KABUSHIKI KAISHA EDWIN v. J&T INTERNATIONAL GROUP LTD

HCMP 106/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 106 OF 2012

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DECISION ON COSTS

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1. This is an application by the plaintiff for the registration of the trade mark registered under no 300581454 in the Trade Marks Registry in class 14 in the name of the defendant (“the Trade Mark”) be revoked on the ground of non-use. After the filing of evidence of the use of the Trade Mark by the defendant, the plaintiff decided to withdraw the application. The only matter before me is the costs of the application.

Background

2. The plaintiff is a company incorporated in Japan.

3. The defendant is a company incorporated in Hong Kong.  According to the defendant’s case, the defendant has established its own brand “EDWIN” since 1989.  In 2006, Mr Chan Ching Hao (“Mr Chan”), the founder, owner and director of the defendant, had successfully applied for the registration of the Trade Mark.  On 4 January 2012, Mr Chan transferred the ownership of the Trade Mark to the defendant.

4. In September 2011, the plaintiff launched its first “Edwin Watches Collection” at a cocktail reception of the Hong Kong Watch & Clock Fair.  The plaintiff then made an attempt to register the “EDWIN” trade mark in respect of watches and related products in class 14 on 28 September 2011.  The application was rejected by the Trade Marks Registry because of the prior registration of the defendant’s Trade Mark.

5. On 14 November 2011, the plaintiff, through its lawyer in Japan, TMI Associates, wrote to Mr Chan, the then proprietor of the Trade Mark, alleging non-use of the Trade Mark.

6. By letter dated 19 December 2011, the defendant, through its solicitors Benny Kong & Yeung (“BKY”), wrote to the plaintiff claiming that the defendant has at least been using the Trade Mark since 2000 and such usage included, but not limited to, offer and exposure for sale and actual sale of watches and jewellery by and with reference to the Trade Mark.

7. By another letter dated 6 January 2012, BKY further informed the plaintiff’s solicitors in Hong Kong, So, Keung, Yip & Sin, that the sales volume of defendant’s watches bearing the Trade Mark of the last few years exceeded 200,000 pieces and that most of these watches were purchased by buyers in Hong Kong for export purposes.

8. The parties then arranged for an inspection on 18 January 2012, during which the defendant produced samples of the defendant’s watches bearing the Trade Mark together with the sales invoices to the plaintiff’s representatives for inspection.

9. Upon leaving BKY’s office at the end of the inspection, the plaintiff’s representatives served the originating summons herein (which was issued on 16 January 2012) on the defendant.

10. On 6 March 2012, the defendant took out a summons for extension of time to file the affirmations in opposition.  On 14 March 2012, Master Lai granted an unless order for the defendant to file and serve the affirmations in opposition by 4 pm on 5 April 2013.  However, one of the two affirmations in opposition, whilst filed within time with the court, was served late on the plaintiff by 54 minutes.  The defendant also filed 2 more affirmations in opposition on 14 May 2012.

11. In the first hearing of the originating summons on 16 May 2012, I granted relief against sanction in favour of the defendant by allowing it to rely on the affirmations filed on 5 April and 14 May 2012.  I also granted leave to the defendant to file further affirmations in opposition to deal with certain specific allegations made in the plaintiff’s affirmations in reply.  The defendant was also ordered to pay the plaintiff forthwith the sum of $63,000 as the costs of the relief against sanction application.  Pursuant to such order, the defendant duly filed 2 more affirmations on 30 May 2012.

12. On 19 July 2012, the defendant issued a summons for security for costs against the plaintiff.

13. On 10 September 2012, the plaintiff filed a summons to withdraw the revocation application relating to “jewellery, horological and chronometric instruments”.  On 12 September 2012, I allowed the plaintiff’s application and adjourned the revocation application relating to the remaining goods to a date to be fixed for argument with 1 day reserved.

14. On 30 October 2012, the plaintiff issued another summons to withdraw the revocation application relating to “precious metals and their alloys and goods in precious metals or coated therewith, not included in other classes, precious stone”.  In effect, the plaintiff was applying to withdraw the whole revocation application against the defendant.  In the hearing before me on 12 November 2012, the parties basically agreed for the whole application to be discontinued but they could not agree on the final wordings of the order.  I adjourned the application together with the argument on costs of the whole action to a date to be fixed for argument with 3 hours reserved. The hearing date was subsequently fixed to be 15 April 2013.

15. The defendant’s application for security for costs came before Master Hui on 28 November 2012.  After hearing submissions from the parties, the Master granted the defendant’s application and ordered the plaintiff to pay a sum of $800,000 into court as security for the defendant’s costs in these proceedings up to the hearing on 15 April 2013.

16. In the hearing on 15 April 2013, both parties had no serious dispute about the wordings of the order.  Since the plaintiff has no intention of issuing a fresh claim against the defendant based on the existing facts, I grant leave to the plaintiff to discontinue the application against the defendant.  The main battleground between the parties is the issue of costs.

Discussion on the issue of costs

17. Mr Hui, counsel for the plaintiff, submits that there should be no order as to costs of the originating summons, or alternatively, the defendant should only be entitled to costs in the sum of no more than $800,000, being the amount of security for costs ordered by Master Hui on  28 November 2012.  On the other hand, Mr Liao SC, counsel for the defendant, argues that the defendant should get the costs of the originating summons.

18. It is common ground that the court has a wide discretion to decide on the issue of costs when considering an application to withdraw or discontinue an action.  However, a plaintiff who withdraws a claim against the defendant is normally expected to pay the defendant’s costs.

19. Mr Hui urges the court to depart from such general principle because of the conduct of the defendant both before and during the proceedings.  Before the issuance of the originating summons, the plaintiff had made repeated requests to the defendant to produce evidence about the defendant’s use of the Trade Mark.  During the inspection on 18 January 2012, the defendant only produced some materials relating to the defendant’s use of the Trade Mark on watches but not other goods.  Further according to the plaintiff, the materials produced by the defendant were far from satisfactory and the plaintiff had some doubt about the genuineness of such materials.

20. After the issuance of the proceedings, there had been delay on the part of the defendant in filing affirmations in opposition. An unless order was granted by the court and the defendant had to apply for relief against sanction for failing to serve the affirmations before the deadline. Furthermore, says Mr Hui, the defendant only supplied some of the invoices for the sale of the goods bearing the Trade Mark on 15 May 2012, and put forward evidence, for the first time, in respect of the use of the Trade Mark on jewellery items in the 2^nd affirmation of Jeanne Chen Chen Ford filed on 30 May 2012.  It was only with the latest materials supplied by the defendant that the plaintiff was able to reassess the strength of the its claim which ultimately led to the application for the withdrawal of the originating summons.

21. In reply to the plaintiff’s allegations, Mr Liao submits that it has all along been the defendant’s genuine belief that the plaintiff was only targeting the defendant’s use of the Trade Mark relating to watches.  In the letter from the plaintiff’s Japanese lawyer dated 14 November 2011, the plaintiff claimed that it was engaged in the business of the sale and manufacture of clothing, especially denim clothing, which had nothing to do with the goods covered by the defendant’s registration of the Trade Mark.  Further according to the information provided by the Trade Development Council, the plaintiff launched its watches collection in Hong Kong in September 2011, and so the defendant believed that the plaintiff was only interested to know whether the defendant had used the Trade Mark in relation to watches and related items.  If the plaintiff sought to obtain specific evidence about the defendant’s use of the Trade Mark on other goods, the plaintiff could have made such request before issuing the originating summons.

22. Further, preparation of its evidence in defence involved retrieval of a large volume of documents for the past several years. Coupled with the facts that the director and the marketing executive of the defendant were out of town for a while and the affirmation of Mr Chan had to be sworn before a notary public in South Africa, there was some delay in the filing of the affirmations in opposition.  In any event, the defendant had already been ordered to pay the plaintiff’s costs resulting from the late filing of such affirmations.

23. In my judgment, the conduct of the defendant both before and during the proceedings was not unreasonable to the extent that the court should depart from the general rule on costs.  After spending some time in engaging proper legal representatives, the defendant was willing to arrange an inspection to allow the plaintiff to examine its evidence about the use of the Trade Mark.  The defendant would not be able to know what sort of queries that the plaintiff would have had about the materials supplied, and it was always open to the plaintiff to seek specific clarifications from the defendant if necessary.  Instead of allowing such an opportunity to the defendant, the plaintiff just issued the originating summons 2 months after the first demand letter.  In such circumstances, I do not find that the defendant’s pre-action conduct was unreasonable.

24. I also accept that there was genuine difficulty on the part of the defendant in gathering evidence about the defendant’s use of the Trade Mark.  Further, Mr Chan stays in South Africa most of the time and the defendant’s staff might have to travel occasionally because of business needs.  In any event, the defendant has already been ordered to pay for the costs of the applications resulting from the late filing of the affirmations in opposition.

25. When facing an allegation of non-use, it is certainly the duty of the proprietor of the trade mark to produce evidence about its use.  However, if the proprietor is able to produce such evidence, then the challenger has to face the consequences of issuing an unsuccessful legal proceeding.  This was actually what happened in the present case, and so I order that the costs of the originating summons, including all costs reserved, be paid by the plaintiff to be taxed if not agreed.

26. As the defendant’s costs will be taxed by a taxing master, I cannot and should not order that the defendant’s costs be limited to the amount of the security for costs ordered by Master Hui on 28 November 2012.  As Master Hui was not asked to tax the final costs in that hearing, there is simply no basis for the court to limit the taxed costs to that amount.

27. Despite that, my preliminary observation is that the amount of costs claimed by the defendant is manifestly excessive.  In the hearing before Master Hui, the defendant claimed security for costs in the amount exceeding $800,000.  Before the hearing on 15 April 2013, the defendant’s solicitors wrote to the plaintiff’s solicitors offering to settle the case at the agreed costs of $1,240,000.

28. Taking into account the amount of works undertaken by the defendant’s solicitors in these proceedings, I must say that these amounts are very much inflated figures.  The defendant’s solicitors have only filed a few affirmations to include evidence about the defendant’s use of the Trade Mark.  There were only a few hearings before the court which did not involve lengthy arguments.  In such circumstances, I am quite surprised by the amount of costs claimed by the defendant.  However, I must stress that this is only a preliminary observation which should not in any way be binding on the taxing master in the subsequent taxation proceedings.

29. This is only a simple hearing involving argument on costs, and so I disallow the defendant’s application for certificate for two counsel.

30. I therefore make the following order:

(i)   leave to the plaintiff to discontinue the application under the originating summons against the defendant;

(ii)   costs of the action, including all costs reserved and the costs of the 2 withdrawal summonses, be paid by the plaintiff to the defendant to be taxed if not agreed; and

(iii)   there be certificate for one counsel in respect of the hearing on 15 April 2013.