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Hong Kong Law ReportsIssue 7

January 2014

Pinsent Masons Hong Kong Law Reports is produced by specialist international law firm Pinsent Masons.

The purpose of the reports is to collect leading cases relating to civil procedure, employment, technology and IP matters in Hong Kong, together with occasional overseas decisions, in a readily accessible form useful for practitioners and in-house counsel alike and to provide authoritative commentary on each. The reports are available in electronic form on www.out-law.com and www.pinsentmasons.com.

Editorial Board: Peter Bullock (Editor), Paul Haswell (Editor), Renee Mark (Managing Editor).

Hong Kong CasesAsia Television Ltd

v Communications Authority

_______________

Tsit Wing (Hong Kong) Co Ltd & Anor v

TWG Tea Co Pte Ltd & Anor _______________

Mandatory Provident Fund Schemes Authority v

Raschel Products (HK) Ltd trading as Hong Kong Warp Knitting Manufacturing Co. Ltd

_______________

Grant David Vincent Williamsv

Jefferies Hong Kong Ltd_______________

UpdateOriental Press Group Ltd & Anor

v Fevaworks Solutions Ltd

_______________

UK/EU CasesSAS Institute Inc

v Worlds Programming Ltd

_______________

This

issu

e:

Authority Investigation – Refusal to Disclose Pg 1

Employment – Summary Dismissal Pg 8

Copyright – Computer Program Pg 10

Trademark – Confusingly Similar Pg 3

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Pinsent Masons | Hong Kong Law Reports

[Court of Final Appeal – FAMV 23/2013]

Asia Television LtdApplicant

– and –

Communications Authority (Successor to the Broadcasting Authority)

Respondent

Judgment of the Court of Final Appeal (The Hon Mr Justice Geoffrey Ma (Chief Justice), The Hon Mr Justice Chan and The Hon Mr Justice Tang) dated 21 August 2013

Authority investigation – Refusal to disclose documents on confidentiality grounds – Civil Procedure – Leave to appeal to Court of Final Appeal

The FactsThe Applicant (“ATV”) holds a licence to provide a domestic free television programme service in Hong Kong. The licence is granted and governed in accordance with the Broadcasting Ordinance, Cap 562 (the “Ordinance”) and is regulated by the Communications Authority (the “Authority”), an independent statutory body.

Section 8(4) of the Ordinance requires, amongst other things, that any person exercising control of a licensee must be ordinarily resident in Hong Kong.

Wong Ching (“Mr Wong”) was a major investor in ATV but was not a director or shareholder of the company. In addition, he did not meet the residency requirements of Section 8(4) of the Ordinance and, accordingly, was not entitled to exercise control over ATV.

In September 2010, the Authority approved an acquisition by Wong Ben Koon of a majority shareholding in ATV (52.4% of the voting shares). The approval required Mr Wong to submit an undertaking to the Authority that he would not be entitled to exercise de facto control over ATV. Mr Wong duly provided the undertaking and it effectively constituted a part of ATV’s licence.

In June 2011, the Authority received an anonymous letter complaining that ATV was in breach of the Ordinance and its licence because Mr Wong was actively participating in the day-to-day management and operations of the company, and that the majority shareholder was merely Mr Wong’s nominee.

The Authority subsequently conducted an investigation into whether ATV had been under the de facto control of an ineligible person. ATV made various representations to the Authority in response to the allegations, and the Authority also interviewed a number of people who were holding or had held various positions at the company (the “Interviewees”).

In March 2012, the Authority sent a draft report of its investigation to ATV’s solicitors, which mentioned the fact that the Authority had obtained information from the Interviewees (albeit withholding their identities) and provisionally concluded that Mr Wong had been in de facto control of ATV, in breach of his undertaking and in breach of ATV’s licence.

ATV’s solicitors complained that the Authority had failed to disclose all relevant information obtained in the investigation, including the identities of the Interviewees. The Authority subsequently provided ATV with a redacted summary of the interviews but refused to disclose the identities of the Interviewees and the interview transcripts, on the basis that the Interviewees had provided information on a strictly confidential basis and had requested that their identity be protected.

In or around June 2012, ATV applied for judicial review against the Authority’s decisions to refuse to disclose transcripts of the interviews and identities of the Interviewees and to impose a deadline on ATV in submitting representations on the draft report, failing which the Authority would assume that ATV accepted the report.

The Judgment of the Court of First InstanceThe hearing took place on 30 and 31 August 2012 before The Honourable Mr Justice Au who quashed the decisions of the Authority on the basis that the non-disclosure of information requested by ATV was in breach of procedural fairness.

Applying the principles of common law, the judge considered that the identities of the Interviewees, their roles and positions in ATV were relevant factors in assessing the credibility and reliability of their evidence and, without knowing the exact content of the transcripts, ATV was not in a position to properly assess whether the redacted summaries provided by the Authority to ATV represented a full and balanced interpretation of their evidence.

The Authority appealed against the judgment.

The Judgment of the Court of AppealThe appeal was heard by The Honourable Madam Justice Kwan, JA, The Honourable Madam Justice Chu, JA, and The Honourable Mr Justice Lam, JA, on 17 and 18 April 2013.

The main issue in this appeal was to determine the appropriate standard of fairness to be applied in the present case. In relation to the facts, it is a question of whether the level of disclosure made by the Authority was sufficient to enable ATV to make a focused and meaningful response.

The statutory duty in section 26(5) and section 27(1) of the Ordinance to maintain confidentiality is a factor to be taken into consideration in determining the standard of fairness. The underlying policy is that witnesses in investigations should be encouraged to come forward and speak frankly. This is of

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particular importance in the present case due to the closely connected nature of the broadcasting industry where it is common for senior members of the industry to move around. Therefore, it is reasonable for current and former employees of ATV to have fear of adverse consequences if their identities were disclosed. Furthermore, it was held that the disclosure of the Interviewees’ identities or their verbatim statements would not have assisted in the resolution of this dispute.

The court allowed the appeal. ATV sought leave to appeal to the Court of Final Appeal.

Application for leave to appeal to the Court of Final AppealThe application for leave took place before Chief Justice Ma, Mr Justice Chan PJ and Mr Justice Tang PJ on 15 August 2013.

ATV sought leave on the basis of there being questions of great, general or public importance. One of the questions relates to the idea of procedural fairness. It was accepted that procedural fairness in any given situation depended on the circumstances and it is a question of fact in most cases.

Another question relates to whether confidentiality is sufficient to amount to a public interest reason for non-disclosure. The question was dismissed as it was never the Authority’s position that confidentiality was a reason for non-disclosure. Instead, the Authority carried out a balancing exercise with the need for confidentiality on the one hand and the provision of relevant information to ATV on the other.

All questions raised were turned down by the Appeal Committee and the application for leave was dismissed.

Commentary by Peter Bullock Partner Pinsent Masons [email protected]

The judicial review (and related appeal) process is designed to ensure procedural fairness in the operation of public functions and decisions. It more often than not arrives at what is considered by dispassionate observers as the right result. However, well funded complainants are often well placed to use the process to gain additional thinking time (or perhaps extra time to make sales they would not otherwise be entitled to make), irrespective of whether they are successful in overturning the decision.

The Authority decided to conduct an investigation under the Ordinance into the degree of control over ATV exercised by investor Mr Wong in July 2011. From October 2011 the Authority invited parties it believed to have relevant information to attend for interview and/or give written responses to questions. On 9 March 2012 the Authority sent a draft report to ATV’s solicitors making a provisional finding that Mr Wong had been exercising de facto control and that ATV had therefore breached its licence. At that point, of course, ATV knew which way the wind was blowing – and it did not like it.

After failing to face the Authority down in correspondence concerning the anonymity of the witnesses, ATV issued a notice of application for leave to apply for judicial review. An interim injunction restraining the Authority from proceeding with sanctions against ATV was granted eight days later.

A matter of this magnitude was perhaps inevitably destined to reach the Court of Appeal or even the Court of Final Appeal, and

this reached both. The Judge of First Instance by judgment given on 19 October 2012, quashed the Authority’s decisions on the basis that the Authority had breached its duty to ensure procedural fairness in its investigation (primarily by preserving the anonymity of the witnesses). The judge’s decision was reversed on appeal to the Court of Appeal handed down on 15 May 2013 and the Court of Final Appeal dismissed the application for further appeal giving its reasons on 21 August 2013.

So, Mr Wong and ATV had nearly an additional 18 months to get their house in order, which may have been regarded as a victory of sorts by their legal team.

The substance of the alleged procedural unfairness was rather prosaic. Had ATV been right, and they had been entitled in these circumstances to know the identity of those who had given evidence to the Authority, it is likely that the Authority could never again obtain evidence of breach of licence in similar investigations in the future, as witnesses would not trust the Authority to honour its promises of confidentiality. Especially in such a small community as telecommunications and broadcasting in Hong Kong, it was thought by all the judges of appeal readily understandable and reasonable for employees and former employees of ATV to fear the consequences if their identities were disclosed.

The findings in the Authority’s preliminary report were essentially factual matters, which had been aired in various versions of minutes produced to the investigation. Such documentary evidence was merely corroborated and reinforced by the interviewees whose anonymity was in question. ATV were not deprived of sufficient information to enable them to deal with the Authority’s adverse findings merely through not knowing the identity of the interviewees.

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[High Court of the Hong Kong Special Administrative Region, Court of First Instance, Action No. HCA 2210 of 2011]

Tsit Wing (Hong Kong) Company Limited & OthersPlaintiffs

– and –

TWG Tea Company Ptd Ltd & AnotherDefendants

Judgment of Deputy High Court Judge Saunders dated 24 July 2013

Judgment of Deputy High Court Judge Saunders on relief dated 30 August 2013

Civil procedure – Trademark – Infringement – Acronym – Whether sign substantially identical or confusingly similar – Passing off – Whether there was ample basis for distinguishing – use of own name in accordance with honest practices in commercial matters

The FactsThe Plaintiff companies are part of the Tsit Wing Group which was incorporated in 1956 in Hong Kong. The Plaintiffs originated as a family business being a trader, wholesaler, coffee roaster and tea blender. The Plaintiffs have been operating cafes and restaurants in Hong Kong since 1994 using their trade marks, which consist of the acronym TWG deriving from the first letters of Tsit Wing Group besides overlapping ovals resembling coffee beans. The Plaintiffs’ “TWG” trademarks were registered in 2006 in Hong Kong. The “TWG” trademarks were subsequently registered in Australia, China, Hong Kong, Taiwan, Singapore, the US, South Korea and the Philippines in 2007 and 2010.

The Defendants are The Wellness Group, incorporated in Singapore. They specialise in the lifestyle industry, particularly in the spa business, spa products and tea products. In 2008 the First Defendant changed its name to TWG being an acronym of the expression “The Wellness Group”. The Defendants opened tea shops in Singapore and retail outlets in London, New York, Tokyo and Abu Dhabi from 2008 to 2011. In April 2011 the Defendants expanded to the Asian markets of China, Hong Kong, Taiwan and South Korea. The Defendants applied to the Trade Mark Registry in Hong Kong for registration of the “TWG” trademark but the application was opposed by the Plaintiffs.

The Defendants opened a tea salon at the IFC Mall in Hong Kong on 8 December 2011 using a sign containing the TWG acronym. The Plaintiffs commenced trademark infringement and passing off proceedings against the Defendants.

The Plaintiffs first obtained an interlocutory injunction against the Defendants from using the “TWG” trademark at the Court of First Instance. The Defendants successfully appealed to the Court of Appeal against the interlocutory injunction.

The JudgmentThe Defendants sought to defend their use on the basis that the marks used were not identical or confusingly similar, and on the basis of an own name defence:

Own name defenceThe Defendants claimed that they were unaware and had no knowledge of the Plaintiffs’ marks. The Defendants put forward the defence that they were using their own name in accordance with honest practices. However this was rejected by the Court because:

• It was clear that at the time the First Defendant changed its name which contains the acronym TWG, the Plaintiffs’ registration of marks containing that acronym was internationally extensive in Australia, Hong Kong, China, Taiwan and Singapore

• There was evidence that the Defendants had attempted to register the mark “TWG” in the US but was refused because of the likelihood of confusion with the Plaintiffs’ trademark

• The Defendants sought a co-existence agreement with the Plaintiffs in South Korea in 2011.

Trademark InfringementPursuant to Section 18(3) and (5) of the Trade Marks Ordinance, a person infringes a registered trade mark if he uses in the course of trade or business a sign that is similar and is likely to cause confusion on the part of the public.

Similarity The Court held that the Defendants’ marks were similar and would inevitably lead to confusion. In assessing similarities, the Court reconfirmed the established principles that:

• In assessing the distinctive and dominant components in a composite mark, words “speak louder” than the surrounding designs or device

• If the device in a composite mark is too simple to evoke any particular concept for the average consumer, it cannot be regarded as the dominant element in the composite mark

• The likelihood of confusion or deception is not disproved by placing the two marks side by side and demonstrating how small is the chance of error in any consumer who places his order for goods with both the marks clearly before him. It is noted that most marks are remembered rather by general impressions or by some significant details than any photographic recollection of the whole.

The Defendants argued that their mark is dissimilar as the mark consists of “TWG” within an oval device with “1837” and “Tea” written above and under it respectively, and some French and English descriptions in smaller print surrounding the oval device.

The Court disagreed and found that the marks were similar:

• The dominant feature of the Plaintiffs’ marks and the Defendants’ cartouche mark was undoubtedly the acronym TWG

• The French and English words in the Defendants’ mark were merely descriptive of the product being sold, and did not in any way identify the seller of the product. These French and English

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words were indeed meaningless to non-English or French speakers. They did not provide any form of distinction from the central, dominant and obvious acronym TWG

• Both English and non-English speakers would likely recognise the English acronym TWG.

Likelihood of confusion The Court also applied the general legal principles on assessing similar marks for likelihood of confusion in Guccio Gucci Spa v Gucci [2009] 5 HKLRD and Decon Laboratories Ltd v TWG Tea Baker Scientific Ltd [2001] RPC 293. In considering the likelihood of confusion, the Court adopted the following circumstances:

• Where the public confuses the sign and mark in question

• Where the public makes a connection between the proprietors of the sign and those of the mark and confuses them

• Where the public considers the sign to be similar to the mark and perception of the sign calls to mind the memory of the mark, although the two are not confused.

The Defendants argued that its brand is an up-market luxurious brand and targets a completely different market segment than the Plaintiff. The Court however found the price range of the Defendants’ product at most to be “accessible”, not “luxurious”.

The Plaintiffs called five witnesses including long-time friends of the Chairman, customers and its banker, who had testified that they had mistaken the TWG’s tea shop at the IFC as having been opened by the Plaintiffs. The Court accepted their confusion as genuine. The Court also referred to the reasons for objections by the Trademark registries in Hong Kong, the US and Australia on potential confusion. The Court was satisfied that the essence of the Plaintiffs’ mark is the acronym TWG, and that the use by the Defendants of that very same acronym as the dominant feature of its sign will inevitably lead to confusion. The Court was satisfied that the Defendants had infringed the Plaintiffs’ registered trade marks because of the similarity and the likelihood of confusion.

Passing OffThe Court applied the elements of passing off in Reckitt & Colman Products Ltd v Borden [1990] RPC 341. The elements of passing off are goodwill, misrepresentation, and damage to the goodwill.

The Court was satisfied that the Plaintiffs have established goodwill and reputation attaching to the goods and services they supply. The Plaintiffs have been using the “TWG” logo on its tea and coffee products and invoices since rebranding in 2006. The great bulk of the Plaintiffs’ goods and services are offered to the

public with the TWG logo and would be recognized by the public as distinctive specifically of the Plaintiffs’ goods and services.

The Court rejected the Defendants’ argument that they operate at the “top end” of the market in luxury goods whereas the Plaintiffs do not confine themselves to the luxury market. The Court pointed out that both the Plaintiffs and the Defendants were selling tea products and there was reason to suggest that the Defendants would not expand into other markets in Hong Kong if they had the opportunity. The Court also found that some of the “luxurious” areas in which the Defendants offer their products are hardly areas which could be said to be luxurious in a location such as Hong Kong. The Court was satisfied that misrepresentation was established.

The Court similarly held that damage to the Plaintiffs’ goodwill was established as the Plaintiffs have developed its goodwill over 80 years and should not be subjected to the risk of being associated with a business such as the Defendants’.

The Court held that all the necessary elements of passing off were met and the Defendants’ mark also infringed the Plaintiff’s trademark.

The OrderThe Court granted an injunction restraining the Defendants from using the Plaintiffs’ mark. The Defendants were granted two months before the injunction takes effect in order to allow necessary changes to the logos on their products. The Defendants were ordered to withdraw their Hong Kong trademark applications within 21 days. The Defendants were also ordered to give discovery for the Plaintiffs to make an informed decision whether to pursue an account of profits or an inquiry as to damages.

The Court also granted costs to the Plaintiffs on an indemnity basis because the Defendants:

• withheld discovery in order to support its defence

• misled the Court and the Court of Appeal

• should have not relied on the “own name” defence

• acted in an oppressive manner

• delayed after an application for a speedy trial.

The Court said that the Defendants took a commercial risk. When a person comes to court taking a commercial risk such as the Defendants, they must pay the commercial price. The Court was satisfied that this was an appropriate case for an indemnity costs order.

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Commentary by Rachel Cheng Solicitor Pinsent [email protected]

This case summarises the established principles on trademark infringement and passing off. The relevant test for trademark infringement is whether the mark in question is similar to a registered mark for identical or similar services, and whether the mark causes any confusion. As for a case of passing off, the plaintiff has to satisfy the court that it has established goodwill or reputation with its mark and the defendant, by adopting its mark, had made a misrepresentation which would mislead the public and cause damage to the plaintiff.

The real challenge for the Defendants, TWG, in this case is trying to satisfy the Court that although both the Plaintiffs’ and their marks bore the same acronym “TWG”, they are dissimilar visually and conceptually; and although both parties operate in the same tea industry, they are in different market sectors and target different customers. The Defendants asserted that they label and brand themselves as a luxury tea business.

The Court of First Instance took a pragmatic approach and assessed the dominant features of the Plaintiffs’ and the Defendants’ respective marks. Although the Defendants’ mark contains French and English words, the dominant feature of the Defendants’ mark is the acronym “TWG”. In assessing the similarity, the Court considered the demographics of Hong Kong and held that the surrounding design of the Defendants’ mark is meaningless to Chinese speaking people and is non-distinctive. It would be interesting to see whether the Court would have ruled differently if the Defendants’ mark is surrounded by Chinese characters.

It is noted that the Court accepted evidence from the Plaintiffs’ Chairman, the Chairman’s’ long-time friends and banker who testified they had mistaken the Defendants’ IFC shop for a shop opened by the Plaintiffs; and yet the Court rejected evidence from the Defendants on no confusion. Whilst it is likely the case that the Plaintiffs’ case is more meritorious, the Defendants’ quality of evidence played a major role. The Defendants submitted survey evidence undertaken by two

employees of their legal advisers to support that the two marks do not lead to confusion. The Court (rightly) held that the evidence submitted by the Defendants fell far short of meeting the appropriate standards and were of no assistance to the Court. Had the Defendants properly engaged an expert in market research to conduct a survey with an appropriate and sizeable study group, the Court might have put some weight on their evidence.

The Court also rejected the Defendants’ argument that they are a luxury tea product and operate at the top end of the market. The Court pointed out that the Defendants’ products, though of decent quality, were not to be considered luxurious. The Court found the price of the Defendants’ product “accessible” but not “luxurious”. The Court also said that the Defendants would supply to any customer who wishes to purchase their products and would not restrict themselves to any particular goods sector. This might have been rather a hasty conclusion to be reached by the Court as the Defendants had only been in Hong Kong since the end of 2011. Their marketing strategy has consistently been targeting the high end restaurants and supermarkets. Nothing in the Defendants’ evidence suggests that it would re-market its products or adjust its price to cater for any customers. The Court also put little weight on the fact that the Plaintiffs’ products were mainly sold to local restaurants and they are priced at a much lower end than the Defendants.

One point that should be kept in mind is the adverse costs order made against the Defendants. The Court granted costs on an indemnity basis as the Defendants had chosen to take a “commercial risk” and hence should pay the “commercial price”. The Court heavily criticised the Defendants’ approach to the defence of the case, in particular their unwillingness to cooperate and deliberate attempt to withhold discovery and their oppressive manner. Litigants are reminded that although it is sensible to run its case in a strategic or slightly aggressive manner, it should be careful not to step over the line.

The Defendants were granted leave to appeal. The hearing has been scheduled to October 2014. The Defendants have also applied for stay of execution of judgment pending appeal. It will be interesting to see whether the Court of Appeal will come to a different conclusion.

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[District Court – DCCJ 4176/2011]

Mandatory Provident Fund Schemes AuthorityPlaintiff

– and –

Raschel Products (HK) Ltd t/a Hong Kong Warp Knitting Manufacturing Co

Defendant

Judgment of the District Court (Deputy Judge Simon Lo) dated 14 December 2012

Employment – Mandatory Provident Fund – Action for arrears and additional charge – Whether relevant person employee of defendant

The FactsThe Plaintiff is a statutory body established in Hong Kong under the Mandatory Provident Fund Schemes Ordinance to regulate and supervise the operations of mandatory provident fund (“MPF”) schemes. The MPF scheme, a mandatory retirement protection system, requires employers to pay a certain amount of money for its employees by way of contribution to the MPF in a timely manner. The Defendant, a textile manufacturer, is one such employer and was sued for owing almost 10 years of contribution (dating from January 2001 to June 2010).

Mr Dai (“Mr Dai”) had been employed by the Defendant since 1988 and had a 4% equity interest in the Defendant in October 1995. A letter of proof of employment issued by the Defendant showed that Mr Dai’s monthly salary was HK$16,000 in 1996. The Defendant has a fully owned subsidiary factory in Dongguan, China (the “Factory”) and Mr Dai has been working there on an almost full time basis (he works at the Defendant office whenever his presence is not required at the Factory). Mr Dai’s namecard also showed that the Factory is a representative office of the Defendant in Dongguan, China.

The Defendant argued that Mr Dai ceased to become an employee on 30 September 2001 when he and two other individuals established a new company causing the Defendant to be no longer a shareholder of the Factory (it later transpired that such new company was de facto the Factory). A letter of resignation and a letter to the Defendant’s MPF trustee, both signed by Mr Dai, confirmed that he resigned from the Defendant on the same date.

Mr Dai explained that he signed both letters on the request of the Defendant who had earlier issued an income certificate stating that Mr Dai earned HK$96,000 (equivalent to six months of salary) in 2001/2002. The Defendant feared that this income certificate may conflict with the submissions it made to the MPF trustee (it is potentially an offence to submit incorrect employment details) and therefore asked Mr Dai to “resign” in September 2001 in order to make him appear to be employed

for six months. However, the fact is that the Defendant was in default of Mr Dai’s salary and Mr Dai needed such income certificate in order to apply for government allowances for his children’s education.

In June 2010, Mr Dai resigned from the Defendant due to unpaid wages accruing since 2006. Concurrently, the Defendant was sued by the Labour Department for unpaid wages in the Labour Tribunal (including but not limited to Mr Dai’s unpaid wages) and pleaded guilty to the charge. On 9 September 2010, the Defendant and Mr Dai settled the dispute whereby the Defendant will pay HK$360,000 to Mr Dai by instalment.

The JudgmentIn considering whether Mr Dai is an employee of the Defendant, especially whether Mr Dai “resigned” on 30 September 2001, Deputy Judge Lo considered section 62 of the Evidence Ordinance (Cap. 8) which allowed the use of criminal convictions as evidence in civil proceedings for proving that a person has committed the relevant offence. Therefore, since the Defendant was unable to adduce evidence to prove otherwise, it was taken to have failed to pay the wages of Mr Dai and consequently Mr Dai must have been an employee of the Defendant at least since March 2006.

As a consequence, Deputy Judge Lo considered that the Defendant should bear the burden of proving that Mr Dai truly resigned on 30 September 2001. However, not only did the Defendant fail to do so, the Plaintiff was able to adduce evidence that Mr Dai never truly resigned back in 2001.

For example, in 2002, when the Defendant filed its Employer’s Return at the Inland Revenue Department, it stated that Mr Dai was its employee. Similarly in 2004, the Defendant issued a salary slip to Mr Dai which was signed by a director and stamped with the words “certified true and correct”.

In relation to the Factory, Deputy Judge Lo found the Defendant unconvincing to state that the Factory and the Defendant were two separate entities and had no relationship with each other since 30 September 2001. Deputy Judge Lo relied on the Defendant’s Annual Report 2004, prepared by the Defendant’s auditors, which stated that the Factory was a related company and exerted significant influence on the Defendant.

Also, in multiple invoices issued by the Defendant to its customers from 2008 to 2010, Mr Dai was named as the contact person. Deputy Judge Lo considered that if Mr Dai did truly resign on 30 September 2001, the Defendant had no reason to allow his name to appear on these invoices.

Accordingly, since the Defendant failed to prove that Mr Dai truly resigned on 30 September 2001, the court ruled that Mr Dai continued to be an employee of the Defendant during the relevant period and ordered the Defendant to pay the MPF contributions in arrears together with a contribution surcharge.

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Commentary by Paul HaswellPartner Pinsent [email protected]

This case reinforces two points. Firstly, the courts will not give any weight to any “sham” employment arrangements designed to circumvent or otherwise avoid the provisions of the Employment Ordinance or the Mandatory Provident Fund Schemes Ordinance. Secondly, an employer cannot avoid making the MPF payments required by the Mandatory Provident Schemes Ordinance.

What is perhaps most surprising about this case is the fact that the Defendant actually fought the case. The Defendant had already been ordered by the Labour Tribunal to pay wages to Mr Dai dating from 2006 to the point that Mr Dai resigned (after presumably working for at least four years without being paid!). The Mandatory Provident Fund Schemes Ordinance

makes it an offence not to make proper MPF contributions, therefore the Defendant should not have been surprised to find himself having to pay the MPF contributions for the wages he was ordered to pay.

In this case the employer appears to have asked Mr Dai to “resign”, but continue working, seemingly to cover up the incorrect submissions he was making to the MPF trustee. Whether Mr Dai was receiving income from another source, since it is unusual for an employee to wait for four years of working unpaid before making a claim for wages, is not clear. But employers need to be aware that if they fail to comply strictly with the Mandatory Provident Schemes Ordinance, and indeed with the provisions of the Employment Ordinance, they should not be surprised when they are penalised. Remember that failing to pay employer contributions currently carries a maximum fine of HK$450,000 and up to four years imprisonment, and use of any arrangement to avoid paying MPF is only going to make it more likely that the maximum penalty will be imposed.

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[Court of First Instance – HCA 320/2011]

Grant David Vincent Williams Plaintiff

– and –

Jefferies Hong Kong LtdDefendant

Judgment of the Court of First Instance (Deputy High Court Judge Seagroatt) dated 20 June 2013

Employment – Termination – Whether plaintiff wrongful dismissal – Breach of implied duty of trust and confidence

The FactsThe Defendant is a subsidiary within a New York group that deals with financial services in Hong Kong. The Plaintiff was hired as Head of Equity Trading Asia on 26 August 2010 and operated in Hong Kong. Senior members of the Executive Committee accepted the plaintiff’s proposal to start a daily newsletter. It was agreed between senior management that the daily newsletter would be reviewed and approved by colleagues in New York and London to check its content (the “Protocol”), with the Plaintiff to be the author and editor of the newsletter to be released by the Defendant.

On 7 December 2010, the Plaintiff requested for his personal assistant to send the latest issue of the newsletter to his colleagues in London for the issue to be reviewed and approved in accordance with the Protocol. Within the content of the latest issue, an incidental reference was made to a “Hitler video” without any comment save as to a warning concerning its use of many expletives, which left the readers of the newsletter to decide whether to make an effort to look up the video. By error, the Plaintiff’s personal assistant sent the latest issue to publication to subscribers without review or approval by colleagues in accordance to the Protocol. Despite the acknowledgement of fault by the Plaintiff’s personal assistant, blame was placed on the Plaintiff by the Defendant.

Shortly after the newsletter was sent out, the Defendants sent a mass email to its subscribers stating the following:

“ Please be aware that we inadvertently distributed Grant Williams’ December 7, 2010 edition of “Things That Make You Go, Hmmm...” before it was properly vetted. That piece contained third-party material from a website that we do not condone. To the extent that piece is still in your inbox, we would ask you to delete it. We seriously apologise for the inadvertent distribution of this material.”

On the following day on 8 December 2010, the Defendant arranged a meeting between the CEO of its operations in Asia and the Plaintiff in which the Plaintiff was summarily dismissed for gross misconduct. A letter was handed to the Plaintiff and no opportunity was afforded to the Plaintiff to discuss anything more than the fact that he was to be dismissed. The Plaintiff brought an action against the Defendant for wrongful termination.

At trial, no evidence or justification was given by those directly responsible for his dismissal. Only those remote to the decision making were present at trial to support and explain the reasons for the Plaintiff’s dismissal.

The JudgmentIn examining the facts and matters of the case, the court held the Defendant had wrongfully terminated the Plaintiff as there was no justification for the dismissal. The Court found that the publication was not the Plaintiff’s responsibility. Though the Defendant sought to argue that the video denoted a racist and/or anti-Semitic connotation, this was rejected by the Court. Instead, the court was of the view that this was an irrational and patently unfair conclusion by the Defendant which significantly affected the Plaintiff and his ability to gain future employment.

The Court also found the manner the Defendant summarily dismissed the Plaintiff to be palpably unfair and in breach of the implied duty of trust and confidence which was owed between an employer and employee. No justification for dismissal was given to the Plaintiff nor was there an opportunity for the Plaintiff to discuss or understand the reasons for his dismissal. Also, there was no opportunity for the Plaintiff to put forward his arguments to explain the situation. Instead, a letter which was regarded by the court as “evasive” without particulars of the reasons for dismissal was presented to the Plaintiff at a meeting lasting two or three minutes. Further, the Court found the Defendant’s issuing of a retraction email disassociating the Plaintiff from the Company and their efforts to deny their association with the publication signs of “an ill-considered, hasty and inaccurate attempt to shuffle off responsibility”, which was extremely damaging to the Plaintiff making it hard for the Plaintiff to obtain new employment or access to means of accessing new opportunities. In light of this, damages were awarded to the Plaintiff.

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Commentary by Renee Mark Solicitor Pinsent Masons [email protected]

This case reinforces to employers that great care and consideration must be taken prior to making a decision to summarily dismiss an employee. Such a decision should only be made when an employee has committed a serious misconduct such that immediate termination of his employment is the only expectation.

Employers are also reminded that consistency should be ensured when dealing with employees in order to avoid drawing negative inferences from various behaviours. Evidence

was adduced that one of another Defendant’s employee was intoxicated and assaulted a police officer previously. However, at court the Defendant supported him and his job was retained even though such behaviour justified immediate dismissal under the same employment policy. The Court, in some respects, contrasted the different treatment and questioned the consistency of the Defendant which inevitably became a factor when deciding whether the termination of the Plaintiff was fair.

What should be taken away from this is that employers should carefully investigate the alleged misconduct of the employee to ensure that their decision to summarily dismiss an employee could stand against scrutiny. At the very least, employers must not act on impulse and should try to keep proper records of their decision-making process (as opposed to sending non-decision making personnel to give evidence in this case).


Update on Oriental Press Group Ltd. v. Fevaworks Solutions Ltd (reported in Issue 03)

Back in issue 3, published in October 2011 we provided our commentary on the case of Oriental Press Group v. Fevaworks Solutions. This case is of interest in that it considers the liability of internet hosts, in particular those responsible for hosting a public forum, in the event that defamatory material is posted on the forum they administer, own or manage.

The appellants in this case are publishers of two Chinese language newspapers in Hong Kong, who sought to sue the respondent in respect of defamatory statements posted on an internet forum owned by the respondent. Their claims were rejected by the Court of First Instance in 2011 and then by the Court of Appeal in 2012. Not to be deterred, the appellants appealed to the Court of Final Appeal, asking the court to consider the extent to which the providers of an internet discussion platform should be liable for the posting of defamatory statements by its users.

The appeal was dismissed earlier this year. Ribeiro PJ stated that the respondents made good their defence of innocent dissemination. He commented: “The respondents were originally unaware of the defamatory content posted by the originators. Given the very large volume of traffic on the forum and the speed with which it was generated, they had no realistic means of acquiring such knowledge or of exercising editorial control over the content before it was posted.” Also relevant was

the fact that when the respondents became aware of the alleged defamatory material they arranged for it to be removed.

This must be the right decision. It is impossible for anyone running an internet forum where users can freely post to monitor each and every post without undermining the forum itself. There have been advocates of engaging moderators to vet every single post, and indeed there are organisations to whom one can outsource this task, but in the majority of cases it will be impractical, costly, or both. What is key is that when one becomes aware of defamatory material one takes prompt steps to investigate it and if necessary remove it.

Ribeiro PJ went on to make some pertinent observations about the right to freedom of expression in Hong Kong, and the balance between freedom of expression and the respect of the rights of reputations of others. He noted that Article 16 of the Bill of Rights expressly makes freedom of expression subject to this right. He stated that “the ability of internet intermediaries to host [online forums] must not be unduly impaired by the imposition of unrealistic or overly strict standards which would make commercial operation impossible or introduce a chilling effect discouraging free and open exchanges. At the same time, a platform provider must genuinely recognise and take all reasonable steps to protect the rights and reputations of persons from being unlawfully damaged by postings published on the forum”.

Of course, and importantly, freedom of expression applies to internet postings regardless of the quality of those postings. Ribeiro PJ observed that “the discourse often encountered on the respondents’ forum is of very doubtful social value... but freedom of expression must not be devalued because it permits such low grade exchanges.”

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[Court of Appeal (Civil Division) – [2013] EWCA Civ 1482]

SAS Institute Inc. Claimant

– and –

World Programming LtdDefendant

Judgment of the Court of Appeal (Tomlinson, Lewison, and Vos LJJ) dated 21 November 2013

Copyright – Infringement – Computer program – Claimant company in business of developing analytical software known as ‘SAS’ – Defendant company creating product as alternative to SAS software – Claimant alleging defendant infringing copyright in SAS manuals – Claimant further alleging defendant infringing copyright in a version of SAS known as ‘Learning Edition’ – Judge referring question to Court of Justice of the European Union – Judge applying answers provided by CJEU and finding defendant’s actions not amounting to infringement of claimant’s SAS system, SAS manuals – Whether judge incorrectly applying CJEU decision – Council Directive (EEC) 91/250 – Council Directive (EEC) 2001/29

The FactsThe Claimant has developed an integrated analytical software known as SAS (the “SAS System”). The SAS System has numerous application programs written in a language known as the SAS Language which could only be run on the SAS System. There are manuals created by the Claimant which would assist a user in operating the SAS System. The Defendant saw that there is a market for alternative software that can run programs written in the SAS Language, and produced the World Programming System (the “WPS”) together with accompanying manuals and guides.

In creating the WPS, the Defendant sought to match many of the functions of the SAS System but never had access to or copied the source code of it. However, it was known that the Defendant purchased copies of the SAS Learning Edition which allowed the Defendant to study and observe the SAS System, to compare the performance of WPS with it and to test WPS.

In the High Court claim, the Claimant alleged that the Defendant, in creating the WPS, committed four heads of copyright infringement. First, the Defendant copied a substantial part of the SAS manuals in creating the WPS (the “Manual to Program Claim”). Second, the Defendant had indirectly infringed the Claimant’s copyright in the SAS System by creating the WPS (the “Program to Program Claim”). Third, the Defendant had infringed the Claimant’s copyright by reproducing substantial parts of the SAS manuals in the WPS Manual and WPS Guide (the “Manual to Manual Claim”). Fourth, the Defendant had used the SAS Learning Edition to obtain additional information on the SAS,

thereby infringing its copyright and breaching the licence (the “Learning Edition Claim”).

Issues were raised regarding the extent to which copyright protected ideas, procedures, methods of operation and mathematical concepts as distinct from expressions of those ideas etc; and the extent to which copyright protected the functionality and interfaces of computer programs and the programming languages in which they were expressed.

The High Court referred a series of questions to the European Court of Justice (the “ECJ”) for a preliminary ruling on the interpretation of certain EU copyright legislation. For the Manual to Manual Claim, the trial judge ruled that the Defendant had infringed the copyrights in the SAS Manuals when creating the WPS Manual but not when creating the WPS Guides. After the ECJ delivered its preliminary ruling, the High Court ruled in favour of the Defendant (save as to the Manual to Manual Claim). The Claimant appealed.

The JudgmentIn a unanimous judgment, the appeal was dismissed.

No appeal was made by the Claimant in relation to the Program to Program Claim because copyright does not protect a programming language nor the functionality of a computer program. Copyright protects the expression of an idea but not the idea itself. This concept was illustrated at paragraph 84 of the judgment where Pumfrey J’s reasoning in another case was quoted:

“ Take the example of a chef who invents a new pudding. After a lot of work he gets a satisfactory result, and thereafter his puddings are always made using his written recipe, undoubtedly a literary work. Along comes a competitor who likes the pudding and resolves to make it himself. Ultimately, after much culinary labour, he succeeds in emulating the earlier result, and he records his recipe. Is the later recipe an infringement of the earlier, as the end result, the plot and purpose of both (the pudding) is the same? I believe the answer is no.”

With regard to the Manual to Program Claim, the Court of Appeal held that the manuals did not contain any programming language but contained descriptions of what the SAS System does. While the manuals did contain keywords, syntax, commands, etc., the Defendant did not imitate the choice or sequence or combination of words used in order to produce the WPS. Moreover the materials (formulas, keywords etc.) in themselves are not intellectual creations of the Claimant’s. The Defendant made its own choices and took choices made by the Claimant. However these choices fall on the idea side and not expression side and so are not protected by copyright. His Lordship also held that it does not matter if intellectual creation precedes, exists simultaneously to, or comes after the manual’s creation. The emphasis is on expression. Thus the Manual to Program Claim failed.

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This case deals with a question that is both intellectually and legally challenging, and which, had it been decided differently, could have led to disastrous repercussions for the development of software in both the UK and EU. Copyright applies to software in much the same way as it applies to literary works. This means that in considering a copyright claim relating to software the court must typically hear submissions on the similarity of source code between the software and the allegedly infringing work, and not at what the software actually does. This means that different software can have substantially the same if not identical functionality without infringing on any owner of the software’s copyright.

Consider for example Microsoft’s Word program, Apple’s Pages and Apache’s OpenOffice Writer. Each of these programs has significantly the same functionality, and arguably broadly similar features, but they generally co-exist without there being any infringement of copyright.

The SAS Institute, in bringing its claim against World Programming, sought to change this. The question before first the High Court of England and Wales and then the European Court of Justice was this: does the copyright protection in software extend to the software functionality, the programming language used, and the format of the data files used by the program?

The implications of a court finding in favour of the SAS Institute were potentially vast. Taking the word processor example above, SAS were essentially arguing that competing word processors with the same functions were a copyright infringement, and further it would be an infringement if one program was able to open the file format of another.

The European Court of Justice concluded that Article 1(2) of the Computer Programs Directive (the “Directive”) must be interpreted as meaning that neither the functionality of a

computer program nor the programming language and the format of data files used in a computer program to exploit its functions constitute a form of expression: they are not copyright protected as a result. Further, Article 5(3) of the Directive must be interpreted as meaning that a person who obtains a copy of a program under a licence is entitled, without the copyright owner’s consent, to observe, study and test the functioning of that program provided that this does not go beyond the loading and running of that software necessary for its use. The case was then handed back to the High Court for final judgment.

The High Court followed the direction of the European Court of Justice and held that there had not been copyright infringement of SAS Institute’s software. World Programming had committed an infringement by copying parts of the user manual produced by SAS but this was as far as the infringement went. This view has now been upheld by the Court of Appeal who confirmed that the High Court correctly applied the European Court of Justice’s decision.

This must be correct. There is now no doubt, in the EU at least (although there is similar jurisprudence in the United States thanks to the Supreme Court judgment in Lotus v. Borland), that copying of software where the source code is not copied and only the underlying functionality is copied is not an infringement of the software-owner’s copyright. To have decided otherwise would have opened the floodgates to claims not just between owners of competing word processor software but between producers of similar video games and apps, creators of social media platforms and music playing software, software that powers household technology such as so called “smart” refrigerators and televisions, and of course would have given Apple and Samsung additional causes of action.

Would this case be decided in the same way in Hong Kong? There is no reason why it should not be, given that it upholds an eminently sensible status quo which provides adequate protection to software copyright holders whilst respecting competition and innovation in the software industry. Is it a landmark case as certain commentators have suggested? When one considers the negative impact it would have had on the IT industry had it been decided differently one truly understands the case’s importance.

In relation to the Manual to Manual Claim, the Court of Appeal also agreed with the trial judge. In so far as the text of the WPS manual was copied from the SAS manuals, which the judge found established to some extent, the claim for copyright infringement succeeded, and there is no appeal against that. But in so far as the WPS manual described the WPS program, which had been created from observation of the functionality of the SAS System and its description in the SAS Manuals, it is exactly analogous to the writing by a second chef of his successful recipe, which does not infringe copyright in the first chef’s recipe.

As for the Learning Edition Claim, the Court found that this concerned the terms of the contractual licence found in the SAS Learning Edition. Although the licence restricted the use of the SAS Learning Edition to non-production purposes, the Court of Appeal agreed with the trial judge in that while the Defendant’s use of the SAS Learning Edition breached the “non-production” restriction, such restriction was void under EU legislation. Therefore, the Defendant was free to observe and test the program. His Lordship noted that it is not possible for the Defendant to infringe copyright when it did not have access to the source code.

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