CARS (HONG KONG ) LTD v. 老行家國際燕窩股份有限公司

HCMP 996/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 996 OF 2011

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JUDGMENT

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BACKGROUND

1. This is the trial of an action originally begun by an Originating Summons issued on 30 May 2011.  The cause was subsequently ordered to be continued as if begun by writ.  This case involves the rights in three registered trade marks in the name of Lo Hong Ka (in Chinese “老行家”) in relation to bird nests products (“the 3 Trade Marks”).

2. The plaintiff is a Hong Kong company established by a Malaysian businessman Mr Lee Seng Siew (“Lee”) on 30 July 1992.  It was changed into its present name on 28 April 1999.  It is common ground that the plaintiff has not carried on any active business.  Lee and his then wife Madam Tay Soon Hong (“Tay”) were the two founding members and first directors.  According to the Annual Return of the plaintiff dated 30 July 2009[1], the two shareholders of the plaintiff were Lee (holding 5,000 shares) and Cars Holdings Limited, a BVI under the control of Lee (holding the other 5,000 shares).  Lee, Cars Holdings Limited (BVI), and Lee’s daughter Miss Lee Yin Yen were the three directors.

3. Lee started his business career in Malaysia in 1970s.  He began with his car beauty business in Malaysia which was soon proven successful.  In 1990s, Lee extended his car beauty business in Hong Kong.  This line of business had been carried out by Comprehensive Auto RestorationLtd (“Comprehensive”) using the brand name “CARs”. Lee also operated his car beauty business under the brand name of CARs through other companies established in other South East Asian countries.

4. According to Lee, he started his bird nests food business in Hong Kong in 1997.  He devised the 3 Trade Marks in about 1997 and 1998.  Initially, Lee merely sold dry bird nests as a wholesaler under the trade name of “老行家”.  Three to four months later, he came up with the idea of manufacturing and selling small bottles of cooked bird nests food.  On 21 October 1998, Lee established another limited company in Hong Kong named Lo Hong Ka Birdnests Wholesale Limited (“LHKBWL”).  It is common ground that LHKBWL had been the entity that carried on the business of manufacturing and selling of bird nests products in Hong Kong.

5. On 21 December 1998, the 3 Trade Marks were registered at the Hong Kong Trade Marks Registry (“the Registry”) with the plaintiff as their registered owner.  Apart from that, the plaintiff was also the holder of a food manufacturing licence in relation to bird nests products bearing the 3 Trade Marks.  The plaintiff was also the tenant of the relevant production facilities.  It also appeared that the plaintiff is the registered trade marks of “老行家” in the PRC.

6. Apart from these two lines of businesses, Lee also carried out other businesses including the sale of health food products in Hong Kong and in other South East Asian countries.  One of such companies was called Biolyn.  According to Lee, the bird nests food business was declining in Hong Kong since about mid‑2000 due to vigorous competition.  However, the bird nests food business in Taiwan, which was carried out by the defendant (another company incorporated in Taiwan and controlled by Lee) continues to be a success.

7. Lee’s businesses in Hong Kong (operated through a number of companies) were carried out with the involvement of himself, Tay and their respective personal assistants based in Malaysia.  There were also a number of Hong Kong staff members who feature prominently in this trial:

(1)  Mr Kwok Hey (“KH”).  He graduated from the Chinese University.  He joined Lee’s group of companies in 2005.  He was initially the Human Resources Manager and he signed employment contract with LHKBWL.  He resigned in September/‌October 2005.  He rejoined in February/March 2006 and became a General Manager.  On this occasion, he signed employment contracts with three of Lee’s companies: LHKBWL, Comprehensive and Biolyn.  Although there was strictly no employment relationship with the plaintiff, KH was generally regarded as also the General Manager of the plaintiff.  He was also the company secretary of the plaintiff.  There is however a dispute over his role between April 2007 and August 2009 which will be detailed hereinbelow. He is the third witness called for the plaintiff.

(2)  Miss Rita Lau Wing Chi (“Rita”).  She joined LHKBWL in 2005 and was employed as an Administration and Human Resource Officer.  After KH became the General Manager, Rita succeeded him as the Administration and Human Resources Manager in 2006.  During her employment with LHKBWL, she also handled affairs of the plaintiff.  In particular, she was responsible for the filing of documentations between the Registry and the plaintiff.  She is the first witness called for the plaintiff.

(3)  Mr Andy Wong Sing Fai (“Andy”).  He joined Comprehensive and was employed as an accounting officer. ‌He was promoted tothe post of Finance Manager in 2007.  Although he was strictlyspeaking employed by Comprehensive, he was responsible for the finance and accounting works of all companies of Lee in Hong Kong between 2007 and September 2011. ‌He reported toand was responsible directly to Lee.  He is the fourth witness called for the plaintiff.

(4)  Mr Ng Ka Chun (“Ng”).  He joined LHKBWL in 2004 and was employed as a senior accounting clerk.  At the beginning, he was responsible for the accounting work of LHKBWL, ie in relation to bird nests business.  Later, roughly in 2007, his superior asked him to switch to work for the accounts of the car beauty business that was operated by Comprehensive.  He therefore ceased handling the accounts of the bird nests business which was taken over by another colleague.  It remained the situation until August 2009.  He is the second witness called for the plaintiff.

(5)  Mr Lam Man Kuen (“Lam”).  At the material time in August 2009, Lam was a Senior Manager of Comprehensive and was thus involved in the car beauty business.  He was also a franchisee of LHKBWL engaging in that capacity bird nests business.

(6)  Miss Choi Suk Ling   who was at the material time in August 2009 the Senior Operational Manager of LHKBWL.

(7)  Mr Cheung Kai Ming.  He was at the material time in August 2009 a Senior Manager of Comprehensive and was thus involved in the car beauty business.

8. It is not in dispute that between 2006 and early 2009, various companies within Lee’s group of companies were investigated by the Inland Revenue Department (“IRD”) for suspected tax evasion.  The companies under investigation included Comprehensive; LHKBWL; Fit forLife; LSS Holdings and LHK International.  The investigation also included Lee and Tay personally.  In July 2009, IRD caused the bank accounts of LHKBWL to be frozen and was pursuing LHKBWL for tax payment between HK$10 to 20 million.  At the same time, the business of LHKBWL was carrying at a huge loss. It was unable to pay for the rent, staff salaries and the suppliers.  The operation of LHKBWL was put to a halt.

9. The crucial period that gave rise to this piece of litigation is late July and August 2009.  It is not in dispute that on 26 August 2009, the 10,000 shares in the plaintiff originally held by Lee and Cars Holdings Limited (BVI) were all transferred to Global Central Limited (“GCL”)[2].  However, I note that the Instruments of Transfer and the Bought and Sold notes were actually dated 28 August 2009[3].  Counsel however confirmed that nothing turns on this discrepancy in dates.

PLAINTIFF’S CASE

10. The Statement of Claim was straightforward.  It alleged that on or about 31 August 2009, the record of registered owner of the 3 Trade Marks kept at the Registry was changed from the plaintiff to the defendant which is a Taiwanese company controlled by Lee.  This change was purportedly based on 3 respective assignments all dated 31 August 2009.

11. It is the plaintiff’s case that there never existed any written assignment in relation to each of the 3 Trade Marks executed by or on behalf of the plaintiff assigning the ownership of the 3 Trade Marks to the defendant.  Further or in the alternative, there never existed any effective assignment of the 3 Trade Marks by the plaintiff to the defendant.  Accordingly, the entry in the Registry was erroneous and should be removed pursuant to section 57 of the Trade Mark Ordinance, Cap 599.  The plaintiff thus prays for an order of rectification of the record of ownership kept by the Registry.

DEFENDANT’S CASE

12. In the Re‑Re‑Amended Defence and Counterclaim, the defendant made the following main points:

(1)  Whilst admitting that the plaintiff was (prior to 31 August 2009) the registered owner of the 3 Trade Marks, the defendant alleged that the plaintiff merely held all property rights in the 3 Trade Marks in trust for Lee.  Hence, the plaintiff was bound in equity to deal with the 3 Trade Marks in accordance with the instructions of Lee.

(2)  Sometime in or about 2009, KH misled Lee into believing that the prospect of Lee’s car beauty business and his bird nests food products business in Hong Kong was not good and that Lee should disposed of them.  Consequently, Lee agreed to let KH acquire amongst other companies of Lee the plaintiff and LHKBWL. Zero consideration was given by KH (or by any third party) to Lee for the said acquisitions.

(3)  It was agreed between Lee and KH that:

(i) Since the plaintiff holds the food manufacturing licence in respect of the bird nests food products, when Lee let KH (and/or his nominees) acquire his bird nests food products business in Hong Kong, Lee also agreed to transfer the ownership of the plaintiff to KH (and/or his nominees);

(ii) The plaintiff and LHKBWL would continue to use the 3 Trade Marks on bird nests food products manufactured and sold by LHKBWL in Hong Kong after the acquisition; and

(iii) The 3 Trade Marks would be assigned from the plaintiff to the defendant and that the defendant would in return grant a licence to LHKBWL for its use in return for licence fees and royalties;

(4)  The plaintiff continued to hold the 3 Trade Marks in trust for Lee until 20 August 2009 when Lee caused and directed the plaintiff to assign the 3 Trade Marks to the defendant for the latter to hold in trust for Lee.

(5)  The assignment of the 3 Trade Marks was evidenced in writing by a two‑page document entitled “註冊商標轉讓合同” (Registered Trade Mark Transfer Contract) duly signed by Lee in his capacity as Chairman for and on behalf of the plaintiff (“the Assignment”).  It is a valid written assignment for the purpose of section 27(4) of the Trade Marks Ordinance.  Lee was the de facto managing director of the plaintiff.  He had implied authority from the plaintiff’s board of directors to execute the Assignment.  Copy of the Assignment was sent to the plaintiff’s trade mark agent Messrs Trademark CN Ltd (“TMCN”) later on the same day together with instruction to register the assignment of the 3 Trade Marks.

(6)  Further, the Form T10 submitted to the Registry by TMCN on 31 August 2009 was also a valid assignment, authorized by a Power of Attorney signed by Lee on 20 August 2009 on behalf of the plaintiff.

(7)  Further or alternatively, even if the assignment of the 3 Trade Marks was invalid for want of formality under the Trade Marks Ordinance, the plaintiff is estopped from asserting any title or interest in the 3 Trade Marks against Lee and/or his current trustee, the defendant.

13. Strangely, the defendant counterclaimed for a declaration that the defendant holds the Trade Marks on resulting, implied and/or constructive trust for the plaintiff absolutely[4].  It also prayed for an injunction restraining the plaintiff from transferring or otherwise disposing of the 3 Trade Marks and an order directing the plaintiff to execute an assignment transferring the 3 Trade Marks from the plaintiff to the defendant. It also claimed for damages for breach of the agreement to transfer the Trade Marks from the plaintiff to the defendant.

THE PLAINTIFF’S REPLY

14. The plaintiff denied that it was holding the 3 Trade Marks on trust for Lee.  The plaintiff asserted that it is and was at all material times the registered and beneficial owner of the 3 Trade Marks.  The plaintiff also made the following points[5]:

(i) KH never acquired the plaintiff or LHKBWL and never misled Lee.  The shares of and in the plaintiff were acquired by GCL.  Neither did KH acquire Lee’s bird nests food product business in Hong Kong.

(ii) There was no such agreement between Lee and KH as alleged by the defendant.

(iii) It was denied that the alleged Registered Trade Mark Transfer Contract was executed by Lee for and on behalf of the plaintiff.  It was also denied that it constituted a valid written assignment for the purpose of section 27(4) of the Trade Marks Ordinance.

(iv) Further, even if the alleged Registered Trade Mark Transfer Contract was executed on 20 August 2009 (ie before the transfer of plaintiff’s shares to GCL on 26 August 2009), Lee did not have authority (whether actual or implied) to assign the 3 Trade Marks to the defendant.

THE ISSUES

15. Counsel for the plaintiff put forward the following list of issues to be determined by this court.  Counsel for the defendant did not disagree with the list which is as follows:

(1)  Whether the 3 Trade Marks had been validly assigned by Lee on behalf of the plaintiff to the defendant.

(2)  Was the plaintiff holding the 3 Trade Marks on trust for Lee so that Lee could freely dispose of them as he wished.

(3)  Did KH agree with Lee that the 3 Trade Marks would be assigned by the plaintiff to the defendant.

(4)  Did Lee have implied authority to act on behalf of the plaintiff in assigning the 3 Trade Marks to the defendant in the absence of a board resolution or company authorization of the plaintiff.

(5)  Whether Lee could rely on “implied authority” in that the defendant was imputed with Lee’s knowledge that neither KH nor the plaintiff had agreed to assign the 3 Trade Marks to the defendant.

ISSUE (1)

16. Before I proceed to consider counsel’s submissions on law, I would set out the evidence as to how the documents relating to the alleged assignment of the 3 Trade Marks came to be discovered by the plaintiff.

17. Madam Rita Lau Wing Chi was the first witness called by the plaintiff.  She is currently the Administration and Human Resource Manager of LHKHKL, which is an associated company of the plaintiff.  In 2005, she was employed by LHKBWL as the Administration and Human Resources Officer. She worked under KH who was the manager of that department.  She was promoted to the post of Administration and Human Resources Manager in September 2006 when KH was promoted to the post of General Manager of LHKBWL.  In 2010, she ceased to work for LHKBWL and began working for LHKHKL.  As of 2009, although she was formally employed by LHKBWL, she was also responsible for works relating to other related companies owned/controlled by Lee which included the plaintiff.

18. After the change of shareholders of the plaintiff in August 2009,and in particular on or about 9 September 2009, she checked the information of the 3 Trade Marks kept at the Registry.  She discovered that ownership of the 3 Trade Marks had been transferred to the defendant by an agent, TMCN.  She informed KH of her discovery and tried to verify her findings with the Registry by a letter dated 10 September 2009[6].  By a letter dated 16 September 2009[7], the Registry formally replied that:

(1)  the change in registered owner was pursuant to an “electronically signed Form T10” which was received by the Registry on 31 August 2009 from TMCN purportedly as a representative of the plaintiff;

(2)  the Form T10 stated that the transfer date was 31 August 2009;

(3)  TMCN declared in the Form T10 that it was the representative of the owner of the 3 Trade Marks (ie the plaintiff).  In the circumstances, it was not necessary (unless required by the Registry) for TMCN to provide proof of authority;

(4)  the Registry approved the application contained in the Form T10 and registered the change of ownership of the 3 Trade Marks on 31 August 2009 pursuant to section 29(1)(b) of the Trade Marks Ordinance;

(5)  if the plaintiff had not transferred the ownership of the 3 Trade Marks to the defendant, the plaintiff could consider applying for the rectification of the Registry’s record pursuant to section 57 of the Trade Marks Ordinance and by providing a Form 6 with prescribed fees; and

(6)  the Registry will also issue a letter to TMCN pursuant to section 103 of the Trade Marks Ordinance requiring TMCN to provide proof of their authority.

19. By a further letter dated 22 September 2009, the Registry informed the plaintiff that they had already written to TMCN requiring it to provide proof of their authority but up to the date thereof, TMCN still had not responded.

20. On or about 23 September 2009, a copy of the Form T10 submitted by TMCN on 31 August 2009[8] was provided by the Registry tothe plaintiff[9].  “Form T10” refers to a form prescribed under Regulation 62 of the Trade Marks Rules.  The use of this form is related to section 29 of the Trade Marks Ordinance which requires the registration of certain transactions (called “registrable transactions”) affecting a registered trade mark.  I will come back to examine these provisions in detail.

21. In the Form T10 submitted by TMCN, it was stated that “this application or notice relates to Full assignment/transfer”[10].  The application stated the registration numbers of the 3 Trade Marks. ‌The plaintiff was stated to be the applicant. ‌The date of assignment was stated to be 31 August 2009.  The defendant’s name, address and country were stated under “Details of the new owner”. The name, address and other contact details of TMCN were stated under “Address for service in Hong Kong”; “Agent’s address”; and “Particulars of the filer”.  This Form T10 also stated that “This form is digitally signed by agent for applicant for registration/owner of registered mark” such that documentary evidence are not required [11].

22. By another letter dated 12 October 2009 from the Registry to the plaintiff, the Registry stated that it had, pursuant to section 103 of the Trade Marks Ordinance, issued letters to TMCN on 16 September 2009 and5 October 2009 requiring TMCN to provide proof of their authority.  Then on 9 October 2009, TMCN replied to the Registry applying for an extension of time for the provision of proof of authority to 12 November 2009.

23. By a letter dated 12 November 2009, the Registry informed the plaintiff that it had on 11 November 2009 received from TMCN a Power of Attorney relating to the transfer of ownership of the 3 Trade Marks(“the PoA”).  The PoA was signed by Lee for and on behalf of the plaintiff. The date of signing of the PoA was 20 August 2009.

24. According to the evidence of Madam Lau, she continued to press for the supply of supporting documents from the Registry. Initially, the Registry said that TMCN was unable to submit the supporting documents to them so that they could not pass on the same to the plaintiff. Eventually, the Registry was able to provide Madam Lau with copies of a Registered Trade Mark Transfer Contract (注冊商標轉讓合同) in respect of the 3 Trade Marks purportedly made between the plaintiff as transferor and the defendant as transferee.  This document was dated 31 August 2009 but was unsigned and bore no company chop[12].

25. Mr Ng Ka Chun was the second witness called by the plaintiff.  He is currently the Financial Manager of LHKHKL.  As of 2014, Mr Ng was the Senior Financial Officer of LHKHKL.  He was employed by LHKHKL in August 2010.  Prior to that and as of August 2009, Mr Ng was employed by LHKBWL as an accounting officer.  He first joined LHKBWL in August 2004.  As of August 2009, although he was formally employed by LHKBWL, he was responsible for accounting work in relation to the car beauty business of Lee run by Comprehensive.  The accounting work in relation to LHKBWL was handled by another colleague.

26. As of 2011, the plaintiff was an affiliated company of LHKHKL.  Mr Ng received instruction from the KH to make enquiries with TMCN and to request TMCN to return all relevant documents in respect of the purported transfer of the 3 Trade Marks.  On 11 May 2011, Mr Ng attended the office of TMCN and was attended by Mr Sung, a staff member of TMCN.  Mr Ng was given documents consisting of 5 sheets of paper and was charged HK$1,000 by TMCN.  With a view to confirming that the 5 sheets of paper he received on 11 May 2011 were in fact given by TMCN, Mr Ng attended the office of TMCN again on 7 June 2011.  He asked Mr Sung of TMCN to confirm the same by affixing TMCN’s company chop on each of the 5 sheets of paper[13].  Mr Sung did so accordingly.  The 5 sheets of paper consisted of the followings:

(1)  1 sheet of paper containing a Power of Attorney in English purportedly signed on 20 August 2009[14];

(2)  3 sheets of papers containing an unsigned / unchopped Registered Trade Mark Transfer Contract (注冊商標轉讓合同) in Chinese dated 31 August 2009[15]; and

(3)  1 sheet of paper containing undated instructions in Chinese for the transfer of the 3 Trade Marks signed by Lee[16].

27. On or about 18 August 2011, Mr Ng called Mr Sung and asked him whether TMCN had the originals of the documents contained in 5 sheets of paper.  Mr Sung said TMCN did not have the originals.

28. The fact that Madam Rita Lau obtained a copy of the Form T10 submitted by TMCN and a copy of the 3‑page Registered Trade Mark Transfer Contract from the Registry was not challenged in cross‑examination.  The fact that Mr Ng obtained the aforesaid 5 sheets of papers (originally not bearing chops of TMCN but later confirmed by Mr Sung by placing TMCN’s company chop and his initials thereon) was also not challenged in cross‑examination.

29. Section 27(4) of the Trade Marks Ordinance reads:

“An assignment of a registered trade mark, or an assent relating to a registered trade mark, is not effective unless it is made in writing and is signed by or on behalf of the assignor or his personal representative.”

30. In their opening address, Counsel for the defendant made the following submissions:

(1)  there are 2 valid assignments: (i) the Registered Trade Mark Transfer Contract[17]; and (ii) the Form T10 submitted by TMCN[18];

(2)  The Registered Trade Mark Transfer Contract is a written assignment signed on behalf of the plaintiff as:

(i) The plaintiff was listed as the Transferor, and the defendant as the Transferee;

(ii) It records a “contract” to transfer the 3 Trade Marks to the defendant;

(iii) It was signed by Lee, the chairman of the plaintiff; and

(iv) By signing the document, it was Lee’s intention to transfer the 3 Trade Marks to the defendant on behalf of the plaintiff. Further, Lee had implied authority to sign the assignment on behalf of the plaintiff on 20 August 2009.

(3)  The interactive Form T10 was also a valid assignment because:

(i) Clause 2 stated that it relates to a Full assignment/transfer;

(ii) It identified the original owner and the new owner;

(iii) It is in writing; and

(iv) It is digitally signed by TMCN acting on behalf of the plaintiff pursuant to the Electronic Transactions Ordinance, Cap 553.

31. I will first deal with the argument that the Form T10 constituted a valid assignment of the 3 Trade Marks.  As mentioned earlier, Form T10 is a form prescribed under Regulation 62 of the Trade Marks Rules which relates to section 29 of the Trade Marks Ordinance. Section 29 reads:

“29. Registration of transactions affecting registered trade mark

(1) On application being made to the Registrar by –

(a) a person …; or

(b) any other person …,

the prescribed particulars of the transaction shall be entered in the register.

(2) The following are registrable transactions –

(a) an assignment of a registered trade mark or any right in it;

(b) the grant of a licence under a registered trade mark;

(c) ….

(3) Until an application has been made for the registration of the prescribed particulars of a registrable transaction –

(a) the transaction is ineffective as against a person acquiring a conflicting interest in or under the registered trade mark in ignorance of the transaction; and

(b) a person claiming to be a licensee by virtue of the transaction does not have the protection of section 35…, section 36…, or section 37….

(4) Where a person becomes the owner or a licensee of a registered trade mark by virtue of a registrable transaction, then unless –

(a) an application for registration of the prescribed particulars of the transaction is made before the end of the period of 6 months beginning on the date of the transaction; or

(b) the court is satisfied that it was not practicable for such an application to be made before the end of that period and that an application was made as soon as practicable thereafter,

he is not entitled to damages or an account of profit in respect of any infringement of the registered trade mark occurring after the date of the transaction and before the prescribed particulars of the transaction are registered…”

Then, regulation 62 of the Trade Marks Rules reads:

“62. Application or notice to register registrable transaction

(ss.29 & 31(3) of the Ordinance) (Form T10 & T11) (Fee No. 19)

(1) An application under section 29 of the Ordinance to register particulars of a registrable transaction relating to a registered trade mark, or a notice under sections 29 and 31(3) of the Ordinance to register particulars of a registrable transaction relating to an application for registration of a trade mark, shall be filed on the specified form.

(2) Where the registrable transaction is an assignment, the application or notice shall either be signed by or on behalf of the assignor or be accompanied by such documentary evidence as suffices to establish the assignment.

(3)   …”

32. It can immediately be seen from the above provisions that there can be no merit in the submission by Counsel for the defendant.  Although Form T10 is to be regarded as a signed document under the Electronic Transactions Ordinance, it is nonetheless just a “written application to register a registrable transaction”.  It cannot constitute the transaction itself.  The filing of a Form T10 can only be based on the fact that there already existed a transaction which is a “registrable transaction” under section 29.  Hence, the need to seek to register this transaction with the Registry.  Otherwise, the legal effect of this transaction may become compromised by the provisions of section 29(3) and (4).  Form T10 is not an assignment in writing within the meaning of section 27(4) of the Trade Marks Ordinance.

33. Furthermore, in digitally signing the Form T10, TMCN was merely signing “an application to register a registrable transaction” for the plaintiff.  TMCN was not signing on behalf of the plaintiff a document that shall have the legal effect of transferring the plaintiff’s right/estate/interest in a trade mark (ie legal chose in action) to another person.  It is important to note the wordings of section 27(4).  This sub‑section does not say that the assignment is not effective “unless it is evidenced in writing”.  This sub‑section requires the assignment itself to be in writing which is either signed by the assignor or a person acting for and on behalf of the assignor.  It cannot be said that in signing and submitting this Form T10 as agent for and on behalf of the plaintiff, TMCN was signing “an assignment” for and on behalf of the assignor. ‌In any event, TMCN was never given any authority to sign “an assignment” for and on behalf of the plaintiff.  The terms of the PoA was confined to entrusting TMCN to “act on my behalf in all issues to and with the competent authorities concerning the trade mark …”.

34. In my judgment, the Form T10 did not constitute a valid assignment of the 3 Trade Marks.

35. I now deal with the argument of Counsel for the defendant that the Registered Trade Mark Transfer Contract constituted a valid assignment of the 3 Trade Marks.

36. It is important firstly to note what Counsel for the defendant referred to as “the Registered Trade Mark Transfer Contract”.  The bundle reference given by counsel for the defendant in the defendant’s Opening[19]was “B2/106 – 107”. It should be noted that B2/106 is the same as B2/216which is just the 1^st page of the Chinese注冊商標轉讓合同.  B2/107 is however the undated instructions in Chinese for the transfer of the 3 Trade Marks signed by Lee. Counsel for the defendant is not saying that the Registered Trade Mark Transfer Contract (注冊商標轉讓合同) which consisted of 3 pages, dated 31 August 2009 but unsigned/unchopped by the parties[20] constituted a valid assignment.  This is obvious because the 3‑page contract did not contain the signature of the assignor.  Counsel was in fact taking the first page of the Registered Trade Mark Transfer Contract, combining it with the Chinese undated instructions to TMCN which was signed by Lee[21] as if these 2 pages constituted “one document”.  Counsel’s submission was based on paragraph 6 of the Supplemental Witness Statement of Lee[22] which reads:

“6. A copy of the Instruction sent to me by the Taiwan Agent is shown in exhibit KH‒3. The title can be translated into English as ‘Registered Trade Mark Transfer Contract’. It is my signature on the second page. It is clearly a written assignment of the subject trademarks. By signing that document and the Power of Attorney (also in KH‒3), I intended to transfer ownership of the Trade Marks to the Defendant on behalf of the Plaintiff.”

37. The case of the defendant is odd. ‌When Lee was cross‑examined in relation to this paragraph, Counsel for both parties agreed that the reference to “KH‒3” was a reference to exhibit “KH‒3” to the 2^nd Affirmation of KH[23].  B2/105 was the PoA.  B2/106 was the one page entitled 注冊商標轉讓合同. ‌B2/107 was the undated instructions to TMCN. ‌Lee said in the course of supplementary questions put in chief that on 20 August 2009, he entrusted Taiwan Dunwei Intellectual Property Company which in turn engaged TMCN to deal with the transfer of the 3 Trade Marks.  On 20 August 2009, Lee was in Taipei and he received a copy of PoA from TMCN for him to execute[24].  Lee was also given the undated instructions to TMCN for him to execute[25].  Lee said these documents were couriered to him and he executed the PoA and the undated instructions to TMCN.  Then counsel for the defendant referred Lee to B2/177 to 179 which was the 3‑page 注冊商標轉讓合同.  Lee said that he had not seen them before and he did not know how this Registered Trade Mark Transfer Contract came into existence.  Lee’s oral evidence‑in‑chief was thus different from what he stated in paragraph 6 of his Supplemental Witness Statement in that:

(1)  In his Supplemental Witness Statement, Lee regarded B2/106 and B2/107 as one document, ie the “Instruction” he gave to TMCN.  The title of the Instruction was “注冊商標轉讓合同” and the 2^nd page of the Instruction bore his signature.  This 2‑page document constituted a valid assignment of the 3 Trade Marks.

(2)  Yet, in his oral evidence‑in‑chief, he merely alluded to receiving the PoA and the undated instruction to TMCN, ie B2/107 and executing them.  He did not mention receiving the first page of the Registered Trade Mark Transfer Contract.

38. Then, in cross‑examination, Counsel for the plaintiff referred Lee to paragraph 6 of his Supplemental Witness Statement.  Counsel for both parties first agreed that the documents mentioned in paragraph 6 wereB2/105 to 107.  Lee identified B2/106 as the “Instruction” he obtained from TMCN for his execution.  I noted that B2/105 – 107 bore the chops of TMCN and were initialed by Sung.  They were thus copies of the documents Mr Ng received from Mr Sung of TMCN much later in June 2011.  In order to ensure that Lee was not mistaken, I specifically asked him to look at B2/177.  B2/177 is another copy of the 1^st page of the Registered Trade Mark Transfer Contract but without the chop of TMCN.  Lee said he appreciated the difference between B2/106 and B2/177. Yet, Lee reiterated that it was B2/106 which he received from the Taiwan Agent in August 2009.  Lee specifically said that when he received the 1‑page 注冊商標轉讓合同, the chop of TMCN was already there.  Lee further maintained that the first time he saw B2/177 – 179 (ie the entire 3‑page 注冊商標轉讓合同 which did not bear the chop of TMCN) was after commencement of these proceedings. ‌There was no re‑examination of this part of Lee’s evidence.

39. I will subsequently examine the credibility of Lee in greater detail but at this juncture, I must reject this part of Lee’s evidence as utterly improbable. Madam Rita Lau’s evidence was clear that she received a copy of the 3‑page Registered Trade Mark Transfer Contract 注冊商標轉讓合同 from the Registry which she attached to her witness statement as “LWCR‒1” and appeared in the trial bundle at B2/184 – 186.  B2/184 – 186 were exactly the same as B2/177 – 179.  They were “clean copies” and did not bear the chop of TMCN.  The evidence of Mr Ng was that he obtained a set of copies of the 3‑page Registered Trade Mark Transfer Contract 注冊商標轉讓合同 from Mr Sung of TMCN in June 2011 and he later asked Mr Sung to place the chop of TMCN on these copies and to initial them to signify its origin.  Both the evidence of Madam Rita Lau and Mr Ng in this regard were not challenged in their cross‑examination.  In other words, the original copies of the 3‑page Registered Trade Mark Transfer Contract 注冊商標轉讓合同 kept by TMCN in its file must have been “clean copies” without the chops of TMCN.  It is inherently improbable that Lee would have been sent by TMCN B2/106 which bore the chop of TMCN and the initial of Sung.  Lee’s evidence was simply incredible.  In any event, there was no attempt on the part of Counsel for the defendant to explain this anomaly.

40. Moreover, according to Madam Rita Lau, she received B2/184 – 186 from the Registry. From the correspondence[26], it is clear that the Registry must have received B2/184 – 186 from TMCN.  There was no reason for TMCN to select the first page of a 3‑page Registered Trade Mark Transfer Contract, collate it with B2/107 and turn it into an “Instruction to TMCN” for the transfer of the 3 Trade Marks.  In any objective reading, B2/106 was clearly an incomplete document.  It bore the title of a trade mark transfer contract.  The names of the parties were set out.  It then stated that the parties reached “the following agreement”. Yet only Clause 1 was contained in this page.  It merely identified the 3 Trade Marks and the identity and address of the transferee.  B2/106 was followed immediately by B2/107 which began with the words “需轉讓的3個香港商標資料”.  The particulars of the 3 Trade Marks and the identity and address of the transferee appeared again in the same manner as set out in B2/106.  Then, appearing next to the name of the defendant was the signature of Lee.  There was no designation to show that Lee was appending his signature “for and on behalf of the assignor”.  Other than that, no other terms of the “agreement” appeared on B2/107.

41. In my view, B2/106 was clearly part only of an intended contract.  B2/184 to 186 showed that the intended contract was never executed.  Lee’s evidence also confirmed that the plaintiff had never executed the 3‑page Registered Trade Mark Transfer Contract.  On the other hand, B2/107 was a free‑standing document embodying an instruction to TMCN.  It is inherently improbable that an experienced businessman like Lee would understand B2/106 and B2/107 as constituting one composite document.  In my judgment, Lee’s evidence was a contrived attempt to salvage the fact that there was simply no “written assignment of the 3 Trade Marks signed for and on behalf of the assignor” as required under section 27(4) of the Trade Marks Ordinance.  I therefore find that B2/106 and B2/107 do not constitute an “assignment which was signed by or for and on behalf of the assignor”.

42. In conclusion, I reject both submissions of Counsel for the defendant and find that there was no effective assignment of the 3 Trade Marks from the plaintiff to the defendant.

AUTHORITY OF LEE

43. Related to this issue is: when and how the PoA came into existence.  Lee’s evidence was that B2/105 was executed by him on 20 August 2009.  If it were genuine, the designation of Lee as “Chairman” of the plaintiff would be correct. However, Counsel for the plaintiff submitted that the in all probabilities, the PoA must have been backdated.  First of all, the Form T10 was submitted digitally by TMCN to the Registry on 31 August 2009.  It stated that “the assignment” was dated 31 August 2009.  The unexecuted Registered Trade Mark Transfer Contract was also dated 31 August 2009.  They all happened after the transfer of shares in the plaintiff on 26 August 2009.  Secondly, when TMCN was asked by the Registry to provide proof of their authority on two occasions on 16 September 2009 and 5 October 2009, TMCN was unable to provide such proof.  If TMCN were then in possession of the PoA or even a copy thereof, it is inconceivable that TMCN would not promptly respond to the Registry’s demand for proof.  By a letter dated 9 October 2009, TMCN even applied for an extension of time for the provision of such proof.  It therefore appears that up till 9 October 2009, TMCN was still not in possession of the PoA or even a copy thereof.  In fact, it was only by 12 November 2009 that the Registry received a copy of the PoA from TMCN.  When Lee was cross‑examined, he was asked whether he was aware of any reason why TMCN suffered such delay in answering to the Registry’s query.  Lee said he did not know.  I have grave reservation as to whether Lee was telling the truth.  The defendant did not call anyone from TMCN to give evidence on when and how the PoA came into being.  There was no evidence to explain why TMCN was not in a position to promptly respond to the Registry’s query.  No reason was provided as to why such a witness could not be secured if there were innocent explanation.  The court is left with whether or not to accept Lee’s evidence that he executed B2/105 on 20 August 2009.  Lee was cross‑examined extensively on why he kept no record of the alleged courier of documents from Hong Kong and why he did not ensure that his secretary would make contemporaneous record of the documents he allegedly signed on 20 August 2009.  Lee could not provide any cogent explanation.  Neither could Lee provide any contemporaneous emails/facsimiles between him and TMCN leading to the drafting and execution of the PoA that could shed light on whether the date of 20 August 2009 appearing on the PoA was genuine.  On the contrary, Lee gave incredible evidence about having received B2/106 together with B2/105 on 20 August 2009 which inexplicably bore the chops of TMCN and the initials of Mr Sung.

44. In the circumstances, I find on the balance of probabilities that the PoA was not executed by Lee on 20 August 2009.  I find that the PoA was only backdated to 20 August 2009 at a much later date after the Registry wrote to TMCN demanding for proof of authority.  I find that on 31 August2009, TMCN was merely acting on the written instruction of Lee, ie B2/107.  It was not armed with any formal document giving them authority to act as an agent of the plaintiff to effect the registration of change of ownership in relation to the 3 Trade Marks.  The PoA was only made and executed by Lee ex post facto after the Registry demanded in September and October 2009 for proof of authority from TMCN.  The reason for backdating the PoA to 20 August 2009 is not difficult to decipher.  By 26 August 2009, Lee had already transferred the shareholdings he controlled in the plaintiff to GCL.  Lee would have no power/authority to act in any way for and on behalf of the plaintiff after 26 August 2009.  Hence, the PoA would have to be backdated to a date prior to 26 August 2009 to give the appearance of power/authority.

BENEFICIAL INTEREST IN THE 3 TRADE MARKS

45. The defendant alleged that the plaintiff was at all material times holding the 3 Trade Marks on trust for Lee.  The defendant relied on the following evidence of Lee:

(1)  The trademark “老行家” was created and invested by Lee.  The Chinese calligraphy of “老行家” was created by Lee’s friend Mr Qi Wei‑yi at Lee’s request.  The colour of the mark was chosen by Lee.

(2)  Lee started using the name “老行家” even before setting up LHKBW. The initial funds including purchase prices of bird nests food, all promotional expenses and other miscellaneous expenses were solely provided by Lee.

(3)  All the promotional expenses were paid by Lee (at the outset) and/or LHKBW (later).

(4)  The plaintiff is only a vehicle holding the trademarks of “老行家” and has never invested any money or resource for promoting the trademark of “老行家” and/or the bird nests food business.

(5)  The plaintiff has never obtained or received any royalty from LHKBW or any party for using the trademark of “老行家”[27].

46. Counsel for the plaintiff submitted that the trust claim is misconceived.  There was never any express trust instrument.  The fact that Lee was the founder of the business; that he developed or caused the design of the 3 Trade Marks to be made; provided all the funding for the business; and was the driving force behind the business did not create a trust in his favour.  Counsel relied on Salomon v A Salomon Co Ltd [1897] AC 22 and China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123 and submitted that it is a cardinal principle of company law that a company is a separate legal personality, distinct from its shareholders.  The rights and obligations, or assets and liabilities of the company are those of the company itself, not those of the shareholders.  I agree that this principle must be the proper starting point.

47. In my judgment, this issue turns on the evidence as to the intention of Lee when the plaintiff was incorporated and used as the registered owner of the 3 Trade Marks. Lee did not give specific evidence of his intention other than saying that the plaintiff is only a “vehicle”.  This bare assertion is neither here nor there because a person can intend to use a corporate vehicle to hold both the legal and beneficial interest in an asset.  In other words, the use of a corporate vehicle does not necessarily entail a separation of legal and beneficial interest.  Neither is the fact that Lee had been providing all funds in the development of the business and the brand determinative because Lee could still have intended the plaintiff to hold both the legal and beneficial interest in the 3 Trade Marks.  Afterall, the plaintiff was at all material times owned and controlled by him and his family members.

48. In the present case, the absence of a trust document is at least prima facie indication of a lack of intention to separate the legal and beneficial interest.  Secondly, the plaintiff acted not merely as the registered owner of the 3 Trade Marks.  It also entered into a tenancy agreement for the production facilities and acted as the holder of a food production licence.  There is certainly no suggestion that the plaintiff had been holding the tenancy and the food production licence on trust for Lee.  Thirdly, it can also be objectively seen that the plaintiff and LHKBWL were set up to perform different functions.  Equally there is no suggestion that LHKBW had been holding the business of selling bird nests products on trust for Lee.  Fourthly,Lee has provided no evidence of reason or need (eg anonymity) for effecting a divorce of the legal and beneficial interest in the first place.  Fifthly, although Lee in his evidence denied having seen the 3‑page Registered Trade Mark Transfer Contract[28], I do not accept that Lee had been telling the truth.  This document was obtained by Rita from the Registry which in turns obtained it from TMCN.  TMCN had no prior contact with any of the plaintiff’s witnesses.  TMCN only had contact with Lee, his Taiwan agent and/or Lee’s secretary.  It is inherently improbable that TMCN would come up with a draft transfer agreement in favour of the defendant without instructions originating from Lee’s side.  The contents of the draft agreement referred to the plaintiff as the “legal and beneficial owner” of the 3 Trade Marks.  It was contradictory to the defendant’s case that the plaintiff was merely a trustee holding the beneficial interest in the 3 Trade Marks on trust for Lee.

49. The evidential burden is on the defendant to adduce cogent evidence to prove that the plaintiff (despite being the registered owner of the 3 Trade Marks) was nonetheless intended only to be a trustee for Lee.  On the evidence presented, I conclude on the balance of probability that the defendant has failed to discharge the burden of establishing its case.

THE AGREEMENT

(I)   Lee’s evidence

50. It is not in dispute that towards early August 2009, Lee had decided to give up his business in Hong Kong.  According to Lee’s Witness Statement, he alleged that he entered into an oral agreement (“the Oral Agreement”) with KH upon the following terms:

(1)  the car beauty business will be given to KH by transferring all his shares in Comprehensive (and all related companies) to KH;

(2)  the bird nests products business will be given to KH by transferring his shares in LHKBWL (and all related companies) to KH;

(3)  KH should procure Comprehensive to financially support/‌subsidize LHKBWL;

(4)  KH should procure Comprehensive and LHKBWL to relinquish all monetary claims against Lee;

(5)  The 3 Trade Marks should be assigned from the plaintiff to Lee’s company in Taiwan, namely the defendant who shall grant licence to LHKBWL with licence fee/royalty; and

(6)  KH shall procure Comprehensive and/or LHKBWL to pay Lee a sum of HK$80,000 every month as consultancy fee.

51. Pursuant to the Oral Agreement, on or about 26 August 2009, there was a meeting with KH at Lee’s office.  KH said he would like to have Lam acting as his nominee to receive the transfer of the Comprehensive shares.  Lee agreed.  Then Lee signed a number of documents prepared by KH for the transfer of Lee’s shares in the plaintiff, Comprehensive and other related companies.  After Lee returned to Taiwan, he instructed Mr Billy Tam of Messrs Ho & Tam, solicitors, to prepare a licence agreement for the 3 Trade Marks.  The draft licence agreement was sent to KH who refused to cause LHKBWL to sign.

52. In or about March 2010 (ie some 7 months later), KH sent Lee a number of documents for his to executed in relation to the transfer of shares in LHKBWL. Lee signed the documents and returned them to KH for handling. Since then, Lee no longer controlled the operation and management of LHKBWL.

53. In cross‑examination, Lee said that in 2007, he agreed to engage KH as a consultant and signed a 2 years consultancy contract with KH until 2009.  He however could not produce the contract and claimed that it was kept by Andy Wong.  This allegation was however not put to KH and Andy in their cross‑examination.  Lee even described enigmatically that in 2009, KH knelt down before him and begged him to continue the consultancy agreement.  And during that time, Lee came to know that KH was a bankrupt.  This was flatly contradicted by his own Witness Statement[29] which stated that he came to discover that KH was a bankrupt in 2011.  Lee’s evidence was also contradictory as to his views about KH as of 2009.  On the one hand, he claimed to have been cheated by KH about his bankruptcy.  On the other hand, he said KH was a suitable person to be entrusted with the business of “老行家” after his withdrawal from Hong Kong.

54. Lee claimed in his Witness Statement that in March 2010, Andy presented some documents to him for signing which related to the transfer of shares in LHKBWL to KH. Lee said he executed the documents and gave them to Andy.  Yet, in his cross‑examination, Lee claimed that on 26 August 2009, he had signed 3 – 4 pages of transfer documents which included the transfer of shares of LHKBWL and gave them to KH.  He even claimed to have found out that KH did not register the transfer of LHKBWL’s shares in September 2009.  He graphically described his anger upon discovering that.  He claimed to have looked for KH who had disappeared.  All these were never mentioned in Lee’s Witness Statement.  Lee said that afterwards, he was repeatedly misrepresented by Andy that shares of LHKBWL had already been transferred to a company belonging to KH.  That was why he did not appreciate that he remained the sole shareholder of LHKBWL. This allegation was never put to Andy in his cross‑examination.  It was also not mentioned in his Witness Statement when he dealt with the alleged signing of transfer documents in relation to shares of LHKBWL[30].  It is also contrary to his Witness Statement that he only signed the transfer documents in relation to LHKBWL in March 2010.  In any event, Lee could not provide cogent reason for not keeping copies of the LHKBWL transfer documents he allegedly signed.

55. As for the Oral Agreement, Lee agreed in cross‑examination that one important aspect of the Oral Agreement was that the shares of Comprehensive and shares of LHKBWL would be transferred at the same time to the new owner so that profits made by Comprehensive could be used to subsidize the unprofitable business of LHKBWL.  Yet, the objective fact was that shares of Comprehensive were transferred to Lam on 26 August 2009 but shares of LHKBWL remained vested in Lee throughout.  Furthermore, it can be noted that the descriptions of the terms of the Oral Agreement in the pleadings were different from those set out in Lee’s Witness Statement[31].  There was no attempt to explain why there were such differences. Lee was cross‑examined on the issue of “licence fee”.  He mentioned for the first time that he agreed with KH that the licence would be free for the first 5 years.  Then after 5 years, royalty would be charged at 2% on turnover of sales of bird nests products for 10 years.  Hence the total licence period would be for 15 years.  Lee never mentioned this in his Witness Statement.  This alleged agreement was wholly different from the subsequent drafts of licence agreement prepared by solicitors Mr Billy Tam[32].  Furthermore, Lee was cross‑examined on the alleged promised by KH that Comprehensive and LHKBWL would give Lee a monthly consultancy fee of HK$80,000.  Lee maintained that Comprehensive and LHKBWL were obliged to give him this monthly consultancy fee.  When asked whether that fee would be payable “for life”, Lee then added that it should be payable for 5 years but would be stopped when the 2% royalty kicked in.  Lee never mentioned anything like that in his Witness Statement either. The pleaded case never mentioned “consultancy fee”.  When further asked as to what service he would render to the new owner so as to earn this consultancy fee, Lee gave an extraordinary answer that in fact he did not need to get that much and intended to return them.

56. Lee was also cross‑examined on the draft licence agreement which he instructed solicitors Mr. Billy Tam to prepare and send to KH on 1 December 2009.  Lee said that by that time, he already knew that KH would not honour the promise of taking up the shares of LHKBWL. Lee also said he clearly told Mr. Billy Tam about KH’s attitude and that KH had breached the Oral Agreement.  Lee was then confronted with the email Mr. Billy Tam sent to KH on 1 December 2009[33].  That email did not mention anything about the Oral Agreement or that KH had been in breach thereof.  Lee could not provide any cogent explanation.  Lee was then cross‑examined on the terms of the draft licence agreement.  Firstly, Andy and KH’s wife were named as a “guarantors” for the liability of LHKBWL under the 1^st draft[34].  Lee admitted that this was not part of the Oral Agreement.  Then Clause 5 stated that the licence shall be for 6 years and Clause 7 stated that the monthly licence fee was HK$50,000.  These two Clauses were clearly different from Lee’s version of the Oral Agreement.  Lee could not provide any cogent explanation.  Lee was then cross‑examined on the 2^nd draft of the licence agreement[35].  This time, Andy was stated to be the sole “guarantor” of LHKBWL’s liability under the licence agreement.  Lee accepted that this was different from his alleged Oral Agreement but again could not provide cogent explanation.  More interestingly, the 1^st draft licence agreement was made on 16 October 2009.  Lee accepted that by 16 October 2009, KH was already in breach of the Oral Agreement.  When asked why he did not instruct his lawyer to draft transfer documents of LHKBWL and force KH to take up the transfer (but instead drafted licence agreement for KH to execute), Lee said it was because KH had disappeared.  This answer was plainly nonsensical.

(II)    The plaintiff’s evidence

57. The plaintiff called KH and Andy to give evidence as to the circumstances under which the shares of the plaintiff were transferred by Lee to the present shareholder.  KH did not say much in his Witness Statement about the Oral Agreement as alleged by Lee other than denying it.  KH said that by 2009, Lee decided to abandon his businesses in Hong Kong because: (i) they turned unprofitable and posed severe cashflow problems; and (ii) Lee was being pursued by the IRD for tax evasion investigations.  KH denied that Lee agreed to transfer the ownership of the plaintiff to him or his nominee(s).  In his Supplemental Witness Statement, KH said that Lee wanted to leave the Hong Kong operations but, at the same time, wanted others to take over and continue those operations in Hong Kong to maintain the brand names. ‌KH disagreed that the transfers were “gifts” to the purchasers.  He said that taking over the Hong Kong businesses would require the dedication and cooperation of the new owners and management staff.  It would also possibly require further capital or investment to be injected to maintain the operations.  KH then referred to the Witness Statement of Andy.

58. Under cross‑examination, KH gave more evidence about the circumstances leading to the transfer of shares in the plaintiff on 26 August 2009.  KH said that whilst he was the general manager in February 2006 (having signed 3 employment contracts with LHKBWL, Comprehensive and Biolyn), the companies in the group that carried out active businesses were: (1) LHKBWL; (2) Comprehensive; (3) Fit for life (selling Aloe Vera products); (4) Biolyn (selling hair growth products); and (5) Energy Juice (selling juices). Both the “老行家” trade marks in Hong Kong and in the PRC were owned by the plaintiff which also held the tenancy and a food manufacturing licence for the bird nests products.  KH resigned from his 3 employment contracts in April 2007.  He was declared bankrupt on 16 May 2007.  Despite his resignation, KH would be asked to return to the office to meet Lee when Lee came to Hong Kong.  KH denied acting as a consultant for Lee and denied receiving consultancy fees.  Yet KH admitted helping Lee to launch a franchising plan in 2008.  When the group was in a mess by the end of 2008, he also helped Lee to deal with many matters.  KH however did not receive any remuneration for the assistance he provided to Lee.

59. KH said that since 2006, LHKBWL had been under enquiries by the IRD. In early 2009, the business of LHKBWL was not making money.  In July 2009 LHKBWL’s bank account was frozen.  Lee’s tax representative told Lee that the situation was serious and that Lee might be in trouble.  Lee then discussed with KH his plan to withdraw from his businesses in Hong Kong and hand them over to a suitable person.  KH denied that there was any agreement reached in late July or early August 2009.  KH however agreed that there were discussions leading to an agreement reached on 26 August 2009 for the transfer of plaintiff’s shares.  He said that those negotiations were conducted between Lee and himself, Andy, Lam, and Cheung at various times.  KH denied Lee’s alleged terms in the Oral Agreement. KH also denied that these people were his nominees.  KH said that GCL belongs to his uncle Mr Kwok Ying Ming (“Mr Kwok”) and Andy.  KH helped them to set up GCL to acquire the plaintiff.  KH denied that Mr Kwok was his nominee.  KH also stated that a company controlled by Mr. Kwok (namely Eversky Holdings Ltd (BVI)) held 60% shareholding in GCL and Andy held the remaining 40%.  Andy only relinquished his shareholding in GCL in or about August 2010.  Thereafter, Mr Kwok controlled GCL entirely.

60. Andy gave greater details in his Witness Statement about the circumstances leading to the transfer of plaintiff’s shares.  He said that in June/July 2009, the IRD was pursuing LHKBWL for HK$10 to 20 million in evaded tax.  Since LHKBWL’s bank account was frozen, and because LHKBWL was suffering grave losses, it was unable to pay for rent, salaries,and suppliers.  The business of LHKBWL came to a virtue standstill.  Both Lee and Tay were unwilling to contribute further funds into the Hong Kong businesses.  They wished to withdraw from Hong Kong altogether.  At that time, Lee ran similar businesses in Taiwan, Malaysia, Singapore and Indonesia.  Such businesses involved large scale pre‑paid service coupons.  Lee was fearful that if his business in Hong Kong collapsed, it would create a domino effect on his businesses in South East Asia.  Lee thus wished to withdraw from his Hong Kong businesses in a way that would not adversely affect his businesses in South East Asia.

61. Hence, Lee persuaded Andy and KH to put up funds so as to take over Lee’s businesses in Hong Kong.  Since Andy and KH were without financial resources, eventually they went to KH’s uncle Mr Kwok for help.  Mr Kwok agreed to take over the plaintiff which owned the trade mark rights of “老行家”.  Since Andy was familiar with the running of the business, Mr Kwok proposed to give Andy 40% shareholdings in GCL on the condition that Andy would work for the plaintiff for no less than 5 years and that the business should be turned into a profitable one.  It was anticipated that KH and Andy would cooperate in running the business.

62. Andy said that at the beginning, he was not confident in achieving the conditions put forward by Mr Kwok. ‌However, Lee encouraged Andy and vouched his support if the business could not return to making profit.  Andy thus accepted Mr. Kwok’s offer and received 40% shareholding in GCL.  He also became a director of GCL.  Not long after GCL acquired shares of the plaintiff, dispute arose in September 2009 in relation to the 3 Trade Marks.  Then in or about August 2010, the relationship between Lee and Mr Kwok completely broke down.  Lee thus requested Andy to relinquish his 40% shareholding and directorship in GCL.  Andy then rejoined Lee’s company “寶富寧香港有限公司” as senior financial manager.

63. Andy pointed out that Lee’s handling of the plaintiff and LHKBWL was different.  Mr Kwok refused to take over LHKBWL which he considered to be a bomb due to the fact that IRD was pursuing it for HK$10 to 20 million of evaded tax.  Furthermore, since the plaintiff owned the 3 Trade Marks, the operation of LHKBWL’s business would have required the authorization from the plaintiff in the first place.  Hence LHKBWL was of no value to Mr. Kwok.  Lee therefore attempted to pledge the shares of LHKBWL to some of his creditors.  Andy remembered that draft pledge agreements were prepared by Lee’s solicitors Mr Billy Tam.  In the end however, no pledge agreements were executed and thus the shares of LHKBWL remained vested in Lee.  Andy stressed that he and Mr Kwok never agreed to take over LHKBWL.  He and Mr Kwok only agreed to take over the plaintiff on the basis that the plaintiff owned the 3 Trade Marks and hence would be able to run the business of manufacturing and selling “老行家” bird nests products in Hong Kong.  This was made very clearly to Lee.

64. Andy continued to state that after Lee returned to Taiwan, Tay was dissatisfied with Lee’s decision.  This caused Lee to regret having given up “老行家” in Hong Kong.  Lee therefore telephoned Andy and asked him to persuade KH into transferring the 3 Trade Marks to Lee.  This was flatly refused by KH and Mr Kwok.  Then Lee asked Andy to approach Rita to place the plaintiff’s company chop onto a “trade mark transfer document” seeking to transfer the 3 Trade Marks to the defendant.  This was refused by the Administrative Department of the plaintiff.  Andy later heard that Tay had somehow caused the 3 Trade Marks to be transferred to the defendant. Andy however was not clear as to how Tay achieved that.

65. Afterwards, Lee asked Andy to contact Lee’s lawyer to prepare a licence agreement to authorize LHKBWL to use the 3 Trade Marks at a royalty.  Mr Kwok simply ignored Lee.  According to Mr Kwok, Lee had stolen the 3 Trade Marks and he would not talk to Lee unless and until Lee returned the 3 Trade Marks to the plaintiff.  Andy was caught in the middle.  Lee asked Andy to persuade Mr Kwok and Mr Kwok asked Andy to persuade Lee.  In the end, no agreement could be reached and no licence agreement was executed.

66. Then in May 2011, the present litigation was commenced.  By that time, Andy was still working for Lee.  Lee arranged Andy to meet his lawyer.  Eventually, the lawyer did not ask Andy to give evidence for the defendant. ‌Andy only left “寶富寧香港有限公司” in September 2011.

67. In cross‑examination, Andy denied that Lee had suggested that profits derived from the car beauty business could subsidize the bird nests business.  At the material time in August 2009, Andy confirmed that both the car beauty business and the bird nests business were making losses. Andy also denied that Lee had ever requested for a consultancy fee.  In relation to licence fee, Lee did not make such a request when the plaintiff’s shares were transferred in August 2009.  Lee only raised this issue long afterward when he instructed solicitor Billy Tam to prepare a draft licence agreement.  Andy categorically denied that Mr. Kwok was merely KH’s nominee.  Andy also maintained his evidence as set out in paragraphs 64 and 65 hereinabove.

(III)   Discussion

68. I would begin with analyzing the alleged Oral Agreement with reference to inherent probabilities.  First of all, it was an essential part of Lee’s alleged Oral Agreement that the “new owner” would take up both the plaintiff and LHKBWL.  It is not in dispute that LHKBWL was in dire situation at the material time.  It was being pursued by the IRD for HK$10 to 20 million of evaded tax. I have immense difficulties in accepting that anyone would be willing to agree to take up LHKBWL.  On the other hand, any “new owner” would not need to take up LHKBWL at all. By acquiring just the plaintiff, the “new owner” would have acquired the intellectual property rights, the production facility and the food production licence necessary for the continuation of the business of manufacturing and selling “老行家” bird nests products.

69. Secondly, it was also essential that the “new owner” would take up the plaintiff, LHKBWL and Comprehensive together so that profits from Comprehensive could subsidize the loss of LHKBWL.  Yet, the objective fact was that GCL only took up the shares of the plaintiff and that it was Lam who took up the shares of Comprehensive.  There is no credible evidence that Lam was a nominee of Mr Kwok, KH or Andy.  Lee only made a bare assertion which was denied by KH and Andy.  Further, it was Andy’s evidence that both LHKBWL and Comprehensive were suffering losses at the material time.  Andy was the finance person in the Group.  I have no reason not to accept Andy’s evidence on the financial conditions of the two companies at the material time. Again, Lee barely asserted that Andy had misrepresented the financial pictures of the companies with absolutely no evidence in support.

70. Thirdly, Lee was and is an experienced businessman.  It is difficult to understand why the alleged Oral Agreement would not be reduced into writing or at least evidenced by some contemporaneous documents.  If there were an agreement that transfer of the plaintiff’s shares would not carry with them the ownership of the 3 Trade Marks and that the “new owner” would have to manufacture “老行家” bird nests products under a licence from Lee or his company (the defendant), it would have been important, in both the perspectives of Lee and the “new owner”, to have such agreement reduced into writing.  Without an assurance of a licence (at agreed duration and royalty), there would be no commercial logic for the “new owner” to take up the plaintiff at all.  Hence, the absence of any contemporaneous document to evidence the allege Oral Agreement speaks louder than words.  The only contemporaneous documents consisted of the transfer documents in relation to the shares of the plaintiff.  This is consistent with the evidence of KH and Andy that the only agreement was for GCL to take up the shares of the plaintiff carrying with them the right to use the 3 Trade Marks, the use of the manufacturing facilities and the food production licence to manufacture and sell “老行家” bird nests products.

71. It is also important to note that the “老行家” trade marks were registered in other South East Asian countries (including Macao) in the names of other corporations still under the control of Lee.  Hence, the transfer out of plaintiff’s shares carrying with them the rights of the 3 Trade Marks in Hong Kong was consistent with Lee’s then prevailing desire of withdrawing from Hong Kong whilst ensuring that someone will be carrying on the business of “老行家” bird nests business such that Lee’s withdrawal from Hong Kong would not be seen as a collapse of the brand.

72. The timing of the drafting of the licence agreement by Mr Billy Tam was clearly consistent with Andy’s evidence that the whole idea was an afterthought on the part of Lee, most probably prompted by Tay’s objection when Lee reported his decision and action to her upon his return to Taiwan.  The terms contained in the 2 drafts were admittedly different from those of the Oral Agreement alleged by Lee.

73. On credibility of witnesses, I have hitherto pointed out various unsatisfactory aspects of Lee’s evidence as revealed in his cross‑examination.  I do not find Lee to be a reliable witness.  I have found that he back‑dated the PoA to 20 August 2009 to give the appearance that he could still act for and on behalf of the plaintiff when in fact he only gave his instructions to TMCN on or about 31 August 2009 to apply for the change of ownership registration.  I have also found that be beguilingly combined the 1^st page of the Trade Marks Transfer Contract and the 1‑page undated instruction to TMCN as if it were a composite document.  His evidence was frequently inconsistent with and/or contradictory to other documentary evidence.  There were material differences between the pleaded case, his witness statements and his oral evidence.  As for KH and Andy, I find that they were unshaken in cross‑examination[36].  Their evidence had been consistent throughout and was consistent with the documentary evidence.  I have no difficulties in preferring their evidence and accepting them as reliable and truthful witnesses.

74. In conclusion, I find that there was no such Oral Agreement as alleged by the defendant and Lee.  There is thus no basis for the defendant to argue that there was an equitable assignment of the 3 Trade Marks.

FINAL CONCLUSION

75. Having found that there was no agreement for the plaintiff to transfer the 3 Trade Marks to Lee and/or his company (including the defendant) and that Lee had back‑dated the PoA to 20 August 2009, it becomes unnecessary to deal with the “implied authority” issues.

76. In the circumstances, I find for the plaintiff and dismiss the counterclaim.  I will make the following orders:

(1)  that the Registrar of Trade Marks do rectify the Trade Marks Register by removing the entry of the 31 August 2009 assignment for each of the 3 Trade Marks and restoring the plaintiff as their registered owner;

(2)  that the defendant do pay to the plaintiff costs of the action to be taxed on party‑and‑party basis if not agreed.

(3)  that the Counterclaim of the defendant be dismissed with costs to the plaintiff to be taxed on party‑and‑party basis if not agreed.