AQUA-LEISURE INDUSTRIES INC. AND ANOTHER v. AQUA SPLASH LTD.

HCA 18928/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18928 OF 1998

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D E C I S I O N

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Introduction

1. On 4 December 2001, I found the Defendant, Aqua Splash Limited, and its director, Impag HK Limited (hereinafter called "Impag HK") and Ms Connie Lin guilty of contempt of court. The parties now appear before me again for sentence.

2. Mr Harris, who appears on behalf of the directors, is unable to refer me to any guidelines for sentencing this type of offence. In fact, precedents would be unhelpful as the penalty to be imposed would depend on the facts of the individual case. He has, however, referred me to Abu Dhabi National Tanker Co v Lam Ming Chi & Anor [1998] 4 HKC 320 in which Stone J fined the defendant $100,000 for failing to comply with an interlocutory mandatory order providing for payment of a certain sum of money. He submits that to his knowledge this was the highest fine awarded and that the usual fine is in the region of between $20,000 and $50,000.

3. I think the fine to be imposed depends on the facts of the individual case, the nature of the breach involved, the seriousness of the breach, the culpability of the defendant's conduct and all the circumstances. One of the circumstances to be taken into account is whether the plaintiff has to incur substantial enforcement costs in enforcing the injunction. Mr Harris submits that the court should not take enforcement costs into account as the purpose of the penalty is not to compensate the plaintiff but to punish the defendant only. I respectfully differ from that view. Once an injunction was granted and affirmation of compliance filed, a plaintiff is entitled to rest with an assurance that the infringement of his rights has ceased and the defendant will observe the terms of the injunction like a good law abiding citizen. If the circumstances and the defendant's conduct are such as to suggest to the plaintiff that the order has not been complied with which prompted the plaintiff to take enforcement action; and if upon such enforcement action it is proved that the order has not been complied with, the defendant could only expect that the substantial enforcement costs incurred by the plaintiff is an aggravating factor which the court will take into account in deciding the appropriate penalty. A defendant should be deterred from taking advantage of the fact that breach of the order is difficult to detect or costly to enforce. Furthermore, the penalty if imposed goes to the public revenue and not to the plaintiff. The penalty imposed is not by way of compensation to the plaintiff.

Penalty for the Defendant

4. As against the Defendant, I am satisfied beyond reasonable doubt that it was in breach of Paragraphs 5 and 7of the Order in respect of the offending items found in Guan Pin Factory and the business card of Mr Oltmanns. There were about 24,000 pieces of finished products bearing the offending mark, about 20,000 colourful "Aqua Splash" packing boxes and cartons and approximately 30,000 "Aqua Splash" instruction manuals. A substantial quantity of offending products and articles were in the control of the Defendant which have not been delivered up or destroyed in compliance with the Order of Keith J. I am also satisfied that the Defendant was in breach of Paragraph 9 of the Order in that the affirmation of compliance filed on its behalf by Ms Lin is inaccurate. Despite filing the affirmation of compliance, the Defendant continued to market the goods in the toy exhibition in Nuremberg in which Mr Oltmanns used a business card describing him as a German representative of "Aqua Splash Ltd".

5. The Defendant acted in total wanton disregard of the Order. Had it not been for the Plaintiffs' successful enforcement actions, these goods would have been exported and sold in the market to the detriment of the Plaintiffs. It would render the Order nugatory and undermine the due administration of justice. The quantity of offending products involved was substantial. That is a factor which I shall take into account. The breach is therefore a substantial breach. There is nothing to suggest that the disobedience to the Order was anything other than deliberate and contumacious. Not only that, the Defendant attempted to salvage the fruits of its illegal activity by sending a WIPO registration with a view to frustrate the Plaintiffs' enforcement effort. That I consider an aggravating factor. Substantial costs of enforcement have been incurred by the Plaintiffs in taking parallel enforcement actions in the PRC and in Nuremberg. Such costs would not have been incurred had the Defendant complied with the Order. While I would not include the enforcement costs in the amount of the penalty to imposed, the fact that such substantial costs have been incurred is another aggravating factor to be considered in determining the level of fine.

6. The Defendant has been formally wound up on 1 November 2001. Any fine that I am going to impose on the Defendant is nugatory. However, that does not deter me from ordering a fine which I consider appropriate in the circumstances. The fine to be imposed on the Defendant will also serve as a starting point for the fine to be imposed on its directors. The breach was serious and substantial. Having regard to the above factors and aggravating circumstances, and after taking into account the delay in taking out the proceedings and allowing the Defendant a discount for not contesting by its absence, I consider a fine of $300,000 appropriate.

Penalty for Impag HK

7. As against Impag HK, I am satisfied beyond reasonable doubt that it is liable as director for the contempt committed by the Defendant as particularized above. Its attempt to salvage the offending goods from destruction by TSB reflects that Impag HK played an active role in the management of the Defendant. It is the 99% owner of the Defendant and must be its controlling mind as well. The consideration applicable to the Defendant are equally applicable to Impag HK. Having regard to the substantial and serious nature of the breach, the aggravating circumstances and the Defendant's contumacious conduct, I consider a fine of $200,000 to reflect the culpable conduct of Impag HK as the Defendant's director and its controlling mind appropriate. But for the delay in taking out the proceedings, I would have fined $250,000.

Penalty for Ms Connie Lin

8. As against Ms Lin, I am satisfied beyond reasonable doubt that she is liable as director for the contempt committed by the Defendant as particularized above. While there is no evidence of her active participation in the breach discovered in Guan Pin Factory and in Nuremberg, she has the management of the Defendant. She filed an inaccurate affirmation of compliance without taking steps to ensure its accuracy. I do not consider it a serious breach as to deserve imprisonment, but a substantial fine is certainly called for. There is nothing to suggest that she has no means to pay a substantial fine. After allowing for the delay in instituting the proceedings, I order a fine of $50,000.

Costs

9. I order that the Defendant, Impag HK and Ms Lin do pay the costs of the Plaintiffs on an indemnity basis, jointly and severally. As the present proceedings have now been brought to a conclusion, I grant the Defendant, Impag HK and Ms Lin liberty to enforce the costs order made by Yeung J against the Plaintiffs in respect of the first application for leave to commence these committal proceedings.

Conclusion

10. Accordingly, I fine the Defendant $300,000, Impag HK $200,000 and Ms Lin $50,000. The Defendant, Impag HK and Ms Lin shall pay the Plaintiffs' costs on an indemnity basis, jointly and severally.