EBEWE ARZNEMITTEL GES.m.b.H AND ANOTHER v. LAI SHU LAM t/a FOREST OFFSET PRINTING CO.

HCA 16387/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16387 OF 1998

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J U D G M E N T

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1. This is an application by the Plaintiffs for an order for committal against the Defendant, pursuant to the leave granted on 11th December 1998.

2. The Plaintiffs are the owner and the agent of Cerebrolysin, a drug used in the treatment of strokes, dementia, Alzheimer's disease and cerebral trauma.

3. In September 1998 having received information that the Defendant was involved in the printing of counterfeit packaging materials for counterfeit Cerebrolysin, the Plaintiffs obtained an Anton Piller Order from Hon. Sakhrani J. against the Defendant. The Anton Piller order was executed on the 25th September 1998 at the factory premises of the Defendant at Flat A, 12th Floor, Mai Luen Industrial Building, 23-31 Kung Yip Street, Kwai Chung, New Territories, Hong Kong.

4. Under the Order of Hon. Sakhrani J. the Defendant is required to hand over immediately to the Plaintiffs' solicitors the box packaging, labels, instruction leaflets of Cerebolysin, the tools and other equipment for the manufacture of such box packaging, labels and instruction leaflets and all documents relating to the manufacture and supply of such items (the listed items) which were in his possession or under his control.

5. The Defendant is also required to inform the Plaintiffs' solicitors the whereabouts of the listed items, the names and addresses of people who supplied the listed items to the Defendant and the names and addresses of people to whom the Defendant had supplied the listed items and the quantities of every supply and offer.

6. The Defendant also had to swear an affidavit confirming the information within 7 days after service of the Order on him.

7. During the execution of the Anton Piller Order, the Defendant is alleged to have said that any stock of counterfeit instruction leaflets and packaging materials for Cerebrolysin were all in the People's Republic of China and that the films had been taken away by the customer, Mr. Cheng. The Defendant also said there was no invoice or any other relevant documents relating to the order by the Mr. Cheng who had paid a deposit of $30,000.00.

8. The Defendant suggested that the printed products were all delivered to a Hung King factory in China for processing and that he had nothing to deliver up in accordance with the Anton Piller Order.

9. But subsequent search of the Defendant's premises by the Plaintiffs' solicitors revealed 479 pages of counterfeit Cerebrolysin instruction leaflets in the drawer of a writing desk in the work area and in the handbag of the Defendant, 2 faxes from Hung King (China) Ltd. were found.

10. Both faxes were issued by the Dongguan Technical Standards Bureau to Hung King dated 23rd September 1998, one confirming the number of counterfeit Cerebrolysin packaging seized and the other requesting the person in charge to attend its office for questioning. When asked why he did not mention it, the Defendant said he thought the Plaintiffs' solicitors already knew about them.

11. By a Consent Order dated 9th October 1998, the Defendant agreed to make an affirmation verifying that all listed items to be delivered up pursuant to the Anton Piller Order had been fully complied with him. He also agreed to disclose by way of an affirmation so far as was known to him, the names and addresses of all people who obtained from him or supply to him the infringing items with full details of each transaction.

12. In purported compliance of the Anton Piller Order and the Consent Order, the Defendant initially filed two affirmations dated the 7th and 19th October respectively.

13. In the affirmation dated 7th October 1998 (the first affirmation), the Defendant said:

"In early September 1998, Mr. Cheng, as a walk-in customer, ordered us to print 1,000,000 self-adhesive ampoules label, 200,000 instruction leaflets and 200,000 boxes with different batch number. Among these 200,000 boxes, they were printed in 4 different styles, 50,000 boxes of each style were to be printed, making a total of 200,000 boxes. Printing price of bigger box is HK$0.4 per set and for small box is HK$0.3 per set.

At that time, Mr. Cheng did not leave his name card to me, he just gave the films relating to printing together with HK$30,000.00 cash deposit to me. Mr. Cheng said that he used to print the labels in Kwun Tong for HK$0.5 per set and HK$0.4 per set and he offered to pay me the aforesaid prices. I agreed with what he said. I then asked Mr. Cheng to give me his phone number but he refused to do so and told me that he accustomed not to give his phone number to the printer and he will check the progress in due time. Since this is a big order in view of the present economic atmosphere, thereby, I did not dare to ask too many questions from Mr. Cheng and totally submitted to his instructions. Throughout the transaction, Mr. Cheng has never given any authorisation to me, and as a trade practice, I have never requested authorisation in any other case.

On or about 13-20 September 1998, upon finishing the semi-finished paper products, Mr. Cheng came and collected the films. The semi-finished paper products were then transported to a China factory at Changping Town, Dongguan, Guangdong, People's Republic of China for final assembly where Mr. Cheng would contact with the said factory and get the said paper products himself in the said factory once the final assembly process was finished.

Till now, I have not yet received the balance from Mr. Cheng and hope that Mr. Cheng would contact me.

As far as I know, there should be nothing about the said paper products remaining in my company and all the samples are in China. Therefore, up to my knowledge, nothing about the said paper products I can return.

In addition, I do not know the whereabouts of Mr. Cheng. He has never given his name card to me. No invoice was used in the transaction and I have never personally given the said paper products to him."

14. The Defendant also claimed to have overlooked the 479 pieces of counterfeit Cerebrolysin instruction leaflets and the 2 copy faxes from Dongguan Technical Standards Bureau to Hung King which was the factory in China which accepted processing work from the Defendant.

15. Subsequently, the Plaintiffs through their agent, obtained information from a Mr. Lau Pui Ming of Hung King in connection with the involvement of the Defendant in the manufacture of the counterfeit Cerebrolysin items. In particular, Mr. Lau suggested that the Defendant had in fact engaged the service of Hung King twice. In addition to the September consignment, there was an earlier one in May 1998.

16. Mr. Lau also supplied certain processing orders and delivery notes allegedly from the Defendant's firm to Hung King relating to the processing of counterfeit Cerebrolysin packaging materials.

17. From the processing orders and the delivery notes supplied by Mr. Lau, about 100,000 sets of counterfeit Cerebrolysin packaging items were manufactured in May 1998 and about 240,000 sets of counterfeit Cerebrolysin packaging items were manufactured in September 1998 by Hung King.

18. The Plaintiffs was of the view that the Defendant had not fully disclosed his dealings in the counterfeit Cerebrolysin materials and he was invited to make a supplemental affirmation giving full and truthful disclosure. In response, the Defendant, through his solicitors said he had nothing further to disclose or deliver up.

19. On the 3rd December 1998, the Plaintiffs applied for an order for committal against the Defendant. In response, the Defendant filed three further affirmations. His third affirmation was dated 12th December 1998 and his fourth and fifth affirmations were both dated 15th April 1999.

20. In his third affirmation, the Defendant admitted that he first came to know Mr. Cheng in or around May or June 1997 when Mr. Cheng went to his factory to place an order to print some self adhesive ampoules label, instructions leaflets and box with different batch number with a total value of around $40,000.00. He said the printing and colours were the same as the printing in September 1998. He did not disclosed the quantity involved.

21. The Defendant repeated his earlier suggestion that Mr. Cheng refused to give his office telephone number and his name card but indicated that he would contact the Defendant for further information and enquiry. He also suggested that it was Mr. Cheng who would take delivery of finished products from Hung King.

22. In his fourth and fifth affirmations, the Defendant confirmed that he no longer had in his possession, control or custody any labels, box and leaflets bearing the Plaintiffs' name, nor any articles, materials, tools, films, and plates the use of which would be a breach of the injunction orders against him.

23. It is the Plaintiffs' contention that the Defendant had wilfully disobeyed the injunction orders and despite being given many chances, chose not to disclose the relevant information and materials. The followings are the specific allegations raised by the Plaintiffs to support the application for the order for committal:

(1) The failure to disclose the presence of 479 pieces of counterfeit Cerebrolysin instruction leaflets during the execution of the Anton Piller Order on 25th September 1998;

(2) The failure to disclose the existence of the May order; and the full extent or at all of the May and/or September orders;

(3) The failure to disclose the documents in connection with the counterfeit Cerebrolysin packaging materials that he had, particularly the processing orders, the delivery notes and receipts; and

(4) The failure to disclose the full particulars of Mr. Cheng whom the Defendant alleged to have placed the orders for the counterfeit Cerebrolysin goods.

24. It is the Plaintiffs' contention that the Defendant could not have forgotten the May order and his initial attempt to conceal the May order was clearly in breach of the orders against him. In any event, even up to now his disclosure in connection with the May order was still inconsistent with the information supplied by Mr. Lau Pui Ming of Hung King.

25. Since Mr. Lau was able to supply processing orders, delivery orders and other relevant documents, many of which appear to have originated from the Defendant's factory, he must have copies of those documents and yet the Defendant refused to disclose any. The Plaintiffs also suggest that it was unlikely that the Defendant would accept such big orders from Mr. Cheng and that there was no document relating to such orders.

26. The Plaintiffs were also adamant that the Defendant must have some particulars about Mr. Cheng when he placed orders with his factory and when he still owed him the balance of the prices of those orders.

27. To defend the allegation raised by the Plaintiffs, the Defendant gave evidence.

28. The Defendant claimed to be unable remember clearly the event on the 25th September 1998 when the Anton Piller Order was executed at his premises. He repeated that it was the Mr. Cheng who placed the orders for the printing of the counterfeit packaging materials for "Cerebrolysin". He said Mr. Cheng first approached him in May 1998 and asked him to print samples for such counterfeit packaging materials. He was unable to remember the actual quantity but said it was a few ten thousand.

29. The Defendant said he was initially paid a deposit of $20,000.00. After the printing, the semi-finished products would be collected by Hung King for processing work in China and Mr. Cheng would take delivery from Hung King. He admitted that Hung King worked for his printing shop regularly and would render the bill for the processing work once a month.

30. The Defendant claimed to have little knowledge of the documentation in his dealing with Hung King as they were handled by a female employee, Ms. Chung Suk Yee.

31. He was referred to the processing orders and delivery notes allegedly supplied by Mr. Lau of Hung King. He agreed that the delivery notes bore the letter heads of his printing factory. He said he supplied those blank delivery notes to Hung King so that the particulars could be filled in before they were given to the ultimate customers. He denied any knowledge of the contents of such delivery notes. As for the processing orders, they were in fact instruction given to Hung King by his company when the need arose.

32. The Defendant was adamant that he no longer had any documents pertaining to the contracts placed by Mr. Cheng nor his dealing with Hung King. But he did not consult Ms. Chung or any of his staffs in his attempts to comply with the orders of the court.

33. The Defendant was also adamant that he had no information about Mr. Cheng although he said he was also looking for him as he still owed him money arising out of the orders that he had placed.

34. The Defendant admitted that Mr. Cheng had telephoned first before coming up to discuss with him about the orders even though he described him as a walk-in customer. He was unable to properly explained how he would trust Mr. Cheng with large sums of money in the circumstances as he described.

35. He said the May order was for samples of a few ten thousands. As for the September Order, he printed about 240,000.00 pieces although the order was just for 200,000.00 pieces. He said he overprinted so that there would be more spare ones to be used.

36. He at some stage put the blame on his previous solicitors for not handling the case properly for him. He also said the female staff of his company was responsible for handling the documents but he had not made any enquiries from her as to the existence or otherwise of the relevant documents.

37. I must state at the outset that I am not particularly impressed by the evidence of the Defendant. He was clearly trying to minimise the role he played in the transactions in question. His assertion that he knew little about the documentation and that it was his female employee who handled the matter was not convincing. His explanation is that the May order by Mr. Cheng was just an order for samples defied common sense.

38. The affirmations that he filed in purported compliance with the court orders were terse and lacking in particulars. He did not seem to take such orders seriously.

39. Having said that, I must not lose sight of the fact that it was for the Plaintiff to prove that the Defendant had defied the orders of the court and that the appropriate standard of proof to be applied is the criminal standard of proof.

40. There is no direct evidence that the Defendant had in his possession any documents relating to the orders in connection with the listed items other than the 479 pages of counterfeit Cerebrolysin instruction leaflet and the 2 faxes from Hung King.

41. Mr. Shipp on behalf of the Plaintiff asked me to infer from the documents supplied by Mr. Lau of Hung King that the Defendant must have similar documents in his possession. I shall deal with the evidence relating to Mr. Lau at a later stage. But I find unable to draw such irresistible inference as suggested by Mr. Shipp. I must not ignore that the Defendant was dealing with illicit business of counterfeiting products. It would not be unusual for him not to retain documents relating to such illicit business.

42. I accept that giving the full weight on the documents supplied by Mr. Lau of Hung King, the volume of the transactions in question were larger than what the Defendant was prepared to admit. But Mr. Lau did not give evidence and could not be subject to cross examination. His allegation was not even presented by way of an affirmation.

43. His allegation might well be admissible. But I find it difficult to attach sufficient weight to it to reach the high standard required in a criminal matter. After all, Mr. Lau himself was also involved in the illicit business in question and there would be motive on his part to put the blame on others to lessen his own culpability if he wanted. It would be difficult to rely on the information allegedly came from Mr. Lau to prove the Plaintiffs' allegations against the Defendant.

44. But under the orders made against the Defendant, he must take steps to find out if he had any of the listed items in his possession or control. He claimed to have telephoned Hung King but was told that all relevant documents had been seized. The Defendant had not made any effort to trace those documents. He said the female staff in his company might have them but he did not really know. But attitude was not good enough to discharge the burden that was placed on him by reasons of the orders of the court.

45. The Defendant himself further admitted that in September 1998, he actually printed 240,000.00 pieces of the listed items when the order was only for 200,000.00. He was trying to justify why he stated in his affirmation that the order from Mr. Cheng was just for 200,000.00

46. I do not accept such explanation. I am satisfied that the Defendant had understated the September order, perhaps to minimise the seriousness of the allegation against him.

47. There is also no direct evidence to show that the Defendant had any information about the identity of Mr. Cheng or whoever placed the orders in question. I find it not possible to draw the conclusion that the Defendant must have such information. After all, whoever placed the orders with the Defendant must be fully aware that he was engaged in illicit business and it would be natural for such person to take the necessary steps to prevent himself from being traced should his business be exposed.

48. The non-disclosure of the 479 pieces of counterfeit Cerebrolysin instruction leaflets and the fax messages was in fact not disputed. But I bear in mind that it must have been rather traumatic for the Defendant when, without prior knowledge an Anton Piller Order was being executed in his factory premises.

49. I also bear in mind that those counterfeit Cerebrolysin instruction leaflets and fax messages were discovered soon afterwards and that the Plaintiffs had not intended to treat such non-disclosure seriously. I do not think it is right to place too much reliance on such non-disclosure.

50. On the other hand I am firmly of the view that the Defendant had deliberately failed to mention the May order initially. It was only when the documents from Mr. Lau of Hung King were made known to him that the Defendant decide to mention the May order in his third affirmation.

51. In fact the Defendant had not offered any explanation as to why he did not mention the May order in accordance with the order of Sakhrani J. dated 24th September 1998 and the consent order dated 9th October 1998.

52. The evidence is not strong enough to prove that the Defendant had deliberately refused to disclose the listed items that were in his possession but I am satisfied that the Defendant had not taken all reasonable step to establish if he had any of the list items in his possession or under his control. I am also satisfied that the Defendant had not completely disclosed the extent of the September order. His explanation that he had to overprint by 20% was not believable.

53. On the other hand I am not satisfied as to the remaining allegations against the Defendant made by the Plaintiff, particularly the alleged non-disclosure of the whereabouts and the particulars of Mr. Cheng.

54. I am satisfied that the failure to take steps to ascertain if any of the listed items were in his possession or under his control, the failure to mention the May order and the understatement pertaining to the September order constitute contempt of court and should be punished.

55. Having taken into consideration the background of the case and the nature of the contempt. I do not consider it necessary to make any order other than the appropriate punishment. After all the required information that the Defendant was able to give are now known to the Plaintiffs. It will serve very little purpose to compel the Defendant to file an affirmation setting what he had already mentioned in his evidence.

56. The Defendant could have committed the contempt of court due to his ignorance and lack of education. Perhaps he did not receive the sort of legal advice that he could reasonably expected to get as alleged by him. In any event, the Defendant was trying to minimise the extent of his culpability rather than to hinder the further investigation of the case by the Plaintiffs and to that extent his conduct was not as serious as it could otherwise be.

57. This could have been a lenient view taken of the matter but I am satisfied that it was the correct view to take. Bearing in mind the background of the case and that of the Defendant as well as the order on costs that I am about to make, I am of the view that a fine of $30,000.00 is appropriate. In respect of the contempt of court, I order that the Defendant is to pay the fine of $30,000.00. I allow the Defendant one month to pay the fine, failing which the Defendant is to be imprisoned for a period of 14 days.

58. I also order that the Defendant is to bear the Plaintiffs' costs of the contempt proceedings to be taxed on a full indemnity basis. The order on costs is an order nisi to be made absolute 14 days after the handing down of this judgment.