H&M HENNES & MAURITZ GBC AB v. ROADGET BUSINESS PTE LTD AND OTHERS

HCIP 45/2022

[2024] HKCFI 545

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 45 OF 2022

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JUDGMENT

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1.  This is the Plaintiff’s application for summary judgment against the Defendants.

2.  This court has dealt with a related case, HCIP 31/2021 (“the Related Case”), in which the same Plaintiff is suing the other Defendants (“the Other Defendants”) for copyright infringement in respect of the clothing items sold by the latter on their online sales platform.

3.  After the writ was issued in the Related Action, it is common ground that the business (“the Shien Business”) of the Other Defendants (being Hong Kong companies) was transferred to at least one entity in Singapore which is the 1^st Defendant in this action.[1] The Plaintiffs’ position is that the 2^nd and 3^rd Defendants in this action are also transferees of the Shien Business as all the Defendants in this action are closely connected and part of the same group having common shareholders and directors.

4.  It is the Plaintiff’s case that all the Defendants in this action are liable for the debts and obligations of the Other Defendants arising from the operation of the Shien Business under s 3 of the Transfer of Business (Protection of Creditors) Ordinance, Cap 49 (“TBPCO”), and the Plaintiffs are seeking for the following principal relief:

(i)  a declaration that the Defendants are transferees of the Shien Business from the Other Defendants;

(ii)  an order that the Defendants do pay to the Plaintiff any sums found due and owing in the Related Action by the Other Defendants to the Plaintiff; and

(iii)  an order that the Defendants be subject to the same injunctive relief (including for copyright infringement) as granted against the Other Defendants in the Related Action.

5.  S 3(1) of the TBPCO provides:

“Subject to this Ordinance, whenever any business is transferred, with or without the goodwill thereof, the transferee shall, notwithstanding any agreement to the contrary, become liable for all the debts and obligations, including liability for tax charged or chargeable under the Inland Revenue Ordinance (Cap. 112), arising out of the carrying on of the business by the transferor.”

6.  The Defendants do not dispute that the 1^st Defendant was the transferee of the Shien Business. The issue in the present case is therefore a narrow one: whether the tortious liability for copyright infringement committed by the transferor before the transfer falls within the meaning of “debts and obligations” under s 3(1) of the TBPCO?

7.  Mr Clark, solicitor advocate for the Plaintiff, submits that the Other Defendants and the present Defendants might have the intention to evade the potential liability for copyright infringement which is the subject matter of the claim in the Related Action. First, steps were taken to give effect to the transfer of the “Shien” trademark portfolio within days after the service of the writ in the Related Action. Second, no notice was given by the Defendants under s 4 of the TBPCO. Third, despite ample opportunities, no mention was made of the transfer during the proceedings in the Related Action. However, as pointed out by the Court of Appeal in Yiu Ka Fung Vincent trading as Confidence Services Centre v Info-vantage Ltd[2], no element of fraud is required for the TPBCO to apply.

8.  The legal representatives of both parties have conducted thorough research and cannot find any direct authorities on the point. If there is an existing judgment debt resulting from a previous tortious act committed by the transferor, then the liability for such judgment debt would pass to the transferee as this judgment debt falls within the meaning of “debt” under s 3(1). However, what happens if there was only a pending action for a tortious act at the time of the transfer?

9.  Mr Clark argues that the transferor had an obligation under the Copyright Ordinance, Cap 528 (“CO”) not to infringe copyright, and as a result any transferees of its business have: (a) an obligation to pay damages (or account for profit) arising from copyright infringement that occurred in carrying on the business of the Other Defendants in the Related Action; and (b) an obligation to abide by any injunctive relief ultimately granted.

10.  He also submits that “obligation” includes any obligation that may only crystallise in the future. That is why the word “all” is used. With regard to tax, it was made clear by the use in s 3 of the words “including taxes that are charged or chargeable”. It does not matter that a specific amount has not yet been charged, but simply that profits or other income that have been earned that will be subject to tax. The use of the word “including” means that it is only giving an example of what is included. With regard to monetary compensation, even if at the date of transfer the amount that the transferee is obliged to pay has not been crystallised, damages or an account of profits that are ultimately ordered to be paid by the transferor will be an obligation that “arises out of carrying on of the business by the transferor” as provided for in s 3. As for injunctive relief, the obligation not to infringe does not arise from an injunction being granted. Instead, such obligation arises under the CO and applies to everyone in Hong Kong whether they are sued or not. Once a business is sued and the court deems injunctive relief appropriate because of acts arising from the operation of the relevant business, then anyone carrying on that business is subject to the same injunctive relief.

11.  On the other hand, Ms Ma, counsel for the Defendants, argues that “debts and obligations” in s 3 of the TBPCO only cover existing debts and obligations. In fact, the decided cases concerning s 3 were all related to existing debts at the time of the transfer.[3]

12.  The absence of authorities is neither here or there. Ultimately, the question is one of construction of the meaning of “debts and obligations” in s 3. In my judgment, the other provisions in the TBPCO support the proposition that “debts and obligations” cover all debts and obligations of the transferor accrued before the transfer. Though the exact quantum of the debt or obligation may not have been crystallised or ascertained by reason of pending legal proceedings, such debt, obligation or liability would still be covered by s. 3. I now explain why I say so.

13.  S 4 of the TBPCO provides the circumstances in which the transferee’s lability may cease including the giving of a notice. The section specifies a time frame for the giving of the notice, and the liability of the transferee shall cease with effect from the date on which a notice of transfer becomes complete, which is usually 1 month after the date of the publication of the notice. S 4(5) specifies that, inter alia, “if proceedings are instituted against the transferor in respect of any liability of the transferor arising before such notice has become complete and out of the carrying on of his business”, then “the notice of transfer shall (for the purposes of such proceedings only) be deemed incomplete pending the final determination of such proceedings, including all possible appeals, and pending the expiration of all periods during which such appeals may be brought.”

14.  It is clear from this provision that the liability of the transferee shall cover the potential liability of the transferor if there was a pending action against the transferor before the transfer, otherwise there would be no need to have an elaborate provision in s 4(5) to extend the non-effect of the notice in the case of a pending litigation against the transferor. The effect of the notice is to exempt the liability of the transferee. If there is no existing debt or obligation before the transfer because the liability of the claim has yet been determined by the court, I cannot see why is it necessary for the TBPCO to provide for this scenario if the “debts and obligations” were meant to cover only existing debts or obligations crystallised at the time of the transfer.

15.  In the present case, it is common ground that the Related Action was commenced before the date of the alleged transfer and the transferee had not given any notice under s 5 of the TBPCO, and so the liability of the transferor under the Related Action would pass to the transferee under s 3.

16.  Ms Ma is also taking a pleading point. In the Statement of Claim, the Plaintiff is seeking to claim for “all the debts and obligations” of the Other Defendants “arising out of [the Related Action]”. However, the TBPCO only specifies “debts and obligations … … arising out of the carrying on of the business by the transferor”. As the Plaintiff has not pleaded the specific reference relating to “carrying on of the business by the transferor”, the Plaintiff’s claim is defective and fundamentally flawed.

17.  I disagree. By expressly pleading liability under s 3 of the TBPCO, the Plaintiff is in substance alleging that the obligation to pay damages arises out of the carrying on of the business by the transferor. In the present context, the Other Defendants carried on the business of operating the “Shien” online sales platform. It is beyond dispute that the alleged copyright infringement occurred in the course of the operation of such business by the Other Defendants. All the material facts in support of the claim have been pleaded, and there is no need for the Plaintiff to plead specific reference to such legal requirement under s 3.

18.  Yet, I would not grant summary judgment against the 2^nd or 3^rd Defendant. As admitted by the Defendants, only the 1^st Defendant is the transferee of the “Shien” Business formerly carried on by the Other Defendants. The fact that there are common shareholders and directors does not make the 2^nd and 3^rd Defendants the transferee of the Shien Business. There is no simply legal basis under the TBPCO to make these Defendants liable for the previous tortious acts committed by the transferor.

19.  Neither would I grant the order that the Defendants would be bound by the injunctive relief which may be granted in the Related Action. After all, injunctive relief is a discretionary remedy against a particular defendant which may or may not be granted by the court depending on the circumstances of each case. The aim of the TPBCO is to protect creditors in the case of non-payment of monetary debt. There is no basis to extend the personal obligation of the tortfeasor to comply with the terms of the injunctive relief to the transferee of the relevant business. If the Defendants were to continue the copyright infringement, it would be a fresh infringement committed by them personally after the transfer. The proper way to seek protection is for the Plaintiff to take a fresh action of copyright infringement against the Defendants, as their infringement has nothing to do with the previous tortious acts committed by the transferor of the Shien Business.

20.  For these reasons, I only grant the summary judgment application against the 1^st Defendant for the relief mentioned in paragraphs 4(i) and (ii) above. I also grant the 2^nd and 3^rd Defendants unconditional leave to the defend the claim.

21.  Further, I make the following costs order nisi which shall be made absolute 14 days after the handing down of this Judgment:

(i)  the 1^st Defendant do pay to the Plaintiff the costs of this action including the costs of this application; and

(ii)  the costs of this application vis-a-via the Plaintiff and the 2^nd and 3^rd Defendants be costs in the cause.