KINETICS PLAY SDN. BHD. v. PARKS SUPPLIES CO LTD AND ANOTHER

DCCJ 5941/2021

[2023] HKDC 860

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5941 OF 2021

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DECISION

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INTRODUCTION

1.  By notice of appeal dated 21 December 2022, the 1^st defendant (“D1”) appeals against the order on costs given by Master Maurice Lam (“Master”) on 8 December 2022 (“Master’s Costs Order”), insofar as it relates to the striking out summons taken out by D1 on 26 July 2022 (“Striking-out Summons”). This appeal concerns D1 and the Plaintiff (“P”) only.

2.  By the Striking-out Summons, D1 sought to strike out the Statement of Claim filed by P on 27 January 2022 (“SOC”) and to dismiss the present action on the sole ground that the SOC disclosed no reasonable cause of action under Order 18 rule 19(1)(a) of the Rules of the District Court, Cap. 336H (“RDC”). Such Summons was subsequently withdrawan by D1.

3.  In order to understand the arguments in this appeal and the Master’s Reasons for Decision dated 8 December 2022 (“Costs Decision”), it is necessary to set out in some detail the SOC and the procedural history leading to the Master’s Costs Order.

STATEMENT OF CLAIM

4.  In the SOC, P pleaded, in gist, that:

(a)  P was incorporated in Malaysia and D1 was incorporated in Hong Kong (P and D1, collectively, “Two Parties”).

(b)  In 2019, D1 approached P for designing and producing a playground structure for the playground situated at Hong Ning Road in Hong Kong (“HNR Project”). They signed a non-disclosure agreement and engaged in discussion on a quotation (the date, reference number and the service charges stated in the quotation were pleaded).

(c)  During the discussion, P shared with D1 its original design drawings of the HNR Project (being defined as “Copyright Protected Work” in the SOC). P created the design drawings in Malaysia on 28 August 2019 and was the owner of the copyright subsisting in the original design drawings.

(d)  The Two Parties then signed a purchase order with the agreed design drawings annexed thereto (the date, reference number and the signing parties were pleaded). Partial payments were made. The TUV certification report was issued. D1 then confirmed to proceed with.

(e)  Subsequently, the project was cancelled.

(f)  Later on, a playground structure was found installed in Hong Ning Road (defined as “Infringing Playground Structure” in the SOC) which was practically identical to P’s two-dimensional design drawings subsisting in the Copyright Protected Work.

(g)  the features of the Infringing Playground Structure were based substantially on the P’s Copyright Protected Work, a comparison table showing the positioning of the main components corresponded to the Copyright Protected Work as to shape, color, interior and exterior structural components, including, posts, mesh net, platform, seats, slide, tunnel, net ropes together with their shapes and materials was pleaded.

(h)  P also found some photographs of the P’s design drawings bearing the words of “copyright © 2019 [D1] All right reserved” were posted on a Facebook page of a third party on 9 February 2021.

(i)  D1 has infringed P’s ownership of the Copyright Protected Work by having used, built, installed, published, allowed a third party to use the Copyright Protected Work without the consent of P.

(j)  The P’s letter before action dated 3 December 2021 (“Pre-action Letter”) sent to D1 met with no reply. P claims against D1 for declaratory relief, injunctions and damages in this action.

PROCEDURAL HISTORY

5.  For the purpose of this appeal, the following events are relevant:

a.  By the Pre-action Letter (together with 30 pages of annexures, including emails, quotation, purchase order, test report, design drawings and photos of a playground structure), P complained D1 to have used P’s copyright protected drawings to install an infringing structure without its authorization. The letter met with no reply.

b.  On 31 December 2021, P issued the Writ of Summons to commence the present proceedings.

c.  On 27 January 2022, P filed the SOC.

d.  By letter dated 21 February 2022 (“D1’s Complaint Letter”), D1 complained to P that the present action was not prosecuted in the Intellectual Property List in the Court of First Instance and that the SOC did not disclose any reasonable cause of action, without “sufficient particulars of originality, subsistence and ownership and of copyright” and “no particulars of copyright infringement”. D1 asked for discontinuance of the present action within the next 7 days, failing which, an application for striking out would be issued.

e.  By letter dated 24 February 2022 (“P’s Reply Letter”), P replied that it had provided particulars but in order to assist D1 to understand the P’s case, the Pre-action Letter together with its annexures were resent to D1.

Further, P requested D1 to set out “the grounds for striking out which, if properly explained (but which you have not yet done), could in any event be possibly cured sensibly by amendment of pleadings or provision of further and better particulars, instead of wasting court time and resources.” and “to articulate in clear and intelligible terms what precisely are the plain and obvious grounds for striking out, we are not able to understand the basis of your threatened applications, which serves only to increase costs unnecessarily.”

As to the suggestion for transfer of this case to the Intellectual Property List in the High Court, P indicated that this was not opposed but sought further clarification as to D1’s position in light of the insignificant amount involved.

f.  D1 gave no reply. Nor did it take out striking out application notwithstanding the time limit for P to discontinue the present action had expired.

g.  On 14 April 2022, D1 filed its Defence.

h.  On 11 May 2022, P filed the Reply.

i.  By letter dated 12 May 2022 (“D1’s Security-request Letter”), D1 asked P for security for costs of these proceedings up to and including the first Case Management Summons hearing. A draft skeleton bill of costs (“Draft Bill”) was attached thereto.

j.  On 25 July 2022, a consent order (“Consent Security Order”) was granted by joint application of the Two Parties in that P consented to pay security for costs into court in the agreed sum to cover D1’s costs of this action from commencement of action up to and inclusive of the first Case Management Summons hearing.

k.  On the same day, P made full payment into Court pursuant to the Consent Security Order.

l.  On the following day, 26 July 2022, D1 issued the Striking-out Summons complaining that the Copyright Protected Work had not been properly identified; particulars of Copyright Ownership of the Copyright Protected Work as pleaded did not establish authorship, subsistence and/or ownership of the Copyright Protected Work; no act of copyright infringement had been pleaded; and/or the particulars of infringement pleaded did not constitute copyright infringement (collectively, the “Alleged Defects”).

m.  On the following day, 27 July 2022, D1 proposed to list the Striking Out Summons for substantive argument.

n.  On 16 August 2022, D1 issued a Summons (“Time Summons”) for time extension of filing of D1’s List of Documents pending determination of the Striking-out Summons.

o.  On the following day, 17 August 2022, D1 filed a Timetabling Questionnaire.

p.  At the first call-over hearing of the Striking-out Summons on 24 August 2022, P indicated its intention to amend the SOC.

q.  On 16 September 2022, P provided D1 with a draft Amended Statement of Claim and a draft joint letter to the Court. It invited D1 to withdraw the Striking-out Summons with no order as to costs. No agreement could be reached between the parties.

r.  On 27 September 2022, P took out the Summons (“Amendment Summons”) for amendment of the SOC as well as joinder of the 2^nd defendant to the present action.

THE CONSENT ORDER

6.  On 11 October 2022, the Two Parties jointly applied for and were granted a consent order (“Consent Disposal Order”). The terms of it which are relevant to the present purpose are that: -

(a)  of the Striking Out Summons, leave was granted to D1 to withdraw it;

(b)  of the Time Summons, time extension was granted to D1 to file List of Documents;

(c)  of the Amendment Summons, leave was granted to P to amend the Writ and the SOC and to join the 2^nd Defendant into this action; and

(d)  costs of the three summonses aforesaid be determined by way of paper disposal (“Question of Costs”).

THE COSTS DECISION

7.  For determination of the Question of Costs, the Master handed down the Costs Decision in that he concisely recited the background of the present case and the arguments of the Two Parties, he then gave the Master’s Costs Order as follows:

(1)  The costs of and occasioned by the Striking-out Summons be paid by D1 to P in any event, to be taxed if not agreed;

(2)  The costs of and occasioned by the amendments mentioned in paragraphs 2, 3, 6 and 7 of the Consent Disposal Order as well as the costs of the Amendment Summons, be paid by P to D1 in any event, to be taxed if not agreed;

(3)  The costs of the Time Summons be in the cause; and

(4)  The costs leading to this costs order to be paid by D1 to P in any event, to be taxed if not agreed.

8.  In the Costs Decision, the Master stated clearly that the argumeents on the Question of Costs between the Two Parties focused on the costs relating to the Striking-out Summons. He started from the fact that D1 was the party which withdrew the Striking-out Summons. He then proceeded to consider the submissions of D1 and the circumstances under which the Striking-out Summons was withdrawn.

9.  The Master observed the main contention of D1 was that the Striking-out Summons was meritorious as the SOC disclosed no reasonable cause of action, and, the withdrawal of it was the result of P’s Amendment Summons.

10.  The Master then turned to consider P’s submission that an order for striking out would not be made for defective pleadings with insufficient particulars. Pleadings of serious want of particularity might not be struck out if defect could be cured by amendments.

11.  The Master then referred to the legal principles on striking out application that the Court will exercise its power to strike out pleadings only in plain and obvious case. The test is whether the claim is obviously unsustainable, the pleading unarguably bad and it is impossible, not just improbable for the case to succeed. Howsoever defective it is, a pleading cannot be said to be “unarguably bad” or “impossible to succeed” if defects can be remedied or cured by amendments.

12.  The Master then took the view that even if the SOC was defective as suggested by D1, D1 was not able to show that the defects in the SOC could not be cured by amendments.

13.  In §26 of the Costs Decision, the Master concluded that “Furthermore, assuming that the complaint relating to the lack of particulars was meritorious, the Defendant still did not provide any explanation why further and better particulars were not applied for in the first place. Instead of taking such a more modest course, the Defendant chose to take out the precarious application to strike out the Statement of Claim. As the adage goes, tougher is not always better, this is true especially insofar as modern litigation is concerned. Accordingly, it cannot be said to be unreasonable for the Defendant to bear the consequence (including the costs implication) following from the latter course of action”.

D1’S ARGUMENT

14.  In this appeal, D1 seeks to set aside paragraphs (1) and (4) of the Master’s Costs Order. It asks for an order that P is to pay D1’s costs of and occasioned by the Striking-out Summons and costs of this appeal.

LEGAL PRINCIPLES

15.  An appeal against costs orders of Master is not dealt with by an actual rehearing of the matter, for it is trite that a judge in chambers should not allow an appeal from a Master’s costs order unless it can be shown that the order made was unreasonable or the Master had erred in law, the Master has failed to take into account proper matters or took into account matters that should not have been taken into account. It is not a correct approach on an appeal on costs to re-run arguments made before the Master: Chen Ning Ning v King & Wood (a firm) [2020] HKCFI 602.

16.  At this hearing, the Parties had no disagreement on this legal principle.

DISCUSSION

17.  In this appeal, Mr Hui, Counsel for D1 in this appeal and in the determination of the Question of Costs before the Master, seeks support from FBC Construction Co Ltd v Big Island Construction (HK) Ltd, HCA1363/2008, 28 October 2018 to argue that P’s pleaded case in the SOC was plainly embarrassing and liable to be struck out, and, D1 had put P on notice of such defects and of D1’s right to strike out the SOC as early as in 21 February 2022 by D1’s Complaint Letter which were repeated in its Defence, P however took no action to deal with those defects, D1 was accordingly justified in taking out the Striking-out Summons. When the defects were cured by subsequent amendments which rendered the Striking-out summons academic, D1 was right to withdraw the summons. Since the Striking-out Summons was occasioned by P’s defective plea in the first place, P has to bear the costs of the Striking-out Summons.

18.  Mr Hui’s argument is an attractive argument which at first sight appeared to be straightforward impressive, which I have carefully considered, but the difficulty with it is that, the Master having made clear in his decision that he had considered the merits of the D1’s submission on the defects of the SOC (§§21-26 of the Costs Decision), he took the view that D1 had no justification for making the striking out application, instead, it should apply for further and better particulars (§26 of the Costs Decision).

19.  It is trite that determination of costs is in the discretion of the Master. The discretion is a wide one, albeit to be exercised judicially. In exercising the discretion, the Master was entitled to take into account the matters set out in Order 62 rule 5(1) RDC such as the conduct of the parties, whether or not the parties had conducted the litigations in accordance with the underlying objectives in litigation of fairness, costs-effectiveness, proportionality and procedural economy under Order 1A rule 1 RDC. Cases should be dealt with as expeditiously as is reasonably practicable.

20.  In the Costs Decision, the Master, having specifically assumed that D1’s complaint relating to the Alleged Defects were meritorious, expressed his disapproval of D1’s issuance of the Striking-out Summons, in particular, paragraph 26. Undoubtedly, the Master was well in mind the merits of D1’s complaints of the Alleged Defects as well as the litigation conduct of the Two Parties in coming to his conclusions as to costs.

21.  Plainly the crux of D1’s argument in this appeal is substantially a repetition of its argument before the Master that the SOC was defective in several aspects, I bear in mind that the present appeal should not be dealt with by rehearing of the matter. Nor should the arguments before the Master be re-run again.

22.  In any event, I share the view with the Master that the issuance of the Striking-out Summons was inappropriate and unreasonable for the following reasons.

23.  Truly D1 first made complaints about the defects of the SOC and reserved its right to make application to strike it out as early as 21 February 2022 and repeated its stance in the Defence on 14 April 2022, and, P did not amend the SOC until after the call-over hearing of the Striking-out Summons with the draft amendments sent to D1 on 16 September 2022. However, I could not ignore the peculiar circumstances of this case which I now turn to.

24.  Throughout the entire period between the D1’s Complaint Letter on 21 February 2022 and the issuance of the Striking-out Summons on 26 July 2022, D1 neither requested for particulars nor made striking-out application, notwithstanding the time imposed for P to discontinue the present action, within the next 7 days after 21 February 2022, had expired.

25.  Instead, D1 proceeded to file the Defence. It gave rise to a question as to why time and costs should be wasted for the filing of a 14-page “defence” (with 3 pages of design sketch and drawings attached thereto) to “defend” the SOC, which was complained to have disclosed no cause of action liable to be struck out. There should be no claim for D1 to defend and no case for it to meet.

26.  D1 gave no convincing explanation for not taking out striking-out summons for final disposal of the whole claim which is most effective and costs-saving bearing in mind that filing of affidavit is not neccessary under Order 18 rule 19(1)(a) RDC.

27.  Further, D1’s reservation of its right to strike out the SOC in the indefinite future in the Defence does not sit well with the rationale that striking-out application should always be made promptly and as a rule before the pleadings are closed. Where the statement of claim is being attacked, the application may in a proper case be made before the filing of the defence : §18/19/3 Hong Kong Civil Procedure 2023 Volume 1.

28.  Worse still, D1 waited until after P’s filing of the Reply and the List of Document then sought security for costs to cover its costs up to and including the Case Management Summons hearing by the D1’s Security-request Letter. The Draft Bill was attached thereto.

29.  The Draft Bill formed the basis of some rounds of negotiation between the Two Parties leading to the grant of the Consent Security Order in that P consented to pay the agreed security for costs to the Court to cover D1’s costs from commencement of this action up to and including the first Case Management Summons hearing. On the same day of the order, P duly made payment into Court as agreed.

30.  I had a close study of the Draft Bill which formed the basis of the Consent Security Order. It itemized the costs incurred and the future costs up to and including the Case Management Summons hearing. The legal costs of the solicitor’s drafting of the Defence and the counsel’s settling of it were set out therein. Amongst the future costs were the costs to cover the procedural steps D1 expressly declared it would take, including the following matters :

(a)  request for further and better particulars of the SOC;

(b)  specific discovery and inspection of documents as referred to in the SOC;

(c)  application for leave to transfer the present case to the IP List of the Court of First Instance;

(d)  filing of list of documents, timetabling questionnaires and attending the First Case Management Summons hearing;

(e)  filing of mediation certificate, mediation response and attending mediation

31.  The Draft Bill was completely silent on D1’s intention to make striking-out application notwithstanding it formed the basis of the Consent Security Order. On the contrary, the most substantial item of future costs D1 asked for was the costs for D1’s intended request for further and better particulars of the SOC, which covered the costs of both solicitor and counsel relating to advising, drafting and considering request for futher and better particulars of the SOC, further and better particulars given by P and the consequential costs on pleadings.

32.  In reliance on the Draft Bill, P embarked on negotiation with D1 and agreed to the grant of the Consent Security Order. P also duly complied with the Order by making payment into court.

33.  P was understandably taken by surprise when being served with the Striking-out Summons especially on the day immediately followed the grant of the Consent Security Order and P’s payment into court on 26 July 2022. Not only that there had been an unnecessary delay of D1’s striking-out application for 5 months since the D1’s Complaint Letter, such application was made without letter immediately before application, and, plainly deviated from those procedural steps as declared in the Draft Bill. Such moves simply departed from the position D1 had represented to P in the Draft Bill.

34.  At this hearing, this Court’s inquiries for the reasons for such sudden change of position of D1 met with no convincing answer, still less of a satisfactory explanation for the issuance of the Striking-out Summons on the day immediately followed the Consent Security Order and payment-in without any prior notice, not to mention the non-compliance of part III of Practice Direction 19.1 or D1’s filing of the Timetabling Questionnaire despite the striking out application was afoot.

35.  Such course of conduct of D1 should not be encouraged. Not only that no notice immediately before application was sent to P (the D1’s Complaint Letter and the Defence did not assist D1 for the reasons aforesaid), P was actually led to believe that D1 would only request for further and better particulars of the SOC without any indication of striking-out application. Premised on the Draft Bill, security for costs as required by D1 was negotiated, agreed and paid by P without arguments in court. Needless to say, unneccessary costs and time were spent on the litigation procedures subsequent to the filing of the SOC.

36.  In the circumstances, P had understandbly acted upon the representations of D1 that D1 would only seek further and better particulars of SOC to continue prosecuting its claim, to formulate its case management and costs-budgeting.

37.  I also do not ignore the fact that right from the Pre-action Letter, P had expressed its readiness and willingness to resolve the disputes between the parties and to avoid unneccesary applications in a costs-saving manner. In order to state its case clearly to D1, P had set out a series of important events and material facts between the Two Parties in the SOC and in several letters (together with 30 pages of annexures) to D1 before and after the commencement of this action expressly for the purpose of assisting D1 to understand the claim.

38.  Further, in reply to D1’s Complaint Letter, P immediately invited D1 to set out clearly the grounds for striking out and expressed its readiness to amend the SOC or provide further and better particulars so as to obviate the need for any unnecessary striking-out application and to save time and resources. The invitations were fruitless. D1’s complaint remained in its simplest terms without elaboration.

39.  Thus analyzed, I am not persuaded that the Master was wrong in taking the view that D1 should have requested for further and better particulars instead of making striking-out application.

40.  Much has been said about the defects of the SOC before the Master and in this appeal. Such contention lends no support to D1 for the reasons set out above. It also ignores the Master’s view in the Costs Decision that his conclusion was arrived at having regard to the merits of the striking out application with the legal principles in mind that the Court will only strike out a pleading in plain and obvious case which is obviously unsustainable and the defects cannot be cured by amendments.

41.  On a proper reading of paragraphs 24-27 of the Costs Decision, which must be read together, it is apparent that the Master was not persuaded that the striking out application would succeed. He took the view that the proper course D1 should have taken was request for further and better particulars instead of striking out application.

42.  Suffice it to say that D1 was able to and found it necessary to file the Defence and further proceeded to continue the proceedings thereafter for several months.

43.  Further consideration should also be given to the fact that the SOC actually specified the dealings between the Two Parties relating to the creation of the design work for the HNR Project, the publishing of it and the acts done by D1, allegedly to be the infringed acts. It is specifically pleaded that P, a corporation registered in Malaysia, was the owner of the design work, which was created in Malaysia on 28 August 2019 and published to D1.

44.  The communications and transactions between the Two Parties as well as the materials and documents provided by P to D1 as quotation, purchase order, payment, non-disclosre agreement, test report, emails, provision of the design work and the persons involved were set out in details. The locations and the descriptions of the objects said to be the infringed works as the playground structure and the photos together with a comparison table as to the common features were pleaded.

45.  Strictly the SOC defined the scope of the relevant dealings between the parties and confined the relevant acts done by the Two Parties which prompted and enabled D1 to file the 14-page Defence together with 3 pages of drawing and design in defending the SOC.

46.  I bear in mind the legal principles that striking out is a draconian remedy and a party should not lightly be denied his day in court. Pleadings should be struck out only in clear and obvious cases. The court should not decide difficult points of law in striking out proceedings. On such basis, the Master’s view that assuming D1’s complaint relating to the lack of particulars was meritorious, D1 had no valid reason not to request further and better particulars in the first place could not be wrong.

47.  D1’s contention also neglects the fact that the Striking-out Summons was issued after P’s filing of the Reply and the List of Documents in that the author of the alleged copyright work who was the employee of P was further identified. The Reply together with some documentary evidence were provided to D1 before the issuance of the Striking-Out Summons.

48.  Mr Hui fairly agreed at this hearing that even though only the allegations in the SOC are considered when evaluating the chance of success of the cause of action for the purpose of striking out application, the Court, in determining the issue of costs of the issuance and the withdrawal of the Striking-out Summons, is entitled to consider all the circumstances including the materials and information available to D1 and the knowledge of D1 by the time the Striking-out Summons was taken out.

49.  By reason of matters set out above, I share the same view with the Master that D1 should not have issued the Striking-out Summons, rather, it should request for further and better particulars. Given the peculiar circumstances of this case, the Master Costs Order cannot be regarded as a flaw.

50.  Viewed in this light, D1’s contention that the Master was wrong in ignoring the fact that the Striking-out Summons was withdrawn only after the filing of the Amended Statement of Claim falls away.

51.  Thus analyed, I do not take the view that the case of FBC Construction lends any support to D1. That case is factually distinguihable from the present case. There, the Court was faced with a pleading which pleaded a single loan agreement as the basis of cause of action, but the plaintiff then referred to a series of loan agreements. That is not the situation in the present case.

52.  Likewise, the other cases referred by D1 do not advance its position any further. Those authorities are not authorities that every applicant of a striking out summons who prompts an amendments in pleading is invariably entitled to costs of the summons. Each case turns on its own facts. In view of the peculiar features as set out above, the present case is distinguished from the facts and the procedural history of those cases.

53.  Looking at all the matters in the round, I am not convinced that the Master was wrong in law or that he erred in law. In exercising discretion on costs, the Master was entitled to consider whether or not the parties had conducted the litigation in accordance with a system of civil litigation which is designed to enable the parties to know where they stand at the earliest possible stage and at the lowest practicable cost, so that they may make informed decisions about their prospects and the sensible conduct of their cases : §62/5/6 Hong Kong Civil Procedure 2023 V.1.

54.  For the reasons aforesaid, D1’s complaint that the Master was wrong in taking the starting point that the onus was upon D1 to justify why it should not be liable for the costs rising from the withdrawal of the Striking-out Summons does not stand.

55.  Due regard should also be given to the usual order upon withdrawal of an application is for the applicant to pay the costs of the other party following the principles governing withdrawal of summonses under Order 21 rule 6 RDC. To persuade the court to depart from the usual rule, the onus is upon the party seeking to withdraw to show that withdrawal is for reasons other than an acknowledgement of defeat or likely defeat : §21/6/1 HKCP V.1 2023.

56.  After all, it follows from what I have set out above I would have come to the same conclusion to that of the Master even if I was to reconsider the whole matter afresh and to take the present appeal as by way of a rehearing, and, even if the general principle governing withdrawal of summonses does not apply.

CONCLUSION

57.  Having considered the submissions of the Two Parties and all the relevant documents before me, I am of the view that D1’s appeal herein has no merits at all. The appeal is dismissed.

COSTS

58.  I make a costs order nisi that D1 do pay the costs of this appeal to P in any event, with certificate for counsel, to be taxed if not agreed.

59.  The above order nisi shall become absolute in the absence of application to vary by Summons within 14 days from the date hereof.

60.  I thank Counsel for their assistance.