SPORTIF(S) PTE LTD v. NEW BALANCE ATHLETIC SHOE, INC AND ANOTHER

   HCA1346/2008

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 1346 OF 2008

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BETWEEN

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J U D G M E N T

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The present action

1.  The 1^st defendant in this action applies to have the Order of Master Roy Yu granting the plaintiff leave to serve the 1^st defendant out of jurisdiction discharged.

The events leading to the present action

2.  The plaintiff alleged that its employees supplied various designs for sporting apparels to the 1^st defendant in 2001 and 2002. The plaintiff claimed that those designs were for the production of apparels to be sold during Fall 2002 to Summer 2003. It was alleged that the 1^st defendant terminated its business arrangement with the plaintiff without any compensation for the services rendered in respect of those designs.

3.  The plaintiff now sues the two defendants for infringement of copyright subsisting in those designs. Paragraph 13 of the Statement of Claim read :

“13. Prior to the issue of the Writ herein, the Defendants have infringed the Plaintiff’s copyright subsisting in the 2002 Drawings and the 2003 Drawings by the importation into Hong Kong and the subsequent sales to, inter alia, the Hong Kong retailer ‘Royal Sporting House’ of the Defendants’ sporting apparel with the knowledge that the same were identical copies or substantial reproductions of the 2002 Drawings and the 2003 Drawings (‘the Defendants’ infringing sporting apparel’).  Prior to discovery and/or interrogatories herein, the Plaintiff will rely on the following: …”

4.  In the “Particulars of Infringement”, there are 26 items (a-z). Each item is in the following format :

“… the importation and sale to the ‘(Retailer)’ in or about (time) an item of the Defendants’ infringing sporting apparel bearing the style number (code for style); …”

The 1^st defendant’s application

5.  The 1^st defendant, a corporation existing under the law of the Commonwealth of Massachusetts in USA, now disputes the Order of Master Yu in granting the plaintiff’s application to serve the 1^st defendant out of jurisdiction under Order 11, rule 1(c).

6.  Mr John Yan SC, for the 1^st defendant, submitted the following grounds :

“1.  that the plaintiff had failed to disclose a letter sent by the solicitors acting for both defendants to the plaintiff’s previous solicitors in its application before Master Yu;

2.  that the 1^st defendant is not a necessary or proper party to the action;

3.  that the service of the Writ of Summons on the 1^st defendant was irregular.”

The second ground – necessary and proper party

7.  I will deal with the second ground first as it poses certain problems in the granting of leave.

8.  The Statement of Claim refers repeatedly to “importation and sale” by the defendants. However, the 2^nd defendant avers that it was solely responsible for the importation and sale of the apparels to the retailers in Hong Kong. This leaves the question of whether the 1^st defendant can be said to have taken part in the “importation and sale” of the apparels.

9.  The relevant points in the plaintiff’s affidavits are as follows :

“1.  the 1^st defendant had co-ordinated the alleged acts of infringement by both defendants (para 18, Craddock-1);

2.  both defendants share the same directors (para 18, Craddock-1);

3.  the plaintiff had only dealt with the 1^st defendant in supplying the designs (para 18, Craddock-1);

4.  from the website of the 1^st defendant, the sale by the 2^nd defendant ‘appeared to be treated, for all intents and purposes, as sales of the’ 1^st defendant (para 16(c)(ii), Payne-2).”

10.  Before I go on to consider the points above I would like to add that everything would be easier if only the original Statement of Claim contained the ground of joint tortfeasorship. I also noticed that the affidavits, though made by members in a solicitors firm, are short of legal reasoning. Many of the points above have the potential to form the basis of a cause of action, but the persons who made those affidavits instead went for terms such as “co-ordinated” and “treated as sales”, which have hardly a place in the lawyers’ vocabulary.

11.  Mr Victor Dawes, for the plaintiff, tried to make the best out of the sorry pieces of paper by advancing several arguments to show that the 1^st defendant is indeed a necessary and proper party. They are as follows :

“1.  the 1^st defendant had committed the importation and sale of the apparels to Hong Kong retailers itself (SoC);

2.  the 1^st defendant had failed to pay commission to the plaintiff in respect of the designs (SoC);

3.  the 1^st defendant is a necessary and proper party to the claim against the 2^nd defendant (hearing);

4.  reliance on Rule 11(1)(f) (hearing).”

The laws applicable to Order 11, rule 1

12.  It is settled law that a plaintiff must show a good arguable case that the defendant falls in any of the categories under Order 11, rule 1. The plaintiff must show his cause of action in his Statement of Claim and support it with affidavits. He is not allowed to rely on a separate and distinct cause of action not initially relied upon, in resisting an application by the defendant to set aside the leave granted in the plaintiff’s application (per Stone J, Ferromin Ltd v Nittetsu Shoji Company Ltd (unreported, HCCL41/1998). A further requirement was imposed in Queenston LLC v Serlen Ltd & Ors (unreported, HCA7585/2000), where Mr Recorder Edward Chan, SC held that even for a cause of action pleaded, the plaintiff is “not allowed to rely on a different basis” for formulating his cause of action.

13.  The law relating to Order 11, rule 1 is strict and the plaintiff has to plead his cause of action together with the legal basis in his statement of claim and support it with affidavits.

The submissions by Mr Dawes

14.  Accordingly, I cannot consider the ground concerning Order 11, rule 1(f), point 4 above, as that was not pleaded in the first place.

15.  Mr Dawes submitted that the 1^st defendant was a necessary and proper party in the determination of the ownership of the copyright subsisting in the apparels imported by the 2^nd defendant (point 3). This however, was not pleaded in the Statement of Claim and I will not consider this ground.

16.  The ground concerning the failure of the 1^st defendant to pay commission for the designs produced by the plaintiff was put as an alternative and there is insufficient material for me to decide on this ground (point 2).

17.  There is only one ground left for me to consider. I will put the issue in the form of a question: Did the 1^st defendant take part in the “importation and sale” of the apparels in question?

18.  In deciding whether the plaintiff must fail because “agency” was not mentioned in the statement of claim, I note that the meaning of importation and sale can be very wide. A sale can traverse through a number of intermediaries before it reaches the hand of a consumer. A plaintiff needs not show in the Statement of Claim each and every intermediary used by a defendant when alleging that a sale had occurred. This is because the defendant’s liability is not dependent on whether the sale had occurred through an intermediary/agent. Also, a defendant is not entitled to say that he did not occasion a sale merely because the sale took place between an intermediary/agent owned by him and a third party.

19.  In this respect, Mr Yan had put too much emphasis on the physical act of importation. He submitted that since the 2^nd defendant had admitted the importation and sale of the apparels in question, the 1^st defendant could not have committed the importation and sale itself.

20.  I disagree. The plaintiff here, when it says that the 1^st defendant had caused the “importation and sale” could mean :

“(i)  importation and sale wholly conducted by members of the 1^st defendant;

(ii)  importation and sale conducted partly by members of the 1^st defendant and partly by members of the 2^nd defendant as agent;

(iii)  importation and sale intended by the 1^st defendant as principal and conducted by the 2^nd defendant as agent.”

21.  I stress again that it is not necessary to write down (i) to (iii) in a Statement of Claim. This is because an assertion of “importation and sale” impliedly contains (i) to (iii). For this reason, the failure to mention “agency” in the Statement of Claim is not fatal to the plaintiff’s case.

22.  For the purpose of satisfying the “good arguable case” requirement, the plaintiff is required to augment the Statement of Claim with affidavits and show whether he is relying on (i), (ii) and/or (iii).

23.  I hold that the allegation of agency and the name of the agent have been impliedly raised in the affidavits. The affidavit refers to common directorship, “co-ordination” by the 1^st defendant and exclusive dealing with the 1^st defendant. Although the word agency was not used, these assertions can only go to an allegation of agency between the defendants with the 1^st defendant being the principal. Therefore the plaintiff has shown that it is not just relying on (i) but also on (ii) and (iii).

24.  I do not accept the submission by Mr Yan that agency must be expressly pleaded. The statement of claim implicitly contains an allegation of the use of agent by the 1^st defendant in the importation and sale and the affidavit had made the allegation and the identity of agent perfectly clear to the 1^st defendant.

25.  As the plaintiff has nothing to show that the 1^st defendant had physically brought about the importation and sale itself, item (i) cannot be made out. The remaining question is whether the plaintiff has a good arguable case in Order 11, rule 1(c) by arguing items (ii) and (iii). As the 2^nd defendant readily admitted the physical act of importation and sale, the live issue is just whether an agency relationship can be made out.

26.  In deciding whether the plaintiff has made a good arguable case, the court would consider whether the plaintiff have a much better argument on the material available. The test of “much better argument” is lower than the standard of balance of probability (paragraph 11/1/8, Hong Kong Civil Procedure 2010 (Sweet and Maxwell, 2009)). In Ferromin, Stone J held that the standard required for finding a good arguable case varies with the issue itself.

The plaintiff’s case

27.  Applying the law to the case, does the plaintiff have a good arguable case? In determining this question, I am particularly mindful of the fact that the plaintiff had only dealt with the 1^st defendant. If the ownership of copyright in the apparels belongs to the plaintiff, then the means in which the 2^nd defendant obtained the designs plainly calls for an explanation. The most logical explanation would be that the 1^st defendant imputed the designs to the 2^nd defendant as principals and agents. I am prepared to accept that if the plaintiff succeeds in establishing ownership of copyright in the trial, then without more, the strong inference would be that the defendants were in an agency relationship.

28.  I also note that at this stage, it is very difficult for the plaintiff to probe into the relationship between the defendants. The weapon of discovery is not available to it at this stage.

29.  Accordingly, I hold that the plaintiff only needs to show a minimal sign of agency to make a good arguable case and I hold that they have so succeeded.

Conclusion – necessary and proper party ground

30.  I hold that the plaintiff had made it sufficiently clear in the Statement of Claim and the affidavits that it intended to rely on agency as its legal basis for its cause of action. The plaintiff had shown a good arguable case in this respect.

First ground – material non-disclosure

31.  It is a point which counsel contested vigorously. The 1^st defendant alleged that the plaintiff did not disclose to the learned Master that it knew the 2^nd defendant, not the 1^st defendant, imported the apparels into Hong Kong.

32.  The 1^st defendant relies on a letter dated 24 June 2003 from Lovells (solicitors acting for both defendants) to Herbert Smith (solicitors then acting for the plaintiff). The letter reads :

“For your reference, we can advise that the merchandise in question was supplied to R&G (Hong Kong) Ltd by our client New Balance (Hong Kong) Ltd and has, pending resolution of this matter, been returned to our client.”

33.  Did the failure to disclose this letter or the information therein constitute material non-disclosure? I hold that it did not. The assertion by Lovells was not supported by any evidence so the plaintiff was not bound to accept it. Also, looking at the context of the letter, the “kind advice” was made when the advisee was threatening legal action against the advisor’s clients (the defendants). The plaintiff, or any sensible person, is perfectly entitled to doubt the accuracy of this statement and disregard it as he like.

34.  The 1^st defendant also relied on another letter written by Tanner De Witt (solicitors then acting for the plaintiff) on 10 July 2008. The letter reads :

“Title: Breach of copyright by New Balance Athletic Shoe, Inc. (‘New Balance’) and New Balance Athletic Shoe (Hong Kong) Limited (‘New Balance Hong Kong’)

… You will be aware that some years ago correspondence passed between new Balance and Sportif, and their respective solicitors, with respect to this matter.  Nothing was resolved at that time.  We now have instructions to pursue matters against New Balance and New Balance Hong Kong.

[two paragraphs about the previous business arrangement between 1^st defendant and the plaintiff]

However, apparel bearing designs substantially the same as, if not identical to, the designs created by Sportif for the Fall/Winter 2002 season and Spring/Summer 2003 season has since been found for sale in shops in Hong Kong.  Furthermore, we have evidence to suggest that Sportif’s designs are still being sold by Hong Kong retailers today.  It is understood that all apparel was imported into Hong Kong by New Balance Hong Kong.”

35.  The 1^st defendant argues that the last quoted sentence above shows that the plaintiff was aware of the identity of the importer but failed to disclose it to the learned Master. I hold that it was not a material non-disclosure because what the plaintiff really meant was that the physical act of importation was carried out by the 2^nd defendant. From the reasons mentioned above, it is clear that the principal cannot escape liability merely because the act was carried out by an agent. Thus, the non-disclosure was not “material” at all. I cannot see how the learned Master’s decision could be affected by this information.

36.  Therefore I hold that the failure to disclose the information in these letters did not constitute material non-disclosure.

Third ground – irregularity of service of the writ

37.  The 1^st defendant also alleged that the service of the writ in the US was irregular because it did not comply with the Federal Rules of Civil Procedure. It was alleged that the recipient of the writ, Ms Kathleen Carter, was only an administrative assistant and did not fall into the category of “an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process …” as provided in the Federal Rules of Civil Procedure.

38.  I am surprised that this ground was raised in the first place. There are numerous issues regarding the facts and the law. Firstly, the definition of officer and general agent was not provided, Mr Wheare seems to be inviting the court to accept that an “administrative assistant” or an employee whose duties were purely secretarial cannot be an officer or general agent under the said rules. Without more information regarding the law in the US I cannot accept this contention.

39.  Secondly, the duties of Ms Carter have not been fully examined. It is very easy to label the duties of an employee as purely “administrative” or “secretarial” but it is very difficult to test the truthfulness of this assertion. This is especially true when Ms Carter is far away in the US.

Conclusion

40.  For the reasons stated above, I hold that the three grounds proposed by Mr Yan cannot be substantiated. The 1^st defendant’s application to set aside the Order of Master Yu is dismissed.

41.  The plaintiff shall have costs of this application.