SOLAR SYSTEM INTERNATIONAL CO. LTD. v. UNISION-WATCH MANUFACTURING LTD. & OTHERS

HCA 1/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1 OF 2001

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J U D G M E N T

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The action

1. In this action, the Plaintiff sued the Defendant in respect of the copyright infringement in relation to the design of the Plaintiff's "back packer watch" model no.1151. It is alleged that the Defendant has infringed the Plaintiff's copyright by manufacturing and marketing watches which are substantial reproductions of the Plaintiff's design. The action was settled by a consent order dated 22 February 2001 made by Yeung J. Under the consent order, the Defendant was restrained from infringing the Plaintiff's copyright subsisting in the said design and/or from directing, procuring, instigating, causing, enabling or assisting others to do so. Further, the Defendant was ordered to file an affirmation setting out the names and addresses of all persons, firms or companies with whom the Defendant had dealings with regard to the infringing articles, including those who had ordered and/or enquired from the Defendant about the same.

2. The consent order was endorsed with penal notice and it is not disputed that it was served on the Defendant and a director of the Defendant Mr Wong Chung Kan personally. In any event, such service was duly proved by an affirmation of Lam Lin Fei Thomas filed on 5 June 2001 which was admitted as evidence before me pursuant to the direction of Yeung J on 17 September 2001. Such personal service on Mr Wong, according to the evidence of Mr Lam, took place on 7 March 2001 at the office of Messrs Marie W Y Tsang & Co., the solicitors for the Defendant.

3. On 15 March 2001, Wong Chung Kan ["the 2nd Contemnor"] made an affirmation for the purpose of complying with the disclosure obligation under the consent order. The Plaintiff said that the affirmation did not fully disclose the relevant transactions as required by the consent order. Moreover, the Plaintiff said that the Defendant was in breach of the injunction in the consent order.

The committal proceedings

4. By way of enforcement of the consent order, the Plaintiff took the following steps,

(a) Pursuant to leave granted by Yeung J on 6 June 2001, the Plaintiff issued a Notice of Motion on 20 June 2001 seeking to commit the 2nd Contemnor to prison for the contempts of court committed by the 1st Contemnor.

(b) The Plaintiff issued a Notice of Motion on 20 June 2001 asking for leave to issue writ of sequestration against the property of the 1st Contemnor and the 2nd Contemnor in respect of the contempts.

5. The particulars of the alleged contempt as set out in both Notices of Motion are the same. They are,

(a) breach of the injunction by infringing the copyright by offering or exposing for sale without the Plaintiff's consent or authority watches which were infringing copies at the website of "Hong Kong Enterprise Internet" at http://www.hkenterprise.com on 19, 23, 25, 26, 27 April 2001, 4, 5, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17, 18, 19, 21, 22, 23, 24, 25, 26, 29, 30, 31 May 2001 and 1 June 2001;

(b) breach of the disclosure requirement under the consent order by failing, refusing or neglecting to set out in the disclosure affirmation of 15 March 2001 the name and address of one Au Hung Kwong Paul ["Au"] who had made enquiries with the Defendant concerning the infringing article by a letter faxed on 5 December 2000, by telephone on 6 December 2000 and in person on 7 December 2000 at the Defendant's office. Further, breach of the disclosure obligation by failing to set out in the said affirmation the date, consideration or quantity of the verbal offer for sale made by a staff of the Defendant, Mandy Lee to the said Mr Au by telephone on 6 December 2000. Still further, another breach of the disclosure obligation by failing to set out in the said affirmation the date, consideration or quantity of the offer for sale of the infringing article made by the same Miss Lee to the same Mr Au on 7 December 2000 by means of a written quotation numbered UWF-4905 dated 5 December 2000 and failed to exhibit such quotation to the affirmation.

6. As I have mentioned, directions were given by Yeung J on 17 September 2001 with regard to the conduct of the motions. Affirmations and affidavits filed were to stand as evidence in chief. Liberty was granted to the parties to apply for cross-examination at the hearing. On 12 October 2001, when the matter came before me, Mr Bok who appeared for the 1st and 2nd Contemnors applied for cross-examination of two deponents, namely Chan Koon Cheung, Phillip and Kong Ping To. After hearing Mr Bok, I ruled against his application for reasons already given by me orally at the hearing. Mr Ling, who appeared for the Plaintiff, applied for cross-examination of Wong Chun Kan, the 2nd Contemnor. For reasons already given orally at the hearing, I allowed that application.

7. Although altogether 10 affirmations/affidavits were filed on behalf of the Plaintiff, I am of the view that I should confine myself to the evidence relevant to the particulars of contempts set out in the Notice of Motion in deciding whether the contempts have been proved. For this reason, the affirmation of Chow Suk Yin Ada, the affirmation of Man Chi Hung Edward, and the affirmation of Chan Koon Cheung, Phillip are not directly relevant and I attach no significance to what were said in those affirmations in coming to my conclusion as to the proof of the contempts particularised in the Notice of Motion.

8. Before I deal with the allegations of breaches of the consent order, I should also mention that there is no dispute that the consent order was duly served on the 1st Contemnor on 26 February 2001 at its office. It is also not disputed that the order served was endorsed with the appropriate penal notice. In any event, these matters are sufficiently proved beyond reasonable doubt by the affirmation of Kong Ping To and the affirmation of Lam Lin Fei Thomas.

Breach of the injunction

9. I now turn to the allegation with regard to the breach of the injunction. In this regard, the Plaintiff relied on the offering or exposing for sale without the Plaintiff's consent or authority watches which were infringing copies at the website "Hong Kong Enterprise Internet" on various dates in April, May and June 2001. The advertisement of the 1st Contemnor's watches at the said website on those dates was not disputed by the Contemnors. Such conducts were proved beyond reasonable doubt by the affirmation of Mak Koon Hung and the affirmation of Ha Cheuk Man. The 2nd Contemnor's evidence was that all internet advertisements of the 1st Contemnor were handled by a staff called Lau Wai Wah Ruby. She has resigned on 19 June 2001. There were confusions in his evidence as to the exact number of website advertisement maintained by the 1st Contemnor. In his 2nd affirmation filed on 27 September 2001, paragraphs 5 and 6 thereof suggested that altogether there were 3 websites. However, in his oral testimony before me, he only referred to 2 websites. In respect of the websites with which we are concerned in this motion, i.e. the Hong Kong Enterprise Internet website, the 2nd Contemnor's evidence was that it was a service provided by the Hong Kong Trade Development Council free of charge to the companies which advertised their products in a publication of the Council, namely Hong Kong Watches and Clocks. The 1st Contemnor advertised its products in that publication regularly and in particular in December 2000 advertisement was placed at the price of $14,280.00. By virtue of such advertisement, the 1st Contemnor enjoyed a 6-month free internet advertisement service at the website of Hong Kong Enterprise Internet. In his 2nd affirmation, the 2nd Contemnor said that before he was served with the committal papers, it did not come to his mind that the 1st Contemnor had promoted its products on this website (see paragraphs 7 and 10). In his oral evidence, he said when he received demand letters from solicitors for the Plaintiff before legal proceedings were commenced in this action, that was in about November or December 2000, he had already instructed the staff of the 1st Contemnor to withdraw advertisement with regard to the contentious items, i.e. model no.MA1986 of the products of the 1st Contemnor, from trade magazines and internet. In paragraph 10 of his 2nd affirmation, the 2nd Contemnor also said that immediately after receiving the committal papers, he instructed his subordinates to withdraw the advertisement for MA1986 from the Hong Kong Enterprise Internet.

10. The professed ignorance by the 2nd Contemnor as to the advertisement placed on the Hong Kong Enterprises Internet is wholly inconsistent with what he said in his oral testimony under cross-examination and documentary evidence. The 2nd Contemnor admitted that the signature for the order placed by the 1st Contemnor with the Trade Development Council for advertisement in their publication for September 2000 was his own signature. He further admitted in his oral testimony that he was aware when he signed this document that there would be 6 months free internet advertisement at the website of Hong Kong Enterprises Internet. Hence, he was in fact aware of such advertisement at the Hong Kong Enterprises Internet well before the committal papers were served on him. As a matter of fact, according to his own admission, he authorised the placement of such advertisement. When he was asked about the conflict between his oral evidence and those set out in his 2nd affirmation in this regard, he was evasive and the question has to be put to him for 4 times before he gave an answer. His answer was not satisfactory. All he could say was that he did not quite understand the meaning of the paragraph in his 2nd affirmation and it was only when he was reminded about it in cross-examination, he remembered that he knew about the placing of the order. In respect of paragraph 10 in his 2nd affirmation, the 2nd Contemnor said in the witness box that in fact even before the receipt of the papers for the committal proceedings, he had already given instructions to withdraw the advertisements from the internet website and he only double checked again after the papers were served on him. I cannot accept this explanation. This is plainly not what was said in paragraph 10 of his 2nd affirmation. I reject his assertions in his affirmation that he had no knowledge about this website advertisement at Hong Kong Enterprise Internet until he was served with the committal papers. I am satisfied beyond reasonable doubt that he was aware of such advertisement since July 2000 when he placed order for advertisement with the Hong Kong Trade Development Council.

11. With regard to payment for the advertisement at the Hong Kong Enterprise Internet, the 2nd Contemnor's evidence was that it was provided free of charge pursuant to a package offered by the Trade Development Council. According to the information contained in exhibit WCK-5 to the 2nd affirmation of the 2nd Contemnor, there was an offer of free advertisement on the internet provided to advertisers who advertised on the publications of the Trade Development Council. That offer was for a duration of 6 months and was in respect of a standard company web page with 5 photos. For additional photos, the price was $250 per photograph. The 1st Contemnor company enjoyed such free service by virtue of the order placed by it in July 2000 for advertisements to be placed on Hong Kong Enterprise's September 2000 issue. If the 6 months started to run from July 2000, it expired in January 2001. If the 6 months started from September 2000, it ended in March 2001. From the evidence of Mak Koon Hung and Ha Cheuk Man (which were not challenged by Contemnors and which I accept), it is clear that the 1st Contemnor's advertisement at the said internet was maintained up to at least 1 June 2001. According to the evidence of the 2nd Contemnor, he gave instruction to stop it on about 29 June 2001. It is therefore clear that the advertisement at that internet has been maintained for more than 6 months. Further, from copies of the advertisement downloaded from the said website, it can be seen that more than 5 photographs were placed at the said website by way of advertisement for the 1st Contemnor's products. It follows that the 1st Contemnor should have made payment for putting on more than 5 photographs at the website and for advertising beyond the 6-month free period. In this connection, Mr Bok (who appeared on behalf of the Contemnors) boldly submitted that if one counted the number of pages downloaded from the internet advertisement, there were only 5 pages altogether. I only need to say that the free package offered by the Trade Development Council was limited to 5 photos instead of 5 pages. It is quite obvious that on one page of the internet advertisement of the 1st Contemnor, there were more than one photo. Under cross-examination, the 2nd Contemnor said that he could not recall whether payment has ever been made with regard to the internet advertisement at this website. But the evidence as already outlined by me clearly shows that payment must have been made. When he was specifically referred to the fact that in respect of the advertisement on 1 June 2001, it was beyond the 6-month period and asked whether the 1st Contemnor had paid for the same, the 2nd Contemnor replied that he was sure that the 1st Contemnor company did not have to pay. He further said that there were photographs submitted by the 1st Contemnor in 1999 and the Trade Development Council simply did not withdraw it from the advertisement. I disbelieve him in this regard. Not only is such assertion contrary to the documents produced by him which clearly shows that for an advertisement over 6 months or for more than 5 photos, payment has to be made, it is also contrary to his earlier evidence that he could not recall whether payment has been made. I find that there is justification for the submission of Mr Ling (counsel for the Plaintiff) that the 2nd Contemnor tailored his evidence to suit his own purpose. On the evidence before me, I am satisfied beyond reasonable doubt that payment was indeed made by the 1st Contemnor in respect of the advertisement placed on the Hong Kong Enterprise Internet website.

12. Mr Bok made a submission on behalf of the Contemnors that the photographs on the internet were not the same nor substantially the same as the design of the Plaintiff as shown in the drawings attached to the consent order. I have compared the relevant photographs, i.e. the one for the 1st Contemnor's product model no.MA1986 with the drawings attached to the consent order and my conclusion is that they were substantially the same. In any event, the main issue is whether by advertising MA1986 on the internet, the 1st Contemnor was acting in breach of the injunction embodied in the consent order. Although the consent order itself did not refer specifically to the model number of the 1st Contemnor's product, it has been clear all along to the Contemnors that what the Plaintiff complained about was their model no.MA1986. According to the oral testimony of the 2nd Contemnor, he took the initiative way back in October or November last year to instruct the staff of the 1st Contemnor to withdraw this particular model after a letter from the Plaintiff's solicitors was received. Further, in the affirmation of the 2nd Contemnor filed on 15 March 2001 in compliance with the disclosure obligation under the consent order, in paragraph 3 thereof he specifically referred to model no.MA1986 as the offending item. The Contemnors therefore all along knew that the purpose of the injunction was to restrain dealings with respect to this model of their products. Having accepted that this model infringed the copyright of the Plaintiff, it is surprising that the Contemnors now seek to argue in the context of the committal proceedings that the two watches were different. Mr Bok did not refer me to any particular aspect in the two watches which is said to be different. The 2nd Contemnor did not mention this at all in his 2nd affirmation. In his oral testimony, all that the 2nd Contemnor mentioned were the functional differences in respect of the products and the fact that the crown of the Plaintiff's watch was on the right-hand side. I do not consider the functional differences to be material provided that designs are substantially the same which I have found to be so. As far as the crown is concerned, the 1st Contemnor's own watch also had its crown on the right-hand side. There is absolutely no merit in this point.

13. Mr Bok also submitted that there were differences in the two drawings attached to the consent order. However, he had not pointed out to me in his submissions what were those differences. On my part, having carefully looked at those drawings, I could not see any material differences. In any event, as I have demonstrated in the paragraph above, there were no difficulty on the part of the Contemnors in identifying that the offending article was model no. MA1986. I therefore reject Mr Bok's submission.

14. The main defence of the 2nd Contemnor was that he had delegated the matter with regard to the website to his secretary Miss Ruby Lau and he had given instructions to her and other staff of the 1st Contemnor to withdraw the product in terms of sale and marketing. He said he was told by Ruby Lau that his instruction had been complied with. It was only in late June 2001 that he realised that the advertisement at the Hong Kong Enterprise Internet had not been withdrawn and he therefore instructed Ruby Lau to withdraw MA1986 from that advertisement. This is what he told me in the witness box but this is slightly different from what he said in paragraph 10 of his 2nd affirmation. In that paragraph he said that he immediately instructed his subordinate to withdraw the product MA1986 from the Hong Kong Enterprises Internet after receiving the committal papers. According to the 2nd affirmation of Lam Lin Fei Thomas filed on 13 September 2001, the first attempt to serve the committal papers on the 2nd Contemnor was made on 13 July 2001 but that was not successful. It was only on 20 July 2001 that those papers were served personally on the 2nd Contemnor. I do not know whether the 2nd Contemnor knew from other channel about the committal proceedings or received notice as to the same. I am prepared to give him benefit of doubt in this regard and accept his oral testimony before me that he instructed Ruby Lau to withdraw the product on or about 29 June 2001. I would not hold against him in respect of the apparent conflict between that testimony and paragraph 10 of his 2nd affirmation. On that basis, I have to ask myself whether these matters as testified by the 2nd Contemnor afford him any defence with regard to the present application. Of course, this is only a defence available to the 2nd Contemnor but not the 1st Contemnor. To consider this, I have to examine the law with regard to the liability of a director under Order 45 rule 5(1)(iii) in respect of contempt committed by the company.

Liability of director under Order 45 rule 5

15. I should mention that in the present proceedings, there is no suggestion that the 2nd Contemnor should be committed for contempt by reason of his aiding and abetting in the breach of the order. The distinction between these two routes by which a director of a company may be committed for contempt was explained by Hunter JA in the case of Nicolas Pappadis v. Chan Shing Sheung, Barrie [1986] 2 HKLR 511. The Plaintiff in the present case is seeking to commit the 2nd Contemnor solely by reference to Order 45 rule 5.

16. In the Nicolas Pappadis case, Hunter JA said at p.519G with regard to the difference between the two routes,

"Under Order 45 no moral blame or necessarily knowledge, need to be shown in the director. It is sufficient to show that the order was made against the company and served upon him. Then it is the director's personal obligation to ensure that that order is complied with. When you are dealing with aiding and abetting the situation is quite different. What has to be shown is personal misconduct on the part of the director."

This dicta has often been quoted as authority for the proposition that in relation to committal for contempt in respect of director under Order 45, it would be sufficient for the applicant to show that the company acted in breach of the order and the director had knowledge of the order. It was also said that there was a difference between Hong Kong and England in this respect (see the submission before Stone J in Abu Dhabi National Tanker v. Lam Ming Chi [1998] 4 HKC 320). Mr Ling relied on this to submit that liability of a director under Order 45 rule 5 is strict.

17. In my judgment, in reading this dicta from Hunter JA, it is important to bear in mind that on the facts of the particular case before the Court of Appeal, his lordship did not have to consider the mental element for the liability of a director pursuant to Order 45 rule 5. This is because, as demonstrated by a passage at p.519E-G, no liability could be attached to the director under Order 45 rule 5 in that case because the relevant order has not been served and service was not dispensed with under Order 45 rule 7. Hunter JA concluded in that paragraph by saying that a finding of liability pursuant to Order 45 had to be set aside. So what was said by Hunter JA with regard to the mental element required in the context of Order 45 rule 5 must be obiter. In dealing with the distinction between the two routes, Hunter JA was focusing more on the mental element required in respect of a committal pursuant to the route of aiding and abetting and it was in that context he mentioned about the mental element for Order 45 by pointing out the difference. It may be more pertinent to refer to an earlier Court of Appeal decision which was also referred to by Hunter JA.

18. That decision was the decision of the Court of Appeal in the case of Cartier International v. Kaybee International Ltd [1985] HKLR 127. In that case, orders of committal were made in relation to two orders, the first one being an injunction order made on 17 September 1982 and the second one being an Anton Pillar order made on 15 December 1982. What happened was that after the injunction was granted, the plaintiff in that case discovered that the defendant company was still manufacturing the infringing watches. Hence, Anton Pillar order was obtained and for the present purpose, I would just concentrate on the Anton Pillar order. It is said that when the Anton Pillar order was executed, a director was present at the premises and shown the order, but he did not disclose the infringing watches as required by the order. Subsequently, 29 infringing watches were discovered. That director was committed for contempt. The Court of Appeal considered the committal by reference to both routes. In respect of the aiding and abetting route, the Court of Appeal concluded that this could not be sustained because although the evidence raised grave suspicion that the director was aware of the infringing watches, it fell short of proving knowledge beyond reasonable doubt (see p.131E-I). Then the Court of Appeal considered the matter in the context of Order 45 and having disposed of the point with regard to service and dispensation with service of the order, Sir Alan Huggins VP said at p.132C-E as follows:

"It remains to decide whether, it not having been sufficiently proved that the 1st appellant knew of the existence of the infringing watches, he could nevertheless be convicted as a director of the company. Mr Rogers contends that someone in the company must have known of the existence of the infringing watches and that the 1st appellant, as a director, can be punished even if he personally was not aware of them. He cited no authority for this proposition and I confess that I find it offends my sense of justice. It is one thing to punish a director for the company's failure to do something where it lies within the power of the director to ascertain whether the order has been obeyed and to ensure compliance if it has not: it is another to punish him if he had no reasonable opportunity to ensure compliance."

The Court of Appeal therefore allowed the appeal with regard to the contempt in respect of the Anton Pillar order.

19. It is clear from this passage that the Court of Appeal in Cartier International did not accept the contention of strict liability of a director in respect of the breach of court order by a company under Order 45 rule 5. Mr Ling referred me to a passage at p.129I:

"However, it must be remembered that Order 45 could prima facie be prayed in aid even against a director who has been innocent of any contempt, and that is why this order insists that he shall have been personally served with the order against the company before he can be committed: it would be unjust to commit him for the company's disobedience to an order of which he had no knowledge. No such injustice could result where he has been directly and knowingly responsible for their company's disobedience."

I do not think it takes his case further because this passage must be read together with the other passage which I have quoted above. Hence, when reference was made by Sir Alan Huggins in this passage to a director being liable whilst he was innocent of any contempt, I do not think his lordship was intending to lay down a proposition of law that liability against director is strict under Order 45 rule 5.

20. Before I come to the decision of Stone J in Abu Dhabi, I should refer to the leading English authority on the point, namely the case of Attorney General for Tuvalu v. Philatelic Distribution Corporation [1990] 1 WLR 926. That was also a case in which liability of a director for contempt was pursued on both grounds. However, at p.936D the Court of Appeal held that because the defendant was entitled to the benefit of doubt the finding that he was a knowing party could not stand. Hence, the Court of Appeal had to consider liability in the context of Order 45 rule 5. I pause to note that the wordings in the relevant rules are the same in Hong Kong as in England. At p.936E-F, Woolf LJ (as he then was) said,

"In our view, where a company is ordered not to do certain acts or gives an undertaking to like effect and a director of that company is aware of the order or undertaking he is under a duty to take reasonable steps to ensure that the order or undertaking is obeyed, and if he wilfully fails to take those steps and the order or undertaking is breached he can be punished for contempt. We use the word "wilful" to distinguish the situation where the director can reasonably believe some other director or officer is taking those steps."

Then further on at p.938A-F, Woolf LJ continued,

"There must however be some culpable conduct on the part of the director before he will be liable to be subject to an order of committal under Order 45 rule 5; mere inactivity is not sufficient. In this regard, we were referred to the decision of Anthony Lincoln J in Director General of Fair Trading v. Buckland [1990] 1 WLR 920, decided on 14 July 1989. In that case Anthony Lincoln J having distinguished an earlier case, Biba Limited v. Stratford Investments Limited [1973] Ch 281, which was cited to him in support of the proposition that a director who is merely passive can be liable for the contempt of a company went on to say, at p.920, 925:

"Accordingly I reach the conclusion that Order 45 rule 5 does not render an officer of a company liable in contempt by virtue of his office and his mere knowledge that the order sought to be enforced was made. Resort can be had to rule 5 only if he can otherwise be shown to be in contempt under the general law of contempt."

That remark was however made in a case where there was no finding made against the director of culpable conduct and it should not be taken as meaning that it is only where a director has actively participated in the breach of an order or undertaking that Order 45 rule 5 can apply. If there has been a failure to supervise or investigate or wilful blindness on the part of a director of a company his conduct can be regarded as being wilful and Order 45 rule 5 can apply. In Re Galvanized Tank Manufacturers' Association's Agreement [1965] 1 WLR 1074 makes clear the importance of this. Megaw J said at p.1090:

"We would, however, emphasise that a company, which has given an undertaking to the court, must be treated as having failed lamentably and inexcusably in its elementary duty if it fails to take adequate and continuing steps to ensure, through its responsible officer, that those officers themselves, and anyone to whom they may delegate the handling of matters which fall within the scope of the undertaking, do not forget or misunderstand or overlook the obligations imposed by such undertaking."

[emphasis added by Woolf LJ]"

21. This was the view of the English Court of Appeal as to the requirement of mental element under Order 45 rule 5. On the facts of the case before the English Court of Appeal, it was held that the director was liable because he failed to take adequate and continuing steps to ensure that those to whom he delegated the handling of matters which fell within this scope of the order and undertaking had not forgotten or misunderstood or overlooked the obligations imposed on them. It was further held that the director was at fault because he should have but failed to do anything other than giving some initial instructions to the employees to ensure compliance with the order and because he failed to take any steps to ascertain what the position was to ensure that there was no breach.

22. In Abu Dhabi National Tanker v. Lam Ming Chi [1998] 4 HKC 320, Stone J concluded after reviewing the cases mentioned by me in the above paragraphs, at p.328H-I,

"Whether or not the two distinct approaches can be reconciled, for the avoidance of doubt, and notwithstanding Mr Acton Bond's submission that this court should apply the Buckland approach as considered and explained in Tuvalu, I decline in this instance to impose a requirement of wilfulness, and I intend to proceed in this application along the lines espoused by Hunter JA in Pappadis, as I think it incumbent upon this court, pending any change of view of the Hong Kong Court of Appeal when that court next has the advantage of considering Buckland and Tuvalu."

23. Since the decision of Stone J, the Hong Kong Court of Appeal did have the chance to consider the authorities on this topic including the English Court of Appeal decision. In Excel Noble Development Ltd v. Wah Nam Group Ltd, CACV 910/2000, 29 May 2001, Rogers VP reviewed these cases. At p.6, his lordship said,

"I see no difference in approach in what Hunter JA said, with the approach of Woolf LJ in Attorney General for Tuvalu v. Philatelic Distribution Corporation Ltd [1990] 1 WLR 926."

Further down the page, Rogers VP said as follows,

"As Anthony Lincoln J pointed out, the provisions of Order 45 rule 5 are procedural. A director or other officer of a company who is served with a copy of an injunction does not thereby become a party to the action. The injunction, whether it be prohibitory or mandatory, is still an injunction against the company and not one against the officer. If the injunction is breached, it is breached by the company. The officer's obligation is to use his position as an officer to secure compliance with the injunction. But there is no absolute liability placed upon an officer, who has been served with a copy of an order, in the event that the company may be in contempt. It must be remembered that an officer could for example include the auditor. The process of service under Order 45 rule 7 is a prerequisite to enforcement against the officer under Order 45 rule 5; it is a process of making clear to the officer the terms of the order and the fact that the officer must use his position as an officer of the company to effect compliance."

Hence, in the judgment of Rogers VP (with whom the other members of the Court of Appeal agreed), there is no difference between the approach in England and that in Hong Kong.

24. Mr Ling, who has fairly and properly referred me to the decision of Rogers VP in Excel Noble, argued that the dicta of Rogers VP was only obiter. He submitted that the issue before the Court of Appeal in that case was whether service should be dispensed with under Order 45 rule 7 and the material point in that case was whether a director could be held liable by reference to the knowledge of the director acquired after the time for compliance had lapsed. Whilst that may be a fair summary of the issues before the Court of Appeal, I do not agree that the dicta of Rogers VP with regard to the mental element for liability for contempt under Order 45 rule 5 was mere obiter. At p.7 of the judgment, Rogers VP expressed the view that the discretion under Order 45 rule 7 had to be exercised in the light of the principles which found a director's responsibility in respect of an injunction against the company. After holding that the judge at the first instance was wrong to have regard to the after acquired knowledge, the Court of Appeal in that case did exercise the discretion under Order 45 rule 7 afresh to dispense with service. In so doing, the Court of Appeal must have regard to the principles governing the liability of a director for breach of order committed by a company in the context of Order 45 rule 5. Those principles are therefore part of the reasoning process in the decision of the Court of Appeal. In any event, even if the dicta of Rogers VP were only obiter, I would respectfully follow the same. From my above analysis of the two earlier Court of Appeal decisions, one can see that those cases did not establish that liability of a director is strict. I respectfully agree with Rogers VP that there is no inconsistency between the English approach and the Hong Kong approach.

Application of the principles in the present case

25. I therefore hold that the approach of Woolf LJ in Tuvalu is applicable in Hong Kong and the question I have to ask is whether the 2nd Contemnor has taken all reasonable steps to ensure the compliance of the consent order by the 1st Contemnor and whether the 2nd Contemnor failed to supervise or investigate or wilfully turn a blind eye to possible breach of the injunction by the 1st Contemnor. The 2nd Contemnor told me in evidence that there were only two directors and shareholders in the 1st Contemnor, namely himself and his wife. As between the two of them, the 2nd Contemnor was the one responsible for the management of the 1st Contemnor. Hence, there is no question of the 2nd Contemnor reasonably believed that the other director had taken steps to ensure compliance by the 1st Contemnor. What did the 2nd Contemnor do to ensure that the 1st Contemnor acted in compliance with the consent order in respect of their withdrawal of MA1986 from advertisement on the internet? The 2nd Contemnor said that instruction had been given by him to Ruby Lau to that effect. According to him, such instruction was given in about October or November 2000. After that, he asked her whether she had done it and she answered in the affirmative. After the consent order was made, he said it did not cross his mind that there were still advertisement on websites although he had flipped through trade magazines to check that there was no advertisement regarding that product. He did not give Ruby Lau fresh instruction regarding website after the consent order. He admitted that when he gave instructions in October or November, he did not specify the websites in respect of which the advertisement for this model had to be cancelled nor did he check how many websites on which this model had been advertised. He himself did not check personally whether the advertisement on all the websites for MA1986 were cancelled.

26. Notwithstanding the evasiveness of the 2nd Contemnor in giving evidence and my finding against his evidence in paragraph 10 above, I would give him the benefit of doubt and accept that he did give instructions to Ruby Lau and received affirmative assurance from her as he testified. Even so, it is obvious that the steps taken by him were grossly inadequate. Whilst it is permissible and indeed in some circumstances inevitable that a director must delegate the performance of some tasks in relation to the company's compliance with a court order, it remains his personal duty to ensure that such delegation is effective and all necessary steps have been taken to ensure compliance.

27. In this context, the observations by Megaw J in Re Galvanized Tank Manufacturers' Association's Agreement cited and applied by Woolf LJ in the Tuvalu case (see paragraph 20 above) are particularly apposite. This is important because a company cannot perform its duties pursuant to any court order except through its responsible officers. Hence when an order is made against a company, its directors bear the prime responsibility to do the following:

Firstly, the directors should ensure that they understand the order correctly and fully.

Secondly, they have a personal duty to find out exactly what have to be done by the company to comply with the order.

Thirdly, after identifying what have to be done, they have a personal duty to see that such things are done properly and in accordance with the time limit set out in the court order, whether by delegating the task to other employees of the company or by themselves personally.

Fourthly, if they choose to delegate all or some of the tasks to their staff, it is their personal duty to ensure that such staff clearly understand the requirements of the court order and remember to execute the task properly in the time limit provided for in the court order.

Fifthly, even if they delegate, the directors concerned still have a personal duty to supervise. This means that they have to take reasonable steps to check that their staff did carry out their instructions properly, correctly and timely.

28. In the present case, the 2nd Contemnor did understand that the injunction was directed against the product MA1986 and there should not be any further advertisement for this product. To properly discharge his personal duty to ascertain what have to be done by the 1st Contemnor to comply with the consent order, he should have enquired, inter alia, as to exactly how many websites in respect of which advertisement for this product have been placed. Had he done so, I do not think he would have any difficulty in learning about such advertisement at the Hong Kong Enterprise Internet Website even if he forgot about the same between July 2000 and February 2001. Bearing in mind that the number of websites at which advertisement have been placed by the 1st Contemnor were not that many, I am sure that it would not be difficult for the 2nd Contemnor to find out about this.

29. The next step the 2nd Contemnor should have taken was to give specific and clear instructions to his staff about the things that needed to be done to ensure that the advertisement for MA1986 was withdrawn from these websites. From the evidence, it is clear that the 2nd Contemnor failed to take reasonable steps to ensure that Ruby Lau clearly understood that she had to check and ensure that each and every website on which advertisement for MA1986 have been placed would be withdrawn.

30. Further, the 2nd Contemnor has not discharged his duty to supervise. He did nothing to check whether Ruby Lau properly ascertain how many websites in which advertisement had been placed and to check whether Ruby Lau did withdraw such advertisements as instructed. In my judgment, what the 2nd Contemnor did (i.e. just asking Ruby Lau whether she had done her job and relied on her response) is clearly inadequate supervision. As made clear by Woolf LJ in the Tuvalu case at p.938G, it is not good enough to simply leave the matter in the hands of the employees. It would not take much effort on the part of the 2nd Contemnor to surf into the Hong Kong Enterprise Internet website to check whether the advertisement for MA1986 had been withdrawn. He has not done so. If the 2nd Contemnor thought that he could excuse himself by saying that these were the responsibilities of Ruby Lau, he was grossly mistaken. It is high time that director should be made aware that in respect of court order made against a company, he has a personal duty and the failure to discharge such a duty would render him liable for committal. In the present case, I am satisfied beyond reasonable doubt that the 2nd Contemnor failed to discharge such personal duty and is therefore responsible for the contempt of court in respect of the breach of the injunction by the 1st Contemnor.

31. In coming to this conclusion, I have borne in mind the submission of Mr Bok that the 2nd Contemnor did not intend to disobey the order and it was just an oversight. Whilst giving the 2nd Contemnor the benefit of doubt, I have to deal with the case on the basis that he did not deliberately disobey the order, for the reasons already given, it is plain that he was guilty of neglect in the discharge of his duty as director of the 1st Contemnor after the consent order was served on him personally. It is not a good excuse to say it was an oversight if a director did not take reasonable steps to ensure compliance with the order by the company. Otherwise, it would defeat the whole purpose of Order 45 rule 5(1)(iii).

Breach of the Disclosure Order

32. I now turn to the breach of the consent order in terms of failure to disclose fully the information sought in paragraph 3 of the consent order. On the evidence contained in the affirmation of Au (which was not challenged by the Contemnors before me), I am satisfied beyond reasonable doubt that enquiries had been made by Au with the 1st Contemnor and such enquiries, being enquiries related to MA1986, should have been disclosed by the 1st Contemnor pursuant to paragraph 3 of the consent order. It is also indisputable that these enquiries by Mr Au was not disclosed in the affirmation filed by the 2nd Contemnor on 15 March 2001 whether specifically or generally. Paragraph 5 of that affirmation categorically ruled out any possibility of enquiries other than those set out in Paragraph 4. I am satisfied beyond reasonable doubt that paragraph 3 of the consent order has not been complied with.

33. The 2nd Contemnor's explanation for this omission was as follows. Firstly, he said he did not realise that under paragraph 3 of the consent order, he had to disclose not only the sale of MA1986 by the 1st Contemnor, but also enquiries with regard to the same. Secondly, he said that the practice of the 1st Contemnor was that no record would be kept in respect of enquiry which did not culminate in any order being placed. Even if quotation had been issued by the 1st Contemnor, if nothing fruitful came out of it, the quotations would not be kept and would be thrown away after 2 to 3 weeks. No copy would be kept in the computer of the 1st Contemnor. The 2nd Contemnor was however able to testify before me that there were in fact many enquiries over telephone with regard to MA1986 which he suspected to be instigated by the Plaintiff. He gave an estimate of 20 to 30 enquiries per day of which half of them related to MA1986. Hence, on his own admission, the 2nd Contemnor was aware of enquires relating to MA1986. Although he said in his evidence that he relied on information supplied by the staff of the 1st Contemnor to prepare the affirmation of 15 March 2001 and Mr Bok therefore submitted that the 2nd Contemnor could not be personally responsible as he had to rely on information from his staff, this simply could not excuse him in the light of the admission of the 2nd Contemnor that he was aware of such enquiries. It may be that he did not have full knowledge of the particulars as to these enquiries as they were not made to him directly, it remains the fact that he was aware of some enquiries having been made which did not culminate in any orders or sales. With such knowledge, it behoved him to make proper enquiries with his staff and to take the necessary steps to ensure that an accurate picture to the best of their knowledge was set out in the affirmation. In those circumstances, paragraph 5 of his affirmation of 15 March 2001 in which he deposed that apart from those disclosed in paragraph 4, there were no other enquiries with regard to MA1986 is misleading to say the least. Had proper steps been taken, I am sure that the mistake in Paragraph 5 would not be made and some disclosure (at least in general terms) about enquiries would be given. Therefore the only argument left with the 2nd Contemnor was the first point, i.e. that he did not know that he has to disclose information with regard to enquiries as well.

34. That line of defence does not sit easily with paragraph 5 of his affirmation of 15 March 2001. In that paragraph, specific reference was made to 'enquiry'. On the face of it, the contents of that affirmation have been interpreted to him before he deposing to the same. Also, from what I could observe during the hearing before me, the 2nd Contemnor did speak and read English. I am however troubled by the fact that there was no good reason why the 2nd Contemnor would deliberately choose to conceal the enquiries of Mr Au from the Plaintiff. I say this because in the same affirmation of 15 March 2001, he did disclose a sale of sample to the company Lim Hajin Melwani Company and Mr Au had disguised himself as a representative of that contempt. I therefore decide to give the 2nd Contemnor the benefit of doubt and find that it is possible (although not very likely) that he did not realise that he had to disclose each and every enquiry, whether oral or written, made to the 1st Contemnor with regard to MA1986.

35. This brings us back to the test for a director's liability in respect of breach of order committed by a company as discussed by me in paragraph 27 above. In my judgment, the 2nd Contemnor failed in the discharge of his duty as a director served with an order made against the company to ensure due compliance with the obligation of disclosure in this instance. As I have explained, as such a director the 2nd Contemnor has a personal duty to understand the consent order properly and to ascertain properly what have to be done to comply with the order. In the absence of a very good explanation, a failure to understand the order properly is a breach of such personal duty. In the present case, there was no evidence from the 2nd Contemnor himself that the consent order has not been explained to him. Mr Bok however sought to argue that the former solicitors of the Defendant company did not understand the order properly themselves and therefore could not have explained the order to the 2nd Contemnor properly. He made this submission on the basis of a letter from that firm of solicitor at C45 of the bundles. Having read that letter carefully, I myself fail to see anything in that letter to suggest that the said firm did not understand the full extent of the requirement as to disclosure pursuant to paragraph 3 of the consent order. On the evidence before me, there is simply no basis for such a submission. I am particularly concerned that there is not a trace of evidence in the 2nd Contemnor's 2nd affirmation nor in his testimony before me to the effect that the consent order had not been fully and clearly explained to him before it was made. While I would give him the benefit of doubt that he did not actually realise that full disclosure should be made with regard to all enquiries relating to MA1986, I am not prepared to go a step further to find that it is possible that such ignorance was due to the fault of his former solicitor. In the light of his overall attitude towards compliance with court order (as illustrated by his failure with regard to the website advertisement), I am satisfied beyond reasonable doubt that he himself gave very little attention to the consent order. If his former solicitor was not aware of the requirement as to disclosure relating to enquiry, the affirmation of 15 March 2001 would not have been drafted in this manner with specific reference to 'enquiry' in paragraph 5. I am therefore satisfied beyond reasonable doubt that if the 2nd Contemnor failed to realise his obligation of disclosure with regard to enquiries, it was due to his own irresponsible attitude rather than the fault of his former solicitor. In these circumstances, even on the scenario where the 2nd Contemnor failed to realise the full implication of the order, he could not escape liability as director pursuant to Order 45 rule 5. It follows from this scenario that he did not make proper investigation with his staff as to the information necessary for making full disclosure in compliance with the order. Hence, delegation is not an excuse. On the other scenario, i.e. that the 2nd Contemnor was aware of the requirement of disclosure with regard to enquiries, he would be all the more culpable because his statement in paragraph 5 of the affirmation of 15 March 2001 could only have been made recklessly (to say the least) in the light of his admission that he was aware that there were enquiries other than those disclosed in paragraph 4.

36. However, it does not follow from my aforesaid findings that the contemnors are liable for the contempts charged in the Notices of Motion. The particulars referred specifically to the dealings with Au and the non-disclosure relied upon were those regarding the name and address of Au, dates, considerations and quantities in respect of specific offers. These are quite different from a charge that the 1st contemnor refused or neglected to disclose that there were other enquiries apart from those set out in Paragraph 4 of the affirmation of 15 March 2001. Given the serious consequence of committal proceedings, I consider that it would be wrong to hold the contemnors liable for a charge which has not been set out in the Notices of Motion. In the present case, there is no evidence before me to rebut the evidence of the 2nd contemnor about lack of record being kept by the 1st contemnor regarding unfruitful enquiries. Whilst I have reservations about the overall credibility of the 2nd contemnor as a witness, I am unable to rule out the possibility of this defence. It follows that I have to give the contemnors the benefit of doubt. In those circumstances, it is at least possible that even with due diligence, the contemnors could not disclose those specific information which the Plaintiff said they should have given. I therefore cannot say they refuse or neglect to disclose the same and I have no alternative but to hold that the contemnors are not liable for the contempts charged in the Notices of Motion with regard to the dealings with Au.

37. The position is similar with regard to the quotation. The defence case was that no copy nor record of such quotation was kept by the 1st Contemnor. In that regard, I have to give the benefit of doubt to them. Since paragraph 3 of the consent order only required such quotation to be exhibited if it was in the custody, control or possession of the 1st Contemnor, it follows that I cannot hold them liable for contempt in respect of a document which possibly was not within their custody, control or possession at the time when the order was made.

The exercise of discretion

38. Mr Bok also relied on a passage in the headnotes of Nicolas Pappadis to argue that a finding of contempt in the present case was not justified. He referred to holding (4) at p.513 of the law report, in particular the following passage,

"[a finding of contempt] was further not justified on the basis of the defendant's conduct: the bank accounts which the respondent had failed to disclose were insignificant and he was justified in not disclosing them."

I do not think this citation assists him. It is important to bear in mind the context in which this holding was made. Further, what he set out in the headnotes were not the words used by Hunter JA and it is necessary to refer back to the judgment to see the principle on which Hunter JA decided the point. That particular holding was directed towards a finding of contempt with regard to the failure of a company to disclose its assets pursuant to an ex parte order. There were quite a number of problems with that ex parte order (see p.516 to 517 of the report). Hunter JA expressed serious doubt as to whether the order should have been made in the first place (see p.516J) and also found serious defects with regard to the drafting of the order (see p.517E-F). The conclusion of his Lordship was that the only way of making sense out of the order was to construe it as relating only to material assets, relevant assets, substantial assets which are relevant in the context of execution, dissipation and mareva injunctions. The affirmation of disclosure made by the respondent in that case failed to disclose some bank accounts. The plaintiff applied for order for committal with the support of an affirmation disclosing a long list of property of the company reviewing detailed knowledge of the affairs of the company. That was not surprising because the plaintiff in that case was the managing director of the company until his resignation shortly before the commencement of legal proceedings.

39. As I have already mentioned, Hunter JA found that there could not be any committal for contempt against the other director on the basis of Order 45 rule 5 due to lack of personal service nor dispensation with service. Hence, whatever observations made by Hunter JA in respect of whether committal was justified with regard to failure to disclose the bank accounts were in the context of a liability under the route of aiding and abetting. With regard to the undisclosed bank accounts, they were of no significance because most of them were massively over-drawn and the only account with any free balance was in the sum of HK$7,400.00 (see p.519J to p.520C). The passage cited by Mr Bok was in fact a summary of what Hunter JA said at p.521B-G. His Lordship was dealing with the submission of the counsel for the respondent that the findings of contempt on the basis of aiding and abetting were not justified on the evidence before the judge. Hunter JA referred to a number of matters which negatived knowing defiance. Those were observations on the evidence and the factual context as before the court in that particular case. The Court of Appeal held in that particular case that an inference of deliberately withholding information could not be drawn. Hence, the finding of contempt was set aside.

40. It follows, upon proper analysis of the decision of Hunter JA in that particular case, that the summary in the headnotes cited by Mr Bok was only a decision by the Court of Appeal on the particular facts in that particular case pursuant to a finding of contempt with regard to aiding and abetting committed by a director, hence the necessity of showing knowing defiance. Since the present case is being pursued along the other route, namely Order 45 rule 5, that decision would not have any direct bearing.

41. In any event, I do not think it can be suggested that the breach of the injunction by the 1st Contemnor in the present case can be said to be insignificant.

42. I therefore find the 1st Contemnor guilty of the following contempt and the 2nd Contemnor was liable as director of the 1st Contemnor pursuant to Order 45 rule 5 in respect of the same:-

disobeying the injunction contained in paragraph 1 of the consent order by infringing the copyright in the Plaintiff's work by offering or exposing for sale without the Plaintiff's consent or authority watches which were infringing copies at the website of "Hong Kong Enterprise Internet" at http://www.hkenterprise.com on 19, 23, 25, 26, 27 April 2001, 4, 5, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17, 18, 19, 21, 22, 23, 24, 25, 26, 29, 30, 31 May 2001 and 1 June 2001.

43. I shall hear parties on the question of penalty in view of my aforesaid findings.