SMART TRIKE MNF PTE LTD AND OTHERS v. CHIU SUI CHUN AND OTHERS

HCA 847/2013

[2018] HKCFI 562

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 847 OF 2013

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DECISION

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I. INTRODUCTION

1.  The present dispute between the 1^st to 3^rd plaintiffs (“Ps”) and the 1^st to 6^th defendants (“Ds”) concerned the manufacture/sale of children tricycle products. The gist of Ps’ claim against Ds was summarised in paragraph 1A of Ds’ Re-Re Amended Statement of Claim (“RRASoC”):

“This action is all about the unscrupulous conduct of [Ds]. In a nutshell, the 1^st Defendant [“D1”] was entrusted to act as [Ps’] agent in operating their business, including in particular in relation to the marketing of the [Ps’] well-known children tricycle products. The 4^th Defendant [“D4”] was entrusted to produce the tricycle products for the [Ps]. Despite the enormous trust placed on [D1 and D4], [D1 and D4] were found to have betrayed the trust and loyalty by conspiring with the 2^nd, 3^rd, 5^th and 6^th Defendants [“D2, D3, D5 and D6”] and other related parties to set up a rival business, and copied and/or appropriated [Ps’] designs for their own benefits and to the detriment of [Ps]. In doing so, [Ds] had been in serious and blatant breaches of their respective duties owed to [Ps]. [Ds] also knowingly, and with the deliberate intention, copied from [Ps’] copyright products, designs and/or[1] works. The various causes of action against [Ds] have been pleaded in details hereinbelow.” (my emphasis)

2.  The tricycle products Ps relied on were models “ST157”, “ST126” and “ST129” (“Ps’ Models”, see paragraph 10 and Annex A of the RRASoC). Ps claimed that Ds inter alia copied their respective models “908016”, “2029021” and “202SP3” (“Ds’ Models”) which they alleged were substantially similar to Ps’ Models (see paragraph 46 and Annex B of the RRASoC), and that the design of Ds’ Models was substantially similar to that of Ps’ Models (see paragraphs 47-49 of the RRASoC). Ps alleged Ds by reason of their various acts inter alia wrongfully profited from the sale of the copied models.

3.  In the RRASoC, Ps’ pleaded causes of action were (a) infringement of Ps’ copyright, (b) infringement of Ps’ registered design, (c) breach of D1-4’s and D6’s contractual/fiduciary duties or duty of confidence owed to Ps, (d) dishonest assistance by D2-6 of D1’s breach of fiduciary duties, (e) conversion and/or detinue against D4 in relation to Ps’ Moulds (as defined in paragraph 75 of the RRASoC), (f) conspiracy to defraud/injure, and (g) unlawful interference with the 1^st plaintiff’s (“P1’s”) business (see paragraph 45 of the RRASoC).

4.  Ds denied Ps’ claims. D alleged (a) Ps’ Models were not of original design, not new, not unique and lacked individual character, (b) Ps’ designs were commonplace and could be found in a long list of other children tricycles marketed before the marketing of Ps’ Models, (c) Ds’ Models were original artistic works authored by a full-time staff member employed by one of D4’s factories, and were not substantially similar to Ps’ Models, (d) D5 was the proprietor of a Hong Kong registered design relating to Ds’ Model “908016”, (e) the written instruments entered into between Ps’ and Ds’ entities were all arms-length transactions and did not give rise to any trust, fiduciary duties or duty of confidence, (f) the alleged “Confidential Information” was not confidential in character and Ds did not receive any confidential information, and (g) there was nothing unlawful in Ds’ activities and they did not make use of Ps’ alleged confidential information (paragraphs 10, 12, 17, 19, 22, 28-29, 31, 34, 38, 41, 46-50, 59A-70 of the Re-Re-Re-Amended Defence and Counterclaim).[2]

5.  The parties also pleaded cross-counterclaims, but for present purposes I need not be concerned with those pleadings.

6.  On 17 May 2017, in view of the causes of action in paragraph 3(a)-(b) above, Master Ho granted leave for the parties to exchange expert reports on liability for the discipline of industrial design within 77 days on the expert issues set out in the schedule annexed thereto (“Expert Schedule”) with consequential directions for the experts to hold a without prejudice meeting and to prepare a signed joint report (“Ho Order”).

7.  On 4 July 2017, Ds filed a summons to seek leave to replace the Expert Schedule with a schedule prepared by Ds as attached to such summons (“Ds’ Schedule”), and to seek similar expert directions as in the Ho Order but to be based on Ds’ Schedule.

8.  On 14 July 2017, Master Hui granted case management directions for filing/serving affidavits and for adjourning Ds’ summons filed on 4 July 2017 for argument.

9.  On 10 August and 14 September 2017, Master Chow and Master Ho respectively granted extension of time (until 12 October 2017) for the parties to comply with the Ho Order for exchanging experts’ reports on liability.

10.  On 6 October 2017, Ds filed a summons returnable on 16 November 2017 for leave to amend their summons filed on 4 July 2017 by seeking reliefs (a) to extend time for compliance with various directions under the Ho Order, and (b) to replace Ds’ Schedule with a revised expert schedule.

11.  On 16 October 2017, Master Hui granted an “unless” order to the effect that unless the parties were to exchange expert reports on liability pursuant to the Ho Order by 4pm on 27 November 2017, the party in default shall be barred from adducing any expert evidence at trial, and the other party shall be at liberty to serve their expert report.

12.  Shortly thereafter, Ps indicated their intention to withdraw their claims on copyright and registered design infringement, which led to the Consent Summons filed on 7 November 2017 and the eventual Consent Order granted by Registrar KW Lung dated 8 November 2017 (“Lung Order”) inter alia as follows:

(a)   within 28 days of the date of such order, Ps were to take out an application to amend their RRASoC (i) to withdraw all causes of action relating to copyright and registered design, and (ii) to delete any claim for reliefs based on the above, and to provide for costs arising from the said amendment and withdrawal;

(b)   the Ho Order concerning expert directions be revoked;

(c)   leave be granted for Ds to withdraw their summonses filed on 4 July and 6 October 2017; and

(d)   the parties shall not file any expert evidence in the present action without further leave of the court.

13.  On 6 December 2017, Ps filed a summons (“Summons”) pursuant to the Lung Order to seek leave to further amend the RRASoC and to file and serve their Re-Re-Re-Amended Statement of Claim as per the draft annexed to the Summons (“Draft”) within 3 days. The Summons was returnable for a 3-minute hearing before Master M Lam (“Master”) on 18 December 2017 (“Master Hearing”).

14.  At the Master Hearing, the Master granted the following order (“Master Order”):

(a)   leave for Ps to file and serve their Re-Re-Re-Amended Statement of Claim pursuant to the Lung Order within 3 days;

(b)   leave for Ds to file and serve their Re-Re-Re-Re-Amended Defence and Counterclaim on/before 15 January 2018;

(c)   leave for Ps to file and serve their Re-Re-Re-Amended Reply to Re-Re-Re-Re-Amended Defence to Counterclaim and 2^nd version of Counterclaim to Counterclaim within 14 days thereafter;

(d)   costs of the Summons be adjourned for argument before a master with 3 hours reserved;

(e)   leave for Ds to file and serve affirmation in support of their claim for costs of the Summons on/before 8 January 2018;

(f)    leave for Ps to file and serve affirmation in reply within 21 days thereafter; and

(g)   costs of the Master Hearing be reserved.

15.  On 28 December 2017, Ds filed Notice of Appeal against the Master Order, and asked for (a) the Master Order to be set aside, (b) the Summons to be dismissed, and (c) costs of the appeal and costs of the Summons including costs of the Master Hearing be paid by Ps to Ds to be taxed if not agreed (“Appeal”).

16.  On 19 December 2017, Ps filed their Re-Re-Re-Amended Statement of Claim (“RRRASoC”) pursuant to the Master Order.

17.  On 10 January 2018, Master Hui ordered that the Master Order (except for the directions in paragraph 14(a) above) be stayed until final disposal of the Appeal.

18.  The hearing of the Appeal came before this court on 5 February 2018 (“Hearing”).

II. SCOPE OF THE APPEAL

19.  There was no dispute between Mr Wong SC (and with him Mr Kok), counsel for Ps, and Mr Man SC (and with him Mr Lo), counsel for Ds, that the amendments (marked up in yellow) in the RRRASoC (“Amendments”) removed Ps’ causes of action in relation to copyright and registered design as envisaged by the Lung Order.

20.  In the circumstances, Mr Wong SC observed it was strange that by the Appeal Ds chose to appeal against the entirety of the Master Order, including the aforesaid removal of Ps’ causes of action in relation to copyright and registered design. It was eventually made clear in Mr Man SC’s written submissions that Ds’ objections for the purpose of the Appeal were limited to certain passages in only 2 paragraphs of the RRRASoC. To put the matters in context, I set out the full paragraphs (without distinguishing between various earlier amendments except for the marked- up Amendments in yellow) with impugned passages highlighted in italics as follows (“Disputed Amendments”):

(a)   Paragraph 26(2)(v) –

“Further or in the alternative, by virtue of the matters pleaded in paragraphs 19A 18 to 24 above, [D1] has, at all material times, owed to [Ps] the following fiduciary duties and/or breach of confidence:

(1) A duty to act in good faith;

(2) A duty, not without the informed consent of [Ps], to do the following:

(i) Make for herself any profit arising from her position and relation with [Ps];

(ii) Place herself in a position where her duty to [Ps] and her own interest might conflict;

(iii) Act for her own benefit or the benefit of a third person except in so far as authorised by [Ps];

(iv) Act in the detriment of and/or causing harm to [Ps], in particular, to [Ps’] business; and

(v) Copy (or substantially copy) Plaintiffs’ Products and/or any of their relevant and related designs and/or works. Infringe [Ps’] copyright and registered design rights.

(3) In the event of any potential conflict arising, a duty to ensure that [Ps] were fully informed of the facts and their implications.

(4) A duty not to disclose the Confidential Information or any of them to anyone else, or otherwise exploit or make use of any such Confidential Information whether for the benefit of herself or others or otherwise for whatever purposes, without the consent of [Ps].

(5) A duty to devote the whole of her working time, attention and skill to the business of [Ps].

(6) A duty not to compete or take preparatory steps to compete with [Ps].

(7) A duty not to take advantage of her position to divert any business or business opportunities of [Ps].”

(b)   Paragraph 46 –

“On a date presently unknown to [Ps] but prior to the issue of the Writ herein, [Ds] have, jointly and severally, breached their duties towards [Ps] and/or interfered with their lawful rights and/or interests infringed [Ps] copyright subsisting in the Copyright Works by copying, manufacturing, issuing to the public, importing into Hong Kong, exporting from Hong Kong, selling, offering or exposing for sale, distributing, possessing, and/or otherwise howsoever dealing in or with children tricycle products which are substantially similar to the Plaintiffs’ Products manufactured in accordance with the Copyright Works, including the following:-

(1) The product with model no.908016 (“908016”);

(2) The product with model no.2029021 (“2029021”);

(3) The product with model no.202SP3 (“202SP3”).

(collectively “the Infringing Products”)

Copies of the Infringing Products are attached hereto in Annex B for reference. Insofar as [D(s)] used any other model numbers to present those Infringing Products shown in Annex B, [Ps] will assert their lawful rights and/or interests copyright in relation to such products.

PARTICULARS OF INFRINGEMENT AND/OR WRONGFUL ACTS

[Ps] will rely on all those facts and matters pleaded in this [RRASoC], in particular those pleaded in paragraphs 47 to 80 below.”

21.  Mr Man SC confirmed Ds no longer took the point (which Ds’ solicitor took before the Master at the Master Hearing) that the Amendments were made in breach of the parties’ agreement as recorded in the Lung Order.[3]

22.  At the Hearing, Ds essentially complained that notwithstanding Ps’ agreement to withdraw all causes of action relating to copyright and registered design, Ps added or maintained averments that:

(a)   D1 owed fiduciary duties and/or duty of confidence not to “copy (or substantially copy)” Ps’ products without informed consent (see paragraph 26(2)(v) of the RRRASoC);

(b)   Ds were in breach of their duties towards Ps by inter alia copying, manufacturing and issuing to the public children tricycle products which were “substantially similar” to Ps’ products (see paragraph 46 of the RRRASoC); and

(c)   the design of the 3 Ds’ Models was “substantially similar” to the design of the 3 Ps’ Models (see paragraphs 47-49 of the RRRASoC).

I note that notwithstanding Ds’ complaint in (c) above, those pleas were not part of the Disputed Amendments for they were part of the amendments introduced by Re-Amended Statement of Claim in January 2014 and not by the RRASoC or the Amendments.

III. MASTER HEARING AND MASTER ORDER

23.  It was apparent from the written submissions of Mr Man SC and Mr Wong SC that neither counsel was aware of what actually transpired at the Master Hearing. At the Hearing, I made available copies of the transcript of the Master Hearing (“Transcript”) for the parties, and showed counsel the Agreed Directions referred to in paragraph 26 below.

24.  It appeared from the Transcript that the Master Hearing began at 10:15am. At the beginning, Ds’ solicitor opposed the Summons and sought an adjournment of the Summons for argument on the basis that (a) the Amendments retained allegations that Ds copied or substantially copied Ps’ products, and that Ds’ products were substantially similar to Ps’ products, which (i) were akin to a re-run of Ps’ abandoned causes of action, (ii) were in breach of the parties’ agreement as reflected in the Lung Order and (iii) might lead to revival of the need for the abandoned expert directions, (b) there was a newly pleaded claim in paragraph 75 of the Draft (ie Ds wrongfully used/utilised the Moulds for making Ds’ products), and (c) Ds would like to strike out certain parts of the supplemental witness statement of the 3^rd plaintiff (“P3”) dated 12 December 2017 (ie filed after the issuance of the Summons) (“P3 Statement”) which application should be dealt with in one go together with Ds’ opposition of the Summons at an adjourned hearing for argument. Ps’ solicitor disagreed by saying the Amendments complied with the Lung Order, and Ps relied on the aforesaid allegations for Ps’ remaining causes of action concerning breach of fiduciary duties and/or breach of confidence.

25.  At 10:56am, the Master stood down the Master Hearing to let both parties’ solicitors to consider and discuss with each other their respective position. When the Master Hearing resumed at 11:31am, Ds’ solicitor informed the Master he had taken instructions and updated the Master in respect of Ds’ position, ie “[Ds] are not going to oppose [Ps’] amendments of pleadings but [Ds] are only going to argue on the costs issue”. Ds’ solicitor then went on to submit as follows:

“[Ds’ solicitor] was instructed to strongly impress Master on one point, is that because [Ps have] filed a witness statement which [Ds] think it shouldn’t be exhibited to the witness statement and [Ds] are going to take out an application to strike out those exhibits.

[Ds’ solicitor] was instructed that if the strike-out application is successful then [Ps] might have to revise their pleadings again, because like – but for the present purpose, of course, [Ds] still haven’t taken out the strike-out summons so [Ds] are not opposed to the present amendments, but [Ds] are going to argue on costs.

Also Master, in view of the coming holiday, [Ds’ solicitor thinks] it should be appropriate for [him] now to seek the court’s leave to file [Ds’] amended defence too. [Ds] would require 35 days from today.”

26.  There was discussion between the bar and bench on possible consequential directions. Eventually, Ds’ solicitor proposed to again stand down the Master Hearing so that both parties’ solicitors could draft the relevant directions. The Master acceded to such proposal, and the Master Hearing was stood down at 11:44am. When the Master Hearing resumed at 12:10pm, Ps’ solicitor informed the Master that both parties’ solicitors “have reached agreement on the terms of the orders”. They handed up to the Master their agreed directions which had been reduced into writing and signed by both Ps’ solicitor and Ds’ solicitor (“Agreed Directions”). Paragraph 1 of the Agreed Directions stated as follows: “Order in terms of paragraph 1 of [Ps’] summons dated 6^th December 2017 (“Plaintiff’s summons”);” and paragraphs 2-7 of the Agreed Directions were akin to the terms set out in paragraph 14(b)-(g) above.

27.  The Master made minor changes to the Agreed Directions which resulted in the Master Order. In respect of paragraph 1 of the Agreed Directions, the Master said “[so] paragraph 1, then there will be an order in terms of paragraph 1 of [Ps’ Summons]; save that there is an amendment that should be within three days from the date hereof ……”, which resulted in the Master Order set out in paragraph 14(a) above.

28.  So although the sealed copy of the Master Order did not expressly state it was made by consent, it was plain from the Transcript and the written and signed Agreed Directions that the Master Order was made by consent and/or it was premised on the written and signed Agreed Directions notwithstanding minor changes made by the Master. In short, Ds consented and agreed to the Amendments at the Master Hearing, and consequently the Master made the Master Order to grant leave for Ps to make the Amendments and to file/serve the RRRASoC. The Master Order had since been perfected and sealed, and the RRRASoC had also been filed and served.

IV. PROCEEDINGS AT THE APPEAL

29.  I stood down the Hearing to enable Mr Man SC and Mr Wong SC to take instructions. When the Hearing resumed, Mr Man SC confirmed that the events described in paragraphs 24-27 above were correct, and Ds’ solicitor did consent/agree to the Amendments (by allowing leave for Ps to file/serve the RRRASoC) at the Master Hearing. This was reinforced by the request by Ds’ solicitor for case management directions to enable Ds to consequentially amend their pleadings (see paragraph 25 above), which directions naturally presumed Ps would have leave to amend the RRASoC as per the Draft. At the Hearing, Mr Man SC also fairly confirmed Ds would not (a) resile from the agreement/consent evidenced by the Agreed Directions and/or from the submissions by Ds’ solicitor made at the Master Hearing, and/or (b) seek to vitiate or set aside such agreement/consent.

30.  The key question was whether Ds could still maintain and pursue the Appeal to set aside the Master Order in respect of the Disputed Amendments given what had transpired at the Master Hearing and the nature/effect of the Master Order (“Anterior Question”).

31.  Mr Man SC submitted the answer to the Anterior Question was in the affirmative, and cited Deng Minghui v Chau Shuk Ling[4] in support of Ds’ stance. Mr Wong SC submitted the answer must be in the negative, and cited Chevalier Property Management Limited v The Incorporated Owners of Glorious Garden & anor[5] in support of Ps’ stance. Mr Wong SC suggested the Appeal could be resolved by a ruling of this court on the Anterior Question without hearing submissions on substantive arguments in relation to the Appeal. Whilst I recognise senior counsel did their best given the short notice they had about what transpired at the Master Hearing, this court was left in the unhappy position at the Hearing of being provided with a copy of Deng Minghui with no opportunity to read it and not even provided with a copy of Chevalier Property Management Limited. In the end, to save time and costs and subject to the caveat mentioned below, I acceded to Mr Man SC’s suggestion to hear the substantive arguments in relation to the Appeal on de bene esse basis. But the caveat I mentioned to Mr Wong SC and Mr Man SC was that if it transpired upon consideration of senior counsel’s submissions and their authorities in relation to the Anterior Question that the answer was against Ds’ contention, it might be unnecessary (and this court might not go on) to consider the substantive arguments in respect of the Appeal that I had heard on de bene esse basis.

V.  Ds’ SUBMISSIONS ON ANTERIOR QUESTION

32.  Mr Man SC submitted the correct analysis was that Ds by the Agreed Directions which resulted in the Master Order made a concession at the Master Hearing, and Ds by the Appeal sought to withdraw such concession. Mr Man SC argued the Appeal would not cause any prejudice to Ps for there was no change to the shape of affidavit evidence and/or arguments relating to the Summons, but he accepted there might be argument on costs should this court allow Ds to withdraw the concession. Mr Man SC relied on the observations of Cheung JA (to which Stone J agreed) in paragraphs 16-18 at pp 911-912 of Deng Minghui (see discussion in paragraphs 50-51 below) in support of his contentions.

33.  Mr Man SC distinguished Chevalier Property Management Limited by saying it concerned an appeal from an order by a judge of the Court of First Instance (“Judge”) to the Court of Appeal (“CA”), which he said was fundamentally different from an appeal from a decision by a master to a Judge in chambers.  For an interlocutory order premised on the exercise of judicial discretion, Mr Man SC submitted that an appeal from such decision by a Judge in chambers to the CA is constrained by the limited scope for overturning the Judge’s exercise of discretion, but an appeal from such a decision by a master to a Judge in chambers would be a hearing de novo in which the Judge would exercise the discretion afresh. Mr Man SC argued there was no procedural principle that would require this court to dismiss the Appeal if (a) the court was of the view Ds’ substantive arguments for the Appeal were of merit, ie the Disputed Amendments were indeed embarrassing, and (b) Ps would not occasion any prejudice (and Ps had not asserted any prejudice if Ds were allowed to argue the Appeal).

VI.  Ps’ SUBMISSIONS ON ANTERIOR QUESTION

34.  Mr Wong SC noted that at the Hearing Ps conceded the Agreed Directions (ie the premise upon which leave was given for Ps to amend the RRASoC by the Amendments and to file and serve the RRRASoC) were the subject of true agreement/contract between the parties, which was far different from the situation in Deng Minghui (see discussion in paragraphs 50-51 below). Mr Wong SC submitted Chevalier Property Management Limited was more relevant (see discussions in paragraph 43-44 below). Mr Wong SC pointed out that Ds did not even attempt to set aside the Master Order that was made by agreement, so there was no basis for this court to reconsider the Summons that was disposed of by consent by way of the Master Order. Mr Wong SC asked rhetorically what could be said to be wrong with the Master Order that could be the subject of appeal and that would be liable to be set aside when the Master merely made an order in terms (subject to minor changes) of the Agreed Directions that were a matter of contract and common understanding between Ps and Ds.

35.  Mr Wong SC disagreed with Mr Man SC’s propositions in paragraph 33 above. He submitted such proposition (ie parties would be allowed to resile from their agreements/contracts that were evidenced by consent judgments/ orders made by masters) ran afoul of the beneficial public policy of finality in proceedings. Mr Wong SC argued there would be far-reaching implications if any consent judgment/order by a master could be re-opened at will by any party on appeal, and he suggested the distinction that Mr Man SC drew between a consent judgment/order made by a master and that made by a Judge could not stand since the nature and effect of any consent judgment/ order were the same whether made by a master, Judge or justice of appeal. Mr Wong SC submitted such bold argument was not supported by any authority, and Deng Minghui was not on point. Mr Wong SC noted that whilst no party was obliged to enter into any compromise, a compromise once made would bind the parties, so it behoved any party to think carefully before entering into any agreement/contract to dispose of any application/action.

VII. DISCUSSION ON ANTERIOR QUESTION

36.  In my view, the starting point was (and it was common ground) that, notwithstanding minor changes to the Agreed Directions made by the Master, the Master Order under appeal was an order made with the consent/ agreement of both parties.

37.  It was also common ground that the Master Order was an interlocutory order. But as Sakhrani J held in Balsam Ltd v Chau Chi Nung & ors, “…… there does not appear to be a fundamental distinction between a consent order made in interlocutory proceedings and a consent order made on a final judgment although there was a larger discretion as to the orders made on interlocutory applications than as to those which were final judgments. (See Re Tse Lee Yuen Jewellery Ltd [1984] HKC 352 and Purcell v FC Trigell Ltd & Another [1970] 3 All ER 671)”.[6]

38.  In Purcell, Buckley LJ said that on the question of contractual effect of an agreed order relating to some procedural matter in an action, he could see no valid distinction in principle between a consent order of that nature and a consent order of a final nature.[7] It was held that the order in that case (see paragraph 48 below) had a binding contractual effect which the plaintiffs were entitled to insist upon. Insofar as Lord Denning MR cited Mullins v Howell[8] where Sir George Jessel MR said at p 766 that “[there] is a larger discretion as to orders made on interlocutory applications than as to those which are final judgments” (eg a party can appeal on the ground of his own mistake), Buckley LJ said:

“…… it is quite clear, in my judgment, from the terms of Sir George Jessel MR’s observations in that case that he was not in any way disregarding the contractual effect of the arrangement arrived at between the parties. …… In my judgment, nothing in that case conflicts in any way with the view that I have expressed, that a consent order must be given its full contractual effect even if it relates to an interlocutory step in the action.”

39.  In any event, Mr Man SC did not seek to rely any distinction between interlocutory and final consent orders in suggesting Ds could appeal against the Master Order.

40.  Generally speaking, consent orders may be divided into 2 types, ie (a) those that embody or evidence a contract between the parties, and (b) those that were made by the parties without objection.[9]

41.  In relation to a consent order in paragraph 40(a) above, since the order embodies or evidenced a contract made by the parties to settle/ compromise their dispute in the case or on a particular point, it can only be disturbed (whether on appeal or otherwise) if there exists one or more of the recognised vitiating factors that would allow a party to disturb a contract,

SUCH AS FRAUD, ILLEGALITY, MISTAKE OR MISREPRESENTATION.[10]

42.  In Tsang Iu Hung v Tsang Tak Wah & anor, a consent order was upheld even though its terms were onerous, and it was held such order would only be set aside as a consequence of unconscionable conduct such as unfair prejudice, domination, or victimisation.[11]

43.  In Chevalier Property Management Limited, the parties signed a consent summons that upon the 1^st defendant’s undertaking that it would abide by the Extended Management Agreement, the plaintiff’s action would be discontinued and the injunction the plaintiffs obtained against the defendants would be dismissed with costs to be paid by the 2^nd defendant. DHCJ Burrell made a consent order in terms of such consent summons. The 2^nd defendant wished to set aside the consent order on the basis that the injunction should not have been made in the first place. DHCJ Burrell refused leave to appeal, and the CA dismissed the renewed application for leave to appeal. Cheung JA giving the decision of the court stated as follows:

“3. …… Grounds for setting aside a consent order are well known and are restrictive, such as the consent order was obtained by fraud, mutual mistake etc. None of these is relied upon in this case. The transcript of the hearing before the Judge clearly shows that the 2^nd defendant knew that he was agreeing to the terms of the consent summons before he appended his signature to it. Whether the injunction was properly obtained in the first place or not was irrelevant and was not a ground for setting aside the consent order.” (my emphasis)

44.  From the above, it is clear that a consent order in paragraph 40(a) above does not itself constitute a contract, but it is sufficient evidence of the contract of compromise on which it is based, and such contract is no less a contract and subject to the incidence of a contract because there is superadded the command of the court.[12] Thus, the true rationale for the legal effect of such consent order and the true reason why they could only be set aside on the aforesaid restrictive grounds are that it is “founded on the agreement of the parties”,[13] or to put it in another way, it “derives its force and effect from the contract underlying it, and if the contract can be set aside, so can the order”.[14] As Woo JA said in Leung Yee & anor v Ng Yiu Ming & anor, “[where] there is a true contract contained in a consent order, the court has no power to set it aside or to vary its terms: Purcell v FC Trigell Ltd (t/a Southern Window & General Cleaning Co) [1971] 1 QB 358 and Tigner-Roche & Co v Spiro (1982) 126 SJ 525)”.[15]

45.  Once the aforesaid true rationale is understood, Mr Man SC’s skilful attempt to distinguish between treatment on appeal from such consent order made by a master (ie hearing de novo by the Judge in chambers) and on appeal from that made by a Judge in chambers (ie limited grounds for appeal to the CA against exercise of discretion by a Judge in chambers) falls away. In IN-T Workshop Ltd v Box Design Ltd,[16] DDJ Kenneth Lee at pp102-104 cited Richardson Roofing Co Ltd v Colman Partnership Ltd[17] where Jacob LJ explained the consent order “was an order which the parties themselves had in effect contractually agreed to”, which proposition Aikens LJ agreed and he added that the consent order “had been drawn up by the parties. It was their draftsmanship and it was their meaning and intention that was in issue, not that of the court or the judge”. In short, the agreement of the parties ousted the discretion of tribunal.

46.  In any event, the authorities showed that a Judge had no power to vary such a consent order made by the master.

47.  In Cristel v Cristel,[18] a husband who had deserted his wife applied by summons under section 17 of the Married Women’s Property Act 1882 for possession of the matrimonial home, which was in the possession of the wife and children, and which he wished to sell with vacant possession. By agreement between the parties, a master made an order for possession, but suspended it until the husband provided suitable alternative accommodation in the form of a two- or three-bedroomed house or bungalow, and the agreed order gave liberty to apply. Later, the husband secured a two-bedroomed flat and sought to vary the agreed order by inserting the word “flat” after the word “bungalow”, and to order the wife to give up possession of the house. The master refused the application, but the judge on appeal referred back to the master the question whether the flat was suitable alternative accommodation. Somervell LJ at pp 728 and 730 came to the view that one could not construe a “house” in the agreed order as including “flat”, and that the agreed order could not be varied to insert the words “or flat” as it would have been an alteration of what had been agreed, ie an attempt by the husband to enlarge the categories of alternative accommodation which were expressly limited by the order.

48.  In Purcell, the plaintiffs in a personal injuries action obtained an order for interrogatories from the registrar. They were not answered. The plaintiffs issued a summons to seek judgment on the defendants’ non-compliance. Eventually, a consent order was made that the defence be struck out unless answers to the interrogatories served by the plaintiff were delivered within 10 days. Full answers were not delivered by the deadline, and the registrar ordered that judgment be entered for the plaintiff with damages to be assessed. Lord Denning MR held at p 364 that the consent order “was deliberately made, with full knowledge, with full agreement of the solicitors on both sides. It cannot be set aside” (see also p 366 where Buckley LJ said that the terms of the order were terms which were arrived at by bargaining between the parties with consideration for the agreement on each side).

49.  In Wong Wai Chun v Chan Yuet Wah & anor,[19] the plaintiff consented to an order giving leave to the defendants to file an Amended Defence, but later sought to have the 1^st paragraph of the Amended Defence struck out as being embarrassing and/or tending to prejudice the fair trial of the action in that admissions made in the original Defence were withdrawn improperly and/or without leave in the Amended Defence. Pickering J in chambers held that a single glance at the original Defence and the draft Amended Defence was sufficient to put the world upon notice that the amendments involved the withdrawal of admissions. He further held that the leave to file the Amended Defence involving withdrawal of admissions was so complete in this case that the plaintiff’s solicitors did not even attend the hearing of the summons. The learned judge found the effect of such consent was fatal to the plaintiff’s application. Citing Purcell, the learned judge held that the contract evidenced by the consent order was one by which all parties to the order were bound as there was no evidence of any vitiating ground. The effect of the application to strike out part of the Amended Defence was the same as an application to set aside the consent order “for what is really under attack is the consent order which is evidence of a contract between the parties …… it is not open for me now, to interfere with that consent by striking out paragraph 1 of the Amended Defence ……” (see paragraph 10).

50.  I now turn to Deng Minghui which Mr Man SC cited in support of his propositions. In that case, the plaintiff obtained default judgment. A few months later, the defendant applied to set it aside. In the court below, the defendant abandoned the jurisdictional challenge that the writ should have been served on her outside the jurisdiction by leave of the court, and accepted the service was good as she had actual notice of the proceedings (even though she was living overseas at the material time).  The judge treated the judgment as a regular one, but refused to set aside it after considering the merits of her defence.

51.  The material question on appeal was whether the defendant would be allowed to withdraw the concession in respect of the jurisdictional challenge when the judgment was in fact irregular for 2 reasons (ie material non-disclosure and irregular service of the writ), which would have entitled the defendant to set it aside as of right. The CA held that the defendant should be allowed to withdraw the concession as it was not one on factual issues and the evidence was by way of affidavits, so there was no question of prejudice to the plaintiff which could not be compensated by costs. Cheung JA said at p 911 that:

“16. …… The whole approach below makes no sense, save perhaps for a misapprehension of the law. Certainly there is no indication by the defendant that she preferred to litigate in the Hong Kong courts; all the objective indicia are to the contrary.

17. Furthermore the concession as made was not a concession on factual issues, the withdrawal of which may somehow prejudice the plaintiff. The evidence is by way of affidavits which were used before us and below. In this situation, there is no question of prejudice to the plaintiff which cannot be compensated by costs.”

At pp 911 and 916, both Cheung JA and Stone J concluded the concession was wrongly made as a matter of legal principle.

52.  But as Mr Wong SC reminded, Deng Minghui concerned a unilateral concession by a party rather than an agreement between the parties that underlied an agreed order. In Deng Minghui, the defendant sought to set aside the judgment on 2 limbs, ie irregular service and meritorious opposition. Even though the defendant made concession on the former limb, she pursued her application by relying on the latter limb. There was no agreement between the parties for overall disposal of the application before the court.

53.  But here, Ds’ solicitor did not make any concession on point of law at the Master Hearing. Rather, despite initial opposition by Ds’ solicitor, the Master Hearing was stood down twice for Ps’ and Ds’ solicitors to negotiate, and they eventually compromised and came to terms for disposal of the substantive application with Ps’ solicitor informing the Master that “me and my learned friend have reached agreement on the terms of the orders” as set out in the Agreed Directions signed by Ps’ and Ds’ solicitors. The Agreed Directions were the result of a bargain that resolved the initial differences between the parties. Such compromise achieved final disposal of paragraph 1 of the Summons which removed opposition raised by Ds’ solicitor at an earlier stage of the Master Hearing, but Ps did not get everything entirely their way under such compromise as Ds were allowed to argue the question of costs by filing/serving affidavit evidence and adjourning such cost issue for argument. Plainly, the Master Order was the result of bargain and agreement between the parties, and the compromise was so complete that Ds’ solicitor sought (and Ps’ solicitors eventually agreed by way of the Agreed Directions) case management directions for Ds to consequentially amend their pleadings. I am not persuaded Deng Minghui was relevant or helpful. Indeed, Mr Man SC very sensibly and fairly confirmed Ds would not seek to resile from the consensus that underlined the Agreed Directions and Master Order.

54.  In the circumstances, I am in no doubt the Master Order was a consent order under paragraph 40(a) above. There is therefore no need for me to deal with Mr Wong SC’s concern that Mr Man SC’s propositions would open a floodgate of uncertainties if properly made compromises by litigants as evidenced by consent orders made by masters would not be regarded as binding and could be put asunder on appeal by any party wishing to go back on his word. But I must say such concern appeared quite persuasive and probably explained why the authorities recognised that such consent orders could only be set aside on restricted grounds. In my view, Mr Man SC’s suggestion that the time window for a party to “change his mind” and appeal against such consent order was a narrow one of 28 days could not be any viable answer (especially in view of the rationale as explained in paragraph 44 above).

55.  For the sake of completeness, I shall briefly mention the effect of a consent order under paragraph 40(b) above. Even though such consent order may be described as “by consent”, it is merely an order of the court, which can be disturbed (whether on appeal or otherwise) according to normal principles.[20] For the reasons set out in paragraph 53 above, I am not persuaded the Master Order was of such nature. It was not simply a matter of Ds not raising objection to the Summons. Ds actually raised vigorous objection to the Summons, and subsequently by negotiations and bargain reached the compromise as per the Agreed Directions. Time was taken by Ds’ solicitor to take instructions, and it was on instructions received that he informed the court Ds would accede to Ps’ substantive application but would make arguments on costs.

56.  In the circumstances, the Appeal fell to be dismissed, and there is no need for this court to deal with the substantive merits. However, in deference to counsel’s submissions, I shall deal with the matter briefly.

VIII. LEGAL PRINCIPLES

57.  Amendment of pleadings  I reiterate but will not repeat here my observations on the legal principles for amendment of pleadings in Chan Kon Fung v Gallop Pioneer Limited & anor[21] and Incorporated Owners of Western Court v Conrad Salat Czakat Rumjahn appointed to represent the Estate of Usuf Rumjahn, deceased.[22] These principles have been reiterated and confirmed in Bruce James Stinson v Gu Ming Gao.[23]

58.  Mr Man SC submitted that (a) a pleading that “may prejudice, embarrass or delay the fair trial of the action” is liable to be struck out under Order 18 rule 19(1)(c) of the Rules of the High Court, (b) these words should be given a “liberal interpretation”,[24] and (c) the court would not permit a proposed amendment where it is liable to be struck out.[25]

59.  Appeal from master’s decision   It is trite that an appeal from the master to Judge in chambers is dealt with by an actual rehearing of the application which led to the order under appeal, and the Judge treats the matter as though it came before him for the first time. The Judge will give the weight it deserves to the previous decision of the master; but he is in no way bound by it.[26]

60.  Appeal against discretion  A decision/order for leave to amend a statement of claim is a case management decision,[27] and in considering an appeal from a master, “[the] master has a wide discretion in case management matters which the appellate court will not interfere, unless the master has erred in point of law”.[28]

IX.  PARTIES’ RESPECTIVE STANCE

61.  The starting point was that after the Amendments Ps still maintained their claims against Ds for (a) breach of fiduciary duties and (b) breach of confidence. For (a) above, Ps in paragraphs 18-25 of the RRRASoC pleaded the contractual and/or fiduciary duties D1 owed to Ps. For (b) above, Ps in paragraphs 17 and 24 of the RRRASoC pleaded their “confidential information”, which included “all drawings created in relation to the design [of Ps’] tricycle products, including ST 157, ST 126 and ST 129” being drawings referred to in paragraph 10 of the RRRASoC. Ds did not raise objection (as a matter of pleadings) to such plea as to the scope of the “confidential information” Ps relied on in the present action. I agree there was no merit in the suggestion that the confidential information that Ps relied on had not been particularised.

62.  Paragraph 26 of the RRRASoC summarised and claimed that at all material times D1 owed to Ps “the following fiduciary duties and/or duty of confidence” that included inter alia a duty, not without the informed consent of Ps, to “[copy] (or substantially copy) [Ps’] Products and/or any of the relevant and related designs and/or works”, and paragraph 46 of the RRASoC summarised and pleaded Ds’ wrongful/infringing activities by averring that on an unknown date prior to the issue of the Writ of Summons, Ds had jointly and severally “breached their duties towards [Ps] and/or interfered with their lawful rights and/or interests” in the manner as pleaded.

63.  It was on such basis that Ps pleaded breach of duties owed to Ps and breach of duty of confidence in the RRRASoC as follows:

“54. Wrongfully and in breach of their aforesaid duties owed to the [Ps] (or any of them), each of the [Ds] since late 2011 combined together and/or took steps to carry on business in competition with the [Ps’] children tricycle business by, inter alia, copying the design of the [Ps’] products and manufacturing and distributing the Infringing Products. Without prejudice to the generality of the foregoing, the [Ps] will rely on the matters pleaded in paragraphs 55 to 80 below.”

“78. In breach of their respective duty of confidence, and on dates presently known to the [Ps], the [Ds] and/or each of them had disclosed to others and the [Ds] had exploited and/or made use of the Confidential Information without the consent of the [Ps]. Pending discovery and/or further interrogatories, the [Ps] rely on the particulars pleaded in Paragraph 46 to 50, 55 to 73 hereinabove.”

64.  I pause to note that apart from the duty pleaded under the Disputed Amendments in paragraph 26(2)(v) of the RRRASoC, Ps averred D1 owed them other “fiduciary duties and/or duty of confidence” (see paragraphs 26(1), (2)(i)-(iv) and 3-7 therein) in respect of which Ds took no issue as a matter of pleadings. In such circumstances, I am unable to see how the Disputed Amendments in paragraph 46 of the RRRASoC could be disallowed. First, even if the Disputed Amendments in paragraph 26(2)(v) of the RRRASoC ought to be disallowed, it would still be open for Ps to aver D1 owed them duties as pleaded in paragraphs 26(1), 2(i)-(iv) and 3-7 of the RRRASoC, and that D1 was in breach of such duties towards them and/or interfered with their lawful rights and/or interests in relation thereto. I bear in mind Ds did not object to the other parts of paragraphs 26 and 46 of the RRRASoC as a matter of pleadings. Secondly, if the Disputed Amendments in paragraph 46 of the RRRASoC were disallowed and therefore omitted, the remaining pleas in that paragraph would be incomplete and would make no sense at all:

“On a date presently unknown to [Ps] but prior to the issue of the Writ herein, [Ds] have, jointly and severally, [omitted] by copying, manufacturing, issuing to the public, importing into Hong Kong, exporting from Hong Kong, selling, offering or exposing for sale, distributing, possessing, and/or otherwise howsoever dealing in or with children tricycle products which are substantially similar to the Plaintiffs’ Products ……”

In my view, the focus of the Appeal must be on the Disputed Amendments in paragraph 26(2)(v) of the RRRASoC. If Ds succeeded on such contention to expunge the alleged duty in paragraph 26(2)(v) of the RRRASoC, then logically paragraph 46 of the RRRASoC would not refer to such expunged duty but would only refer to the other duties pleaded in paragraphs 26(1), (2)(i)-(iv) and (3)-(7) of the RRRASoC to which Ds raised no objection as a matter of pleadings.

65.  Ps claimed the Amendments primarily sought to effect withdrawal of the copyright and registered design claims pursuant to the Lung Order, but since Ps still relied on their other pleaded causes of action including breach of contractual/fiduciary duties and breach of confidence (see paragraph 3 above), they claimed to be entitled to rely on the Disputed Amendments, in particular paragraph 26(2)(v) of the RRRASoC, in support of such other causes of action that had already been pleaded. Ps submitted the Disputed Amendments did not add any new cause of action.

66.  On the other hand, Ds claimed (a) Ps’ pleas that Ds “substantially copied” from Ps’ Models were part of their cause of action relating to copyright (since the language/concepts deployed were all taken from the law of copyright), and (b) Ps’ plea that Ps’ and Ds’ Models had “substantial similarities” fell squarely within the scope of expert evidence under the Ho Order (which Ds agreed to revoke on the basis of Ps’ agreement to withdraw all causes of action relating to copyright), so (c) the retention of such pleas when the cause of action relating to copyright was removed only served to cause confusion over Ps’ case, which pleas were therefore embarrassing.

67.  It was said that such confusion was compounded by P3’s stance in the P3 Statement, ie P3 in paragraph 32(1) therein disavowed the relevance of “similarities” of the parties’ respective products as follows:

“As to paragraph 14 of [D1’s] supplemental witness statement, [D1] alleged that each of the following four types of tricycles were similar to that on ST 129, my comments thereon are as follows:

(1) firstly, as this is an infringement of fiduciary duty claim, there is really little (if not, nil) importance as to whether or not ST products [ie Ps’ products] have been identical to the other products, or similar to them; whether our products were original or not. The crux of the matter is that [D1] and [D4]while being in a fiduciary relationship with me and [Ps] have involved themselves in a competing business selling tricycles. The result of infringement of their fiduciary duty not to compete with my Tricycle Business would have been a simple one: each tricycle to have been sold by them would have become one less to have been sold by [Ps];

……” (my emphasis)

Ds then pointed out that P3 in paragraphs 25-26, 32(2) and 52(2) of the P3 Statement continued to rely on the alleged uniqueness of Ps’ products, and presented his analysis/opinion that Ps’ Models were “original” and Ds’ Models were “identical” or “similar”. On such basis, Ds claimed Ps’ stance as pleaded in the RRRASoC was hopelessly confusing.

X.  DISCUSSION ON THE SUMMONS

68.  In relation to Ds’ arguments in paragraphs 66-67 above, the alleged confusion/embarrassment was due to the Disputed Amendments retaining Ps’ pleas/language/concepts pertaining to copyright despite abandonment of Ps’ cause of action on copyright infringement.

69.  Mr Man SC submitted that to properly understand such arguments, it would be necessary to start with the concepts/language of copyright. Since Mr Wong SC did not dispute the basic concepts, I find it easiest to simply refer to the summary in Mr Man SC’s written submissions as follows:

“Originality

26.1 Copyright is a form of statutory intellectual property right that subsists in three broad categories of works listed under s.2(1) of the Copyright Ordinance (Cap. 528) …… The category relevant for present purposes is “original artistic works” under s.2(1)(a);

Infringement by Copying

26.2 Section 22(1)(a) of the Copyright Ordinance …… lists out the acts which, if done without the consent of the copyright owner, would amount to infringement. They include copying the work, and issuing, renting, making available copies of the work to the public, etc[29]. By s.22(1)(3), the restricted acts apply not only in relation to the work as a whole but “any substantial part of it”;

26.3 In relation to an original artistic work, copying includes the making of a copy in 3 dimensions of a 2-dimensional work and the making of a copy in 2 dimensions of a 3-dimenstional work (see s.23(3) of the Copyright Ordinance ……);

26.4 To establish “copying”, the plaintiff must prove a causal connection between his work and the defendant’s work, however “similar” they may be. There can be no infringement unless use has been made, directly or indirectly, of the copyright work. Unlike rights such as patents or registered designs, copyright is not a monopoly right and no infringement occurs by an act of independent creation (see [Copinger and Skone James on Copyright 17^th ed Vol 1] at §§7-18 (pp.540));

26.5 To infer if there had been “copying”, the “similarity” of the works and “possibility of access” provide a starting point; if these are established by the plaintiff, the defendant would then have a case to answer (see Copinger (supra) ……at §7-23 (pp.542-543));

26.6 The assessment of “similarities” is done by judging whether the similarities relied upon are sufficiently close, numerous or extensive to be more likely the result of copying than coincidence (and importantly, not by judging whether the overall appearances are similar); similarities that are commonplace, unoriginal, the result of common subject matters or external constraints or general ideas are usually disregarded as such similarities not probative of copying (see Copinger (supra) ……at §7-104 (pp.600-601); and

26.7 To decide whether there has been copying of a “substantial part”, the focus is on whether the defendant’s work has been produced by the substantial use of the those features of the plaintiff’s work which constitute it an original copyright work; in terms of artistic works, what is important is what is visually significant, namely what the artist used them under the guidance of his own aesthetic sense to create the visual effect in question (see Copinger (supra) ……at §§7-49 to 7-50 (pp.558-559), 7-105 to 7-107 (pp.601-604)).”

70.  Mr Man SC submitted the above showed the concepts of “copying”, “similarities” and “substantial parts” bore highly technical meanings in the law of copyright, which concepts were interwoven with one another and also with the concept of “originality”. This, Mr Man SC argued, explained why expert evidence had a critical role in assisting the court to make findings on the relevant questions of infringement.[30] Consequently, given Ps’ cause of action on copyright infringement (before it was withdrawn in the RRRASoC), Ps and Ds had obtained leave to adduce such expert evidence under the Ho Order. Mr Man SC submitted it was Ds’ about face in abandoning the causes of action on infringement of copyright and registered design that led to eventual abandonment of the expert directions under the Ho Order.

71.  Mr Man SC contended that given the aforesaid technicalities in the allegations of “substantial copying” and “substantial similarities” in the copyright context, the RRRASoC as framed created an unacceptable level of uncertainty whereby (a) the court and Ps were left in the dark as to (i) the relevance of “substantial copying” and “substantial similarities” of products to Ps’ claims, (ii) how “substantial copying” and “substantial similarities” were to be measured, and (iii) what level of “similarity” Ds’ products needed to be in order to render Ds to be in breach of the alleged fiduciary duties, and (b) it was unclear whether these concepts bore the same meaning as they were understood in copyright law or whether they bore different meanings (and if so, in what respects they were different).

72.  Mr Man SC submitted that the uncertainty in (b) above was underlined by paragraph 52(2) of the P3 Statement where P3 imported a further concept that Ds’ products were “similar enough” to Ps’ products to render D1 in breach of her fiduciary duties:

“My comments to these microscopic comparison and examination of differences of individual parts between ST’s model and the comparative Ds’ models are as follows:

……

(2) Susanna (D1) might have changed [Ps’] products and that is why there are little differences here and there. However, this is not the point and the point is that the two are similar enough to render Susanna (D1) to have been in breach of her fiduciary duties owed by her to [Ps] with her being [Ps’] (nominee) director.”

Mr Man SC submitted such confusion was further compounded by paragraph 32(1) of the P3 Statement that disavowed the relevance of “similarities” of Ps’ and Ds’ products (see paragraph 67 above).

73.  It was said these uncertainties would cause the fair trial of the action to be prejudiced, embarrassed and delayed, and hence the Disputed Amendments should be disallowed. Mr Man SC submitted Ds were put the unenviable position of not knowing whether they should seek to reinstate the applications in their summonses filed on 4 July and 6 October 2017 for expert directions when Ps still maintained essentially the same pleas of “copying” and “similarities” (which led to the expert directions under the Ho Order) even though (a) Ps had withdrawn their claim for reliefs in respect of copyright and registered design infringement, and (b) P3 recently disavowed relevance of the matters of product originality/similarity in the P3 Statement.

74.  In my view, since there was no dispute the Amendments removed Ps’ previous claims for reliefs relating to copyright and registered design, the disputed pleas as to “copying” and “similarities” in the RRRASoC could only have gone to Ps’ remaining pleaded causes of action, ie breach of fiduciary duties and/or breach of duty of confidence now pleaded in the RRRASoC, and not to any claims for copyright and registered design infringement that had already been withdrawn. In fact, it was quite clear the Disputed Amendments in paragraph 26(2)(v) of the RRRASoC were expressly pleaded as facets of D1’s fiduciary duties and/or duty of confidence.

75.  The true question was whether it was at least arguable that such pleas of “copying” and “substantial copying” in paragraph 26(2)(v) of the RRRASoC were relevant to the remaining causes of action on breach of fiduciary duties and/or duty of confidence, or whether such pleas were confined to technical concepts of copyright infringement that would raise the “confusion” Mr Man SC alleged.

76.  As Mr Wong SC reminded, as a matter of law, a claim for breach of fiduciary duties and/or a claim for breach of confidence are distinct from and are not necessarily co-existent with a claim for copyright infringement. Copinger and Skone James on Copyright[31] states that “[the] right to restrain the publication of a work on the ground of breach of confidence is in some ways broader than copyright, because it may protect ideas and information which copyright does not protect ……” (my emphasis). Further, Gurry on Breach of Confidence[32] states that:

“There are also major distinctions between infringement of copyright and breach of confidence. The first relates to substantiality. Whereas traditionally copyright holds that there has been infringement of works only if the parts reproduced are considered to be substantial, assessed qualitatively, the breach of confidence action may cover elements which would not satisfy this standard ……” (my emphasis) (para 15.14 at p 669)

“We prefer the view that confidentiality and fiduciary obligations are conceptually distinct but may be overlapping or intertwined, because we consider the arguments in favour of this view more persuasive and because of the weight of judicial authority. Thus, the same facts may give rise to both types of obligation [ie confidentiality and fiduciary obligations] …… Further, in the discharge of certain fiduciary obligations, confidential information may be a relevant factor in deciding whether, in the circumstances of the particular case, a fiduciary obligation has been broken ……” (my emphasis) (para 9.140 at p 414)

77.  In Dextra China Limited & anor v Lam Wing Kit,[33] the key issue was whether or not Lam had set up and operated and/or otherwise participated in the setting up or operation of a rival business to compete directly with Dextra’s sonic tube business (by inter alia conspiring with, say, the  supplier) in breach of various duties Lam owed to Dextra by virtue of his employment and/or used confidential information obtained from the plaintiffs. Lam denied dissemination of any confidential information, and asserted it would have been possible for Dextra’s supplier to have produced its own sonic tubes without reference to Dextra’s information. But there was evidence that Lam had asked Dextra’s production and technical manager Zhang for certain technical drawings of Dextra’s sonic tubes, so the learned judge said:

“182. …… it does not seem to me to matter that the technical information sought by Lam from Zhang might also have been obtained from a difference source, and that Lam had previously requested drawings from Zhang on a number of occasions over the 10 years or so before 2009. Nor does it seem to me to matter that [Dextra’s supplier] might, from its previous experience of dealings with Dextra, have been able to copy Dextra sonic tubes from its own knowledge. It did not matter, as it was given Dextra’s knowledge.

……

184. …… though it was argued some materials were available from other sources, the real contest was on what was or was not done by Lam. In any event, the quality of the information is less important if and when there has been a deliberate collation by copying, and dissemination, of information which would not simply have been part of the employee’s memory, or acquired skill or knowledge. This is what I find happened here.

……

192. For Lam to be have been in breach, he need not have been in breach by all his actions if he was in breach of some …… there was some evidence of sonic tubes resembling Dextra’s product having produced at the [supplier’s] premises, and later having found on construction sites in Guangzhou.” (my emphasis)

Lam was found liable for any loss or damage flowing from the breaches of various duties owed under his employment, including dissemination of confidential information.

78.  In my view, it was at least arguable that in a case involving the setting up of a rival business evidence as to copying of the claimant’s information/products could be relevant to claims for breach of fiduciary duties and for breach of confidence. In such circumstances, there is arguable basis for Ps to plead D1’s fiduciary duties and duty of confidence included a duty not to copy the products/designs of her principal (ie Ps), particularly in the context of allegation as to setting up a competing business. In such context, the averments as to “substantial copying” and “substantial similarity” were made in the ordinary (rather than technical) sense of being a facet of the matrix of material facts that went to Ps’ claims for breach of fiduciary duties and/or breach of confidence, and it was for the trial judge to decide what weight to place such evidence.

79.  So although Mr Man SC complained the Disputed Amendments in the RRRASoC still retained Ps’ factual case as to (a)Ds’ copying of Ps’ products and (b) substantial similarities between their respective products, such averments could no longer be viewed via the prism of Ps’ copyright and registered design claims, but via the prism of the remaining claims of breaches of fiduciary duties and/or duty of confidence, and the above analysis demonstrated they were arguable as a matter of pleadings.

80.  Indeed, such averments had been relevant even before the Amendments in the RRRASoC, and Ds took no objection to those pleas as a matter of pleadings:

(a)   In support of Ps’ claim for breach of confidence, which Copinger and Skone James on Copyright explains might be broader than a claim on copyright and which Gurry on Breach of Confidence explains might cover Ds’ unlawful use/copying falling short of substantial reproduction in the copyright sense (see paragraph 76 above), Ps relied on particulars as to Ds’ copying of Ps’ product designs and the substantialsimilarities of their respective products (see paragraphs 17 and 78 of the RRRASoC and paragraph 63 above).

(b)   In support of Ps’ claim for breach of Ds’ fiduciary/contractual duties, Ps relied on Ds’ copying of Ps’ product designs and substantial similarities between their respective products as factual evidence that would go to establish Ps’ factual case of breach of fiduciary duties, particularly for Ds’ competing business by inter alia manufacturing products copied from Ps’ designs (see paragraph 1 of the RRRASoC as set out in paragraph 1 above, paragraph 46 of the RRRASoC that averred “…… [Ds] have, jointly and severally, …… by copying ……children tricycle products which are substantially similar to the Plaintiffs’ Products ……”, and paragraph 54 of the RRRASoC that averred “[wrongfully] and in breach of their aforesaid duties owed to [Ps] (or any of them), each  of the [Ds] …… took steps to carry on business in competition with [Ps’] children tricycle business by, inter alia, copying the design of [Ps’] products ……”).[34]

For these averments introduced in the Re-Amended Statement of Claim or the RRASoC and maintained in the RRRASoC to which Ds raised no objection as a matter of pleadings, Ps did not (nor was it necessary for Ps to) rely on “copying”, “substantial copying” or “substantial similarity” as terms of art in the strict/technical copyright sense, and they were pleaded as material facts that would support Ps’ case as to breach of fiduciary duties and/or breach of confidence. I am not persuaded by Ds’ complaint against the Disputed Amendments in paragraph 26(2)(v) of the RRRASoC.

81.  Mr Man SC made 3 further points. First, it was said the plea in paragraph 26(2)(v) of the RRRASoC that Ds owed inter alia a duty of confidence not to copy (or substantially copy) Ps’ products was liable to struck out for want of a reasonable cause of action. Mr Man SC submitted a duty of confidence would only arise if the information in question had the necessary quality of confidence about it, and even where the circumstances of communication involved confidentiality there could be no breach of confidence in revealing to others something that was already common knowledge (ie in the public domain).[35] Mr Man SC argued that as Ps claimed their products[36] were sold as early as 2010,[37] so they had entered into market (ie the public domain) by then.  But the factual allegations Ps relied on to support Ds’ breach of duties were said to take place “since late 2011”, ie a year after the products had entered the public domain.[38]  It was therefore said there could not be any reasonable cause of action for breach of confidence as regards Ps’ products.

82.  But Mr Wong SC argued that such submissions on the “timing” point were premised on misreading of Ps’ pleadings. In respect of paragraph 78 of the RRRASoC (see paragraph 63 above), Ps plainly and specifically left the alleged breach of confidence undated and reserved their position pending discovery and/or further interrogatories. I am unable to say on the existing pleas in the RRRASoC that as a matter of pleadings Ps did not allege any copying prior to 2011. It was in relation to Ps’ pleas concerning breach of other fiduciary/contractual duties that Ps averred in paragraph 54 of the RRRASoC that each of the Ds “since late 2011” combined together and/or took steps to carry on a rival business (see paragraph 63 above).

83.  Further, as evident from paragraph 78 of the RRRASoC (see paragraph 63 above), the alleged breach of confidence concerned Ds’ disclosure to others and their exploitation/use of the “Confidential Information” with Ps’ consent. As explained in paragraph 61 above, such “Confidential Information” extended beyond Ps’ products and included the technical drawings referred to in paragraph 10 of the RRRASoC, which echoed paragraph 26(2)(v) of the RRRASoC that covered “any of their relevant and related designs and/or works”. I agree that since there was no suggestion that such technical drawings had been in the public domain, it would a question of fact for the trial judge to decide whether confidence attached to the relevant design and/or works irrespective whether Ps’ products had been marketed/sold since 2010.

84.  Mr Wong SC drew attention to Gurry on Breach of Confidence which states as follows:[39]

“…… It seems settled that confidentiality is not destroyed by the mere marketing of a product, even if the product enables a member of the public to analyse it and so acquire a knowledge of its secrets. It is a question of fact in each case whether the marketing does make the secret generally available. If the confidential information consists simply of an idea for marketing a particular product, then, of course, the marketing of the product will destroy the confidentiality of the idea. Or, if the design of a machine is readily apparent, putting that machine on public display will destroy the confidentiality of the design. Likewise, if the functionality of software may be ascertained from observation its operation, then it is difficult to see how that functionality is confidential information. If, however, the confidential information consists of technical data relating to the method of constructing the product, then the secret will not be destroyed if an outsider would still have to undertake any special labours in respect of the product in order to discover its secret.”

Mr Man SC submitted that a simple glance at the pictures of Ps’ and Ds’ products in the annexes to the RRRASoC would obviously demonstrate that confidentiality would have been lost on marketing Ps’ products. But no affidavit evidence had been filed, and the technical drawings being the subject matter of the pleaded “Confidential Information” were not before me. I find myself quite unable to come to the conclusion suggested by Mr Man SC on the present materials and as a matter of pleadings.

85.  Secondly, Mr Man SC submitted that in light of the Disputed Amendments Ps’ claim was essentially for breach of duty in copying information in which no copyright subsisted, ie Ps complained about “copying (or substantially copying)” unoriginal information, but Ps did not explain how any fiduciary duty or duty of confidence would arise in such circumstances. Mr Man SC accepted as a matter of pleadings Ps could aver (as they did in paragraph 26(6) of the RRRASoC) Ds should not to compete or take preparatory steps to compete with Ps, but argued there was no legal basis for Ps to complain against copying or substantially copying from non-original works. On such basis, it was said paragraph 26(2)(v) of the RRRASoC did not support any reasonable cause of action that Ds owed fiduciary duties or duty of confidence not to copy Ps’ unoriginal works.

86.  I am not persuaded by such contentions, and repeat the analysis in paragraphs 68-80 above. In particular, I note such complaints did not really change the colour of Ps’ pre-existing pleadings before the Amendments, which pre-existing pleadings already alluded to “copying” and “substantial copying”, and Ds had not applied to strike out such underlying pre-existing pleas which (together with the Amendments other than the Disputed Amendments) were left untouched by the Appeal.

87.  Thirdly, Mr Man SC submitted that in an action founded in breach of confidence, the alleged confidential information sought to be protected must be pleaded/particularised, especially when one of the reliefs sought was an injunction.[40] He argued that paragraph 26(2)(v) of the RRRASoC was seriously deficient as it failed to properly particularise what the “relevant and related designs and/or works” referred to, and the Disputed Amendments therein should not be allowed absent supply of full particulars.[41] I reject this argument and repeat the discussion in paragraph 61 above.

88.  Since I find the Disputed Amendments in paragraph 26(2)(v) of the RRRASoC to be viable pleas, for reasons explained in paragraph 64 above, the challenge against the Disputed Amendments in paragraph 46 of the RRRASoC would also fall away. In any event, the pre-existing plea in paragraph 46 of the RRRASoC (to which Ds took no objection as a matter of pleadings) averred that Ds’ alleged wrongful/infringing activities were “copying, manufacturing, issuing to the public, importing into Hong Kong, exporting from Hong Kong, selling, offering or exposing for sale, distributing, possessing, and/or otherwise howsoever dealing in or with children tricycle products which are substantially similar to [Ps’] Products ……” Thus, the Disputed Amendments did not substantively add to or alter Ps’ case. It is difficult to see how Ds could mount a blinkered challenge against the Disputed Amendments that left such pre-existing averments (including Ps’ detailed case as to Ds’ “copying” and the substantial “similarities” between Ps’ and Ds’ products in Section K of the RRRASoC) untouched. I am not persuaded there is merit in respect of the Appeal concerning the Disputed Amendments in paragraph 46 of the RRRASoC.

89.  I now turn to Mr Man SC’s complaints in relation to the P3 Statement, which he suggested did not sit well with the Disputed Amendments, and gave colour to his objection that the impugned pleas were embarrassing.

90.  Paragraph 32(1) of the P3 Statement stated inter alia that “as this is an infringement of fiduciary duty claim, there is really little (if not, nil) importance as to whether or not [Ps’] products have been identical to the other products, or similar to them; whether [Ps’] products were original or not”.  But P3 made such statement evidence in response to paragraph 14 of D1’s supplemental witness statement dated 9 April 2017 that in turn addressed paragraphs 29-30 of P3’s witness statement where “he attempted to refute [Ds’] contention that ST129 or the later models of ST126 and ST157 were in use in products on the market preceding the marketing of [Ps’] Products”. Having read paragraph 14 of D1’s supplemental witness statement and paragraph 32(1) of the P3 Statement, it was clear that the matter at hand was the issue of originality in the copyright sense and not mere similarities between Ps’ and Ds’ products, and the P3 Statement was a response to such matter raised by D1’s supplemental witness statement. It was in such context that P3 stated that in a claim for breach of fiduciary duties (in contrast to a copyright claim), it mattered little whether P’s products were identical, similar or original, so microscopic comparison was uncalled for, but he suggested “similar enough” products (despite minor differences) would add weight to the claim for breach of fiduciary duties (see paragraph 52(2) of the P3 Statement). I am not persuaded the P3 Statement took Mr Man SC’s arguments much further.

91.  In these circumstances, it must be necessary for enabling the real questions and controversy between the parties for the Disputed Amendments to remain in Ps’ pleadings.  To allow the Appeal would undermine the factual basis for Ps’ causes of action premised on breach of fiduciary duties and breach of confidence.

92.  For all the above reasons, the Disputed Amendments must be allowed, and there was no justifiable reason to interfere with the Master Order. However, for the avoidance of doubt and without having sight of Ds’ consequential amendments to their pleadings in response to the Amendments, this court expresses no view as to whether expert evidence is required for resolving the disputed issues.

XI. CONCLUSION

93.  In the circumstances, Ds’ Appeal is dismissed. There is no reason why costs should not follow event. I grant a costs order nisi that Ds do pay Ps costs of and occasioned by the Appeal (including all costs reserved, if any) to be taxed if not agreed with certificate for two counsel.

94.  I have debated whether costs should have been awarded on indemnity basis given the consent nature of the Master Order. But Ps did not raise this point by way of Mr Wong SC’s written submissions, and I therefore consider costs should be awarded on usual party and party basis.