PAK KO BATTERIES FACTORY LIMITED AND OTHERS v. NEW LEADER BATTERY INDUSTRY LTD

HCA 1139/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1139 OF 2007

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D E C I S I O N

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THE APPLICATION

1.  By summons dated 31 July 2013, the plaintiffs apply for leave under Order 38 rules 7 & 36 to adduce expert evidence as set out in the summons, the main points of which are summarized as follows:

a. The decision/judgments of the PRC courts/state offices relating to the issues of validity and/or infringement of the “patent” in question (“the final decisions/judgments”) as evidence of finding of foreign law;

b. The legal effect of the decisions/judgments and in particular, in view of the Decision of the Highest People’s Court of the PRC dated 20 December 2012 (the 2012 Decision), the “patent” in question is deemed to be invalid from the beginning and thereby never existed, or it remains valid and subsisting notwithstanding the final decision/judgment; and if that is the position, what is the overriding effect on the validity of the “patent” in question?

c. An accountant’s report on the quantum of loss suffered by the plaintiff.[1]

2.  The defendant’s positions in relation to the above applications are these:

a. As to the issue of foreign law, it takes the view that Order 38 RHC refers to section 59 (4) of the Evidence Ordinance, Cap. 8, which refers to decisions of the supreme courts in UK or the Court of Final Appeal only.  It does not refer to the PRC court.  However, the defendant submits that it is unnecessary for the plaintiffs to take out the application as both parties’ experts have to rely upon the PRC decisions or judgments.  The plaintiffs agree that this application is not necessary.  As such, this application is dismissed.

b. It agrees that expert evidence should be adduced at trial.  It disagrees to the issues as framed by the plaintiff.  It proposes the issues for expert evidence as set out in pages 152-156.  It can be seen that the defendant agrees that expert evidence should be given, but since the defendant has to plead justification in its defence, it has to rely upon expert evidence on the interim periods where the patent was obtained and set aside by the Court and subsequently restored by the administrative office of the PRC, in particular, during the periods when the alleged defamatory statements were made.

c. It disagrees that leave should be given to the plaintiffs to adduce the accountant’s report on its loss because loss, in its view, is a matter of fact to be adduced by factual witnesses.[2]

3.  Mr. Lam, solicitor acts for the plaintiffs and Ms F. Lok, counsel acts for the defendant.

THE FACT

4.  This is a case of defamation against the defendant, who was the owner of the patent in relation to certain battery products, a business rival to the 1^st plaintiff.  The 1^st plaintiff claims that the defendant issued a letter dated 24 September 2004 to its customers containing defamatory words that the 1^st plaintiff had supplied battery products which infringed the defendant’s patent on those products.  The 1^st plaintiff also alleged that the defendant had, on a date unknown to it, published an article (“the article”) on its website containing the similar defamatory words.  The 1^st plaintiff did not dispute that the defendant had once been the owner of the patent.  But it said that the said patent had been declared invalid at the material times by the Patent Re-examination Board (“the Board”) of the State Intellectual Property Office of the PRC.  Hence, the statement and the article were defamatory.

5.  The 2^nd and 3^rd plaintiffs said that the article on the defendant’s website was defamatory because it meant that they were selling product supplied by the 1^st plaintiff, which were an infringement of the defendant’s patent.  For the same reason that the defendant’s patent had, at the material times, been declared invalid, they claimed against the defendant for libel.

6.  The defendant pleads justification and qualified privilege as its defence.[3]  The defendant further says that the material dispute between the parties is the validity of the defendant’s patent at the material times, namely the publication of the letter and the article.[4]

7.  Thus analyzed, the dispute between the parties in relation to the expert evidence on the liability will focus on the width and depth of the issues on which expert evidence should be adduced at the trial.

THE APPLICABLE LEGAL PRINCIPLES

8.  The following legal principles should apply:

a. The court is concerned with proper directions for expert evidence in order not to cause delay and waste of expenses.  Faith Bright Development Limited v Ng Kwok Kuen & Ors [2010] 5 HKLRD 425 at 430-431;

b. The parties and their legal representatives have a duty to assist the court in formulating the appropriate expert directions.  Chok Yick Interior Design & Engineering Co Ltd v Lai Chi Lun t/a Chi Hung Construction Eng Co HCA 1480/2008 by Lam J (as he then was) on 5 May 2010 at §8;

c. Expert evidence must be confined to the live issues of dispute between the parties, which must be sought from the pleadings.  China Gold Finance Limited v. CIL Holdings Limited & Ors HCA2900/2001, (unreported, Registrar Lung, 25 September 2012) at para.17-18.

9.  For the purpose of defining the live issues for liability, it is common that the parties must refer to the legal effects of the final decisions/judgments and the interim periods of the decision of the Board and the decisions of the courts.

FACTORS TO DETERMINE SCOPE OF EXPERT EVIDENCE

10.  In determining the scope of expert evidence, it may be helpful to bear in mind the following factors:

a. The real issues of dispute;

b. The burden of proof;

c. Is it fair to adopt a narrow scope or a wider scope (as the dispute is usually on the scope of expert evidence)? and

d. Proportionality – will the proposed scope save costs and time?

11.  In China Gold Finance Limited v. CIL Holdings Limited & Ors (HCA2900/2001), the parties were also arguing on the scope of the expert evidence.  I ruled out the plaintiff’s proposed direction on an issue which was not pleaded and, even if pleaded, had no chance of success.  It was therefore not a real issue of dispute.  The scope as proposed by the 1^st defendant was more extensive than that proposed by the plaintiff.  The real issue of dispute was whether, as alleged by the 1^st defendant, the plaintiff had assigned the loan to another company and therefore the 1^st defendant was not liable.  The burden of proof lied upon the 1^st defendant.  If the court were to adopt the plaintiff’s narrow scope of expert evidence, it would be unfair to the 1^st defendant, who would be, in any event, entitled to raise it at trial.  The adoption of the 1^st defendant’s wider scope of expert evidence would not incur more costs and time.  I therefore adopted the 1^st defendant’s proposed scope of expert evidence.  See paragraphs 28-30.

12.  In Amcor Packaging (Asia) Pty Ltd v Li Wei Bo HCA 1351/2009 (unreported, Registrar Lung 9 January 2014), the plaintiff claimed against the defendant for the guaranteed amount because the audited accounts of the companies, which the defendant guaranteed showed a deficiency in the guaranteed profit.  The defendant disputed that the audited accounts were not compiled in accordance with the terms of the undertaking; in particular, they were not in compliance with the accounting and audit standard in Hong Kong.  The real issue was whether the audited consolidated accounts of the group of companies were compiled in accordance with the terms of the undertaking.  Since the plaintiff had produced the audited accounts, the burden would be on the defendant to show that they were not in accordance with the terms of the undertaking.  In fact, the defendant had produced an expert report commenting on the way the audited accounts were prepared.  Therefore, though the plaintiff objected to the defendant’s application, leave was given to the defendant to adduce the expert evidence to discharge his burden.  However, the defendant’s proposed issues for expert evidence on the way the audited accounts should be prepared were irrelevant as there should be more than one way of preparing the audited accounts acceptable to the accounting and audit standard in Hong Kong.  Those issues were rejected because they were not the real issues; and if allowed, would muddle the issues and would waste costs and time.  The Court therefore reframed the issues for the parties.

13.  In West Coast International Trading Ltd trading as Dandelion Fine Arts v Chelsea Art Company Ltd HCA1636/2010 (unreported, Registrar Lung 10 January 2014), the plaintiff claimed against the defendant for conversion of the paintings stolen from it.  The defendant had bought one of the paintings and intended to return it to the plaintiff.  The plaintiff declined to accept it, saying that it was a counterfeit.  The plaintiff supported its allegation by the opinion of another painter, an expert on painting in question. The defendant argued that there should be expert evidence on the identity of the 2^ndpainting and put the plaintiff to strict proof whereas the court, after considering the materials before it, decided that the real issue should be the authenticity of the painting which the defendant sought to return to the plaintiff, not the identity of it.  The scope of the expert evidence was therefore determined accordingly.

DISCUSSION

The scope of expert evidence on liability

14.  I shall now apply the above factors to the proposals as put forth by the plaintiffs and those by the defendant.

15.  The real issue of dispute has been decided.  Since the defendant pleads justification, the burden will be on the defendant to prove those contents were, at the material times, true or they were justified for qualified privilege.  The defendant should be given the liberty to adduce the evidence that it considers appropriate to support its case, provided that the evidence is relevant and reasonable, not wasting time and costs.

16.  It is true that the plaintiffs’ proposed scope of expert evidence is brief and succinct.  This is because the plaintiffs can simply rely upon the 2012 Decision, which, the plaintiffs say, renders the patent invalid ab initio.  The plaintiffs comment that the defendant’s proposed scope of expert evidence is diverse and that it appears to adopt the stance the administrative actions or appeals by the defendant to the PRC courts at the material times had the effect of preserving the validity of its patent or keeping it alive.  The plaintiffs have raised three grounds of objection on the defendant’s stance.[5]

17.  The first ground relates to the dates of the article published and the date of the appeal.  This seems to be irrelevant to the stance.  At best, the plaintiffs may say that the article was published before the lodging of the appeal, which is a matter of fact.

18.  The second ground says that there is no evidence that the administrative actions or appeal might have the effects as the defendant intends.  This is what expert evidence should be given.  It should be noted that the court’s decisions on the validity of the patent appeared to be not final as the courts’ decisions were, from time to time, reviewed by the Board, which will require the expert in Chinese law to explain to the court.

19.  The third ground is that the stance is not pleaded in the Defence.  This is already covered in the pleadings because the pleading is on justification.

20.  The defendant has pleaded that until the resolution of the proceedings commenced on 3 July 2007 to set aside the administrative office’s decision, the patent is still valid.[6]  In the determination of relevance in the pleadings, the Court should adopt a broad sense, rather than going to the particulars.  It should also be noted that the pleadings of respective parties have not touched on the Decision of the Highest People’s Court of the PRC dated 20 December 2012.  The plaintiffs and the defendant have indicated that they will amend their pleadings. This will be covered by the directions in the Case Management Conference below.

21.  Even if the Court is to adopt the plaintiffs’ proposed scope of expert evidence, it will not be difficult to envisage that the defendant will, at the trial, raise all those questions as appeared in its scope of expert evidence for the expert witnesses. The Court will be reluctant to restrict the defendant’s questions to the expert witnesses.

22.  I consider it will be unfair to restrict the defendant’s right to adduce its expert evidence as it has to discharge its burden of proof for justification.  As they are bound to be the issues to be discussed, it will not be unfair or wasting costs to allow the defendant’s proposed scope of expert evidence.  The plaintiffs’ expert may answer those issues as raised by the defendant in the expert report, saving time at the trial.

23.  I agree with the plaintiffs that the defendant’s proposed directions are diverse.  The real issues will be whether or not the patent remained at the material times, viz. the time when the letter was issued to the plaintiffs’ customers and the time when the article was published on the defendant’s website.  However, since the plaintiff has pleaded that the article was published on the defendant’s website on a date unknown to them, the scope of the material times has to be extended to the whole period from the obtaining of the patent until the 2012 Decision.

24.  I decide to adopt the defendant’s proposed scope of expert evidence.

On quantum

25.  As to the issue of expert evidence on quantum, the defendant argues that it is a matter of fact.  Therefore factual evidence from the plaintiffs or their representatives will be sufficient.[7]

26.  The plaintiffs argue that if the plaintiffs are successful, they are entitled to actual loss and loss of customers as a result of damage to goodwill.  An accountant will be required to make the assessment.

27.  The real issues of dispute must be found from the pleadings.  In paragraph 17 of the Statement of Claim, the plaintiffs claim damages for cancellation of the orders because of the defendant’s libel.  The amount of damages is $330,000.  The particulars given in paragraph 18 are the reasons for the claim rather than the way the amount was calculated.  In the Defence, the defendant denied the plaintiffs’ claim and said that the plaintiffs were not entitled to any damages, whether exemplary or otherwise.  See paragraph 19 of Defence.

28.  Mr. Lam tells me that the purpose of getting an accountant as an expert is to prove damages.  However, from the Defence, the defendant has not pleaded that it will challenge the way the amount of damages were calculated.

29.  Therefore, I do not agree that leave should be given to the plaintiffs to adduce expert evidence on the quantum.

Costs

30.  On the question of costs for this application, Mr. Lam submits that the costs should be in the cause because the question for today is the scope of the expert evidence, which is a matter for case management.  Ms Lok submits that the parties had been advised by the Court to agree on the expert evidence way back to June last year.  They were unable to do so and the plaintiffs insist upon their stance.  As the matter has been argued, the costs should follow the event.  I agree.  The fact that the defendant has not maintained the same proposed expert evidence is not a factor that will affect the costs liability arisen from the argument today.  Costs should be given to the defendant (with a counsel’s certificate), which is to be assessed summarily under Order 62 rule 9A RHC. The defendant’s schedule of costs amounts to $284,328.  Mr. Lam submits that it is excessive because there was senior counsel’s involvement, which is not necessary.  He also comments that there was excessive time claimed by the solicitor for the preparation of the matter.  Ms Lok explained that senior counsel was once involved, but upon re-consideration, the defendant decides to instruct the junior counsel only.  The solicitor had to explain the documents in English to client, which has caused more time for the preparation.  On a broad-brush basis, the Court considers that the time for this hearing, as agreed by the parties, is only two hours.  I have made reference to the plaintiff’s schedule of costs, which are $39,250.  The costs as proposed for a 2-hour hearing are no doubt, high.  I assess the costs for this application, including the costs reserved and the hearing today, be $80,000 to be paid by the plaintiffs to the defendant within 14 days from the date hereof.

Order

31.  I shall make an order in terms as follows:

a. The plaintiffs’ application for leave to adduce foreign law be dismissed;

b. Leave to the plaintiffs and the defendant to adduce expert evidence as per the directions set out in page 152-156 of the bundle;

c. The plaintiffs’ application for expert evidence on quantum be dismissed;

d. The costs be as per paragraph 30 herein.

32.  I shall now deal with the Case Management Conference matters as follows:

a. After the preparation of the joint expert statement as provided under the proposed directions for expert evidence as per page 156 of the bundle, the parties shall, within 28 days, obtain Counsel's advice;

b. All interlocutory applications as may be advised shall be taken out within 21 days thereafter. Such applications, if contested, shall be fixed before the Registrar for argument;

c. The parties shall exchange the witness statements within 42 days thereafter or after close of the amended pleadings, if any;

d. Any party being unable to comply with any of the directions herein shall take out an application for time extension within 7 days after the due date for compliance.

e. The 2^nd Case Management Conference shall be held at 9:30 on 29 October 2014;

f. Costs of this Case Management Conference hearing (30 minutes) be in the cause.