CHINA RISING DEVELOPMENT LTD. v. PEPE (UK) LTD.

IN THE COURT OF APPEAL

1996, No. 105
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

1. This is an appeal against the Assessment of Damages made by Master Cannon on 14th February 1996 pursuant to an interlocutory judgment entered by consent.

2. By its statement of claim the plaintiff averred that the defendant, in consideration of the plaintiff forbearing to sue for previous infringements of its rights, signed a deed of undertaking on 1st October 1994, giving certain undertakings to the plaintiff. It included acknowledgement of the plaintiff's intellectual property rights referred to in the deed and an undertaking not to infringe them in future. The plaintiff averred that on 8th December 1994 that the defendant pleaded guilty in the Wanchai District Court to possession for the purpose of trade or business of infringing garments. It made two claims: (i) for a substantial sum of money in respect of breach of undertakings in the deed, about $2.8 million. We are not concerned with that claim. (ii) A claim for conversion damages for infringement of copyright under s. 18(1) of the Copyright Act 1956 as applicable to Hong Kong, in respect of labels and buttons that were attached to a consignment of garments which were seized by the Customs and gave rise to the plea in the Wanchai District Court.

3. The Master reviewed carefully a plethora of decisions on conversion damages and ultimately in the light of them came to assess the damages in the following way. She first of all made the following findings at p. 20 of her Assessment:

"In the case before me, Paragraph 4D of the amended statement of claim pleads that 'by attaching the infringing copies of the garments [the defendant] had converted the same to its own use.' Much of the argument revolved around the point that only attachment is pleaded, with no reference to sale.

I am satisfied that, on the pleadings in this case, the act of conversion was the attachment of the buttons and labels to the garments. I accept that in the absence of an allegation of sale of the garments in the amended statement of claim, the admission by the defendant must refer to the attachment of the buttons and labels as the act of conversion and to no other."

I should stress that before us the only infringement relied upon was the affixing to the garments of the labels and buttons.

4. Reverting then to the Assessment of Damages the Master in addressing the measure of damages said this at p. 21:

"If I ... pose the question ... 'for the conversion of what are the damages to be assessed', I am satisfied that the answer must be the garments and not merely the buttons and labels."

5. This brings me to the first ground of appeal which Mr Johnson Lam for the appellant, the defendant below, while not abandoning formally, does not press. He submits that the Master, having found that the attachment of the buttons and labels was the act of conversion, misdirected herself in concluding that the damages were to be assessed by reference to the garments and not merely the buttons and labels. He also pursues that submission by reference to the pleadings. However, it is plain that at p. 20 the Master was addressing the act of conversion, and at p. 21 the measure of damages. Moreover, the Master's review of the authorities touch upon the great difficulties presented by the basis upon which conversion damages are provided for by s. 18(1) and the rusticum judicium approach to the measure of damages which the courts have had to resort to meet them, according to the facts of the particular case. In circumstances of the present sort the proportionate value of the garments is the measure. In that light, it is apparent that the Master did not misdirect herself.

6. Turning to the second and main ground of appeal, this, in the way the appeal unfolded and was argued and opposed, distilled itself into the questions of whether the final Assessment of Damages at 40% of the sale price was wrong in principle in the absence of evidence to found it, or was so excessive or unreasonable as to warrant the interference of this Court.

7. In approaching those questions we have to have regard to the difficulties that the statutory scheme of conversion damages contained in s.18(1) of the Copyright Act 1956 has always presented, and the rusticum judicium and particular case approach to which the courts may have to resort approach in assessing such damages.

8. There was no evidence before the Master of what additional value to the garments was contributed by the attachment of the labels and buttons and no suggestion that any was available. On the other hand, the Master had before her photocopies of photographs of the garments showing the labels and buttons. That would have given her some idea of what was involved. She was also in that approach to the Assessment of Damages entitled, in my view, to take into account the evidence she had before her in the way of recitals to the text of the deed upon which the plaintiff relied. This referred to the plaintiff as "a wellknown British company which manufactures and sells a wide range of high quality clothing, in particular jeans, under its trademark 'Pepe' ... and has acquired a substantial reputation and goodwill in Hong Kong and throughout the world for its products". Notwithstanding that the plaintiff's action was not one of passing off, upon the approach mentioned, the Master was entitled, in my view, to take into account the reputation that the plaintiff and its trademark had acquired.

9. This Court then has to decide whether the 40% was so excessive or unreasonable as to warrant interference. Speaking for myself, I find that this Court is not in any position to say that 40% was wrong or excessive. The Master said she had considered all the circumstances of the case, and it seems to me that that has be accepted. Nor am I able to accept that the Master misdirected herself in the way claimed by the appellant.

10. In those circumstances, in my view, this Court would not be warranted in interfering with the Master's Assessment of Damages. I would dismiss the appeal.

Godfrey, J.A. :

11. In an action for damages for infringement of copyright, difficult questions can arise where the articles produced by the defendant consist in part of infringing matter and in part of innocent matter. In such a case, the value of the whole article has first to be assessed as though the whole article had been converted. It is then necessary to ascertain the proportion of this sum which is properly attributable to the infringing material. This proportion represents the damages recoverable. No exact method of calculation can be prescribed.

12. Clearly, the respective amounts of infringing and non-infringing matter cannot be conclusive, since it is the value and not the amount of the material which has to be taken into account. The court, by rough and ready justice, has to determine, on the material before it, the value of the plaintiff's part of the composite article at the date of conversion. In the present case, the master, as my Lord the Vice-President has pointed out, took into account all the circumstances of the case before her and held that 40% of the sale price was the appropriate amount of damages to be awarded.

13. Before us, Mr. Johnson Lam, for the appellant, contended that the appropriate amount would have been 10% rather than 40%. He was prepared to accept for the sake of argument that, perhaps, an award of 20% would have been a reasonable award. But there is no warrant for that in the evidence, any more than there is for his own preferred suggestion of 10%. There is simply no evidence before us (any more than there was before the master) which would entitle us to hold that the master's assessment of 40% was outside reason. There is no material upon which, in my judgment, we can interfere with the assessment of the master, even if we were ourselves to suspect it was on the high side.

14. For these reasons, I too would dismiss this appeal.

Liu, J.A.:

15. What is before us to-day is the assessment by Master Cannon of the quantum of conversion damages for a notional owner of infringing copies under s. 18(1) of the Copyright Act 1956 as it is applied to Hong Kong.

16. The plaintiff is a well-known British company which manufactures and sells a wide range of high quality clothing. The buttons and labels shown in the photostats before Master Cannon are goods of a high quality clothing company. It must be a reasonable inference to be drawn from these circumstances that incorporation of buttons and labels which admittedly infringed the copyrights of the plaintiff's buttons and labels, must have been intended to add and had the effect of adding value to the garments under consideration.

17. Mr Lam for the appellant submits that the Master misdirected herself at p. 21 of her judgment or p. 201 of the appeal bundle. The other observations on the same page illustrate that the Master had adopted the correct approach: The Master did say that she was satisfied "that the answer must be the garments and not merely the buttons and labels", but she hastened to add that she would follow the approach taken in Caxton Publishing Co. Ltd v. Sutherland Publishing Co. [1939] AC 178. That approach was highlighted in the passage she quoted: "The infringing copies are found in a setting created by the defendants, and ....... the Court, in assessing the damages, is entitled and bound to take that setting into account". She then proceeded to assess "what proportion of the market value of the garments together with the labels and buttons was properly attributable to the copyright material" and determine "the value of the plaintiff's part of the composite whole". There was no misdirection.

18. The Master was entitled to assess damages for conversion by reference to part of the value of the garment which could be attributed to the infringing items. The Master was right to conclude that the coveted value of the buttons and labels to the notional owner was in the increase of the overall value of the garment to which they were attached. The Master was able in these circumstances to look at the infringing copies as found in a setting created by the defendant. It was open to the Master to invoke the rusticum judicium, the so-called judicial common sense, approach.

19. The ultimate question we have to decide is whether or not the 40% on the sale value of the garments as assessed by the Master is so plainly excessive that it would call for our intervention. There is no evidence that the 40% so assessed is plainly excessive.

20. For all these reasons, I agree that the appeal should be dismissed.