HUNG KA HO v. POLYTEK SUPPLY LTD.

Headnote

Copyright - registered design - interlocutory injunction - Anton Piller order - application for discharge - material non-disclosure - secondary infringement - knowledge - balance of convenience.

1991 No. A9946

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiff is a self-trained office panel system designer. He started out as an office decoration subcontractor in 1972 but in 1980, he began his business in the design, manufacture and supply of office panel systems. He is a director and shareholder of Flexiwall Engineering Co. Ltd. ("Flexiwall") which manufactures and sells office panel systems designed by the Plaintiff under the latter's licence.

2. In about 1989, the Plaintiff began to design a new range of office panel system which he later called "Flexispace". This system essentially is a system of inter-connecting panels or partition walls which can be set up I in various configuration with relative ease. At the heart of this system are three connectors the one-way connector, the two-way connector land the three-way connector. These connectors, as them respective names suggest, connect one panel with another thereby achieving the function of partitioning an office or commercial premises. There are other accessories, and I will come to some of them later on, which are all designed by the Plaintiff.

3. The Plaintiff is not a trained draftsman or designer. He goes abut his design work by simply recording his ideas in various drawings and sketches some of which do not even bear a date let alone other data like dimensions or measurements.

4. He gave evidence to the effect that he completed his various drawings for _the Flexispace system in or about middle to the end of 1990. At some point of time, the Plaintiff granted a licence to Mr. Quah Soon Chow ("Quah") to exploit the designs of Flexispace. Quah is a Singaporean and the Managing Director of West Plan Industries Pte. Ltd. ("West Plan") which is a manufacturer and supplier of and one of the few market leaders in office panel systems and furniture in Singapore. West Plan manufactures and markets the Flexispace system independently in Singapore under the name of "Spaceline". There is evidence in the various affirmations and affidavits before me that Spaceline might have been marketed in Singapore prior to the Plaintiff marketing Flexispace in Hong Kong in or about April or May 1991.

5. Since about September 1991, the Plaintiff suspected that there might have been infringing systems of Flexispace circulating in Hong Kong. He began a series of investigations at the end of which present proceedings were launched.

The Order

6. On 28th December 1991, the Plaintiff obtained an exparte Order ("the Order") from Mr. Justice Liu. The Order can be roughly divided into two parts:there is a prohibitive injunction restraining the Defendant from continuing with certain conduct an there is the remaining part of the Order which consists of what is called an Anton Piller Order and consequential discovery and delivery up orders.

7. It is instructive to note at this stage that whereas the Plaintiff's claim is based on copyright and registered designs in the drawings he made of the connectors and various accessories (save for one "assembly drawing" exhibited as "HKH-12" which I shall come to later), the injunctive part of the order restrains the Defendant from manufacturing of, or selling or supplying, etc. :-

and/or moulds, blocks and/or plates for the making thereof."

8. I should explain that "exhibit JKA-3" consists of a sample of office panels completely assembled supplied to the Plaintiff's investigator by the Defendant under a trap order. Exhibits "JKA-2(a)" and "JKA-2(b)" are two photographs of the suspected infringing office panel system offered for sale by the Defendant and "JKA-11" is a brochure of the same system. Neither the photographs nor the brochure explicitly show any of the connectors or other accessories designed by the Plaintiff.

The Applications

9. I have before me no less than five applications I supported by 53 affirmations and affidavits running to some 2,985 pages of evidence. I regret to say that legal representatives of both parties in their over-zealous effort to defend their respective clients' interest have apparently overlooked their duty not to burden the Court with argumentative and sometimes wholly unnecessary or irrelevant affidavits. I

10. The five applications in chronological order are:-

11. At the outset of this hearing, Mr. Rogers conceded that there was no dispute as to the summons set out in paragraph (v) above. By consent, the summons for discharge of the order under paragraph (ii) above was heard first. This is, as I shall explain later, contrary to my preference but as counsel have already come to agreement as to the order of the arguments, I was reluctant to insist that the Plaintiff's summons for continuation of the order should be heard first.

Ground For Discharge

12. Mr. Rogers based his application for discharge on two grounds:-

(i)         Material non-disclosure;

(ii)         Insufficient evidence.

13. I shall first consider his arguments of material non-disclosure in support of his application for discharge.

Material Non-Disclosure

14. I hope it will not be unfair to Mr. Rogers if I am to summarise his arguments as follows:-

15. From these arguments, Mr. Rogers boldly contends that the Plaintiff was guilty of withholding the following material facts from the court at the ex parte stage, namely:-

16. The implication of this submission is that since the Spaceline system was first on the market and the Defendant was importing parts from Singapore, the infringing articles are more likely copies of the Spaceline system rather than the Flexispace system.

17. Let me say at once that I do not regard the matters set out under paragraph (c) above as being “material facts”. It is a matter of legal argument whether the Plaintiff can maintain a claim on these components or seek an order in respect of the panel system as a whole. The order may have been too widely drawn but there is no conceivable ground for saying that by see_king a wider order than he is perhaps entitled, the Plaintiff is guilty of any non-disclosure of material facts.

The Law on Material Non-Disclosure

18. It is, of course, a matter of settled principle that an applicant in an ex parte application must make "a full and frank disclosure of all the material facts": See Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, C.A. at 514, per Scrutton L.J.. Failing to discharge this duty may lead to a subsequent discharge of the ex parte order without reference to the merits of the application.

19. The modem principle is conveniently and succintly set out in the judgment of Ralph Gibson L.J. in Brink's Mat Ltd. V. Elcombe [1988 ] 1 W.L.R. 1350, C.A., at p. 1356F:-

"In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following.

(1)    The duty of the applicant is to make ‘a full and fair disclosure of all the material facts: ‘see Rex V. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 514, per Scrutton L.J.

(2)    The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of applicant or his legal advisers :see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at P. 504, citing Dalglish V. Jarvie (1850) 2 Mac. & G. 231, 238, and Browne-Wilkinson J. in Thermax Ltd. V. Schott Industrial Glass Ltd. [1981] F. S. R. 289, 295.

(3)    The applicant must make proper inquiries before making the application: see Bank Mellat V. Nikpour [1985] F. S. R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4)    The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant : see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. V. Robinson [1987] Ch, 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L. J. in Bank Mellat V, Nikpoiur [1985] F.S.R/ 87, 92-93.

(5)    If material non-disclosure is established the court will be 'astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure .... is deprived of any advantage he may have derived by that breach of duty: 'see per Donaldson L.J. in Bank Mellat V. Nikpour, at p. 91, citing Warrington L.J. in the Kensington Income Tax Commissioners' case [1917] 1 K.B. 486, 509.

(6)    Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that he fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

(7) Finally, it is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded: 'per Lord Denning M.R. in Bank Mellat V. Nikpour [1985] F.S.R. 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.

'when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant ..... a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed:’ per Glidewell L.J. in Lloyds Bowmaker Ltd. V. Britannia Arrow Holdings Plc., ante, pp..1343H-1344A."

20. The ex parte applicant, however, is not obliged to put before the Court every conceivable fact relevant to the action. He is only obliged to disclose facts "material for the judge to know in dealing with the application as made" see the Brink's Mat case at p. 1356G per Ralph Gibson L.J. This is sometimes not all that easy to identify in practice. A common sense approach must be adopted. A fact may become very material later on as the proceedings progress but the court must consider the position of the applicant at the ex parte stage and decide whether at that stage, the same fact was material for the Court to know in deciding whether the ex parte order should be made. In this respect, the Court is the sole judge of the materiality but the Court must be careful not to be influenced by further facts or arguments subsequently emerged.

21. The Court must also strive for a balanced approach. on the one hand, the Court must be astute and vigilant to ensure that its process should not be abused by over eager ex parte applicants but on the other, the Court must equally guard against unmeritorious respondents from unfairly exploiting what is essentially a salutary principle designed to prevent abuse of the process of the Court.

22. This sentiment has been repeatedly expressed by the Court. In Citibank N.A. V. Express Ship Management Services Ltd. [1987] H.K.L.R. 1184, C.A., Fuad J.A. (as he then was)said this at p. 1990H:-

                 "While the Court must be vigilant and insist that full and frank disclosure be made in grounding affidavits for ex parte application for injunctions, Anton piller orders, etc., it is essential to bear in mind the true principle upon which this rule is base. Unless the Courts use the sanctions which the practice gives them only when the non-disclosure is of facts which are relevant to the ex parte judge's 'weighing operation', an impossible burden would be placed upon applicants and their advisers, and affidavits, ex abundanti, will tend to contain all sorts of facts and exhibits which are not really necessary for the proper exercise of the Court’s discretion when ex parte relief is sought.”

23. At p. 1191J of the same report, Macdougall J. (as he then was) said:-

           "It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the courts have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge the injunction. Common sense must prevail. The heavy burden cast on a plaintiff must not be allowed to become so onerous as to be intolerable."

24. In Wo Fung Paper Making Factory Ltd. V. Sappi Kraft (Pty.) Ltd. (1988) 2 H.K.L.R. 346, C.A., at p. 357, Hunter J.A. said:-

                "I turn now to the two principles I conceive to be relevant, in elation to non-disclosure. First the court's power to discharge any order obtained ex parte for material non-disclosure is salutary and necessary. As one of the earlier cases shows, ex parte Polignac (1917) 1 K.B. 486, it is there for the Court's own protection. It is necessary to prevent its processes being abused. Secondly, there is another equally significant principle in this jurisdiction. This is to make sure that the court does not get itself in a position of what might be called counter abuse where this sort of point is regarded by litigants as a very present help in trouble; and where problems arise on the substance to resort to attack as the best method of defence."

25. The learn Judge then cited the passages above from the Citibank case and then continued at p.358 :-

                "I fear that there has been a failure in this case, in the court below, to concentrate upon the material facts, and to appreciate that disputed issues of facts simply go to the need for trial, and are of very very little value indeed in deciding whether a good arguable case has been made out. Furthermore, it seems to me that the point has to be tested by looking at the substance. That is why I am proposing to start with the question whether a good arguable case was shown at the inter partes stage. That is where I think you should start; not where [the] judge started, and with respect where the argument started here, on the question of non-disclosure."

26. The learned Judge then dealt with the evidence and concluded that a good arguable case was shown then at p. 360, he said :-

                "I then come back, having deliberately put it last, to the point on non-disclosure. Here the judge relied upon the same three points that I dealt with on the issue of arguable case, as constituting the non-disclosure. He concluded that the master could not have dealt properly with the issue of arguable case, unless some of the defendant's contentions had been put before him. I profoundly disagree. First, these contentions are shown to be immaterial even at the inter partes stage, as not affecting the question of good arguable case at all. Secondly at the ex parte stage, all that the Plaintiff knew was some very much more attenuated information in two telexes. For my part, I can see no requirement for the plaintiffs to put those matters before the master at that stage."

27. The Woo Fung Paper case was, of course, a case concerning order 11 and hence the reference to good arguable case. But, if I may respectfully say so, the approach of Hunter J.A. was eminently sensible. If even at the inter partes stage, the non-disclosed facts cannot be shown to be material, it can hardly be argued that the same facts should be put before the court at the ex parte stage. The position and knowledge of the ex parte applicant is also important. That is why I considered at the outset of this case that I should hear the Plaintiff's application for continuation of the order first. Be that as it may, the parties have agreed that I should deal with the Defendant's application for discharge first and I must do the best I can to determine whether there is any merit in the Defendant's application. Bearing in mind these considerations, I turn to the facts of this case.

Whether the Plaintiff was guilty of Material Non-Disclosur

28. It is important to note that there is absolutely no evidence from the Defendant that he did copy the Spaceline system rather the Flexispace system. Indeed, the thrust of the defence is that the Defendant did not know that the component parts he imported were infringement copies. In other words, the defence is that there was no copying by the Defendant from the Plaintiff's works and that there was no guilty knowledge on the part of the Defendant_. There is unchallenged evidence that the Spaceline system, save for some individual minor components was based on the Plaintiff's works. Mr. Rogers tried to demonstrate by reference to the drawings that some of the components one finds in exhibit "JKA-3" are really copies of their corresponding parts in the Spaceline system rather than the Flexispace system. But, the respect, that is hardly a matter of great consequence.

29. The Plaintiff is suing on drawings which he exhibited to the court as exhibits "HKH-5," "6","8","10", and “12”, The plaintiff then said in paragraphs 23 to 25 of his first affirmation (Bundle B1 page 23) that the Defendant's system and component parts as represented by "JKA-3" bore striking resemblance to the Plaintiff 's system and component parts. By the word "system" I take it to mean the range of components designed by the Plaintiff as assembled into a complete panel. The Plaintiff is therefore seeking to set up a case of copying by inference by inference by comparing the Defendant’s component parts with the Plaintiff 's drawings. This is wholly acceptable and there is nothing unusual in this approach, Indeed, rather like proving a conspiracy, a plaintiff seldom has direct evidence of copying, More often than not, proof of copying lies in the surrounding circumstances and more particularly in the degree of resemblance between the Defendant’s works and the Plaintiff’s works.

30. In Francis Day & Hunter V. Bron [1963] 1 Ch. 587 C.A., Willmer L.J. (at p. 614) accepted the following four propositions:-

"(1) In order to constitute reproduction within the meaning of the Act, there must be (a) a sufficient degree of objective similarity between the two works, and (b) some causal connection between the plaintiffs and the defendants'work.

(2) It is quite irrelevant to inquire whether the defendant was or was not consciously aware of such causal connection.

(3)    Where there is a substantial degree of objective similarity, this of itself will afford prima facie evidence to show that there is a causal connection between the plaintiffs’ and the defendants' work; at least, it is a circumstance from which the inference may be drawn.

(4) The fact that the defendant denies that he consciously copied affords some evidence to rebut the inference of causal connection arising from the objective similarity, but is in no way conclusive."

31. I have compared carefully the Defendant's various components exhibited as "JKA-3" and "AW-3" with the drawings exhibited as "HKH-5", "6", "8" and"10" and also the Plaintiff’s components exhibited as "HKH-7". I find that there is more than a substantial similarity between the Defendant's components and the Plaintiff’s drawings. Insofar as there is no similarity between other components and the Plaintiff's drawings, the Plaintiff must be regarded as having failed to establish a prima facie claim as regards those components; but that does not mean tat an inference of copying cannot be drawn as regards those components in respect of which there is a substantial degree of similarity between them and the Plaintiff's designs as depicted in his drawings:

32. It is true that the Defendant claims that he was merely an innocent importer. Whether that is so or not is a matter of fact to be determined at the trial but at the interlocutory stage and certainly at the ex parte stage, the Plaintiff is entiled to rely on the substantial degree of similarity.

33. Furthermore, as I have said earlier, even now at the inter partes stage there is no evidence that the Defendant's components were copies of the Spaceline system and not the Flexispace system. The evidence is that at least the essential components like the connectors of the Spaceline system were based on the Plaintiff's works. So even if the Defendant has copied from the connectors of the Spaceline system that is still no answer to the Plaintiff's claim of direct copying or primary infringement. The mere fact that Spaceline and not Flexispace was first on the market is therefore not a relevant fact to the Plaintiff's claim on primary infringement. Nor is the same fact relevant to the Plaintiff's claim on secondary infringement, that is, importing or dealing in infringing articles with knowledge since the Defendant's defence is it has no knowledge that the articles in question are infringing articles of and system.

34. As to the suggestion that the Plaintiff is not entitled to protection in respect of all the components that must be clear from the Plaintiff's first affirmation in any event. He is merely claiming protection of the copyright in his drawings and he is clearly relying on the similarity between the Defendant's components and his works. It cannot be assumed that the learned Judge at the ex parte stage was unaware of this and needed to be reminded specifically that not all the components bear a striking resemblance to the Plaintiff's works.

35. There is another point. At the ex parte stage all that the Plaintiff knew was that Woo mentioned to the investigator that he imported his parts from Singapore. However, on another occasion, Woo sail the corner panels were manufactured in Hong Kong at the Defendant's own factory. Subsequently, another investigator found that there were workers and sem-finished panels at the Defendant's factory. Is the Plaintiff to assume that the Defendant did not in fact copy from the Plaintiff's works despite the striking similarity between the two works? I think not. In my judgment, the Plaintiff is entitled to proceed as he did.

36. Even if I were wrong in my conclusion above that the facts suggested by Mr. Rogers were not material for the consideration of the Court, I would, bearing in mind all the circumstances, nevertheless exercise my discretion not to discharge the order or alternatively, I would have made a fresh order in substantially same terms assuming no other points arise for consideration. I am aware of the strong language used by the Court on the exercise of this jurisdiction : for example, in the Brink's Mat case, Balcombe L.J. (at p. 1358F) spoke of only exercising this jurisdiction "sparingly".

37. I regard, however, the following matters to be of particular importance in my consideration as to whether or not the Order should be discharged :-

Non-Disclosure that Exhibit "HKH-12" was Irrelevant

38. I come now to deal with the second part of Mr. Roger's argument on material non-disclosure. He argued that exhibit "HKH-12" is now accepted not to have been made before July 1991 and irrelevant. It was therefore wrong for the Plaintiff to rely on this drawing at the ex parte stage.

39. Mr. Liao on the other hand assured me that at the ex parte stage, "HKH-12" was only relied on "for evidential purposes" only and no copyright claim was based on that drawing. He explained in great detail what his junior did at the ex parte hearing and took me through the relevant affirmation very carefully seeking to demonstrate that "HKH-12" was not relied on as founding a separate claim in copyright. Be that as it may, the way in which the affirmation was drafted leaves a lot to be desired. To say the very least it should make clear that no claim is based on "HKH-12".

40. As to the Statement of Claim, Mr. Liao accepted that the claim on "HKH-12" was only added at his insistence after the Order was obtained. He said that the date originally given as to when "HKH-12" was made was a genuine mistake but one of no great moment.

41. There is no dispute that "HKH-12" is merely an assembly drawing in that it simply shows how a panel can be assembled. Insofar as it contains drawings of the various parts, the great majority of such parts are in any event covered by the other drawings which the Plaintiff is relying on. Once the learned Judge at the ex parte hearing accepted that the Plaintiff had made out a cause of action in respect of exhibits "HKH-5", "6", "8" and "10", "HKH-12"', did not really add anything further to the learned Judge's weighing operation as to whether or not an injunction should be granted.

42. As to the mistake relating to the date of the drawing, this is quite a different kind of mistake in terms of materiality from that which confronted Deputy Judge Li, Q.C. in Mattel Inc. V. Tonga Corporation [1992] F.S.R. 28.

43. In my judgment, there was no material nondisclosure.. But even if there were, I would have exercised my discretion not to discharge the order or would have granted a fresh order in substantially the same terms assuming no other points arise for consideration.

Discharge of the Anton Piller order

44. Mr. Rogers sought to argue next that the Anton Piller order should never have been made in that :-

Extremely Strong Prima Facie Case

45. I have already said that at the ex parte stage the prima facie case of primary infringement was very strong. There is, of course, also the claim on the registered designs to which there was no apparent defence. I reject the Defendant's argument on this point.

nvalidity of the Registered Designs

46. Mr. Rogers put forward a number of very interesting arguments as to why he says the registered designs were invalid. I hope I will be forgiven for not going into these arguments suffice to say that Mr. Liao does not accept any of them.

47. The position is very simply this : certificates on these designs were granted by the United Kingdom Patent office. The Registrar under the 1949 Act has a discretion to refuse the application or may register a design subject to such modifications, if any, as he thinks fit (s.3(3)), There are provisions both for the cancellation of the design (s.11) and rectification of the register (s. 20). But while the design remains registered, the proprietor of the design is entitled to certain rights and protection of the Court(s.7 & 8). It is therefore nowhere to the point to say at the interlocutory stage that the designs should never have been registered by the Registrar and therefore are prima facie invalid.

Damage Not Serious

48. I find the Defendant’s arguments on this point somewhat unreal. It is always a matter of serious consequence if the copyright of a plaintiff is being infringed. The Plaintiff has adduced considerable evidence to show the loss he has suffered and will suffer and the Court cannot simply turn a blind eye to such evidence. The fact that the Defendant does not accept these allegations is no ground for saying that the damage to the Plaintiff is not serious.

49. Mr. Rogers further sought to argue that somehow the fact that the Plaintiff had not instituted proceedings against other wrongdoers in Singapore is in some way relevant to the issue of damage, I cannot agree. There can be a number of reasons for the Plaintiff not going after other defendants but that does not exonerate the wrongful acts of this Defendant. If his acts are indeed wrongful.

Possibility of Destruction of Documents

50. The evidence before the learned Judge at the ex parte hearing was that the Defendant was extremely careful in guarding information relating to his operation. The Defendant has now given his explanation for his actions. But at the ex parte stage no such evidence was before the learned Judge. I do not think the criticisms made against the granting of the Anton Piller Order is justified.

Exercise of Discretion

51. Furthermore, this is merely the return date of the inter parte summons and not an appeal from the learned Judge's decision. The learned Judge heard the evidence and exercised his discretion in granting the order. Unless the case for a discharge is overwhelming or that it can be said that the evidence in support of the making of the order is virtually non-existent or wholly deficient in some way, I do not think I should substitute my judgment for that of the learned Judge. Had I been the ex parte Judge I would in any event have made a similar if not precisely the same order.

52. Finally, I have not overlooked the fact that the Anton Piller Order has already been executed. I have in mind what Sir Nicolas Browne-Wilkinson V.-C. said in Dormeuil Freres S.A. V. Nicholian International (Textiles) Ltd. [1988] 1 W.L.R. 1362, at p. 1369H after commenting that the evidence and exhibits before him extended to more than 750 pages :-

                "In my judgment, save in exceptional cases, it is not the correct procedure to apply to discharge an ex parte injunction on the grounds of lack of full disclosure at the interlocutory stage of the proceedings. The purpose of interlocutory proceedings is to regulate the future of the case until trial. Where an Anton Piller order has been made ex parte, in the vast majority of cases the order has been executed before the inter partes hearing. Setting aside the Anton Piller order cannot undo what has already been done. As to the injunction contained in the ordinary Anton Piller order, that is directed to last only until the inter partes hearing of the motion. The correct course, as the Court or Appeal decisions show, is to regulate the matter for the future on the basis of the evidence before the judge on the inter partes hearing. The sole relevance of the question 'Should the ex parte order be set aside ?' is, so far as I can see, to determine the question whether the Plaintiff is liable on the cross-undertaking in damages given on the ex parte hearing. That is not an urgent matter. It is normally much better dealt with at the trial by the trial judge who knows all the circumstances of the case and is able, after cross-examination, to test the veracity of the witnesses."

53. I am aware of the disagreement of Mervyn Davies J. in Ali and Fahd Shobokshi Group Ltd. V. Moneim [1989] 1 W.L.R. 710 with this approach at least in relation to Mareva injunctions (at p. 722B-D); but this is not a case of Mareva injunction. Much of the Defendant's case depends on whether its main witness, Woo, is telling the truth when he asserted that he had no knowledge that he was dealing with infringement articles and that he had nothing to hide in circumstances which I shall come to in a moment. This assertion, untested by cross-examination, is by no means conclusive at this stage of the proceedings. Even if I were wrong in concluding that there is nothing in any of the Defendant's arguments in support of the application for discharge, I would have adjourned the application until trial in the same way as Sir Browne-Wilkinson V.-C. did in Dormeuil Freres.

54. I therefore dismiss the Defendant's application to discharge the Order.

Application to Continue the Order

55. I come now to deal with the Plaintiff's application to continue the Order. It is accepted that the principles that I should apply are well settled and are those set out in American Cyanamid V. Ethicon [1975] A.C. 396, H.L., and in particular, the speech of Lord Diplock (at p. 407G-409C).

56. The first question I have to consider is, therefore, whether the Plaintiff has shown that his claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.

57. There are broadly speaking, three claims by the Plaintiff. They are:-

58. Mr. Rogers argued that in each of these claims, the Plaintiff had failed to establish that there is a serious question to be tried.

Primary Infringement

59. The Defendant's case in relation to this claim is that there is no evidence of direct copy by the Defendant. Woo claimed on affirmation that he did not manufacture the infringing articles and that he merely imported them from Singapore without any knowledge that they were infringing articles. Indeed, the documents seized upon the execution of the Anton Piller Order exhibited to this Court tend to support his evidence.

60. It is to be noted that the Defendant did not put up any serious arguments as to the similarities, or the lack of them, between the Plaintiff's works and the Defendant's articles, (e.g. relating to the three connectors and other vital parts) save as to some minor parts which, as I have said before, are said to be copies of the Spaceline system rather than the Flexispace system.

61. The evidence on copying relied on by the Plaintiff is as follows :-

62. There are also other circumstantial evidence which the Plaintiff relies on as suggesting guilty knowledge on the part of the Defendant which I shall deal with in more detail later on.

63. There is, however, no direct evidence of copying by the Defendant. I have already said this is hardly surprising when I referred to Francis Day Hunter V. Bron [1963] 1 Ch. 587. In L.B. (Plastics) Limited V. Swish Products Limited [1979] R.P.C. 552, H.L., Lord Wilberforce was of the view (at p. 621) that if the judgment there had been "based exclusively on similarities perceived, or even on similarities plus opportunity and motive, it could fairly has been described as based upon inference. But this was only the first step though an important one; the next was to consider whether this inference could be displaced by evidence from [the Defendant]." L.B. (Plastics) was an appeal from a trial and not from an interlocutory decision.

64. Here, I have evidence of very close similarities between the Plaintiff's works and the Defendant's articles. The Defendant admittedly is a competitor of the Plaintiff and was aware of the Plaintiff's system albeit he said only after he had sold his first system. He clearly has both the opportunity and the motive to copy.

65. The question I have to decide is : is the Plaintiff 's prima facie case of primary infringement displaced by the Defendant's evidence ? I have a bald allegation by Woo that the Defendant imported the infringement articles from Singapore. There are some documents to support that but I have not been shown that these documents conclusively proved that all of the parts ever dealt with by the Defendant were imported from Singapore. Indeed, no attempt was made to show that the infringing articles seized at the Defendant's premises and "JKA-3", the sample supplied to the Plaintiff's investigator under the trap order were in fact all imported from Singapore.

66. At this stage of the proceedings all I have is some evidence that the Defendant may have a defence of importing without knowledge. The evidence is by no means conclusive. The credibility of Woo is very much in issue. In my judgment, there is a serious question of primary infringement to be tried.

67. Once I have come to this conclusion, I should really go on to consider the question of balance of convenience since it matters not for present purposes whether the other claims of the Plaintiff also disclose other serious questions to be tried. However, having heard considerable arguments on the other claims, I think I should also indicate my views on these claims.

Secondary Infringement

68. The Plaintiff's alternative case is based on secondary infringement, namely, that the Defendant imported or dealt with the infringing articles with knowledge.

69. I was reminded of the language of section 5(2) of the Copyright Act 1956 which says :-

        "The copyright in [an] ...... artistic work is infringed by any person who, without the licence of the owner of the copyright, imports an article (otherwise than for his private and domestic use) into the United Kingdom, or into any other country to which this section extends, if to his knowledge the making of that article constituted an infringement of that copyright, or would have constituted such an infringement if the article had been made in the place into which it is so imported." (emphasis added)

70. Section 5(3) which governs dealing in infringing articles is in similar terms.

71. The knowledge required of the Defendant is knowledge that the articles it is importing or dealing in are infringing articles of the copyright in the works relied on by the Plaintiff. But there is no requirement that the Defendant must know the identity of the Plaintiff or the owner of the copyright. It is enough if it knows that the articles must infringe some copyright owned by someone.

72. It follows on the facts before me that if the Defendant thought it was importing articles which infringed the copyright in works owned by West Plan that is sufficient to affix liability on the Defendant even though in fact the Plaintiff and not West Plan is the owner of the copyright in those works.

73. The proof of knowledge of a defendant is never easy. Save in the rare cases where the plaintiff has an admission from the defendant, proof of the latter's knowledge is almost always a matter of inference. The material or evidence from which the inference of actual knowledge can be drawn varies infinitely from case to case. In RCA Corporation V. Custom Cleared Sales Pty Ltd. (1978) F.S.R. 576, the New South Wales Court of Appeal said (at p. 579):-

        "A judge is entitled in inferring knowledge to use his assessment of the person with whom he is concerned; facts from which knowledge would readily be inferred in the case of an adult may well not be sufficient in the case of a child. It seems to us that the principle is more accurately put by saying that a court is entitled to infer knowledge on the part of a particular person on the assumption that such a person has the ordinary understanding expected of persons in his line of business, unless by his or other evidence it is convinced otherwise. In other words, the true position is that the court is not concerned with the knowledge of a reasonable man but is concerned with reasonable inferences to be drawn from a concrete situation as disclosed in the evidence as it affects the particular person whose knowledge is in issue. In inferring knowledge, a court is entitled to approach the matter in two stages; where opportunities for knowledge on the part of the particular person are proved and there is nothing to indicate that there are obstacles to the particular person acquiring the relevant knowledge, there is some evidence from which the court can conclude that such a person has the knowledge. However, this conclusion may be easily overturned by a denial on his part of the knowledge which the court accepts, or by a demonstration that he is properly excused from giving evidence of his actual knowledge."

74. Here, I have already said the Defendant had the opportunity to acquire the necessary knowledge. In fact, the Defendant was a customer of the Plaintiff (see Bundle B1 at page 85). Mr. Liao, on behalf of the Plaintiff, also relies on a whole range of circumstantial evidence which I shall not itemise here.

75. I shall only single out what I consider to be the more important evidence from which an inference of guilty knowledge can be drawn :-

Registered Designs

76. I have already dealt with the crux of the arguments on the validity of the registered designs. There is no application to strike out this part of the Plaintiff's claim. Prima facie, until the designs are cancelled or the register rectified, the Plaintiff's rights must be protected. Knowledge on the part of the Defendant is irrelevant to this claim. Again, quite clearly, there is a serious question to be tried.

Balance of Convenience

77. At the outset of arguments on this part of the case, Mr. Liao referred me to the case of Alfred Dunhill Ltd. V. Sunoptic [1979] F.S.R. 337. In that case, the plaintiff there argued that where the violation of the plaintiff 's legal right is clear and there are no contested facts, the Court should grant the injunction prayed for without reference to the balancing act advocated in American Cyanamid. It is a most interesting argument but I note that even in Alfred Dunhill, the Court of Appeal decided to apply the principle in American Cyanamid without ruling on the validity of this argument.

78. Mr. Liao sought to argue that in relation to the registered designs claim, there is really no defence to the claim and since there are no disputed facts, I should grant the injunction prayed for without considering the balance of convenience.

79. I can see the force of this argument where the dispute between the parties is purely legal and is one which can be easily resolved at the interlocutory stage. But here, I am faced with complicated legal arguments as to the validity of the designs and a possible factual dispute as to their originality. I hope I will be forgiven if I am to follow the footsteps of the Court of Appeal in Alfred Dunhill and sidestep this question. I am somewhat comforted by the fact that I have not been cited any case where this argument has succeeded. In my view, the matter must be determined by reference to the question of balance of convenience.

Plaintiff's Loss

80. The first question I have to consider is whether the Plaintiff's loss can be adequately compensated by an award of damages and if so whether the Defendant is in a position to pay them.

81. The main point relied on by Mr. Liao is that the Plaintiff has exclusivity in the sale of the Flexispace system. He has invested considerable time, effort and money in the system and enjoys a certain goodwill and reputation in respect of which he is entitled to be protected. The underpinning factor here is that the Plaintiff, through Flexiwall, is the manufacturer, and installer of the system as well as seller thereof. The Plaintiff, therefore, has complete quality control over his products and is more likely to insist on the requirement of high quality.

82. In sharp contrast, the Defendant is, by its own admission, a mere importer and trader. It has no commitment to the product and has made no investment. It merely buys from another and therefore has no say on the quality control of the product. If the product does not sell, it simply moves on to another product.

83. A comparision of the products marketed by Flexiwall ("HKH-7") and the products marketed by the Defendant ("JKA-3" and "AW-3") shows that the Defendant's products are somewhat inferior in quality. One can easily see that the Defendant's plastic parts are uneven in appearance and have mould lines running through them. The metallic parts have a glossy appearance which Mr. Liao described as "cheap". This is in marked contrast to Flexiwall's metallic parts which have a sandy look. Mr. Liao described Flexiwall's metallic parts as "classy" and "subtle". I would refrain from describing the respective parts with such subjective adjectives. I note however that Flexiwall's metallic parts definitely blend in better with the plastic parts to give the system a more wholesome appearance or better eye appeal. I cannot say the same for the Defendant's parts. Their metallic parts and their plastic parts do not seem to belong together.

84. I also bear in mind the fact that whereas Flexiwall is selling the system as a whole and insists on installing the system for its customers, the Defendant is quite prepared to sell the parts separately. In my judgment, the products sold by the Defendant are or will be inferior or perceived by the customers to be inferior in quality. As Flexiwall is the only supplier of Flexispace in Hong Kong, the goodwill and reputation of Flexiwall will inevitably suffer which loss is neither reparable nor quantifiable. The Plaintiff being a 50% shareholder of Flexiwall will in turn suffer irreparable and unquantifiable loss.

85. Even if I were wrong in concluding that the Plaintiff's loss is irreparable and unquantifiable, on the evidence before me I am not satisfied that the Defendant is in a position to pay any award of damages which can adequately compensate the Plaintiff's loss.

86. Apart from deposing that the Defendant 's turnover for the past year was "approximately $8 million and it was envisaged that turnover for coming year would be $12 million" (Bundle D page 139 para.29), the Defendant has not adduced any evidence whatsoever as to its financial position. The figure for turnover , of course, is next to meaningless if one does not know the financial background of the Defendant; whether there are any assets, what liabilities are outstanding and so on. The Defendant is a limited company incorporated in April 1989 but I do not even know what is its paid up capital. The only evidence I have is that the Defendant did not even put its name up at the entrance of its own factory.

Defendant's loss

87. Next I come to consider the Defendant's loss. It is claimed that it has a number of orders in hand. If so, its loss can thus be more easily measured by reference to these orders. As to the Defendant’s potential loss of sales, that may be difficult ot prove but it is quantifiable in nature.

88. In any event, since the Defendant is merely a trader and not a manufacturer, it can always obtain supply of the Flexispace system from Flexiwall. The profit margin lost in these orders is easily calculable.

89. There is another very significant factor. The Defendant has not disputed that the majority of the vital parts of the system it deals in are infringing copies of the Plaintiff's works. The only defence put forward is that of lack of guilty knowledge. By these proceedings the Defendant is now well aware of the true nature of its goods. I cannot see how in these circumstances the Defendant can continue to import and sell these infringing parts with immunity. In other words, now that the Defendant is affixed with knowledge, it cannot possibly hope to continue to trade these parts without being restrained by the Plaintiff if not in these proceedings then in some other proceedings.

90. In my judgment, any loss to be suffered by the Defendant, if at all, can be adequately compensated by an award of damages at the trial.

91. Furthermore, the Plaintiff is in a position to pay these damages. The plaintiff is an individual. He owns 50% of Flexiwall. I have before me the lastest audited accounts of Flexiwall (Bundle C2 at pages 926 to 935) which show that the company has net assets in the sum of $9,573,232.15. Net profit before tax for the year ended 31st December 1991 was $6,126,000.07 and the retained profit for that year was $8,673,232.75. The paid up capital was $900,000.00.

Conclusion

92. In these circumstances, the balance of convenience is overwhelmingly in favour of granting the interlocutory injunction sought. I regard the other factors I should take into account, namely, the relative strength of the respective parties' case, the need for the preservation of the statuo quo and all the circumstances of the case to be either neutral or slightly in favour of the Plaintiff.

93. It is, therefore, my judgment that the Plaintiff is entitled to an interlocutory injunction in some form restraining the Defendant from manufacturing or selling, etc., infringing copies of the Plaintiff's drawings exhibited as "HKH-5", "6", "8" and "10" save that I am not satisfied that the Defendant's holding bracket is an infringing copy of any of the Plaintiff's drawings.

94. I dismiss the Defendant's summons for discharge dated 4th March 1992 and make an order nisi of costs against the Defendant.

95. I have already expressed my view in argument that the terms of the Order are too wide and in any event unhappily worded. I shall hear parties as to the precise form in which the interlocutory injunction order should be made and the order for costs under the Plaintiff's summons dated 30th December 1991.