HKSAR v. HO HON CHUN DANEL AND OTHERS

CACC 350/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 350 OF 2002

(ON APPEAL FROM DCCC NO. 626 OF 1999)

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J U D G M E N T

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Hon Woo VP (giving the judgment of the Court):

Introduction

1. On 8 July 2002, the three applicants were convicted by Deputy Judge Mackintosh ("the Judge") in the District Court of various charges for contravening the provisions of the Copyright Ordinance, Cap 528 ("the Ordinance"). There were altogether five charges. The 1st applicant ("A1") was convicted of Charges 1, 2, 3 and 4 and was sentenced to a total term of 30 months' imprisonment. The 2nd applicant ("A2") was convicted of all five charges and was sentenced to a total of 30 months. The 3rd Applicant ("A3") was convicted of Charges 2, 3, 4 and 5 and was sentenced to a total of 21 months.

2. The three applicants now apply for leave to appeal against conviction. Mr Dickson Li represents A1 and Mr Andrew Macrae SC with Mr Philip Wong represent A2 and A3. The respondent was represented by Mr Richard Turnbull and Mr Hayson Tse at the stage of written submissions, but at the hearing, only Mr Tse appeared as Mr Turnbull was ill.

The charges

3. The subject of the five charges arose out of raids conducted at certain premises in Kwai Chung ("the Kwai Chung premises") on 1 August 1998 and at certain premises in Kwun Tong ("the Kwun Tong premises") on 4 August 1998 by Customs Officers. In the first raid, compact disc production lines, including the four machines mentioned in Charge 1, the five stampers mentioned in Charge 3 and the VCDs mentioned in Charges 2 and 4 were seized. In the second raid, more VCDs were seized at the Kwun Tong premises, which became Charge 5. The applicants were then arrested.

4. Charge 1 was against A1 and A2 only. It is for possession of an article knowing or having reason to believe that it is or is intended to be used to make infringing copies of any copyright work for sale or hire or for the purpose of trade or business, contrary to section 118(8) and 119(2) of the Ordinance. The particulars of offence alleged that on 1 August 1998, at the Kwai Chung premises, A1 and A2 possessed three sets of compact disc production machines and one set of printing machine for manufacturing compact discs knowing that the said machines were used to make infringing copies of copyright works for sale or hire or for use for the purpose of trade or business.

5. Charge 2 was against all applicants, for making for sale infringing copies of copyright works without the licence of the copyright owner, contrary to section 118(1)(a) and section 119(1) of the Ordinance. The particulars of offence alleged that on 1 August 1998 at the Kwai Chung premises, the three applicants, without the licence of the copyright owner, made for sale or hire copies of 2 film titles, being infringing copies of copyright works. All together 486 VCDs were involved.

6. Charge 3 was also against all three applicants, for possession of an article specifically designed or adapted for making copies of a particular copyright work which article is used or is intended to be used to make infringing copies of the works for sale or hire or for use for the purpose of trade or business, contrary to section 118(4)(d) and section 119(2) of the Ordinance. The particulars of offence alleged that on 1 August 1998 at the Kwai Chung premises, the three applicants had in their possession articles, namely five stampers, which were specifically designed or adapted for making copies of particular copyright works, namely films, and which articles were used or were intended to be used to make infringing copies of the works for sale or hire, or for use for the purpose of trade or business.

7. Charge 4 was also against the three applicants, for possession for the purpose of trade or business of infringing copies or copyright works with a view to committing any act infringing the copyright without the licence of the copyright owner, contrary to section 118(1)(d) and section 119(1) of the Ordinance. The particulars of offence alleged that on 1 August 1998 at the Kwai Chung premises, the three applicants, without the licence of the copyright owner, had in their possession copies of 12 film titles, being infringing copies of copyright works, namely, films for the purpose of trade or business with a view to selling which is an act infringing copyright. All together, over 90,000 VCDs were involved.

8. Charge 5 was against A2 and A3 only, for possession for the purpose of trade or business infringing copies of copyright works with a view to committing any act infringing the copyright without the licence of the copyright owner, contrary to section 118(1)(d) and section 119(1) of the Ordinance. The particulars of offence alleged that on 4 August 1998, at the Kwun Tong premises, A2 and A3, without the licence of the copyright owner, had in their possession copies of 3 film titles, being infringing copies of copyright works, namely films, for the purpose of trade or business with a view to selling which is an act infringing copyright. Altogether, 2,027 VCDs were involved.

9. The provisions in section 118 of the Ordinance are offence provisions whereas those in section 119 refer to the related penalty.

10. It is to be noted that out of the various film titles of which infringing copies were found in the Kwai Chung premises and the Kwun Tung premises under Charge 4, the copyright in two items, namely, "Mortal Kombat Annihilation" and "Spawn", was owned by New Line International Releasing Inc or its associated companies ("New Line"). The copyright owner of all the other film titles was Warner Brothers or its associated companies ("Warner Brothers"). The significance of this will become clear later.

The first trial

11. In fact the trial before the Judge was a retrial. The first trial took place before Judge Wright in the District Court ("Judge Wright"), when the applicants faced a total of seven charges. On 15 March 2000, the applicants were acquitted of all charges. The Secretary for Justice appealed by way of case stated. The Case Stated was heard by the Court of Appeal on 11 December 2001. On 22 February 2002, the Court of Appeal gave judgment and ruled that Judge Wright had made certain errors of law. It ordered a retrial of five of the charges in relation to all applicants. That resulted in five fresh charges (the present Charges 1 to 5) being laid against the applicants.

12. What has been put in issue in this appeal is the propriety of the inclusion of the VCDs of the two films "Mortal Kombat Annihilation" and "Spawn" in Charge 4. These two titles had been deleted from Charge 4's predecessor that was laid as charge 5 against the applicants at the hearing before Judge Wright. We shall return to this later.

Involvement of the applicants

13. It is convenient at this juncture to deal with the involvement of the three applicants in the articles (the machines and the stampers) and the VCDs, the subject matter of Charges 1 to 5, seized from the Kwai Chung and Kwun Tong premises. For the purpose of the present appeal, there is hardly any dispute that New Line was the copyright owner of the two films mentioned above and Warner Brothers was the copyright owner of the rest of the film titles, totalling 10 under Charges 2, 4 and 5. It is also not in dispute that Deltamac (Taiwan) Co Ltd ("Deltamac Taiwan") was an affiliate of KPS Retail Stores Ltd ("KPS"). KPS used to be a licensee of Warner Brothers regarding the film titles. At the time of the raids in August 1998, copies of exhibit P15(a), (b), (c) and (d) were found at either of the raided premises. These exhibits were referred to in the cautioned interviews of the three applicants and the records of the interviews were produced in evidence before the Judge without challenge from either side. The applicants were relying on these exhibits to show that that they were licensed by Deltamac Taiwan to manufacture the seized VCDs. In fact, on the face of these exhibits, Wah Lee Multimedia Company Limited ("Wah Lee") was commissioned by Deltamac Taiwan to make thousands of VCDs of various films, including the film titles of which the VCDs seized were copies. Wah Lee subcontracted the work to Metronic Multimedia HK Ltd ("Metronic") which instructed Maytronic Industrial Co Ltd ("Maytronic") to make the VCDs. The Kwai Chung premises were Maytronic's premises whereas the Kwun Tong premises were Wah Lee's premises. The Judge found that Wah Lee, Metronic and Maytronic were closely connected, that the applicants were closely connected with these companies, and that in respect of the offences charged, the three applicants were acting in a joint enterprise.

Challenge to findings - A1's Grounds 2 & 3, A2&3's Grounds 4 & 5

14. A large number of grounds are raised on behalf of the applicants. We adopt the following abbreviations in mentioning their grounds: ground 1 of appeal of A1 is described as "A1's Ground 1" and ground 1 of appeal of A2 & A3 as "A2&3's Ground 1". Some of the grounds are overlapping and in fairness to the applicants, we treat all the grounds, save those specifically referable to a particular applicant, as applicable to all of them.

15. Although A2&3's Grounds 4 and 5 challenge the Judge's finding of a joint enterprise amongst the applicants and assert the insufficiency of evidence against them relating to the offences under Charges 1 to 4 which took place at the Kwai Chung premises, these two grounds were not even touched upon in Mr Macrae's written submissions or oral address. These grounds do not bear any significance and we do not propose to deal with them save to say that the relevant findings of the Judge were well supported by the evidence.

16. On the other hand, Mr Li for A1 did address us on A1's Grounds 2 and 3. Ground 2 challenges the Judge's finding that A1 was experienced in the production of VCDs, but this issue is of little significance in the light of what follows in this judgment. Ground 3 challenges the small size of the sampling of the seized VCDs performed by PW6 Ching Siu-keung in his examination of their qualities in order to reach his opinion that they were infringing copies. The fact that the VCDs were infringing copies was admitted by the applicants at the trial, and therefore the sampling method was quite irrelevant.

The case stated and order for retrial - permanent stay - A2&3's Ground 1, A1's Ground 5

17. At the beginning of the retrial, ie the trial with which we are concerned, counsel for the applicants made an application for a permanent stay of the proceedings. That was rejected by the Judge. The rejection is subject of challenge in A2&3's Ground 1, and A1 also attacks it in A1's Ground 5. The ground is stated as follows:

In ordering a re-trial, the Court of Appeal proceeded on the basis that Deltamac Taiwan was not the lawfully authorised sub-licensee of KPS, the principal party to the main agreement with Warner Brothers, and that, therefore, Deltamac Taiwan was not a party to the main agreement and was not, therefore, an agent. The evidence before the Judge, however, was that Deltamac Taiwan "was accepted by Warner Brothers as a sub-licensee" (p 149 of the Appeal Bundle). Accordingly, the Court of Appeal, in ordering a retrial upon the applicants' acquittal had proceeded upon an erroneous and misconceived basis as a result which the Judge ought to have stayed the proceedings in the exercise of his discretion. In the circumstances, the Judge erred in law refusing to stay the proceedings.

18. Indeed, in his Reasons for Verdict, the Judge referred to a letter annexed to the main agreement dated 1 July 1996 (Exh P22) between Warner Brothers and KPS. The said letter was one dated 30 June 1999 on Warner Brothers' letterhead ("the 30 June 1999 letter") which stated:

"Please be advised that KPS and Deltamac (Taiwan) Co., Ltd. did not enter into a Video Compact disc sublicence agreement. At the time of July 1, 1996 agreement [ie Exh. P22], KPS was the parent company of Deltamac (Taiwan) Co., Ltd., and simply authorized distribution through its subsidiary without a formal written agreement. KPS has since filed bankruptcy. Deltamac Taiwan Co., Ltd is the successor-in-interest to KPS and currently is Warner Home Videos' licensee for the distribution of video compact discs in Hong Kong and Taiwan. We anticipate that this change will be formalized in an amended written agreement at some point in the near future."

19. In his Reasons for Verdict, the Judge pointed out that the Court of Appeal in the Case Stated was proceeding on the footing that Deltamac Taiwan was not the lawfully authorized sub-licensee of KPS, and because of the 30 June 1999 letter, the Judge was not willing to exclude the possibility of Deltamac Taiwan being an agent. In passing, we would mention that there was no evidence before the Judge as to when KPS went into bankruptcy and when Warner Brothers started to treat Deltamac Taiwan as the successor-in-interest of KPS.

20. Despite clarification sought by the Court of Appeal from counsel for the 2nd respondent (ie the present A2) and counsel for the appellant (ie the present respondent) in the Case Stated, no one pointed out to the Court of Appeal the existence of the 30 June 1999 letter. As a result, after examining all the other evidence, but without the 30 June 1999 letter, the Court of Appeal answered in the affirmative the question (the second of the three questions in the Case Stated) set out below:

"Did I err in law in concluding there was a relationship of principal and agent between Warner Brothers and Deltamac (Taiwan) Co. Ltd?"

21. The third question in the Case Stated was as follows:

"3. Did I err in law in applying the principle that no agent who acts in fraud of its principal and in his own interests, will bind that principal to the facts of this case, thereby entitling me to find the copyright works the subject of charges 3, 5, 7 were produced pursuant to the licence of the copyright owner?"

22. In view of the answer to the second question of law referred to above, the Court of Appeal was of the view that the third question did not really arise for consideration. The Court went on:

"57. ... However, if the judge had been correct in deciding that there was such a relationship between Warner Brothers and Deltamac (Taiwan), he was then perfectly justified in embarking upon a consideration of the principle encapsulated in the third question. When he did so, he relied on the decision of Lloyds Bank Ltd v Chartered Bank of India [1929] 1 KB 40. Scrutton LJ (at p. 56) stated the principle which emerges from that judgment in these terms:

'In my view it is established that a third party, dealing in good faith which an agent acting within his ostensible authority, is not prejudiced by the fact that as between the principal and his agent the agent is using his authority in such a way that the principal can rightly complain that the agent is using his authority for his own benefit and not for that of his principal.' (Emphasis added)

58. However, in the Case Stated, at paragraph 20, the judge expressed the rationale of the Lloyds Bank Ltd case in the following manner:

'An agent who acts in fraud of his principal and in his own interests will bind the principal if the act is within the agent's actual or apparent authority.'(Case Stated, paragraph 20).

59. In simple terms, the judge in the present case never, in this context, addressed the question of good faith. Not only was he bound to do so, but it was a most pertinent issue as his comments about this in relation to the statutory defence illustrate.

60. We are satisfied, therefore, that the judge did err in his application of the principle set out in the third question. Accordingly, the answer must again be in the affirmative."

23. The passages of the judgment of the Court of Appeal cited above clearly demonstrate that while the Court of Appeal might have been misled by its attention not being drawn to the 30 of June 1999 letter in answering the second question in the Case Stated, its answer to the third question would not have been reversed or affected regardless of the correctness of its answer to the second question. That was because, as the Court of Appeal pointed out, Judge Wright had never considered the question of good faith.

24. In its conclusion, the Court of Appeal referred to section 84(c) of the District Ordinance, Cap 336 as to the course of action open to them, which includes recording a conviction against the accused or ordering a retrial. Considering that Judge Wright had omitted to address certain issues which required specific findings on the facts, the Court ordered a retrial before a different judge on five of the seven charges before them, which were the predecessors of the present five charges before us.

25. In his reasons for rejecting the application for a permanent stay of proceedings before him, the Judge stated that the contention proffered by the applicants in support of their application was that the omission (ie the failure to draw the Court of Appeal's attention to the 30 June 1999 letter) in the Case Stated was of such a nature that the fresh proceedings against the applicants offended the court's sense of justice. The Judge pointed out that the District Court was not a forum for a challenge to a decision of the Court of Appeal, that it was not for him to second-guess the Court of Appeal, that he could not say how the provision of the omitted information would have affected the Court of Appeal, and that there were proper means and avenues for correcting the error of the facts of the case as stated and for challenging the decision of the Court of Appeal which had not been pursued by the applicants despite the lapse of a lengthy period of time.

26. Mr Macrae has quite comprehensively dealt with the authorities on the question of staying proceedings on the basis of abuse of process of court in no less than 19 pages of written submissions. The authorities can be summarised as follows. The court has inherent jurisdiction to prevent abuses of its process which in a criminal court includes a power to safeguard an accused person from oppression and prejudice (Connelly v DPP [1964] AC 1254, at 1301-1302); such power is to ensure that there should be a fair trial according to law, involving fairness to both the defendant and the prosecution (R v Derby Crown Court, ex parte Brooks, 80 Cr App Rep 164 at 168); a refusal to exercise the power would make it impossible to give the accused a fair trial or the misuse of process would offend the court's sense of justice and propriety (R v Horseferry Road Court, ex parte Bennett [1994] AC 42 and application of this rule in R v Croyden Justices, ex parte Dean, 98 Cr App Rep 76 and Chu Piu-Wing v AG [1984] HKLR 411); where the behaviour of the authority had been so improper as to be an affront to justice (R v MacDonald and others [1998] Crim LR 808); the abuse would cause a degradation of the lawful administration of justice (R v Mullen [1999] 2 Cr App R 143); there was something so gravely wrong as to make it unconscionable that a trial should go forward, such as some fundamental disregard for basic human rights or some gross neglect of the elementary principles of fairness (R v Martin (Alan) [1998] 2 WLR 1); despite the fact that the fair trial was possible, the judge ought to have stayed the criminal proceedings on broader considerations of the integrity of the criminal justice system (R v Latif and Shahzad [1996] 2 Cr App 92).

27. It is contended by counsel for the applicants there is a real prospect that the Court of Appeal in the Case Stated would not have ordered a retrial had it been informed of the principal-agent relationship between Warner Brothers and Deltamac Taiwan. As said before, we consider that from a fair reading of the judgment of the Court of Appeal, even if the omitted material in the form of the 30 June 1999 letter had been disclosed to it, it would not have affected its view that Judge Wright had never addressed the question of good faith on the part of Wah Lee in its dealing with Deltamac Taiwan.

28. The difference between the interpretation of the Court of Appeal's judgement as contended on behalf of the applicants and that of ours demonstrate the undesirability, to say the least, of the making of the application for stay before the Judge. There was a period of 18 months between the signing of the Case Stated in June 2000 and the Court of Appeal hearing of the Case Stated in December 2001. Had the omission been noticed by those acting for the applicants in the Case Stated, either the Case Stated could be amended by adding the omitted material, or if it had only been noticed after the Court of Appeal judgment, an appeal could be brought to the Court of Final Appeal. Neither of these steps was taken but instead on the first day of hearing at the retrial, an application for permanent stay of the proceedings was made to the Judge. We do not attach any blame to anyone, but merely state the facts to show the undesirability such an application.

29. In all the circumstances, we are not satisfied that the Judge had erred in refusing to stay the proceedings before him permanently. A2&3's Ground 1 and A1's Ground 5 fail.

New Line's two titles - A1's Ground 7, A2&3's Ground 6

30. Another matter also arose out of the Court of Appeal's decision on the Case Stated. The first of the three questions, in respect of which the Court of Appeal's view was sought, was whether an affirmation made pursuant to section 121 of the Ordinance was admissible to establish the subsistence of copyright in the work where the deponent to the affirmation did not state the basis of his statement that a named person was the owner of copyright in the work and that copyright subsisted in that work. The Court of Appeal ruled that there is no requirement on the deponent of such an affirmation to provide the basis and answered the question in the affirmative. The affirmation that was the subject matter of the first question was that relating to the copyright ownership of New Line's two titles referred to above. Before dealing with the law, the Court of Appeal had the following to say:

"16. For practical purposes, the point is academic to the Respondents because we are not asked by the Appellant to make any consequential order relating to this even if we were to answer the question in the affirmative. ..."

31. The "Respondents" meant the three applicants and the "Appellant" meant the respondent before us.

32. The Court of Appeal also mentioned the fact that since Judge Wright ruled the affirmation inadmissible, consequent upon that ruling, the prosecution was unable to establish that New Line was the owner of the copyright in the two titles. The Court also referred to the fact that following agreement between prosecution and defence, those film titles were removed by amendment from the particulars of the then charge 5 (equivalent to Charge 4 in the present case).

33. Later on in the judgment, moreover, the Court referred to the contention of counsel for R1 (ie A1 in the present case) that as the prosecution had allowed charge 5 (ie our Charge 4) "to be amended by consent during the trial to exclude those" film titles, the prosecution could not now change their stance by suggesting that the amendment should not have been made. The Court continued:

"33. The argument is wholly misconceived. Once the judge had ruled the affirmation which established ownership in the copyright over the two films to be inadmissible, the prosecution had no case against the Respondents regarding those films. We are told, and we accept from Mr Turnbull [for the Appellant in the Case Stated], that the deletion of the two film titles from charge 5 arose well after the judge had ruled the affirmation, made on behalf of New Line Production Inc., to be inadmissible. Apparently, the Judge deleted these title at a stage when 'no case' submissions were made to him. However, at this stage, the Appellant is fully entitled to complain that when the Judge ruled the affirmation to be in admissible, he had misconstrued the law. If it had not been for this erroneous ruling, the affirmation would have been admitted and there would have been no necessity for any amendment to charge 5."

34. The Court of Appeal proceeded to order a retrial, but without mentioning whether charge 5 before them would remain in the amended form, ie, with New Line's two film titles as deleted, or to include in the particulars the two titles which had been deleted as a consequence of Judge Wright's erroneous ruling that the affirmation proving the subsistence of copyright in them and the copyright ownership was inadmissible. Mr Macrae argues that reinstating New Line's two titles in Charge 4 in the present case amounted to an abuse process on the following grounds:

(a) the Court of Appeal clearly stated in its judgment that "for practical purposes the point is academic to the Respondents [the applicants] because we are not asked by the Appellant [the prosecution] to make any consequential order relating to this even if we were to answer the question in the affirmative";

(b) the prosecution had not sought a retrial order in respect of New Line's titles; and

(c) almost three years and eleven months had elapsed since the date of the commission of the offence on 1st August 1998 and the laying of charges against the applicants on 14 June 2002, which would have understandably led the Applicants to believe that the prosecution would not proceed with a retrial in relationship to the New Line titles.

35. Mr Li, on behalf of A1, also contends that since the Court of Appeal had not ordered a retrial in relation to the New Line titles, the reinstatement of the titles in Charge 4 at the retrial amounted to an abuse of process of court.

36. This matter further illustrates the difficulty in construing a judgment for practical purposes as to what charge ought to be laid and the ambit of that charge in a retrial ordered by the court. While, for the matter that we will turn to presently, this point need not be decided, we are of the view that reading the judgment as a whole, especially the Court's view that the two New Line titles had been deleted as a consequence of Judge Wright's error in ruling the relating affirmation inadmissible, more probable than not, the retrial order on charge 5 (ie Charge 4 in our present case) allowed the reinstatement of the two titles.

The affirmation under section 121

37. On 4 December 2003, the Court of Final Appeal in Tse Mui Chun v HKSAR (2003) 4 HKCFAR 601 held that in the case of a non-compliance with the requirement in paragraphs (a) to (e) of subsection (1) of section 121 of the Copyright Ordinance, the affidavit or affirmation is defective and not admissible, and that the defendant's lack of a requisite licence to deal with copyright work shall be a matter for the prosecution to prove (at pp 610H-611A, para 13).

38. Section 121 of the Ordinance provides as follows:

"(1) An affidavit which purports to be made by or one behalf of the owner of a copyright work and which state -

(a) the date and place that the work was made or first published;

(b) the name, domicile, resident or right of abode of the author of the work;

(c) the name of the owner of the work;

(d) that copyright subsists in the work; and

(e) that a copy of the work exhibited to the affidavit is a true copy of the work;

shall, subject to conditions contain in subsection (4), be admitted without further proof in any proceedings under this Ordinance."

39. Subsection (4) deals with the requirements for oath and authentification of the affirmation, with which we are not concerned.

40. Regarding the author of copyright works that is a USA company and the affirmation only refers to "USA" for the purposes of s 121(1)(b), the Court of Final Appeal had this to say at p 622H-I, para 48 of Tse Mui Chun:

"It is, however, very well known that USA companies are not incorporated, or organised, under the law of the USA. They are incorporated, or organised, under the law of some particular State in the USA, eg New Jersey, Delaware etc. And while it is highly likely that the company specified in column 5 of schedule (a) [to the affirmation] were resident somewhere or other in the USA, Mr Lam's affirmation does not so state. It follows that, in so far as the copyright works specified in schedule (a) of Mr Lam's affirmation are concerned, the requirements of subsection (1)(b) were not complied with and the affirmation should not have been admitted into evidence under section 121(1)."

41. The respondent has very fairly drawn our attention to HKSAR v Elegant Technology Ltd, CACC 448/2003 (6 May 2004) where the Court of Appeal held that in respect of the term "the name, domicile, residence or right of abode" of the author of a copyright work required to be stated in the affirmation under section 121(1)(b), what must be stated to make the affirmation compliant is to include (i) the name, (ii) the domicile, and (iii) the residence or right of abode of the author, and not merely (i) the name and (ii) the domicile or the residence or the right of abode. As the place of the residence of the author was omitted from the affirmation in issue, it was held to be defective.

42. The respondent argues that the Court of Appeal's decision in Elegant Technology is inconsistent with the implicit decision of the Court of Final Appeal because the latter court, while dealing with whether the affirmation before it was defective or not, did not mention the same defect as referred to by the Court of Appeal in Elegant Technology as a basis for holding that the affirmation before it (the Court of Final Appeal) was defective. We are not persuaded that the respondent is correct in this respect.

43. Examining the affirmation of PW5 vis-a-vis New Line's two titles, it is clear that the State in which New Line was incorporated was not included and that the residence of New Line was also omitted altogether. In the circumstances, based on these two recent authorities, the prosecution in the present case had failed to prove that copyright subsisted in these two titles and as to the owner of such copyright. In the circumstances, these two titles should have been removed from the particulars of Charge 4. What follows in this judgment, therefore, relate only to Warner Brothers' 10 titles.

Warner Brothers' titles - A1's Ground 8, A2&3's Ground 7

44. While the Warner Brothers' titles, which were copied by the applicants, were dealt with by another affirmation with defects similar to that tendered in respect of the New Line titles, a witness statement and the transcript of the oral testimony at the first trial of a representative of Warner Brothers, Ms Molly Kellogg, was agreed by the parties to be admitted in evidence before the Judge. It has not been disputed, nor can it be, that her statement independently proved that Warner Brothers was the owner of those titles and in them copyright subsisted.

The key issues on appeal - A1's Ground 1, A2&3's Ground 2

45. In the numerous of grounds of appeal raised on behalf of the applicants, a number of mistakes of facts and of law made by the Judge are identified, and the respondent accepts that there were such mistakes. However, the respondent has nonetheless asked us to apply the proviso to section 83(1) of the Criminal Procedure Ordinance, Cap 221.

46. It is necessary for us to look at the errors in the context of the issues that were or ought to have been before the Judge and the issues before this Court.

47. Before the judge, the prosecution (ie the respondent before us) needed to prove that copyright subsisted in the film titles of which the VCDs under Charges 2, 4 and 5 were copies, that the ownership of the copyrights was in another person or entity other than the applicants and their related companies together with the identity of such owner, that without the licence of the copyright owners, the relevant applicants made the related copies of such films in the form of the VCDs for sale or hire or had in their possession such VCDs, which were all infringing copies. The prosecution would also need to prove that A1 and A2 possessed the four sets of machines referred to in Charge 1 knowing that the said machines were used to make infringing copies of copyright works in the form of the VCDs referred to in Charges 2 and 4 for sale or hire. For Charge 3, the prosecution needed to prove that the three applicants had in their possession the five stampers which were specifically designed or adapted for making the VCDs referred to in Charges 2 and 4 as infringing copies of the copyright works for sale or hire.

48. The Judge summed up the crux of the defence in paragraph 4 of his Reasons for Verdict thus:

"The essence of the defence is that all the films in question were being produced under licence so they were not infringing copies and that in any event, the defendants are entitled to avail themselves of the statutory defences provided for by the ordinance."

49. The issues on this appeal as raised by the grounds of appeal proffered on behalf of the three applicants are as follows:

(a) The judge had made various errors of fact and law in his Reasons for Verdict;

(b) all the VCDs in question were produced under licence from Deltamac Taiwan;

(c) the applicants had discharged their burden in establishing the statutory defences provided by the Ordinance;

(d) quite apart from the statutory offences, the applicants were entitled to rely on the defence of honest belief on sufficient grounds at common law, and the applicants should be treated as having established this defence;

(e) the applicants had exercised due diligence in their effort to satisfy themselves that they were not making infringing copies;

(f) in particular, the judge was wrong to have held that the applicants lacked good faith.

50. Besides, there were the issues relating to the stay of the proceedings permanently and the removal of the New Line titles, which we have already disposed of.

Good faith - A1's Ground 8, A2&3's Grounds 2 & 3

51. It is convenient to deal first with the issue of good faith, or the lack of it. As alluded to in the Court of Appeal's judgment in the Case Stated, according to the principle in Lloyds Bank Limited v Chartered Bank of India, for the applicants to rely on the ostensible authority of whosoever they were dealing with as an agent of Deltamac Taiwan it is necessary to establish that the applicants were dealing with that agent in good faith. On this matter, the Judge's conclusion was set out in paragraph 61 of his Reasons for Verdict, as follows:

"61. Might the defendants or any of them have been acting in good faith? I am sure they were not. There were between them experienced in the production of CDs and VCDs. They knew Warner Brothers' requirement. They had a copy of Exhibit 22, the main agreement. They knew, just to take a prime example, of the absolute requirement for SID codes expressly referred to in that agreement. They knew that copyright warnings were required on the stampers. They must have known that they were, in many instances, printing the discs to a much lower quality than the standard generally employed by Warner Brothers. They must have been aware of the significance of the absence of the distributor's logo on the printed discs. In other words, the defendants must have been aware that the characteristics identified by PWs 5 and 6 existed and that these identified discs as infringing. Furthermore, knowing that these were Warner Brothers' titles, they took no step, as was admitted, to check the position with local representatives of Warner Brothers." (Emphasis added)

52. From the fourth sentence to the penultimate sentence of the cited paragraph, ie, the part highlighted, the findings of the Judge and his reasoning for the findings were one way or another linked to his reliance on the fact that the applicants had a copy of Exh P22, the main agreement dated 1 July 1996 made between Warner Brothers and KPS. The requirements for the SID codes, the copyright warning statement, the distributor's logo and the quality standard were all stipulated in that agreement. The Judge termed the non-compliance of these requirements in the VCDs seized as "the hallmarks of infringing copies". The applicants assert and the respondent agrees that there was no evidence before the Judge that any of the applicants had a copy of Exh P22 or any sight of it at the material time. As a result, the basis in support of the highlighted part of para 61 falls apart. The only substantial finding and ruling of the Judge that remains is that knowing that the film titles were Warner Brothers' titles, the applicants took no steps to check the position with the representatives of Warner Brothers in Hong Kong.

53. All these erroneous findings related to two issues, namely, whether the VCDs seized from the two premises were infringing copies and whether the applicants knew that they were infringing copies. However, whether the seized VCDs were infringing copies was not an issue before the Judge because of the facts admitted at the trial by all concerned. A statement of admitted facts dated 22 June 2002 signed by counsel for the prosecution and counsel for the respective defendants (i.e. all the applicants before us) states as follows:

"The following facts are admitted by the prosecution and all defendants pursuant to section 65C, Criminal Procedure Ordinance, Cap. 221: -

...

G. Chain of Evidence

1. ....

2. It is accepted and admitted that the exhibit seized and described in Exhibit P14(a) included the articles, are infringing copies of copyright works, namely films referred to in Charges 1 to 4.

3. It is accepted and admitted that the exhibits seized and described in Exhibit P14(b) are the infringing copies of copyright works, namely films referred to in Charge 5."

54. An admission under section 65C of the Criminal Procedure Ordinance renders the facts admitted as conclusive evidence of such facts. All the VCDs the subject of the relevant charges were therefore conclusively proved to have been infringing copies.

55. As to whether the applicants knew that they were infringing copies, that would be quite irrelevant in view of the fact that Charges 2 to 5 related to strict liability offences where the usual requirement under common law for the prosecution to prove mens rea is removed. In regard to such strict liability offences it is a matter for the applicants to prove, on the balance of probabilities, such defences as are available to them.

Statutory defences - A1's Ground 4, A2&3's Ground 2 & 3

56. All the offences with which the applicants were charged are for contravention of the provisions of section 118 of the Ordinance. The references to section 119 of the Ordinance in the charges only relate to penalty.

57. We need to cite in extenso the provisions of the relevant parts of section 118 for a closer examination of the statutory defences, as follows:

"(1) A person commits an offence if he, without the licence of the copyright owner-

(a) makes for sale or hire;

(b) imports ...;

(c) exports ...;

(d) possesses for the purpose of, in the course of, or in connection with, any trade or business with a view to committing any act infringing the copyright;

(e) ...; or

(f) distributes ...

an infringing copy of a copyright work.

(2) ...

(3) It is a defence for the person charged with an offence under subsection (1), to prove that he did not know and had no reason to believe that the copy in question was an infringing copy of the copyright work.

(4) A person commits an offence if he-

(a) makes;

(b) imports ...;

(c) exports ...;

(d) possesses; or

(e) ...,

an article specifically designed or adapted for making copies of a particular copyright work which article is used or intended to be used to make infringing copies of the copyright work for sale or hire or for use for the purpose of, in the course of, or in connection with, any trade or business.

(5) It is a defence for the person charged with an offence under subsection (4) to prove that he did not know and had no reason to believe that the article was used or was intended to be used to make the infringing copies for sale or hire or for use for the purpose of, in the course of, or in connection with, any trade or business.

(6) For the purpose of subsections (1)(b) and (3), where a person is charged with an offence under subsection (1) in respect of a copy of a copyright work which is an infringing copy by virtue only of section 35(3) and not being excluded under section 35(4), if he proves that-

(a) he had made reasonable enquiries sufficient to satisfy himself that the copy in question was not an infringing copy of the work;

(b) he had reasonable grounds to be satisfied in the circumstances of the case that the copy was not an infringing copy;

(c) there were no other circumstances which would have led him reasonably to suspect that the copy was an infringing copy,

he has proved that he had no reason to believe that the copy in question was an infringing copy of the copyright work.

(7) In determining whether the person charged has proved under subsection (6) that he had no reason to believe that the copy in question was an infringing copy of the work, the court may have regard to, including but not limited to, the following-

(a) whether he had made enquiries with a relevant trade body in respect of that category of work;

(b) whether he had given any notice drawing attention of the copyright owner or exclusive licensee to his interest to import and to sell the copy of the work;

(c) whether he had complied with any code of practice that may exist in respect of the supply of that category of work;

(d) whether the response, if any, to those enquiries made by the defendant was reasonable and timely;

(e) whether he was provided with the name, address and contact details of the copyright owner or exclusive licensee (as the case may be);

(f) whether he was provided with the date of first day of publication of the work;

(g) whether he was provided with proof of any relevant exclusive licence.

(8) A person commits an offence if he has in his possession an article knowing or having reason to believe that it is used or is intended to be used to make infringing copies of any copyright work for sale or hire or for use for the purpose of, in the course of, or in connection with, any trade or business." (Emphasis added)

58. Section 35, referred to in section 118(6) provides as follows:

"(1) In this Part 'infringing copy' (侵犯版權複製品), in relation to a copyright work, is to be construed in accordance with this section.

(2) A copy of a work is an infringing copy if its making constituted an infringement of the copyright in the work in question.

(3) Except as provided in section 35A, a copy of a work other than a copy of an accessory work is also an infringing copy if-

(a) it has been or is proposed to be imported into Hong Kong; and

(b) its making in Hong Kong would have constituted an infringement of the copyright in the work in question, or a breach of an exclusive licence agreement relating to that work.

(4) For the purposes of sections 118 to 133 (criminal provisions) "infringing copy" (侵犯版權複製品) does not include a copy of a work-

(a) that lawfully made in the country, territory or area where it was made;

(b) that has been or is proposed to be imported into Hong Kong at any time after the expiration of 18 months beginning on the first day of publication of the work in Hong Kong or elsewhere; and

(c) its making in Hong Kong would have constituted an infringement of the copyright in the work in question, or a breach of an exclusive licence agreement relating to that work,

or a copy of an accessory work- ...."

59. As the VCDs under Charges 2, 4 and 5 were not imported into Hong Kong, it seems to me that they are not infringing copies by virtue only of section 35(3) and it follows that section 118(6) and (7) do not apply to the VCDs in present case. We shall return to subsections (6) and (7) later.

60. In respect of Charge 2, for contravening section 118(1)(a), Charge 4 for contravening section 118(1)(d) and also Charge 5 for contravening section 118(1)(d), the statutory defence in section 118(3) is available, by which it is for the applicant to prove that he did not know and had no reason to believe that the VCDs in question were infringing copies of the copyright work. In respect of Charge 3, for contravening section 118(4)(d) the statutory defence under section 118(5) is available, by which it is similarly for the applicant to prove that he did not know and had no reason to believe that the five stampers were used or were intended to be used to make the infringing copies for sale or hire or in connection with any trade or business.

61. Such statutory defences under sections 118(3) and (5) related to the applicant's absence of knowledge and his having no reason to believe that the VCDs were infringing copies of copyright works and that the five stampers were used or intended to be used to make the infringing VCDs.

62. The applicants were relying on the documents in Exh P15(a), (b), (c) and (d) before the Judge to help establish their statutory defences. They did not give evidence, and the only evidence that emanated from them was the contents of their statements made in the interviews under caution. The Judge found as a fact that those documents in Exh P15 were bogus. The applicants do not dispute that finding before us. The major issue that we have to consider is whether the Judge was correct in holding that the applicants failed in their statutory defences.

63. As we said before, the Judge dealt with the question of good faith in the context of Lloyds Bank Limited v The Chartered Bank of India and he made a number of mistakes in his findings in support of his conclusion of lack of good faith on the part of the applicants. However, the applicants have not challenged the Judge's finding that knowing that the film titles were Warner Brothers' titles, the applicants took no step to check the position with the local representatives of Warner Brothers. In dealing with the statutory defences, the Judge concluded:

"80. There is nothing to be gained from my repeating my observations with regard to the lack of good faith in these defendants. The common requirement in subsections (3) and (5) is that the defendant must prove to the civil standard that he did not know and had no reason to believe the point at issue. In the absence of good faith it is impossible to see how the defendants could have begun to discharge this burden; and, in my judgment, those in the business of manufacturing VCDs, as these defendants were, cannot say that they had no reason to believe (essentially) in the infringing natures of the copy they are making if, knowing as they did, who the copyright owners were, they took no step to check with the local representative of those owners that the copy that they were making were legitimate. The evidence is that they took no such steps. I am sure that this statutory defences are not made out."

64. While the applicants do not challenge that the film titles of the VCDs seized under the charges had subsisting copyright and the copyright owner was Warner Brothers, they asked us to consider a number of facts to demonstrate that the statutory defences should be treated as having been established:

(a) In the cautioned statements of A2 and A3, they maintained that they obtained the licence (Exh P15(b) and (c)) from Deltamac Taiwan with regard to the film titles, the copyright in which was owned by Warner Brothers.

(b) A1 said in his cautioned interview that he and others bought Maytronic in May 1998. He was responsible, he said, for the checking of authorisations for the production of CDs. He stated that there was authorisation for making all the VCDs from Wah Lee, and that Wah Lee had been authorised by Deltamac Taiwan. He had been shown the original authorisations (Exh P15(a) - (d)) by A2 at Wah Lee. He had not tried to contact the copyright holders because he was not obliged to prove Hong Kong copyright.

(c) A2 also described how A3 got the order from Deltamac Taiwan to manufacture the VCDs of the film titles under a contract, Exh P15(b) and (c). He said that he required verification from Deltamac in the form of certificates from the Taiwan News Bureau (documents in Exh P15(d)) which had themselves been verified by a Taiwan law firm (exhibit 15(a), a document reproduced on fax paper). These documents, although copies, so A2 alleged, had original chops on them and were sufficient to establish that Deltamac Taiwan had a licence to pass to Wah Lee.

(d) Deltamac Taiwan was a famous large film distributor in Taiwan, as borne out by the evidence of PW6 Mr Ching Siu-keung, an expert examiner of infringing copies called by the prosecution.

(e) Deltamac Taiwan was the authorised distributor and had the right to distribute and manufacture discs on behalf of Warner Brothers for the market in Taiwan and Hong Kong, as borne out by the evidence of another expert in examining infringing copies, PW5 Mr Lam Man-kit. That the position of Deltamac Taiwan was well known was also supported by the fact that the packaging of the VCDs showed that Deltamac Taiwan was the distributor for Warner Brothers.

(f) The contract in Exh P15(b) and (c) was for the making of VCDs and DVDs. Exh P22, the main agreement between Warner Brothers and KPS, granted to KPS and subsequently to Deltamac Taiwan as KPS successor-in-interest, a right to distribute VCDs in Taiwan and Hong Kong which right of distribution included manufacturing VCDs for the purpose. That showed that Deltamac Taiwan could grant permission to manufacture VCDs in Hong Kong.

(g) A number of the 10 film titles of Warner Brothers relating to the VCDs ceased bore Chinese names which were not the same as those used in Hong Kong for those titles. The significance was that the VCDs seized were not manufactured for the Hong Kong market.

65. The applicants argued that by reason of all the above matters, no obligation should have been imposed on the applicants to make inquiries with Warner Brothers' representatives in Hong Kong about the copyright status and permission for their making of the VCDs.

66. It is to be noted, as contended by the applicants in this appeal, that there was no evidence before the Judge that the applicants had a copy of Exh P22, because that was the basis of the applicants' grounds of appeal attacking the Judge's finding of facts contained in the major part of para 61 of the Reasons for Verdict. Moreover, there was no evidence before the Judge that the applicants at all material times knew of the existence of the 30 June 1999 letter. What the applicants could rely on at the material times as to their knowledge of the position concerning the copyright films of Warner Brothers was that Deltamac Taiwan was a distributor having the right to manufacture VCDs of Warner Brothers' films. They would also have known at the material times that Deltamac Taiwan was a famous and large film distributor in Taiwan. Without sight of Exh P22 and the 30 June 1999 letter, even if they had no knowledge that the documents in Exh P15(a), (b), (c) and (d) were bogus, they could not reasonably have been satisfied that Deltamac Taiwan was the exclusive licensee of Warner Brothers, because in the absence of knowledge of the 30 June 1999 letter, they could only have known that Deltamac Taiwan was an affiliate or subsidiary company of KPS that could only occupy the position of a sub-distributor or sub-licensee of the film titles. In such circumstances, at least they should have made inquires with Deltamac Taiwan and to obtain sufficient proof that Deltamac was the exclusive licensee of Warner Brothers in respect of the film titles for at least Hong Kong. There is no evidence that they had done so. The documents in Exh P15(d) purported to be certificates issued by the Taiwan News Bureau only purported to certify that Deltamac Taiwan was a licensee in Taiwan in respect of the film titles. Alternatively, they should have inquired with a representative of Warner Brothers in Hong Kong to satisfy themselves that Deltamac Taiwan was entitled to place the order with them to make VCDs of the film titles in Hong Kong.

67. Section 35 provides for the meaning of "infringing copies". As we said before, the factors to be considered by the court as provided in section 118(6) and (7) of the Ordinance are applicable to infringing copies by virtue only of section 35(3). The scope of section 35(3) is very limited and not of general application because it only relates copyright work which has been imported or proposed to be imported into Hong Kong. On the other hand, section 35(2) encompasses a wider sphere of infringing copies. We are of the view that the factors under section 118(6) and (7) are not as stringent as those applicable to the infringing copies covered by section 35(2) as applicable to the offences under section 118. While the statutory defences offered by section 118(3) and (5) require the defendant to prove that he had no knowledge and had no reason to believe that the subject matter was an infringing copy or infringing act, one can adopt the factors in section 118(6) and (7) to assist in considering whether the statutory offences are established. Under section 118(6) and (7), one can see that a defendant must prove that he had made reasonable inquires sufficient to satisfy himself that the copy was not an infringing copy or that he had reasonable grounds to be satisfied in the circumstances of the case that the copy was not an infringing copy, and there were no other circumstances which would have led him reasonably to suspect that the copy was an infringing copy. On the evidence of this case, the applicants do not even satisfy these less stringent conditions. While Mr Li, for A1, argues that Deltamac Taiwan was the exclusive licensee of Warner Brothers Taiwan and was thus fully entitled to place orders for the making of VCDs of the film titles with Wah Lee, there is no evidence that the applicants had made any reasonable inquiry with Deltamac Taiwan as to the nature and extent of its distributorship and rights under any licence agreement with Warner Brothers, albeit they had obtained the purported certificates of the relevant film titles issued by the News Bureau of the Taiwanese government. We do not agree that Deltamac Taiwan was the exclusive licensee, but even if it was, without sight of the distributorship agreement or licence granted by Warner Brothers to Deltamac Taiwan, the applicants' belief, if at all, in Deltamac Taiwan's right and power to grant them the right to make VCD and DVD copies of the film titles in Hong Kong was short of being reasonable. They could also have easily picked up the telephone and made an inquiry with a representative of Warner Brothers in Hong Kong as to the extent of Deltamac Taiwan's powers, or simply inquired with the representative whether Warner Brothers had given any right to anyone for VCDs to be made in Hong Kong. There is no evidence they ever did any of that.

68. The subject of enquiries to be made by the person charged with infringing copyright works has also been dealt with by authorities. In HKSAR v Tan Say Seng [2000] 3 HKC 236, the Court of Appeal engaged in a detailed discussion of the subject. There, the appellant, who was charged with contravening section 118(1)(b) of the Ordinance, claimed that he had done all he could reasonably be expected to do to check the copyright position of the VCDs imported from the Mainland by obtaining a "certificate of licence to copy" issued by "the official authority" in China, which dealt with copyright matters. It turned out that the certificate was not genuine and that no authorisation had been given by the copyright owner. The Court explained that there is no difference between R v Megabyte Magnetic Industrial Co Ltd & Anor [1996] 3 HKC 340 and HKSAR v Mega Laser Products (HK) Ltd & Ors [1999] 3 HKC 161 and stated the principle involved at p 244I and 245E:

"Each case must be considered according to its particular facts and, depending on those facts, enquiries and investigation that can be regarded as sufficient must be made."

"... each case depended on its own particulars facts and ...it was necessary to make adequate enquiries or investigations according to those facts."

More pertinent to the present case is what was stated by the Court at 245F-G:

"Mega Laser is not authority for the proposition that in all cases an enquiry into Hong Kong law will be necessary, but does suggest what should be obvious to any bona fide manufacturer, that enquiries into copyright should be sensibly addressed and a logical train of investigation followed. Clearly if manufacturing is to take place in Hong Kong, a prudent conductor of adequate enquiries and investigation would check the Hong Kong position."

69. In the circumstances, for the reasons given by the Judge that the applicants had failed to make inquiries with Warner Brothers' representatives in Hong Kong, and for the reasons as stated above, in our judgment, the applicants have failed to established the statutory defences. Their conviction would, with or without the mistakes that the Judge had made, have been inevitable.

Honest belief for good and sufficient reason - A2&3's Ground 3, A1's Ground 9

70. It is common ground between the parties before us that honest belief for good and sufficient reason would generally be a common law defence available to the defendant on an offence of strict liability short of absolute liability. However, whether such common law defence is available in the present case is hotly disputed.

71. A large number of authorities have been referred to by the parties, mainly consisting of re B (a minor) v DPP [2000] 2 AC 248, R v City of Sault Ste Marie (1978) 85 DLR (3d) 161, Civil Aviation Department v McKenzie [1983] NZLR 78, Proudman v Dayman (1943) 67 CLR 536, He Kwa Teh v R 60 ALR 449, R v Wang Shih-hung, sub nom AG v Fong Chin-yue and others [1995] 1 HKCLR 193, Gammon (Hong Kong) Limited v AG [1985] AC 1, HKSAR v Paul Y-ITC Construction Limited [1983] 3HKC 189, Uniglobe Telecom (Far East) Limited v HKSAR [1999] 2 HKC 389, etc. In Fong Chin-yue at p 209(35), the Court of Appeal held that in respect of an offence of strict liability, the onus of proving the common law defence of honest belief for good and sufficient reason is on the defendant, and the standard is on the balance of probabilities.

72. Counsel for the respondent submit that a statutory defence to a statutory offence excludes the common law defence of honest and reasonable belief. In Fong Chin-yue, it was held by Bokhary JA (as he then was) that where no statutory defence is available, and unless the legislature intended to exclude it, the common law defence of honest and reasonable belief to a statutory offence should be available.

73. In HKSAR v Hyundai Engineering Construction Company Limited, Mag Appeal No. 815 of 2002, Deputy High Court Judge Line held that since statutory defences were available in that case, the common law defence of honest belief for good and sufficient reason was excluded.

74. In our judgment, the holding of Deputy High Court Judge Line as well as the respondent's submission are sensible and in conformity with the rule of statutory interpretation. Where a statute makes an offence one of strict liability, without requiring the prosecution to prove the mens rea usually required under the common law, the common law defence of honest and reasonable belief should be available, unless the statutory intent is clear that the offence is one of absolute liability. But if a statute specifies a certain defence for the statutory offence, it would be most unlikely that the legislative intent is also to make available to the accused such common law defence.

75. Looking at the provisions of the Ordinance and in particular those in section 118, we have come to the conclusion that the common law defence of honest and reasonable belief is not available to the applicants.

76. Moreover, the considerations and factors for deciding whether the common law defence of honest and reasonable belief has been established overlap with those for deciding on the statutory defences under section 118(3) and (5). Where the identity of the copyright owner is known to a person dealing with a copyright work, as in the present case, especially when the owner has a representative in Hong Kong, it would be unreasonable for the person not to have made any inquiry with the representative before embarking on the production of copies of the work in whatever format including VCDs. If, despite the lack of inquiry in such a manner, the accused alleges that he honestly believed the person who placed the orders with him for making copies had the necessary right from the copyright owner to do so, his alleged honest belief would not withstand the objective test of reasonableness.

Due diligence - A2&3's Ground 3, A1's Ground 9

77. While the requirement of "due diligence" was referred to in City of Sault Ste Mari, and followed in Civil Aviation Department v McKenzie, none of the Hong Kong authorities had referred to "due diligence" as a defence. But again, due diligence can be considered as one of the aforesaid circumstances to apply the objective test of reasonableness in the context of the statutory defences under sections 118(3) and (5) as well the common law defence of honest belief for good and sufficient reason. Anyhow, whether such defence of due diligence applies to the present case, we are satisfied that the applicants have failed on the balance of probabilities to establish such a defence.

Other arguments

78. As we said before, there are numerous grounds of appeal, and the Court is faced with voluminous written submissions from the parties covering no less than 300 pages. We have endeavoured to deal with the major points raised on behalf of the applicants in respect of Charges 2 to 5. But we do not intend to deal with each and every insignificant argument raised in all the grounds of appeal and all the submissions, save to comment that they are of no consequence to the result of these applications for leave to appeal.

Charges 2 to 5 - result

79. All in all, we are satisfied regardless of the mistakes made by the Judge, there was overwhelming evidence to establish the prosecution's case on Charges 2 to 5 and there was insufficient evidence to prove any defence available to the applicants. The Judge would have inevitably convicted them of these four charges. But because of the mistakes made by the Judge, we grant leave to appeal, but applying the proviso to section 83(1) of the Criminal Procedure Ordinance on the basis of the absence of miscarriage of justice, we uphold the convictions on Charges 2 to 5 against them. However, for Charge 4, the particulars of the offence should not include the two New Line titles.

Charge 1 - A1's Ground 6

80. One of the errors accepted by the parties as having been made by the Judge, regarding negative averment, appear in the following passage of his Reasons for Verdict, as follows:

"53. Deltamac needed Warner Brother's approval to sublicence or to authorise third party production, and according to Molly Kellogg there was no such approval sought or granted. It is suggested that this is based on hearsay evidence, but in fact Molly Kellogg, as the Vice-President Anti-Piracy for Asia of Warner Brothers, is fully competent to speak for Warner Brothers and to state that no such licence was granted. It is not hearsay, she is simply saying that there was no consent, whether in writing or otherwise, from Warner Brothers with respect to the defendants or their companies. Furthermore, this is a negative averment under section 94A of the Criminal Procedure Ordinance and as such it would be up to the defendants to show that there was such a licence. They have not claimed there was." (Emphasis added)

81. It is necessary to look at the issues that ought to be resolved by the Judge in order to analyse whether the highlighted part of the cited passage was in error. The parties had accepted that the VCDs under Charges 2, 4 and 5 were infringing copies, what remained to be in issue were the knowledge of A1 and A2 under Charge 1 that the four machines were used or intended to be used to make infringing copies and the statutory defences. The Judge dealt with both of these issues. The highlighted passage must be seen in that context. It would be correct if the Judge were to say that the statutory defences of absence of knowledge and lack of reason to believe were negative averments and as such section 94A of the Criminal Procedure Ordinance applies for the applicants to prove them. However, it is wrong to rely on section 94A to impose upon the applicants the burden to prove on the balance of probabilities that they were operating under a licence from Deltamac Taiwan. The onus of such proof is squarely on the prosecution: see Tse Mui Chun at pp 610H-611A, para 13. Moreover, it is incumbent on the prosecution to prove the required knowledge under Charge 1.

82. Charge 1 is very different from the other charges. In respect of Charges 2 to 5, which are strict liability offences, the prosecution do not have to prove mens rea; it is for the applicants to prove, on the balance of probabilities, the statutory defences. Charge 1, however, is not such an offence. It is for contravening section 118(8) of the Ordinance, which has been set out above but the relevant part is repeated below for closer examination:

"(8) A person commits an offence if he has in his possession an article knowing or having reason to believe that it is used or is intended to be used to make infringing copies of any copyright work ..."

83. Under this provision, as far as Charge 1 is concerned, the onus is on the prosecution to prove the following ingredients of the offence:

(a) A1 and A2 had in their possession the articles, namely the four machines;

(b) A1 and A2 knew or had reason to believe that the machines were used or were intended to be used to make copies;

(c) Such copies were infringing copies of a copyright work; and

(d) A1 and A2 knew or had reason to believe that such copies were infringing copies.

84. Needless to say, ingredient (a) as to possession of the machines was proved. Again, obviously, ingredient (b) creates no problem. These were proved by the prosecution's evidence of the raids at the two premises. As the applicants had admitted that the VCDs were infringing copies under section 65C of the Criminal Procedure Ordinance, the prosecution did not need to prove ingredient (c). Yet they still had to establish ingredient (d). The evidence before the Judge that favoured the applicants most was the documents in Exh P15(a) to (d), which purported to be proof of Deltamac Taiwan's licence to Wah Lee, entitling the applicants to produce the VCDs, and the contents of their cautioned statements that they relied on these documents to exculpate themselves. The prosecution had to negate the applicants' possible knowledge that they were not making infringing copies because of their possible belief that they were licensed to make the copies. The Judge held that these documents were bogus. He, however, did not make any finding that the applicants knew that they were bogus. The Judge's findings, relating to the requisite knowledge on the part of the applicants that could have supported the Judge's conclusion of that knowledge, were encapsulated in the major part of paragraph 61 of his Reasons for Verdict which, as we have already held, were erroneous. The remaining bulk of the Judge's findings that are correct including that the applicants knew that copyright subsisted in the film titles of which they made copies in the form of the VCDs and that the copyright was owned by Warner Brothers, viewed in the context of their alleged licence from Deltamac Taiwan (though held to be bogus), are in our judgment, insufficient proof beyond reasonable that they had knowledge or had reason to believe that the VCDs were infringing copies and that therefore they knew or had reason to believe that the four machines were used to make infringing copies.

85. In the result, we allow the appeal against the convictions of A1 and A2 on Charge 1.

Conclusion

86. For the reasons given above, we grant leave to appeal, allow the appeal in respect of Charge 1 and quash A1 and A2's convictions on that charge. However, we apply the proviso under section 83(1) of the Criminal Procedure Ordinance and dismiss the appeal in respect of Charges 2, 3, 4 and 5. In respect of each of the convictions on Charge 4, however, we order that New Line's two titles be removed from the particulars of offence. In the result, we revoke the bail hitherto granted to each of the applicants. We consider it necessary to hear the parties on the question of sentence in respect of A1 and A2 since their convictions on Charge 1 are quashed.