  For the reasons referred to above I conclude that the criticisms levelled at that judgment are unwarranted or unsubstantiated, and there are therefore strong reasons to conclude that the US Judgment has, at least, good prospects of being enforced in Hong Kong even on a contested application.

Are the enjoined funds those of the defendants’?

41.  At the outset I note that the injunction order only seeks to control funds which belong to the defendants.  The factual background is complex, but the starting point may be the payments made by consumers for subscriptions to G Share services.  Those payments have been made at least in a number of cases to the Fullbox Account referred to in the injunction.  The plaintiff contends that Fullbox takes on the role of banker for the defendants.

42.  For its part, Fullbox’s evidence is that they do not understand G Share to represent a subscription service, but instead contend that it represents a payment for set top boxes and the provision of a warranty period for such STBs.

43.  That is contradicted by many of the bank account records obtained through disclosure and which refer variously to payments for codes, software, subscription service and the like.

44.  The plaintiff points to the close relationship that seems to exist between Fullbox and the defendants.  It is not necessary to set out detail here, but there is, plainly, such a relationship, involving substantial unsecured loans made by Fullbox to the founder of the 1^st and 2^nd defendants; and the entering into of a “business promotion co-operation agreement” by which Fullbox say they received substantial commission payments from the 1^st and 2^nd defendants although it is unclear what service was provided.  There is no dispute that the Fullbox account was used to receive payments for G Share services.  Ms Rain Pang, an officer of the 2^nd defendant, signed the Articles of Association of Fullbox as a witness. This may have had something to do with the fact that, at one time Fullbox shared an address with the 3^rd defendant.

45.  Perhaps most tellingly, and inexplicably on any other basis than that Fullbox acted as banker to the defendants, employees of the 1^st and 2^nd defendants have, on more than one occasion directed that payments be made to the Fullbox account, describing it as “our company account”.  Mr Cooney SC on behalf of Fullbox submits that this was probably no more than a misunderstanding by the employees concerned, but I think it highly unlikely that money would be directed to be paid in this way, giving full bank account details, simply in error.

46.  Little else has been offered by way of an explanation for these matters.  Fullbox acknowledge that they have received some payments in respect of G Share transactions and I am persuaded that significant funds in the Fullbox account are those of the defendants.  This does not imply that the account holds only funds of the defendants, but this was recognised in the framing of the Order.

Reduction in amount

47.  Fullbox made an alternative application by which it was submitted that the amount enjoined by the injunction should be restricted and reduced to US$180,000, being the amount identified in the evidence of the plaintiff (obtained on discovery from Fullbox) as being sums received in respect of the G Share subscriptions.

48.  I do not agree that it would be appropriate to make the adjustment proposed based on the evidence provided.  The terms of the Order are such as to enjoin only funds of the defendants held, in this case, by Fullbox.  That, it appears to me, is an entirely appropriate formulation which requires no further specificity, particularly in circumstances in which neither the plaintiff nor the court is in a position to disentangle the sources and ownership of funds in the Fullbox account.  The evidence demonstrates considerable and regular payments having been made to the Fullbox account on behalf of G Share services, and the terms of the restraint in the injunction appear, to me, to be appropriate.

Any real risk of dissipation of assets?

49.  The plaintiff contends that the risk of dissipation of assets is clear.  The business of Fullbox is international in nature, and its relationship with the defendants clearly established.  Moreover, the plaintiff says, the control exercised by the defendants over Fullbox and the failure by the defendants to answer the plaintiff’s claims in the US proceedings, give rise to real and reasonable suspicion that the defendants will seek to evade the consequences of that judgment, and remove assets from the Fullbox Account.

50.  Fullbox on the other hand contended that this is no more than speculation on the part of the plaintiff.  Fullbox point to the fact that this is a trading account, and moreover is an account which is in a healthy balance position, in the order of US$1.6 million.  It would be expected, counsel submits, for there to be a low balance maintained and a consistent pattern of otherwise unexplained transfers out of the account if this were being used as part of the commercially dishonest scheme.  It is pointed out that the Fullbox account information was available on the G Share BBS forum, and if being used as part of a dishonest scheme it would be expected that the funds directed to that account would be quickly removed from it.

51.  Having accepted, as I have, that the evidence points to funds in the enjoined account belonging to the defendants, and accepting the close relationship between the defendants and Fullbox, it follows that I accept also the real risk that such funds may be removed if not enjoined.

Material non-disclosure by the plaintiff at the ex parte stage?

52.  This issue generated some controversy between counsel, as being a novel point taken on behalf of Fullbox, not having been adverted to in the affidavit evidence filed on its behalf.  This purported omission was said by counsel for the plaintiff to have caused it some prejudice because, among other things, the fact that this had not been flagged as an issue have the consequence that the plaintiff had not had the opportunity to respond with evidence.  Counsel for the plaintiff, Mr Douglas Clark, informed the court that affidavit had been prepared dealing with relevant matters, but that these were prepared for other applications, and were not in the (already extensive) bundles before the court on this application.  Mr Clark submitted that this aspect should be excluded from present consideration, perhaps with leave to Fullbox to raise this by way of a separate application.

53.  Mr Cooney SC did not accept that there had been a failure to raise the issue in the affidavits, pointing to paragraph 64 of the 2^nd affirmation of Long Zhen Lin in which the discharge of the injunction was requested “… on the ground that the plaintiff has not proved a serious question to be tried for a risk of dissipation of assets by the Applicant and there were material non disclosure of information by the plaintiff as indicated in [another affirmation]”.  This paragraph had not caused the plaintiff to seek leave to file affirmation evidence in response, and it would be unfair to Fullbox to preclude them from contending, on the basis of the evidence before the court, that there had been a failure to disclose material matters.

54.  I declined to exclude this from the arguments on the Discharge Application on the basis that the evidence available to the court granting the injunction was available to me also, and its adequacy or inadequacy could be judged as it stood.

55.  The general principle is that the court may consider whether there has been a failure to satisfy the obligation to make full and fair disclosure by the plaintiff at the ex parte stage.  If there has been such a failure, the general rule is that the injunction order is to be discharged. The court may, if appropriate, consider the regrant of an order, but in doing so will give due weight to the importance to the administration of justice of requiring ex parte applicants to make full and fair disclosure of all relevant matters.  See Excell Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642.

56.  The relevant factual area concerned the allegation made by the plaintiff in the US proceedings that the defendants had manufactured, sold or distributed STBs which were capable of circumventing the plaintiff’s security systems, enabling people to circumvent the subscription services of pay-per-view television companies using the plaintiff’s security systems.  This allegation had been supported by the plaintiff in its proceedings against the defendants by evidence of testing of various STBs purchased by investigators acting on behalf of the plaintiff.  After purchase, those set top boxes had required updating of their firmware to enable them to gain unauthorised access to television programming.  It was contended by Fullbox that the evidence relied on in support of the US proceedings, and in support of the injunction application, inadequately explained this, and inadequately described the source of the updated firmware, and the fact that the sources were (according to Fullbox) unconnected with either the defendants or Fullbox.

57.  Nor had the court’s attention been properly drawn, it was said, to the fact that the STBs tested were manufactured by the defendants, or the fact that the STBs purchased were not purchased directly from the defendants.

58.  The context of these complaints is, in my view, important.  The injunction with which the court is concerned is one directed to the potential enforcement of a judgment given, by the Houston division of the District Court of the Southern District of Texas.  It is not wholly to be considered on the same footing as an injunction in support of a potential future claim which has yet to be litigated.  As such, in my judgment, the disclosure required of an applicant for an injunction is properly to be focused on the regularity and enforceability of the judgment rather than on underlying merits of the cause of action in the foreign court.  This is not to suggest that matters which might have given rise to a defence in the foreign court can simply be ignored, if relevant to the weighing process to be undertaken by the court in deciding whether or not to grant the injunction.  It is simply that those matters may be, depending on the facts perhaps, less material or less significant.

59.  Where, as here, the foreign judgment has been obtained by default, matters which might amount to a potential defence to the claim made in the foreign proceedings may be expected to be of potentially greater significance to a judge considering the grant of an ex parte injunction, or considering whether such an injunction has properly been granted than would be the case if the foreign court proceedings had been actively contested.

60.  A review of the affirmation evidence filed in support of the US proceedings, including the Declaration of Pascal Metral, and the exhibits to that Declaration, demonstrated that the evidence in the US Proceedings had explained the way in which the set-top boxes had been procured and tested and the inclusion on those set-top boxes of infringing software both as purchased and as updated.

61.  The ex parte application was supported by an affirmation of Low Eugene Ito made on 5 September 2016.  This had exhibited to it the Declaration made by Pascal Metral, and drew attention in the body of the affirmation to that Declaration.

62.  There is, unsurprisingly, a good deal of technical detail involved in the investigation by the plaintiff of the alleged infringements by the defendants.  In context however I have come to the conclusion that there was no failure on the part of the plaintiff to disclose material facts to the court in obtaining the injunction order.  The factual matters to which Fullbox draws attention are clearly material to the claim made in the US proceedings, but were disclosed to the judge making the ex parte order, and were, in my judgment, given appropriate prominence given the nature of the proceedings in Hong Kong and the existence of a judgment against the defendants.

63.  Accordingly, the complaint as to material non-disclosure is not made out in my judgment.

Balance of convenience

64.  Fullbox contends that the plaintiff’s evidence as to receipt of funds by Fullbox on behalf of the defendants is “flimsy” and, further, has been the subject of innocent explanation by the deponents on behalf of Fullbox.  On that premise, it is submitted, it would be unfair to freeze the entire funds in the Fullbox Account.  That, of course, is not what the injunction seeks to do.

65.  Fullbox further contends that since the injunction was granted it has lost 2 significant purchase orders amounting to approximately US$1.6 million.  It is contended that the continuation of the injunction will cause Fullbox to continue to lose customers and may prejudice its survival as a company.  For these reasons, it is submitted the balance of convenience lies in favour of discharging the injunction.

66.  I do not agree that Fullbox faces the prejudice which it asserts.  The evidence in support of an inability to proceed with fulfilling purchase orders due to lack of funds is negligible.  The 2 purchase orders to which reference is made were for products to be supplied in September and October 2016, but not only is there no explanation as to why these could not be fulfilled, there is no evidence or assertion of any subsequent difficulty. 

67.  The terms of the injunction make provision for ordinary business expenses to be exempted from the restrictions of the injunction, and no explanation has been proffered as to why this mechanism cannot be used so as to enable Fullbox’s business to continue uninterrupted.

68.  For these reasons therefore, I do not accept that Fullbox is prejudiced in the way it suggests, and reviewing the position overall it seems to me to be clear that the balance of convenience lies in favour of the maintenance of the injunction order.

Conclusion on Mareva

69.  For the reasons given above I am not persuaded by the comprehensive submissions of Mr Cooney SC that the Mareva injunction should be discharged or varied.  I accept that the plaintiff has, at the lowest, a good arguable case against the defendants, and has sufficiently demonstrated that funds in the Fullbox Account are likely the property of those defendants, and are at risk of dissipation unless the injunction is continued.

70.  Accordingly, I dismiss Fullbox’s application to discharge or vary the injunction order.

Joinder

71.  This application is made by the plaintiff, seeking to have Fullbox joined as a defendant to the action.  A draft Amended Writ and Statement of Claim has been prepared on behalf of the plaintiff.

72.  There is no dispute between the parties but that Order 15, rule 6(2)(b) contains the relevant provisions, and that a party may be joined by order of the court if their presence is necessary for the effective and complete determination of the dispute, or there is a question or issue arising affecting that party and it is just and convenient to join the party.  Fullbox’s submissions are directed to diminishing or rebutting any suggestion of an involvement on Fullbox’s part in the actions of the defendants.

73.  The plaintiff’s intended case against Fullbox is the opposite, it being contended that Fullbox has been acting as an integral part of the scheme by the defendants to profit from circumventing the plaintiff’s security software as described above.  Fullbox’s, alleged role as a banker to the defendants gives rise, potentially, to a joint liability with the defendants therefore, according to the plaintiff, making Fullbox liable as a joint tortfeasor with the defendants in respect of infringements under section 275 of the Copyright Ordinance (Cap 528).

74.  Whether those assertions can be made good by the plaintiff is a matter for another day.  Prima facie the plaintiff is entitled to choose the defendants to its action, and I am satisfied, given the circumstances and the allegations which it is intended to make, that Fullbox is a necessary party to these proceedings.

75.  Accordingly, an order in terms of the plaintiff’s summons is to be made joining Fullbox as a party to these proceedings.

Costs

76.  There was no discussion of costs at the hearing however there would appear to be no reason, on the face of things, why the usual orders as to costs should not be made.  Therefore, the costs of the Discharge summons are to be to the plaintiff.  As regards the Joinder summons, this seeks costs of and occasioned by the application, and the amendment, to be in the cause, and I so order.  However in view of the fact that the parties have not specifically addressed me on costs I direct that both orders are made on an ‘order nisi’ basis.