AQUA-LEISURE INDUSTRIES INC. AND ANOTHER v. AQUA SPLASH LTD.

CACV 175/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 175 OF 2002

(ON APPEAL FROM HCA NO. 18928 OF 1998)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1. Prior to the appeal hearing, the plaintiffs had filed the following applications which, in chronological order, are (i) a summons to vary the costs order nisi made by this court on 30 October 2002; (ii) a notice of motion for leave to appeal to the Court of Final Appeal; (iii) a summons for leave to amend the notice of motion; and (iv) a summons (1) for an order that the appeal heard by this court on 3 and 4 October 2002 be reinstated and reheard as an alternative to an order granting leave to the plaintiffs to appeal to the Court of Final Appeal; and (2) that the plaintiffs be at liberty upon the hearing of their application for leave to appeal to the Court of Final Appeal (alternatively, their application for reinstatement and rehearing of the appeal) to adduce and rely on the affirmation of Ian Kao Jian Yin ("Mr Kao") dated 24 January 2003 and the affirmation of Douglas D Clark dated 5 February 2003 ("the new evidence") as additional evidence under the Ladd v Marshall principle.

2. At the outset of the hearing, the parties were informed that the court considered that for applications for the reinstatement and rehearing of an appeal, the procedure laid down by the English Court of Appeal in Taylor v Lawrence [2002] 3 WLR 640 at paragraph 56 should be followed. The court had, accordingly, treated the summons and the written submissions for the application in (iv)(1) above as a paper application for permission to reopen and reinstate the appeal heard and determined in October 2002. That application had been refused and the court indicated that it would not entertain oral submissions on the reinstatement application.

3. Save for the application under (iii) which was not opposed, at the conclusion of the hearing, the other applications were dismissed with costs for reasons to be handed down later which we now do.

Background

4. The background facts are to be found in the judgment handed down on 30 October 2002 and I do not propose to repeat them here. Suffice to state that the proceedings before Deputy Judge To were committal proceedings brought against the defendant ("the company") and its directors Impag HK Limited and Connie Lin Ya Ling ("the directors"). However, the company had gone into liquidation prior to the institution of the committal proceedings. Deputy Judge To had found the company and the directors in breach of paragraphs 5 and 7 of the order of Keith J made on 14 May 1999 ("the Keith order") for delivery up within 7 days of the service of that order, certain articles "in the possession, custody, power or control" of the company and also of paragraph 9 relating to an affirmation confirming compliance with the orders in, inter alia, paragraphs 5 and 7 of the Keith order. The directors' appeal from the finding that they had breached paragraphs 5, 7 and 9 of the Keith order was successful. The plaintiffs seek leave to appeal to the Court of Final Appeal and for that purpose that the new evidence be admitted.

The application to admit new evidence

5. It is common ground that for fresh evidence to be adduced before this court, the plaintiffs must satisfy the three conditions laid down in Ladd v Marshall [l954] 1 WLR 1489 at 1491. They are that (1) it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; (2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; (3) the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

6. Substantively, the fresh evidence sought to be admitted was an affirmation from Mr Kao the sales manager of the Guan Pin Factory. At the committal proceedings, the plaintiffs did not adduce any evidence from Mr Kao. Rather, they chose to rely on hearsay evidence from him introduced through their PRC lawyer Lu Fang Ming. See paragraphs 7-12 of Mr Lu's affirmation dated 5 August 2000 where Mr Lu described the raid by the TSB officers on the Guan Pin Factory on 5 July 1999 on which occasion Mr Kao had allegedly made the statements attributed to him in Mr Lu's affirmation. Given those facts, there were obvious difficulties in the plaintiffs' path in terms of satisfying the Ladd v Marshall conditions.

7. Mr Kotewall SC for the plaintiffs submitted that the new evidence does satisfy the first condition because the reason why it was not possible to get Mr Kao to give evidence for the plaintiff at the committal proceedings or before the Court of Appeal was that the plaintiffs had arranged the raid on Guan Pin in 1999 and that Mr Kao had thought that the plaintiffs might take action against Guan Pin and hence, practically speaking, would not have been willing to assist. It was said that two matters have brought about a change in the situation: first, the fact that Guan Pin has terminated its business relationship with the Impag Group and, second, the undertaking given by the plaintiffs not to take further action against Guan Pin if Mr Kao agreed to provide evidence for the plaintiffs to substantiate the plaintiffs' complaint against the company and its directors.

8. It is apparent from the new affirmations that the first time the plaintiffs made contact with Mr Kao was on 12 December 2002 which was one and a half years after the trial and some six weeks after this court had rendered its decision on the appeal. On the evidence, Guan Pin had terminated its relationship with Impag as long ago as August 2000 which was a year before the committal proceedings. There was no evidence that any positive steps had been taken by the plaintiffs, whether prior to the proceedings in August 2001 or the appeal in October 2002, to contact Mr Kao. Equally there was no evidence before us to explain why the offer which the plaintiffs saw fit to make to Mr Kao in December 2002 could not have been made earlier. It is not as if the plaintiffs have only just discovered the existence and whereabouts of Mr Kao and the position he held. In the circumstances, it is plainly not arguable that the first condition laid down in Ladd v Marshall has been satisfied.

9. The third condition proves equally problematic for the plaintiffs: the evidence shows that the plaintiffs did not approach Mr Kao originally because it was not thought that his evidence would be favourable. Mr Kao's apparent willingness to assist now is, in part, attributable to the fact that High Crown, the owner of the Guan Pin Factory, is no longer well-disposed towards the Impag Group whose unpaid invoices allegedly total over US$900,000. In addition, Mr Kao has now been offered an undertaking or guarantee on the part of the plaintiffs that they will not take any further action against High Crown in relation to the production of Aqua Splash products. This involves the abandonment by the plaintiffs of a potentially substantial claim inasmuch as damages of over HK$63 million have been assessed against the company for infringement. In the circumstances, putting it at its lowest, one would need to approach the evidence of Mr Kao with a great deal of circumspection. In other words, it is less than obvious that his evidence is "apparently credible".

10. In my view, the Ladd v Marshall conditions have not been shown to be satisfied and the application for leave to adduce new evidence must be refused.

The application to vary the costs order nisi

11. As noted above, the company was the only defendant in the action but contempt proceedings had been brought not only against the company but also its directors. Having found that the company and the directors had been in contempt of paragraphs 5, 7 and 9 of the Keith order, Deputy Judge To imposed a fine on the company and on each of the directors. The directors but not the company appealed to this court. Paragraph 2 of the order reads:

"2. The Order for contempt of court be set aside save that the order granting the Defendant and the Appellants leave to enforce the costs order awarded in their favour on the application for an order of committal in HCA 18928 of 1998 heard before the Honourable Mr Justice Yeung on 18 April 2001 shall not be set aside;"

12. As drawn, the order has the effect of setting aside the judgment even as against the company which had not brought nor participated in the appeal. Whilst it is true that the company was dissolved long before the appeal hearing which might account for the fact that it took no part in the appeal, no request or submission was made at the appeal hearing to the effect that should the court allow the appeal of the directors, it should exercise its powers under Order 59 rule 10(3) and (4) to set aside the judgment made by Deputy Judge To against the company as well. In these circumstances, Mr Kotewall SC submitted that an error must have occurred in expressing the manifest intention of the court in paragraph 2. I agree. An appellate court would not normally of its own motion interfere with an order made against a party where that party had not participated in an appeal by other interested parties save in exceptional circumstances. No such special circumstances existed in the present case.

13. In my view, there is jurisdiction to correct the error which has arisen under the slip rule since the error was an error in expressing the manifest intention of the court. See 2001 Hong Kong Civil Procedure at 20/11/1. Although the summons as framed was one to vary the costs order nisi, this was on the basis that paragraph 2 was to stand in its present form. The real complaint was about paragraph 2. Accordingly, the order of 30 October 2002 is to be amended by inserting the words "as against the Appellants" in paragraph 2 immediately after the words "contempt of court".

Leave to appeal to the CFA

14. The application is grounded on section 22(1)(b) of the Court of Final Appeal Ordinance. Four questions of great general or public importance as set out in the amended notice of appeal are said to arise. Pausing here, the third question set out in the amended notice of motion no longer arises in view of the amendment to paragraph 2 of the order considered in paragraphs 12 and 13 above. I now turn to consider the remaining 3 questions said to arise.

Question 1

15. The question is framed thus:

"(1) Where peculiar goods manufactured to a defendant's specific order have been produced by a third party factory for the defendant and are in the possession of the third party factory or some other third party, and there is no evidence of payment having yet been made by the defendant for the goods :-

(a) is it impossible as a matter of law for the defendant to have 'control' of and/or 'power' over the goods?

(b) or is the question whether the defendant has 'control' of and/or 'power' over the goods one of mixed law and facts such that whether the defendant has 'control' and/or 'power' in any given case depends upon all the particular circumstances of that case?"

16. As Mr Westbrook SC for the directors correctly pointed out, the question posed in paragraph (a) above simply does not arise: the court did not hold that it was "impossible" to have control over articles where there had been no evidence of payment. The issue was treated as a mixed question of fact and law: factors such as the relationship (if any) between Guan Pin and the company, the absence of evidence of the terms of the contract between Guan Pin and the company, the discretionary nature of the power to order specific performance under the Sale of Goods Ordinance and whether payment had been made were all taken into account in determining whether the company had a right to tell Guan Pin what was to be done. Thus, payment was but one of the matters considered.

17. That a person who has a legal right to the goods would have "control" of the same is a proposition that reflects the test adumbrated by Lord Diplock in Lonrho Ltd v Shell Petroleum Co. Ltd [1980] 1 WLR 627 at 635H. Later Australian cases such as Palmdale Insurance Ltd. v L. Grollo and Co. Pty. Ltd. [1987] VR 113 at 116 and Re McGorm, Ex parte Co-operative Building Society of South Australia (1989) 86 ALR 275 at 278-279 were said to have expressed reservations about the Lonrho test. However, no alternative legal test of "power" and "control" has been proffered based on these authorities. That being the case, I do not see that any clarification of the test arises.

18. Mr Kotewall also submitted that a manufacturer who is asked to produce goods bearing a trademark is arguably under an implied negative covenant not to distribute or sell such goods without consent. Whilst in a passing off action between the manufacturer and the trademark owner, the manufacturer might well face a prohibitory injunction and ancillary order for delivery up, the relationship between Guan Pin and the company was not as between manufacturer and trademark owner, but between manufacturer and the company that had ordered the infringing goods. Quite apart from the fact that Mr Kotewall's proposition is not supported by authority, a covenant not to distribute or sell goods is markedly different from an undertaking to deliver up possession on demand (with or without payment).

19. As for paragraph (b) of question 1, I can discern nothing there that is "general", "public" or "important". It is nothing more than whether, on the facts as proved, a breach of the order for delivery up had been made out.

Question 2

20. This reads as follows:

"Does a delivery up order, made ancillary to an injunction order restraining a defendant from passing off goods, requiring the defendant to deliver up to the plaintiff within a specified time limit goods in his possession, power or control falling within a specified description impose upon the defendant a continuing obligation to deliver up goods falling within the specified description that may come into his possession, power or control after the specified time limit?"

21. The orders for delivery up in paragraphs 5 and 7 of the Keith order were in the following terms:

"5. The Defendant do within 7 days of service of this order deliver up to the Plaintiffs' solicitors all articles ... bearing the name or mark 'Aqua Splash' or any name or mark of which the name 'Aqua' forms part thereof in the possession, custody, power or control of the Defendant.

...

7. The Defendant do within 7 days of service of this order deliver up to the Plaintiffs' solicitors or destroy upon oath or affirmation all articles ... in the possession, power, custody or control of the Defendant, its directors, servants or agents or any of them the use or retention of which would be a breach of the foregoing injunctions."

As a matter of pure construction, the order for delivery up required the act of delivery up to be performed within a specified time. In my view, paragraphs 5 and 7 of the Keith order are not capable of the construction sought to be put upon them by the plaintiffs. See M Petrushkin Limited v Stark's (London) Limited and Another [1971] FSR 310. In that case, the court was faced with a similarly phrased order. In determining whether the order had been breached, Whitford J proceeded on the basis that the relevant articles had to be in existence at the time when the order was made.

22. If, as is suggested by the plaintiffs, such an order for delivery up is unlimited in duration and extends to infringing articles which come into the possession, custody, power or control of the company at any time after the time specified in the order for delivery up, it is unclear what time frame would apply for the performance of the 'continuing' obligation. The absence of a specific time frame for delivery up would mean that there would be no jurisdiction to commit under RHC order 45 rule 5(1)(a).

23. In my view, question 2 does not raise any questions of general or public importance. If the plaintiffs had wanted to prohibit infringing articles from coming into existence after the date of the order or service thereof, a suitably framed prohibitory injunction, sufficiently wide to cover the handling, dealing with, commissioning the manufacture of etc., as opposed to merely the passing off of infringing articles could have been obtained. But that was not the order the plaintiffs sought and obtained from Keith J. They cannot now complain.

Question 4

24. This reads as follows:

"On the issue of hearsay evidence:-

(i) Whether it is mandatory for a trial judge to make express reference to section 49 of the Evidence Ordinance (Cap. 8) ('the Ordinance') in his evaluation of the weight of the hearsay evidence;

(ii) Whether it is mandatory for a trial judge to take into account such circumstances set out in section 49(2) of the Ordinance in his evaluation of the weight of the hearsay evidence even if he has satisfied himself from the other circumstances in the evidence that such hearsay evidence is reliable.

(iii) Whether the failure on the part of the trial judge to make express reference to section 49 of the Ordinance or to one or more of the circumstances set out in section 49(2) of the Ordinance automatica1ly renders his reliance on the hearsay evidence ineffectual."

25. The real question is whether there were sufficient grounds for this court to have come to the view that the Deputy Judge's treatment of the evidence had been defective. It is incontrovertible that in coming to his finding that the directors had breached paragraphs 5, 7 and 9 of the Keith order, the Deputy Judge relied on evidence that not only contained multiple hearsay but which also failed to identify the source of information or chain of evidence. A further consequence was that it rendered ineffectual the rights conferred by section 48 of the Evidence Ordinance on the party for whose benefit that section was enacted. But there was no indication that the judge was even conscious of the fact that the evidence upon which he relied had these problems. Given that the proceedings before him were contempt proceedings and thus quasi-criminal in nature, the lack of any reference to the statutory criteria set out in section 49(1) and (2) of the Evidence Ordinance suggested that no apparent consideration had been given to them. The Deputy Judge's treatment of the evidence was, accordingly, seriously wanting. So, even if the legal issues identified actually arise, they cannot become matters of great general or public importance as they would have no impact on the outcome.

Hon Yuen JA:

26. I agree.

Hon Waung J:

27. I agree.

Representation:

Mr Robert Kotewall SC and Mr Anson Wong, instructed by Messrs Lovells, for the Plaintiffs

Mr Simon Westbrook SC and Mr Ling Chun Wai, instructed by Messrs Freshfields Bruckhaus Deringer, for the Directors of the Defendant

CACV 175/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 175 OF 2002

(ON APPEAL FROM HCA NO. 18928 OF 1998)

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J U D G M E N T

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Hon Le Pichon JA:

1. This is an appeal by the two directors of the defendant from the order of Deputy High Court Judge To which imposed fines on them for the several contempts of court committed by the defendant by breaching an earlier order made by Keith J ("the Keith Order") in a passing-off action.

Background

2. The 1st plaintiff is a manufacturer of swim accessory products for swimming pool or beach use under various trademarks including "Aqua", "Aqua Splash Action" and "Aqua-Leisure". The 2nd plaintiff is the 1st plaintiff's Hong Kong representative. Impag HK Limited ("Impag HK") and Connie Lin Ya Ling (collectively "the appellants") are the directors of Aqua Splash Limited, the defendant in a passing-off action brought by the plaintiffs in November 1998. The defendant which was incorporated in March 1998, was a subsidiary of Impag HK which, in turn, is a subsidiary of Impag Toys Europe BV ("Impag BV"). On 14 May 1999, Keith J struck out the defence and entered judgment in favour of the plaintiffs. The relief granted by that order was substantially in terms of relief sought against the defendant in the amended statement of claim, namely, permanent injunctions to restrain passing-off and the use in connection with any business or trade with swim products the name 'Aqua' as its name or part thereof and ancillary relief requiring the delivery up or destruction of offending articles.

3. On 14 June 2001, the plaintiffs took out a motion for committal for an order that the defendant and Impag HK be fined and that Ms Lin be committed to prison for the several contempts committed by the defendant. It is to be noted that by this date the defendant was already in liquidation, having on 30 November 2000 passed a resolution of its inability to carry on business pursuant to section 228A of the Companies Ordinance.

4. The motion came on for hearing in August 2001 before Deputy Judge To. The committal proceedings complained of breaches of paragraphs 2, 5, 7, 8 and 9 of the Keith Order. The judge rejected some of the complaints but he found that the defendant was in breach of the following paragraphs of the Keith Order:

"5. The Defendant do within 7 days of service of this order deliver up to the Plaintiffs' solicitors all articles including ... name cards ... bearing the name or mark 'Aqua Splash' or any name or mark of which the name 'Aqua' forms part thereof in the possession, custody, power or control of the Defendant.

...

7. The Defendant do within 7 days of service of this order deliver up to the Plaintiffs' solicitors or destroy upon oath or affirmation all articles ... in the possession, power, custody or control of the Defendant, its directors, servants or agents or any of them the use or retention of which would be a breach of the foregoing injunctions.

...

9. The Defendant do within 14 days of service of this order file and serve an affirmation or affidavit made by a duly authorised officer confirming compliance with the Orders in paragraph 4, 5, 7 and 8 above."

He found the appellants liable for contempt with the defendant. Impag HK and Ms Lin were ordered to pay a fine of $200,000 and $50,000 respectively. The plaintiffs were also awarded costs in relation to the contempt proceedings on an indemnity basis, such costs to be borne jointly and severally by the defendant, Impag HK and Ms Lin. It is against this order of Deputy Judge To that the present appeal has been brought.

The judgment below

5. The judge dealt with a number of preliminary matters before considering the specific breaches complained of. On the question of a director's liability for contempt committed by his company, the judge considered that the purpose of Order 45 was to compel compliance by a company with the court's order by the threat of sanction on the company's directors. After referring to English and Hong Kong authorities which he believed to be in conflict, he felt bound by the decisions of this court in Cartier International BV v Kaybee International Ltd [1985] HKLR 127 and Nicolas Pappadiis & Others v Chan Shing-sheung, Barry & Others [1989] 2 HKLR 511 which he read as supporting the proposition that culpability, wilfulness or misconduct on the part of the director served with the order was not necessary for liability under Order 45. The judge then turned to the nature of committal proceedings. Whether they were final or interlocutory would affect the admissibility of hearsay evidence in the form of affidavits. The judge ruled that committal proceedings taken after the final determination of the main action were final rather than interlocutory in nature and the question whether contempt was civil or criminal would depend on the nature of the proceedings in respect of which the protective order of the court was made. As the main action was a civil action, he concluded that the contempt in the present case was civil contempt. He rejected the defendant's submission that where the committal proceedings (being final) are outside Order 41 rule 5, affidavit evidence may not be used. He then considered the admissibility of hearsay evidence contained in affidavits. The judge drew a distinction between affidavits used in interlocutory proceedings containing statements of information or belief which were admissible under Order 41 rule 5 which he considered to be "of a lower quality as evidence and have less probative value" and ordinary hearsay evidence. After referring to Order 38 rule 2 (which dealt with evidence by affidavit) and Order 52 rules 1(3) and 6(4), the judge ruled that affidavits containing evidence as to fact which the deponent himself could have testified in court as well as hearsay evidence admissible under section 47 of the Evidence Ordinance might be used. The judge went on to deal with the specific breaches complained of. For the purposes of this appeal, only the following are pertinent.

Mr Oltmanns' business card

6. A name card bearing the Aqua Splash logo and the name Horst Oltmanns was said to have been found and available at a sales booth rented by Impag BV at the Nuremberg Toy Fair on 29 July 1999, manned by one Mr Sjoers whose business card described him as Sales Manager of Impag HK and by Mr Oltmanns whose card bore the description in German that Mr Oltmanns was the defendant's "German representative". The judge observed that the finding of Mr Oltmanns' card in Nuremberg was supported by credible evidence and stated that the defendant must have had power and control over the cards used by its agent bearing its logo. Although the breach related to one card, the judge inferred from the circumstances that the card was "used" by Mr Oltmanns in the course of business while manning the booth such that the breach went beyond a technical or de minimis breach.

7. As the appellants had been duly served with the order endorsed with a penal notice as required by Order 45 rule 7(3), they were held liable for contempt with the defendant.

The Dongguan investigation

8. On 11 and 12 June 1999, an investigation agency ("Panoramic") retained by the plaintiffs found a torn off portion of a packing list and a production notice, referable to a shipment of goods to "Impag" in the garbage thrown away by Dongguan Guan Pin Plastic Products Factory ("the Guan Pin Factory"). A complaint was made to the Dongguan Technical Supervision Bureau ("TSB") by the plaintiffs' PRC lawyer, Mr Lu Fangming, which resulted in a raid on the Guan Pin Factory on 5 July 1999 by TSB officers and Mr Lu. The inspection culminated in the seizure by the TSB of

"(a) 23,911 pieces of Aqua Splash products of various kinds in stock;

(b) more than 20,000 pieces of Aqua Splash packing boxes and cartons;

(c) more than 30,000 copies of Aqua Splash instruction manuals."

(For convenience, the products under (a) will be referred to as "the Dongguan products" and the boxes and instruction manuals under (b) and (c) will be referred to as "the printed materials" and collectively as "the offending articles".)

9. A month later, the TSB informed Mr Lu that the factory refused to destroy the offending articles seized on the basis of a trademark certificate sent to them from Hong Kong. The fax bore an originating header from Impag HK and was a certificate of a Benelux trademark application for "Aqua Splash" in World Intellectual Property Organisation (WIPO) registered in various European countries and dated 17 June 1999 ("the WIPO certificate"). These matters were deposed to by Mr Lu in his affirmation of 5 August 2000 as well as in the 6th, 7th and 8th affirmations of Douglas Stephen Clark, the plaintiffs' handling solicitor.

10. It is common ground that these affirmations contained hearsay statements. The judge ruled that the evidence was admissible. He rejected the submission that the question whether the defendant had 'control' over the Dongguan products fell to be determined according to the laws of the PRC on the basis that he could apply the presumption that the law in a foreign jurisdiction is the same as the local law. In determining whether the goods were in the power and control of the defendant, the test which the judge applied was whether the defendant had a presently enforceable legal right to possession of the goods in question. Although there was no evidence of the terms of the contract between the defendant and the Guan Pin Factory, the judge was prepared to assume in favour of the defendant that the products would be delivered upon payment and that the property would only pass upon delivery and payment. Nevertheless, he held that in relation to contracts for delivery of specific or ascertained goods, the court had power under section 54 of the Sales of Goods Ordinance, Cap. 26 to order specific performance and if that remedy were available to the defendant, it had a presently enforceable right to possession of the goods in the contract and that whether or not he had paid for the goods or had property in them was not essential. He found the evidence overwhelming that the Dongguan products had been produced for the defendant by the factory for export to Impag BV. He relied, inter alia, on the packing list and the production order, drawing the inference that they related to a transaction involving the sale and/or supply by the defendant or by Impag HK on its behalf to Impag BV.

11. In relation to the printed materials, he found that these had been produced by the United Asia Printing Factory for the defendant and delivered to the Guan Pin Factory. The judge held that because they were specific and ascertained goods, the property in them passed to the defendant upon delivery to the Guan Pin Factory which held them as bailee and agent of the defendant. He did not consider payment to be a relevant factor and held that United Asia had lost its lien upon delivery to the Guan Pin Factory. The judge found the defendant to be in control of the offending articles seized from the Guan Pin Factory and that this constituted a breach of paragraphs 5 and 7 of the Order. The appellants, as directors, were also held liable without the need for any proof of culpable conduct on their part.

12. As to the WIPO certificate, it was unclear from the header whether it was sent on 21 or 1 July 1999. The judge noted that Mr Lu who had seen the original facsimile copy received by the TSB stated that it was dated 21 July. Mr Lu was himself only informed by the TSB on 5 August 1999. The judge reasoned that had that fax been available on 1 July 1999, it would have been used by the factory to resist seizure on 5 July. Based on that reasoning, he inferred that the document showed that Impag HK as a director of the defendant was interested in salvaging the goods such that it warranted the further inference that the defendant had an interest in those products.

Affirmation of compliance

13. In view of the breaches of paragraphs 5 and 7 relating to the business card found in Nuremberg and the offending articles found in the Guan Pin Factory, the judge was of the view that the affirmation of compliance by Ms Lin was inaccurate and, prima facie, that amounted to a breach of paragraph 9 of the Keith Order. In the judge's view, the defendant could not have overlooked the offending articles given the quantities involved. Further, that Mr Oltmanns was allowed to continue to use the business card in the course of business two months after the due date for compliance suggested that the affirmation was made as a perfunctory exercise and could not have been made in good faith after taking all reasonable steps to ascertain its accuracy. He therefore found that the defendant and the appellants were in breach.

14. The appellants were held liable by virtue of the fact that they were directors of the defendant. In imposing fines on the appellants, the judge make due allowance for the plaintiffs' delay in taking out the proceedings. The fine of $200,000 imposed on Impag HK reflected the judge's view that the breach was deliberate and contumacious through Impag HK's attempt to salvage the offending articles from destruction by the TSB i.e. by faxing the WIPO registration document to the TSB. In the case of Ms Lin, whilst accepting that there was no evidence of her active participation in the breach discovered in the Guan Pin Factory and in Nuremberg, nevertheless, Ms Lin had the management of the defendant. Although it was not sufficiently serious to warrant imprisonment, it warranted a substantial fine which was ordered in the sum of $50,000.

This appeal

15. Mr Huggins SC who appeared for the appellants identified seven issues as arising on this appeal, namely, whether (1) the judge was wrong in failing to require proof of the applicable foreign law; (2) the judge was wrong to apply a legal presumption that the relevant foreign laws are the same as Hong Kong law; (3) alternatively, the judge applied Hong Kong law incorrectly to the facts; (4) the judge erred in law as to the basis for the relevant criteria for admitting hearsay evidence; (5) the judge was wrong to apply Order 45 rule 5(1); (6) the form of the punitive order imposed by the judge was fatally defective; and (7) the fines imposed were too harsh. In my view, the critical issues in this appeal are whether the judge was correct in his conclusion that as a matter of law the defendant had control over the offending articles seized in the Guan Pin Factory and the name card seized at the Nuremberg Toy Fair, and whether the correct principles had been applied in admitting hearsay evidence to establish the necessary underlying facts. To these matters I now turn.

Control

16. Did the defendant have control over the offending articles seized in Dongguan? In deciding that question, the judge proceeded on the basis that the law in the foreign jurisdiction was the same as Hong Kong law. Assuming (without deciding) for present purposes that the applicable law was no different from Hong Kong law, the judge's conclusion that the defendant did have control because it had an enforceable right to possession of the Dongguan goods merits closer examination.

17. There was no evidence that the Guan Pin Factory and the defendant were related entities. At the time of the TSB raid, the TSB officers interviewed a person whose English name as it appeared on his business card which was exhibited to Mr Lu's affirmation was "Ian Kao", and whose title was sales manager of the Guan Pin Factory. For reasons not readily apparent, he is referred to as "Mr Gao" rather than Mr Kao in the affirmations of Mr Lu and Mr Clark and by the judge. It may be attributable to the fact that Mr Lu's affirmation was in Chinese and the translator did not have the benefit of seeing the exhibit. Be that as it may, according to the card, the head office was in Taipei under the name of High Crown International Corp. There was also a Hong Kong office under the name of High Crown (International) Limited. Such evidence as was adduced would suggest that vis-à-vis the defendant, Guan Pin was an unrelated third party who had, at some stage, manufactured products for the defendant. According to Mr Kao, Guan Pin was established on 3 August 1985. Mr Kao told the TSB officers that the defendant had informed him of the action brought by the plaintiff in April 1999 and that because it could possibly lose the action, the defendant had requested that all its products be finished and delivered before the end of April and that starting 1 May 1999 no more "Aqua Splash" products should be put into production. He also stated that there were "overruns".

18. Underpinning the judge's finding of control was the finding that the Dongguan products were produced for the defendant for export to Impag BV. The judge appeared to have based this finding on the following matters: (a) Mr Kao told the TSB officers that the Guan Pin Factory was commissioned to produce goods for the defendant; (b) this was confirmed by Mr De Vries when he was examined under Order 48 rule 1; (c) it was supported by the finding of the packing list and production order found on 11 and 12 June. As will become apparent, I have considerable reservations as to whether there was sufficient evidence to support such a finding.

19. Whilst it is clear that prior to 1 May 1999 goods had been produced for the defendant, according to Mr Kao, the defendants had requested that no more Aqua Splash products should be produced starting from 1 May 1999. There was also the explanation proffered that the Dongguan products might have been overruns but this was not even mentioned by the judge. Whilst some 24,000 pieces might appear excessive for overruns, that has to be seen in context and would depend on the size of the orders about which there appeared to be little evidence. Turning to the evidence of Mr De Vries, the extracts in the appeal bundle show that the examination was directed at the financing arrangements of the group of which the defendant was part. There were no specific questions put relating to production orders placed on the Dongguan products. Rather, he was asked in general terms about the role of the different companies in the group without a specific time-frame. That the Factory had in the past produced goods for the defendant is neither here nor there in view of what Mr Kao stated to be the defendant's instructions as to the ceasing of production. There would not appear to be anything in Mr De Vries' evidence to link the Dongguan products to the defendant. The production order and packing list do not take matters further. The client named in the production order was Impag and not the defendant. As that is referable to at least two entities - Impag HK and Impag BV - one cannot rule out the possibility that the order had emanated from Impag BV. It was also a post-April 1999 order, being dated 9 May 1999 when, according to Mr Kao, production for the defendant had ceased.

20. The judge appeared to derive comfort for his finding from the inference he felt able to draw from the WIPO certificate faxed from Impag HK. In passing, it should be noted that at the hearing, the appellants were content not to challenge the judge's finding that the WIPO certificate was faxed to the Guan Pin Factory on 21 July 1999. The inference drawn by the judge appears at paragraph 55, where it is stated as follows:

"The [WIPO certificate] shows that Impag HK, as a director of the Defendant, was interested in salvaging the goods. The inference must be that the Defendant had an interest in those products."

Were the inferences warranted?

21. It is apparent from the 'Explanation' attached to the WIPO certificate that the certificate was not evidence of registration of the mark: it meant nothing more than that the mark had been applied for in the countries indicated on the certificate. The mark could still be rejected either ex officio or at the request of third parties save in Algeria, North Korea and San Marino where registration follows automatically. That being the effect of the WIPO certificate, I have considerable difficulty with the inference drawn by the judge. On any footing, the WIPO certificate was not a 'trademark certificate' since the present case does not involve any of the 3 countries where registration is automatic. That being so, it could not reasonably have been considered a valid basis for resisting the destruction of the offending articles. Moreover, the sending of the WIPO certificate was equally consistent with an innocent purpose. It is to be noted that there is a manuscript annotation on the face of the WIPO certificate which suggests that a copy had been sent to High Crown, the parent of the Guan Pin Factory. There would be nothing exceptional in sending a copy to its subsidiary. There was thus no compelling basis for inferring that Impag HK's purpose in sending it was to salvage the offending articles, much less the further inference that the defendant had an interest in them.

22. More importantly, given the terms of paragraphs 5 and 7 of the Keith Order, they cannot affect articles which come into existence after the expiration of 7 days from the service of the order i.e. 25 May 1999. There was simply no evidence of when the Dongguan products were manufactured. Once it is accepted that it is at least possible that the Dongguan products could have been produced after 25 May, I have to say that it is difficult to see how the alleged breaches can be made good since the standard is proof beyond reasonable doubt.

23. Be that as it may, if (contrary to my view) the Dongguan products had been produced for the defendant and assuming for present purposes that they had come into existence pre-25 May 1999, it could not be said that they were in the 'control' of the defendant since the Dongguan products were in the possession of a third party and there was no evidence of payment. Section 54 of the Sale of Goods Ordinance relied on by the judge does not assist. That section provides:

" In any action for breach of contract to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, by its judgment direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The judgment may be unconditional, or on such terms and conditions as to damages, payment of the price, and otherwise, as to the court may seem just. The application by the plaintiff may be made at any time before judgment."

Control which is dependant on the exercise of a discretionary power vested in the court is not enough. Putting the matter at its highest, the defendant has no more than an expectation that the discretionary power might be exercised in his favour.

24. Control would cover the right to tell the possessor what is to be done. See per Somervell LJ in Dollfus Mieg et Compagnie SA v Bank of England [1950] 1 Ch 333 at 359. If payment had not been made, the defendant would not have such a right. The same reasoning applies to control of the printed materials. Since there was no evidence of payment either for the Dongguan products or the printed materials, the judge was wrong in holding that the offending articles were in the 'control' of the defendant.

25. As to the question of control over Mr Oltmanns' business card, the same point can be made as to the absence of any evidence as to whether the card was in existence prior to 25 May 1999, bearing in mind that it was only found on 29 July 1999.

26. Further, there are difficulties with the judge's finding of control over the business card. First, there was no evidence that Mr Oltmanns was in the defendant's employ on 29 July 1999. Rather, the evidence from Koop Keizer, the personnel manager of Impag BV was that he was an independent sales representative engaged by Impag Spiel-und Sportwaren Gmbth (a company within the Impag BV group) who was paid on a commission basis. The judge made no mention of this evidence nor state why it should be rejected. Second, there was no evidence that the defendant knew of the use of the card by Mr Oltmanns. For these reasons, the judge's finding of control cannot be sustained.

Hearsay evidence

The business card

27. Mr Clark deposed to the raid carried out by the plaintiffs' lawyers in Germany although he was not party to it. Paragraph 14 of his 7th affirmation read:

"In co-operation with the criminal investigation department in Nuremberg, Germany, the Plaintiffs through their lawyers in Germany, raided the sales booth and exhibition room rented by Impag B.V. at the Toy Exhibition in Nuremberg at Feststanshalle 12, Karl-Schonleben-Str. 65,90471, Nuremberg, on 29th July 1999. The sales booth was manned by two individuals: Mr. Marco Sjoers and Mr. Horst Oltmanns. Their respective budiness cards were available at the booth. Mr. Sjoers business card stated that he was a Sales Manager of Impag HK Limited, whereas Mr. Oltmanns' business card stated that he was a German representative of 'Aqua Splash Limited' and bore the 'Squa Splash' logo. Copies of the respective business cards of Mr. Sjoers and Mr. Oltmanns taken from the sales booth are now produced and shown to me marked 'DSC-33'."

It is accepted by the plaintiffs that exhibit DSC 33 in fact exhibited business cards actually delivered up by the defendant in Hong Kong pursuant to the Keith Order and not what Mr Clark thought he was exhibiting. This error remained uncorrected until Mr Clark's examination in chief, when exhibit "P1" was tendered in evidence. This was a letter dated 30 August 1999 from the plaintiffs' German lawyer to the plaintiffs' Hong Kong solicitors attaching a copy of the cards. In pertinent part it read:

"In reference to above mentioned trademark case, please be informed, that we had been able to seize the sales samples of Aqua Splash at the permanent sales booth of impag B.V. at the premises of the Toy Fair in Nuremberg on July 29, 1999 through the criminal investigation department, .... The confiscation was supervised by Mr. Knoll from the detective force in presence of my colleague Mr. Holger Hoffmann from our law firm. ...

...

According to the police, the manager in charge has to expect a substantial fine. His name is Marco Sjoers, Sales Manager of impag H.K. Ltd., according to the business card of which we have enclosed a copy, together with the business card of the German representative Mr. Horst Oltmanns. Both cards were available at the booth."

The author of the letter was an attorney by the name of Frank A Dassler.

28. Two matters might be noted: first, the contents of the letter were not deposed to; second, the writer never identified his source of information. What is clear is that the writer himself also did not take part in the raid. Thus not only did the evidence involve multiple hearsay, the source of information was also not identified.

The Dongguan products

29. The evidence relating to the raid on the Guan Pin Factory was mainly to be found in the affirmation of Mr Lu. Whilst Mr Lu was present at the time of the raid and was thus able to depose to what he witnessed, his affirmation is replete with hearsay evidence as is apparent from the following passages:

"11. During my inspection of the factory, I had the chance to speak with some factory employees. I questioned these employees about the Aqua Splash items and packaging we were seeing and asked specifically where these items came from. Some of the employees told me that they items belonged to a company called Aqua Splash which was located in Hong Kong.

...

13. The TSB verified the following Aqua Splash goods discovered at the factory:

(a) ...

...

16. On 5 August 1999, I was informed by the TSB that Guan Pin had said that they would not destroy the Aqua Splash products and packaging which was detained in the course of the 5 July 1999 inspection. The TSB told me that Guan Pin reasoned their refusal to destroy the products on the basis of a trademark certificate sent to them from Hong Kong. ... Upon my verification, the facsimile bears an origination header of 'IMPAG H.K. LTD' and is dated 21 July 1999. ..."

30. As to the production notice and packing list upon which the judge placed considerable reliance, no evidence was filed by Panoramic or its agent or employee who found the same. Rather, these matters were dealt with by way of hearsay statements in Mr Clark's 7th affirmation. At paragraph 6, it is stated that:

"6. ... Panoramic conducted ... searches on 11th and 12th June, 1999, and recovered, inter alia, two relevant documents. The first was a torn off portion of a packing list which is now produced and shown to me together with an English translation marked 'DSC-29. The second was a production notice which is now produced and shown to me together with an English translation marked 'DSC-30'."

31. Mr Huggins SC who appeared for the appellants did not contend that hearsay evidence was wholly inadmissible. His position was that the admissibility of hearsay was governed by the old regime i.e. prior to the amendments introduced by the Evidence (Amendment) Ordinance (No. 2 of 1999). The amendments to the Evidence Ordinance became effective in June 1999 whilst the proceedings as a whole began in November 1998. On the basis that committal proceedings are merely ancillary and incidental to the proceedings in which the relevant order was made rather than separate proceedings, he argued that the amendments were not applicable. The appellants' alternative submission was that even if the provisions of the new hearsay regime were applicable, in estimating the weight to be given to such evidence, the judge failed to have regard to the statutory considerations that had to be taken into account pursuant to section 49 of the Evidence Ordinance. Moreover, where (as in the present case) there was multiple hearsay, the failure to identify the source of the information or the chain of evidence meant that the appellants were effectively denied the benefit of section 48 of the Evidence Ordinance which gave them a right to apply to cross examine the maker of the hearsay statements.

32. I propose to deal with the alternative submission first and proceed on the basis that the new hearsay regime was applicable. Section 49 of Cap. 8 which is entitled 'Considerations relevant to weighing of hearsay evidence' reads:

"(1) In estimating the weight, if any, to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.

(2) For the purposes of subsection (1), regard may be had, in particular, to the following-

(a) whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness;

(b) whether the original statement was made contemporaneously with the occurrence or existence of the matters stated;

(c) whether the evidence involves multiple hearsay;

(d) whether any person involved had any motive to conceal or misrepresent matters;

(e) whether the original statement was an edited account, or was made in collaboration with another or for a particular purpose;

(f) whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight;

(g) whether or not the evidence adduced by the party is consistent with any evidence previously adduced by the party."

33. The first matter to note is that section 49 is framed in mandatory terms i.e. "the court shall have regard ..." to, inter alia, the circumstances set out in subsection 2 if any inference can reasonably be drawn from them as to the reliability or otherwise of the evidence. There is nothing in the judgment to suggest that the judge had section 49 in mind when evaluating the weight of the evidence adduced by the plaintiffs. Not once did he allude to the statutory considerations contained in section 49 such as multiple hearsay or the absence of any attempt to identity the source of the information and chain of evidence. Nor did the judge allude to section 48 which provides that:

"Rules of court may provide that where a party to civil proceedings adduces hearsay evidence of a statement made by a person and does not call that person as a witness-

(a) any other party to the proceedings may, with the leave of the court, call that person as a witness and cross-examine him on the statement as if he had been called by the first-mentioned party and as if the hearsay statement were his evidence in chief;"

In cases of multiple hearsay where the source of the information or chain of evidence has not been identified, section 48 is rendered ineffectual in that the party for whose benefit that section was enacted cannot in practice avail itself of the procedure contained in that section.

34. In my judgment, the apparent failure of the judge to take sections 48 and 49 into account when evaluating the evidence would warrant the setting aside of the judgment below.

35. It is therefore not strictly necessary for me to address the submission that hearsay was admissible only under the old regime because the committal proceedings were not separate proceedings. In this connection, I need only mention that there was considerable debate during the appeal whether the committal proceedings were final or interlocutory in nature. This was thought relevant to the issue whether contempt proceedings were separate and free standing or whether they were incidental to and ancillary to the main proceedings and arising out of the order already made in the action itself. Both parties relied on Savings and Investment Bank Limited v Gasco Investments (Netherlands) BV (No. 2) [1988] 1 Ch 422 in support of their respective positions. That case concerned undertakings offered and accepted to preserve assets in the UK to protect what would be the fruits of victory in the main suit if not the property which was the subject matter of the action itself. Purchas LJ held (at 436C) that a motion to commit may be either interlocutory or final depending upon the purpose for which the order or undertaking was given. If the true purpose of a motion to commit for contempt is to enable the proper conduct of the trial and the final resolution of the issues between the parties, the proceedings are interlocutory. Russell LJ adopted a similar approach. See his judgment at 448B.

36. Had it been necessary to apply the test adumbrated by Purchas LJ to the facts of the present case, the committal proceedings cannot be other than final since the action has been disposed of and final judgment given long before the committal proceedings. But as I have said, this debate has been rendered academic in view of my conclusion that the judge had failed to apply the correct criteria for the new hearsay regime. In the result, his findings, based as they were in substantial part on hearsay evidence, cannot stand.

Conclusion

37. My conclusions on the issues of control and hearsay are sufficient to dispose of this appeal. The judgment below must be set aside. I would allow the appeal and make an order nisi that the appellants do have their costs both here and below.

Other matters

38. Save in one respect, I do not propose to deal with the other issues raised in the appeal, namely, proof of foreign law, the application of the presumption that foreign law is the same as Hong Kong law, Order 45, the form of the order and the fines. In his discussion of a director's liability for his company's contempt, the judge considered that there was a difference in approach between the Hong Kong and English courts. However, the judge was not referred to the decision of this court in Excel Noble Development Ltd v Wah Nam Group Ltd [2001] 4 HKC 148 where (at 156D-157H) Rogers VP traced the history and case law concerning Order 45 and explained why in fact there is no difference in approach.

Hon Yuen JA:

39. I agree with the judgment of Le Pichon JA which I have had the benefit of reading in draft. I would only like to add the following two observations.

40. First, in relation to the goods found in Dongguan, it has to be noted that the goods were in the physical possession of Dongguan Guan Pin Products Factory, a company which was not in the prima facie control of the defendant (such as a subsidiary). Therefore, for the Plaintiffs to show that the goods found in Guan Pin's possession were in the "possession, custody, power or control" of the defendant within the terms of the Keith Order, it was necessary for the Plaintiffs to show that the defendant had some legal right to the goods. That would depend on the terms of the contract between Guan Pin and the defendant. Unfortunately the contract was not in evidence. It would appear no order had been obtained for disclosure of the contracts between the defendant and its manufacturers on the Mainland, notwithstanding the fact that the defendant had volunteered the information in its Defence that its goods were manufactured on the Mainland.

41. Secondly, I would observe that even if the WIPO certificate had been faxed from Impag HK to Guan Pin with a view to resisting seizure of the goods, the inference that Impag HK's interest in salvaging the goods was "as a director of the defendant" was not the only reasonable inference that could have been drawn, as Impag HK was a subsidiary of Impag BV and may well have been acting at Impag BV's behest.

Hon Waung J:

42. I agree. For the reasons given by Le Pichon and Yuen JJA, I too would allow the appeal.

Representation:

Mr Adrian Huggins SC and Mr C W Ling, instructed by Messrs Freshfields Bruckhaus Deringer, for the Appellants

Mr Philip Dykes SC and Ms Selina Lau, instructed by Messrs Lovells, for the Respondents