GOLDEN BRIGHT MANUFACTURER LTD v. SUNLIGHT ELECTRONIC TOYS MANUFACTURING CO LTD AND ANOTHER

HCA 927/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 927 OF 2001

____________

______________________

_____________________

RULING  ON  COSTS

_____________________

1.  Following a trial which ran for eleven days in January 2007 in a reserved judgment handed down in February I gave judgment to the plaintiff and awarded all of its costs to the plaintiff.  That costs order was nisi and the defendant applies to vary the order.  This ruling follows argument on that application.

2.  The action was between two toymakers.  The plaintiff (Golden Bright) claimed that the 1^st defendant (Sunlight) and the man in charge of Sunlight the 2^nd defendant (Mr Yung) had copied and produced certain internal parts of a desktop pinball game developed, made and marketed by Golden Bright which included making up a handsample of the game, in breach of its copyright in the drawings from which these parts and handsample had emerged.

3.  The relief asked for was achieved; namely, an injunction to restrain the infringing, delivery up and the right to elect damages or an accounting of profits.

4.  The defence pleaded amounted to a denial of everything claimed.  But prior to trial there were concessions.  Golden Bright reduced its claim for copyright in the designs of 23 of the parts to 15.  Sunlight and Mr Yung then accepted that Golden Bright had copyright in them and that there had been copying of them.  What remained in dispute was Golden Bright’s claim of copyright in the handsample, and that there had been infringement of Golden Bright’s copyright in the designs of the parts.

5.  In my judgment I recited the background history and then summarized the evidence before defining the issues, as follows:

(1)     Given that the defendants now concede that Golden Bright has proved its ownership of copyright in the drawings of 15 of the parts in its pinball game, has it done likewise in respect of a handsample, made by Mr Bao in 1995?

(2)     Given that the defendants concede that parts copied from designs under copyright to Golden Bright were as part of Sunlight’s game imported into Hong Kong, did that amount to primary infringement of copyright, applying the CO?

(3)     Did Sunlight have constructive knowledge of Golden Bright’s copyright at the time it was engaged by MGA HK to copy the designs, and/or did it have actual knowledge of that whilst importing the game comprising the parts into Hong Kong?

(4)     If infringement of copyright is established, is it entitled to have delivered up from Sunlight’s factory in Dongguan the moulds from which the copies were made?

6.  After analysing the evidence and the law pertaining, in particular the pertinent provisions of the Copyright Ordinance (CO), I came to the following findings of fact and law, namely:

(1)     that Golden Bright had established ownership of copyright in the handsample;

(2)     that it had not proved primary infringement applying the CO;

(3)     that Golden Bright had not established that Sunlight had constructive knowledge of Golden Bright’s copyright at a given point in time, but had proved actual knowledge at a subsequent point in time; and

(4)      that Golden Bright was entitled to have delivered up the moulds from which the copies were made.

7.  It was on this basis that I gave judgment and formed the preliminary view that Golden Bright should have all of its costs.

8.  Mr Yan SC leading Mr Wong representing both defendants (as they had at trial) took issue.  Mr Yan submitted that Golden Bright had failed in its claim for primary infringement and failed in its claim for secondary infringement based on constructive knowledge.  A further claim for secondary infringement pleaded was not pursued at trial, following the challenge that it was a cause of action that had no basis in law.

9.  The only victory to the plaintiff, he went on to submit, was the secondary infringement based on actual knowledge, at a time when in the history there was insignificant loss and inconsequential damage. 

10.  Mr Yan submitted that those causes of action that Golden Bright failed to prove took up a significant amount of trial and preparation time, and there should be a substantial discount from a costs order reflecting Golden Bright having achieved judgment and consequential relief.  He submitted that the appropriate discount should be in the order of 75%.

11.  Mr Pao was for Golden Bright at this hearing on costs.  He had appeared in the trial as junior to Mr Garland SC.  He held firm to the belief that the costs order nisi was correctly formed and should remain unchanged.

12.  Both sides were more or less ad idem on the legal principles.  Both cited the Court of Appeal case in re Elgindata Ltd (No. 2) [1992] 1 WLR 1207, and what Nourse LJ stated at p.214:

“(a)   Costs are in the discretion of the court [Order 62 Rule 2(4)];

(b)     They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made [Order 62 Rule 3(2)];

(c)     The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs;

(d)     Where the successful party raises issues or makes allegations improperly or unnecessarily, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs [Order 62 Rule 7(1)].”

13.  Both sides found support in Hong Kong’s Court of Appeal’s judgment in Thomas Vincent v South China Morning Post Publishers Ltd (No. 2) [2004] 3 HKLRD 471.  Yuen JA stated at p.475:

“13.   I derive some support for the varied order from recent English decisions on costs to which our attention was drawn by Mr Wan.  These cases were decided prior to the introduction of the Civil Procedure Rules.  In John Richardson Computers Ltd v Flanders (No 3) [1994] FSR 144, Ferris J apportioned the costs in a case of infringement of copyright.  Although the Judge found that the defendant had infringed the plaintiff’s copyright, the infringement was only to a minor extent and was not the wholesale infringement that the plaintiff had alleged.  The Judge ordered the defendant to pay 30% of the plaintiff’s costs and the plaintiff to pay 60% of the defendant’s costs of the action, liability under the two orders for costs to be set off.

14.   In Phonographic Performance Ltd v AIE Rediffusion Music Ltd (Costs) [1999] 1 WLR 1507, Lord Woolf MR said:

From 26 April 1999 the ‘follow the event’ principle will still play a significant role, but it will be a starting point from which a court can readily depart.  This is also the position prior to the new rules coming into force.  The most significant change of emphasis of the new rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues.  In doing this the new rules are reflecting a change of practice which has already started.  It is now clear that a too robust application of the ‘follow the event’ principle encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take.  If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.  (Emphasis added)

15.   Lord Woolf MR went on to say that where the successful party raises issues on which he fails, he may not only be deprived of his costs but may also be ordered to pay the other party’s costs, even though those issues may not have been raised improperly or unreasonably.

16.    In circumstances where there were discrete claims for different sums and the time spent on the failed claims could be differentiated from that spent on the successful claims, I think the traditional practice of simply ordering costs to ‘follow the event’, however much time may have been wasted on the failed claims, should give way to a fairer, more precise approach that would reflect the realities of litigation.”

14.  Where the parties differed before me was as to whether Golden Bright’s case comprised several causes of action or was, in effect, one claim.

15.  Mr Pao’s view was that there was one claim, for an injunction and consequential relief based on copyright infringement.  This was not a case as propounded in Thomas Vincent where the plaintiff had made various discrete claims for different remedies.  Golden Bright got what it asked for and was entitled to a costs order which followed the event.

16.  Mr Yan took a contrary position.  He submitted that there were in fact four causes of action; those being one for primary infringement and three for secondary infringement (albeit that one of those was not pursued at trial).

17.  This was not a single claim for a single remedy.  Each cause of action required a separate consideration of the evidence to determine whether a particular remedy was available or not.  This was not an action based on one set of facts.  Golden Bright had elected to cast its net wide and having won only one of the causes should be penalized.

18.  One approach, he submitted, referred to by Lord Woolf and mentioned by Yuen JA in Thomas Vincent, would be for Golden Bright to receive its costs on what it had won but have to pay Sunlight on what it had won.  This of course would require a taxation of both sets of costs and a set-off.

19.  Mr Yan suggested this would add to the costs of the action and proposed instead a significant discount which would result in only one taxation.  He gained support in this proposition from the case Bayer Corporation and Bayer PLC v Octapharma Ltd [1999] FSR 926.  This happened to be a case dealing with a patent infringement.  The trial judge was Michael Fysh QC sitting as a Deputy Judge in the High Court.  On the issue of costs, he stated at p.928:

“In the light of the difficulties which patent cases inherently raise in relation to the assessment of costs, I was invited as an alternative submission by Mr Alexander for Octapharma, to consider a case which, I was told, remains unreported:  Hoechst Celanese Corporation v BP Chemicals Ltd, dated April 21, 1998.  This was a patent infringement action and Jacob J appears to have given a separate judgment in relation to the question of costs.  There, as in this case, the plaintiff lost on infringement and the defendants lost on validity.

Jacob J. said this:

‘The first question is whether I should make an order in favour of the defendants concerning infringement and in favour of the plaintiffs concerning validity with orders for two taxations and set-off.’

I intervene to mention that certainly, at one time, that was the traditional approach to the matter.  I continue:

‘I have no doubt that save in the most exceptional case, the court should not make such an order.  Taxation of costs is a complex and, some may think, arcane process as it stands.  To double that process by having to look at the costs and bills of costs of both sides seems to me to be thoroughly undesirable and should only be done when there is no other way.

In this case, as in many patent actions, there is another way, by awarding the principally successful party a percentage of his costs.  I believe that the real issue here is what is the appropriate percentage.’

Then he follows, although he does not actually cite, Elgindata.  He looks at whether any issues were raised unreasonably, and so on.  Then he deals with the facts of that case.  He comes to an overall figure, which appears to have been an accepted division by the parties between the amount of time spent on infringement and validity.  He then makes an appropriate assessment that the defendant (BP) should get a certain percentage — I think 30 per cent — of their costs of the action and counterclaim.

I have come to the conclusion that this is a case in which I should follow the approach of Jacob J. in Hoechst Celanese v BP Chemicals.  I consider that it is a sensible way to cost the result of a patent infringement action where there is a counterclaim; it has a lot to commend itself in practical terms and in the light of practice today.”

20.  Mr Yan submitted that this properly reflects the modern approach and the discount of 75% he proposed would recognize the significant amount of time taken to deal with those matters in which Golden Bright lost.

21.  I am satisfied on the particular circumstances of this case and the findings of fact and law and consequential remedies afforded Golden Bright that it would be wrong to leave unchanged the order awarding to it all of its costs.

22.  Whilst the issue of multiple causes of action against a single claim is not as clear cut as the circumstances in Thomas Vincent or indeed in re Elgindata, nevertheless I am satisfied that this case can be similarly categorized; thus, that Golden Bright should be penalized for pursuing and failing two remedies by having to suffer a discount.

23.  But I am not prepared to go as far as Mr Yan’s proposal.  He and those he represents spent much time and effort in putting into compartments of time evidence and argument dealing with the separate causes of action to demonstrate time lost or wasted.  But seldom does an action allow itself to be so subdivided.  Thomas Vincent was such a case; this was not.  Much of the evidence and argument was of a general nature.  Many of the facts overlapped; there were matters of credibility that had to be dealt with as well.

24.  Given that Golden Bright got its judgment but was deprived of significant consequential remedies that it pushed for, it seems to me that the appropriate costs order should be that it shall have its costs discounted by 40%.

25.  So the order I accordingly make is that Golden Bright shall have 60% of its costs; this replaces the order nisi.

26.  As for the costs of this hearing; this order shall be nisi.  Sunlight succeeded in achieving a significant departure from the original order.  This was not as much as it asked for but that is a detail.

27.  In respect of this application it shall have its costs.