ALA 2000 S.P.A v. ADVANCED APPLIANCE LTD

HCA9282/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9282 OF 2000

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R U L I N G

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1. This is a copyright action in respect of the original artistic works relating to the design the plaintiff's meat slicer. By a consent order dated 27 October 2000 an injunction was granted against the defendants to prohibit them, inter alia, from manufacturing or selling 17 components of the 1st defendant's Model 488 meat slicer until trial or further order. The plaintiff gave an undertaking in damages and undertook to provide fortification by a bank guarantee in the sum of $500,000.00. The defendants now seek a variation of the consent order so that the plaintiff be required to provide fortification by a bank guarantee for $6,462,053.00. The plaintiff by a cross-summons seeks to have the fortification reduced to a guarantee for $100,000.00.

2. The plaintiff having issued its writ on 29 September 2000 on 13 October 2000 obtained an interim injunction to restrain the defendants from doing the following acts or any of them in Hong Kong, namely "importing, exporting, selling offering or exposing for sale, distributing for the purposes of trade or otherwise dealing in or with" electric meat slicers incorporating the listed components. Fortification of the plaintiff's cross-undertaking in damages was ordered, in the form of a bank guarantee for $500,000.00.

3. The summons was listed for hearing inter partes but before the hearing came on the parties agreed to the consent order. It recited an undertaking by the defendants "not to make, cause, authorise or procure the making of" electric meat slicers incorporating the listed components. The fortification of the cross-undertaking remained the same. The order itself is in the same terms as before, i.e. restricted to Hong Kong, as indeed it must be for there is no jurisdiction under the Copyright Ordinance to make an order with extra-jurisdictional effect.

4. Evidence in support of the defendants' application is found in the 10th affirmation of the 3rd defendant. In brief, he says that the offer of a guarantee for $500,000.00 was made in contemplation of the trial being heard within about 18 months. This was the period estimated by the plaintiff's witness in his affidavit, in estimating the potential loss of profit which would be caused to the plaintiff. However, the plaintiff has delayed in bringing the action to trial. In the meantime the defendants have been losing profits by reason of being unable to manufacture and sell its meat slicers particularly in Europe. The 3rd defendant calculates those profits up to December 2004 at $6,462,053.00.

5. In fact it appears from the 6th affirmation of the 3rd defendant, dated 19 November 2001, which was filed in opposition to an application for committal, that the 1st defendant sold the toolings, the GS/CE certificate for its slicers and some of the components on 21 October 2000, i.e. six days before the consent order. At the time of the consent order this was not made known to the court or the plaintiff.

6. The defendants say that the court has jurisdiction to order further fortification where there is a material change in the circumstances, or where new evidence has come to light which enables the court to better estimate the amount of potential loss.

7. The plaintiff says that the defendants, having given an undertaking in broader terms than the relief sought, i.e. a without geographical restriction, cannot now complain of damage arising from its voluntary self-restriction on making the meat slicers outside Hong Kong. Further the plaintiff also blames the defendants for delay.

8. It seems to me that the undertaking must be construed as having no geographical limitation. An undertaking must be construed in the same way as an order. In Shell Electric Mfg (Holdings ) Co. Ltd v. Liu Chi Kuen Tony & Anor. [2003] 3 HKC 331, Waung J held that a penal order which did not say anything about geographical limitation or extension must be held to be limited to Hong Kong because that was what a Hong Kong court was supposed to deal with, but he also said, at page 335, that :

"An order should be able to stand on its own feet and be read by anyone and so understood clearly and that is how it should be interpreted and if there is room for ambiguity or doubt then it must be resolved in favour of the defendants."

9. Here the position is not quite the same. The defendants gave the undertaking themselves and cannot claim that any ambiguity or doubt can be resolved in their own favour. The court may penalise a defendant in Hong Kong for breach of an extra-territorial undertaking.

10. The point is however that the defendants must have known that they were undertaking not to make meat slicers in China, for export through Hong Kong to the European market, because that is what they had been doing all along. I do not see that they can complain of losses which they undertook to bear. If this is wrong and the undertaking is to be construed as applying only to the making of meat slicers in Hong Kong, again the defendants cannot complain because they could have gone on making the slicers and shipped them direct from China, unless and until the plaintiff managed to obtain injunctive relief in the Chinese courts.

11. I also note that the figures relied on by the defendants were known all along. When the injunction was applied for the plaintiff estimated, in its calculations as to potential losses, a period of 18 months as being necessary to bring the case to trial. The defendants sought no greater fortification than a nominal $500,000.00 although on their own figures, their projected losses over 18 months would have been about $2.3 million. So at best if an increase were to be ordered it could be in the same proportion to the loss now projected, or a straight-line extrapolation up to December 2004 which is when the defendants now say the case could be brought to trial.

12. It is not in dispute that the court has a discretion to vary a consent order where there are good reasons for doing so, for example a significant change of circumstances or a party becoming aware of facts which he could not reasonably have known or found out at the time of the order. As I have indicated there is nothing new which the defendants did not then know; they must then have had the sales figures for the period from 4 June to 13 October 2000, on which they now rely. However, delay could amount to a change of circumstances which would justify an increase in the fortification. The question is who caused the delay and by how much.

13. There is an agreed chronology. Pleadings were closed on 22 December 2000 and discovery completed on 5 March 2001. Everything seems to have stopped for a while, because the plaintiff started investigating an apparent breach of the undertaking and took out a summons for committal in April 2001. Only after that had been abandoned, in April 2002, does the plaintiff seem to have gone ahead with preparing witness statements. A 2nd application for directions was made in on 10 January 2003. The question of increased fortification was raised in March 2003, when the plaintiff wanted to change the guarantor bank, but no application was made by the defendants and in May 2003 an order was made sanctioning the change. An application was made on 4 July 2003 to set the case down for trial but only after that did the defendants apply for an order for experts, and only after that did they apply for security for costs against the foreign plaintiff. In fact the defendants did not move on their expert's report and the plaintiff had to take out a summons for an unless order in respect of it on 20 January 2004. Also, only on 21 January 2004 did the defendants make a request for further and better particulars of the Statement of Claim.

14. It is difficult to see why the plaintiff did not set the case down for trial earlier but at the same time the defendants do not seem to have acted particularly rapidly on matters such as factual witness statements in reply, expert reports or the request for further and better particulars. All these were matters in their control.

15. What I have not seen is any evidence that the plaintiff is any less good for damages which may be awarded in favour of the defendants if its claim fails than it was when the injunction was ordered and the defendants agreed to fortification by a guarantee for $500,000.00. All I am told is that the case is taking longer to bring to trial than the plaintiff's witness estimated, no doubt on advice. The motive for this application therefore appears to be tactical rather than intended to protect the defendants against loss.

16. As to the plaintiff's cross-application to reduce the guarantee to $100,000.00 this seems at best to be based on the 3rd defendant's evidence that the 1st defendant sold the toolings, the GS/CE certificate for its slicers and some of the components on 21 October 2000. This was known on 19 November 2001. Again if there were any real need for this reduction, one asks why the plaintiff did not insist on it at the time when the guarantor bank was changed. The inference must be that the making of this cross-application now is also a tactical move.

17. I do not therefore see any good reason to disturb the consent order. The defendants' summons dated 12 January 2004 is dismissed with costs (nisi) to the plaintiff in any event. The plaintiff's summons dated 20 January 2004 is dismissed with costs (nisi) to the defendants in any event. I estimate the total time spent at the hearing on the plaintiff's summons at no more than 30 minutes.