TALENT FOCUS EDUCATION CENTRE LTD AND OTHERS v. CHAN PO CHUN

HCA 1439/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1439 OF 2015

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D E C I S I O N

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INTRODUCTION

1.  In the present case, the Plaintiffs sue the Defendant for breach of various agreements under which the Defendant, among other things, purchased a business of tuition services and was granted the use of certain teaching materials.

2.  In her Defence and Counterclaim, the Defendant pleaded, among other matters, that a substantial proportion of the teaching materials supplied were copyright infringing materials.

3.  On 24 June 2016, Master Chow gave various case management directions upon the consent of the parties on paper, and directed, among other things, that witness statements should be exchanged within 28 days after discovery and that another case management summons hearing be held on 6 March 2017.

4.  Before the case management summons hearing:

(1) The Defendant took out a summons on 28 February 2017 and applied for an unless order against the Plaintiffs for the exchange of witness statements;

(2) The Plaintiffs, in response, took out a time summons on 3 March 2017 and sought an extension of 3 months for the exchange of witness statements.

(collectively, “the Summonses on exchange of witness statements”)

5.  At the case management summons hearing on 6 March 2017, Mr Deng for the Plaintiffs argued, among other things, that since the 3^rd Plaintiff has been arrested by the Customs and Excise Department for matters relating to the teaching materials mentioned in paragraph 2 above on 23 November 2016 and the Plaintiffs are now still under investigation, their interest would be prejudiced if they are required to disclose their witness statements at this stage.

6.  However, when Mr Deng was asked to cite authorities in support of his submissions, he was unable to do so.

7.  Having heard parties’ submissions, I have given a series of case management directions and fixed the next case management summons hearing to be heard on 30 October 2017. However, in relation to the Summonses on exchange of witness statements, because of the potential serious consequence which my decision could lead to, I considered it necessary to have further assistance from counsel on the matter. I therefore directed parties to lodge and serve written submissions and authorities.  I also informed them that those summonses would then be dealt with on paper.

8.  This is my decision upon consideration of the parties’ written submissions.

MATTERS TO BE CONSIDERED

9.  In his written submissions, Mr Deng for the Plaintiffs submitted that it is undesirable for the Plaintiffs to be required to exchange witness statements at this stage because:

(1) The Plaintiffs are still under investigation by the Customs and Excise Department.  It is possible that any witness statements exchanged herein may be used in criminal proceedings, and as a result, the Plaintiffs’ right to remain silent and privilege against self-incrimination may be prejudiced;

(2) The Plaintiffs are not sure as to what materials are alleged to have infringed copyrights of others; and

(3) The Plaintiffs do not have access to their computer systems at present because they have been seized by the Customs and Excise Department.

10.  While the Plaintiffs’ application (see paragraph 4(2) above) was to have a further three months to exchange witness statements, it is now suggested by Mr Deng that the court should withhold the making of any directions on the exchange of witness statements and should review the position in the next case management summons hearing on 30 October 2017.

11.  I will consider the aforementioned grounds raised by the Plaintiffs below.

DISCUSSIONS

Criminal investigation

12.  Mr Deng accepted that his clients are protected by section 44A of the High Court Ordinance (Cap.4) because while this section abrogates the privilege against self‑incrimination in proceedings for infringement of rights pertaining to any intellectual property, it prohibits the direct use of the information obtained herein in the related criminal proceedings.  However, it was submitted that the said section 44A does not have the effect of prohibiting any “derivative use” of such information.  Therefore, the provision of any witness statement herein would, it was said, prejudice the Plaintiffs’ interest in the criminal investigation.  Although the Defendant, through her counsel, has indicated that she is willing to undertake not to disclose the Plaintiffs’ witness statements in these proceedings to others, Mr Deng said it was feared that the Defendant and her husband might be asked to be prosecution witnesses in the criminal proceedings, and that they might provide new lines of inquiry for the Customs and Excise Department.

13.  It is on this basis that the Plaintiffs asked this court to withhold making any directions on the exchange of witness statements until the next case management summons hearing in late October 2017, in the hope that by then the Defendant’s and her husband’s respective roles in the criminal proceedings would be clearer, and that by then it would be known whether any charge would be laid against anyone.

14.  Mr Liu for the Defendant has referred this court to the case of Burberry Ltd & Another v Polo Santa Roberta Ltd & Others [2011] 3 HKC 466 in which there was an application for stay of the civil action pending resolution of criminal proceedings which appear to be dealing with more or less the same allegations as in the civil proceedings.  The following principles may be elicited from this authority:

(1) While the right to reserve one’s defence up to the last minute is a basic fundamental right of an accused in the criminal process that should not be lightly dismissed, a breach of that right does not necessarily amount to injustice;

(2) Where there is an overlap of issues between a civil action and pending criminal proceedings, there is no general rule that the former should be stayed pending the outcome of the latter;

(3) The court has a discretion to stay civil proceedings if, having regard to the concurrent criminal proceedings and the defendant’s rights in those proceedings, it is satisfied that it is just to do so.  The question is: whether there is a real danger of causing injustice in the criminal proceedings if the civil proceedings are to be proceeded with;

(4) The burden is on the party seeking a stay to show that it is just and convenient that the other party’s ordinary rights of having his claim processed, heard and decided should be interfered with.

15.  I am aware that the Plaintiffs are not asking for a general stay of the proceedings herein as Mr Deng is only suggesting that this court should withhold giving any direction for the exchange of witness statements.

16.  Having said that, I agree with Mr Liu that what Mr Deng requested is akin to a stay application because if Mr Deng’s suggestion is accepted, the progress of this action would be hindered.  It should be noted that Mr Deng is not saying that any direction for the exchange of witness statements should definitely be given in the hearing in October 2017.  Rather, he is suggesting that any direction should only be given when the Defendant’s and her husband’s respective roles in the criminal proceedings are clearer, and when there is any indication to prosecute by the Department of Justice.  In other words, if his submission is accepted on this occasion, there is every possibility that he will invite the court to wait further in the next CMS hearing in the event that the criminal investigation is still ongoing by then.

17.  The principles which I referred to in paragraph 14 above are therefore applicable to the present case.

18.  Hence, the question is: have the Plaintiffs satisfied this court that it is just and convenient that the Defendant’s ordinary rights of having her counterclaim processed, heard and decided should be interfered with?

19.  Despite Mr Deng’s heavy reliance on the criminal investigation, there is actually no evidence as to what such investigation is about.  The Plaintiffs have not filed any affidavit in support of their application (whether for an extension of time for 3 months or until at least the next CMS hearing).  The only information in writing available to this court is contained in the Plaintiffs’ timetabling questionnaire filed on 1 March 2017, in which it is stated in Part J that:

“1. The 3^rd Plaintiff was arrested on 23 November 2016 by Customs and Excise Department (‘C & ED’), the office and home search of the Plaintiffs were conducted on 23 November and 24 November 2016. The C & ED has obtained all educational material (sic) at the Plaintiffs’ office for investigation (‘the investigation’).

2. No charge sheet or brief facts have been provided by C & ED to the 3^rd Plaintiff and no hearing have (sic) been scheduled for relevant investigation up to the date of this Questionnaire, thus, the Plaintiffs cannot confirm if the investigation were (sic) due to the complaint made by the Defendant…”

20.  I do not accept that the Plaintiffs are entitled to place evidence before the court by way of a timetabling questionnaire. Given the nature of the information, it should have been included in an affidavit filed in support of the Plaintiffs’ summons.

21.  Mr Deng has also told this court in the hearing that he “believed” that the investigation presently conducted by the Customs and Excise Department is in relation to the Defendant’s complaint herein.  However, it is trite that the court would not accept evidence being given from the Bar table.

22.  Given that no admissible evidence has been placed before the court, the whole foundation of Mr Deng’s submissions, namely, that the Plaintiffs are or may be subject to criminal prosecution in due course and that their interest might be prejudiced, is gone.

23.  Even if evidence could be placed before the court by way of a timetabling questionnaire, I do not think the information contained in the questionnaire would take the Plaintiffs’ case very far, since there is nothing which confirms that there is overlap between the issues involved in the criminal investigation and this action.  Thus, the Plaintiffs’ application (as revised by virtue of Mr Deng’s submissions) is a non‑starter.

24.  Even in the event that there is any overlap in issues, having considered parties’ submissions and all the circumstances, I am of the view that the exchange of witness statements should not be withheld as proposed by reason of the criminal investigation:

(1) Unlike other applications for stay in similar situation (for example, the Burberry Ltd case cited above) where the party under criminal investigation had not filed any defence in the civil proceedings, the Plaintiffs herein have filed their Reply and Defence to Counterclaim.  The 3^rd Plaintiff has even signed a statement of truth in support of that Reply and Defence to Counterclaim as a director of the 1^st and 2^nd Plaintiffs and in his personal capacity.  Under these circumstances, I am of the view that no issue of right of silence arises in the present case, and the prejudice which might be brought by the exchange of the witness statements, if any, has been exaggerated, since the Plaintiffs’ case has been revealed in their pleadings already.   

(2) As Mr Liu pointed out, it is pleaded by the Plaintiffs in the Reply and Defence to Counterclaim that the teaching materials supplied were not substantially copied from the teaching materials of other publishers and/or authors.  I think I can safely assume that the Plaintiffs (in particular, the 3^rd Plaintiff) would maintain this assertion in the witness statements to be exchanged.  That being the case, there is no issue of self-incrimination at all.

(3) As the Plaintiffs admitted, the criminal case is still at the stage of investigation only, and criminal proceedings have not been started yet, if at all.  There is no certainty as to how long this action has to be held up.  This is undesirable.

(4) The Plaintiffs have not suggested why there is a real danger that injustice would be caused to the criminal proceedings if the parties are directed to exchange witness statements at this stage, apart from alleging generally that the Plaintiffs’ interest would be prejudiced.

25.  This ground is therefore rejected.

The alleged infringement

26.  It has been pleaded in paragraph 32 of the Defence and Counterclaim that “a substantial proportion of the teaching materials” supplied pursuant to the agreements between the parties were, among other things, not written, created or developed by the 3^rd Plaintiff and/or were copied from teaching materials of other publishers and/or authors.

27.  No particulars have been given in the Defence and Counterclaim as to which of the teaching materials are alleged to be caught by this plea.

28.  Be that as it may, the Plaintiffs were able to plead in paragraph 14(2)(a) of the Reply and Defence to Counterclaim that:

“the materials in which the Defendant asserts an infringement of third parties copyright (which is denied) consists only of classes conducted for:

(i) Primary level English Reading and Writing Classes; and

(ii) Secondary level English Classes,

for which accounted between November 2014 – April 2015, only 6.97% of the Business’s (sic) total revenue only.”

29.  When I first perused the Plaintiffs’ Reply and Defence to Counterclaim, I was puzzled as to where the Plaintiffs got these classes from, since they were nowhere to be found in the Defence and Counterclaim.  The answer was eventually given by Mr Deng in paragraph 6 of his written submissions:

“The figure of 6.97% was based upon the materials presented to Plaintiffs on the 12^th June 2015 meeting in relation to the Primary level English Reading and Writing Classes and Secondary level English Classes. The disclosure made on 2^nd December 2016 shows that more materials are now being relied upon that are not limited to the above category of classes.”[1]

30.  Probably because Mr Deng considered it undesirable not to have the benefit of a clearly pleaded case on copyright infringement in the Defence and Counterclaim, he indicated in the hearing on 6 March 2017 that the Plaintiffs were minded to make a request for further and better particulars of the Defence and Counterclaim.  I therefore directed the Plaintiffs to take out an application for that purpose by 3 April 2017, in the event the parties cannot resolve this matter by themselves.

31.  It should also be noted that at the case management summons hearing on 6 March 2017:

(1) The Plaintiffs have indicated that they would apply for specific discovery, and they have been directed to do so on or before 3 April 2017; and

(2) Mr Liu has informed the court that the Defendant is going to file and serve a supplemental list of documents within 21 days thereof.

32.  Hence, it seems that the discovery process is still ongoing.

33.  That being the case, in my view, a more proper way to deal with the Summonses on exchange of witness statements is to adjourn them for further consideration at a later stage, when the parties’ pleadings are in order and when the discovery process is over.

34.  At this stage, it is unclear as to when the above procedures will be completed.  It may take only 1 to 2 months if the receiving end accedes to the requests of provision of documents and/or particulars made by the other side.  However, if any of the requests meets with any objection, much longer time will be required for resolution of the same. 

35.  Bearing in mind that the present action has not progressed much since the case management summons directions were given by Master Chow back in June 2016, I think the court should pay closer attention to the progress of this case and make sure that parties would not let this case sleep again.  I therefore direct that:

(1) The Summonses on exchange of witness statements be adjourned sine die with liberty to restore;

(2) If any party has failed to comply with any of the court’s directions given on 6 March 2017 without seeking any extension of time, the other party’s solicitors shall inform the court in writing within 3 days after the due date;

(3) The parties shall lodge a joint letter to this court reporting the progress of the present case on 31 May 2017.

36.  When the court receives the joint letter on 31 May 2017, further directions will be given on paper. The intention is that this court will consider the issue of exchange of witness statements again once the timing is right without waiting for the case management summons hearing on 30 October 2017.

Access to computer systems

37.  The Plaintiffs also submitted that because their computer systems have been seized by the Customs and Excise Department, they would be unable to calculate the precise percentage of total revenue which the alleged copyright infringing materials had generated in case the Defendant expands her complaint to cover more teaching materials.

38.  As it is still unclear as to whether the Plaintiffs are required to make further calculation as alleged, it is pre‑mature to say one way or another whether this difficulty described by the Plaintiffs would be materialized.  In any event, because of the conclusion which I reached in paragraph 33 above, I do not have to deal with this issue further at this stage.  This issue will have to be revisited in due course.

CONCLUSION

39.  By reasons of the above, I make the directions set out in paragraph 35 above.

40.  As agreed between the parties at the hearing, I also order that the costs of the parties’ written submissions be in the cause.