RILEY LEISURE PLC v. DOKYO COMPANY LIMITED AND ANOTHER

IN THE COURT OF APPEAL

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REASONS FOR JUDGMENT

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Clough J. :  (delivering the judgment of the court)

1. On the 18th July 1986 we dismissed this appeal with costs and indicated that we would deliver our reasons later.

2. The Defendants, against whom the Plaintiff has brought a passing off action, appealed against the, decision of Deputy Judge Barnett made on the 5th June 1986 (1) dismissing the Defendant's application to discharge an ex parte order made by Baber, J. on the 19th March 1986 injuncting the Defendants from passing off their snooker tables or accessories bearing or by reference to the Plaintiff's name or logo, and granting additional Anton Piller and Mareva relief; and (2) upon the undertaking of the Defendants to refrain from doing specified acts in respect of which the ex parte injunction had been granted, continuing the Mareva relief against the Defendants authorising the Plaintiff to retain at its solicitors' offices all photographs removed from the Defendants' premises upon the execution of the Anton Piller order and authorising the Plaintiff to use the materials obtained pursuant to its Anton Piller discovery for the protection of its rights which were the subject of the action.

3. The ex parte order had been made by Baber, J. on the 19th March 1986 at a time when he had before him the Plaintiff's writ in the action issued on the same date and a substantial volume of evidence filed on behalf of the Plaintiff in support of its application. In compliance with a direction contained in the order, the Plaintiff issued an inter partes summons on the 21st March 1986 applying for a continuation of the injunction and Mareva relief and for discovery. On the 25th March 1985, the return date for the summons, the parties required time to file evidence and Macdougall J. accordingly gave directions to permit this on the footing that the summons was to be adjourned to a date to be fixed and that, in the meantime, the effective relief provided by the ex parte order was to continue.

4. However, on the 11th April 1986, before the restoration of the inter partes summons, the Defendants issued a summons for the discharge of the ex parte order. In the event the effective hearing of both summonses took place before the deputy judge on the 4th and 5th June 1986. By the time the respective summonses of the parties came to be heard a substantial volume of evidence had been filed on both sides. In particular the second Defendant and Mr. Chan had made affirmations concerning the nature of what they contended was the wholly legitimate business of the first Defendant. At this stage all the evidence had to be considered as a whole by the deputy judge when deciding whether to maintain or continue, or to discharge or vary the order previously made by Baber, J.: Ninemia Corporation v. Trave G. m.b. H⁽¹⁾.

5. On the 5th June 1986 he dismissed the Defendants' summons. The Defendants appeal against that dismissal. On the Plaintiff's summons the deputy judge made the order against which the Defendant also appeals.

THE EX PARTE ORDER

Grounds of Appeal

6. The appeal against the deputy judge's dismissal of the Defendants' applicatioh for the discharge of the ex parte order is based on the contention that he erred by :-

Background

7. The evidence before Baber J. on the ex parte application was voluminous. It comprised affidavits by Mr. Donkin, a director of the Plaintiff, Mr. Roome, the solicitor having the conduct of the action on behalf of the Plaintiff and Mr. Halkes, the manager of the Plaintiff's commercial enquiry agents.

8. The substance of the evidence adduced on behalf of the Plaintiff was that the Plaintiff was a long established English public limited company which, together with its subsidiaries, was a reputable designer, manufacturer and supplier of high quality snooker and billiard tables and accessories and which also owned and managed snooker clubs and centres. There was evidence of substantial world-wide sales of these products by the Plaintiff and of a rapid increase in sales of full sized snooker tables in Hong Kong from a value of £24,000 (13 tables including accessories) in 1981 to £4,603,000 (2,037 tables including accessories) in 1985. There was also evidence of expenditure on advertising in Hong Kong by the Plaintiff showing a steady increase from £11,800 in 1981 to £131,700 in 1985.

9. Mr. Donkin, the director of the Plaintiff responsible for export sales of the Plaintiff's products in the southeast Asian region, deposed that over the years the Plaintiff and its subsidiaries had marketed, promoted and advertised their products under the name of Riley and under the RILEY mark. He further deposed that since the early 1980's the Plaintiff and its subsidiaries had been using in Hong Kong, and throughout the world, a "pocket and ball" logo which it had acquired through the acquisition of another company in the same line of business.

10. According to Mr. Donkin's evidence, one of the Plaintiff's more successful tables in recent years had been a table called the "Aristocrat" which sold for roughly £2,800 f.o.b. London, or about (HK)$31,500 at an exchange rate of (HK)$11.25. This table, in common with other products of the Plaintiff and its subsidiaries, was sold bearing the Riley gold label depicting the name "RILEY" and the Plaintiff's pocket and ball logo.

11. His complaint was that the first Defendant, of which the second Defendant is the managing director, was selling and offering for sale a cheaper table, called the "Silver Crown", the frame of which had been made in Taiwan and was of the same design as the Plaintiff's Aristocrat table. It was alleged that the Silver Crown was being marketed by the Defendants bearing the Riley label or sticker. The evidence of Mr. Donkin and Mr. Halkes included allegations of such alleged trading off the Plaintiff's reputation which was the basis for the action.

Ground of appeal (1) : Material non-disclosure

12. When considering whether or not to discharge the ex parte order on the ground of material non-disclosure the deputy judge, who had evidently had a number of the relevant authorities cited to him, correctly stated the settled principle laid down by those authorities and applicable by him when he observed:

"

The principle is that there must be full and frank disclosure of all material facts that may be relevant in the Judge's weighing up process in considering whether to grant the injunction. Whether or not the factors would have affected his decision is irrelevant."

13. He was here clearly having regard to the wide test of relevance concerning non-disclosure (in relation to an ex parte application for an Anton Piller order) laid down by Browne-Wilkinson J. in Thermax v. Schott Industrial Glass Ltd. ⁽²⁾ in the following terms:-

"

I therefore think it is very important indeed that in making applications it should be in the forefront of everybody's mind that the court must be fully informed of all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order."

 

14. The deputy judge was, also directing himself, as Goulding J. did in Wardle Fabrics Ltd. v. G. Myristis Ltd.⁽³⁾ that it is not correct to apply a narrower test by asking whether, if the judge entertaining the ex parte application had had the additional facts subsequently disclosed, would he have come to the same decision.

15. On behalf of the Defendants Mr. Kwok, who argued the appeal with his usual ability and thoroughness, contended that there were five heads of material non-disclosure and that the deputy judge erred in not concluding that the ex parte order should therefore have been discharged. We deal with each matter below in the order of Mr. Kwok's submissions.

(a)     The extent and conduct of the first Defendant's legitimate business

Ground of appeal (2) : Insufficient evidence in support of the order

16. Although this ground of appeal in the Defendants' notice of appeal relied on the alleged insubstantial nature of the Plaintiff's claim and the alleged insufficiency of the Plaintiff's evidence to support a claim for Anton Piller and Mareva relief, Mr. Kwok confined his submissions to the alleged insufficiency, before Baber J., of evidence of the Defendants' assets to justify Mareva relief. The deputy judge, who had been taken through the evidence in detail, held that there had been abundant evidence, if believed, to show that the Plaintiff was entitled to the relief sought.

17. Mr. Kwok rightly emphasised that one of the essential prerequisites to be established by a plaintiff seeking Mareva relief is that there are reasons to believe that the defendant has assets within the jurisdiction to meet the judgment, in whole or in part: Z Ltd. v. A-Z and AA-LL⁽⁴⁾.

18. He contended that the Plaintiff had failed to discharge this onus before Baber J.. Reliance was placed upon Mr. Donkin's evidence of the results of the search relating to the first Defendant in the Companies Registry. This had disclosed that the first Defendant was little more than a shell. It had a paid up issued capital of (HK)$2 and the shareholders appeared to be nominees. Records in the Companies Registry indicated that the company had not filed its annual return due on the 31st December 1985. Mr. Donkin had deposed that there appeared to be little chance of the first Defendant "being good" for damages to compensate the Plaintiff. He went on to depose that he did not know the state of the first Defendant's bank balance or the second Defendant's wealth "save as set out hereunder".

19. There followed a paragraph in Mr. Donkin's affidavit which was intended to show that the first Defendant was making substantial profits. However it was explained to Baber J. at the hearing of the ex parte application that this paragraph was misleading and probably inaccurate. The judge was told that this part of Mr. Donkin's evidence was abandoned.

20. Later in his evidence Mr. Donkin suggested inter alia that in view of the flagrant and conscious nature of the Defendants' passing off, particularly in the light of the first Defendant's "shadowy financial substance", the indications were that they would not hesitate to conceal their assets, dissipate them and allow the first Defendant to go into liquidation in order to frustrate any judgment obtained by the Plaintiff.

21. Mr. Kwok relied, understandably, on the abandonment of Mr. Donkin's evidence about the first Defendant's alleged profits and on his reference to the shadowy financial substance of the first Defendant and its not "being good' for the Plaintiff's damages. He contended that the evidence of the enquiry agents only related to claims of business and that the Plaitniff could have found out the apparent financial position of the Defendants.

22. In our judgment the clear inference from the combined evidence of Mr. Donkin and Mr. Halkes was that the first Defendant was the vehicle through which the second Defendant conducted an active business in billiard and snooker tables and accessories which must have required and in turn yielded, substantial financial resources. There was evidence of the first Defendant's premises and storage facilities. Mr. Donkin's evidence, if believed, indicated that the first Defendant had ordered 137 "copy Aristocrat tables" at about (HK)$6,786 each from its supplier in Taiwan and paid for 91 of hem which had been shipped to Hong Kong in the later part of 1985.

23. Mr. Donkin had exhibited a telex dated the 29th October 1985 from the second Defendant containing the assertion that the first Defendant was then already selling over 150 tables per month in Hong Kong. Mr. Halkes exhibited Mr. Chan's letter to a Mr. Ang containing the assertion that the first Defendant had already sold over a thousand billiard tables in Hong Kong and had just sold 23 sets of tables in a shopping centre in Petaling Jaya. Furthermore the evidence of Mr. Halkes was that one of his investigators was told by the second Defendant on the 11th March 1986 that the first Defendant sold seventy per cent of the snooker tables sold in Hong Kong.

24. The evidence is too voluminous to set out at greater length but we agree with the deputy judge that there was ample evidence before Baber J. which, if believed, established that there were reasons to believe that the Defendants must have had assets within the jurisdiction to meet the whole or part of any judgment the Plaintiff might obtain in the action.

25. An Anton Piller order msut be meticulously carefully executed by the applicants with the fullest respect for the defendant's rights of applying to the court, should he feel it necessary to do so, before permitting the inspection: Anton Piller K.G. v. Manufacturing Processes Ltd. ⁽⁵⁾.

26. The Defendants complain of the breach of duty by the Plaintiff's solicitors in failing to inform the Defendant, upon execution of the ex parte order, that the paragraph of Mr. Donkin's affidavit, referring to the first Defendant's alleged sales and profits of their alleged passing off activities, had not been relied upon as part of their evidence before Baber J.. The Plaintiff's solicitors did not inform the Defendants' solicitors of the true position until the 15th April 1986.

27. The deputy judge was not persuaded there had been a breach. We consider there undoubtedly was a breach of duty here which could well have been material, particularly as to costs if the Defendants had made an application for the discharge of the order before being informed of the true position.

28. However, no such application was made before the Plaintiff's solicitors put matters right. In the event there was accordingly no consequential prejudice to the Defendants from the breach of duty and this ground of appeal must fail.

29. Having concluded that there were no grounds for interfering with the deputy judge's decision to dismiss the Defendants' application to discharge the ex parte order made by Baber J. on the 19th March 1986, we went on to consider the further effective grounds of appeal against the deputy judge's decision, at the conclusion of the hearing of the Plaintiff's inter partes summons, to continue the Mareva and other relief upon the undertaking given by the Defendants.

THE ORDER ON THE INTER PARTES SUMMONS

Amended Grounds of Appeal

30. Ground (4) of the amended notice of appeal comprised five sub-paragraphs relying on the following grounds as being matters the deputy judge had failed to appreciate when granting the Plaintiff relief under the inter partes summons:

The matters raised under ground (e) has ceased to be effective as a result of our decision above on the material non-disclosure issue.

Grounds (a) and (c) : Legitimate business of the Defendants

31. Mr. Kwok for the Defendants developed no argument under ground (a) regarding the alleged insubstantial nature of the Plaintiff's claim. His real argument linked ground (c) with ground (a) and was based on the nature and extent of "the Defendants' legitimate business interests and the contention that the deputy judge had failed to give adequate weight to the hardship that Mareva relief to the Plaintiff caused to those interests.

32. Mr. Kwok relied on the evidence of the second Defendant and of Mr. Chan regarding the assets of the Defendants, referring to the first Defendant's snooker accessories worth (HK)$550,000 and to their evidence that the substantial preponderance of the first Defendant's sales were of Royal Crown tables (over 1,000 tables) whereas the number of Silver Crown tables (the allegedly offending tables) sold was only 81. Reliance was also placed on the second Defendant's evidence of the consultancy services offered by the first Defendant and of its extensive advertisements of the Royal Crown table both in Hong Kong and overseas.

33. The second Defendant had given evidence regarding the hardship which he claimed was being inflicted on the first Defendant's business in Hong Kong and abroad by the Mareva order. He had affirmed on the 17th April 1986 that the first Defendant was then handling approximately 85 contracts regarding snooker tables other than the Silver Crown model and that if even three or four of those contracts came to fruition they would result in a sales turnover of several million dollars. He had contended that the first Defendant's prospective customers would be bound to do credit searches on the first Defendant and that if they were informed of the Mareva order the credibility of the first Defendant would be damaged beyond repair.

34. He further contended that the effect of the Mareva order on the cash flow of the first Defendant was such that it found it impossible to open letters of credit with its suppliers. It was, he affirmed, unable to take possession of the 46 pieces of slate, the trust receipt of which was held by a bank, and this meant that the first Defendant would have to pay liquidated damages of (HK)$350 to (HK)$500 per day per table in respect of 46 unsold tables. He claimed that his company's expansion plans in foreign markets were being frustrated after expenditure in excess of $100,000 on promotion and that negotiations for a "packing loan" from the first Defendant's banks would not come to fruition if the injunction were continued. He also claimed that staffing problems would result if the Mareva order were continued.

35. The second Defendant had affirmed that the projected turnover of the first Defendant for 1986 had been (HK)$50 to (HK)$60 million. He exhibited copies of two contracts which were required to be fulfilled at the latest by mid May 1986 and the completion of which he affirmed would require letters of credit "to the tune of (HK)$1,500,000". He added "Doubtlessly, the said Letters of Credit could not be opened what with the on-going injunction against my Company.". The outcome of these forebodings was not revealed by any subsequent evidence adduced on behalf of the Defendants before the deputy judge on the 4th and 5th June 1986, although the second Defendant did make an affirmation on the 2nd June 1986.

36. All this evidence was before the deputy judge. He is recorded, in a note of his extempore judgment made by counsel and approved by him, to have had this to say when deciding to continue the Mareva order:-

"

A Mareva injunction was granted ex parte and the Judge granted it up to $500,000. I have been asked to discharge that Order by the Defendants. I have refused to do so. There is substantial evidence, if believed, that is quite sufficient to ground the granting of a Mareva injunction, so that is the first hurdle. The next question is whether that Mareva injunction should continue. It has not been argued by the Defendants that it is not a fair inference from the evidence of the Plaintiff that the assets would be removed or dissipated if the injunction were not granted. The Defendants merely say that the injunction is causing difficulties to their business. But, as Mr. Clayton says, that is just a general statement and I am mystified how the Defendants are running a thriving business and making these large contracts that they say they are, which they say make them subject to liquidated damages should they fail to perform, on the assets that they have disclosed. Nothing has changed since the Judge first granted the Mareva injunction and, in my view, the Plaintiff is entitled to have the Mareva injunction until trial or further order."

 

37. The deputy judge had made it clear in the earlier part of his judgment that he considered the legitimate business of the Defendants, apart from its business in the allegedly offending Silver Crown tables, to be material and that he considered there to be ample evidence of such legitimate business.

38. Mr. Kwok contended, in a forceful argument, that the deputy judge had adopted a cynical approach when deciding to continue the Mareva order and that he had failed to carry out the operation of weighing the factor of hardship to the Defendants, wide range of legitimate business, referred to in the unchallenged evidence of the Defendants, against the prima facie entitlement of the Plaintiff to Mareva relief. He contended that the Defendants were conducting a business in Hong Kong which depended on their good reputation and that their business and assets were such that they would not conceal their assets and allow the first Defendant to go into liquidation in order to avoid any judgment the Plaintiff might obtain. He rightly placed reliance on the dictum of Kerr, L.J. in Z. Ltd. v. A-Z and AA-LL^(4a) to the effect that the Mareva jurisdiction would not properly be exercised against the majority of defendants and that in non-international cases "........ defendants are generally persons or concerns who are established within the jurisdiction in the sense of having assets here which they could not, or would not wish to, dissipate merely in order to avoid some judgment which seems likely to be given against them;".

39. On the question of harm to the Defendants occasioned by the Mareva order, Mr. Kwok relied on the dictum of Kerr, L.J. delivering the judgment of the court in Ninemia Corporation v. Trave G.m.h.H.^(1a) where he observed:-

"

Further, it must always be remembered that if, or to the extent that, the grant of a Mareva injunction inflicts hardship on the defendants, their legitimate interests must prevail over those of the plaintiffs who seek to obtain security for a claim which may appear to be well-founded but which still remains to be established at the trial".

 

40. This dictum was delivered at the end of the judgment of the English Court of Appeal in a leading case in which that court was concerned to emphasise that the ultimate test for the exercise of the Mareva jurisdiction pursuant to section 37(1) a and (3) of the Supreme Court Act 1981 was whether in all the circumstances the case was one in which it appeared to the court to be just and convenient to grant the injunction. In Hong Kong the corresponding provisions are sections 19(1) and (2A) of the Supreme Court Ordinance (Cap. 4). The court was, in that case, answering two questions formulated by Mustill J. at first instance as to (1) what probability of success at the ultimate trial a plaintiff was required to demonstrate to obtain Mareva relief and (2) what type of prejudice must a plaintiff demonstrate in the shape of dissipation of assets and with what degree of conviction must it be shown, before assets could properly be detained to await a possible judgment.

41. The court answered those questions by holding that a plaintiff was required to show, on the evidence as a whole, at least a good arguable case that he would succeed at the trial and that a refusal of an injunction would involve a real risk that a judgment in his favour would remain unsatisfied. It was emphasised that the Mareva jurisdiction could not be invoked simply for the purpose of providing a plaintiff with security for his claim, even where it appeared to be likely to succeed and even where there was no reason to suppose that an injunction or the provision of some substitute security by a defendant would cause any real hardship to that defendant.

42. At the end of its judgment at p. 1426 the court stressed that the appeal had been mainly concerned with the tests to be applied in answering the two questions raised by Mustill J. and it emphasised that other matters may often also have to be borne in mind when a court was applying the above mentioned ultimate test for the exercise of the Mareva jurisdiction. Examples of such matters were the conduct of the plaintiff, rights of third parties who might be affected by the injunction and the factor of hardship inflicted on the legitimate interests of a defendant.

43. In the Ninemia case the Court of Appeal had to consider criticism of the treatment by Mustill J. of the evidence which had been before him at the inter partes stage and, at p. 1425 H, Kerr L.J. observed:-

"

Thus, while it is obviously up to the defendants what evidence' they put before the court, the plaintiffs are equally clearly entitled to comment adversely upon any evidence which the defendants may adduce."

 

44. In the present appeal it was not in issue whether the Plaintiff had established a good arguable case. The criticism of the deputy judge's decision concerned the question whether the Plaintiff had established that a refusal of a Mareva injunction would involve a real risk that a judgment in the Plaintiff's favour would remain unsatisfied, and whether he had applied the ultimate test of considering whether it would be just and convenient and, in doing so, given sufficient weight, in the weighing operation necessarily involved, to the Defendants' evidence of the harm which they contended would be inflicted on their legitimate business if a Mareva injunction were continued.

45. In our judgment there is nothing in the passage of the deputy judge's judgment set out above to justify the inference that he did not carry out the proper weighing operation and apply the ultimate test as to whether on all the evidence before him it would be just and convenient to continue the Mareva injunction. He clearly had formed the view on the evidence before him that the Plaintiff had shown that there was a real risk that the Defendants might dissipate their assets to avoid any judgment obtained by the Plaintiff. He accepted the Plaintiff's counsel's criticism of the Defendants' evidence of the harm they contended would be inflicted on their legitimate business by the Mareva injunction and he clearly did not consider that the Defendants had seen fit to disclose their net underlying assets to reflect their true financial position.

46. It is not the function of this court to substitute its own discretion for that of the judge at first instance unless it has been shown that he has misdirected himself: c.f. the Ninemia case at p. 1421 E-F. In the absence of any such misdirection we rejected this ground of appeal.

Ground (b) : The Plaintiff's delay

47. Mr. Kwok contended that the Plaintiffs had been guilty of delay because they knew about the alleged passing off of Silver Crown tables by the 13th December 1985 but had given no explanation for the delay in taking action until March 1986.

48. The basis for the contention that the Plaintiff had knowledge of the relevant passing off by the 13th December 1985 was the telex of that date from Mr. Donkin to the second Defendant claiming that the Plaintiff had been advised by two very reliable sources in Hong Kong that the Defendants were marketing a snooker table of Aristocrat design.

49. In our judgment a fair reading of Mr. Donkin's evidence makes it clear that in fact the Plaintiff was at this stage acting on mere rumour and that, making due allowances for the fact that the Plaintiff is an English based company, it was vigilant to protect its interests and took proceedings as soon as it had obtained actual evidence of passing off in March 1986. There was nothing in this ground of appeal and the deputy judge rightly rejected the argument on delay when it was put to him.

Ground (d) : Conduct of the Plaintiff after the ex parte order

50. The second Defendant had affirmed on the 2nd June 1986 that Mr. Chan, who was then in Malaysia, had informed him that the Plaintiff had been "openly publicizing the present proceedings, especially the ex parte injunctions" to the snooker trade in Hong Kong and abroad. According to the second Defendant, Mr. Chan had experienced insurmountable difficulties in Malaysia in April in negotiating a contract worth (HK)$1.7 million with a "first time potential customer", a named Malaysian company. This difficulty was alleged to have arisen because Mr. Donkin had gone to Malaysia and informed two named personnel of the Malaysian company that the first Defendant was being sued by the Plaintiff and unable to do business. The chain of sources of this evidence was the two named personnel of the Malaysian company through Mr. Chan.

51. The second Defendant also affirmed that Mr. Donkin had gone to Malaysia and "Invariably" he had been "trying to promote the Plaintiff's tables to customer contacts of my Company whose names and addresses I verily believe to have been obtained through the Anton Piller search on my Company's premises.". He further alleged that "Invariably again" Mr. Donkin had indicated or implied to such customers or potential customers that that the first Defendant was in dire financial difficulties, being sued by the Plaintiff and was engaging in illicit activities.

52. These are very serious allegations of abuse of the process of the court. If they were to be substantiated it may well be that they could lead to proceedings for contempt and to the discharge of the injunction. However they are almost wholly unparticularised and in the one case where sources are identified they are based on double hearsay. In our judgment the deputy judge was right to give no weight to allegations supported by such flimsy and generalised evidence.

53. We express our appreciation to Mr. Kwok and Mr. Smith for the assistance of their able submissions at the hearing of this appeal.

(1)    [1983] 1 W.L.R. 1412 (C.A.) at p. 1426 A-B

(1a)    [1983] 1 W.L.R. 1412 at p. 1426 D

(2)    [1981] F.S.R. 289 at p. 298

(3)    [1984] F.S.R. 263 at p. 266

(3a)    [1984] F.S.R. 263

(4)    [1982] 1 Q.B. 558 (C.A.) per Kerr L.J. at p. 585 F.

(4a)    [1982] 1 Q.B. 559 (C.A.) at p. 585

(5)    [1976] Ch. 55 (C.A.) per Ormrod L.J. at p.62-D, applied in AB v. CDE [1982] R.P.C. 509