MGA ENTERTAINMENT INC. v. TOYS & TRENDS (HONG KONG) LTD AND OTHERS

HCA2152/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2152 OF 2002

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BETWEEN

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J U D G M E N T

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1.  There is before me a summons for stay of execution pending appeal. The judgment execution of which is sought to be stayed is that of Deputy Judge Seagroatt given on 19 May 2011 and amended on 15 July 2011. As amended, it required the Plaintiff to pay the Defendants the sum of US$7.25 million together with interest.

2.  An order for payment out to the Defendants of the sum of about HK$1.8 million previously paid into court by the Plaintiff has already been effected on 27 May 2011 in partial satisfaction of the judgment.  The present application relates therefore to the balance of the sums payable by the Plaintiff to the Defendants under the judgment.

3.  The judgment was the result of the determination of the Defendants’ application for inquiry as to damages on the undertaking of the Plaintiff as to damages.  The undertaking was given by the Plaintiff in November 2002 when it obtained, by consent, an injunction restraining dealing in dolls with certain facial features, an interim order for the delivery up of a number of items, including moulds for the dolls manufactured by the Defendants, and an order for the Defendants to file an affirmation setting forth information about customers, purchase orders and suppliers.

4.  The background to the litigation and the reasons for its decision are set out in detail in the learned judge’s judgment and need not be repeated here.  Suffice it for me to say that the Plaintiff was the manufacturer of a line of fashion dolls called the ‘Bratz Dolls’ together with their accessories.  In early 2002, the Defendants began to market their competing range of dolls known as ‘Funky Tweenz’.  Contending that the Defendants had copied the Bratz dolls, the Plaintiff commenced an action against the Defendants in Hong Kong on 5 June 2002 for, inter alia, breach of copyright. 

5.  The interlocutory injunction that I have referred to above was, by consent, obtained by the Plaintiff on 11 November 2002 against the Plaintiff’s cross-undertaking in damages. 

6.  After some five and a half years, shortly before the trial was finally about to begin in March 2008, the Plaintiff applied to adjourn it and vacate the trial dates.  That application was rejected.  Having failed in obtaining an adjournment, the Plaintiff applied to discontinue the action altogether.  The interlocutory injunction inevitably had to be discharged and it was ordered, effectively by consent, that there should be an inquiry as to damages upon the Plaintiff’s undertaking.  This inquiry was in turn tried in May 2011 for five days before Deputy Judge Seagroatt who gave the judgment in question on 19 May.

7.  The principles governing an application for stay of execution are not in dispute.  In submitting that there are good reasons for stay to be ordered in this case, Mr Yan for the Plaintiff submits, first, that there is a strong likelihood that the appeal would succeed and, secondly, that the appeal would be rendered nugatory if a stay of execution is not ordered.

8.  As regards the merits of the Plaintiff’s appeal, the main ground of appeal relied upon is that the judge failed to draw a distinction between loss which is caused by the injunction and loss caused by the litigation itself and that had he drawn that distinction and applied the principles correctly, he would have concluded, on the evidence before him, that the loss of orders suffered by the Defendants was the result of the litigation, or threat of litigation, or steps taken by the Plaintiff in relation to third party customers, and not by the injunction.

9.  I have considered Mr Yan’s submissions carefully and I am prepared to accept the appeal is clearly arguable but I am not convinced that there is a sufficiently strong likelihood of his being able to show an error which would result in the damages being reduced to the sum paid into court and paid out to the Defendants.

10.  The learned judge had in mind the applicable principles, heard evidence and submissions over five days and came to certain conclusions on causation which are matters of fact.  I also bear in mind that, on such an inquiry, damages are to be liberally assessed.  As I said, despite Mr Yan’s able submissions, I am unable to conclude there is such strong likelihood of success on the appeal that a stay should be granted on that ground alone.

11.  The other ground of appeal mentioned in the affirmations and the skeleton relates to a letter from Antunes Enterprises dated April 2008.  Mr Yan placed little reliance on it in his oral submissions and I am not particularly impressed by this ground either.

12.  In these circumstances, I say no more about the merits of the appeal. 

13.  I am therefore prepared to proceed on the basis there is an arguable ground of appeal which, if successful, would lead to a reduction in the quantum of the damages payable.  That alone, however, is not sufficient for obtaining a stay of execution of the judgment. As Order 59 rule 13 makes clear, the existence of an appeal does not operate as a stay of execution, nor does the existence of arguable grounds in itself justify a stay.

14.  This brings me to the Plaintiff’s second ground for the application.  In contending that the appeal would be rendered nugatory if a stay of execution was not ordered, the Plaintiff essentially submits that there is a real risk that the Plaintiff would not be able to recover the judgment sum in the event it succeeds on appeal if the sum is now paid to the Defendants.  The Plaintiff refers to the audited financial statements of the 1st Defendant for the year ended 31 March 2007, which show that it was dormant and had no turnover.  It is also not in dispute that all the operations of the 2nd Defendant were, in July 2002, transferred to a separate company set up by the 3rd Defendant and his associate.  The 3rd Defendant is an individual resident in Hong Kong who made these arrangements.

15.  On this basis, I accept there is an appreciable risk shown and a legitimate fear that the Plaintiff would not be able to recover the money paid.  However, this does not warrant an outright stay of execution as opposed to the imposition of some measure which would protect the Plaintiff against that risk.

16.  I also bear in mind the delay in this matter since the injunction was first granted and the fact that the Defendants, who are the successful parties, are facing a judgment debtor who is resident outside the jurisdiction. 

17.  In these circumstances, I am prepared to grant a stay of execution pending appeal only on condition that the Plaintiff pay into court the entire judgment sum together with interest up to date, which sum would be placed in an interest bearing account, and I so order.

(Submissions on condition and costs)

18.  So far as the condition is concerned, I am prepared to order that the condition be either payment into court of the sum I have mentioned, or the provision of a bank guarantee in a form acceptable to the Defendants, within 28 days, such consent not to be unreasonably withheld.

19.  As regards costs, I order that the costs of the application up to the date of the Defendants’ offer in August 2011 be costs in the appeal and that, thereafter, the Defendants have the costs of the application on a party and party basis, to be taxed if not agreed.