CYBERNETICS 1 LTD v. SUCCESS DEVELOPMENT INFORMATION TECHNOLOGY COMPANY LTD AND OTHERS

HCIP 19/2024

[2025] HKCFI 1349

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 19 OF 2024

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REASONS FOR DECISION

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1.  This is the Defendants’ application (“the Relief Application”)  for relief from sanction in respect of the default of compliance of the unless order granted by this court on 25 September 2024 (“the Unless Order”). In the hearing on 17 January 2025, I dismissed the Relief Application. I now give my reasons.

Procedural background

2.  In this action, the Plaintiff claims against the Defendants for copyright infringement and breach of confidence.

3.  The Plaintiff builds and maintains a database containing comprehensive information relating to real properties and transactions in Hong Kong (“the Plaintiff’s Database”), and it operates a business of licensing professional estate agents for use of the Plaintiff’s Database.

4.  The 1^st Defendant is a competitor of the Plaintiff providing similar services in the market.  The 1^st Defendant’s database and system is known as “APS101” (“APS101”).  The 2^nd Defendant is a company which had subscribed to the services provided by the Plaintiff, and the 4^th Defendant was at all material times a director and shareholder of the 2^nd Defendant.  The 3^rd Defendant was at all material times the company secretary of the 1^st Defendant.  It is the Plaintiff’s case that the 3^rd and 4 Defendants were related.  The 5^th to 8^th Defendants are and were directors and shareholders of the 1^st Defendant at different times.

5.  It is the Plaintiff’s case that the Defendants had copied the compilations and data in the Plaintiff’s Database for use in APS101.  The Plaintiff detected at least 53 unique markers (being typographical or other minor mistakes)  (“Unique Markers”)  that the Plaintiff had embedded into the Plaintiff’s Database, unique to the Plaintiff’s customers Asia Property, Century 21 Group and the 2^nd Defendant. The planting of these Unique Markers is a technique used to find out whether there is any unlawful copying or use of the Plaintiff’s copyright materials.  The Plaintiff also claims that the 1^st Defendant had used the 2^nd Defendant as a front to subscribe to the Plaintiff’s Database in order to gain access to the information therein.

6.  On 24 April 2024, this court granted, on an ex parte (on notice)  basis, a preservation of evidence order requiring the 1^st Defendant not to delete or tamper with any existing data in APS101 other than making additions of data to the said database or service from sources other than any data derived from the Plaintiff’s Database (“the Preservation Order”).

7.  On the return day on 10 May 2024[1], this court granted the following orders:

(i)  an order that the Preservation Order be continued until final determination of the action or further order of the court;

(ii)  an order requiring the 1^st Defendant to allow an independent imaging specialist to make forensic images of the computer servers, workstations, etc involved in the operation of APS101;

(iii)  an order requiring the 1^st Defendant to disclose: (a)  the extent of the information in the Plaintiff’s Database that the 1^st Defendant had or has access to, obtained, possession of and/or reproduced; (b)  the names and addresses of the persons or entities who supplied or provided the Plaintiff’s Database to the 1^st Defendant; (c)  the dates when and the manner and circumstances in which the Plaintiff’s Database was so provided to the 1^st Defendant; and (d)  the identities of the third parties that the 1^st Defendant had provided the information derived from the Plaintiff’s Database to (“the Disclosure Order”); and

(iv)  an injunction order restraining the 1^st Defendant from, inter alia, using or disclosing any confidential information derived from the Plaintiff’s Database, or copying the Plaintiff’s Database, etc (“the Injunction Order”).

8.  On 22 May 2024, the Plaintiff filed and served its Statement of Claim on the 1^st, 3^rd, 5^th to 8^th Defendants (“the Relevant Defendants”)  on their then solicitors.  The deadline for the Relevant Defendants to file and serve their Defence fell on 19 June 2024.  However, the Relevant Defendants failed to file their Defence by the deadline and they did not take out any application for time extension. Therefore, on 12 July 2024, the Plaintiff filed and served a notice to enter judgment pursuant to O 19 r 8A of the RHC.

9.  In reaction, on 18 July 2024, the Relevant Defendants sought a time extension to file and serve their Defence and the parties entered into a consent summons for such purpose.  Pursuant to the order of this court on 24 July 2024, the time for the Relevant Defendants to file and serve their Defence was extended to 5 August 2024.

10.  The Relevant Defendants again failed to file their Defence or take out any application for time extension by the extended deadline of 5 August 2024.  On 8 August 2024, the Plaintiff filed a further notice to enter judgment.  With no response, the Plaintiff on 15 August 2024 filed a summons for default judgment against the Relevant Defendants supported by an affirmation.

11.  By various notices given on 21 August 2024, all the Defendants (including the 2^nd and 4^th Defendants)  were thereafter represented by Messrs H F Yip & Co (“HFY”).

12.  The  Plaintiff further served the Statement of Claim particularly on the 2^nd and 4^th Defendants through HFY on 2 September 2024.

13.  On the same day, HFY filed a summons to seek extension of time to file and serve the Defence.

14.  Pursuant to the joint application by consent summons, this court, on 25 September 2024, granted the Unless Order for the Defendants to file their Defence by 22 October 2024.

15.  The Defendants failed to file the Defence by the deadline on 22 October 2024 as required by the Unless Order.  The Defendants only filed and served the Defence on the Plaintiff on 25 October 2024 without seeking any relief from sanction from the court.  The Defendants eventually took out the Relief Application on 15 November 2024.

16.  Pursuant to another consent summons of the parties dated 19 November 2024, this court granted the following order on the same day (“the Accounting Order”):

(i)  the 1^st Defendant shall collect and receive any fees received from customers of APS101 in a bank account to be held separately from the 1^st Defendant’s assets (“the Separate Account”), which the 1^st Defendant must not deal with without further order of the court or the written consent of the Plaintiff; and

(ii)  within 14 days, the 1^st Defendant shall inform the Plaintiff of the account number of the Separate Account and provide the bank statement of the Separate Account; and thereafter provide such bank statement of the Separate Account to the Plaintiff on a monthly basis.

17.  This is no serious dispute that the 1^st Defendant has failed to comply with its obligations under the Accounting Order.  No explanation has been given by the Defendants even by way of correspondence.

18.  It is against such procedural background that the court has to consider whether to grant the relief from sanction.

Legal principles involved

19.  O 2 r 4 of the RHC provides that:

“Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.”

20.  The relief application should therefore be made within 14 days of the default.  In considering whether to extend time for a party to apply for relief from sanction, the court has to consider all relevant factors, particularly: (a)  the length and reason of the delay; (b)  the merits of the proposed application for relief from sanction; and (c)  the degree of prejudice to the other party.[2]

21.  O 2 r 5(1)  of the RHC also sets out a list of non-exhaustive factors which the court will consider in deciding whether to grant relief from sanction, including, inter alia: the interests of the administration of justice; whether the application for relief has been made promptly; whether the failure to comply was intentional; whether there is a good explanation for the failure to comply; the extent to which the party in default has complied with other rules and court orders; whether the failure to comply was caused by the party in default or his legal representative; whether the trial date or the likely trial date can still be met if relief is granted; the effect which the failure to comply had on each party; and the effect which the granting of relief would have on each party.

22.  It is in the interests of the administration of justice that orders are to be obeyed, particularly since an unless order is a final opportunity for a party to carry out an act ordered by the court. The sanctions should take effect and the innocent party should not lightly be deprived of the fruits of the unless order unless the defaulting party is able to satisfy the court that discretion should be exercised in their favour.  However, it is always important to bear in mind that it is also in the interests of the administration of justice that substantive rights of the parties are resolved instead of being brushed aside on pure technical grounds or inadvertence.[3]

23.  The fact that the defendant has no arguable defence is a “strong factor against the granting of relief”, given that “the primary aim in exercising its power is to secure the just resolution of disputes in accordance with the substantive rights of the parties” and it could be “futile to grant relief”.[4]

24.  The Defendants contend that the default was caused by the negligence or oversight of their solicitors, i.e. HFY.  In this regard, O 2 r 5(f)  expressly distinguishes between non-compliance by the parties themselves and that by their legal representatives. Non-compliance in cases where “his [or her] solicitor has negligently or otherwise missed the deadline through no fault of the litigant would be regarded as non-contumelious”.[5] On the other hand, refusal of relief from sanction is not limited to intentional and contumelious defaults.  Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so as to decline relief. Any other conclusion would be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of O 1A r 3, and on the court to do so by actively managing cases.[6]

25.  Further, the courts have repeatedly said that legal representatives’ mistake is not a “trump card” justifying the grant of relief from sanction.  In appropriate cases, relief will be rejected even where the legal representatives accept full responsibility and such explanation is believed.[7]  In Jose Miranda Da Costa Junior & Anor v Lorenzo Yih[8], DHCJ Le Pichon (as she then was)  observed that:

(i)  Relevant factors include the need to do justice between the parties, ensuring the administration of justice and the “present attitude” of the defendant.

(ii)  The defendant’s “tactical manoeuvrings” which “have significantly hindered the progress of the action” would also be relevant to denying the relief from sanction notwithstanding their solicitors’ acceptance of responsibility.

(iii)  In balancing the prejudice between the plaintiff and the defendant, it is also notable that the defendant would have the opportunity of some redress against their solicitor if such explanations are true.

Discussions

26.  Having carefully considered all the circumstances of this case, I decided to exercise my discretion refusing to grant the relief.  My reasons are as follows.

27.  First, the conduct of the defence on the part of the Defendants is far from satisfactory.  Having missed the deadline for the filing of the Defence on 19 June 2024, the then solicitors for the Relevant Defendants did not take any steps to apply for extension of time to file the Defence.  It was only when the Plaintiff filed a notice to enter judgment on 12 July 2024 that the Relevant Defendants applied for time extension on 18 July 2024.  The time for the filing of the Defence was eventually extended to 5 August 2024.  The Relevant Defendants ignored the deadline and did not take any action to ask for time extension.  The Plaintiff then took out another notice to enter judgment on 8 August 2024.  The Relevant Defendants still did not respond and the Plaintiff took out a summons for default judgment against the Relevant Defendants on 15 August 2024.  Thereafter HFY sought to represent all the Defendants and HFY only took out the time extension summons on 2 September 2024.  Eventually, the Unless Order was made by the court on 25 September 2024 with the consent of the parties.

28.  Unfortunately the defaults did not end here. The deadline under the Unless Order fell on 22 October 2024.  The Defendants were aware of the default on 23 October 2024.[9] Instead of taking out an application for relief against sanction within 14 days of the default as specified in O 2 r 4 of the RHC (which was by 5 November 2024 in the present case), the Defendants only made the Relief Application on 15 November 2024 after the Plaintiff was entitled to and did take step to enter judgment on 8 November 2024.  The Defendants sought to explain this by saying that they were seeking for consent from the Plaintiff for excusing the default, but this can hardly be a good reason for failing to make the Relief Application within 14 days of the default. 

29.  The history of this case shows that the Defendants did not take a serious view about the deadlines imposed by the court.  Even worse, they did not have the initiative of taking out any remedial steps in the case of default unless and until the Plaintiff put pressure on them by giving repeated notices to enter judgment against the Defendants.  This is not a case involving one or two particular instances of default, or that the Defendants or their legal representatives had taken the initiative to take remedial measures soon after the defaults.  They simply did not treat the legal proceedings seriously, resulting in significant disruption to the progress of the case.

30.  Second, the Plaintiff has made out a case for the breach of the terms of the Injunction Order and yet the Defendants did not make any attempt to provide an explanation to the court.  As stated in the 2^nd Affirmation of Wong Yin On filed on 19 July 2024 (“Wong 2^nd Affirmation”)[10], evidence collated by the Plaintiff shows that as of 11 June 2024, 10 of the Unique Markers were still shown on APS101’s website.  Short of any valid explanation as to why the Unique Markers would otherwise appear on APS101, the fact that the Unique Markers remain on the APS101 amounts to evidence that the 1^st Defendant is still using data derived from the Plaintiff’s Database in breach of the Injunction Order.  By asking the court’s indulgence to grant relief from sanction, it is surprising that the Defendants have not made any attempt to answer such serious allegation on the part of the Plaintiff.

31.  Third, which is also a very important factor, is that the 1^st Defendant was in default in complying with its obligations under the Accounting Order.  There is no issue that the 1^st Defendant was in such default.  The Plaintiff’s solicitors sent a complaint letter to the Defendants’ legal representatives on 5 December 2024 and yet no response was given by the Defendants before the hearing on 17 January 2025.  This was quite inexcusable.

32.  In the hearing, Ms Yang, counsel for the Defendants, asked for leave for the Defendants to file further affirmation to explain about such default.  However, the granting of such leave would necessarily result in further adjournment and delay.  Given the delay already caused, further adjournment of the hearing would result in serious prejudice to the Plaintiff.  I therefore refused such application for leave.

33.  Fourth, the Defendants have failed to show that there is some merit in the defence case.

34.  The Plaintiff’s causes of action against the Defendants are founded on, inter alia, infringement of copyright and breach of confidence.   The Plaintiff’s case is that the 1^st Defendant had copied and disclosed the confidential information in the Plaintiff’s Database or infringed the copyright of the Plaintiff’s Database.  The evidence in support of such claim includes, inter alia:

(i)  the Plaintiff’s detection of at least 53 Unique Markers that the Plaintiff had embedded into the Plaintiff’s Database, unique to the Plaintiff’s customers Asia Property, Century 21 Group and the 2^nd Defendant; and

(ii)  confirmation that the 1^st Defendant was able to have access to the devices where the Plaintiff’s Database were installed for Asia Property, Century 21 Group and the 2^nd Defendant.

35.  The presence of the Plaintiff’s Unique Markers is strong evidence supporting some form of copying.  It would be difficult for the Defendants to explain why these Unique Markers appeared in ASP101 unless such data came from the Plaintiff’s Database.

36.  In the return day hearing on 10 May 2024, the Defendants informed the court that the 1^st Defendant built up APS101 using public information.  The 1^st Defendant gave a different account later, saying in the affirmation filed on 23 May 2024 that the Unique Markers might have come from “Q 房網” (“QFang Network”), which the 7^th Defendant as the main person responsible for the 1^st Defendant’s system and database “had taken reference” from.[11]  The 1^st Defendant built up the database in ASP101 using the information in QFang Network and other public sources. 

37.  The court has serious doubt about the merit of these bare assertions.  According to the Plaintiff’s evidence[12], QFang Network had shut down its back-office operations on 29 October 2021, and so it would not be updating its property information after the said date. Yet, APS101 contains 3 Unique Markers that the Plaintiff has inserted into the Plaintiff’s Database after 29 October 2021.  This could not have come from QFang Network website. Further, the Unique Markers were embedded within the names of the owners, the detailed addresses and Property Reference Number (“PRN”)  of the properties. However, QFang Network did not contain information about: (a)  the names of the assignors and assignees; (b)  the exact address including street name, floor number, and flat number of the property; or (c)  the PRN, amongst other detailed information contained in the Plaintiff’s Database.[13]  Indeed, showing the names of assignees and assignors in the public domain is illegal and prohibited by the privacy laws.[14]  Further, the representatives of Asia Property and Century 21 Group confirmed that they had not provided access to the Plaintiff’s Database (containing their respective Unique Markers)  to anyone from QFang Network.[15]

38.  More importantly, as pointed out by Ms Ho, counsel for the Plaintiff, it may not provide a defence to the Plaintiff’s claim even if such bare allegations were true.  The Unique Markers are exclusive to the Plaintiff’s Database.  The only reason they could have found their way to QFang Network was because QFang Network also copied the Plaintiff’s Database.  Since this was a case of primary infringement which involved copying of the copyright materials, knowledge is irrelevant.   Further, primary infringement of copyright includes doing the restricted act “either directly or indirectly”[16]. Copying can be done by a “plagiarist never having seen the original manuscript, drawing, etc. but only the published work or other thing derived from the original work”, as long as there is an “unbroken chain between the claimant’s and the defendant’s work” such that “the intermediate copy is itself either a direct or an indirect copy of the copyright work”.[17]

39.  Hence, the bare assertions can hardly provide the Defendants with a defence.  Further, the Defendants have provided no information as to whether they could lawfully copy the data in the QFang Network for use in its ASP101.

40.  The Plaintiff has raised serious allegations undermining the credibility of the defence case.  Yet, with repeated defaults and non-compliance of court orders including the Unless Order and the Accounting Order, the Defendants, when asking for the court’s indulgence for relief from sanction, do not even bother to address the serious allegations put forward by the Plaintiff to challenge the merit of the defence case, at least in respect of the claim for copyright infringement.  In my judgment, this court is entitled to take such factor into account, together with the other considerations mentioned above, in refusing the Relief Application.

41.  Finally, prejudice to the Plaintiff is also an important consideration.  The Defendants claim that the granting of the relief would not result in any prejudice to the Plaintiff.  Trial date has yet been fixed and the delay caused was not substantial.

42.  This cannot be right.  I have always emphasized that, in intellectual property proceedings, delay in litigation would devalue intellectual property rights.  This is particularly the case that in modern world, with the widespread use of internet and social media, a lot of intellectual property rights have a short commercial life.  Delay in term of months would seriously prejudice the business interest of the claimant.  With the introduction of the Intellectual Property List in the Court of First Instance, some intellectual property claims can be resolved with a full trial in a few months’ time.[18] Yet this case has been dragging on for months by the lax attitude on the part of the Defendants and their legal representatives in handling the present litigation.  Though the delay is not in term of years, one cannot say that the Plaintiff has suffered no significant prejudice by the repeated defaults on the part of the Defendants and their legal representatives.

43.  In support of the Relief Application, the Defendants basically put the blame on their legal representatives.  But as mentioned above, negligence and oversight on the part of the legal representatives do not provide “trump cards” to the Defendants in such kind of application.  After all, the court has to take into account all the circumstances of the case in deciding whether to grant relief from sanction.  Neither can the case of   Chan Chung Sing v Chan Andy Yuan[19] assist the Defendants.  In that case, the Law Society had found those legal representatives to be at fault and there was clear correspondence showing that the applicant had been chasing his legal representatives.[20]  In the present case, there are other considerations such as breach of the terms of the Injunction Order, non-compliance with the Accounting Order and lack of merit of the defence case.

44.  I am also aware that some of the considerations above may not apply to all the Defendants, for examples: (i)  the 2^nd and 4^th Defendants were only served with the Statement of Claim on 2 September 2024 and they might not be responsible for the earlier defaults; (ii)  the non-compliance of the Injunction Order and the Accounting Order only relates to the 1^st Defendant.  Yet, the court has to take into account the overall circumstances of the case in deciding whether to grant relief.  Indeed, Ms Yang has not advanced the argument that there should be separate treatments or considerations for different Defendants.  Further, the 2^nd to 8^th Defendants have not put forward any separate defences of substance, and they are basically saying that the 1^st Defendant has not copied the data and compilations in the Plaintiff’s Database, which I find to be lacking merit.

45.  Entering judgment against the Defendants without a trial is a draconian order.  But having considered all the circumstances of the present case, it is only fair and just to dismiss the Relief Application. I therefore so ordered and granted judgment in favour of the Plaintiff.

46.  As the Plaintiff succeeded in obtaining judgement against the Defendants, I awarded the costs of this action incurred up to the date hereof to the Plaintiff.  The Plaintiff also claimed the sum of about $260,000 as the costs of the Relief Application.  I summarily assessed such costs in the sum of $180,000.