The Commissioner of Customs and Excise v. Golden Science Technology Ltd. and Others

CACV 104/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 104 OF 1999

(ON APPEAL FROM HCMP NO. 6968 OF 1998)

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J U D G M E N T

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Rogers, J.A. (giving the Reasons of the Judgment of the Court) :

1. At the conclusion of the hearing of the appeal in this matter, we dismissed the main appeal but varied the order made below to make provision for the Respondents to provide advance notice of information relating to proposed manufacture and authorisation thereof of optical disc. We allowed the appeal in relation to costs. We said that we would hand down the reasons for our decision at a later date which we now do.

Background

2. This action concerns the manufacture of optical disc on a substantial scale. During the course of a raid by ICAC officers on the 1st Respondent's premises on 26th April last year, attention was drawn to the manufacture of various VCDs which were taking place at the premises. As a result, some 3 days later, officers of the Customs and Excise Department raided the 1st Respondent's premises and seized, amongst other things, 22 million VCDs, 41 production machines for making optical disc as well 12 printing machines and various other equipment and items.

3. In particular in respect of the large machines, it was impractical to remove them from the premises. Guards were, therefore, posted and the Respondents were denied access to them. Notices of the seizure, and, hence, the fact that the items had become liable to forfeiture, were given on behalf of the Commissioner of Customs and Excise on 25th May 1998. Then on 17th June 1998, the 1st Respondent's solicitors gave notice in accordance with Section 131(5) that the articles were not liable to forfeiture and asked for release of the machines as well as return of the VCDs.

4. One production machine out of the 41 seized but none of the 12 printing machines and only 2,000 VCDs were returned to the 1st Respondent. As a result, the 1st, 6th and 7th Respondents applied for judicial review in October 1998. On 18th December 1998, Keith, J. by mandamus ordered the Commissioner of Customs and Excise to comply with Section 133(1) and to apply for forfeiture of those articles which the Commissioner refused to release. Some of the VCDs were also ordered to be released but they are not part of the subject matter of these proceedings.

5. The present proceedings are thus proceedings commenced as a result of the order of Keith, J., the Notice of Motion having been issued on 24th December 1998 returnable on 19th April 1999.

6. Prior to the return date, however, the 1st, 6th and 7th Respondents applied by summons on the 5th March returnable on the 18th March for relief pending the final hearing of these proceedings which would effectively have given them access to the premises and, in particular, permitted use of the various machines including in particular the optical disc manufacturing machines. The Judge below granted that application subject to various conditions and this appeal is brought against his order.

The legislation relating to seizure of articles

7. The authority of officers of the Customs and Excise Department to carry out raids in relation to copyright infringement is contained, inter alia, in Section 122 of the Copyright Ordinance. Under Section 122(1)(b), an authorised officer may seize, remove or detain, not only any article which appears to him to be an infringing copy of a copyright work as well as any article which is specifically designed or intended to be used for making such a copy, but also anything which appears to him to be or to contain or to be likely to contain evidence of an offence.

8. It is unnecessary for the purposes of this case to consider precisely the scope of those words, since it is not disputed that in particular the optical disc manufacturing machines and the other machinery and equipment which have been seized fall within such category.

9. Section 131(1) provides that where an article has been seized under Section 122, it is liable to forfeiture in accordance with the provisions of the Ordinance.

Notices by Customs and Excise

10. The Ordinance then provides for a relatively swift determination of claims and disputes arising out of the seizure. Section 131(2) provides that notice of the seizure must be served on the owners within 30 days. Within another 30 days, the owner, either by himself or through an agent and any person who claims to have a legal or equitable title in an article must "give notice in writing to the Commissioner of his full name and address for service in Hong Kong and claim that the article ... is not liable to forfeiture." (Section 131(5))

11. If nobody is charged with any offence under the Ordinance and nobody claims that the articles are not liable to forfeiture, then they are automatically forfeited under the provisions of Section 131(7).

12. If, however, notice of a claim is given in accordance with Section 131(5), the Commissioner is required to apply to either a Magistrate, the District Court or the Court of First Instance for forfeiture.

13. In this case, the Commissioner failed to do so within a reasonable time and so the judicial review proceedings were lodged as a result of which an order was made requiring the Commissioner to bring the proceedings.

14. Section 133 sets out the steps that are to be taken once the proceedings have been commenced. Central to those provisions is subsection 133(7) :-

"If, upon the hearing of an application under subsection (1), the claimant ... appears before a court, the court shall hear the application."

15. It is also to be noted that under subsection 133(11) if the person who appears before the Court fails to satisfy the Court that he was, or would have been, entitled to make a claim under Section 131(5) (in other words, that he was the owner or had a legal or equitable interest in the article), the Court is required to make an order that the article be forfeited.

16. Section 133(5) deals with the situation where the claimant is a Defendant in criminal proceedings under the Ordinance. In those circumstances, the Ordinance provides that "... the Court may hear the forfeiture application immediately following the criminal proceedings ..." The sub-section also states that no summons or notice of the hearing need be issued or served. If, however, there is more than one claimant and not all the claimants are the subject of criminal proceedings, then Section 133(6) provides that again the forfeiture application may be heard immediately following the criminal proceedings, but that subsection does not exempt the issue of a summons or the service of notice.

17. Finally, subsection 133(12) provides that where a person has established entitlement to make a claim under Section 131(5) (in other words, has established ownership or legal or equitable interest in the article), and the Court is satisfied that the article is liable to forfeiture (in other words, is either an infringing copy or has been adapted to make an infringing copy or contains or is likely to contain evidence of an offence) then the Court has an option of making one of three orders.

18. The Court may, first of all, order the article be forfeited.

19. An alternative course is that the Court may order that the article be delivered to the claimant subject to any conditions. That alternative, however, is not available if the article is either an infringing copy of a copyright work or is designed or adapted to make copies of a particular work; see Section 133(13). Hence, the alternative of delivering the article to the claimant is effectively only available where it would be evidence of an offence but not, if it is an infringing article.

20. The third alternative order which the Court may make is disposal of the article in a manner and subject to such conditions as it may specify.

21. Both of the last two alternatives, that is the alternatives contained in Section 133(12)(ii) and (iii) are, as we have indicated, subject to any conditions which the Court may impose. Thus, it would be perfectly feasible for a Court to make an order for the temporary delivery of an article to the claimant or for the temporary disposal of an article, for example to the Commissioner of Customs and Excise, subject to conditions as to their production or delivery up in certain circumstances.

22. In view of the fact that Section 133(12) is specifically said to be "without prejudice to Section 132 ..." it is apparent that the powers under Section 132 of the Ordinance can be exercised notwithstanding that there has been an order under Section 133.

23. Section 132 provides for orders which the Court may make where a person has been charged with an offence. The orders which the Court can make are specifically said to be exercisable whether or not the person charged is convicted of the offence with which he was charged. The Section allows orders to be made not only in respect of infringing copies of copyright works and articles specifically designed or adapted for making copies of particular copyright works but also in respect of articles which have been used in connection with an offence under the Ordinance (again, it would be noted whether or not a conviction has been secured). The orders which the Court may make are that the article may be forfeited to the Crown or it may be delivered up to the person who appears to the Court to be the owner of the copyright concerned or it may be disposed of in such other way as the Court may think fit.

24. The scheme of the seizure, detention, delivery up and forfeiture provisions of the Ordinance thus appears to provide a speedy resolution of claims and disputes in respect of articles which have been seized including, if necessary, temporary arrangements pending the exercise by the Court of powers under Section 132 following the hearing of any criminal proceedings.

The need for interlocutory proceedings

25. On the basis of the above analysis, it should be unnecessary for the Court to be asked to exercise its powers under Section 21L of the High Court Ordinance to make interlocutory orders which would relate to the retention or disposal of the articles in question. Our attention has been drawn to a number of authorities including in particular to Re. W.J.T.'s application, a decision of Brooke, J. of the 5th October 1992 in the Queen's Bench Division. After some hesitation, we are satisfied that the Court would, under Section 21L, have power to make interlocutory orders in relation to articles seized where it appears to be just and convenient to do so. The exercise by the Court of its powers under Section 21L is an important jurisdiction and we would be reluctant to hold, in the absence of specific wording in an ordinance, that it could not be exercised in personam where the Court perceives it to be necessary. As we have indicated, however, in most circumstances, under the Copyright Ordinance, it should be possible to request the Court to make orders under Section 133(12) which would have the effect of being temporary until the hearing of any application under Section 132 following the hearing of a criminal case.

26. In the circumstances of the present case, the interlocutory order was requested to be made by the Court prior to the date fixed for hearing of the Notice of Motion. The Commissioner of Customs and Excise had however indicated that request would be made for the Court not to make any decision relating to the permission to the Respondents to use the equipment, in particular the optical disc manufacturing machines, until after the conclusion of the criminal case. The application for an interlocutory injunction order prior to the hearing was thus understandable although, in our view, the matter would have been better dealt with by requesting the Court to make the order on the hearing of the Notice of Motion.

The substantive objections to the order made

27. The primary objection to the order made below taken by Mr. Fitzpatrick on behalf of the Commissioner is that the order would be impossible to police. Coupled with that, it was argued that the Respondents had, at the last minute, produced evidence which was, or should be taken to be, incredible. The evidence to which strong objection was taken was as to the alleged authorisation of the 1st Respondent to produce copies of various works in particular films which were made by major Hollywood film companies. The evidence had been produced at the last minute in the Court below and was said to be authorisation by companies in the Mainland for the reproduction of the films in optical disc form. Mr. Fitzpatrick claimed that such evidence was clearly, on its face, incredible. Furthermore in respect of at least one of the alleged authorisations, there was sufficient evidence to question its veracity. In the face of that, it was argued that the Respondents were clearly untrustworthy and if the optical disc manufacturing equipment was to be permitted to be used by the Respondents pending final determination of the matter after criminal proceedings, extensive policing operations by the Customs and Excise Department would be required. It was said that because of the size and extent of the Respondents' operations extending to 41 optical disc manufacturing machines in 4 different locations, the resources of the Customs and Excise Department would be over-extended should they attempt to police the use of the machines. Finally and again, connected with this, it was said that the conditions which had been imposed in the Court below did not include a requirement to inform the Customs and Excise Department of which copyright works were to be used in manufacturing optical disc and the nature of the authorisations upon which the Respondents would be relying for their manufacture.

28. In respect of the last matter, the Respondents indicated that they would be prepared to include a yet further safeguard in the order in the following terms :-

"Without prejudice to the generality of the foregoing not to begin production regulated by the Prevention of Copyright Piracy Ordinance, Cap. 544, Laws of Hong Kong until they have obtained the requisite licence(s) under such Ordinance and to give immediate notice of all orders for production (whether or not such production is regulated by such Ordinance) and the authorisations for such production by faxing to the applicant such orders and authorisations at a fax number designated by the applicant as soon as practicable after such orders are confirmed and the authorisations are available. The notification would be given not less than 24 hours before production were to be commenced and sample of all articles produced would be provided."

29. In our view, the undertaking now offered would go a long way to alleviating the Commissioner's concern. There would be no need to have constant vigilance and guard over the particular machines. Officers from the Customs and Excise Department would be in a position to make unannounced inspection visits and determine whether any manufacture which was taking place was that which had been indicated.

30. Each case must, in our view, be considered on its own facts. There is no doubt as to the seriousness of software piracy. The matter is not simply a matter of the private interests of the copyright owners, it is a matter of public interest to Hong Kong generally. The effectiveness of enforcement of copyright is now an international issue. It has caused, amongst other things, the enactment of the provisions in the Copyright Ordinance to which reference is made. The remedies available for infringement of copyright can be extensive. If infringement has been proved, the Respondents in these proceedings, and in particular the 1st Respondent, could be open not only to forfeiture of its equipment but to massive penalties. The evidence shows that the equipment alone is worth hundreds of millions of dollars.

31. No doubt, the profits open to those who infringe software copyright are substantial and no doubt heavy sanctions are important to preserve and enforce the law. The due process of law however involves an even handed approach and proper proof of guilt of those whom it is sought to punish. In this case, it seems that, whether rightly or wrongly, the criminal action has not proceeded with any expedition. Whether the proceedings could be speeded by simplification of the case is not a matter for this Court. Nevertheless, it is clear on the evidence that in view of the very high costs of the equipment in question and in view of the rents payable by the 1st Respondent, there is a significant danger, if not likelihood, that the 1st Respondent would be forced into liquidation prior to any criminal proceedings being heard unless it is able to carry on business. Without its premises and without its machinery it could not do anything. In our view, the learned Judge's approach to the matter cannot be faulted and with the addition of the undertaking to which we have referred above, we consider that justice would be served by allowing the use of the manufacturing equipment pending the resolution of the criminal proceedings subject to the conditions embodied in the order below. The totality of these conditions are designed to prevent, and in our view should succeed in preventing, any illegal manufacture.

The appeal as to costs

32. In the Court below, the Judge ordered that the Applicant should pay the Respondents' costs of the application in any event. On interlocutory injunction applications, the Court of course has a wide discretion as to the orders which should be made in relation to costs. Frequently in the past, the orders for costs which have been made on an interlocutory injunction application have been that the costs should be the winning party's costs in the cause. It is rare in interlocutory injunction proceedings for final orders for costs to be made since the rights of the parties have not been determined. In this case, the Judge's reason for making the costs order final was that the Commissioner had resisted the Respondents' application throughout.

33. In our view, the Judge should have had regard to the possible outcome of the criminal proceedings which may be that the 1st Respondent will be held to have been an infringer of copyright. In those circumstances, it would be particularly harsh for the Commissioner to be required to pay the costs of an infringer who had succeeded in persuading the Court to exercise its discretion in allowing it to use equipment which would in those circumstances be vulnerable to forfeiture. The just order of costs in the Court below would have been that the costs should be the costs in the cause of the forfeiture proceedings following the criminal proceedings which have already been launched.

34. For those reasons, the appeal as to costs was allowed and the order for costs below was altered accordingly.