XCHRX MINTON OPTIC INDUSTRY CO. LTD. v. MULTISPARK LTD. AND ANOTHER

HCA1143/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1143 OF 2000

--------------

--------------

( Heard together )

----------------------

D E C I S I O N

----------------------

1. In both actions, the plaintiffs obtained ex parte on 22 June 2001 mareva injunctions against both defendants. Inter partes summonses were issued on 27 June 2001 returnable on 6 July 2001, which was a summons day, for the continuation of the ex parte orders. In the meantime on 5 July 2001, the defendants took out summonses in both actions to discharge the ex parte order. The summonses were only heard on 7 July 2001 owing to a gale warning being hoisted on 6 July 2001. At the conclusion of the hearing, I discharged both ex parte injunctions. I also declined to impose fresh sets of mareva injunctions. I had given oral reasons for my decision. I now reduce them into writing.

BACKGROUND

2. Before setting out the reasons for the decisions, I shall briefly state the background of the two actions.

3. The 1st plaintiff in HCA1143/2000 ("Kuang Teng") is a subsidiary company of the 2nd plaintiff, who is also the plaintiff in HCA9619/2000 ("Minton"). Minton is a Taiwan company. Minton is the owner of copyright in certain drawings ("the Drawings") relating to four models of camera, namely, "Zen Motorized", "SM-111", "MD-90" and "Zen Self-timer" ("the 4 Models"). The Drawings are in respect of the front cover, back cover film cover/door and other parts of the 4 Models of camera. Kuang Teng is a manufacturer of cameras for overseas market. Kuang Teng had registered with the Hong Kong Trade Mark Registry two marks called "Wizen" and "Zen" ("the Trade Marks") in respect of front covers of cameras. These marks had been applied to the 4 Models which Kuang Teng manufactured and sold.

4. The 1st and 2nd defendants in both actions are associated companies with common directors and same business address. There had been a trading relationship between Kuang Teng and Minton and the defendants before these actions.

5. In December 1999, Kuang Teng and Minton conducted inquiries into the defendants' trading activities. As a result of the investigations made by their investigators, HCA1143/2000 was instituted on 31 January 2000. Subsequently on 24 October 2000, HCA9619/2000 was also instituted.

(1) HCA1143/2000

6. In HCA1143/2000, Kuang Teng claims against the defendants in infringement of the Trade Marks and in passing off. Kuang Teng's case is that the defendants had sold and supplied cameras bearing the Trade Marks, but the cameras are not products of or have anything to do with Kuang Teng or Minton. By an order made by consent on 29 August 2000, Minton was added as a 2nd plaintiff to the action.

7. On 31 January 2000, Kuang Teng obtained ex parte an anton pillar order which was successfully executed on the same day. On 31 March 2000, an interlocutory injunction was granted restraining the defendants from infringing dealing in and passing off the Trade Marks of Kuang Teng.

8. The defendants had filed an Amended Defence and Counterclaim disputing the validity of the mark "Zen" and the distinctiveness of both marks. The defendants further averred that the cameras bearing the Trade Marks which they had dealt in or with were goods manufactured either by Kuang Teng or other parties to whom Kuang Teng had authorized, consented to or acquiesced in the use of the Trade Marks. The defendants further counterclaimed for the cancellation of the registration of the mark "Zen".

9. Pleadings were closed in December 2000 but the summons for direction was only taken out on 24 April 2001. The lists of documents were filed in July 2001.

(2) HCA9619/2000

10. In HCA9619/2000, Minton claims against the defendants in infringement of their copyright in the Drawings. Similar to that in HCA1143/2000, the relief sought includes injunction, damages or alternatively an inquiry as to damages. It is significant to note that the infringement activities complained of are the same as those pleaded in HCA1143/2000. It is therefore likely that the monetary relief recovered in both actions will overlap substantially.

11. The defendants did not file any defence in this action. On 30 March 2001, interlocutory judgment was entered without objection from the defendants. The judgment includes, among other things, "damages, alternatively an inquiry as to damages, at the plaintiff's option, an account of profits in respect of the defendants' acts of infringement of copyright, to be assessed". It is therefore clear that Minton did not make an election between damages and an account of profits at the time of judgment. As of the hearing on 7 July 2001, no election had yet been made.

(3) Without prejudice negotiations

12. It is not disputed that since December 2000, the parties through their solicitors had conducted certain negotiations with a view to reaching a settlement out of court. There is however no fruitful outcome.

THE EX PARTE MAREVA INJUNCTIONS

13. On 22 June 2001, Kuang Teng and Minton applied ex parte and were granted two sets of mareva injunctions in both actions. In HCA1143/2000, the value of the defendants' assets that were restrained was HK$6 million. Under the order, Kuang Teng and Minton undertook to cause a bank guarantee in the amount of HK$6 million to be issued in favour of the defendants. As for HCA9169/2000, the value of assets restrained was HK$2.5 million. There is under the ex parte order the usual undertaking as to damages. Further, under both ex parte orders, Kuang Teng and Minton had undertaken to serve as soon as practicable the affirmations and exhibits in support of the ex parte applications and the skeleton argument used at the ex parte hearing. There is however no undertaking to serve the order as soon as practicable or at all.

14. The principal basis of the ex parte applications for mareva injunction as appeared from counsel's skeleton argument are that firstly, there is a good arguable case in HCA1143/2000 and judgment had been obtained in HCA9169/2000, and secondly, there is a risk of dissipation of the defendants' assets.

EVENTS AFTER THE MAREVA INJUNCTIONS

15. The mareva injunctions were granted on 22 June 2001 which was a Friday. 25 June 2001, Monday, was a public holiday. The ex parte orders and the affidavits in support were first served on 28 June 2001 on a former director of the 2nd defendant, Mr Varma. On the following day, 29 June 2001, the order and supporting affidavit in HCA1143/2000 were served on the defendants' solicitors. The skeleton argument was not served. Then on 3 July 2001, the order and supporting affidavit in HCA9619/2000 and the skeleton argument were served on the defendants' solicitors. On the same day, the orders and supporting documents were also served on the registered office of the defendants. It should be pointed out that it was only on 28 June 2001 that instructions were given to the process server to effect service on Mr Varma.

16. The bank guarantee of $6 million provided in the order of HCA1143/2000 was never issued.

APPLICATION TO DISCHARGE THE EX PARTE ORDERS

17. Four grounds were advanced for the application to discharge the ex parte injunctions, and I shall deal with them in turn.

(1) Breach of undertakings to court

18. In respect of HCA1143/2000, it is plain that Kuang Teng and Minton have failed to honour the undertaking to put in place a bank guarantee of $6 million. Instead Minton had procured a letter from its banker stating that it maintained a current account in Hong Kong dollars with lower seven figures balance and a US dollars saving account with lower five figures balance. The bank letter cannot replace the need to procure the bank guarantee. No good reason had been offered for the non-availability of the bank guarantee. Instead Kuang Teng and Minton sought at the hearing to vary or discharge this undertaking.

19. The position is that the mareva injunction in HCA1143/2000 was made on the basis of the undertaking to procure the bank guarantee on or before 29 June 2001. The failure to comply with this undertaking must mean the injunction ceased to have effect. To say the least, the non-compliance, for which no good cause has been shown, alone justifies the discharge of the injunction.

20. Apart from that, it is also clear that there had been a failure to effect service of the order and the supporting affidavits and skeleton argument timeously and contrary to the undertakings to serve them as soon as practicable. Miss Lau, counsel for the plaintiffs, in her submission explained that they wished to effect service on Mr Varma first before serving on the defendants. Quite that is necessary, I do not know. But even if there is a good reason for taking this course, there is no explanation as to why instruction to serve on Mr Varma was only given on 28 June 2001, six days after the orders were obtained. There is also no explanation why it should take another six days to serve on the defendants at their registered office.

21. It is important to appreciate that mareva injunctions are orders that have serious consequences on the rights of the people affected by them. As such, the affected parties ought to be promptly informed of the orders and the basis on which the orders are made, so that they can consider whether to comply with it or apply to discharge it. In my view, it is blatantly wrong on the part of Kuang Teng and Minton and perhaps their solicitors in not taking steps to communicate the orders to the affecting parties until some 6 or 12 days after obtaining the orders. It is also a serious breach of the undertakings to the court that warrants the discharge of the ex parte orders.

(2) Material non-disclosure and misrepresentation

22. In the skeleton argument used for the ex parte applications, it was stated by way of background that :

"3. Under HCA1143 of 2000, the Plaintiffs are suing the Defendants for approximately HK$6,000,000.00 infringement of trade mark and passing off.

4. Under HCA9619, the Plaintiff is suing the Defendant for HK$2,500,000.00 for infringed the Plaintiff's copyright to which the Plaintiff has obtained judgment granted by D.J. Longley on 30th March 2001."

23. In the affidavit of Ho Ka Man made in HCA9619/2000 in support of the ex parte application, it was further stated that there was a judgment debt due and owing from the defendants to Minton and which was wholly unsatisfied.

24. Mr Pao for the defendants complained that these are misstatements. I agree. In both actions, the claim is for an inquiry as to damages or, alternatively at the plaintiffs' option, an account of profits. The amounts of $6 million and $2.5 million are estimates of loss which had not been pleaded or particularized in the pleadings. More importantly, Minton is obliged to make an election in HCA1143/2000 as to whether it will proceed to have an inquiry of damages or to take account of the defendants' profits. It cannot have both : Copinger & Skone James on Copyright, 14th Edn, Vol. 1, paras.220-91. There is as a matter of fact no judgment debt due from the defendants since Minton has yet to make an election and the damages or profits has yet to be ascertained. The submissions in the skeleton argument and the statement in the supporting affidavit are therefore incorrect.

25. It is argued that the court files would have been placed before the judge and he could read them and found out these matters for himself. That cannot be right. In an ex parte application, the applying party is under an onerous duty to draw the court's attention to all relevant matters, including matters that are adverse to his case. Needless to say, the applying party should not mislead or mis-represent the facts to the court.

26. There is another error in the facts presented at the ex parte applications. It was said in both actions that Mr Varma resigned as directors of the two defendants after the judgment in HCA9619/2000 was granted, and that this fact was only lately discovered by Kuang Teng and Minton's solicitors. These are matters relied upon by Kuang Teng and Minton as showing attempts or risks of dissipation of assets. The truth is, as accepted by Miss Lau at this hearing, Mr Varma's resignations took place on 27 October and 21 December 2000, well before judgment was obtained. The evidence adduced by the plaintiffs also shows that the fact of the resignations had been communicated by the defendants' solicitors to the plaintiff's solicitors on as early as 6 December 2000.

27. Miss Lau relied on Dormeuil Freres SA and another v. Nicolian International (Textiles) Ltd [1988] 3 All ER 197 and submitted that issues of non-disclosure or mis-statement should not be determined at this interlocutory stage but should be dealt with at the trial. There is an important distinguishing feature in Dormeuil Freres SA , namely, it concerns an anton pillar order which had already been executed at the return date. It is therefore not surprising that the defendant in that case did not object to the continuation of the order. In the present case, we are concerned with the propriety of two mareva injunctions, which if not discharged, will continue in force. In examining whether they were properly granted, the court can and should enquire into the circumstances leading to the orders, including whether they are induced by material non-disclosure and misrepresentations.

(3) Inadmissible evidence

28. In the affidavits in support of the ex parte applications, the without prejudice letters on negotiations for settlement exchanged between the parties' solicitors were exhibited. They were relied upon as showing that : (1) there is "at least an arguable case" on merits in HCA1143/2000, and (2) the defendants had been employing "delaying technique to temporarily stop" Minton from enforcing the judgment in HCA9619/2000.

29. Insofar as HCA1143/2000 is concerned, these without prejudice negotiations are wholly irrelevant. Willingness to enter into settlement negotiations is not necessarily indicative of weakness in the defendants' case nor strength in the plaintiffs' case. There are myriad of reasons why parties are prepared to attempt out of court settlement. Such evidence is also inadmissible and highly prejudicial, and should not have been placed before the court, especially in ex parte applications.

30. In the case of HCA9619/2000, I am unable to agree that the necessary inference to be drawn from the negotiation attempts is that the defendants were endeavouring to delay enforcement of judgment. It is to be noted that the judgment can only be enforced after Minton makes an election as to the remedies and after damages have been assessed or account be taken. It is however true that, in the context of this action, the prejudice occasioned by the inclusion of these letters may be less when compared to that in HCA1143/2000, given that liability had been determined.

31. Having regard to the matters aforesaid, I am of the view that the ex parte orders in both actions ought to be discharged with costs to the defendants.

APPLICATIONS FOR GRANT OF FRESH SETS OF MAREVA INJUNCTION

32. It is common ground that the discharge of the ex parte injunctions does not preclude the exercise of the court's power to grant fresh sets of injunctions, provided that there is sufficient basis for so doing. In the circumstances of the present actions, I am of the view that a case of real risks of dissipation of assets by the defendants have not been made out.

33. A number of matters were relied upon by Kuang Teng and Minton as demonstrating there are real risks of the defendants dissipating their assets so as to frustrate the judgment already obtained in HCA9619/2000 or will be obtained in HCA1143/2000. I shall address them in turn.

(1) Assignment of trade mark

34. As a result of a search made at the Trade Mark Registry on 20 June 2001, it was discovered that the 1st defendant had on 6 March 2001 assigned its trade mark "Shinon" to a company called Idealtik (Asia Pacific) Limited ("Idealtik"). The address of one of the shareholders and directors of Idealtik is identical to that of Mr Varma. Because of this and also the fact that the names of the shareholders and directors of the defendants are "very similar" to those of the shareholders and directors of Idealtik, it is believed that the assignment was a sham transaction to defeat Kuang Teng's and Minton's claims. I find the basis for holding such belief rather slim. The solicitor for Kuang Teng and Minton in her affidavit in support of the application also referred to the assignment as being done "secretly", but nothing has been put forward to explain or substantiate that description.

35. In my consideration, there are two important aspects of this assignment that have to be looked at in deciding whether it supports the contention that the defendants are dissipating their assets. Firstly, the assignment took place on 6 March 2001, which not only pre-dated the judgment in HCA9169/2000, but also pre-dated the summons for judgment therein. It is therefore not indicative of an attempt to frustrate the enforcement of the judgment. Secondly, there is no evidence as to the value of this mark "Shinon" or whether it has been applied to any commodities. There is also no evidence as to the asset position of the defendants. It is therefore unknown whether the mark was a valuable or significant asset of the 1st defendant. That being the case, it will be difficult to infer that the assignment was an act of dissipation or was done with a view to defeat the claims of Kuang Teng and Minton.

(2) Resignations and removal of directors

36. Apart from Mr S.T. Varma, two other directors of the defendants had also resigned on the same dates as Mr Varma. That took place in October and November 2000, well before the judgment was obtained in HCA9619/2000, and followed by a course of settlement negotiations between the parties. I am unable to see the relevance of the resignations to the risks of dissipation of assets.

37. The only director of the defendants who had an address in Hong Kong was said to have moved from the address stated in the Annual Returns filed with the Company Registry. The solicitor's clerk was told on 27 April 2001 by an occupant of that address that this director had moved out in about March 2000. If that statement is correct, and the solicitor who swore the supporting affidavit did not seek to dispute it, the removal cannot be indicative of any risk of dissipation. The interlocutory injunction in HCA1143/2000 was granted on 31 March 2000 whereas HCA9169/2000 was only commenced on 24 October 2000 and judgment obtained in March 2001.

(3) Closing down of the defendants' web-site

38. The evidence of the plaintiffs is that the web-site maintained by the defendants was found to have been closed when visited on 17 May 2001. But the last time the web-site was visited by the plaintiffs or their solicitors was on 30 May 2000. There had been an interval of one year and there is no evidence to show when exactly was the web-site closed down. There are also a variety of possible reasons for closing down the web-site. In particular, it is to be remembered that one of the infringement activities particularized in these actions was the display of allegedly infringing articles on the web-site. The closing down of the web-site may well be to comply with the injunctions in place. It is not necessarily indicative of attempt to wind down the business or to dissipate the asset.

(4) Settlement negotiations

39. As mentioned above, I do not regard the settlement negotiations as pointing to attempt to delay the enforcement of the judgment or to give the defendants time to dissipate their assets.

(5) Registered office of the defendants

40. It was said that when the solicitor's clerk visited the defendants' registered office on 8 May 2001, there was nobody to answer the door and the defendants' names were not displayed in the directory of the building or at the front door of the premises. Against this is the fact that on 3 July 2001 when the ex parte orders and other documents were served at the registered office, there was somebody there to answer the door and to accept service.

CONCLUSION

41. By reason of the aforesaid matters, I do not regard the plaintiffs have made out a case of dissipation of assets or risks of such dissipation. The applications for fresh sets of mareva injunction are therefore refused.