ROMAG FASTENERS INC.AND ANOTHER v. KIM SANG JO

HCMP 1275/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1275 OF 2010

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BETWEEN

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J U D G M E N T

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Background

1.  This is the Plaintiffs’ application for an Order of Committal against the Defendant, Kim Sang Jo, for contempt of Court.  The ground of the committal is that Mr Kim, being the sole director of Inter Core Limited (“Inter Core”) has failed to comply with the Judgment of Mr Justice A Cheung given on 21 April 2009 in High Court Action No 1096 of 2008.

2.  The said High Court Action was an action for infringement of trademark brought by the Plaintiffs against Inter Core.  It concerned Inter Core’s supply of handbags with counterfeit fasteners that bore the infringing mark “ROMAG”.  The handbags were manufactured on the Mainland by a subcontractor of Inter Core and were exported by Inter Core to its customer in the United States, one JC Penney Purchasing Corporation (“JC Penney”).

3.  On 21 April 2009, Mr Justice A Cheung granted summary judgment against Inter Core.  Paragraph (3) of the Judgment ordered Inter Core to deliver up all the Infringing Products within 7 days, and paragraph (4) required Inter Core (by its director) to make and file an affirmation to verify that all Infringing Products had indeed been delivered up in compliance with paragraph (3).  Of particular relevance to the present proceedings is paragraph (5), which provides that:

“The Defendant [i.e. Inter Core] shall, within 14 days from the day of the personal service of this Order upon it, by a director, make and file an affidavit/affirmation and serve a copy thereof on the Plaintiffs’ solicitors setting forth the particulars (including the names and addresses) of all persons, firms or companies:-

(a) to whom the Defendant has sold and/or offered or exposed for sale or supply;

(b) from whom the Defendant has ordered, purchased and/or obtained supplies of; and

(c) who has offered or exposed to sell to the Defendant

any Infringing Products, together with the full details of the respective dates of such acts and the quantities and consideration involved and do disclose in the said affidavit/affirmation the exact whereabouts of any person, firm or company known or believed by the Defendant to be in possession of the Infringing Products, and further do exhibit to such affidavit or affirmation copies of all documents relevant to the aforesaid, including but not limited to invoices, contracts, purchase orders, delivery notes, receipts and correspondence”.

4.  According to paragraph (5) of the said Order, an affirmation should be filed on or before 1 June 2009.

5.  There is no dispute that the Judgment, endorsed with penal notice, was served on Inter Core on 18 May 2009, and on the same day was also served personally on Mr Kim, the Defendant in these contempt proceedings.

6.  On 29 May 2009 Mr Kim filed an Affirmation on behalf of Inter Core.  Exhibited to this Affirmation was a bundle of invoices in relation to Inter Core’s supply of various styles of handbags to JC Penney.  The invoices spanned a period from the end of July 2006 to end of October 2007.  The Affirmation was filed purportedly to comply with paragraphs (3) and (4) of the Judge’s Order.  There was, however, no reference to paragraph (5) of the Order in the Affirmation.

7.  On 24 June 2009 the Plaintiffs’ solicitors issued a warning letter to Inter Core’s solicitors demanding full disclosure of Inter Core’s infringing activities.  The letter specifically mentioned the possibility of committal proceedings should the default in complying with the Judge’s Order continue. 

8.  On 31 July 2009 Mr Kim filed his 3^rd Affirmation on behalf of Inter Core, disclosing another bundle of invoices issued to JC Penney.  Mr Kim explained that Inter Core did not keep a good filing system.  But upon receiving the Plaintiffs’ warning letter, he had personally searched the office in Hong Kong and in the Mainland and had retrieved some more invoices from 28 July 2006 to 26 November 2006.  It is apparent that despite the disclosure of the additional invoices, paragraph (5) of Mr Justice A Cheung’s Order was still not fully complied with.

9.  This prompted another two warning letters from the Plaintiffs’ solicitors, respectively dated 25 August 2009 and 15 March 2010.  Despite the warning letters, Inter Core had still failed to make good its default regarding paragraph (5) of the Order.  

10.  On 24 June 2010, the Plaintiffs’ obtained leave from Mr Justice A Cheung to institute contempt proceedings against Mr Kim, as the sole director of Inter Core.  The Originating Summons was issued on 6 July 2010 (“the Originating Summons”) and the relevant papers were served on Mr Kim on 12 July 2010.

11.  On 5 August 2010, one day before the return date of the Originating Summons, Mr Kim filed his 4^th Affirmation.  In this Affirmation, he apologised for failing to comply with paragraph (5) of the Judge’s Order.  He said that the handbags in question were all manufactured by one Guangzhou Panyu Inter Core Ltd (仁德皮具有限公司) (“Guangzhou Inter Core”) in the Mainland.  While admitting that Inter Core was on record the sole shareholder of Guangzhou Inter Core, he maintained that Inter Core was merely an investor.  The injection of capital into Guangzhou Inter Core and the affiliation with the name of Inter Core was merely to fulfil the requirements and regulations of the PRC government concerning investment by a foreign investor in setting up company in the Mainland.  Instead, the actual proprietor and owner of Guangzhou Inter Core was one Mr Park (朴 明 奎), who also appeared on record to be its legal representative (法定代表人).  Mr Kim further stated that neither he himself nor any of the Inter Core’s staff had ever been involved in Guangzhou Inter Core’s management or operation.

12.  Mr Kim further explained that in order to repay JC Penney in the sum of over US$3 million arising from the proceedings commenced by the 1^st Plaintiff in the US, he had been subjected to considerable financial pressure as well as loss of self-esteem.  The situation had affected him to the extent that mentally he was reluctant to deal with anything related to the Action and he simply wanted to escape from it all.

13.  Mr Kim went on to explain that Inter Core had only sold the infringing products to PC Penney, and none had been kept by Inter Core.  On the other hand, apart from the supplies obtained from Guangzhou Inter Core, no one else had offered or exposed to sell the infringing products to Inter Core.  He said that he had turned to PC Penney for assistance regarding documents, but JC Penney was bound by the confidentiality of the settlement agreement and was not able to offer much help.  Mr Kim had also approached Mr Park for the identity and address of the supplier of the counterfeit magnetic fasteners and was told that their supply was obtained from an agent of a metal accessories manufacturer.  He was further told by Mr Park that the agent could no longer be contacted and the manufacturer had already closed down.  Mr Park did not give him the name or address, and Mr Kim was unable to get hold of any documents that would shed light on the veracity of the existence or identity of the agent or the manufacturer.  He said his relationship with Mr Park had severely and irreparably deteriorated. 

14.  It is noted that apart from the summary setting out the information on the purchase orders, quantities and styles of the handbags supplied to JC Penney, there was no disclosure of any documents between Inter Core and Guangzhou Inter Core (for instance, invoices, purchase orders, receipts, correspondence) or details of the transactions between them.

15.  On 6 August 2010 Mr Justice A Cheung granted leave to Inter Core to file further affirmation to comply with paragraph (5) of the Order.  The hearing of the Originating Summons was adjourned to a date to be fixed. 

16.  On 3 September 2010, Kim’s 5^th Affirmation was filed on behalf of Inter Core. Mr Kim explained Inter Core’s operation by saying that when purchase orders were received from JC Penney, Inter Core would simply forward the orders to Guangzhou Inter Core for production.  In 2006 and 2007 there were only 3 employees in Inter Core to deal with the JC Penney’s orders.  Mr Kim referred to a bundle of summaries of the purchase orders, and exhibited copies of the purchase orders from JC Penney with handwritten notes on them. 

17.  On 22 October 2010, Inter Core filed the 6^th Affirmation of Mr Kim.  Mr Kim said that he was unable to locate or trace any more relevant documents. 

18.  On 22 December 2010, the Plaintiffs obtained leave to cross-examine Mr Kim at the substantive hearing of the Originating Summons. 

19.  Shortly before the hearing of the Originating Summons, Inter Core filed Mr Kim’s 7^th Affirmation.  Mr Kim sought to explain that the purchase orders from JC Penney disclosed in his 5^th Affirmation were in fact forwarded to Guangzhou Inter Core.  The handwritten notes on the purchase orders were Inter Core’s internal reference numbers.  The purchase orders were sent with a cover sheet and they stood as Inter Core’s production orders to Guangzhou Inter Core, the supplier.  According to Mr Kim, he had made all the disclosure required of him in relation to the sale of the products to JC Penney as well as procuring their supply from Guangzhou Inter Core.

20.  Mr Kim further stated that as a result of his search for further documents relating to the transactions between Inter Core and Guangzhou Inter Core, he managed to retrieve from Inter Core’s accounting files some monthly summaries received from Guangzhou Inter Core in 2006 and 2007.  The summaries contained particulars of the quantity and price of the handbags ordered from Guangzhou Inter Core between August 2006 and October 2007.

21.  The substantive hearing of the Originating Summons was further adjourned and directions on filing of further evidence were given.  

22.  Subsequently, it transpired that in connection with the proceedings commenced by the 1^st Plaintiff in the US, Inter Core had (through its solicitor, Mr Terence Tsang) previously disclosed 2 delivery notes issued by the supplier of the “ROMAG” fasteners.  The delivery notes, respectively dated 5 and 8 October 2007, were issued by a metal factory in Guangzhou by the name 易元五金廠 (“I Yuan”).  Guangzhou Inter Core was named as the customer on the delivery notes.

23.  Relying on the fact that these delivery notes were only produced after the Plaintiffs had queried their non-disclosure, the Plaintiffs say that Mr Kim as well as Inter Core had withheld relevant materials and persisted in their breach of paragraph (5) of Mr Justice A Cheung’s Order.

24.  Yet again, Mr Kim only sought to adduce evidence 2 days before the hearing by way of an Affirmation from Mr Terence Tsang.  Mr Tsang explained that the 2 delivery notes were provided to him (Mr Tsang) in about mid-November 2007 when Mr Kim sought his assistance in connection with the US proceedings.  After the settlement with PC Penney, Mr Tsang was under the impression that the proceedings were concluded and the case file was then put into storage.  He was only reminded of the old case file because of the Plaintiffs’ recent query and upon a review of the case file discovered the delivery notes, which he exhibited in his affirmation.

25.  At the hearing before me, Mr Kim was cross-examined by counsel for the Plaintiffs.  At the conclusion of the hearing, both parties were invited to file further submissions in light of the oral testimony in Court. 

26.  The Plaintiffs now seek the following orders to dispose of the present committal proceedings:

(a)  a finding that Inter Core is guilty of having committed a civil contempt in not fully complying with paragraph (5) of the order of Mr Justice A Cheung within the prescribed time;

(b)  a fine against Mr Kim for a sum as this Court considers appropriate;

(c)  the costs of and occasioned by the present committal proceedings insofar as they have not yet been dealt with by the Order of Mr Justice A Cheung dated 6 August 2010 and the Order of Deputy High Court Judge Lok dated 1 December 2011, be to the Plaintiffs to be taxed on indemnity basis if not agreed.

27.  Before I set out my findings on the evidence, I will first summarise some legal principles relevant to these proceedings.  They are not in dispute.

Legal Principles

28. (i) In a case of civil contempt, the prime concern of the court is to ensure that orders of the court are obeyed.  Given the seriousness of a finding of contempt, the Court has to be satisfied beyond reasonable doubt before making a finding of contempt.  There is no burden on the respondent to prove his innocence.  See Citybase Property Management Ltd v Kam Kyun Tak (No 1) [2003] 2 HKC 98 at 101, 103;  Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830 at 849;

(ii)  Liability does not depend on proof of a contumacious intention to breach an order of the court.  It is sufficient to prove (a) that the alleged contemnor knew the facts which are said to make his act or omission a contempt and (b) that such act or omission was not accidental.  See Citybase (supra) at 103;  Kao, Lee & Yip (supra) at 856, 859;

(iii)  It is immaterial that the breach was committed in reliance on a third party’s advice, including legal advice.  The plea that a defendant has tried his best does not mean that the failure is casual or unintentional or accidental.  See Kao, Lee & Yip (supra) at 859-860;  Sun Fook Kong (Civil) Ltd v Multipipe Renovation Ltd, HCA 2504 of 2008 at §§22 – 23;

(iv)  A director’s liability in respect of orders made against his company can exist without the need to show moral blame or knowledge on the part of the director.  It is sufficient to show that the order was made against the company and served upon him.  The director would then be obliged to use his position as an officer to ensure that the particular order was complied with.  See Excel Noble Development Ltd v Wah Nam Group Ltd [2001] 4 HKC 148 at 155 – 157; 

(v)   On penalty, the range of orders which the Court can make is wide.  In cases where the contempt was “not deliberate or not contemptuous”, it would be in very rare circumstances that a sentence of imprisonment would be appropriate.  See Solar System International Co Ltd v Unison-Watch Manufacturing Ltd & another, CACV 3523 of 2001 at §22; Hong Kong Civil Procedure 2013, commentary at §52/9/1;

(vi)  The Court may make a finding of contempt but impose no punishment, ordering the contemnor to pay the costs of the motion usually on an indemnity basis, as sufficient punishment.  An award of indemnity costs is part of the punishment which the Court should take into account as part of the global penalty.  See Hong Kong Civil Procedure 2013, commentary at §52/9/1.

The Present Case

29.  Paragraph (5) of the Judge’s Order required, inter alia, the following three aspects of disclosure and production of relevant documents from Inter Core:

(i)   Disclosure of the identity and address of the purchaser(s) to whom Inter Core has sold, or offered to sell or supply the Infringing Products, and production of documents relating to the transactions;

(ii)   Disclosure of the identity and address of the supplier(s) from whom Inter Core has ordered, purchased or obtained supplies of the Infringing Products, or who has offered to sell the Infringing Products to Inter Core, and production of documents relating to the transactions;

(iii)   Disclosure of the addresses and whereabouts of the persons, firms and companies known or believed by Inter Core to be in possession of the Infringing Products, and production of documents relating to the transactions.

30.  It would be noted that the Infringing Products referred to in the Order would include the handbags which bore the infringing magnetic fasteners as well as the infringing fasteners themselves.

31.  In relation to the first and second aspects of disclosure, there is no dispute by Mr Kim that there had been delay in compliance and hence a breach of the Judge’s Order.  Mr Kim, however, contended that the breach was “casual or accidental and unintentional”.

32.  As already noted, the explanation given by Mr Kim was that he was hard hit by the substantial financial loss arising from the US proceedings.  His self-esteem was low, and that he was not mentally prepared to confront the consequence and simply wanted to escape the plight he found himself in.  But even accepting (which I am prepared to do) what he said about his state of mind at the relevant time, it would still be wrong to characterise his disobedience of the Judge’s Order as “casual, unintentional or accidental”. Both he and Inter Core were legally represented at all times.  Mr Kim admitted in evidence that the obligation of disclosure was explained to him.  Yet, curiously, his Affirmation dated 29 May 2009 was expressed only to comply with paragraphs (3) and (4) of the Judge’s Order, but omitted any reference to paragraph (5).  His 3^rd Affirmation was hardly more informative. According to him, he was “awaken by the gravity of the situation” as a result of the commencement of these contempt proceedings.  But the fact remains that despite his knowledge of Inter Core’s obligation to make relevant disclosure within the time prescribed, Inter Core had failed to comply with the Order. The fact that he had chosen to avoid confronting the reality of the situation would hardly render his disobedience “casual, accidental or unintentional”. 

33.  Turning now to the late disclosure of the identity of the supplier “I Yuan” and the 2 delivery notes in question.  It is not disputed by Mr Kim that the 2 delivery notes ought to have been disclosed under the third aspect of disclosure referred to above, but Inter Core had not done so within the time prescribed in the Judge’s Order.

34.  On this question, it is useful first to set out my findings on the relationship between Inter Core and the entities on the Mainland.  I accept Mr Kim’s evidence that Guangzhou Inter Core was the factory manufacturing the handbags.  Inter Core provided the capital and business to the factory, but it was Mr Park who was the person in charge of Guangzhou Inter Core.  Neither Mr Kim nor Inter Core was involved in the operation of Guangzhou Inter Core or its production process. 

35.  I have no reason to doubt that I Yuan’s customer for the magnetic fasteners was Guangzhou Inter Core, as stated on the delivery notes.  There is nothing before me to suggest that Inter Core or Mr Kim was privy to the transactions between I Yuan and Guangzhou Inter Core regarding the supply of the fasteners.    

36.  Sometime before November 2007, in connection with the US proceedings, Inter Core was requested by PC Penney to provide documents relating to the supplier of the infringing fasteners.  Mr Kim approached Mr Park of Guangzhou Inter Core for assistance.  As already mentioned, in his 4^th Affirmation, Mr Kim recounted Mr Park telling him that the infringing fasteners were obtained from an agent of a metal accessories manufacturer.  Mr Park further said that the agent could no longer be located and the manufacturer had closed down.  Mr Park did not give him the name or address of the agent or the manufacturer at all.  Mr Kim was unable to get hold of any documents that would shed light on the veracity of the existence or identity of the agent and the manufacturer.

37.  But now the discovery of the 2 delivery orders showed that in November 2007, Inter Core was actually in possession of documents which bore the name and address of the supplier of the magnetic fasteners.  Inter Core had, through Mr Tsang, in fact sent copies of the delivery orders to JC Penney.  This revelation completely contradicts what Mr Kim had said in his 4^th Affirmation.

38.  Under cross-examination, Mr Kim explained that initially Mr Park had refused to provide the relevant documents, but on repeated requests had eventually passed copies of the 2 delivery orders to Inter Core.  He further explained that copies of the documents were all along kept by Mr Tsang.

39.  Mr Kim was further cross-examined as to why he had not disclosed information regarding the supplier of the fasteners or any relating documents in the 6 Affirmations he had filed.  He first explained that it was an omission on his part and that his solicitors had also overlooked the matter.  On further questioning, he said that he had already provided the documents in relation to the US proceedings, and he thought it was not necessary to disclose the documents again in the Hong Kong proceedings.  He had no intention to withhold the information because he had already disclosed them in the US proceedings.  He later clarified his answer by saying that he did not in fact remember the delivery notes in question when he made his several Affirmations.  He denied it was a case that he had applied his mind to considering whether disclosure should be made and decided against it.

40.  It is not disputed that in November 2007, if not earlier, Mr Kim already knew about the existence and the identity of the supplier of the magnetic fasteners.  Even though his 4^th Affirmation was made more than 2½ years later (in August 2010), he would have focused his attention on the question relating to the supplier when he recounted what Mr Park had told him about the agent and the manufacturer.  I am therefore sceptical about his explanation that he had forgotten about the delivery notes. 

41.  However, I take note of Mr Tsang’s evidence that he, too, had overlooked the existence of the documents.  I find nothing in the evidence to cause me to doubt what Mr Tsang had said.  Bearing in mind the requirement of a high threshold in terms of proof before the Court is to conclude that a contempt has been committed, I would give Mr Kim the benefit of the doubt.  I cannot exclude the possibility that the omission of the information concerning I Yuan and the delivery notes was accidental and unintentional. 

42.  Accordingly, I do not find that the complaint of contempt against Inter Core or Mr Kim in relation to the late disclosure of the delivery notes and the information regarding I Yuan has been sufficiently made out.

Conclusion on Liability

43.  In light of the views I have expressed on the failure to comply, within the time prescribed, with the first and second aspects of the disclosure obligation under paragraph (5) of Mr Justice A Cheung’s Order, I find that Mr Kim as Inter Core’s director is guilty of having committed a civil contempt. 

Penalty

44.  It is accepted by the Plaintiffs that Mr Kim has now “purged his contempt”[1], albeit with considerable delay.

45.  Counsel for Mr Kim asked the Court not to impose any penalty other than a costs order.  It was submitted that an award of indemnity costs, being part of the punishment, would be sufficient penalty in the circumstances.

46.  In the present case, taking into account the fact that disclosure of relevant documents was still being made as late as November 2011 in Mr Kim’s 7^th Affirmation, there has been on any view a serious delay in complying with the Judge’s Order.  The seriousness of the breach should also be viewed against the fact that several warning letters had been issued by the Plaintiffs.  Having considered all circumstances, I do not agree that an order for costs only, even on indemnity basis, would sufficiently reflect the extent of the breach.  My view is that a fine should be imposed as penalty.

47.  I would direct the parties to file and exchange further submissions within 14 days of this Judgment on the level of the fine before I make a final decision on the penalty.      

48.  I propose to deal with costs together with my final decision on penalty.