COMMISSIONER OF CUSTOMS AND EXCISE v. LO YU SHING t/a HANG LEE TRADING HONG

HCMP 224/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 224 OF 1998

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J U D G M E N T

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1. This is an application by the Applicant, the Commissioner of Customs and Excise, for the forfeiture of a VCD production line pursuant to s.133 of the Copyright Ordinance Cap.528.

2. The production line was seized by the Commissioner in exercise of his powers under s.122(1)(b)(ii) of the Copyright Ordinance as a result of a raid on the premises of Mega Laser Products (HK) Ltd at 5th floor, Tung Sun Plaza, 33 Sheung Heung Road, Kowloon. During the course of that raid a total of 23,703 VCDs were sized, of which 11,949 were later found to be infringing copies of Walt Disney feature length cartoons.

3. Mega Laser Products (HK) Ltd and two of its directors, Hong Teng-pan and Lao Su-san were prosecuted and convicted of three offences in the District Court:

1. Making for sale or hire infringing copies of copyright works contrary to s.118(1)(a) and 119(1) of the Copyright Ordinance.

2. Possession of articles specifically designed or adapted for making copies of a particular copyright work contrary to s.118(4)(d) and s.119(2) of the Copyright Ordinance.

3. Possession of an article used and intended to be used to make infringing copies of any copyright work contrary to s.118(8) and 119(2) of the Copyright Ordinance Cap.528. This latter offence related specifically to the production line.

These convictions were affirmed by the Court of Appeal.

4. The Commissioner of Customs and Excise has served Notice of Seizure of the production line in accordance with the provisions of s.131(2) of the Copyright Ordinance.

5. The Respondent, Lo Yu Shing trading as Hang Lee Trading Hong, has given notice under s.131(5) that he is the owner of the production line and alleges that the production line is not liable to forfeiture.

6. The Respondent, the owner of the production line, is a one third shareholder and a director of Mega Laser Products (HK) Ltd. It has nonetheless been argued by Mr Marash on his behalf that he is blameless of the offences in respect of which Mega Laser Products (HK) Ltd and his co-directors were convicted and that he should therefore be entitled to the return of the production line.

7. There has been no dispute between the parties that the principles applicable in an application such as this were enunciated by Bokhary JA in R v. CEC Finance Ltd [1993] 1 HKC 127. The court has an unfettered discretion to order forfeiture by reference to what is just in all the circumstances found to be proved. The question whether or not to make such an order is to be approached from a neutral starting point with both parties on a level playing field and each with the onus of proving on a balance of probabilities any fact which he asserts if that is not admitted by the opposite party.

8. Mega Laser Products (HK) Ltd had been incorporated on 13 August 1997 with the Respondent of one as one of its 3 directors. Using the business name Hong Lee Trading Hong through which he operated a cloth business the Respondent had bought the production line on 28 August 1997. According to his affirmation he had not purchased the production line in the name of Mega Laser Products (HK) Ltd because it did not have sufficient funds whereas Hong Lee Trading Hong had a credit line with ABN Bank. Since he would not be involved in the day to day management of Mega Laser and had no experience in the production of VCDs, he had decided to lease the production line to Mega Laser at $100,000 per month. He had been given assurances by his fellow directors that the company would only produce lawful copies of VCDs under licence for copyright owners.

9. During the trial of the 3 charges, it was accepted by the trial judge, Judge Christie, that the order which resulted in the production of the infringing copies came from a company in Taiwan and that according to Taiwan law, but not Hong Kong law, copyright in the relevant titles had expired. He found that the 3rd defendant, one of the other directors of Mega Laser had made "quite thorough enquiry" to satisfy himself as to the state of Taiwanese law, but had made no enquiries as to the relevant law in Hong Kong. He found that enquiries which "failed to take into account the law of Hong Kong could never be reasonable" despite what he described as the 3rd defendant's "diligent but misplaced enquiry into the Taiwan position".

10. I am satisfied that the conduct of the Respondent fell far short of that to be expected from someone in such circumstances supplying a production line to be used for the production of VCDs.

11. The possibility that the production line would be used for making infringing copies would have been readily apparent to him. Simply obtaining an oral assurance from fellow directors that no infringing copies would be made was a quite inadequate response to this possibility. It was incumbent on him, not only as supplier of the production line but also as a director and shareholder of Mega Laser to ensure that adequate steps were taken to ensure that no copies which infringe Hong Kong law were produced. The standard to be observed was not that of an ignorant layman but of a prudent businessman conducting business in an area where the law and rights in question were often not readily apparent and might involve the law of more than one country. In my view, it would not in normal circumstances be sufficient to rely upon the word of an hitherto unknown customer as to its rights save in the most exceptional circumstances. It certainly would not be responsible to make no enquiries as to the legal position in Hong Kong.

12. As a result of the default of the Respondent to ensure that proper steps and precautions were taken this production line had produced 11,949 infringing copies within 1 week of starting production on 13 September 1997.

13. Those who provide this sort of equipment without taking effective precautions to ensure that infringing copies are not produced can normally expect to have their equipment forfeited if infringing copies are made and to be left to seek redress for their loss against the person to whom they supplied the equipment.

14. I would have regarded it is just for the production line to be forfeited in this case had it not been for Judge Christie's findings as to the "quite thorough" and "diligent" enquiries pursued on behalf of the company as to the legal position in Taiwan. This was not a case therefore where the company had embarked upon production with total disregard for the rights of others, but rather with a high degree of negligence as to the legal enquiries necessary in order to establish that it was lawful to produce these VCDs.

15. I have been informed that the original cost of this production line was in the region of HK$6m and that the partial dismantling of the machine following its seizure might have resulted in the need for expensive repairs. As a result of these offences the production line has been idle for 2 1/2 years. The defendant company of which the Respondent is a director has been liable to continue to pay rent to house the production line during this period.

16. I am mindful that an important matter for consideration is the likelihood of the property being used for the commission of further offences if a forfeiture order is not made and that a balance should be effected between the requirement to make a forfeiture order so as to prevent further offences and the penal effect on the offender of such an order when considered together with the other penalties imposed and the other financial consequences to the Respondent.

17. The fact that "diligent though misplaced" enquiries were made as to the copyright position in Taiwan is a matter relevant to the likelihood of the property being used for the commission of further offences.

18. In my view, in the unusual circumstances of this case and taking into account the financial consequences of seizure, justice would be served by making an order that would stress the importance the court lays on the obligation not to permit machinery to be used for the production of infringing copies but falling short of outright forfeiture.

19. I order that the machinery be delivered to the Respondent conditional upon the payment by the Respondent to the Commissioner of Customs and Excise of the sum of $200,000. I order that the costs of this application be paid by the Respondent to the Applicant.