CAESARS WORLD, INC. v. DELMAN COMPANY LIMITED

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HEADNOTE

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Passing off - definition of goodwill - consideration of the factors to be weighed when the rain business of the Plaintiffs is transacted outside the jurisdiction of the Court.

Circumstances where passing off causes damage to the Plaintiff's reputation. Test to be adopted in granting interlocutory relief.

Held. An injunction was granted preventing the Defendants from using the Plaintiffs' name.

1987, No. A8647

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. FACTUAL BACKGROUND

                The Plaintiffs operate casinos in the U.S.A. under the name "Caesars Palace". They also operate various Hotels and promote entertainments in a number of different fields. They claim to have acquired a reputation in many parts of the world and as a result of this to entertain a large number of guests from many different locations including Hong Kong. Indeed the volume of visitors from Hong Kong is such that they have opened an office in Hong Kong from which two of their subsidiary companies operate. It is also apparently their practice to arrange for selected Hong Kong customers to fly free of charge to their casino complex in Las Vegas.

                Towards the end of 1987 they learnt that it was the Defendant's intention to open a Nightclub at the Miramar Hotel complex which would trade under the name "Caesars Palace". The Defendant opened their Nightclub on 1st December 1987 and have been operating it since that time.

                On account of the large number of Chinese visitors to their establishment in the United States, the Plaintiffs have on occasion issued brochures and other literature which has been published in Chinese characters. The Chinese characters are (凱撒皇宮). Sometimes the third character (皇) has been omitted.

                As a result of correspondence and the commencement of these proceedings the Defendants have agreed to discontinue using the English name "Caesars Palace" and adopt the name "Caesars". They have not though agreed to modify in any way the use of Chinese characters in their name. The characters used by the Defendants are "凱撒皇宮夜總會". It will be noted that the second character is slightly different to the character used by the Plaintiff but Mr. Liao for the Defendants conceeded that phonetically the sound of the second character in the Cantonese tongue was for all practical purposes very similar to the sound of the second character used by the Plaintiffs.

                The Plaintiffs gave evidence by way of affidavit that some confusion had arisen from the Defendants use of their name. A number of their customrs had inquired whether the Defendants' establishment was associated with them.

                Shortly after the Defendants' Nightclub opened: the Plaintiffs instructed an Inquiry Agent to attend at the premises and obtain evidence concerning the way in which it was operated.

                Mr. Anthony Gurka and two of his assistants attended at the establishment posing as patrons. They had conversations with various members of the staff. Mr. Gurka swore in an affidavit that one of the "mamasans" called Katherine had explained to him the modus operandi of the establishment and introduced them to three Hostesses Fanny Tsui, Wong Suk Man and Anita Chung.

                According to Anita Chung if time was spent with Hostesses, they would be charged a fee based upon the amount of time spent. They could also purchase drinks for themselves and for the Hostesses.

                 In addition to this the patrons could if they wanted to pay an additional fee which would entitle them to leave the establishment with the Hostesses they were with.

                 Mr. Gurka said that Anita Chung had also advised him that if lie wished to have sexual intercourse with her, a further amount would be payable. In his first affidavit, Mr. Gurka said the amount referred to was $1,600 and in a subsequent affidavit, he referred to the amount being $1,000.

                 In an affidavit in reply, Anita Chung denied this evidence and said that she had never agreed to engage in sex with Mr. Gurka nor had she discussed the payment of any fee for this purpose.

                I do not think that this conflict of evidence creates any problems for the purposes of this applciation. The Defendants, if I understand the position correctly, accept that customers can take the Hostesses from the establishment upon payment of a fee which is calculated upon the time when the Hostess leaves with the customer. Indeed an advertisement was placed in a Chinese newspaper to this effect.

                The Plaintiffs issued a generally endorsed writ on the 31st December 1987 and the present summons before me was issued on the 14th January 1988.

                The summons which seeks an interlocutory injunction restraining the Defendants from passing themselves off as the Plaintiffs came before Mr. Justice Rhind on the 18th January. He treated the summons as a summons for directions and granted leave to both parties to file further affidavit evidence.

                Mr. Ho Wai who is the Managing Director of the Defendants filed a lengthy affidavit on 1st March 1988. He took grave exception to the allegations made by the Plaintiffs.

                He claimed that the Defendants' Nightclub was a Japanese style Nightclub. He and his fellow promotors had invested substantial capital in the venture. Expenditure had been of the order of between HK$20 and 30 millions. The Nightclub was at the present time the third largest Nightclub in the Colony.

                He strongly denied the Plaintiffs description of it as being "little more than a thinly veiled guise for a Hostess operation whereby clients pay Caesars Palace Nightclub for the services of Hostesses who then levy further charges to the client for engaging in sex".

                He said that it was the policy of the Defendants to discourage their employees from engaging in sex with their customers. The business was conducted in a straightforward manner as a reputable Japanese Nightclub.

                Mr. Ho had had considerable experience of working in the Nightclub business. His previous ventures had all been successful.

                He and his friends had decided to open a Nightclub at the Miramar Hotel complex. It was larger than any of his previous ventures. His reason for choosing the name "Caesars Palace'' was "because of the connotation of the grandeur of ancient Rome connected with the name Caesar and the love of luxury and oppulence associated with the later Roman Emperors and further because the word "Palace" and its Chinese translation have recently been in vogue in the names of Restaurants and Nightclubs in Hong Kong".

                I regret that I experience considerable difficulty in accepting this evidence at its face value. I say this because the name "Caesars Palace" is an extremely well known name. It is almost inconceivable that a person such as Mr. Ho who has been in the entertainment business nearly all his working life would not be well aware of the Plaintiffs' business. It would seem to be most unlikely that a conscious choice was not made to take advantage of the Plaintiffs' reputation.

                Mr. Ho went on to describe the difficulties which would arise if the Court granted an injunction and it was necessary for him to close the Defendants' business.

                I must admit that I see considerable merit in the submissions which were made by Mr. Rogers for the Plaintiffs to the effect that it never has been the intention of the Plaintiffs to close the Defendants' business down. All that they are seeking to do is to prevent them from using the Plaintiffs' name.

                There was no reason to suppose that it would be necessary to close the business down even for a short period of time. In support of this argument, he referred to the fact that the changing of the Defendants' name from Caesars Palace to Caesars had not necessitated any closure and it was         difficult to see why changing the Chinese name should create any further problems.

                While I realise that I should not at this stage attempt to adjudicate upon the affidavit evidence before me, I do not see why I should be required to accept all of the evidence contained in affidavits at its face value. I do however accept that considerable inconvenience would be caused if I were to grant to relief sought. I do not however accept that irreparable harm would be caused.

2. HAVE THE PLAINTIFFS ESTABLISHED THAT THEY HAVE GOODWILL IN HONG KONG

                As will be noted from the short summary of facts, the Plaintiffs conduct their casinos and other Hotels and entertainment centres in the United States of America.

                In order to succeed in any claim for passing off in Hong Kong, they must prove that they have goodwill in Hong Kong.

                The classic definition of goodwill is contained in the speech of Lord Macnaghten at p.223 of the Commissioner Inland Revenue v. Muller⁽¹⁾:

"What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of tow good name, reputation, and connection it a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from anew business at its first start. The goodwill of a business must emanate from a particular centre or souse. However widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different business in the same trade. One element may preponderate here and another element there. To analyze goodwill and split it up into its component parts, to pare it down as the Commissioners desire to do until nothing is left but a dry residuum ingrained in the actual place where the business is carried on while everything else in the air, seems to me to be as useful for practical purposes as it would be to resolve the human body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case like this it must be dealt with as such. "

                Further assistance as to the nature of goodwill and what constitutes passing off can be derived from the speech of Lord Diplock at p.269 of Star Industrial Co. Ltd. v. Yap Kwee Kor⁽²⁾:

"Whatever doubts there may have Previously been as to the legal nature of the rights which were entitled to protection by an action for "passing-off" in courts of law or equity, these were laid to rest more than 60 years ago by the speech of Lord Parker of Waddington in A.G. Spalding & Bros. v. A.W. Gamage Ltd. (1915) 32 R.P.C. 273 ("the Gamage Case") with which the other members of the House of Lords agreed. A passing-off action is a remedy for the invasion of a right or property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing-off one person's goods as the goods of another. Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached".

                The next question which has to be considered is whether the Plaintiffs involvement in Hong Kong as above described is sufficient to establish that the Plaintiffs are carrying on business here. This question was considered in some depth by the Court of Appeal in Anheuser-Busch v. Budejovicky Budvar NP⁽³⁾ Lord Justice Oliver had this to say at p.465:

"That the mere existence of a trading reputation in this country is insufficient in the absence of customers here is well exemplified by 'The Athletes' Foot Marketing Associates Inc. v. Cobra Sports Ltd. [1980] R.P.C. 343, where Walton helpfully reviewed all the earlier cases. That case bears some similarity to the present in this respect that although the plaintiffs (these like the plaintiffs in the instant case) had expended considerable sums in advertising, all their advertising had been in the United States and was directed to the American market. There, as here, there was an awareness of the plaintiffs' trade name and trading activities in a substantial section of the public in England, as a result of over-spill publicity through American journals circulating here. There were, however, no customers in England, because the plaintiffs' activities had got no further than the taking of preparatory steps for setting up business here.

The principle was expressed by Walton J. at page 350 as follows:

 

"

...as a matter of principle, no trader can complain of passing off as against him in any territory-and it will usually be defined by national boundaries, although it is well conceivable in the modern world that it will not - in which he has no customers, nobody who is in a trade relation with him. This will normally shortly be expressed by saying that he does not carry on any trade in that particular country .... but the inwardness of it will be that he has no customers in that country: no people who buy his goods or make use of his services (as the case may be) there.'

 

This is, I think, a helpful statement, but needs, in the light of the authorities, to be approached with the caveat that "customers" must not be read restrictively as confined to Persons who are in a direct contractual relationship with the plaintiff, but includes persons who buy his goods in the market.

 

In Societe Anonyme des Anciens Etablissements Panhard et Levassor v. Panhard Levassor motor Company Limited (1901) 18 R.P.C. 405, the plaintiffs obtained an injunction against passing off. They had no business in England nor any agency here. Indeed their cars could not lawfully be imported into England without the licence of certain English patentees. There was, however, an English market for their cars in the sense that there was an importer (presumably with the appropriate licences) in England who bought their cars for re-sale and there were individuals who from time to time bought their cars in Paris and imported them into England. Farwell J. observed that "England was one of their markets. " Thus here the sale of the plaintiffs' goods by a third Party and purchase and importation by English residents was regarded as a sufficient business to support the action.

 

Poiret v. Jules Poiret Ltd. (1920) 37 R.P.C. 177 was another case in which the successful foreign plaintiff had no actual place of business in England, but he exhibited his goods here and sold to customers here either directly or through an agent.

 

The case of sheraton Corporation of America v. Sheraton Motels Limited [1964] R.P.C. 202 may perhaps be said to represent the highwater mark, for there the successful plaintiffs carried on no business in the United Kingdom save that bookings for their hotels abroad were effected through an office which they maintained in London and through travel agents in this country. The case is, however, a somewhat slender authority, for it was a motion for an interlocutory injunction, and the decision really proceeded on the footing that the plaintiffs might succeed at the trial in establishing a goodwill which was entitled to protection and that the balance of convenience dictated that they should be protected in the meantime".

The last case required to by Oliver L.J. is almost exactly apposite to the instant case.

                I have no doubt whatever that adopting the criteria laid down by the cases that the Plaintiffs have sufficiently established that they have goodwill in Hong Kong.

3. HAVE THE PLAINTIFFS SUCCEEDED IN ESTABLISHING THAT THE ACTS OF THE DEFENDANTS CONSTITUTE PASSING OFF

                During the course of an able submission Mr. Liao contended that the acts of the Defendant in no way damaged the interests of the Plaintiff.

                He contended that the business which was conducted by the Defendants was of an entirely different nature to the plaintiffs' business.

                Although roughly speaking it could be said that both parties were in the entertainment business the fact of the matter was that the core business of the Plaintiffs was gambling whereas the Defendants' business was running a Japanese style Nightclub. While it is true that there might be some overlap with their respective customers it was nonetheless true that gambling and being entertained at a Nightclub were very different activities.

                Put another way it was virtually inconceivable that any of the Plaintiffs' customers would refrain from going to Las Vegas to gamble as a result of their knowledge of the Defendants' Nightclub.

                While this may well be true, I think that it misses the essential point. There is no doubt in any mind that if the Defendants are permitted to continue to run their Nightclub using the Plaintiffs' name many people, perhaps most people, would believe that the Plaintiffs were involved in the Nightclub.

                I also have no doubt that some people may well regard the activities of the Defendants' Nightclub with disapproval. I have in mind particularly the concession which was made by Mr. Liao that the Defendants at least condone the practice of customers paying moneys to take the Hostesses away from their premises. In these circumstances, I do not think it is unfair to consider the activities of the Defendant in a similar light to the activities of an escort agency.

                I regret that I do not see any merit in the contention that simply because very large amounts of capital have been expended in the provision of a luxurious facade and sumptuous appointments this in any way confers a measure of respectability. The fact that the Nightclub caters to the tastes of mainly wealthy patrons seems to me to be neither here nor there. In my view what is necessary is to have regard to the essential nature of the services which are available. In doing so I have no doubt that there are many people who disapprove of the activities of so called Japanese style Nightclubs. I would be prepared to go further and say that it is not unreasonable for tae Plaintiffs to wish to dissociate themselves from such activities.

                I am greatly assisted in this by the observations made by Russell L.J. in Annabels v. Schock⁽⁴⁾ where he was considering a situation which was in many ways similar to the present case. He had this to say at p.845:

"Now it is said, as I have previously remarked, that it may be that in terms of pounds and pence between now and the trial, when the whole matter will be finally decided, it is improbable having regard to their flourishing condition, that the plaintiffs through their club will actually lose nosey by the activities of Mr. Schock trading under the business name of "Annabel's Escort Agency". Indeed, I think it is fair to remark that Mr. Schock said: "It may very well be that I have had one or two members of Annabel's who have applied to me for an escort to take them there, and no doubt have taken them there". I dare say that has swollen the takings of the plaintiffs' club, though perhaps if it had not been that escort it would have been one of Jeannie's or another girl; one does not know. This may be so; but the crucial point seems to me in this case to be this: First of all, I absolutely and entirely agreed with the learned judge that on the evidence there is a probability of confusion, and that some members of the public though not all will think that there is some association between the plaintiffs' club and Annabel's Escort Agency.

 

Having reached that stage we are then faced with this situation which has got nothing to do with immediate possible loss of takings by Annabel's Club, or even immediate falling off in membership, both of which seem unlikely. But the fact is, as Mr. Schock very properly, rightly and honestly faced and agreed with, that escort agencies have, as yet, as a general activity, to say the least but an indifferent public image. I am prepared, of course, to accept from Mr. Schock that everything to do with his particular agency has always been run with the strictest regard to public and private morals, and so on. But as he says, as yet one cannot but be tarred (I am not using his words) to some extent with the brush which the general public are inclined to think is appropriate to these escort agencies, though, according to Mr. Schock they are satisfying a present and increasing want, and it may be that they will come to be thought to be a good thing or a better thing than they are thought to be now.

 

This seems to me to be the important matter. This seems to me to entitle Annabel's Club or the proprietors to now say what in my judgment is correct at this stage, namely: "If it is going to be thought by a sufficient number of people that we are somehow associated with the running of an escort agency, some of the tar will come off on us, and we have no tar on us at all". This is the real ground upon which it seems to me an interlocutory injunction is justified, because it is that kind of attack, albeit unintended, on the general good will of a plaintiff that requires the protection of an interlocutory injunction, because there is never going to be any means at the end of the road to see how much harm as been done by this kind of possible reputation being acquired in the mind of the public in regard to a perfectly respectable organisation and activity such as is the plaintiffs' and as is run by the plaintiffs".

                The Plaintiffs understandably feel that their reputation has been damaged and are concerned that they are unable to control in any way the activities of the Defendants.

                I am satisfied that they have sufficiently established that the acts of the Defendants do constitute passing off.

4 WHAT IS THE TEST TO BE ADOPTED IN DETERMINING WHETHER OR NOT AN INTERLOCUTORY INJUNCTION SHOULD BE GRANTED

                Mr. Liao submitted that the usual American Cynamide test was not appropriate to the present case. He argued that on the facts of the present case the reality of the situation was that if the injunction was granted, there was no prospect that the case would ever go to trial.

                There would be no point in the Defendants pursuing the matter further because if it was necessary to close the Nightclub down it was extremely unlikely that they would ever be able to recover their investment and accordingly no purpose would be served by going to trial.

                This being the case the Plaintiffs needed to establish very much more than just a real prospect of success. As authority for this, he referred to NWL v. Woods ⁽⁵⁾, Newsweek v. BBC⁽⁶⁾, Atari v. Video Technology Ltd.⁽⁷⁾ and various other cases.

                With respect I consider that Mr. Liao has correctly stated the law. However I do not think that it has any application to the present case. I accept the submissions made by Mr. Rogers to the effect that it is most unlikely that the Defendants would have to close their establishment if an injunction is granted. In this connection I would add that if an injunction is granted, care should be taken to ensure that it is drawn in a manner which would not unduly penalise the Defendants.

                The conclusion that I have come to is that the normal American Cynamide test is the correct one to adopt in the present case i.e. is there a serious question to be tried.

5. HAVE THE PLAINFIFFS ESTABLISHED THAT THERE IS A SERIOUS QUESTION TO BE TRIED.

                I have no doubt for the reasons I have already given that the Plaintiffs have established this.

6. WHERE DOES THE BALANCE OF CONVENIENCE LIE

                On the basis that it would not be necessary for the Defendants to close down their Nightclub, I am satisfied that the balance of convenience lies in favour of the injunction being granted. Also accepting the premise that there is no reason why the case should not go to trial I do not think that any great hardship is likely to be suffered by the Defendants if the injunction is granted.

                There is no doubt that if they succeed at the trial in establishing that the injunction should not have been granted, they should not experience any difficulty in recovering perhaps substantial damages from the Plaintiffs.

7. CONCLUSION

                For the reasons I have given, I have come to the conclusion that the Plaintiffs are entitled to an interlocutory injunction. I would like to hear submissions from the parties as to the form such an injunction should take. I am anxious to minimize the inconvenience which will be suffered as a result of the injunction being granted.

                In conclusion I would like to express my gratitude for the assistance I have received from both counsel.

                I will also hear the parties on the question of costs.

(1) [1901] AC 217

(2) [1976] FSPLR 256

(3) [1984] FLR 413

(4) [1972] RPC 830

(5) [1979] 1 WLR 1294

(6) [1979] RPC 441

Unreported H.K. CA 117/82