XCHRX WORLDTRADE ENTERTAINMENT LTD. AND ANOTHER v. STARWAY TECHNOLOGY LTD. AND ANOTHER

HCA 450/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 450 OF 2000

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D E C I S I O N

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1. On 31 March 2000, I made three orders on three summonses taken out by the parties. On the Plaintiffs' Order 14 summons, I adjourned this application with leave to the Plaintiffs to file an affidavit in support within 7 days thereof. In respect of the Defendants' summons for an unless order for production of an agreement dated 5 July 1999 referred to in paragraph 3 of the Statement of Claim, pursuant to Order 24 Rule 10, I made no order on this summons upon the undertaking of the Plaintiffs' solicitors that the document was to be exhibited to the Plaintiffs' supporting affidavit in the Order 14 application.

2. On 7 April 2000, the Plaintiffs filed an affirmation made by Mr Siu King Hung in compliance with my order on 31 March 2000. The agreement in question was exhibited but part of Clause 1 was concealed in black. The reason given in that affidavit was that the parts "are trade secrets of a commercially sensitive nature which the Plaintiffs wish to keep confidential." It was further stated by the deponent that the concealment was as per my order made on 31 March 2000. That is in fact incorrect, as no such order or leave was given by me on 31 March 2000.

3. Following correspondence between solicitors for the parties, which did not lead to the desired result of disclosure of the parts concealed in the agreement, the Defendants issued a summons on 3 May 2000 for an order that the Plaintiffs do provide a true and complete copy of the agreement in question.

4. On 10 May 2000, I adjourned the application to today for the Plaintiffs to produce the complete document for the Court's inspection, as it was not clear what parts of the document were concealed other than Clause 1.

5. As mentioned earlier, the only reason advanced in the Plaintiffs' affirmation for concealing parts of the agreement was the confidential nature of the information which was regarded as "trade secret". If that was the only reason given by the Plaintiffs for non-disclosure, I would have little hesitation in rejecting that argument. If the Plaintiffs were worried that the "trade secret" might be misused, the Plaintiffs would be protected by the implied undertaking of the opposite side not to use information obtained in this action for collateral or ulterior purpose.

6. Two other reasons were advanced by the Plaintiffs' counsel, Mr Clemence Yeung, at the hearing for not disclosing the information blanked out in the agreement. Firstly, it is asserted that the information was irrelevant. Secondly, it was argued that it was not necessary to disclose such information at the stage of Order 14 proceedings, as the Court would only be concerned with liability at this stage.

7. The Plaintiffs' case may be summarized briefly as follows. It is pleaded that the 2nd Plaintiff is the copyright owner of the film in question in that the author of the copyright work had assigned the copyright to the 2nd Plaintiff at the time of the completion of the work in 1999. The film was first published in Hong Kong by theatrical release in July 1999. As for the 1st Plaintiff, it is pleaded that it is the exclusive licensee of the copyright work for the regions of Hong Kong and Macau by virtue of an agreement dated 5 July 1999 made between the 2nd and 1st Plaintiffs, for manufacture, sale and distribution in all video audio formats for 7 years from the date of delivery of the master tape. The 1st Defendant is a manufacturer of optical discs and the 2nd Defendant is the licensee of the optical disc manufacturing licence granted by the Customs and Excise Department. It is alleged that the Defendants had infringed the Plaintiffs' copyright in the work by manufacturing VCDs consisting of reproduction or adaptation of the copyright work and that the VCDs were sold and distributed in Hong Kong.

8. In the Defence filed by the Defendants on 28 February 2000, the Defendants put the Plaintiffs to proof of the following matters: that the 2nd Plaintiff is the copyright owner; that the author of the film is Mandarin Films Limited; that the author had assigned the copyright of the film to the 2nd Plaintiff; that the work was first published in Hong Kong in July 1999 by theatrical release; and the agreement dated 5 July 1999 by which the 1st Plaintiff became the exclusive licensee of the copyright work. The defence advanced by the Defendants was that the 1st Defendant was engaged by Jimmy Law Production to manufacture optical discs of the film, and a master copy was provided by that company which had also supplied documents to the Defendants to satisfy the Defendants that it had distribution right in the work. It is further pleaded that the optical discs manufactured by the 1st Defendant were for use in Mainland China only and that there was no infringement of the copyright of the Plaintiffs.

9. The parts of the agreement in question blanked out by the Plaintiffs were as follows. The price in Clause 1 for the granting of the exclusive licence to the 1st Plaintiff was blanked out. In Clause 3, the manner and time of payment of the price were blanked out. In Clause 16, the deduction to be made from the price in the event that the 2nd Plaintiff was unable to show the film in Hong Kong by first theatrical release within one month of the agreement, that information was blanked out. I have inspected the complete document at the adjourned hearing.

10. The Plaintiffs' counsel referred me to the case of G E Capital Corporate Finance Group Limited v Bankers Trust Co. and Others [1995] 1 WLR 172 for these propositions. Firstly, it is a well established practice that a party is entitled to seal up parts of a document on discovery if it is considered that they are irrelevant. Secondly, the test in the Peruvian Guano case must be applied in respect of the information covered up.

11. I do not think the Defendants' solicitor, Mr Tse Wai Hang, had argued to the contrary.

12. In applying the test in the Peruvian Guano case (1882) 11 QBD 55 at 63, I bear in mind that the question of relevance was framed in wide terms. A document is relevant not only when it is evidence on any issue in dispute but "also which, it is reasonable to suppose, contains information which may -not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary." Brett LJ further had this to say: "A document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or damage the case of his adversary, if it is a document which may fairly lead him to a chain of inquiry, which may have either of these two consequences."

13. It is the Plaintiffs' argument that the parts concealed are not relevant because the Defendants have not put forward any positive case to impugn the validity or bone fide of the agreement in question. In other words, the Defendants have not alleged that the agreement was unenforceable or a sham. Hence, there is no need to disclose the consideration or the deduction to be made from the consideration in a particular event.

14. As pleaded in the Defence, the Defendants have no knowledge of this agreement. It is understandable that they are unable to advance a positive case impugning the validity of the agreement on basis of information available to them. In their Defence, the Defendants have put the Plaintiffs to proof that the 1st Plaintiff was the exclusive licensee of the copyright work by virtue of the agreement. In my view, consideration and the manner of payment and whether the 1st Plaintiff had provided the consideration as stipulated are material and relevant to the validity of the agreement, a matter which the Defendants have put Plaintiffs to proof.

15. The other argument advanced by the Plaintiffs was that even though the information may be relevant to quantum, it is not relevant to liability. Hence, it is premature for this information to be disclosed at this stage. I was referred to the case of Auto-Treasure Ltd v. Noble Diamond Ltd [1992] 1 HKC 117, a decision of the Court of Appeal, in which it was held that for a copyright action, the Hong Kong Courts should follow the practice of the Chancery division in England and Wales in that the trial judge would determine all issues of liability and if liability is proved, the judge would direct an inquiry as to damages or an account of profits to be taken in chambers. Discovery relating to the inquiry or account would not be ordered until the Defendant's liability has been established and the Plaintiff has elected whether to claim damages or an account of profits.

16. If the information held by the Plaintiffs was relevant only to quantum, I would accept the Plaintiffs' submission that disclosure of such information at this stage would be premature, as I would be bound by Auto-Treasure. However, this is not the case here as I have ruled that the information withheld by the Plaintiffs is relevant to liability. For these reasons, I reject the Plaintiffs' submissions, and I make an order that the parts concealed should be disclosed to the Defendants. I will hear the parties on the terms of the order and costs.