XCHRX SPORTLESS PLASTIC PROPRIETARY LTD. AND ANOTHER v. KEEN RESOURCE INDUSTRIAL LTD. AND OTHERS

HCA17865/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.17865 OF 1998

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J U D G M E N T

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Application to discharge

1. This is an application by the Defendants for a discharge of the Anton-Piller Order obtained by the Plaintiffs on an ex-parte application from Findlay J.

Evidence

2. The Plaintiffs are the owners of the patents and registered designs of hangers used for clothes and also the caps indicating the size of the clothes. They alleged the Defendants had infringed their intellectual property rights.

3. The Plaintiffs had enlisted the help of a private investigator, namely, Factfinder Limited ("Factfinder"), which in turn managed, through its contact in the Mainland, to recruit employees in a factory in the Mainland called Fet Wah Plastic Factory ("Fet Wah") to assist it in the investigation. Two of these employees (Operative "C" and Operative "E") obtained purchase orders placed with Fet Wah for the manufacturing of the infringing articles. The Plaintiffs relied on the purchase orders as part of their evidence in their application for the Anton-Piller Order.

4. The purchase orders can be divided into three categories :

1. Purchase Orders placed by the 1st Defendant;

2. Purchase Orders placed by the 2nd Defendant; and

3. Purchase Orders placed by the Plaintiffs.

5. The Defendants' evidence is that a comparison of the purchase orders obtained by the employees with the authentic purchase orders placed by the 1st Defendant, 2nd Defendant and the Plaintiffs revealed that the purchase orders obtained by the employees were forged documents.

6. I will call the purchase orders obtained by the employees "the forged purchase orders". I will deal firstly with the forged purchase orders provided by Operative C.

7. In respect of the forged purchase orders of the 1st Defendant, the quantity of the goods ordered and the total amount of the price were exaggerated as compared to the authentic purchase orders.

8. In respect of the forged purchase orders of the 2nd Defendant, namely, PJC-15,16 and 20, the description of the goods is completely different from the authentic purchase orders in that the forged purchase orders referred only to the infringing article, namely, GS19, whereas the authentic purchase orders were of other goods.

9. In respect of purchase order exhibited as PJC-13, the content is the same, but the forged purchase order had additional handwritten words which did not appear in the genuine purchase order. These words are, inter alia, Merriform Brassiere Factory Limited, which was a client of the Plaintiffs. The words "Plasti-Form HK" also appeared. This name is associated with the Plaintiffs. The genuine purchase order showed that it was actually placed by the 1st Defendant, and not the 2nd Defendant.

10. In respect of three other forged purchase orders (namely, PCJ-31), the contents are the same as the three authentic purchase orders. But it was the 1st Defendant and not the 2nd Defendant whose name and whose signature appeared in the genuine purchase orders. Typing errors also appeared on these purchase orders.

11. In respect of one of the forged purchase orders of the Plaintiffs (PCJ-14), it showed that the quantity and amount had been changed while the type-face, in particular the heading "Purchase Order", is different. The 2nd Defendant also said that it had not received the purchase order of PJC-17.

12. In respect of purchase orders obtained by another employee, namely, Operative E, some of the purchase orders had their quantity and amount increased, some had the description of the goods changed to that of an infringing article. There are typing errors and the letter 'P' in 'Purchase Order' was missing in these orders.

13. The particulars of the differences and errors are fully set out in the Defendants' affirmation.

Discharge for material non-disclosure

14. The ground for the discharge of the order is based on material non-disclosure, in that the Plaintiffs had :

1. failed to disclose the purchase orders obtained by the operatives were forgeries.

2. failed to disclose the operatives received money for their actions.

15. In respect of the first ground, although Ms Tam, Counsel for the Defendants, initially in her written submission stated that, "whether or not Plaintiffs would have been in a position to discover the forgeries before putting these documents before the Court, the nature of the non-disclosure is most serious, and goes to the heart of Plaintiffs' case against Defendants at the time of the application", she now submits that the forgeries are so obvious that the Plaintiffs ought to have made inquires when the purchase orders were received from the operatives. She does not suggest the forgeries were committed by the Plaintiffs or Factfinder or that the forgeries were actually done by the operatives but the operatives must have played a role in obtaining the forged documents and providing them to Factfinder.

16. In respect of the non-disclosure of the award paid to the operatives, Ms Tam submitted that the operation was different from the usual undercover operation by a private investigator or the usual trap purchase conducted in an investigation. The fact that the employees of a factory were being paid to get documents from their employers must be disclosed.

The principle

17. The principle in this area is clearly laid down in Rex v. Kensington Income Tax Commissioners [1917] 1 KB 486 where Warrington, L.J. held :

"It is perfectly well settled that a person who makes an ex parte application to the court, that is to say in the absence of the person who will be affected by that which the court is asked to do, is under an obligation to the court to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, he cannot obtain any advantage from the proceedings and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him."

18. The principle that has evolved and developed since this decision can be found inDubai Bank v. Galadari [1990] 1 Ll's LR 120 where Dillon, L.J. at p.127 stated that :

" It is now accepted in this Court that, even if there has been material non-disclosure, the Court has a discretion whether or not to discharge an order obtained ex parte and a discretion whether or not to grant fresh injunctive relief. Discharge of the order is not automatic on any non-disclosure being established of any fact known to the applicant which is found by the Court to have been material."

Our Court of Appeal in Jordache International (H.K.) Ltd. and Others v. Guess?, Inc. and Others [1987] HKLR 314 held that :

"... The non-disclosure will not be equally serious on every occasion. There may be cases where iniquity of the very greatest depth is revealed by the order that should not have been granted. It may be necessary to balance one against the other in order to see where the interests of justice truly lie. To do that it is necessary to leave a discretion with the judge."

Reward to employees

19. I will deal with the second non-disclosure first. Mr Yan, Counsel for the Plaintiffs, submitted that we are living in a real world and people are expected to do things for reward and the non-disclosure would make no difference to the judge who granted the Order. He disclosed that the operatives were paid $500 per month for their action.

20. I have to disagree with Mr Yan in his submission. This is a different operation from the usual private investigation where only the private investigators were involved. It may be unnecessary in such a case for a party to disclose that the private investigators were hired for reward. But where an employee is paid to act in breach of his duty towards the employer and to pass the information from his employer to a third party, this is a very serious matter indeed and this is a material fact that ought to be disclosed in an ex-parte application. As the Court of Appeal in Brink's Mat Ltd. v. Elcombe (C.A.) [1988] 1 WLR 1350 held that :

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

There has been a material non-disclosure in this regard.

Forgery

21. Turing to the first non-disclosure, the duty of inquiry is also stated in Brink's Mat Ltd. :

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

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

In this case, Operative C provided the purchase orders to Factfinder on eight occasions between 21st May 1998 and September 1998, a period of four months. Should the Plaintiffs put on alert that the materials supplied by the operative were too good to be true? Was the operative deliberately providing documents that the Plaintiffs were interested to obtain?

22. When the forged purchase orders are placed side by side with the authentic ones, one could of course immediately see the differences between them. However, when only the forged purchase orders were available, even with their typing errors, I have difficulties in accepting that one should immediately raise a question mark on their authenticity and should view these documents with suspicion.

23. Apparently, the first set of purchase orders, namely, PJC-31, were supplied in early May 1998. The Plaintiffs did not rely on them as suggesting the infringing activities of the Defendants. According to the Plaintiffs, the breakthrough came with the "Merriform" purchase order. On its face, this is an ordinary purchase order. I cannot see how this document would necessarily raise suspicion on its authenticity. Then came the Plaintiffs' own purchase orders. The original of all the forged purchase orders are now produced. Looking at these purchase orders the type-face, particularly the words "Purchase Order", are not so glaringly different that one can immediately spot the difference.

24. The Plaintiffs should, of course, be more familiar with their own type-face, but Mr Hutchison stated that their authenticity was not in his mind. Is this something I can dismiss as being unreasonable? I do not think so. After all, the Plaintiffs have been placing orders with Fet Wah although there are evidence that the previous purchase orders were of smaller quantity.

25. It is also suggested that, although Mr Hutchison's concern with confidentiality might preclude him from letting other employees from examining the documents, he should let his wife, who signed the purchase orders, examine the purchase orders.

26. These are valid points and I do not think the Plaintiffs had provided an answer to each of the Defendants' contentions. However, this is not a trial on affidavit evidence. On the evidence before me, I just cannot say, at this stage, that the Plaintiffs' stand was so unreasonable that I should conclude that the only reasonable step that should be taken by the Plaintiffs was to make further inquiries when the forged purchase orders were obtained.

27. There is a more fundamental question concerning the nature of the purchase orders obtained by the operatives. The Defendants submitted that they were forgeries. The Plaintiffs on the other hand submitted that all that it can be said at this stage is that there are in existence two sets of documents.

28. A number of theories has been advanced on the difference of the two sets of documents. The Plaintiffs said that the forged purchase orders were created to obtain tax advantage in the Mainland. Ms Tam submitted that this just does not make sense because if this is the case, why singled out the infringing article in some of the purchase orders, and why change the letterheads of the two companies in the purchase orders?

29. The Plaintiffs further suggested that the letterheads were changed because that was how the 1st Defendant operated its business. Mr Yan referred to the documents seized at the execution of the Anton-Piller Order . These documents are now exhibited to the 6th Affidavit of Mr Boudget, the Plaintiffs' solicitor. They revealed that while the orders were placed by customers with the 1st Defendant, the purchase orders and invoices were issued by the 2nd Defendant. A set of these documents were stapled together with the order placed with the 1st Defendant. The evidence revealed by the Plaintiffs is that the 2nd Defendant is not carrying on business at its registered address but only using that premises as its registered office address and the occupier of that premises said that he agreed to this "at the request of John Lau Wing Fai, the boss of Master Honor". Mr John Lau Wing Fai ("Mr John Lau") is also the managing director of the 1st Defendant. Ms Tam submitted that this may well be the way the 1st and 2nd Defendants carried out their business.

30. In my view, these arguments highlighted the difficulties of trying to resolve serious accusations of forgery of documents and who was responsible for them on affidavit evidence only. Some of these purchase orders might well be proved to be created by persons, with the assistance provided by the operatives, for the purpose of supplying false information to the Plaintiffs. On the other hand, some of the other purchase orders might well be proved to be created by the Defendants themselves as suggested by the Plaintiffs. At this stage it is just not possible to come to any firm view of the matter and it is wrong to speculate on it further.

Innocent non-disclosure

31. In this case, I do not consider that there had been a breach of duty on the part of the Plaintiffs in respect of the matter concerning forgery. Even if it should be considered there was a breach, the non-disclosure is innocent in nature. In Ali & Fahd Shobokshi Group Ltd. v. Moneim & Others [1989] 1 WLR 1989, the Court commenting on Brink's Mat Ltd. stated that innocent non-disclosure means one where there was no intention to omit or withhold information which was thought to be material. As to the second non-disclosure relied by the Defendants, the fact is that the Plaintiffs had entrusted the investigation to Factfinder. I would not in the circumstances of the case conclude that the omission was deliberate. I am not condoning what the Plaintiffs had done, but this is such an unusual situation of private investigators seeking the assistance of the employees of a company under investigation, that may be the requirement and precaution of disclosure usually adopted by a party and its lawyers had been overlooked.

Exclusion of seized documents?

32. Ms Tam submitted that I should not look at the documents seized at the premises of the 1st Defendant. In Jordache, the judge having discharged an Anton-Piller Order on the ground of material non-disclosure, relied on the very same documents seized at the execution in granting a fresh interlocutory injunction. The Court of Appeal held that such documents should not be considered by the judge. Cons V.-P. stated that :

"The basic safeguards of equity must be strictly enforced to ensure that the terrible power of such a weapon is never improperly unleashed"

See also Naf Naf S.A. & Another v. Dickens (London) Ltd. [1993] FSR 424 in which Hoffman J (as he then was) adopted the approach of Jordache. He referred to the importance of justice to the defendant. He said that : "...a defendant is entitled to feel aggrieved if he is told that the order ought never to have been made, that the plaintiff has obtained an illegitimate advantage by it, but is nevertheless entitled to use it."

Discretion

33. In my view, I am entitled to look at the documents seized as part of all the circumstances that I should consider in deciding whether the Order should be discharged because of the non-disclosure.

34. In Brinks Mat Ltd., it was held by Ralph Gibson LJ at page 1357 that :

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

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

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

See also the observation of our courts in Intercontinental Housing Development Ltd. v. Quek Teck Huat & Others [1986] HKLR 1153 and Standard Chartered Securities Ltd. v. Arthur Lai [1993] 1 HKC 375.

Absence of explanation by the Defendants

35. Let us examine the circumstances relating to this case. The Plaintiffs claimed that the Defendants had infringed their intellectual property rights of three articles, namely hangers by the serial numbers of GS19 and WP25, and also the size cap. The Plaintiffs justified the ex parte application by fear of destruction of evidence by the Defendants if the application is made known to them.

36. The Plaintiffs now said that even on the authentic purchase orders relied by the Defendants, they showed that the Defendants had infringed their rights of these articles and also some other articles. The Plaintiffs stated that they had devised special serial codes for its products and on the Defendants' commercial documents, the same codes were used with a substitution of the prefix and suffix of "KR" or "MH" which the Plaintiffs suggested are merely the abbreviations of the names of the Defendants.

37. Mr John Lau, the managing director of the 1st Defendant, responded by saying at para. 5 of his 1st Affirmation that :

" It is common practice in the hanger industry to use some well-known model numbers as a convenient way to identify various types of hangers. The model numbers 'GS-19' and 'WP-25' have been widely used in this industry as referring to two particular types of hangers. These two model numbers have acquired a generic meaning and are used to identify the two types of hangers, but are not necessarily meant to be the hangers manufactured or sold by the 1st Plaintiff. This phenomenon applies to other kinds of hangers. For instance, '226' has been used to signify a particular style of 12-inch top hangers and '227' for another type of 14-inch top hangers."

38. These serial numbers are referable to products of the Plaintiffs which they have an ownership of industrial property rights. The fact that these model numbers are widely known in the industry as referring to various types of hangers does not mean the rights of the Plaintiffs have not been infringed. The Plaintiffs have certainly established a serious case to be tried of their rights being infringed by the Defendants. What is significant from reading the affirmations of the Defendants is not what has been said but rather what has not been said. I have observed, in the course of the submission, that it appeared the considered tactic of the Defendants in this case is to challenge exclusively on the issue of disclosure. I stand by what I have said. Mr John Lau and Mr Lau Chi Wai are not strangers to the Plaintiffs. Mr John Lau was the former general manager of the 1st Plaintiff until the end of 1997. He had worked for the Plaintiffs from 1989. Mr Lau Chi Wai was also a former merchandiser of the 1st Plaintiff, he also worked until end of 1997. He is now the merchandising manager of the 1st Defendant. In view of the serious allegations of infringing activities against the Defendants, one would expect, and I am not confusing the burden of proof in any event, that they should say that they had not infringed the rights of the Plaintiffs at all. This is something glaringly absent from the many affirmations filed by the Defendants in this case.

39. The Plaintiffs had shown by evidence that the 1st Defendant had applied to register the Plaintiffs' logo as a trade mark. Apart from informing the Court that it would not proceed with the application, no explanation was offered why the 1st Defendant should choose to adopt the Plaintiffs' logo.

40. There is evidence of destruction of documents at the 1st Defendant's premises when the Order was executed. It is the Defendants' case that the staff of the Defendants had on 22nd October 1998 torn up documents. However, when that was done, the Anton-Piller Order had not been explained and interpreted to the staff of the Defendants. They had no idea of the ambit of the Anton-Piller Order. Moreover, the person in charge of the Defendants was not there at that time. No explanation was given even now as to why it was necessary to tear up documents when the Order was executed and what documents were torn up.

41. Hangers bearing reference to the Plaintiffs or their products' codes were found in the 1st Defendant's premises. Size caps were also found. They were not of large quantities but equally the number can be described as substantial. Mr John Lau stated in his affirmation as follows :

"3. The hangers obtained by the Plaintiffs during the execution of the Anton Piller Order are used as samples for our customers' reference. It is a rather common practice in the hanger industry in Hong Kong for a hanger supplier to keep a few hangers manufactured by various manufacturers and use such hangers as a reference. The 1st Defendant keeps a number of hangers with similar functions from various manufacturers for reference. Also, it is quite common that some of our customers send certain samples of hangers to our office and ask whether we can supply hangers with similar functions.

4. The 1st Defendant has kept sample hangers originated from the 1st Plaintiff as well as samples from other suppliers or manufacturers. The number of hangers obtained by the Plaintiffs during the execution of the Order is not more than the number of sample hangers of other manufacturers kept by the 1st Defendant."

These are hangers subject to the rights of the Plaintiffs. One would expect Mr Lau to go on and state that no infringement was carried out of the Plaintiffs. There is a complete silence on this point.

Nature of documents seized

42. The documents seized at the execution further revealed that :

1. There was a hanger catalogue of the 1st Defendant which included products bearing the code numbers of the Plaintiffs.

2. The price lists of the 1st and 2nd Defendants included reference to products of the Plaintiffs.

3. The 1st Defendant's order to a Chit Wah Plastic Factory Ltd. (Chit Wah) contained reference to Plaintiffs' products. It is observed that the Chinese name of Fet Wah is "捷華" which bears the same pronunciation as this Chit Wah. Certainly the address of this Chit Wah is the same as Fet Wah.

4. The 2nd Defendant's purchase order with Jointwinner contained products bearing the same code numbers of the Plaintiffs. The contact person and telephone number of Jointwinner is the same as that of Chit Wah.

5. Purchase orders of customers of the Plaintiffs, namely Winga Garment Factory and Meifoo Garment Factory Ltd. had placed purchase orders with the 2nd Defendant in respect of products bearing again the Plaintiffs' code numbers. In respect of Meifoo, the purchase order was placed with the 1st Defendant but processed by the 2nd Defendant.

6. Two companies, namely Par Win Garment Factory and Best Firm Trading Ltd., also placed orders with the 1st Defendant but processed by the 2nd Defendant. These products again referred to the same codes used by the Plaintiffs.

7. In the monthly statements from Fet Wah to the 1st and 2nd Defendants, there were reference to the products bearing the Plaintiffs' code numbers.

8. In the monthly statements from Jointwinner to the 1st and 2nd Defendants, again there were reference to products with the Plaintiffs' code numbers.

9. In the account payable ledgers of the 1st Defendant, there were again reference to products with the Plaintiffs' code numbers. The four accounts stated in the ledger was in respect of Chit Wah, Kam Wai, Ho Fat and Jointwinner.

10. The account payable ledger of the 2nd Defendant also contained reference to the Plaintiffs' code numbers.

11. In the account receivable ledgers of the 1st and 2nd Defendants, they show again dealings with the Plaintiffs' coded products.

43. Mr Yan also referred to the seized documents and demonstrated by way of a table prepared by him of the large scale operation of the infringing activities. He also submitted that some delivery dates stated in the forged purchase orders were the dates when Factfinder could actually follow the delivery from Fet Wah to Hong Kong.

44. All these cried out for an explanation from the Defendants. None was forthcoming.

The Court's approach

45. The Court must be extremely vigilant in ensuring that the utmost good faith is provided by a party applying before it on an ex parte basis by making full and frank disclosure. It will have no hesitation in discharging an order obtained by breach of duty so as to prevent its process being abused. However, this is one of those cases where it would be wrong to exercise the discretion by discharging the order. I would respectfully adopt the words of Cons V.-P. that inequities of the very greatest depth by the Defendants are revealed in the evidence. To discharge the Order would only serve the purpose of punishing the Plaintiffs when the overall circumstances of the case clearly justify the making of the Order.

Other matters

46. There are two matters I should address. First, Ms Tam applied to exclude the evidence of Operative E because the Plaintiffs had not revealed his full identity. The case of Four Seas Industrial Ltd. v. Sheen Loong Industries Ltd. [1993] AIPR 448 was relied on. In my view, the Plaintiffs should provide details of this operative. However, I did not rely on the evidence of this operative and it is not necessary for me to do so in view of my conclusion.

47. Second, both parties have obtained legal advices from the Mainland on whether the activities of the operatives amounted to criminal offences in the Mainland. There is a conflict of views and it is not appropriate for me to resolve it on affidavit.

Conclusion

48. Accordingly I shall dismiss the application to discharge the Anton-Piller Order.