DURACELL U.S. OPERATIONS, INC. v. MATSUSHIMA ELECTRIC (H.K) CO LTD AND OTHERS

HCA 1474/2017

[2018] HKCFI 347

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1474 OF 2017

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DECISION

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THE APPLICATIONS

1.  There are three Summonses before me:

(1)   the Defendants’ Summons filed on 8 November 2017 under Order 2, rule 4 and Order 3, rule 5 of the Rules of the High Court (“RHC”) for leave to file their Acknowledgments of Service (the “November Summons”);

(2)   the Plaintiff’s Summons filed on 9 November 2017 for judgment against the Defendants in default of filing the Acknowledgements of Service and the Defence, and for interim payment (the “Default Judgment Summons”); and

(3)   the Defendants’ Summons filed on 1 December 2017 for extension of time to file their Defence in the event that leave is granted for the filing of the Acknowledgments of Service pursuant to the November Summons (the “Time Summons for Defence”). 

2.  The Defendants took out the November Summons as they had failed to comply with an unless order given by Master K Lo on 18 October 2017 in the following terms (the “Unless Order”):

“ 1. Unless the 1st, 2nd, and 3rd Defendants do file their Acknowledgments of Service indicating whether they intend to defend the proceedings or not on or before 4:00 p.m. on 25 October 2017, they are debarred from doing so; ….”

3.  By the Default Judgment Summons, the Plaintiff sought to enter judgment against the Defendants as they have failed to file their Acknowledgments of Service and thus not able to file a Defence.  

BACKGROUND

4.  The Plaintiff is the owner of certain trade marks including the DURACELL mark which have been used on battery products and their packaging marketed and sold by the Plaintiff and its predecessors in Hong Kong.

5.  The Plaintiff alleges that as a result of raids conducted in Turkey in late 2016, the Plaintiff identified the 1^st Defendant as a supplier of DURACELL batteries that had been re-packaged in counterfeit packaging.  The 2^nd Defendant is the registered owner of the website that promotes the batteries repackaged by the 1^st Defendant.  The 3^rd Defendant is the managing director and major shareholder of the 1^st Defendant.  The Plaintiffalleges that the Defendants are jointly and severally liable for the infringing acts set out in the Statement of Claim.  

6.  Further to the raids in Turkey, the Plaintiff engaged investigators to look into the activity of the Defendants regarding DURACELL batteries.  Following the investigation, the Plaintiff filed a Writ with a general indorsement of claims on 21 June 2017 against the 1^st Defendant, the 2^ndDefendant and Joey Cheung, who is the son of the 3^rd Defendant .  

7.  The Plaintiff also obtained and executed an Anton Pillar Order to search the premises of the Defendants, seizing items relevant to the claims. An interim injunction was also obtained against the 1^st Defendant, the 2^nd Defendant and Joey Cheung.  

8.  By an order dated 29 June 2017, Joey Cheung was replaced bythe 3^rd Defendant as a party in this action.  The Amended Writ of Summons was served on the Defendants on 30 June 2017. 

9.  On 13 July 2017, the Defendants applied for extension of time to file Acknowledgment of Service within 28 days after the date of filing and service of the Statement of Claim.  However, the Court only gave time until 17 August 2017 to file Acknowledgment of Service. 

10.  The Defendants failed to file their Acknowledgments of Service by 17 August 2017.  

11.  On 28 September 2017, the Plaintiff filed and served the Statement of Claim.  

12.  On 3 October 2017, the Plaintiff applied for an order requiring the Defendants to file Acknowledgment of Service within 5 days from the order, failing which the Plaintiff be entitled to proceed with its application for summary judgment.  The application was fixed to be heard before Master K Lo on 18 October 2017. 

13.  On 16 October 2017, the Defendants applied for extension of time to file their Acknowledgment of Service within 28 days of order (that was until 15 November 2017).  The application was also fixed before Master K Lo on 18 October 2017. 

14.  On 18 October 2017, Master K Lo made the Unless Order for the filing of Acknowledgments of Service by 4 pm on 25 October 2017. 

15.  On 25 October 2017, instead of filing the Acknowledgment of Service, the Defendants applied for leave to file and serve the Defence. 

16.  On 1 November 2017, the Defendants’ summons was dismissed.  Clearly, the application was misconceived as the Defendants had been debarred from filing the Acknowledgment of Service on 25 October 2017 and thus they were not able to file a defence. 

17.  On 8 November 2017, the Defendants took out the November Summons.  There is a dispute as to whether this is a proper application for relief or whether this is merely an extension of time application.

18.  On 9 November 2017, the Plaintiff took out the Default Judgment Summons. 

19.  On 1 December 2017, the Defendants took out the Time Summons for Defence. 

ISSUES

20.  The Plaintiff challenged that the November Summons was not a proper one seeking relief.  Since the automatic sanction (namely the Defendants were debarred from filing the Acknowledgment of Service) had automatically kicked in upon the non-compliance of the Unless Order, the only recourse for the Defendants was to apply for relief from sanction and not by seeking an extension of time.  The Plaintiff argued that since the November Summons did not seek relief from sanction, the Court had no jurisdiction to entertain the November Summons. 

21.  Both sides agreed that if I refused to grant relief, the Time Summons for Defence would also fail.  In that case, I should proceed to deal with the Default Judgment Summons. 

22.  On the other hand, if I were to grant relief to the Defendants, I should also allow time for the Defendants to file their Defence. In that case, I should dismiss the Default Judgment Summons. 

23.  Accordingly, the issues before me are as follows:

(1)   whether the November Summons is a proper one for relief;

(2)   whether relief from sanction should be given to the Defendants to enable them to file their Acknowledgments of Service; and

(3)   depending on whether or not I grant relief, whether I should grant default judgment and make an order for interim payment in the terms submitted by the Plaintiff. 

WHETHER THE NOVEMBER SUMMONS IS AN APPLICATION FOR RELIEF FROM SANCTION

24.  I do not think there is any dispute between the parties as to the automatic effect of the sanction imposed in an unless order as discussed in the case of Lee Sai Nam v Li Shu Chung (unreported, HCA 1711/2009, 31 May 2013, DHCJ Marlene Ng, at paras 69 – 72) and Daimler AG v Leiduck [2012] 3 HKLRD 119.  The position can be summarized as follows.  

25.  The sanction imposed in any unless order takes effect automatically upon a party’s default in compliance.  There is no need for the non-defaulting party to apply to enforce the sanction.  In this case, upon the Defendants’ failure to file their Acknowledgments of Service by 4 pm on 25 October 2017, the sanction kicked in automatically debarring the Defendants from filing Acknowledgment of Service.  Accordingly, the Court will not entertain an application just for an extension of time as the Defendants are no longer entitled to file Acknowledgment of Service.  

26.  The proper way is to apply for relief from sanction under Order 2, rule 4, RHC.  This is sometime misunderstood by practitioners and thus DHCJ Marlene Ng described it as a procedural tripwire for the unwary[1].  

27.  In the present case, the November Summons seeks an order:

“ 1. Whereas paragraph 1 of the Order made by Master K. Lo dated 18^th October 2017 provided that the Defendants be debarred from filing the Acknowledgment of Service indicating whether they intend to defend the proceedings or not unless the Acknowledgment of Service was filed by 4:00 pm on 25^th October 2017, the Defendants do have leave to file and serve the Acknowledgment of Service for complying with the said Court Order dated 18^th October 2017 within 7 days from the date of this Order to be made;”

28.  Mr Pun submitted that the Defendants had failed to seek relief from sanction.  Rather they were merely seeking an extension of time to file Acknowledgment of Service.  

29.  Mr Yan submitted that the terms of the November Summons was clearly seeking relief from sanction.  In any event, where it is tolerably clear about the substance of the application, the Court can treat the application as one seeking relief and the shortcoming of the drafting can be dealt with when the issue of costs is to be considered (see Daimler AG v Leiduck [2012] 3 HKLRD 119, Fok JA (as he then was) at paras 49 – 53).

30.  In the Daimler case, the plaintiff failed to comply with an unless order to answer the interrogatories by the deadline. Pursuant to the unless order, the plaintiff’s points of defence was struck out.  Instead of seeking relief for the reinstatement of the defence and for time to answer the interrogatories, the plaintiff only applied for an extension of time.  Despite the problems with the wording of the application, the Court of Appeal decided to treat the application as one for relief to reinstate the defence as it was tolerably clear that the substance of the application was to permit the plaintiff to continue to contest the allegation of fraud raised by the defendant against them. 

31.  Mr Pun submitted that in addition to setting out the Unless Order in full and seeking an extension of time, the summons should also make clear that relief was being sought from the sanction imposed under the Unless Order. 

32.  Although there is room for improvement in the drafting of the November Summons, it is reasonably clear that the Defendants have made an appropriate application for relief in the present case:

(1)   It was expressly stated in the November Summons that the Defendants relied on Order 2, rule 4, RHC (relief from sanction),Order 3, rule 5, RHC (for time) and inherent jurisdiction of the Court. 

(2)   The sanction imposed was to debar the filing of the Acknowledgment of Service.  There was nothing to be reinstated as in the Daimler case.  The relief would be to lift the bar or simply to seek permission to file the Acknowledgment of Service.  In the November Summons, the Defendants specifically referred to the Unless Order and sought leave to file their Acknowledgments of Service within 7 days.  Although the word “relief” was not used, it was reasonably clear that the Defendants were seeking relief by applying for leave to file the Acknowledgment of Service.  This case is very far from the shortcoming in the drafting that we have seen in the Daimler case. 

33.  I also note that there was no misunderstanding by the Plaintiff that this was a relief application as they had acknowledged it to be so in the skeleton arguments filed in the two previous hearings of the November Summons on 28 November 2017 and 12 December 2017. 

34.  In any event, it is clear to me that by the November Summons, the Defendants are seeking relief from the sanction and I am prepared to treat this to be so.  

35.  In the premises, I find that the November Summons is a proper application for relief from sanction under the Unless Order.  

WHETHER RELIEF SHOULD BE GRANTED

Factors to be considered in granting relief

36.  Under Order 2, rule 5, RHC, in considering whether to grant relief from sanction for failure to comply with a court order, the Court shall consider all the circumstances of the case, including the following factors:

(a)   the interests of the administration of justice;

(b)   whether the application for relief has been made promptly;

(c)   whether the failure to comply was intentional;

(d)   whether there is a good explanation for the failure to comply;

(e)   the extent to which the party in default has complied with other rules and court orders;

(f)   whether the failure to comply was caused by the party in default or his legal representative;

(g)   in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h)   whether the trial date or the likely trial date can still be met if relief is granted;

(i)   the effect which the failure to comply had on each party; and

(j)   the effect which the granting of relief would have on each party. 

37.  The Court is not restricted to the above list. In each case, the Court has to weigh up the relevant factors and consider their relative strength in the exercise of its discretion.  Furthermore, the Defendants carry the burden to show by evidence why relief should be granted. 

38.  I shall deal with the relevant factors below. 

(a)   the interests of the administration of justice

39.  Order 1A, rule 2, RHC provides that in exercising its power (which would include the power under Order 2, rule 5), the Court shall seek to give effect to the underlying objectives in Order 1A and the Court shall always recognize that the primary aim in exercising its power is to secure the just resolution of disputes in accordance with the substantive rights of the parties. 

40.  One of the main issues of contention at the hearing was whether in the case where the defendant has an arguable defence, the Court should take that into account in considering whether relief should be granted. 

41.  The Defendants submitted that the Court should take into account that they had at least an arguable defence and thus it was clearly in the interests of the administration of justice that relief from sanction should be granted so that there can be due, proper and just resolution of the disputes between the parties.  The Defendants relied on  Far East Sourcing Ltd v Man Bond International Ltd & Anor (unreported, HCA 1463/2012, 29 April 2015) where Sakhrani J granted relief to the defendant whose defence was struck out as a result of the non-compliance of an unless order.  The learned judge said at para 58:

“ 58. If relief is not granted to D2 then the judgment that has been entered against him would be effective. D2 would be deprived of defending the plaintiff’s claims against him. It seems to me that he has at least an arguable defence as to whether or not he was ever a contracting party and whether or not he ever gave a personal guarantee as alleged or at all. In the interests of justice, there should be a trial on the merits. The prejudice to the plaintiff by granting relief to D2 can to a large extent be compensated by an appropriate order for costs in its favour. And as I have said, the solicitors for D2 were prepared to pay those costs themselves.”

42.  The Plaintiff relied on the Supreme Court decision in Global Torch Ltd v Apex Global Management Ltd & Ors (No 2) [2014] 1 WLR 4495 for the proposition that on case management issues, the Court should not look at the merits at all, unless the party in default has such an “unanswerabledefence” that would entitle him to summary judgment.  Even a “substantivedefence” or a “very strong defence on the merits” would not justify the Court considering the merits.  Lord Neuberger said in paras 29 – 31:

“ The strength of the Prince’s defence

28. Mr Fenwick also relied on the fact that the Prince’s contention in his pleaded case that he had already paid the $6m was very strong, that this should have been taken into account by the courts below, and should have resulted in his being permitted to defend the claims against him. Presumably, this would be on the basis that some other unspecified sanction should be imposed on the Prince. Some of the evidence relied on to justify this contention came into existence after the Court of Appeal gave its decision, but I am prepared to assume, without deciding, that it can be taken into account.

29. In my view, the strength of a party’s case on the ultimate merits of the proceedings is generally irrelevant when it comes to case management issues of the sort which were the subject matter of the decisions of Vos, Norris and Mann JJ in these proceedings. The one possible exception could be where a party has a case whose strength would entitle him to summary judgment. Both the general rule and the exception appeared to be common ground between the parties, although Mr Fenwick seemed to be inclined at one stage to suggest that the exception might be a little wider. In my view, the general rule is justifiable on both principled and practical grounds.

30. A trial involves directions and case management decisions, and it is hard to see why the strength of either party’s case should, at least normally, affect the nature or the enforcement of those directions and decisions. While it may be a different way of making the same point, it is also hard to identify quite how a court,when giving directions or imposing a sanction, could satisfactorily take into account the ultimate prospects of success in a principled way. Further, it would be thoroughly undesirable if, every time thecourt was considering the imposition or enforcement of a sanction,it could be faced with the exercise of assessing the strength of theparties’ respective cases: it would lead to such applications costingmuch more and taking up much more court time than they already do. It would thus be inherently undesirable and contrary to the aim of the Woolf and Jackson reforms.

31. In principle, where a person has a strong enough case to obtain summary judgment, he is not normally susceptible to the argument that he must face a trial.  And, in practical terms, the riskinvolved in considering the ultimate merits would be much reduced: the merits would be relevant in relatively few cases, and, in those cases, unless the court could be quickly persuaded that the outcome was clear, it would refuse to consider the merits.  Accordingly, there is force in the argument that a party who has a strong enough case to obtain summary judgment should, as an exception to the general rule, be entitled to rely on that fact in relation to case management decisions.  For present purposes, I am prepared to assume in the Prince’s favour that that is indeed correct.”

43.  Mr Yan submitted that the Plaintiff had misinterpreted the case which did not support its proposition.  The passages quoted above were dealing with the specific circumstances of that case which was very different from this case.  The Supreme Court did not say that the Court should not look at whether the defendant had an arguable defence. 

44.  In the Global Torch case, a Prince of Saudi Arabia was given an unless order to sign a statement of truth on a disclosure statement.  The Prince refused to comply with the unless order for the alleged reason that there was a Saudi Arabia protocol forbidding him, as a member of the royal family, to become personally involved in litigation or sign court documents.  The Prince sought relief that he should not be compelled to sign statement of truth personally and instead his solicitor should sign the statement on his behalf.  The Supreme Court (with Lord Clarke dissenting) dismissed the appeal by the Prince for relief.  

45.  In that case, the Prince was not seeking time to comply with an order but rather the privilege of not complying with a standard and simple order which required not only him but also the other party to exchange signed disclosure statement.  In that case, the disclosure given by the Prince’s solicitors was self-evidently defective.  The Supreme Court did not consider it fair to grant the exemption sought by the Prince. 

46.  Further, it was the Prince who argued that since he had a strong case, the Court should exempt him from signing the disclosure statement personally so that he could pursue his case to trial. 

47.  In paragraph 29 of the decision, Lord Neuberger said that “the strength of a party’s case on the ultimate merits of the proceedings is generally irrelevant when it comes to case management issues of the sort which were the subject matter of the decisions of Vos, Norris and Mann JJ in these proceedings.”  The sort of case management issues before the First Instance Court was not about whether to grant time to comply.  Rather it was whether the Prince should have the privilege in getting an exemption from signing the statement of truth.  In affirming Vos J’s direction requiring personal signing of disclosure statements by the parties, Lord Neuberger said this in paragraph 15:

“ 15. Given the very serious and bitterly disputed allegations and counter-allegations in the proceedings, the doubts as to the existence, status and reach of the alleged protocol and the fact that all other parties were being required to sign disclosure statements personally (and it was not suggested by anyone to Vos J that all the parties should have the same indulgence as the Prince), it is very difficult to see how Vos J’s conclusion could be faulted; it appears to me to have been well within the generous margin accorded to case management decisions of first instance judges.”

And in relation to Norris J’s decision, Lord Neuberger went on to say in paragraph 17:

“ 17. Norris J then rejected the Prince’s proposal, saying at para 13 that, if that suggestion was adopted ‘there is a real risk that the overall fairness of the proceedings will be jeopardised. Everyoneelse will have to put their cards on the table. The Prince will dealthrough an agent’. He explained that this would be unfair because

‘everyone else will be exposed to criticism and have their credibility attacked if they are shown to have concealed some relevant account, relevant device, or relevant communication.  But, the Prince says that he should be exempt from that criticism       .’”

48.  One can see why Lord Neuberger took the view that the strength of the merits of a party’s case was generally irrelevant to case management issue of that sort, where to allow the Prince’s application for relief would not only give the Prince privilege, it would also be unfair to the other party.  There was a real risk that the overall fairness of the proceedings would be jeopardized. 

49.  It was not difficult to understand in the context of that case why Lord Neuberger talked about the exception in paragraph 29 where a party had a case whose strength would entitle him to summary judgment.  If the Prince could show that not only he had a strong case, but it was so strong that would entitle him to summary judgment without a trial, it would be unfair not to allow him to defend despite the failure to sign the disclosure statement. 

50.  I do not read that case to say that in considering whether to grant relief from sanction, the merits of the case are irrelevant.  

51.  Quite the contrary, in the Daimler AG case, Fok JA (as he then was) said in para 57 that:

“ 57. In our view, a weighty factor in the weighing exercise to beundertaken by the Court on a fresh exercise of the discretion is the question of proportionality of the sanction in the circumstances of this case.”

And in para 58:

“ It is not in the interests of the administration of justice that serious findings go by way of default against a party, especially since, pursuant to O.1 r.2(2), the Court is enjoined to recognise that the primary aim in exercising its powers is to secure the just resolutionof disputes in accordance with the substantive rights of the parties (O.2 r.5(1)(a)).”

52.  Mr Pun sought to argue that if merits had to be considered in every case, it would mean relief must be granted in every case.  I respectfully disagree.  The existence of an arguable defence is not the only factor to be considered.  It is only one of the factors to be considered.  If it is apparent that the defendant has no defence, it would be a strong factor against the granting of relief.  The position taken by Mr Pun is also self-contradictory.  On one hand, he asked the Court not to look at the merits of the defence.  On the other hand, he said an exception would apply if the partyhad a strong case that would entitle him to summary judgment.  If the Courtshould only grant relief upon a party having a case that would entitle him to summary judgment, would the Court not be required to look at the merits in every case?

53.  I am of the view that the Court should consider, as one of the factors, whether the Defendants have an arguable defence.  Should the Court ignore that, it would fail in its duty under Order 1, rule 2, RHC to always recognize that the primary aim in exercising its power is to secure the just resolution of disputes in accordance with the substantive rights of the parties. 

Whether the Defendants have arguable defence

54.  At the material times, the Plaintiff was the registered proprietor of a number of trade marks in Hong Kong, including registrations for DURACELL for batteries.  The Plaintiff sold their batteries under two channels.  One channel was the sale of batteries to wholesale and retailer customers.  They also sold batteries (“Bulk Volume Batteries”) to Original Equipment Manufacturers (“OEM Customers”) who were manufacturers of third party products.  The price of the batteries sold to OEM Customers were lower but the relevant agreements restricted the use of the Bulk Volume Batteries on the products manufactured by the OEM Customers.  The OEM Customers were prohibited from selling the batteries in retail, wholesale or otherwise. 

55.  In a nutshell, the Plaintiff complained that the Defendants had infringed their trade mark and copyright by buying the Bulk Volume Batteries, repackaged and sold them to the retail and wholesale markets. The Plaintiff also maintains an action of passing off against the Defendant. 

56.  For the trade mark claim, the Plaintiff relied on section 18 of the Trade Marks Ordinance (“TMO”) [2].  Section 20 of TMO [3] provides a defence to a breach of section 18 if the goods have been put on the market anywhere in the world under that trade mark by the owner or with his consent (whether express, implied, conditional or unconditional).  The Plaintiff relied on a European case of Boehringer Ingelheim KG v Swingward Ltd ([2004] EWCA Civ 129, at paras 18 – 21) to support its case that it was an infringement to re-package the products using the trade marks.  This was apparently what the Defendants did in this case.  

57.  In relation to the claim for passing off, the Plaintiff alleged that it had established the three elements of passing off [4]:

(1)   It had strong goodwill in the name of DURACELL.

(2)   By repackaging the Plaintiff’s batteries, the Defendants had made a number of misrepresentations which was likely to lead members of the public to believe that their business, goods or services were those of the Plaintiff.

(3)   Those misrepresentations would cause damage to the Plaintiff. 

58.  As to copyright infringement, the Plaintiff alleged that they were the current owner of the relevant copyright used in the packaging of DURACELL batteries.  As the packaging of the DURACELL batteries sold by the Defendants was the same as the packaging used by the Plaintiff, the Defendants had infringed their copyright.  

59.  At the hearing, Mr Yan spent a considerable amount of time taking me through the Plaintiff’s claims and the Defendants’ defence.  Mr Yan submitted that the Defendants had at least an arguable defence to the Plaintiff’s claims.  He emphasized that this was not a counterfeit case as what the Defendants had sold were genuine DURACELL batteries and this was not disputed by the Plaintiff.  

60.  In relation to the trade mark claim, the Defendants’ defence include the following:

(1)   The Defendants can rely on the defence under section 20 of the TMO.  The use of the DURACELL mark was in relation to the genuine battery of the Plaintiff which had been put on the market under that mark by the Plaintiff or with the Plaintiff’s consent.  By selling the Bulk Volume Batteries to the OEM Customers (from whom some of the repackaged batteries were purchased), the Plaintiff had put the batteries on the market anywhere in the world.  Also, there was no suggestion from the Plaintiff that the condition of the batteries had been changed (which would otherwise had excluded the operation of section 20).  The Defendants had been careful in ensuring that only battery with a long expiry date would be sold.  Accordingly, the conditions under Section 20, TMO had been satisfied and the Defendants were entitled to rely on the defence provided therein. 

(2)   Mr Yan pointed out that the terms of Article 7 [5] of an European directive were fundamentally and materially different from section 20 of the TMO.  Numerous points were made by him on the differences between Article 7 and Section 20 to show why the European authorities relied on by the Plaintiff were either irrelevant or easily distinguishable.  Mr Yan argued that not even the Plaintiff’s legal advisers were aware of the differences as they had relied on the European authorities (that was based on Article 7) in applying for the Anton Pillar order.  

61.  The Defendants made a number of points to demonstrate why there was no passing off.  I would highlight a few below:

(1)   In the Statement of Claim (such as para 35), the Plaintiff alleged that the batteries sold by the 1^st Defendant would be “passed off to end consumers as genuine products” and therefore the infringing goods were instruments of deception.  However, in the present case, the batteries sold were genuine DURACELL batteries.  There was no misrepresentation as the consumer was getting genuine products which were what they intended to buy;

(2)   The Plaintiff complained that the Defendants had misrepresentedto third parties that they were an authorized dealer of DURACELL brand batteries, and that they had the right to authorize third party to use the mark.  However, the relevant letters relied on by the Plaintiff did not support the misrepresentation.  Also, the party allegedly misrepresented was the third party printer of the packaging rather than the consumers. 

(3)   The Plaintiff sought to distinguish the Bulk Volume Batteries from the batteries sold to wholesale/retail customers by referringto a form of agreement they entered into with OEM Customers where the Plaintiff only provided one year warranty for the batteries.  No such limitation was specified in the package sold to wholesale/retail customers.  The Defendants’ response was that not only this was a new point not pleaded, the agreement relied on was the form used only since September 2016 in the United States of America (“USA”).  There was no limitation of one year warranty in the standard agreement with OEM Customers in Hong Kong.  Further, the USA agreement was not relevant as none of the customers of the Defendants was in the USA.  

(4)   Mr Yan pointed out that even the Plaintiff admitted when they applied for an Anton Pillar Order that the law was not clear if it was passing off to sell re-packaged goods.  

62.  As to copyright infringement, the Defendants’ defence includes the following:

(1)   The Plaintiff had failed to establish copyright subsistence and/or its ownership of the copyright in the relevant artistic works of the relevant packaging.  During the ex parte application for Anton Pillar order, the Plaintiff pointed out that they had not yet been able to fully establish the Plaintiff’s claims to copyright;

(2)   The Defendants raised the defence of estoppel and acquiescence.  The Defendants alleged that they had been selling repackaged DURACELL batteries worldwide since 1999.  Despite having knowledge of the 1^st Defendant’s business by the Plaintiff and/or its predecessors, they had allowed the 1^st Defendant to continue their business for almost 20 years.  Further, in not taking action against the exploitation of the work, the copyright owner was estopped from asserting no consent had been given for the use of the work.  

63.  Each side had dealt with the other side’s case on merits extensively in their written and oral submissions.  I do not think it is necessary for the purpose of this application to set out all the arguments here.  The question I have to be satisfied is whether the Defendants has shown that they have an arguable defence.  It is not apparent that the Plaintiff has a clear case against the Defendant.  The main authorities [6] relied on by the Plaintiff all appear to be distinguishable from the present case, for example, on the facts and on the different wording between Article 7 and Section 20 of TMO.  Mr Yan submitted that the application of the European authorities to Hong Kong in the light of the different wording in Section 20 had not been fully tested in Hong Kong.  

64.  Having considered the materials before me and the submissions of the parties, I am satisfied that the Defendants have an arguable defence.  

65.  I am not expressing any view on the final outcome of the case which would be a matter that needs to be investigated with the benefit of discovery, witness statements and other steps to be taken in the ordinary course of litigation.  

(b)   whether the application for relief has been made promptly

66.  The November Summons was filed on 8 November 2017.  This was within the 14 days to apply for relief mentioned in Order 2, rule 4. 

(c)   whether the failure to comply was intentional;

(d)   whether there is a good explanation for the failure to comply;

(f)   whether the failure to comply was caused by the party in default or his legal representative

67.  I will deal with the above three factors together.  

68.  The authorities show that the Court was more inclined to grant relief to a litigant if the default was caused by his legal representative (see Order 2, rule 5(f), An Zhou & Ors v Zhou Zheng Kuan & Ors (unreported, HCA 241/2010, 30 August 2012, To J, at para 27), and Lee Sai Nam v Li Shu Chung (unreported HCA 1711/2009, 31 May 2013, DHCJ Marlene Ng, at paras 132 – 133).  

69.  Intentional and contumelious disregard of a Court order may be the most usual circumstance leading to the refusal of relief, but it is not the only factor and the Court should consider all the circumstances of the case (see Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, Fok J (as he then was) at para 41).

70.  Non-compliance is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the Court’s order in the absence of any extraneous excuse (see the Top One case, at para 34(c)). 

71.  The burden is on the defaulting party to demonstrate with cogent and compelling evidence that the failure was not intentional or contumelious and was caused by circumstances beyond his control (see Ping Kai Engineering Company Limited v Hong Kong Teakwood Works Limited (unreported, HCCT 2/2001, 6 February 2002, Ma J (as he then was), at para 22)

72.  It is apparent to me in reading the 3^rd Affirmation of Mr Chang Kim Yan filed by the Defendants in support of the November Summons that the breach of the Unless Order was due to the wrong advice given by their solicitors [7] and having alerted to the irregularities of their own action, the solicitors have advised the Defendants to take out the November Summons for relief [8].  This is further borne out by what happened in this case. 

73.  On 23 October 2017, the Defendants sought an extension of 28 days to file their defence.  This was rejected by the Plaintiff on 24 October 2017.  The Defendants’ solicitors responded by their letter sent just before the 4pm deadline on 25 October 2017 for the compliance of the Unless Order, reiterating that the Defendants were still indecisive as to whether to contest the action.  The Defendants’ solicitors also demanded the Plaintiff that for the purpose of saving costs, they should not make any premature interlocutory application. 

74.  Four minutes later, the Defendants’ solicitors sent a second letter to the Plaintiff’s solicitors informing them that the Defendants would soon meet a counsel specializing in Intellectual Properties matter and after that the Defendants would be able to decide whether to contest the proceedings.  For that reason and for saving costs, the Defendants sought the Plaintiff’s consent to file the Acknowledgment of Service out of time. 

75.  On the same day on 25 October 2017, the Defendants’ solicitors took out a time summons for leave to file the Defence within 28 days.  

76.  It is clear to me that the Defendants solicitors was not aware ofthe procedural tripwire that unless they file the Acknowledgment of Service, in a few minutes after they had sent their letters, the sanction barring them from filing the Acknowledgment of Service would kick in automatically.  They were under the misapprehension that they can still defend the action by seeking an extension of time for the filing and service of the Defence. 

77.  In view of the effect of the sanction under the Unless Order, the Defendants’ time summons to file Defence was dismissed by the Masteron 1 November 2017.  On 8 November 2017, the November Summons wasissued.  On the following day, the Defendants obtained advice from Mr Yan who pointed out that the previous counsel had overlooked important legal issues and the line of defence that they are now advancing.  Mr Yan informed the Court that it was from around that time that the Defendants had decided to contest these proceedings. 

78.  I agree with Mr Yan that the Defendants had to rely on their solicitors to adivse them on these procedural matters (including whether and when to seek senior counsel advice) and they would not know that their solicitors had miscomprehended the effect of the Unless Order and the relevant rules.  If the Defendants were informed that the effect of a failure to file the Acknowledgment of Service by the deadline was that unless they could get relief from sanction, the Plaintiff could obtain default judgment against them, I have no doubt that the Defendants would have ticked the box and submitted the Acknowledgment of Service by the deadline.  

79.  I do not find that the Defendants were playing games in delaying or not filing the Acknowledgment of Service.  Rather, the Defendants were seeking time to decide if it was worth the costs and stress to defend the action.  As the managing director of the 1^st Defendant, Mr Chang, said in his 3^rd Affirmation, the Defendants were at all material times sincere in considering the settlement of the action if they were given anopportunity to consider whether to defend the case or not.  The Defendants were eager to understand the Plaintiff’s case and to seek advice whether to defend the action.  This was a proper approach a litigant should adopt especially in view of the likely substantial legal costs it might have to incur and possibly a bigger bill in relation to the potential liability for the plaintiff’s costs.  

80.  I also do not find that the time spent by the Defendants in considering its possible defence to be excessive or they were seeking to delay or playing games to deter the progress of the case.  Numerous materials were taken from the Defendants upon the execution of the Anton Pillar Order.  The Plaintiff did not serve their Statement of Claim until 18 September 2017.  It was a long document of 77 pages with vast amount of particulars and images of packaging under complaint.  Even the Plaintiff had casted doubt on their own case of passing off and copyright infringement when it applied for an Anton Pillar Order. 

81.  The Defendants had been very open and frank with the Plaintiff as they explained to the Plaintiff that they were still thinking whether to contest the case or not and that they would be in a better position to do so after seeking advice in conference from counsel.  Furthermore, the 3^rd Defendant is 80 years old, highly distressed and not at ease to make a decision without careful consideration of the materials and getting further advice in conference.  It was not until 9 November 2017 that they obtained advice from Senior Counsel. 

82.  The Plaintiff also criticized the Defendants for taking steps to challenge the Plaintiff’s case.  Looking at the materials before me, I do not consider the Defendants’ action to be extraordinary or unreasonable. 

83.  Looking at all the circumstances, I do not find that the Defendants were guilty of intentional or contumelious breach in failing to file the Acknowledgment of Service.  I am satisfied that the mistake in not filing the Acknowledgment of Service and the misconceived applications were mainly (if not entirely) due to the misapprehension of the Unless Order, the relevant rules and their effect. It was far from being tactical manoeuvrings. 

84.  I appreciate that the affirmations filed by the Defendants could have spelt out the mistakes made by the lawyer in more details and I am conscious of the burden on the Defendants to provide cogent evidence in support.  However, I am satisfied that many of the submissions made by Mr Yan were supported by contemporaneous documents which included the court applications and letters between the parties’ solicitors.  

85.  The Plaintiff sought to rely on the case of Miranda Gems (HK) Ltd v Jose Miranda da Costa Junior & Ors [2014] 6 HKC 582, DHCJ Le Pichon at paras 58 and 69 to argue that even if delay was attributable to the defaulting party’s legal representative, it does not necessarily follow that relief would be granted.  The defaulting party’s redress might be to claim his legal representative for negligence. 

86.  The facts of the Miranda case are very different from the presentcase and are easily distinguishable.  In that case, the solicitors accepted full responsibility for the breach.  However, the Court found that the solicitors had not been honest in informing the Court the true reason for the breach when they applied for relief.  The learned Deputy Judge found that the tactical manoeuvrings of the plaintiff had significantly hindered the progress of the action, the plaintiff and their lawyers had indulged in games, what they did was abusing the Court’s process and they had failed in their obligations to further the objectives of the Civil Justice Reform.  

87.  The misconduct in the Miranda case was much more serious than the present one.  It is clear that the mistake in this case was due to the misapprehension of the rules by the Defendants’ solicitors in the context that I have dealt with above.  There is absent any tactical manoeuvring that has significantly hindered the progress of the action.  The Defendants have been open and honest about their position in requiring time to consider whether to contest.  Furthermore, there is no suggestion in this case that the Defendants or their solicitors have not been honest in the reasons given for the default.  

(e)   the extent to which the party in default has complied with other rules and court orders

88.  The complaint on the failure to comply is only in relation to the non-compliance of the Unless Order.   

(g)   in the case where the party in default is not legally represented, whether he was unaware of the rule or court order etc

89.  This is not applicable as the Defendants have had legal representation.  

(h)   whether the trial date or the likely trial date can still be met if relief is granted

90.  The case is at a very early stage.  The Statement of Claim was filed less than one month before the deadline to comply with the Unless Order.  This is not a factor against the Defendants.  

(i)   the effect which the failure to comply had on each party;

(j)   the effect which the granting of relief would have on each party

91.  At the material times at least up to 25 October 2017, it is apparent that the Plaintiff was expecting the Defendants to defend the action [9]. The Plaintiff’s stated intention was to apply for summary judgment and not by seeking default judgment.  The Plaintiff even took out a summons on 3 October 2017 (a few days after they had filed the Statement of Claim) seeking an order to compel the Defendants to file their Acknowledgment of Service failing which the Plaintiff shall have permission to proceed with summary judgment application against the Defendants.  This was criticized by Master K Lo at the hearing on 18 October 2017 as the Plaintiff should have applied for judgment in default.  

92.  Despite what Master K Lo had said, in an affirmation of Chan Ka Pong Andrew filed by the Plaintiff’s solicitor on 27 October 2017 to oppose the application for time to file Defence, the Plaintiff’s solicitor said in paragraph 12 that if the Defendants were given time to file a defence, the court should impose terms which would include the filing of the Acknowledgment of Service by the Defendants. This request was made despite the failure to comply with the Unless Order.  In that affirmation, the Plaintiff’s solicitors went even further to say that for the purpose of the order to be made, the Plaintiff consents to the filing of the Acknowledgment of Service out of time.  At that time, even the Plaintiff’s solicitors were unaware of the automatic nature of the sanction under the Unless Order.  Also, the Plaintiff was keen to proceed with summary judgment application rather than a default judgment application.  

93.  And then at the hearing of the Defendants’ misconceived application on 1 November 2017 for time to file the Defence, the Plaintiff’s solicitors submitted to the Master that they had not yet taken instructions whether to apply for judgment in default.  Yet, they were ready to file an application for summary judgment (in relation to which they had prepared all the papers).  

94.  At the hearing, Mr Pun explained that as the Plaintiff was seeking injunctive relief, they cannot apply for default judgment upon default of the Acknowledgment of Service alone.  They had to first file theStatement of Claim and waited for 28 days before they could apply for defaultjudgment in default of both the Acknowledgment of Service and the Defence.  That was the reason they were pushing for the Defendants to file the Acknowledgment of Service so that they could initiate the summary judgment procedure. 

95.  If no relief were granted, the Plaintiff would be able to get default judgment against the Defendants.  This would allow the Plaintiff to have a windfall in this case where the Defendants have at least an arguable defence.  On the other hand, if I grant relief, it is still open to the Plaintiff to pursue this action to trial or if so advised, to apply for summary judgment which they have been keen on doing throughout the course of this action. 

96.  I consider that the prejudice to the Plaintiff is far less if I were to grant relief, particularly in this case where they have successfully executed the Anton Pillar order and obtained an interim injunction against the Defendants to protect their interest. 

DECISION ON RELIEF

97.  After considering all the circumstances of the case and for the above reasons, I will exercise my discretion to grant relief to the Defendants from the sanction imposed by the Unless Order.  

PLAINTIFF’S DEFAULT JUDGMENT SUMMONS

98.  Since I have decided to grant relief, the parties agree that I should also dismiss the Plaintiff’s Default Judgment Summons.  

99.  However, for the purpose of considering the question of costs and in the event that I was wrong in my decision on relief, I shall deal with two matters relating to the Plaintiff’s summons.  

Whether the Plaintiff’s Default Judgment Summons was pre-mature

100.  Mr Yan challenged that the Plaintiff’s summons was taken out pre-maturely and thus should be dismissed on that ground alone. 

101.  Order 13, rule 6(1), RHC provides that:

“ (1) Where a writ is indorsed with a claim of a description not mentioned in rules 1 to 4, then, if any defendant fails to give notice of intention to defend, the plaintiff may, after the prescribed time and, if that defendant has not acknowledgedservice, upon filing an affidavit proving due service of the writ on him and, where the statement of claim was not indorsed on or served with the writ, upon serving a statement of claimon him, proceed with the action as if that defendant had given notice of intention to defend.”

102.  The Plaintiff’s claims are not of a description under rules 1 to 4 and thus they are covered by Order 13, Rule 6.  It means that on the Defendants’ failure to file Acknowledgment of Service, the Plaintiff shall proceed with the action as if the Defendants had given notice of intention to defend.  Prescribed time is defined under Order 13, rule 6A to mean the time limited for the defendant to acknowledge service of the writ or the date when the defendant has returned an Acknowledgment of Service confirming that it does contest the proceedings.  

103.  Order 19, rule 7(1), RHC provides that:

“ (1) Where the plaintiff makes against a defendant or defendantsa claim of a description not mentioned in rules 2 to 5, then, if the defendant or all the defendants (where there is more than one) fails or fail to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, apply to the Courtfor judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.”

104.  Since the Plaintiff’s claims do not fall within rules 2 to 5, the effect of Order 19, rule 7(1) is that the Plaintiff may apply for default judgment after the expiration of the period fixed by the High Court rules for service of the defence. 

105.  As to the time limit for filing defence, Order 18, rule 2(1), RHC provides that :

“ (1) Subject to paragraphs (2) and (3), a defendant who gives notice of intention to defend an action must, unless the Court gives leave to the contrary, serve a defence on every other party to the action who may be affected thereby before the expiration of 28 days after the time limited for acknowledging service of the writ or after the statement of claim is served on him, whichever is the later.”

106.  On what is the meaning of “after the time limited for acknowledging service of the writ”, one should look at Order 12, rule 5(a), RHC: 

“ (a) in the case of a writ served within the jurisdiction, to fourteendays after service of the writ (including the day of service) or, where that time has been extended by or by virtue of these rules, to that time as so extended;”

107.  In the present case, the Statement of Claim was filed and served on 28 September 2017.  The time limited for acknowledging service of the Writ was extended to 25 October 2017.  The effect of Order 18, rule 2(1) and Order 12, rule 5(a) is that the earliest time the Plaintiff could apply for defaultjudgment would be 28 days after 25 October 2017, that is 22 November 2017.  Since the Default Judgment Summons was taken out on 9 November 2017, it was pre-mature.  

108.  On this ground alone, the Plaintiff’s summons should be dismissed. 

 PLAINTIFF’S INTERIM PAYMENT APPLICATION

109.  The Defendants raised two main challenges to the Plaintiff’s application for interim payment:

(a)   A large part of the Plaintiff’s claims have been time barred as they cover transactions more than six years from the commencement of the present proceedings. Furthermore, the Plaintiff is not entitled to rely on section 26 of the Limitation Ordinance [10] to extend the limitation period as there has been no concealment.  Mr Yan took me to various places in the hearing bundle to show that the Defendants had been selling repackaged DURACELL batteries openly for a long time and there was no question of concealment. 

(b)   Contrary to Order 29, rule 10 [11] the Plaintiff had failed to file affidavit evidence verifying the amount of the damages.  Therefore there was no evidence upon which the Court could exercise its discretion.

110.  In view of my ruling against the Default Judgment Summons, I do not consider necessary to go into the above issues, which might be an issue for contention at a later time.  Suffice for me to say that the Plaintiff has failed to produce adequate affidavit evidence to verify the amount of the damages to enable the Court to consider the application for interim payment.

THE ORDER

111.  Since I have decided to grant relief to the Defendants and in view of the above, I will also grant leave and an extension of time to the Defendants to file their Defence within 28 days from the date of this Decision.  The Plaintiff submitted that leave should be granted subject to the Defendants filing their Acknowledgments of Service, since without filing Acknowledgment of Service, the Defendants would not be entitled to file their Defence. 

112.  In the premises, I make the following order:

(1)   relief from sanction of the Unless Order be granted to the Defendants;

(2)   leave be given to the Defendants to file their Acknowledgments of Service within 7 days from the date of this Decision;

(3)   subject to the Defendants filing their Acknowledgments of Service under sub-paragraph (2) above indicating that they intend to defend this action, leave be given to the Defendants to file and serve their Defence within 28 days from the date of this Decision; and

(4)   the Default Judgment Summons be dismissed. 

COSTS

113.  In relation to the November Summons, the Defendants have failed to comply with the Unless Order and they have to seek the indulgence of the Court in granting relief.  The mistake in understanding the effect of the Unless Order and in the failure to file the Acknowledgment of Service were made by the Defendants’ legal advisers.  Having considered the circumstances of the case, I will make an order nisi for the Defendants to pay the Plaintiff’s costs forthwith with certificate for counsel, such costs to be taxed if not agreed. 

114.  Minimal or no time have been spent in arguing the Time Summons for Defence.  I consider that the usual costs as summarily assessed at HK$800 should be paid forthwith by the Defendants to the Plaintiff.

115.  Although the Default Judgment Summons was dismissed mainly due to the relief granted to the Defendants, I have decided that the Default Judgment Summons was taken out pre-maturely.  Also, for the reasons I have given, I am not satisfied that the Plaintiff is entitled to interim payment.  As a matter of fairness, the Plaintiff should pay the Defendants’ costs forthwith.  

116.  I make the following costs order nisi:

(1)   the Defendants do pay forthwith the Plaintiff’s costs in relation to the November Summons with certificate for counsel, such costs to be taxed if not agreed;

(2)   the Defendants do pay forthwith the Plaintiff’s costs in relation to the Time Summons for Defence, such costs are summarily assessed at HK$800; and

(3)   the Plaintiff do pay forthwith the Defendants’ costs in relation tothe Default Judgment Summons with certificate for two counsel, such costs to be taxed if not agreed. 

117.  It remains for me to thank counsel for their assistance.