MGA ENTERTAINMENT INC. v. HUNGLAM TOYS CO LTD

HCA2687/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2687 OF 2003

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J U D G M E N T

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1. This is the hearing of the defendant's summons for stay of execution filed on 30 September 2003.

Background

2. Upon the plaintiff's application by inter partes summons, I had on 23 September 2003 granted an interlocutory injunction against the defendant restraining, inter alia, the reproduction, sale or dealing in or with the facial decoration and head sculpt of the type of toys known as SCAMPZ exhibited as LYC-9a to LYC9f to the affirmation of Lam Yuen Chak or any colourable imitation similar thereto. Paragraph 2 of the order made on 23 September 2003 ("the Order") also requires the defendant to deliver up materials and articles that offend against the interlocutory injunction. Additionally, the defendant is required under paragraph 3 of the Order to make disclosure by way of affidavit of the details of the defendant's infringing sales, supplies or dealings. The defendant has filed a Notice of Appeal against the Order. The hearing of the appeal is pending.

The defendant's summons

3. The defendant's summons contains three main paragraphs. Paragraph 1 is for a stay of execution of the Order and all further proceedings unless the plaintiff gives undertaking in damages. As accepted by Miss Lai for the defendant, this is overtaken by event. As a result of the amendment to the sealed Order, an undertaking as to damages given by the plaintiff is now part of the Order. Paragraph 2 of the summons seeks an interim stay of execution "pending the full hearing of arguments on the defendant's application of stay of execution of the Order pending appeal." At the hearing today, full arguments on a stay pending appeal have been advanced, it is effectively a hearing of the substantive application for stay pending appeal. Paragraph 2 is therefore unnecessary. Paragraph 3 of the summons is to stay the execution of paragraph 3 of the Order or alternatively to extend the time for compliance with it. As a matter of fact, the defendant had already filed an affirmation for the stated purpose of complying with paragraph 3 of the Order. That being the case, there is no basis for paragraph 3 of the defendant's summons.

4. The defendant has not explained why its summons does not include an application for stay pending appeal. But in reality, what happens today is that I have heard arguments on substantive application for stay pending appeal. I shall therefore take today's hearing and today's application as the defendant's substantive application for stay pending appeal.

The relevant principles

5. It is trite law that an appeal does not operate as a stay of an order. The power of the court to grant a stay is discretionary. Accordingly, an applying party must put forward good reasons in support of the application. It will be a good reason if without the stay, the appeal would be rendered nugatory. It is also recognized as a good reason where there are difficulties in seeking a restitution of the payment under the judgment or order. In a case of injunction, where the loss of damages occasioned to the appealing party if without a stay is huge, then in the absence of a cross-undertaking in damages, it would be appropriate to order a stay pending appeal.

The defendant's grounds for a stay

6. The defendant has put forward a number of reasons in support of today's application. The first broad ground is a criticism of the strength of the plaintiff's case. In substance it is submitted that the plaintiff does not have a good case on merits. In my view this is a matter that cannot now be visited. It is a matter for the Court of Appeal on the appeal. Miss Lai has also revisited the question of balance of convenience, with some of the submissions being a repetition of what was said on the last occasion, and some new points. This is inappropriate. What is permissible at a stay hearing is to put forward arguments to say that as a matter of law or as a matter of fact there is good prospect of the appeal being successful. But the submissions this morning are not on any flaws or errors in the findings or the decision of this court on 23 September 2003 as showing a highly meritorious appeal.

7. A second main reason put forward in support of this application for stay is that it is the defendant's intention to apply to vary the Order and to seek a fortification of the plaintiff's undertaking in damages. As Mr Shipp for the plaintiff pointed out, there is no summons seeking these relief. There is also no explanation as to why summonses for these purposes have not been taken out despite the lapse of a month from the making of the Order in September. It seems to me it is premature and inappropriate to seek a stay for the purpose of an intended application to vary the Order or for fortification of undertaking.

8. The third reason, which is also the crux of this stay application, is the consequences of the Order on the defendant. It has been put by way of affidavit as well as by way of submissions that without a stay there would be great financial hardship to the defendant in that its business is likely to close down. I readily accept that grave hardship may be a ground for a stay pending appeal, but this has to be substantiated by cogent evidence. Such evidence is however absent here. There is no supporting evidence with regard to the defendant's business turnover and what part of it is made up of the sales on the SCAMPZ dolls so as to show the gravity of the consequences of the injunction on the defendant's business, income and ability to survive.

9. Miss Lai submits that the defendant has difficulties switching over to producing alternative or modified products. But there is nothing in the affirmation of Miss Kwok to substantiate these aspects of the submissions nor to explain the alleged difficulties.

10. It has also been said that there are outstanding executory or contractual obligations, which, if not met, would result in legal claims against the defendant. As rightly complained by the plaintiff, in mounting this assertion, the defendant has not exhibited any of the underlying contracts but has only exhibited some proforma invoices. The materials put forward in Miss Kwok's affirmation leading this application are hardly sufficient to justify a conclusion that without a stay, there would be great financial hardship to the defendant resulting probably in its closure. The inadequacy of the supporting affirmation is particularly important in view of the plaintiff's cross-undertaking in damages. It has been argued that the plaintiff is a foreign corporation and there may be difficulties in executing or enforcing that cross-undertaking. At the same time, it was said in Miss Kwok's affirmation that the plaintiff has a substantial business in the international toy market. There may be inconvenience in execution outside the jurisdiction, but there is no evidence that the plaintiff has no financial ability to meet any award of damages.

11. As to the arguments on the delivery up order advanced by Miss Lai, I am unable to see their relevance. The defendant had already delivered up the materials and articles that may offend against the injunction. These materials and articles, including the head sculpt or other tools, will be preserved pending the final resolution of these proceedings. They were not delivered for destruction or other purposes as in a case of a final delivery up order. The reference to Goldrein, Commercial Litigation : Pre-emptive Remedies (4th edn) para.1-308 is therefore irrelevant.

12. It is further argued that the disclosure order would place the defendant's business under threat. It is feared that the plaintiff may interfere with the clients or customers of the defendant. I note, first of all, that an affirmation had already been filed by the defendant claiming to be in compliance with the disclosure order. The relevance of this submission is not altogether clear to me. But in any event, this can only be a legitimate complaint if at the end of the day it is established that the plaintiff has no basis for claiming against the defendant. If the plaintiff has rights that are entitled to be protected by the law, there is no ground for complaining that the plaintiff has tried to stop the source or the flow of infringing activities. This submission is therefore bound up with the question of whether there is a serious question to be tried for the purpose of granting the interlocutory injunction. That, as I have said, is a matter that would be ventilated in the Court of Appeal if the defendant does not accept the conclusions of this court made on the last occasion.

Conclusion

13. For the reasons indicated above, I do not accept that the materials before the court provide a basis for the court exercising its discretion to grant a stay pending appeal. Accordingly, I refuse the application. The summons is dismissed.

Ancillary matters

14. The defendant applies for an interim stay pending the determination of an intended application to discharge or vary the Order. The intended application for discharge or variation is said to be on the basis that the defendant now has more materials to substantiate the issue of balance of convenience and the defendant would like to put forward them so as to move the court to vary the scope of the interlocutory injunction.

15. For my part, I do not see how an application for variation can be put on that basis. The hearing on 23 September 2003 was an inter partes hearing. The question of balance of convenience had been considered and determined on the basis of materials and submissions put forward by the parties. Only where there is subsequent material change of circumstances and that the evidence sought to be put forward could not have been available to the parties at the time of the first hearing can the defendant be allowed to introduce them. What is relied upon by the defendant for the variation application is the consequences of the injunction on the defendant's business. This is hardly a matter that can amount to a subsequent material change of circumstances. The prospect of the defendant's intended application is dim. I am therefore not prepared to grant an interim stay as sought by the defendant.

16. On the costs of the defendant's present summons, Miss Lai asks that the costs be in the cause on the ground that this application is incidental to the Order. I disagree. This application is not incidental to that injunction. It is a separate application by the defendant for a stay of execution. There is no reason why the general rule of costs follow event should not apply. Given that the defendant fails in this application, the appropriate costs order is for the defendant to pay the plaintiff's costs of this application. Mr Shipp has asked for that costs order to be in any event and I shall order accordingly.