ANTOVI INTERNATIONAL LTD v. CREST OCEAN (HONG KONG) LTD

HCA1329/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1329 OF 2006

-------------------------

-------------------------

-----------------------

J U D G M E N T

-----------------------

1. This is an appeal by the defendant from the order of Master Hui given on 9 February 2007 dismissing the defendant’s application by Summons dated 13 October 2006 to strike out the plaintiff’s Statement of Claim and the Answer to Request for Further and Better Particulars under Order 18, rule 19 of the Rules of the High Court, alternatively the inherent jurisdiction of the court on the grounds that :

(1)     they disclose no reasonable cause of action;

(2)     they are scandalous, frivolous and vexatious; and/or

(3)     they are an abuse of the process of the court.

2. No affidavit evidence was filed by either party and the matter was decided solely on the pleadings and the Answer to Request for Further and Better Particulars.

Plaintiff’s pleaded case

3. The plaintiff entered into a written Distribution Agreement dated 15 July 2003 with the defendant whereby the defendant granted to the plaintiff exclusive distributing and marketing rights of a VCD disc series known as Hi-5 Series 3 (“the Disc Series”) in return the plaintiff to pay royalty fees to the defendant.

4. The Distribution Agreement was to run for the first year from 1 August 2003 to 31 July 2004 with the right to automatic renewal in the absence of any notice of breach thereof.

5. There was a further agreement between the plaintiff, the defendant and one Prime Disc Ltd whereby Prime Disc Ltd would be authorized by the defendant as the sole manufacturer of the Disc Series and the plaintiff must place orders with Prime Disc Ltd for the Disc Series under the Distribution Agreement.

6. After the first year term, the Distribution Agreement was automatically renewed, in the absence of any notice of breach, for a further term from 1 August 2004 to 31 July 2006.

7. In November 2005, the plaintiff was informed by an Australian based company, Southern Star International Ltd (“Southern Star”), that Southern Star was the genuine owner of the Disc Series and that Southern Star’s agreement with the defendant for the respective rights of the Disc Series had been formally cancelled since 13 April 2004.  Moreover, Southern Star reserved its rights to claim against the plaintiff for damages for infringement of copyright because the plaintiff was still distributing the Disc Series at the time.  Southern Star further stated that the defendant all along had no right to sublicense the Disc Series and Southern Star had never given any approval to the defendant in this regard.

8. Accordingly, the plaintiff ceased distributing and marketing the Disc Series and called back all discs of the Disc Series from shops to which the plaintiff had distributed.

9. The plaintiff claims against the defendant for :

(1)     breach of the Distribution Agreement by failing to have assigned legally any rights to the plaintiff on or after 13 April 2004 concerning the Disc Series;

(2)     breach of warranty given by the defendant under Clause 4.01(6) of the Distribution Agreement;

(3)     misrepresentation by the defendant that it had the right to sub-license the distribution and marketing rights of the Disc Series thereby inducing the plaintiff to enter the Distribution Agreement, which representation the plaintiff relied upon but which was untrue.

Basis of defendant’s application for striking out

10. It was submitted by the defendant that there was no “primary infringement” on the part of the plaintiff of the copyright in the Disc Series since the plaintiff was not involved with the manufacture of the Disc Series, and not the importer of them.

11. It was also submitted by the defendant that there was no “secondary infringement” of the copyright in the Disc Series by the plaintiff (pursuant to Section 31 of the Copyright Ordinance) since it is a prerequisite to liability that the copy of the work has to be an “infringing copy”.

12. Section 35(2) provides that :

“[a] copy of a work is an infringing copy if its making constituted an infringement of the copyright of the work in question.”

13. Relying on the Answer F(11) given by the plaintiff to the Request for Further and Better Particulars of the Statement of Claim which states that 46,000 discs (of the Disc Series) were requested to be produced by the plaintiff on 23 September 2003 from Prime Disc Ltd, and also relying on a letter from the defendant to Prime Disc Ltd dated 18^t September 2003 in which it was stated that the manufacturing period for the Disc Series was to be from 19 September to 4 October 2003, the defendant submitted that the 46,000 discs ordered by the plaintiff were not infringing copies of the Disc Series.

14. In the circumstances, the defendant said that the plaintiff could not have infringed Southern Star’s copyrights in the Disc Series and that Southern Star could have no relief as against the plaintiff.

15. The decision to recall the Disc Series from the shops was a decision of the plaintiff’s and unreasonable in the circumstances.  Therefore the loss alleged by the plaintiff was not caused by any breach of the defendant.

16. The defendant was therefore not liable to the plaintiff as claimed.

17. It was further submitted by the defendant that on the plaintiff’s case that the defendant was in breach of the Distribution Agreement, arguably, even if the plaintiff had suffered no loss, it would still be entitled to nominal damages, and on that basis it may be said that only those paragraphs relating to the plaintiff’s contractual loss should be struck out.

18. In this respect, the defendant, relying on the approach adopted in Wharf Properties Ltd v. Eric Cumine Associates Architects Engineers & Surveyors, CACV No.84 of 1988, submitted that the entire plea of breach of contract should be struck out.

Decision

19. It is not disputed that in an application to strike out on the grounds of there being no reasonable cause of action, and where no evidence is put before the court, the court approaches the matter on the basis of the pleading alone.  Moreover, it is only in plain and obvious cases that the court would strike out a pleading.

20. In the present case, what has been pleaded is, in my view, sufficient to support the plaintiff’s claim for breach of contract, breach of warranty and/or a misrepresentation.

21. No submission has been made by the defendant in so far as these three causes of actions are concerned.

22. What has been submitted by the defendant really goes to the question of damages and loss, and not to the issue of no reasonable cause of action.

23. Bearing in mind also that the claim by the plaintiff is not solely on loss of profits due to the recall of the Disc Series from the shops, but there are also claims for loss of goodwill, repayment of royalty fees, loss of production and marketing expenses incurred by the plaintiff, I am unable to accede to the submission by the defendant that even if the plaintiff can show breach of agreement, the plaintiff will only be entitled to claim nominal damages.

24. For these reasons, the appeal is dismissed with costs, the costs order being an order nisi.