TYECE LTD. v. MAX CONCEPT TECHNOLOGY LTD.

HCA 3565/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3565 OF 2002

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J U D G M E N T

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1. The defendant applies to discharge the ex parte order I made on 18 September 2002 on the ground of material non-disclosure of relevant facts.

2. The plaintiff's claims in this action are for infringement of copyright in drawings and infringement of its registered design in respect of its muscle toner.

3. The matter came before me on an ex parte application by the plaintiff's solicitors on 18 September 2002 at about 1 pm on an urgent basis. The evidence in support showed that the defendant had advertised its muscle toners model nos. MC0073 and MC0074 on Global Sources' website on the internet. These were said to be an infringement of the plaintiff's intellectual property rights claimed in this action. On an urgent basis the application was made ex parte. Urgency was justified in paragraph 25 of the 1st affirmation of Mr. Falahati of the plaintiff which stated :

“ As the Defendant's products model nos. MC0073 and MC0074 are being advertised on Global Sources' website they are accessible to users around the world. The Defendant is therefore offering for sale the infringing products to an unquantifiable but large audience and may be obtaining substantial orders for its products which infringe the Plaintiff's copyright and Registered Design. It is my belief that given the unlimited market which the Defendant's infringing products are being exposed to, the Plaintiff is justified in applying for an injunction Ex Parte in order to restrain the Defendant from further infringing the Plaintiff's copyright and Registered Design and assisting others to do the same."

4. There was no notice of the ex parte application given to the defendant who were at that time represented by its present solicitors. It is trite law that ex parte relief should only be applied for in cases of urgency or where it is necessary to keep the proceedings secret at the ex parte stage. There was no question of the latter reason in this case and the only reason for applying for ex parte relief was urgency as set out in paragraph 25 of Mr. Falahati's affirmation.

5. It is pertinent to note what Rogers J. (as he then was) said in Seapower Resources International Limited and others v. Lau Pak Shing and others, HCA No. A10715/1993 at page 9 of his judgment:

“ For an ex parte application for an injunction to be urgent on the grounds of urgency it must be so urgent but you cannot give even five minutes warning to the other side. Here, solicitors were instructed for the Defendants, at least the 1st Defendant. The Plaintiffs' solicitors well knew it."

6. Exhibit PSF-10 to the said affirmation of Mr. Falahati disclosed certain correspondence between the plaintiff's solicitors and the defendant's solicitors. But, on behalf of the defendant, complaint is made that three letters, two dated 12 September 2002 and one dated 17 September 2002, were not disclosed to the court either in the affirmation or at the ex parte hearing. That is not disputed.

7. I consider that the letter of 17 September 2002 from the solicitors for the defendant to be an important letter. The third paragraph of that letter states as follows:

“ With regard to our client's advertisement on Global Sources' website in respect of the Gym Tonic Belt and Gym Tonic Pants, this does not constitute an actionable activity in Hong Kong. However, to avoid further misunderstanding between the parties, and as production of the item has not yet commenced, our client has decided voluntarily to remove the advertisement from Global Sources' website and this will be done as soon as practicable. This is a matter of commercial pragmatism and has no bearing on the merits of your client's claims."

8. This made it plain that on 17 September the defendant through its solicitors agreed to remove the offending advertisements from the internet. That being so, it seems to me that had I been informed of this at the ex parte hearing I have no doubt whatsoever that I would not have granted ex parte relief to the plaintiff without notice to the defendant. It would not have been proper for me to have done so. Ex parte relief would only have been appropriate in this case because of urgency but that urgency was removed by the letter sent by the defendant's solicitors and received by the plaintiff's solicitors on 17 September 2002.

9. Although Ms. Fewins for the plaintiff argued that in the light of subsequent matters the letter was not a material fact to disclose to the Court I have no doubt that it was a highly relevant and material letter to disclose to the Court. Parties and their legal advisers have a stringent duty to make full and frank disclosure of all relevant facts to the Court when applying for ex parte relief. And if they fail to do so they must bear the consequences. What is material is to be decided by the Court and not by the party applying for relief. The Court must be informed of all facts that are relevant to the weighing operation which the Court has to make in deciding whether or not to grant the order. In my judgment it is certainly relevant for the Court to know that the defendant voluntarily agreed to remove the offending advertisements from the internet thereby removing any urgency to justify ex parte relief.

10. Mr. Chow has submitted that the explanation given for the non-disclosure is contained only in the 4th affirmation of Mr. Falahati filed only recently but not in the earlier affirmations. The explanation given is to the effect that the plaintiff's solicitors intended to disclose the said letter at the ex parte hearing but that they omitted to do so. No further evidence is given as to the reason for that omission. Mr. Chow asks me to infer that it was deliberate non-disclosure on the part of the plaintiff's solicitors.

11. I am not however prepared to infer that it was a deliberate non-disclosure on the part of the solicitors. Ms. Fewins submitted that it was an innocent non-disclosure and an omission. I accept that it was an innocent non-disclosure although in my view such omission should not have taken place. The letter was sent at about 6.24 p.m. on 17 September 2002 and the ex parte application was made the following day only at about 1 p.m. on 18 September 2002. There was ample time to have the letter placed before the Court. Be that as it may I am not prepared to infer that it was a deliberate non-disclosure.

12. Mr. Chow also relied on the fact that there was a failure on the part of the plaintiff to disclose at the ex parte stage that the plaintiff already knew by 17 September 2002 that the defendant had been offering for sale its products for US$13.80 per piece which was a price higher than the plaintiff's product at the wholesale price of US$9.0 per piece. This would have undermined Mr. Falahati's evidence in paragraph 24(a) of his 1st affirmation that he believed that the defendant would sell its models at a reduced price to undercut the plaintiff. This was put forward as one of the reasons why the plaintiff would suffer irreparable damage. What was, however, not disclosed at the ex parte stage was the evidence in paragraph 3 of Mr. Falahati's 2nd affirmation that he already knew on 17 September 2002 that the defendant was offering to sell model no. MC0074 at US$13.80 per piece.

13. Ms. Fewins makes the point that model no. MC0074 was in fact the Fitness Pants and the Plaintiff did not sell pants with the muscle toner attached which would be a more expensive item than the muscle toner on a belt which was sold for US$9.0 per piece by the plaintiff and therefore she submitted that it was not material non-disclosure. I disagree. The impression given by paragraph 24(a) of the 1st affirmation of Mr. Falahati at the ex parte stage was to the effect that the plaintiff believed that the defendant would sell both model nos. MC0073 and MC0074 at a reduced price to undercut the plaintiff. What was the basis for this belief if indeed as at 17 September 2002 Mr. Falahati knew that the defendant had offered to sell model no. MC0074 at US$13.80 per piece as set out in paragraph 3 of his 2nd affirmation? It would in my view have been relevant and material for the Court to know that. It would have been a relevant factor in the weighing operation in the consideration of whether or not damages were an adequate remedy. This went directly to the question as to whether or not damages would be an adequate remedy and was in my view a material fact to disclose. There was also a material non-disclosure of this in my view. No explanation has been provided for this failure but I am not prepared to infer that it was a deliberate non-disclosure.

14. I am satisfied that there has been a material non-disclosure in the grant of the ex parte order which justifies the discharge of the ex parte order.

15. As is clear from Brink's Mat Ltd v. Elcombe [1988] 1 WLR 1350 I have a discretion whether to continue the order or to make a new order. Ms. Fewins urges me to grant a new order if I considered that the ex parte order should be discharged. She submitted that on the evidence the defendant was in fact in breach of the ex parte order by putting in new advertisements in the internet on 21 September 2002 which were colourable imitations of the earlier advertisements which they had withdrawn and that the injunction should be re-granted.

16. Mr. Chow relied on Ali & Fahd Shobokshi Group Ltd v. Moneim and others [1989] 2 All ER 404. At page 412 Mervyn Davies J, after citing what Nourse LJ said in Behbehani v. Salem [1989] 2 All ER 143 at 156, said this :

“ So I come to the conclusion that I must consider (a) whether the non-disclosure complained of was innocent; and (b) whether an injunction could properly have been granted if full disclosure had been made to Peter Gibson J.

If (a) and (b) are answered in the affirmative, then the court has a discretion."

So from that one can see that it is only if (a) and (b) are answered in the affirmative then the court has a discretion. In this case I consider that the non-disclosure was innocent but I also consider that the ex parte order could not properly have been granted if full disclosure had been made of the letter of 17 September 2002. There was really no need for urgency after receipt of the said letter and no basis for applying ex parte without notice to the defendant. The court could not properly have granted that injunction on an ex parte basis without notice.

17. Even if I had a discretion to re-grant the injunction I would not be prepared to exercise it in favour of the plaintiff. The duty of full and frank disclosure on an ex parte application is a very important principle. Although the non-disclosure was not deliberate the omission to disclose the letter of 17 September 2002 should not have been made. It has to be remembered that the court's power to discharge an order where there has been a breach of the duty of full and frank disclosure is salutary and it is for the court's protection. It must also be remembered that although there is a discretion to continue the injunction or to grant a fresh injunction the discretion is one to be exercised sparingly.

18. It may be worth repeating what Warrington LJ said in R v. Kensington Income Tax Commissioners, ex parte Princess Edmond de Polignac [1917] 1 KB 486 at page 509 as follows :

“ 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, then 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."

19. I am not persuaded that the discretion ought to be exercised in the plaintiff's favour in this case. It is said on behalf of the plaintiff that the defendant has acted in breach of the ex parte order. However, I accept Mr. Chow's submission that if so, the plaintiff can always proceed by way of contempt proceedings if so advised. I am not persuaded that I ought to exercise the discretion in the plaintiff's favour.

20. In the exercise of my discretion I discharge the ex parte order of 18 September 2002 as varied by Suffiad J. on 27 September 2002 and I refuse to grant a fresh injunction.