XCHRX THE COMMISSIONER OF CUSTOMS AND EXCISE v. KING REGENT TECHNOLOGY LTD. AND ANOTHER

DCMP No. 782 of 1999

Headnote

Copyright Ordinance, Cap. 528 - Forfeiture proceedings - VCD replicating machines - Seized and detained - Liable to forfeiture - Interim relief - District Court - Jurisdiction - Legal principle - Public interest and private interests - Matters to be considered.

DCMP No. 782 of 1999

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 782 OF 1999

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Judgment

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Background

1. On 30 April 1998, the Customs Officers with a search warrant entered and searched the premises in Morlite Building, in Hung To Road, Kwun Tong and found 5 VCD replicating machines, 4 of which were in the course of producing suspected infringing copies of video compact disc (VCD), and a large amount of suspected copyright infringing copies of VCD. On 11 May 1998, the Commissioner of Customs and Excise, the Applicant in these proceedings, made a formal decision, as evidenced by the Receipts for Things Detained or Seized, to seize and detain, among other things, the 4 VCD replicating machines which were found operating at the time of the raid, under section 122(1)(b)(ii) of the Copyright Ordinance Cap 528. The 1st Respondent (R1) and the 2nd Respondent (R2) of these proceedings on 29 May 1998 and 2 June 1998 respectively gave notices to the Applicant under section 131 claiming that all the articles seized, including in particular the 4 VCD replicating machines, were not liable to forfeiture. In accordance with section 133, on 19 April 1999, the Applicant commenced these forfeiture proceedings in respect of all the things seized and detained by him.

2. Meanwhile, criminal proceedings were brought against 6 accused including R1 and its director Mr. Chau Yat Kwai in connection with the seized things. The criminal trial is scheduled to take place on 30 August 1999 in the District Court which is expected to take a month. It was also decided by the trial court that the forfeiture application would be heard immediately following the criminal proceedings.

Present Application

3. On 26 May 1999, R1 and R2 took out the present summons in these forfeiture proceedings seeking interim relief that they be permitted in the meantime to have access and use of the 4 VCD replicating machines for their lawful business and purpose. To support this application, both R1 and R2 are prepared to give undertakings to the court which have the effect of ensuring that

Lawful seizure and forfeiture

4. There is no dispute at this hearing that all the seized thing were seized and detained lawfully under section 122. The legal effect of it is that all these things are liable to forfeiture under section 131(1) and the court may, under section 131(12), order that these things

Jurisdiction

5. The interim relief sought by the Respondents would mean that pending the outcome of the forfeiture proceedings, they could be allowed in the meantime to have access to and make use of the things that have been lawfully seized and are liable to forfeiture. Both parties agree that the court has jurisdiction to grant such interim relief. In the High Court, such jurisdiction was exercised by the Court of First Instance in Best Talent International Investment Ltd. and others v Commissioner of Customs and Excise HCAL97 of 1997 and in The Commissioner of Customs and Excise v Golden Science Technology Ltd. and others HCMP6968 of 1998. The decision in the latter case was upheld by the Court of Appeal. It is also agreed that the District Court should have similar jurisdiction by virtue of section 48 of the District Court Ordinance Cap 336.

Grounds of Application

6. The case of the Respondents, as put by the learned Senior Counsel, can be summarized into 4 grounds. First, the fundamental "right of private ownership of property" and the constitutional protection of the "use" and "disposal" of such property are enshrined by the Basic Law Articles 38, 39 and 105; the Hong Kong Bills of Rights Ordinance, Articles 10 and 11, the International Covenant or Civil and Political Rights Article 14 and the European Convection on Human Rights : Protocol No. 1 Article 1.

7. Secondly, there must be a lapse of time between the time of seizure and the final determination of the forfeiture proceedings and therefore there will be a deprivation of "use" for such time which will usually be long.

8. Thirdly, this long lapse of time will cause financial hardship, if not disaster. In this case the total purchase price of the 4 VCD replicating machines was DM8,220,000. The agent of the manufacturer, Balzers and Leybold China Ltd., confirmed that damage could be caused to the machines if they remained idle without proper maintenance and were not kept in an ideal working environment. During this period of time, it is said that rent of $950,000 is accrued every month.

9. Fourthly, the undertakings to be given by the Respondents are sufficient to satisfy the need for which the machines were seized in preserving the evidence for the criminal and forfeiture proceedings and in preventing the recurrence of any copyright offences.

Objection of the Commissioner of Customs and Excise

10. The objection is twofold. First, he has a strong mistrust of the two Respondents who appear to him to be shelf companies and nominees. R2 is the lessee of the premises and owner of the machines. It leased them to R1, according to the lease, at a monthly rent of $500,000 (not $950,000 as their lawyers stated it). R2 only paid $28,000 per month to the landlord of the premises. The machines were purchased with a downpayment of DM639,000 and, for the balance, a loan of DM7,581,000 from a Rainbow Rich Industrial Ltd. R1 which carried out the production of VCD is simply a shelf company without any assets.

11. Perhaps I should deal with this objection here. Although the arrangement savours of contrivance to some extent, I believe that under the watchful eyes of the Customs Officers they may only intend to carry out lawful business in order to make some profit for the time being irrespective of the final outcomes of the criminal and forfeiture proceedings. The only question is whether there is any justification, at the expenses of the Customs Officers, to allow them to do so.

12. The second objection is more fundamental. The view of the Customs Officers have always been that the "use of the machines is incompatible with their seized status". The learned counsel for the Applicant has put this view in a more professional way. He submits that the Copyright Ordinance Cap. 528, as far as that part which deals with the present situation is concerned, is meant to be a tough piece of legislation aiming at combating the prevalent piracy. The device of seizure and detention to be followed by forfeiture proceedings should have and should be given such efficacy of deterrence to its full effect as intended by the legislature.

13. In reply, the learned Senior Counsel for the Respondents draws my attention to the draconian effect of section 190 which gives the Applicant immunity from liability for loss or damage caused by his actions and the common law principle of no expropriation without compensation. He also submits, relying on R v CEC Finance Ltd. [1993] 1 HKC 127, that there should be no predisposition to forfeit those 4 VCD replicating machines as all parties of the forfeiture proceedings should proceed on an "equal footing" on "a level playing field".

14. On this dispute, I am of the opinion that the drastic effect of the provisions regarding forfeiture in the Copyright Ordinance Cap. 528 is expressly intended by the legislature and there is no challenge of their validity at this hearing. In my judgment I do not see any conflicts between giving effect to the spirit of such provisions and taking the approach as laid down in the CEC Finance Ltd.'s case.

Legal Principle

15. In the Best Tatent's case which is concerned with the issue whether the VCD replicating machines should be seized in situ or by dismantling and removal, by reference to the principle of "balancing the public interest and the interests of the applicants", Findlay J. quashed the decision of the Commissioner of Customs and Excise to adopt the latter course and at the same time allowed the claimants to use the equipment for the lawful purposes of their business. This principle was expressly applied by Deputy Judge A Chung, as he then was, in the Golden Science's case which is almost on all fours with the present case. The decision in favour of the Respondents was upheld by the Court of Appeal which has not delivered its full judgment as yet. However counsel on both sides seem to be in agreement that the same legal principle applies to this case.

Public Interest v Private Interests

16. These competing interests have been set out earlier in the grounds of application and objection and canvassed thoroughly by both counsel. I need only here to deal with the 4 grounds of the application which I believe must have been advanced in the same fashion in the Golden Science's case. It would not be difficult to imagine that they would soon become stereotyped grounds because they invariably exist in every case of this nature.

17. On these individual grounds except the undertakings which had already been dealt with, I make the following observations. First, constitutional rights are protected in accordance with law and subject to restrictions which are provided by law. This application is made on the basis that the seizure and detention are lawful. Secondly it is true that it has been 16 months since the time of raid in April 1998 at this hearing in July 1999. Despite complaint against the Applicant for delay in taking out the forfeiture proceedings, the granting of the interim relief could not be for the purpose of making up for the lost time. It should be for the period from the present to the final determination of the forfeiture proceedings. The trial will take place in a month's time, on 30 August 1999, to be followed by the forfeiture proceedings. The waiting time from now could not be too long. There is no evidence on which I can predict that the criminal trial would be adjourned sine die, as suggested by the Respondents.

18. The third ground appears to be the major ground. The VCD replicating machines are usually very expensive and the investment in this kind of business must be enormous. In this case the investment was over DM8 million. This is no doubt a very essential factor to be taken into account. However this factor should not be given more weight than it deserves, given the fact that every similar application involves such expensive machines. If interim relief was granted mainly on such basis, this would make the power of seizure and detention nugatory and would be against the spirit of the legislation. Regarding the rent, I find that the real rent is only $28,000 per month. The so-called rent of $500,000 is only an arrangement between two related companies which I shall deal with later.

Merits

19. Having said that, I must emphasize that those four grounds deserve careful and serious consideration in the balancing exercise between the public interest and the private interests. However in this context there is an argument between the parties on what matters should be considered. On the one hand, learned counsel for the Applicant invites me to scrutinize the merits of the substantive case between the parties. On the other hand, learned Senior Counsel submits that I should take great care to avoid pre-judging the outcome of the forfeiture proceedings. In my judgment I should do both for these reasons. It is obvious that I should not judge any matters that are not before me. However it would be an unrealistic approach to consider this interim relief in vacuum and not within the framework of the forfeiture proceedings from which it arises. I should however consider only the quantity and quality of the evidence of those matters which are relevant to the forfeiture proceedings. They are copyright and innocent party.

Copyright

20. At the raid, 1,659,223 VCD were seized which involved 254 titles of films. After enquiry, copyright owners of 214 titles could not be traced and 1,205,869 VCD were returned to the Respondent. Customs Officers presently seized and detained 453,277 VCD containing 40 titles which are subject matters of the criminal and forfeiture proceedings. Out of these 40 titles, 38 representatives of the copyright owners have come forwards to assert their rights. Mei Ah (HK) Ltd. is licensee of the title "Let's Go Slam Dunk" and Shaw Brothers (HK) Ltd. is licensee of the title "Look Out Officer". These two titles were found to be in the course of production at the time of the raid.

21. Opportunity has been given to R1 to produce its authorizations for the lawful production of the titles seized. A large number of documents were produced but all R1 can prove is that World Video Supply Incorporated (World Video) gave authorizations to Venus Laserdisc &Video Distribution Co. Ltd. (Venus) which in turn authorized R1 for the production. However the authorizations of World Video clearly show that it is only "licensee for the United States" and not for Hong Kong. Venus and its director Mr. Ng Ping Kit have also been charged with R1 and Mr. Chau Yuet Kwai in the criminal proceedings.

Innocent party

22. In the forfeiture proceeding, the court is given two further options which are apparently for alleviating the harshness of forfeiture and for the benefit of any innocent parties. Innocent party may be an unwitting owner of a vehicle which had been used by someone without his authority or knowledge to smuggle contraband or a hire purchase financial company which has no control over the use of such vehicle sold under a hire purchase agreement.

23. R1 is clearly implicated, to use a neutral word, in the copyright offences. Is R2 an innocent party? Mr. Chau Yuet Kwai and Mr. Ho chun Kong are shareholders of R1. Mr. Chau is always the director and Mr. Ho was director up to 18 February 1998. Both Mr. Chau and Mr. Ho are also shareholders of R2. They had been directors of R2 for 3 weeks. Since R1 and R2 are related companies with a common interest in the VCD production, they should be treated alike in this application.

Conclusion

24. Having considered the case as a whole, the public interest and the private interests of the parties in particular, I refuse the application of the Respondents.

Costs

25. Costs should follow the event. The Respondents should bear the costs of the Applicant for this application, to be taxed if not agreed.

26. Certificate for counsel.

27. This is an order nisi which shall become absolute after 14 days.

28. I should thank both learned counsel for their helpful and thorough submissions.