AQUA-LEISURE INDUSTRIES INC. & ANOTHER v. AQUA SPLASH LTD

HCA 18928/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18928 OF 1998

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D E C I S I O N

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INTRODUCTION

1. By this motion for committal, the Plaintiffs seek an order that the Defendant, Aqua Splash Limited, and its director, Impag HK Limited (hereinafter called "Impag HK"), be fined; and another director, Ms Connie Lin, be committed to prison for several contempts committed by the Defendant. By way of background, Beheermij Woldendorp B.V. (hereinafter called "BWBV") is the holding company of Impag Toys Europe B.V. (hereinafter called "Impag BV") and owns 90% of Impag HK, which in turn owns 99% of the Defendant. BWBV is owned and controlled by Mr De Vries. The circumstances leading to the motion is as follows.

2. The Defendant was incorporated on 13 March 1998. On 6 November 1998, the Plaintiffs issued a writ of summons against the Defendant for passing off arising from its use of the name "Aqua Splash" as its business name and from the marketing and sale of its inflatable swim accessory products under that name. On 14 May 1999, the Defendant's defence was struck out. Keith J, as he then was, entered judgment for the Plaintiffs against the Defendant, granting, inter alia, permanent injunctions against the Defendant and ordering it to deliver up various descriptions of items and articles. The Order with penal notice was duly served personally on the Defendant, and its two directors, Impag HK and Ms Connie Lin on 18 May 1999.

3. The breach now complained of is in respect of paragraphs 2, 5, 7, 8 and 9 of the Order. The breach was discovered as a result of parallel enforcement actions in the People's Republic of China ("the PRC") against the Dongguan Guan Pin Plastic Products Factory (hereinafter called "Guan Pin Factory") on 5 July 1999 and at the Toy Exhibition in Nuremberg on 29 July 1999. On 18 January 2000, judgment on damages was assessed at US$6.76 million in default of defence. The judgment debt was never paid. On 30 November 2000, the Defendant passed a resolution at an extraordinary general meeting for its voluntary wounding up. In December 2000, the Plaintiffs issued the first set of motion for committal. Those proceedings were aborted due to some procedural irregularities. On 11 June 2001, leave was granted for the present application for committal.

Relevant general legal principles

4. It is well settled that the purpose of the law of contempt is to maintain the supremacy of the law and the due and unobstructed administration of justice: Ruby Moy & Ors v. Chan Luen Ying & Another [1964] HKLR 579 at 587-588. Both actus reus and mens rea must be proved beyond reasonable doubt in criminal as well as in civil contempts.

5. As to mens rea, it is not necessary to prove wilful disobedience. It is sufficient to prove that the alleged contemnor knew the facts which are said to make his act or omission a contempt and that such omission was not casual, or accidental and unintentional: Director General of Fair Trading v. Pioneer Concrete (UK) Ltd [1995] 1 AC 456 at 478-481.

6. Given the need to maintain the supremacy of the law and the due and unobstructed administration of justice, orders of the court must be observed and complied with. An order for disclosure of information and/or documents or delivery up of listed items requires not only an honest but also an accurate response. An affidavit filed to verify compliance of the court's order must also be made in good faith and after the deponent has satisfied himself as to its truth. Thus, if the response given is inaccurate, there is prima facie a contempt which may only be rebutted or excused if it can be shown that the inaccurate response was given in good faith and after all reasonable steps have been taken by the deponent to ascertain the true position: Ebewe Arnznemittal Ges.m.b.H & Another v. Lai Shu Lam trading as Forest Offset Printing Company HCA No. 16387 of 1998 (unreported).

Director's liability for the company's contempt

7. The above legal principles are well settled and not disputed so far as they apply to the contemnor Defendant, who is not present or represented in court today. The question is to what extent can a director of a company be held liable for contempts committed by the company. Ms Lau submits, on the basis of Order 45 rule 5(1)(b)(iii) and rule 7(3), that a director may be liable for the contempts committed by the company once he has been personally served with the order before the time within which the company is required to act, and in addition, the director may also be liable if he has aided and abetted the company to breach the order. Mr Harris argues that a director may only be liable in the latter situation.

8. Mr Harris submits that Order 45 rule 5 applies to applications to enforce orders, but not to applications which are purely penal in nature and therefore has no application in this case. He submits a director may only be liable if it is established that he aided and abetted a breach. I cannot agree with that view. Order 45 rule 5(1)(b)(iii) expressly provides that where a body corporate disobeys a judgment or order, then, subject to the provisions of the rules, the judgment or order may be enforced by an order of committal against an officer of the body corporate. The only condition precedent to the enforcement of the order is that the order shall be served in accordance with rule 7(3) and with the penal notice.

9. Mr Harris' other argument is that the law in Hong Kong in respect of what has to be proved in order to establish liability of a director under Order 45 rule 5 is unclear. In particular, it is unclear whether or not it has to be established that the director either actively assisted in the breach or wilfully failed to take steps to ensure that the order was obeyed. There is a dichotomy of authorities. In Attorney General for Tuvalu and Another v. Philatelic Distribution Corporation Ltd and Others [1990] 1 WLR 926, the English Court of Appeal held that a director is liable for the contempt of his company if he wilfully fails to take steps to ensure that the order or undertaking is obeyed. Thus, there must be some culpable conduct on the part of the director before he will be liable for contempt under Order 45 rule 5; mere inactivity is not sufficient.

10. The Hong Kong Court of Appeal adopted a different approach. The Court of Appeal held there are two routes by which a director may be committed of contempt. The first one is under Order 45. The second one is by aiding and abetting the company in defying the court order. A director may be committed of contempt under Order 45 even though he acted innocently; no moral blame or guilty knowledge is necessary. In Cartier International BV & Ors v. Kaybee International Ltd [1985] HKLR 127, Huggins VP held at 129:

"However, it must be remembered that O.45 could prima facie be prayed in aid even against a director who has been innocent of any contempt, and that is why this order insists that he shall have been personally served with the order against the company before he can be committed: it would be unjust to commit him for the company's disobedience to an order of which he had no knowledge. No such injustice could result where he has been directly and knowingly responsible for the company's disobedience."

11. Cartier International BV was followed in Nicolas Pappadiis and Another v. Chan Shing-sheung, Barry and Others [1989] 2 HKLR 511. At 519, Hunter JA held:

"The second basis upon which a director can be committed for contempt is under this overall description of aiding and abetting as this Court held in the case of Cartier International B.V. and Others v. Kaybee International Ltd. [1985] HKLR 127. There is a very big difference between these two approaches. Under Order 45 no moral blame or necessarily knowledge need be shown in the director. It is sufficient to show that the order was made against the company and served upon him. Then it is the director's personal obligation to ensure that that order is complied with. When you are dealing with aiding and abetting the situation is quite different. What has to be shown is personal misconduct on the part of the director."

12. However, in Interlego AG v Lego New Enterprises Ltd [1995] 3 HKC 186, Waung J followed the English line of authorities, but he had not been referred to the Hong Kong Court of Appeal decision in Cartier International B.V. In Abu Dhabi National Tanker Co v Lam Ming Chi & Anor [1998] 4 HKC 320, Stone J, after reviewing the English and the Hong Kong authorities, followed Cartier International B.V.

13. Apparently the law in Hong Kong and in the United Kingdom have developed along different paths. I consider I am bound by the decision of the Hong Kong Court of Appeal and do not find it necessary to reconcile the conflict between the two lines of authorities. That should best be left to the Court of Appeal when the occasion next presents itself. Speaking for myself, I am in agreement with the local approach as I consider the two routes for committing a director are aimed at serving different purposes: one is for punishment and the other is for enforcement of the court order.

14. The aiding and abetting route is penal in nature, seeking to punish a wrongful act. Knowledge of the order and culpability in terms of actus reus and mens rea on the part of the director to be committed are therefore necessary as in any criminal prosecution.

15. On the other hand, the Order 45 route is a summary procedure not primarily aimed at punishing the contemnor but basically to enforce the order of the court against a body corporate. Order 45 rule 5(1)(b)(iii) prevents the court order from being frustrated by the principle of corporate identity. A body corporate must operate through the minds and hands of natural persons, the most influential of which are its directors who have the conduct and responsibility for the corporate affairs. Once a director has been served with an order in accordance with rule 7(3) and with the penal notice, Order 45 imposes on him the burden to ensure the company complies with the order. Some of the directors of the company may not be personally responsible for the contempt, but being a co-director, he is part of that corporate brain and must bear overall, not vicarious, responsibility for what is done as a result of the corporate will. Service of the order on a director is to ensure that he will exert pressure to bear on co-directors who are directly responsible for the company's compliance with the order. The purpose of Order 45 is to compel compliance with the order by the threat of sanction on the company's directors. If culpability or wilfulness is part of the ingredient of contempt, Order 45 would be rendered otiose and its usefulness in enforcing compliance with a court order would be severely hampered. Hence, in my view, culpability, wilfulness or misconduct on the part of the director served with the order are not necessary under the Order 45 route. They may be relevant for mitigation only.

Nature of committal proceedings: interlocutory or final, civil or criminal

16. An evidential point taken by Mr Harris is that where the purpose of the committal proceedings is punitive, rather than for the enforcement of an order, and/or takes place after the disposal of the action, the proceedings are final rather than interlocutory in nature and hearsay evidence may not be adduced in the form of affidavit. He asks that I should rule on the nature of the present committal proceedings first.

17. The law governing civil contempts is complicated and until comparatively recently, it was assumed that hearsay evidence was not admissible. But in Savings and Investment Bank Ltd v. Gasco Investments (Netherlands) BV (No.2) [1988] Ch 422, the English Court of Appeal held that in certain circumstances hearsay evidence could indeed be admitted in support of a committal motion in respect of civil contempt. The Court of Appeal approached the question of admissibility of hearsay and affidavit evidence by asking itself two questions. The first one was whether the proceedings before it were to be classified as interlocutory as opposed to final. If they were interlocutory, then the English Rules of Supreme Court Order 41 rule 5(2) permits affidavit evidence containing what would otherwise be inadmissible hearsay to be adduced. The second question was whether the proceedings were civil proceedings for the purposes of section 18(1)(a) of the Civil Evidence Act 1968 in respect of which hearsay evidence is admissible.

18. At page 434, Purchas LJ held it was wrong to place committal proceedings as a genus into a single category, namely either interlocutory or final. Committal proceedings may indeed be either interlocutory or final depending on the circumstances in which the application for committal is made, the order, if any, which the application is designed to enforce, but not the nature of the penalty which is sought. Thus orders made to enforce disclosure or production of documents, disclosure of means, mandatory interim injunctions for the purpose of maintaining the status quo pending final determination are clearly interlocutory. Other proceedings taken after the final determination of the main action are final.

19. In the present case, the main action has been concluded and judgment obtained 15 months ago. The Plaintiffs have now gone as far as to examine the directors and officers of the Defendant in its winding up proceedings. There is no status quo to be preserved and no final determination pending. The purpose of the committal proceedings is clearly punitive, to punish the Defendant and its directors for breach of the Order. As such, the proceedings must be final and not interlocutory.

20. Contempt of court may take many forms. The distinction between civil contempts and criminal contempts have been discarded by Salmon LJ in Jennison v. Baker [1972] 2 QB 52 at 61 as unhelpful and meaningless. In Savings Bank, Purchas LJ held what is definitive is the nature of the proceedings in respect of which the protective order of the court was sought. He held at page 438:

"Indeed the substantive paragraph in Halsbury's Laws of England faithfully maintains the traditional distinction between criminal and civil contempts. Whatever may be the boundaries of the former the latter draws its character and quality from the nature of the proceedings in respect of which the protective order of the court was made."

Applying this test, as the main action was a civil action, the contempt should properly be classified as civil contempt.

21. Accordingly, I rule that the present committal proceedings are final proceedings as opposed to interlocutory and the contempt is civil contempt for which the rule of evidence applicable to civil proceedings are applicable.

Admissibility of affidavit evidence

22. Mr Harris submits that as the proceedings are final and not interlocutory, the committal proceedings are outside Order 41 rule 5 which permits use of affidavits; and the affirmations relied upon by the Plaintiffs may not be used. He submits, in the alternative, that if affidavit evidence may be used, hearsay evidence contained in the affidavit would only be admissible pursuant to section 47 of the Evidence Ordinance. He asks that I should rule on the admissibility of the hearsay evidence contained in the affirmations first before hearing the substantial merit of the case rather than at the conclusion of the proceedings.

23. The effect of my ruling that the present proceedings are final proceedings does not mean affidavit evidence may not be used at all. Order 41 rule 5(2) provides:

"An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof."

24. The effect of this rule is that where affidavits are used in interlocutory proceedings, they may contain statements of information or beliefs. Such statements of information or beliefs are of a lower quality as evidence and have less probative value than ordinary hearsay evidence and but for this rule would not have been admissible in evidence. For the purpose of interlocutory proceedings, there are good grounds for the court to act on such information or beliefs. This is because interlocutory proceedings are often brought up as a matter of urgency to enforce an order, ancillary to the main proceedings, seeking to preserve the status quo pending final determination, or to regulate the conduct of litigation, or to regulate the conduct of the parties pending trial, lest a party would suffer irreparable damage. Breach of such an order may create extreme urgencies, for example, the need to promptly restore the status quo, which if upset would cause irreparable damage to a party; the need to preserve evidence, which if destroyed would result in prejudice to a party; the need to preserve assets, which if dissipated would render any future judgment nugatory. The urgency of the situation may not permit the parties to obtain evidence from witnesses who may be unwilling or unavailable for whatever reasons. Under such circumstances, there is a compelling need for the court to act on this kind of evidence of a lower quality at the risk of otherwise incurring greater injustice to the innocent parties. However, where the proceedings are final, such urgencies are removed. The court must act on more cogent evidence and apply the ordinary rule of evidence. This does not mean affidavit evidence may not be used at all in final proceedings. What is excluded in final proceedings is evidence of the lower quality such as information or beliefs. Thus in final proceedings, affidavit evidence may still be used subject to the rules and practices of the court.

25. Two Orders of the High Court are pertinent. Order 38 rule 2 which is of general application provides:

"Evidence by affidavit (O. 38 r. 2)

(1) The Court may, at or before the trial of an action begun by writ, order that the affidavit of any witness may be read at the trial if in the circumstances of the case it thinks it reasonable so to order.

(2) An order under paragraph (1) may be made on such terms as to the filing and giving of copies of the affidavits and as to the production of the deponents for cross-examination as the Court thinks fit but, subject to any such terms and to any subsequent order of the Court, the deponents shall not be subject to cross-examination and need not attend the trial for the purpose.

(3) In any case or matter begun by originating summons, originating motion or petition, and on any application made by summons or motion, evidence may be given by affidavit unless in the case of any such cause, matter or application any provision of these rules otherwise provides or the Court otherwise directs, but the Court may, on the application of any party, order the attendance for cross-examination of the person making any such affidavit, and where, after such an order has been made, the person in question does not attend, his affidavit shall not be used as evidence without the leave of the Court."

26. Where a cause or matter begun by originating summons, originating motion or petition, and on any application made by summons or motion, of which the present application is one, evidence may be given by affidavit unless the court otherwise directs. On the application of any party, the Court may order attendance for cross-examination of the person making the affidavit. Thus, as a general rule, for proceedings to which rule 2(3) applies, affidavit evidence may be used, unless the Court otherwise directs. In the present case, I see no reason for directing otherwise and at the request of Mr Harris, one of the deponents of the affidavits, Mr Clark, was cross-examined by Mr Harris.

27. The other pertinent order is Order 52, which provides for committal for contempt of court. Rule 1(3) provides that notice of application for leave to apply for committal must be accompanied by a statement setting out the grounds for committal and supported by affidavit. Rule 6(4) provides that the person sought to be committed may give oral evidence on his own behalf. Implied in this rule is that the person sought to be committed may use affidavit evidence in support of his defence. Taken together, Order 38 and Order 52 clearly allow use of affidavit evidence in committal proceedings. To my knowledge, invariably in committal proceedings, affidavit evidence has always been used.

28. Thus, the overall effect is that where the committal proceedings are final, affidavits containing evidence of the deponent's information and beliefs are excluded, but affidavits containing evidence as to fact which the deponent himself could have testified in court as well as hearsay evidence admissible under section 47 of the Evidence Ordinance may be used.

29. As to whether I should rule on admissibility of hearsay evidence contained in the affirmations before hearing the merit of the case or at the conclusion, I think section 47(2) is very clear. It reads:

"The court may determine whether or not to exclude evidence on the ground that it is hearsay -

(a) in the case of civil proceedings before a jury, at the beginning of the proceedings and in the absence of the jury;

(b) in the case of any other civil proceedings, at the conclusion of the proceedings."

30. In the case of civil proceedings before a jury, section 47(2)(a) makes it abundantly clear that this should be determined at the beginning of the proceedings and in the absence of the jury. The words "in the case of any other civil proceedings" in section 47(2)(b) could admit of no other interpretation but that in civil proceedings without a jury, admissibility shall be determined at the conclusion of the proceedings. In deciding whether to exclude the hearsay evidence, section 47(1)(b) requires the court to be satisfied, having regard to the circumstances of the case, that the exclusion of the evidence is not prejudicial to the interests of justice. Thus, it makes practical sense for the court to hear all the evidence and have a complete understanding of all the circumstances before ruling on admissibility. As this is a trial without a jury, the question of prejudice does not arise. In any event, for trial without a jury, the argument of prejudice is artificial and meaningless. Judges are particularly well trained to remove out of their minds what they consider as inadmissible. In the present case, so far as the risk of prejudice is concerned, it makes no difference whether I determine the question of admissibility first or last. In either event, I would have to have regard to all the circumstances of the case and the interest of justice. I would be in the best position to do so at the conclusion of the proceedings. Accordingly, I rule that affidavit evidence may be used for committal proceedings and that I shall consider the question of admissibility of the hearsay evidence contained therein at the conclusion of the proceedings.

THE NUREMBERG TOY EXHIBITION (PARAGRAPHS 2 AND 5 OF THE ORDER)

Passing off (Paragraph 2 of the Order)

31. Paragraph 2 of the Order restrains the Defendant from passing off or assisting others to pass off any business or trade as the Plaintiffs' and from passing off any goods as the Plaintiffs' by the use of the name or mark "Aqua", "Aqua Splash", or any other similar mark.

32. In co-operation with the criminal investigation department in Nuremberg, Germany, the Plaintiffs' lawyers in Germany, Anwaltskanzlei Dassler, raided the sales booth and exhibition room in Nuremberg Toy Exhibition rented by Impag BV on 29 July 1999 where substantial quantities of swim gear and accessory products in packaging bearing the mark "Aqua Splash" were on display. The booth was manned by one Mr Oltmanns and one Mr Sjoers.

33. Mr Oltmanns used a business card describing him as a German representative of "Aqua Splash Ltd". The Plaintiffs rely on this as evidence of passing off or attempted passing off by the Defendant of its business as one of or otherwise connected with the Plaintiffs. They also rely on Mr Oltmanns' business card as evidence of the Defendant's failure to deliver up all business cards bearing "Aqua Splash" logo.

34. Mr Sjoers' business card described him as a Sales Manager of Impag HK. The Plaintiffs say that by causing or permitting Mr Oltmanns and Mr Sjoers to man the sales booth, the Defendant and Impag HK were aiding and assisting Impag BV to market and promote the sales of swim gear and accessory products bearing the mark of "Aqua Splash".

35. Mr Sjoers in his capacity as Sales Director of Impag BV was subsequently charged by the State Prosecutor in Nuremberg for "having professionally used in a misappropriate way a sign in business connections, for which there was a risk of confusion by the public because of the identity or similarity of the sign with the trademark and of the identity or similarity of the goods covered by the sign and the trademark". Mr Sjoers was fined but not prosecuted.

36. In order to establish that an action committed overseas constitutes an actionable tort in Hong Kong, the "double actionability" test must be satisfied, i.e. the matter complained of must be actionable in both Hong Kong and the loci delicti: The Conflict of Laws, Dicey & Morris, Vol 2, Paragraphs 35-004 to 35-011. Mr Harris submits that the Plaintiffs were not able to show that the breach of the Order constituted a wrong in Germany and the motion based on an alleged breach of Paragraph 2 of the Order must fail.

37. There is no evidence as to the nature of the prosecution in Nuremberg. There is no evidence of any civil proceedings instituted in Germany against Mr Sjoers or Impag BV as a result of the raid by the Plaintiffs' German lawyers. There must be a doubt whether the wrong for which Mr Sjoers was fined is an actionable wrong in Germany as would satisfy the double actionability test. In the circumstances, I am not satisfied beyond reasonable doubt that the Defendant was in breach of paragraph 2 of the Order by reason of the events in Nuremberg.

Delivery up of Mr Oltmanns' business card (Paragraph 5 of the Order)

38. Paragraph 5 of the Order requires the Defendant to deliver up, within 7 days of service of the order, all products, packaging materials and name cards and any other items bearing the name or mark "Aqua Splash" or any name or mark of which the name "Aqua" forms part thereof in the possession, custody, power or control of the Defendant.

39. The finding of Mr Oltmanns' card in the Nuremberg Toy Exhibition is supported by credible evidence. According to the card, Mr Oltmanns was the Defendant's German representative. The Defendant must have power and control over the cards used by its agent bearing its logo. In addition, the Defendant had on an earlier occasion delivered up business cards of Mr Oltmanns showing that such cards were within the power and/or control of the Defendant. I am satisfied that the card used by Mr Oltmanns in the toy exhibition in Nuremberg was in the power or control of the Defendant and that the Defendant was in breach of paragraph 5 of the Order in failing to deliver it up as required. Though the breach related to just one card, the circumstances suggest that the card was used by Mr Oltmanns in the course of business while manning the booth and this takes the breach out of the realm of technical or de minimis breach.

40. Both Impag HK and Ms Lin have been properly served with the Order endorsed with the penal notice in accordance with rule 7 on 18 May 1999 before the time within which the Defendant was required to deliver up the business card. They are liable for contempt with the Defendant.

THE DONGGUAN INVESTIGATION (PARAGRAPHS 5 AND 7 OF THE ORDER)

The evidence

41. Paragraph 5 of the Order requires the Defendant to deliver up, within 7 days of service of the order, all products, packaging materials and name cards and any other items bearing the name or mark "Aqua Splash" or any name or mark of which the name "Aqua" forms part thereof in the possession, custody, power or control of the Defendant. Paragraph 7 of the Order requires the Defendant to destroy upon oath or affirmation, within 7 days of service of the order, all articles, materials, products in the possession, power, custody or control of the Defendant, its directors, servants or agents or any of them the use or retention of which would be a breach of the injunction.

42. The alleged breach relates primarily to the failure by the Defendant to deliver up very substantial quantities of products, packaging boxes and instructions manual bearing the marking of "Aqua Splash" found in Guan Pin Factory on 5 July 1999.

43. The Plaintiffs' solicitors instructed Panoramic Consulting Ltd (hereinafter called "Panoramic"), an investigation agency, to search the garbage thrown away by Guan Pin Factory. During the searches on 11 and 12 June 1999, Panoramic found a torn off portion of a packing list and a production notice, referable to shipment of goods to "Impag".

44. As a result of a complaint by the Plaintiffs' PRC lawyer, Mr Lu, to the Dongguan Technical Supervision Bureau (hereinafter called "TSB"), some TSB officers, Mr Lu, his associate Ms Ding, and Mr Clark of the Plaintiffs' solicitors visited Guan Pin Factory.

45. The TSB officers questioned Mr Gao in the presence of Mr Lu. Mr Gao claimed to be the Vice Chairman of Guan Pin Factory and said the factory had been commissioned to produce "Aqua Splash" products for the Defendant in 1998. Mr Gao said that the Defendant had requested that all its products be finished and delivered before the end of April 1999 and that starting from 1 May 1999 no more "Aqua Splash" products should be put into production.

46. Mr Lu had a tour round the factory. He saw a large number of packed cartons of "Aqua Splash" products as well as unpacked products totaling about 24,000 pieces, 20,000 pieces of various kinds of colourful "Aqua Splash" packing boxes and cartons and approximately 30,000 "Aqua Splash" instruction manuals. These were all seized by the TSB officers. According to Ms Lin, these packaging materials were printed by Asia Printing Factory for the Defendant and delivered to Guan Pin Factory.

47. On 5 August 1999, TSB informed Lu that Guan Pin Factory refused to destroy the infringing items seized by TSB on the basis of a trademark certificate sent to them from Hong Kong. The certificate is of a Benelux trademark application No. 712 788 for "Aqua Splash" in World Intellectual Property Organization ("WIPO") registered in Germany, France, Italy, Spain and the United Kingdom and dated 17 June 1999. The fax bears an originating header of Impag HK. Lu wrote back to TSB, as a result of which the infringing items were destroyed.

48. Mr Harris objects to the admissibility of the above evidence as being hearsay. The fax itself is not hearsay but real evidence, but how it came to the possession of TSB is hearsay. Lu had written back to TSB regarding the fax. If he had not received the fax from TSB, he would not have written back to TSB in response to that fax. So what Lu said about receiving the fax from TSB is credible. As the TSB officers were acting under a duty to investigate, it is also credible that they have informed Lu correctly how they came to possession of the fax. No one else in the PRC, but Guan Pin Factory, which was interested in resisting the destruction of the items seized, would have given the fax to TSB. I consider that hearsay evidence reliable and admit it in evidence, with the usual caution as to the weight to be attached to that piece of evidence.

49. Mr Harris also attacks the evidence contained in Mr Clark's affirmation regarding the packing list and production notice recovered by Panoramic from the garbage thrown away by Guan Pin Factory as hearsay evidence. It certainly is hearsay as to where Panoramic recovered these exhibits. These exhibits bear the name of Guan Pin Factory, a signature, a date and a reference number. They refer to goods produced by Guan Pin Factory. If they are not authentic, the Defendant or its directors could have obtained affirmations from those in Guan Pin Factory to challenge their authenticity. If they are authentic, then there is no reason not to believe that the investigators of Panoramic recovered them from where Mr Clark said they recovered them, unless the bona fide of Mr Clark is in doubt. I have no reason to doubt Mr Clark's bona fide. In all the circumstances, I consider that evidence credible and admit it in evidence with the usual caution.

Whether goods found were in the power and control of Defendant

50. On the above evidence, a large quantity of articles bearing the name "Aqua Splash" and other articles the retention of which would be a breach of the injunction were found in Guan Pin Factory. They had not been delivered up pursuant to the Order of Keith J dated 14 May 1999. These articles were not in the possession of the Defendant. The issue is whether they were in the power and control of the Defendant. Mr Harris submits that question falls to be determined according to the laws of the PRC as the articles were in the PRC. The short answer is that in the absence of evidence to the contrary, it is presumed that the law in the foreign jurisdiction is the same as the local law and Mr Harris has not produced evidence to the contrary. According to our law, a person has power over a chattel if he has a presently enforceable legal right to obtain the chattel from whoever has possession of it, and in the case of control, if he has a presently enforceable right to possession of the chattel.

51. Mr Harris argues that the Defendant could not have power or control over the articles as they were not in Hong Kong and the Defendant did not have property in them. I do not think these factors are determinative. If one has an enforceable right to possession of a chattel, physical difficulties would not prevent the chattel from being within one's power: see Lonhro Ltd v Shell Petroleum [1980] 1 WLR 627. But of course, in order to exercise this right, he may have to incur expenses to overcome the difficulties so as to bring the chattel to his immediate possession. Thus, physical difficulties only affect the exercise of the right but do not affect the enforceable nature of the right to possession. Ownership is prima facie evidence that the owner has an enforceable right to obtain or possess the chattel in the hands of another. But ownership is not conclusive, for the owner may have lost his right to possession, for example, by having rented the chattel to another under a lease. In my view, it is a question of fact in each case whether a person has an enforceable right to possession of or an enforceable right to obtain a chattel.

52. There is overwhelming evidence that the products found in Guan Pin Factory were produced for the Defendant for export to Impag BV. Mr Gao told the TSB officers that the factory was commissioned to produce the goods for the Defendant. This is confirmed by what Mr De Vries said in his examination under Order 48 rule 1. It is also supported by the finding of a packing list and production order from the garbage thrown away by Guan Pin Factory on 11 and 12 June 1999.

53. The packing list related to an order for a customer named "Impag" for 3,600 units of foot pumps of model no. 9470 and 9,000 units of paddles of model no. 9480. The shipping marks on the outer carton were "Aqua Splash, Aqua Splash, Art. No. , Rotterdam, C/No. " According to Mr De Vries' evidence during his examination under Order 48 rule 1 in his capacity as an officer of the Defendant as a judgment debtor, Impag BV was the distributor and warehouse for the Defendant's "Aqua Splash" swim products in Europe. The inference to be drawn from the packing list recovered from the garbage outside Guan Pin Factory is that the list related to a transaction involving the sale and/or supply by the Defendant, or by Impag HK on its behalf, to Impag BV of products bearing or otherwise sold under or by reference to the mark "Aqua Splash".

54. The production notice was dated 9 May 1999 relating to an order for a customer named "Impag" and for 1,200 units of crocodile rider of model no. 9311. The date of export for the goods was stated to be 25 June 1999. In the production specification box was an instruction relating to "Aqua Splash 1999". Again, the inference is that the notice was related to a transaction involving the sale and/or supply by the Defendant, or by Impag HK on its behalf, to Impag BV of products bearing or otherwise sold under or by reference to the mark "Aqua Splash". Mr Harris argues that the notice was dated five days before the date of the Order of Keith J. I think that is beside the point. That the production of the goods before 14 May 1999 did not amount to a breach of the order has no bearing on the issue whether the Defendant had control over the goods and whether it was under an obligation to deliver them up or have them destroyed. Thus the fact that these products were produced by Guan Pin Factory for the Defendant could not be doubted. The issue is whether the Defendant has control or power over them while they were still in the possession of Guan Pin Factory.

55. After the seizure by TSB on 5 July 1999, Guan Pin Factory produced a WIPO registration document received from Impag HK in an attempt to salvage the goods from destruction. The header of the document shows a date which could either be 21 or 1 July 1999 and the words "Impag HK Ltd" suggesting it was sent by Impag HK on either 1 July 1999 before the raid or 21 July 1999 after the raid. The header also shows a date of 1 July 1994 with an unidentified origin. As regards this date, Mr Harris ingeniously argues that someone failed to set the year correctly in the facsimile machine but the date and month was correct; and hence the date it was sent by Impag HK to Guan Pin Factory must be 1 July 1999 and could not be 21 July 1999. If so, this would take away much of the adverse inference that could be drawn against Impag HK or the Defendant. On the other hand, Lu had seen the original facsimile copy received from TSB and said the WIPO registration document was dated 21 July 1999. Presumably this document has since been reproduced successively through facsimile machines and photocopiers, which resulted in some obscurity in the copy now produced in court. But according to Lu, he was informed by TSB about this WIPO document only on 5 August 1999. If what Mr Harris submits is correct, then Guan Pin Factory had possession of this document on 1 July 1999. If so it should have used it to resist the seizure on 5 July 1999 and it would not be until 5 August 1999 that TSB first came to refer to the document. There is no reason to doubt Lu's observation on the document. The document shows that Impag HK, as a director of the Defendant, was interested in salvaging the goods. The inference must be that the Defendant had an interest in those products. From the fax, the production notice, the packing list and the finding inside Guan Pin Factory of substantial quantity of products and packaging materials and instruction manuals, all bearing the name or mark "Aqua Splash", the only reasonable inference to be drawn is that the products were made, produced, or assembled by Guan Pin Factory for and on behalf of the Defendant and the Defendant had an interest in them.

56. There is no evidence as to the terms of the contract between the Defendant and Guan Pin Factory for the production of those goods and when property in the goods passed or would pass to the Defendant. I shall assume in favour of the Defendant that the products would be delivered upon payment whether by cash or by letter of credit and that property in the products would pass only upon delivery and payment. In the case of a contract for delivery of specific or ascertained goods, the court has power pursuant to section 54 of the Sales of Goods Ordinance, Cap 26, to direct the contract to be performed without giving the defendant the option of retaining the goods on payment of damages. The court may order specific performance unconditionally or on such terms and conditions including payment of the price as the court thinks fit. In my view, where one orders specific goods to be made, once the goods are brought into existence, and if the remedy of specific performance is available to him, he has a presently enforceable right to possession of those goods in the contract. Whether he has paid for the goods or whether he has property in them is not essential.

57. In the present case, the products in question were not generic goods. They were specific goods manufactured upon the Defendant's order. They bore "Aqua Splash" logo. Upon application of the logo to the products, they became specific and ascertained goods. But for the fact that the logo infringed the rights of the Plaintiffs, the Defendant would have a property in its logo. As between the Defendant and Guan Pin Factory, the Defendant had a right in the logo, which gave it a particular interest in the products bearing that logo and manufactured upon its order. In an action between the Defendant and Guan Pin Factory, the Defendant would be entitled to specific performance of its contract with Guan Pin Factory and require the products to be delivered to its possession. Payment is only a matter that goes to the exercise of the right and not to the existence of the right. Thus the fact that it was difficult for the Defendant to obtain immediate possession of the products for physical reasons or unless upon payment would not prevent the products from being within its control. Accordingly, I find the Defendant had control over the products with "Aqua Splash" marking found in Guan Pin Factory.

58. The position with the packaging materials and manuals is more straight forward. They were produced by United Asia Printing Factory for the Defendant and delivered to Guan Pin Factory for the purpose of packaging the products produced by Guan Pin Factory. These were specific and ascertained goods. Property in them passed to the Defendant upon their delivery to Guan Pin Factory. Whether they had been paid for is irrelevant. United Asia Printing Factory had lost its lien over them and the materials were in the possession of Guan Pin Factory as bailee and agent of the Defendant. The Defendant had an undoubted and presently enforceable right to their possession.

59. In the circumstances, I am satisfied beyond reasonable doubt that the products, packaging materials and manuals seized from Guan Pin Factory were in the control of the Defendant and the Defendant failed to deliver them up or destroy them on oath. That constituted breaches of paragraphs 5 and 7 of the Order.

60. As Impag HK and Ms Lin have been properly served with the Order endorsed with the penal notice in accordance with rule 7 on 18 May 1999 before the time within which the Defendant was required to do the acts required under paragraphs 5 and 7 of the Order, they are liable for contempt with the Defendant. There is no need for the Plaintiffs to prove culpable conduct on their part. There is no evidence of Ms Lin's involvement with this breach by the Defendant. However, the WIPO trademark registration documents produced by Guan Pin Factory bearing a facsimile header of Impag HK shows that Impag HK was an active party in resisting the destruction. This is evidence that it had knowledge of the facts of the breach of the Order and took steps in an attempt to defeat the purpose of the law. That was culpable conduct, which I shall bear in mind in sentencing. I am satisfied that both Impag HK and Ms Lin are guilty of contempt for breach of paragraphs 5 and 7 of the Order.

PRINTING FILMS (PARAGRAPH 8)

61. This complaint relates to the Defendant's failure to deliver up one printing film used for the production of the packaging boxes for "Aqua Splash" products. A quantity of films required to be delivered up was delivered by the Defendant to the Plaintiffs' solicitors on 14 July 1999 with a list which came separately. According to Mr Clark, Mr Hansen of the Plaintiffs' solicitors checked the films delivered against the list and found one printing film missing. But no affidavit has been filed by Mr Hansen detailing the circumstances in which he came to receive the films and find one of them missing. The deficiency was pointed out to the Defendant in a letter dated 28 July 1999, but the Defendant did not respond. The Defendant claimed that all printing films had been delivered up. If the Defendant did not intend to deliver up this particular film, it would not have included it in the list. There was no discernable purpose for the Defendant to retain this particular film out of the many that it had delivered. In view of the unsatisfactory state of the affidavits in support of this complaint, I cannot be satisfied beyond reasonable doubt that there was a breach.

AFFIRMATION OF COMPLIANCE (PARAGRAPH 9 OF THE ORDER)

62. Paragraph 9 of the Order required the Defendant to verify by affirmation or affidavit compliance with the Order within 14 days of service of the Order. As there are various breaches of the Order in respect of the Defendant's failure to deliver up Mr Oltmanns' business card, the products, packaging materials and instruction manuals found in Guan Pin Factory, the affirmation of compliance prepared by Ms Lin on behalf of the Defendant is inaccurate. Prima facie, this amounts to a breach of paragraph 9 of the Order. There is no reason why the Defendant could have overlooked such a large quantity of products and packaging materials. That Mr Oltmanns was allowed to continue using that business card and in the course of business two months after the due date for compliance under the Order suggests that the affirmation was made as a perfunctory exercise. There is nothing to suggest that the inaccurate response was given in good faith and that Ms Lin has taken all reasonable steps to ascertain the fact and the law. I am accordingly satisfied that the Defendant and its directors, Impag HK and Ms Lin were in breach.

WHETHER THE COMMITTAL IS AN ABUSE OF PROCESS

63. Mr Harris submits that the committal proceedings against the directors are not consistent with the purpose of committal. He refers to paragraphs 52/1/4 and 52/1/8 of Hong Kong Civil Procedure 2001, and submits that the purpose of the law is not to protect the dignity of judges but to prevent interference with the due administration of justice and wherever there is a reasonable alternative to committal proceedings that alternative course should be taken. The breaches occurred in July 1999, but no committal proceedings were instituted until 17 months later. He argues that the alleged failure to deliver up one printing film and one business card of Mr Oltmanns was de minimis; the offending items found in Guan Pin Factory had been destroyed by the PRC authorities and there is nothing further to be delivered up. Hence, he submits the purpose of the present proceedings is punitive and was instituted as a result of the judgment remaining unsatisfied. He asks for the motion to be dismissed as an abuse of process as it would serve no useful purpose.

64. It is unfortunate that the words "contempt of court" appeals to the layman a connotation that the essence is a supposed affront to the dignity of the court or the judge. This is not. If it were, then there would be more weight in Mr Harris' argument. The purpose of the proceedings is to prevent an interference with the due administration of justice. Interference with the administration of justice may take many different forms. In the context of civil contempt, failure to comply with a mandatory injunction is one of the most common forms of interference. An order of the court must be and will be maintained and treated with seriousness. This forms the basis of our system of administration of justice. If people are free to ignore court orders at will, anarchy cannot be far behind.

65. It is correct that as the matter now stands, there is nothing to be achieved by the proceedings. The main action has been concluded. There is no compliance to be enforced and no status quo to be preserved. The purpose of the proceedings is not to aid in the execution of a civil process. It clearly is punitive. Should the Plaintiffs be encouraged with the course they have adopted or should the Defendant be protected from the sanction of disobeying the court order? The Defendant was required to deliver up all offending items. They chose not to do so in respect of the items in the PRC and continued to allow Mr Oltmanns to use an offending business card in the course of business. If it were not for the Plaintiffs' thorough investigation and determination in taking enforcement action in the PRC and in Nuremberg, the offending items could have been circulated elsewhere to the damage of the Plaintiffs' business. If the Defendant chose to ignore the court order, it lies ill in its mouth to say it is now futile to take contempt proceedings against it because the order has in effect been complied with because you, the plaintiffs, have taken other steps and incurred additional expenses to have the offending items destroyed through enforcement action elsewhere. The Defendant's attitude is just "catch me, if you can; and prosecute me, if you will." This could not be right. If the threat of sanction is unable to compel compliance, in the interest of justice, the sanction must be allowed to take effect. If the law were otherwise, it would bring our system of administration of justice into disrepute and the court's order will be ignored at will.

66. The passage in 52/1/8 of Hong Kong Civil Procedure 2001 cited by Mr Harris is more apposite to family proceedings. The object of committal proceedings in a domestic dispute is to enforce the breached order in the sense of getting it working or putting something more workable in its place. It is in that context that the draconian powers of the court should not be exercised unless as a last resort.

67. I am not aware of any authorities that committal proceedings should be dismissed as an abuse of process because the purpose for instituting the proceedings is punitive and not for enforcing a civil process or because the breach occurred a long time ago. These proceedings are only invoked when there was a breach of a court order. Thus, by their very nature, committal proceedings are punitive, whether instituted 17 months after the breach or immediately upon the breach. If the threat of sanction cannot compel compliance, then the sanction must be allowed to take effect, just as day follows night. That a contemnor should be protected from the sanction of disobeying a court order because the breach occurred a long time ago, is repugnant to the due administration of justice for which the law of contempt sought to protect. I am unable to agree with Mr Harris that the committal proceedings are an abuse of process. But the circumstances in which and the purpose for which the proceedings are instituted are matters which I shall take into account in dispensing the punishment.

Conclusion

68. As against the Defendant, I am satisfied beyond reasonable doubt that it was in breach of paragraphs 5 and 7 of the Order in respect of the offending items found in Guan Pin Factory and the business card of Mr Oltmanns. I am also satisfied that the Defendant was in breach of paragraph 9 of the Order in that the affirmation of compliance filed on its behalf by Ms Lin is inaccurate. The Defendant is in the course of winding up. Any punishment that I am going to impose on the Defendant is nugatory. However, that does not prevent me from ordering a fine which I consider appropriate in the circumstances. Once an injunction was granted and affirmation of compliance filed, a plaintiff is entitled to rest with an assurance that the infringement of his rights will cease and the defendant will observe the terms of the injunction like a good law abiding citizen. But this was not what happened, the Defendant committed deliberate breaches and attempted to salvage the offending goods by sending a WIPO registration to TSB. An offending business card was allowed to be used in the course of business. Costs of enforcement must have been incurred by the Plaintiffs in respect of its enforcement actions in the PRC and in Nuremberg which I should take into account in sentencing. Despite Mr Harris' arguments about delay and the Plaintiffs' motive in instituting the proceedings, I consider this is an appropriate case for a substantial fine.

69. As against Impag HK, I am satisfied beyond reasonable doubt that it is liable as director for the contempt committed by the Defendant as particularized above. Its attempt to salvage the offending goods from destruction by TSB reflects that Impact HK played an active role in the management of the Defendant. In my view, the conduct of Impag HK also calls for a substantial fine.

70. As against Ms Lin, I am satisfied beyond reasonable doubt that she is liable as director for the contempt committed by the Defendant as particularized above. While there is no evidence of her active participation in the breach discovered in Guan Pin Factory and in Nuremberg, she has the management of the Defendant. She filed an inaccurate affirmation of compliance without taking steps to ensure its accuracy. I do not consider it such a serious breach as to deserve imprisonment, but a substantial fine is called for.

71. Counsel have invited me to adjourn for hearing mitigation, should I be minded to impose a custodial sentence or a substantial fine. Thus, unless solicitors for the parties set the case down for mitigation, I shall proceed to sentence on 14 December 2001.