SUPER TREND LIGHTING LTD v. HI-LIGHT LIGHTING LTD AND ANOTHER

HCA 1896/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1896 OF 2002

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D E C I S I O N

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Introduction

1. The hearing on 2 April 2003 was concerned with the costs of:-

(a) the plaintiff's summons dated 17 May 2002 seeking an interlocutory injunction against both defendants for dealing in lighting products the same as or substantially similar to the plaintiff's, with related ancillary relief;

(b) the plaintiff's summons dated 20 March 2003 seeking the vacation of the hearing of the defendants' said summons scheduled for 2 and 3 April 2003 and the adjournment of that summons to the time of trial.

On 26 March 2003 (that is, about 10 months after its issuance), the plaintiff sought, and was given, leave to withdraw the summons set out at (a) above. Further, on that day, at the defendants' request (no objection having been raised by the plaintiff), the application set out at (b) above was dismissed. The plaintiff asks for the above costs to be reserved (alternatively, to be in the cause of the action) whereas the defendants ask for those costs to be paid by the plaintiff forthwith.

2. Further, at the beginning of the hearing on 26 March 2003, the plaintiff told the court that it just realised that the ex parte injunction order granted in its favour by Stone J on 17 May 2002 was still in force, having been so informed by the defence immediately before the 26 March hearing. The plaintiff also fairly informed the court the original intention was that the ex parte order should only continue up to 24 May 2002 (that is, the return day of the inter partes summons dated 17 May 2002 (see para. 1(a) above)). I corrected the ex parte order and extended its duration to 3 pm on that day to enable the plaintiff to consider whether to apply for an interim injunction. In the event, no such application was made and the ex parte order lapsed with time.

3. Before proceeding further, I should thank counsel for providing two helpful documents:-

(1) the document headed "Plaintiff's Arguments on Costs" dated 1 April 2003;

(2) the document headed "Revised Skeleton Arguments of the Defendants on Costs" dated 2 April 2003 (together with a chronology of events).

However, the heading of those documents is not entirely accurate. This is because a section in both document has been devoted to the defendants' summons dated 9 October 2002 which seeks to discharge the ex parte order of Stone J granted on 17 May 2002 and an enquiry as to damages sustained by the defendants.

Applicable Legal Principles

4. The law (or at least the usual practice) relating to the costs of applications for interlocutory injunction where the applications have been granted is not entirely free from uncertainty. As has been stated in Hong Kong Civil Procedure 2004, para. 29/1/44:-

"It has for many years, been the normal practice for a successful [applicant] granted an interlocutory injunction to be granted his costs in the cause ... But the rationale of that practice is perhaps not clear and the courts are showing a greater willingness to depart from it, see, e.g. the discussions as to costs reported in [1976] F.S.R. 3 in the cases of Steepleglade Ltd v. Stratford Investments Ltd and the other case there mentioned ... ".

As I understand, nowadays, it is not uncommon for those costs to be made costs in the cause of the action.

5. The costs order which should be made where such applications have been refused is probably even less certain. As Hoffmann J (as he then was) pointed out in Kickers International SA v. Paul Kettle Agencies Ltd and Another [1990] FSR 436 (a decision relied upon by the defence), costs orders which can properly be made in such instances include:-

(a) costs in the cause (at p. 438);

(b) costs reserved (at p. 438);

(c) costs to the successful party (that is, the respondent of such applications) (at p. 439);

(d) costs to the respondent forthwith (at p. 439).

It may also be appropriate to order the costs to be the respondent's costs in the cause. However, the consideration which would result in such an order would be quite similar to that which would result in the orders referred to in (c) or (d) above.

6. The reason why costs orders for such kind of applications are uncertain may have something to do with the change in approach in relation to the grant of interlocutory injunctions brought about by the leading authority of American Cyanamid v. Ethicon Ltd [1975] AC 396. In short, since that decision, essentially a 2-stage approach should be adopted in such matters. The court should first consider whether there is "a serious question to be tried". Assuming there is, the court should then consider whether the "balance of convenience" favours the grant or refusal of an order. See: Hong Kong Civil Procedure 2004, para. 29/1/8 to 29/1/19. Except that a "good arguable case" or "strong prima facie case" (rather than a mere "serious question to be tried") should be established, there is not much difference between Mareva (which, among other things, also requires evidence of a risk of dissipation of assets), Anton Piller (which also requires evidence of a risk of destruction of evidence) and mandatory injunctions on the one hand, and other types of injunctions on the other.

7. One advantage of a test which requires a mere need to establish "a serious question to be tried" on the applicant's part is that:-

"... the court should not become involved in determining complicated issues of fact on affidavit evidence nor to decide difficult questions of law. Although interlocutory injunction applications frequently develop into substantial hearings with waves of affidavits on each side, this is precisely what Cyanamid is designed to and should avoid": Pendleton, Garland, Margolis: Intellectual Property Rights (2003), para. 104.

Such a test may, however, pose a problem for the tribunal tasked with making a costs order relating to that application. Without having examined in detail the merits (or demerits) of the application, it is usually difficult (if not impossible) to make an order which favours one party as opposed to the other. Hence, costs are often made to follow the final outcome of the action (costs in the cause), or left to be dealt with later (costs reserved). Oliver J said the following in Steepleglade in response to counsel's submission that the Cyanamid case had led to a change relating to costs orders:-

"... I am not myself convinced that the Cyanamid case produced a totally different approach in practice to the granting or withholding of interlocutory injunctions ... The matter of [costs] is one of discretion. I can readily conceive that there may well be cases where the consideration is not only on balance of convenience but possibly, also, the merits may be such that the court might think the matter so finely balanced that costs in the cause was the right order ... ".

8. Although the parties herein rely on different decisions on the question of costs, I do not consider there to be any real dispute between them so far as the applicable legal principles are concerned.

9. Hoffmann J noted the above-mentioned problem regarding costs. Hence, he said:-

"An order for a party's costs to be 'in the cause' is made because the court has not investigated the merits and considers that it would not be fair for him to recover those costs unless he succeeded at the trial" (at p. 438, Kickers International).

But he continued:-

"But the fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs" (at p. 438, Kickers International).

The learned judge regarded the answer to lie ultimately on the circumstances of the case before the court. Thus, he said:-

"The question cannot be settled simply by reference to practice: it must be answered on the facts of the individual case" (at p. 438, Kickers International).

10. The matter was gone into in greater detail in Kickers International. The material facts (for present purpose) set out in the judgment are:-

(a) the plaintiff was a French company which made fashionable boots and shoes;

(b) it was the proprietor of two registered designs and claimed copyright in certain drawings on which the designs were based;

(c) it alleged infringement of its designs and copyright by the defendants;

(d) one defendant was a commission agent who sold boots and shoes for overseas manufacturers and the other defendant was a well known shoe retailer;

(e) the plaintiff served motions for interlocutory injunctions against the defendants;

(f) the defendants then served their evidence;

(g) the plaintiff, after seeing that evidence, informed the defendants it would not proceed with the motion and proposed the defendants' costs to be in the cause;

(h) the defendants did not accept the proposal.

11. Hoffmann J ordered the plaintiff to pay the defendants' costs forthwith. The factors which he apparently considered to be of significance were:-

(1) it is desirable to encourage litigants to give up a hopeless application, but it is even more desirable to encourage them not to launch such an application in the first place (at p. 437);

(2) the plaintiff ought reasonably to have known that the balance of convenience was against the grant of an injunction (at p. 437);

(3) for the reasons set out in (4) to (6) below, it would not be unfair for the defendants to have their costs even if they lost at the trial (at p. 438);

(4) although the plaintiff indicated it intended to pursue its claim to trial, there was a possibility it may change its mind (at p. 439);

(5) in the case before him, the costs at stake were amply sufficient to justify a separate taxation (probably because a good deal of evidence has been served). One of the defendants was plainly in a much small way of business compared to the plaintiff and would suffer the greater injustice if it was kept out of the substantial costs incurred until after trial (at p. 439);

(6) on the other hand, the plaintiff is a prosperous company and there is no suggestion immediate taxation would adversely affect its cash flow (at p. 439).

12. The learned judge also considered the alternative of reserving costs (to the trial judge). He decided not to make such an order for the following reason:-

"There is a superficial attraction about this course because the trial judge will have all the facts and be in the best position to decide ...

But in practice it has serious disadvantages" (p. 439).

The first reason for the serious disadvantages is "... the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application ... ". The second (and more important) reason is "very often there is no trial" because "[not] many defendants ... are willing to insist on a trial for the purpose of recovering their interlocutory costs" with the result that "[this] gives the unsuccessful plaintiff a powerful bargaining weapon".

13. The principal authority relied upon by the plaintiff is Silicon Graphics Inc v. Indigo Graphic System (UK) Ltd [1994] FSR 403, a case where the motion for interlocutory injunction failed: para. 2, "Plaintiff's Arguments on Costs". Knox J said:-

"I now have to deal with the question of costs. The motion has not succeeded, and in practical terms the area of choice is between ... [defendants'] costs in the cause ... and costs in any event ... " (at p. 420);

"Mr Silverleaf relies for the defendants on the decision of Hoffmann J in Kickers International ...

There are two questions which I think one can discern ... : Would it be unfair for the defendants to have the costs of the motion even if they lost at the trial? And was the launch of the motion justified? ... " (pp. 420-421).

Hence, it is obvious the Silicon Graphics case also adopted the same approach as in Kickers International.

14. I do not understand Hoffmann J to be laying down in Kickers International a general rule that costs should invariably be awarded against an applicant of an unsuccessful application for interlocutory injunction. Nor do the defendants so contend. I regard the Kickers International case to be an authority which establishes that, where there are special circumstances which warrant a final costs order to be made against one of the parties, the court should not hesitate to do so in order to achieve a just result as to costs.

The Plaintiff's Applications

15. The plaintiff commenced this action on 17 May 2002. Further, on that day, the plaintiff applied ex parte (and obtained) an Anton Piller order, together with an injunction order.

16. The affirmation used in support of the ex parte application can be summarised as follows. The plaintiff is a Hong Kong company engaged in designing and manufacturing lighting products. It claims to be the registered owner of a registered design in respect of an energy saving lamp.

17. The first defendant ("D1") was also a Hong Kong company with the second defendant ("D2") as its director and majority shareholder. D2 used to be one of the plaintiff's employees. D2 left the plaintiff in about June 2001. It was later discovered that she joined a partnership to trade in lighting products.

18. The action was commenced, and the ex parte injunction was obtained, on the basis that the defendants have infringed the plaintiff's rights in some of its lighting products. In the skeleton submissions used at the ex parte hearing, the plaintiff relied on the infringement of the registered design. In the writ of summons, the causes of action set out in the general indorsement are:-

(a) infringement of the plaintiff's rights in respect of Hong Kong Registered Design No. 0111063.6;

(b) infringement of the plaintiff's copyright in its energy saving lamps, namely, EF Reflector, EG Globe, EUT 3U, EB Candle and EC Candle.

A statement of claim was filed on 15 July 2002 (and amended on 2 September 2002). The defence and counterclaim was filed on 24 September 2002. In relation to the plaintiff's registered design, the defendants aver in short that it is invalid by reason of the prior publications of the same article or similar design. In relation to the plaintiff's copyright, it is denied by the defendants (the pleading also avers that there are no copyright drawings, nor was there originality in the drawings).

19. The plaintiff's case regarding costs is in gist that the launch of the application for injunction was justifiable; also, it would be unfair for the defendants to have costs of the application if they lost at trial.

20. The defendants contend otherwise. They submit that there are the following special circumstances. First, the plaintiff's causes of action (both as regards registered design and copyright) are suspect. Secondly, the plaintiff persisted with the application even after the defendants have filed their evidence and only withdrew it after a long lapse of time. Thirdly, the costs at stake are substantial enough to justify a separate taxation. Fourthly, the plaintiff has been dilatory in prosecuting its claim and this is an indication there may not be a trial.

21. The defendants' first point needs elaboration. In brief, the defendants complain that the plaintiff's case lacks credibility.

22. In relation to the cause of action based on registered design, the defendants allege that the plaintiff concocted its case. Several versions of events have been given in the plaintiff's affirmations. The initial version is that the plaintiff only sent samples to one of its customers in August 2001 (subsequent to the application for registration in July 2001). This was refuted by the defendants. The plaintiff then tried to explain away a contemporaneous document produced by the defendants for such purpose. When further evidence was filed, the plaintiff then admitted a sample was in fact given to the customer, but the plaintiff explained that only a part of the lamp was given. The defendants submit that the latest version was clearly contradicted by the contemporaneous documents, some of which came from the plaintiff.

23. In relation to the cause of action based on copyright, the defendants also contend that the claim is untrue. They first point out that this cause of action was strangely not relied upon at the time of the ex parte application. Further, when evidence about the lack of originality was put forth in the defendants' affidavits, the plaintiff dropped its claims based on 2 of the lamps relied upon earlier (for the purpose of the application for interlocutory injunction). The reason given for doing so is that it would save time and costs. The defendants further argue that the plaintiff's case regarding the copyright drawings is either incredible, or otherwise unmeritorious in view of the following:-

(a) the defendants have repeatedly chased for details and evidence relating to the plaintiff's copyright claim and such evidence was only provided after sometime;

(b) the plaintiff's affirmations are unclear regarding the state of the copyright drawings, that is, whether there were in fact drawings, or merely sketches, or both;

(c) the similarities in the sketches or drawings produced by the plaintiff show that they were probably made up after the event;

(d) the drawings produced by the plaintiff are very rough and give no details of the individual parts. The plaintiff has been unable to provide particulars of which part(s) of the drawings have been copied;

(e) the plaintiff's copyright claims are related to light bulbs the shapes of which are common and similar to other products in the market;

(f) a Mr Tai, said to be a designer of the lamps, was not employed by the plaintiff and this may pose a problem to the plaintiff's ownership of the copyright.

24. As the learned judge observed in Kickers International, the fact that the merits of the parties' case have not been investigated (at least not fully investigated) does not necessarily mean that the court cannot dispose finally of interlocutory costs. Everything depends on the facts of the case before the court.

25. In the instant case, I agree with the defendants' arguments and disagree with those of the plaintiff. Taking into account the matters relied upon by the defendants (set out above), I find that the costs of the application set out in para. 1(a) (including those of the hearing on 2 April 2003, and any related reserved costs) should be paid by the plaintiff to the defendants to be taxed forthwith if not agreed. The costs of the application set out in para. 1(b) have already been awarded to the defendants on 26 March 2003. In view of the matters set out above, those costs should also be taxed forthwith if not agreed.

The Defendants' Application to Discharge the Ex Parte Order

26. As stated above, the defendants have taken out a summons seeking to discharge the ex parte order granted on 17 May 2002 and an enquiry as to damages.

27. I consider that in view of the matters set out under the previous heading (especially paras. 21, 22 and 25 thereof), there are materials which show that the plaintiff probably have misled the court at the ex parte hearing. At the very least, they show that there has been material non-disclosure. Accordingly, I will make an order in terms of the defendants' summons. Costs of the application to discharge (including those of the hearing on 2 April 2003, and any related reserved costs) should also be paid by the plaintiff to the defendants to be taxed forthwith if not agreed.