HKK v. N

HCCT 45/2012

[2020] HKCFI 1888

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 45 OF 2012

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D E C I S I O N

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1.  This is an application made by the Plaintiff, HKK, for payment out of a sum of HK$25 million which had been paid into court by the Defendant, N, in November 2013 and July 2014. The payment into court was pursuant to the Order made by Hon L Chan J on 7 November 2013, and stated in his Judgment (“Judgment”) to be for the purpose of securing what the Defendant will have to pay the Plaintiff per the licensing scheme, as may be ordered by the Copyright Tribunal in proceedings instituted by the Plaintiff against the Defendant under CT 2/2010.

2.  As stated in the Judgment, the Defendant which is engaged in operating the Neway Group of karaoke outlets applied to the Plaintiff in June 2010 for a karaoke server licence under a KMV licensing scheme operated by the Plaintiff (“Scheme”).  When the licence was offered, the Defendant contended that the terms and the tariff of the Scheme were unreasonable and on 9 August 2010, the Defendant applied to the Copyright Tribunal under CT 2/2010 for relief under section 156 (3) of the Copyright Ordinance.

3.  The Defendant’s challenge was unsuccessful, as the Tribunal held in its Decision handed down on 23 December 2019 (“Decision”) that the terms of the Scheme (including the structure and the applicable rates thereunder) were reasonable.  The Tribunal ordered the Defendant to make payment of the licence fees payable under the Scheme for the period from 1 July 2010 to 30 June 2015.  The parties were directed to agree on the calculations and amounts payable in accordance with the determination made by the Tribunal.

4.  The Defendant applied to suspend the Decision, but such application was refused on 8 April 2020.  The Tribunal made a further order on 8 April 2020, that the Defendant should pay to the Plaintiff 80% of the Plaintiff’s costs in CT 2/2010.  In making such order on costs, the Tribunal stated that the Defendant had conducted the proceedings in a way that unreasonably or unnecessarily caused the Plaintiff to incur a significant amount of costs.

5.  The Defendant has appealed against the Decision.

6.  The Plaintiff and the Defendant were not able to agree on the calculations of the licence fees payable on the basis determined by the Tribunal.  A hearing before the Tribunal has now been scheduled to take place on 21 to 22 August 2020, for the licence fees to be determined.  Submissions have been filed by both parties on the calculations of the licence fees.

7.  On the Plaintiff’s calculations, the amount payable by the Defendant is in the region of $90 million, and it claims that the amount paid into court is only a fraction of the licence fees for which the Defendant is liable under the Scheme.  On the Defendant’s part, it claims that it is not liable to pay any fees at all, as the Scheme was operating at a loss for the Defendant.  All these are for determination by the Tribunal.

8.  On 20 March 2020, the Plaintiff applied to this Court for an order that the $25 million paid into court by the Defendant, together with all accrued interest, be paid out to the Plaintiff under Order 22A rule 1 (1) RHC.  The Defendant objects to the application, on the ground that it is premature, when the amount of the licence fees payable are due to be determined by the Tribunal in August 2020.  The Defendant contends that if the Court is to deal with the application for payment out, it will have to decide on the correctness or otherwise of the parties’ respective calculations of the licence fees payable, when the Tribunal is seised of the matter.

9.  Further, the Defendant claims that the Court has no jurisdiction to order interim payment under section 45 (2) of the Arbitration Ordinance, as L Chan J so held in November 2013, when the Plaintiff applied for the interim payment of licence fees.

10.  The Court undoubtedly has jurisdiction under Order 22A in respect of monies which have been paid into court.  The present application is distinguishable from the application for interim payment which was determined by Hon L Chan J in November 2013, when the Court considered its jurisdiction in the context of section 45 (2) of the Arbitration Ordinance and the grant of interim measures by the Court in aid of arbitration.  In any event, despite holding that he had no jurisdiction to order interim payment, L Chan J found in November 2013 that the Court does have power and jurisdiction to order payment to be made into court, which power he did exercise in favour of the Plaintiff.

11.  With the money paid into court, Order 22A gives wide powers and an unfettered discretion to the Court over the money, and as to whether payment out should be ordered, to achieve justice between the parties on the facts and in the circumstances of the case.  These principles are clearly established in the cases cited in para 22A/1/1, Hong Kong Civil Procedure 2020, namely, Wear Me Apparel LLC v Lam Na, unrep HCA 149/2009; and Ng Chi Kwan Danny Summer v Yeung Yiu Kwai, unrep HCPI 633/2011 (28 November 2014).

12.  Order 22A rule 1 (1) provides that any money paid into court may not be paid out except in pursuance of an order of the Court which may be made at any time before, at or after the trial or hearing of the action.  The Decisions on Costs in Ng Chi Kwan Danny Summer v Yeung Yiu Kwai sets out a useful summary of the cases decided under Order 22A rule 1 (1).  Deputy High Court Judge Marlene Ng (as Her Ladyship then was) referred to the judgment of Collins MR in Powell v Vickers, Sons & Maxim, Limited [1907] 1 KB 71, where it was held that the Court was entitled to hold the money in court “if there was any adequate reason for so doing to outweigh the presumption that it should be distributed”.  It was highlighted that the onus is on the defendant “to give some good reason why the money should remain in court”.

13.  The unfettered discretion which the Court has must be exercised judicially so as to achieve justice between the parties.  It is always necessary to consider the purpose of the initial payment into court, and where the applicant for release of the payment is in principle entitled to the money, then the Defendant must demonstrate good reasons to justify why the Court should retain the money instead of releasing it.

14.  The fact that there is an appeal against the relevant judgment (in this case the Decision of the Tribunal) does not operate as a legitimate reason to defer payment out, in the absence of a stay of execution of the judgment: Wear Me Apparel.

15.  The purpose of the order for payment to be made into court was clearly identified in paragraph 38 of the Judgment of Hon L Chan J.  This was “to secure what (the Defendant) will have to pay the Plaintiff per the licensing scheme as may be ordered by the Copyright Tribunal in CT 2/2010”. The payment into court which was ordered related to, inter alia, the back- catalogue from 1 July 2010 to 30 June 2014 and the new KMVs from 1 November 2013 to 30 June 2014. 

16.  In the Decision, the Tribunal has already decided, firstly, that the structure and rates of the back-catalogue repertoire of the Scheme are reasonable; and further, that the Defendant is liable to pay licence fees to the Plaintiff based on such a determination.

17.  It is not for this Court to decide the amount of the licence fees payable by the Defendant, as this is a matter for the Tribunal now that the parties cannot agree on the calculations.  Nor is it necessary for the Court to make even a preliminary determination, as the Defendant suggests, as to the correctness of the parties’ calculations of the licence fees.  I agree with the Plaintiff, that on the basis of the Decision of the Tribunal, the Defendant is bound to have to pay licence fees to the Plaintiff, even if it disputes the calculations now made by the Plaintiff.  The Tribunal already found the terms, structure and rates of the Scheme to be reasonable.  Whether the Defendant had operated at a loss cannot be relevant to its liability under the Scheme.

18.  I also accept the submissions made on behalf of the Plaintiff, that the Court can draw analogy from an application for interim payment under Order 29 rule 11 (1) (b), where a plaintiff has obtained judgment for damages to be assessed.  In such circumstances, the Court may order the defendant to make an interim payment of such amount as the Court thinks fit, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff.  In this context, the Court may adopt a “fairly broad approach” and make an estimate of the likely award of damages, and award a reasonable proportion thereof, by way of interim payment to the defendant (Top One International (China) Property Group Company Limited & Anor v Top One Property Group Limited & Ors, unrep CACV 269/2011, 20 July 2012).

19.  Having regard to the Decision of the Tribunal, and the purpose of the payment into Court ordered in November 2013, I bear in mind that there has been a long delay from 9 August 2010, when CT 2/2010 was commenced by the Defendant to challenge the terms and the rates of the Scheme, which challenge has been dismissed since December 2019.  I also take into consideration the fact that the licence fees payable under the rates of the Scheme, which have been held to be reasonable, amount to over $90 million on the Plaintiff’s calculations, which is well in excess of the amount paid into court, whereas the basis of the Defendant’s challenge to these calculations appears to be a rerun of its underlying challenge to the structure and terms of the Scheme already determined by the Tribunal.  Some amount must be payable as licence fees for the period from 2010 to 2014, for the Defendant’s use of the back-catalogue KMVs during the period.

20.  I accept the Plaintiff’s submissions, that it is for the Defendant to demonstrate good reasons against payment out, and not for the Plaintiff to establish prejudice.  In any event, the Tribunal has found in favour of the Plaintiff, it is entitled to payment of the licence fees for the period of the licence, and it has been kept out of the money due.  The longer the delay, the greater the risk of the Plaintiff not receiving payment from the Defendant, in view of the apparent uncertainties concerning the business of the Defendant.

21.  The Plaintiff has highlighted the fact that the Defendant has been ordered by the Tribunal to pay 80% of the Plaintiff’s costs of CT 2/2010, and these legal costs have been incurred for almost 10 years.  The costs payable by the Defendant are substantial, which the Plaintiff estimates to be in the excess of $20 million.

22.  The payment into court was ordered to secure what the Defendant will have to pay the Plaintiff “per the licensing scheme” as may be ordered by the Tribunal.  Arguably, the costs ordered to be paid by the Tribunal are not “payable per the licensing scheme”.

23.  Taking a broad brush approach as the Plaintiff has urged me to do, as for an application made under Order 29 rule 11 (1) (b) RHC, I consider that the licence fees to be determined by the Tribunal in accordance with its Decision are likely to be not less than 50% of the $90 million calculated by the Plaintiff to be due under the Scheme.  This is on the side of caution, but the estimate is well in excess of the amount paid into Court.

24.  For the above reasons, I grant the order sought by the Plaintiff’s Summons dated 20 March 2020 for payment out.  The costs order nisi is that the costs of and incidental to the application are to be paid by the Defendant to the Plaintiff, with certificate for counsel.