NEW HORIZONS EDUCATION CORPORATION AND ANOTHER v. TSUI MOON TONG

HCA1220/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1220 OF 2012

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BETWEEN

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JUDGMENT

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INTRODUCTION

1.  This is an application by the plaintiffs for summary judgment against the defendant pursuant to Order 14 r.1 of the Rules of the High Court.

2.  The defendant was the director[1] of Best Alliance Worldwide Limited (“Best Alliance”) and NH Hong Kong Services Limited (“NH Hong Kong”).  The plaintiffs alleged that the defendant should be personally liable for the torts committed by Best Alliance and NH Hong Kong in the action HCA2218/2008 (“2008 action”).  There were infringement of trade marks and passing off.

BACKGROUND FACTS

3.  It is important first to set out the background leading to the present action (“2012 action”).  The 1^st plaintiff, New Horizons Education Corporation, was incorporated in USA.  It is the registered owner of two trade marks (registration No. 30002894 and 300955143)[2] which are the subject matters of infringement and passing off in the 2012 action.

4.  The 2^nd plaintiff, New Horizons Franchising Group, INC., is a subsidiary of the 1^st plaintiff.

5.  The 1^st plaintiff, through its subsidiary, carried on business by granting franchise for using its trade marks, system and procedure for the operation of computer-related learning centers, to other companies in USA and several other countries.(the “franchised business”) [3]

6.  From August 2006 to April 2007, through a series of assignment of interests, the 2^nd plaintiff [4] became the franchisor of the master franchise agreement with New Horizons China Ltd. [5]  Under the agreement, the latter operated the franchised business in China including Hong Kong.

7.  By that time, New Horizon China Ltd[6] was also assigned the interests of the sub-franchise agreement with Best Alliance.[7]  Best Alliance operated learning centers through its subsidiary, NH Hong Kong.  The latter operated the franchised business in the name of ‘New Horizons Computer Learning Centers’ in Hong Kong.

8.  On 5 December 2007, the plaintiffs terminated the master franchise agreement with NH China Limited. There was a dispute about the validity of the notice of termination.

9.  In the meantime, the 2^nd plaintiff also informed Best Alliance that the sub-franchise agreement would be terminated with effect from 31 January 2008.  The 2^nd plaintiff indicated the possibility of a direct franchise agreement with Best Alliance.[8]

10.  The sub-franchise agreement was extended on the request of Best Alliance to the end of March 2008.  However, Best Alliance declined to be a direct franchisee with the 2^nd plaintiff. The original sub-franchise agreement was terminated with effect from 1 April 2008.

11.  Since then, the plaintiffs found that Best Alliance and NH Hong Kong continued to use the trade mark and failed to de-identify with the trade name of the plaintiffs.  Despite their complaint, Best Alliance and NH Hong Kong denied any non-compliance with the post-termination obligations.

12.  The plaintiffs started the 2008 action against Best Alliance and NH Hong Kong for infringement of the trade marks and passing off.

13.  In July 2011, the 2008 action was tried by Deputy Judge Seagroatt who gave judgment for the plaintiffs with costs.  The Judge also ordered an inquiry into damages to be assessed by a Master.

14.  In August 2011, Best Alliance and NH Hong Kong indicated that they were unable to pay the costs as neither of them had any asset.

The claim

15.  In the 2012 action, the plaintiffs claimed that the defendant should be personally liable for the trade mark infringement and passing off by Best Alliance and NH Hong Kong after March 2008 when the master franchise and the sub-franchise agreements were terminated.  At the material time, the defendant was the director of Best Alliance[9].  He was also the managing director of NH Hong Kong.  The plaintiffs alleged that the defendant was responsible for the operation of the learning centers operated by the two companies.  He intended and procured the two companies to perform the infringement and passing off.  He should be liable as a joint tortfeasor.  The plaintiffs also claimed the costs of the 2008 action as special damages[10] and asked for general damages to be assessed.

16.  The defendant argued that he was only nominally responsible for the operations of the learning centers.  The majority shareholder, Mr Kwok, had a casting vote. Mr Kwok was also responsible for the business strategy of Best Alliance and NH Hong Kong.  This included managing relationship with investors, the plaintiffs and the sub-franchise agreement.  At the material time, the defendant himself had instructed the employees to de-identify the plaintiffs trade mark and trade name with the learning centers.

17.  The defendant further argued that the 2012 action to recover the costs of the 2008 action was abuse of process in the Henderson v Henderson sense.[11]

Applicable legal principles

18.  In an application for summary judgment, the plaintiff must first establish a plausible and prima facie sustainable case.  The burden then shift to the defendant to satisfy the court that there exists a triable issue.  In discharging this obligation, the defendant’s affidavit must “condescend upon particulars” and deal specifically with the plaintiff’s claim and affidavit.  The ultimate question is whether the defendant’s assertions are believable.  In this respect, the court would consider contemporaneous documents and circumstances which are not in dispute or beyond reasonable dispute.[12]

Discussion and application of the legal principles

19.  In support of their application, the plaintiffs filed three affidavits by Mr Marsella and Mr McDaniel. I have also considered the submission by counsel for both parties.  I find the following facts beyond reasonable dispute:

Trade marks of 1^st plaintiff

A. The 1^st plaintiff is the registered owner of trade marks “New Horizon Computer Learning Centers” and “New Horizon English learning Centers” with a half globe logo[13].  These marks cover educational service including the use of computer software and hardware and teaching of English language.

Termination of master franchise and sub-franchise

B. By a letter dated 19 December 2007 from the 2^nd plaintiff to the defendant, the master franchise (with effect from 5 December 2007) and the sub-franchise (with effect from 31 January 2008) were terminated.  The option for a direct franchise agreement between the 2^nd plaintiff and Best Alliance was open.[14]

C. By an e-mail dated 29 January 2008, the deadline for the termination of the sub-franchise agreement was extended to 14 March 2008 on the request of Mr Philip Kwok.[15]  This was for him to consider a direct franchise agreement with the 2^nd plaintiff.

D. By an e-mail dated 31 March 2008 from Mr Philip Kwok, Best alliance decided not to have a direct franchise with the 2^nd plaintiff.  This e-mail was copied to the defendant.[16]

E. There was also a subsequent letter dated 15 April 2008 from the 2^nd plaintiff to the defendant confirming the termination and requesting for de-identification with the franchised business.[17]

F. Another follow-up e-mail dated 1 May 2008 to both the defendant and Mr Philip Kwok confirming that the latter would de-identify all traces of the franchised business.  In this e-mail, the 2^nd plaintiff disagreed that ‘New Horizon’ was a generic name.[18]

G. In his affidavit, the defendant alleged that the termination of the master franchise and the sub-franchise agreements was wrongful and in breach of contract.[19]  He relied on the letters from NH China Ltd to the 2^nd plaintiff.[20]  Throughout his affidavit, there was no further mention of this dispute.  To the contrary, Mr Philip Kwok wrote to the 2^nd plaintiff in March 2008 confirming that Best Alliance decided not to take up a direct franchise (paragraph (D) above).  Best Alliance also confirmed that they were in the process of de-identifying the franchised business (paragraph (F) above). There was no further clarification in his affidavit whether NH China Ltd was taking action in relation to the disputed termination.  Given all these, the defendant could not rely on the disputed termination as a background to explain the subsequent trade mark infringement and passing off.

De-identification

H. During the trial in the 2008 action, the defendant confirmed under oath that he was minded to de-identify the franchised business according to the recommendations of Mr Chandler, a director of the plaintiffs.  Despite he was busy in the school administration, the defendant would try to do it within a month before the deadline on 31 May 2008.[21]  He never mentioned that he was not the person in-charge of the operation of the learning centers, nor did he mention that he had little say in Best Alliance as he claimed in his affidavit in relation to the 2012 action.[22]

I. Having considered the documents before me, I accept the following acts of infringement and passing off as discovered by the plaintiffs:

a. As of 6 June 2008, the website still contained infringing parts.  The defendant explained that he would register a new website with a new logo.  However, the name ‘New Horizons Learning Centers’ must be maintained as the courses and school licences were registered with the Hong Kong Education Bureau.[23]  There was no explanation as to the difficulties encountered.  The defendant in effect was saying that he was forced by the circumstances to infringe the trade marks.  I find this unacceptable.

b. Mr Scott McDaniel, Director of the plaintiffs group, visited the learning center operated by Best Alliance at Harbour Centre, Wanchai on 23 June 2008.  In his affidavit, Mr McDaniel recalled seeing a mark confusingly similar to the trade mark “New Horizon computer learning centers”.  He took some photographs.  He also saw some flyers and documents bearing the trade mark of the plaintiffs.  He was stopped by the defendant.  Subsequently, police was called and the defendant insisted Mr McDaniel to delete the photographs in his camera.  On the advice of the police, Mr McDaniel deleted the photographs.  He was released. Later, Mr McDaniel went to the learning center at Jordan and took a few photographs of the signboard at the ground floor.[24]  In relation to this incident, I have the following observations:

i. In his affidavit for the 2012 action, the defendant never disputed Mr McDaniel’s observation during the incident.  In fact, in his witness statement of the 2008 action, the defendant recounted the incident which was substantially in accord with Mr McDaniel’s affidavit[25].  The defendant just disputed the date on which the photographs of Jordan center were taken.

ii. To support his argument, the defendant produced, in his affidavit, a tenancy agreement dated 14 February 2008 seeking to prove that the strategic partner of the Jordan learning center was Cosmos instead of ABRS as shown in the photographs. However, under clause 2(y) of the tenancy agreement, the tenant was to use the premises for commercial purposes under the name of New Horizon Learning Center of Hong Kong and Cosmos English.  The tenancy was for three years commencing 28 December 2007.

iii. The tenancy said nothing about the status of any strategic partner. Champion Linker Ltd was only a joint tenant.  Cosmos English was one of the centers.

iv. According to paragraphs (B) above, by 28 December 2007, the defendant was fully aware of the termination of the master franchise and sub-franchise agreement.  Yet, he signed the tenancy agreement for three years on behalf of New Horizon Hong Kong[26].  His intention to continue the use of the trade name of the plaintiffs was all too obvious.

v. As mentioned at paragraphs (J) and (L) below, the photographs taken by the private detectives on 7 and 19 August 2008 supported the observation of Mr McDaniel on 23 June 2008.  The photographs showed that there had not been compliance of post termination de-identification in August 2008.  I do not accept there was collusion between the plaintiffs, Mr McDaniel and the private detectives.  Had there been compliance in June, there was no reason to use the confusing marks again in August as shown in the photographs.

vi. Given the affidavit of Mr McDaniel and the photographs in relation to the learning center in Jordan, coupled with the analysis above, I accept Mr McDaniel’s affidavit that the photographs in relation to the learning center in Jordan were taken on 23 June 2008.  I also accept his observation on the same day at Harbour Center.

vii. I do not accept that “New Horizons” is a generic term.  See the discussion in paragraphs 28-31 below.

J.  On 19 August 2008, the plaintiffs sent a private investigator to take photographs of the signboard at the Jordan Center.  The signs of New Horizon learning center and the notices posted still contained marks which were confusingly similar to the trade marks of the 1^st plaintiff.[27]

K.  On 27 February 2008, in response to a business enquiry, Mr Stephen Chan, a staff of Best Alliance/New Horizon Hong Kong, sent a road map to the prospective client bearing the offensive Mark.[28]

L.  On 7 August 2008, a private investigator sent by the plaintiff took photographs of a sign bearing the trade names “New Horizons” and “New Horizon Learning Center” at Harbour Center, Wanchai.[29]

M.  Mr Burnet Lee, Business Development and Marketing Director, and Mr Stephen Chan, Corporate Divisional Sales Manager, of New Horizon Learning Center were still using “New Horizons” and “New Horizons Learning Center” while communicating with clients in August 2008.[30]

N.  As late as March 2009, the trade name “New Horizons” was still used in the prospectus of New Horizon Learning Center.[31]

O.  The domain name “newhorizons.edu.hk” was registered under the name of New Horizons Learning Center until 29 November 2011.[32]

P.  In the annual return filed in June 2008, the trade name of the 1^st plaintiff, “New Horizons Computer Learning Centre of Hong Kong”, was used.  In both 2009 and 2010, the annual returns filed used the names “New Horizons Learning Center”. All three annual returns were signed by the defendant as Director/Secretary.[33]  While these might not be tortious per se, the documents demonstrated that the defendant intended to use the trade name of the 1^st plaintiff despite the termination of the sub-franchise agreement.

Personal Liability of the defendant

20.  A director of a company would not be personally liable if he does no more than carrying out his constitutional role in the company.  However, if the director “intended, procured and shared a common design” that the infringement should take place, he may be liable as a joint tortfeasor.  The guiding principle was fully discussed in Kabushiki Kaisha Yakult Honsha & ors. v Yakudo Group Holdings Ltd & Anor (No. 4) [2004] 2 HKLRD 588, paragraphs 122-127.  Lam J (as he then was) further held that there was no need to prove that the director had explicitly mapped out a plan for the company.  His tacit agreement would be sufficient.  There was no need to prove that the director knew or ought to have known that the acts were tortious.[34]  I entirely agree with Lam J.

Defendant’s role in Best Alliance and New Horizons Hong Kong

21.  At the material time, the defendant was one of the two directors of Best Alliance.  He was the school principal of New Horizons Learning Center responsible for the day-to-day administration[35].  In his witness statement for the 2008 action, he claimed that he joined New Horizons Hong Kong to re-engineer its business which was on the verge of closing down.  In mid 2006 and 2007, he and the management team developed academic degree programs with overseas and mainland universities.  His team also aggressively sold room rental services and launched corporate business training programs.[36]  He was also the “Principal Equity Holders” of Best Alliance under the sub-franchise agreement.

22.  In addition, the defendant gave evidence during the 2008 action that he would de-identify the learning center from the franchised business before 31 May 2008.[37]

23.  In his affidavit for the 2012 action, the defendant however claimed that he was only nominally responsible for the day-to-day operations of the learning centers.[38]

24.  To support his version, the defendant produced in his affidavit minutes of board meetings of Best Alliance.  In these minutes, Best Alliance initially decided to maintain status quo while waiting for the result of arbitration in relation to the disputed termination of the master franchise agreement.  Later in April 2008, it also resolved to refrain from using plaintiffs’ service mark and logo.  The effort to de-identify continued into July 2008.[39]

25.  All these minutes were not produced or mentioned in the 2008 action.  The stance of Best Alliance revealed in these minutes was contrary to its stance in the 2008 action.  The defence then consisted of the following main points:

a. The termination of the master franchise agreement was wrongful.

b. The plaintiffs had not spent money in advertising, promoting and publicizing the goodwill of their System.

c. “New Horizons learning Centers” was a different mark from that of the 1^st plaintiff.

d. There were notices in newspapers announcing the termination of business relationship with the plaintiffs.

e. Denial of infringement of trade marks and passing off.

26.  Had there been board minutes authorizing a full scale de-identification exercise, it was inexplicable why they were not mentioned during the trial of the 2008 action.  I do not find the defendant’s argument, that he was nominally responsible, a believable one.

27.  Besides, his claimed role was in direct contradiction to what he claimed in his witness statement.  In the witness statement, he claimed to have re-engineered and aggressively expanded the business of New Horizons Hong Kong in 2006 and 2007.[40]

Whether “New Horizons” a generic name

28.  The defendant maintained that “New Horizons” was a generic name.  In using the trade name of “New Horizons Learning Centers”, there was no passing off in relation to the trade name of the 1^st plaintiff, namely, “New Horizons Computer Learning Centers”.

29.  A mark is generic in nature when it describes the type of goods or services being offered.  Where a mark indicates particular trade origin of the goods or services, it could be protected by passing off proceedings.[41]

30.  In my view, “New Horizons” is not a generic name.  At least in Hong Kong, it indicates the services provided by the plaintiffs in the relevant field.  The name “New Horizons Learning Centers” is misleading.  Clients would easily link it with “New Horizons Computer Learning Centers”.  This is more so when the former trade name was used at the same premises occupied by the latter before the termination of the sub-franchise.

31.  The fact that there are many other institutions around the world using “New Horizons” as their trade names would not make “New Horizons” a generic name.  The defendant’s argument cannot stand.

Goodwill of the plaintiffs

32.  The defendant also raised query in relation to the goodwill of the plaintiffs.  He pointed out that the trade name of the plaintiffs was not well known in Hong Kong.  The plaintiffs had not spent money in any marketing effort in Hong Kong.

33.  Best Alliance entered into sub-franchise agreement with the plaintiffs.  It agreed to pay royalty to the plaintiffs at a percentage of the monthly gross revenue.  It also undertook to perform the obligations under the sub-franchise agreement to best enhance the goodwill associated with the trade marks/service marks and the System of the plaintiffs.[42]  I do not think the defendant could seek to deny the goodwill of the plaintiffs.

34.  The defendant also argued that the plaintiffs had not spent money to promote the plaintiffs’ system in Hong Kong.  In fact, the sub-franchise agreement stipulated that the sub-franchisee had to spend not less than 1% of the annual gross revenue in marketing the franchised business.[43]  In any event, I do not think this is relevant to our case and could not justify any infringement of trade mark or passing off.

Other circumstances

35.  All the above must be assessed in the light of the following conduct.  They show that the defendant was determined to use the trade name of the plaintiffs despite termination of the sub-franchise:

a. As mentioned in paragraph 19(I)(b)(ii) above, the defendant signed a tenancy agreement for three years on behalf of ‘New Horizons Hong Kong’ with effect from 28 December 2007.  This was the premises for operating New Horizons Learning Center of Hong Kong.  By that time, he was fully aware of the termination of the master franchise and the sub-franchise agreement.

b. In the annual return filed in June 2008, the trade name of the 1^st plaintiff, “New Horizons Computer Learning Centre of Hong Kong”, was still used.  This document was signed by the defendant as the director/secretary of the company.  By that time, the sub-franchise agreement had already been terminated.

c. In the annual returns filed in June 2009 and 2010, “New Horizons Learning Center” was used as the company name.  The defendant signed as the director of the company. Again, the defendant was fully aware that he should have de-identified from the trade name of the plaintiffs.

36.  Given the above, I am satisfied that the defendant was always in control of the management of the New Horizons Learning Center.  He “intended, procured and shared a common design” in the infringement of trade mark and the passing off conducts in this case.  In my view, his explanations are not believable. He should be personally liable.

Abuse of process

37.  The doctrine of abuse of process is commonly known as ‘Henderson v Henderson abuse’ derived from the case of that name.  In Ko Hon Yue v Chiu Pik Yuk and others, FACV8/2011, the Chief Justice succinctly set out the doctrine,

“…a party ought generally not be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings.”[44]

38.  The defendant had indicated during the proceedings before Master Wong[45] that he would consider striking out the plaintiffs claim on this ground.  So far, there is no action taken.  While abuse of process is usually a ground in striking out applications, if the defendant succeeded in establishing a triable issue in this aspect, I would not grant the plaintiffs’ application for summary judgment.  I therefore proceed to consider whether there is a triable issue in abuse of process.

39.  Mr Da Roza, counsel for the defendant, argued that it was abuse of process for the plaintiffs to bring fresh proceedings against the defendant.  The 2012 action raised the same factual issues as the 2008 action.  The defendant was never put on notice during the 2008 action.  He stressed that the plaintiffs should have informed the court in the 2008 action their intention to pursue the matter against the defendant.  The trial Judge might be able to advice on the proper conduct of the litigation.  He relied on the comments of Thomas LJ in Aldi Stores Ltd v WSP group plc and others [2008] 1 WLR 748, at paragraphs 29 to 32.

40.  Aldi was a complex commercial litigation involving multiple parties.  The facts are not important for our present purposes.  In setting out the legal principles for abuse of process, Thomas LJ adopted the dicta of Lord Bingham, in Johnson v Gore Wood & Co [2002] 2 AC 1, at page 757,

“…The underlying public interest is the same: that there should be finality in litigation and that a party should not be vexed in the same matter…The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied that the claim or defence should have been raised in the earlier proceedings if it were to be raised at all…It is however wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before...”

41.  With the above in mind, I turn to the factual basis of the defendant’s argument.  He pointed out that during his evidence in the 2008 action, he had already indicated that ‘we could actually just let you (plaintiffs) have a summary judgment as the company did not have any money at all’.[46]  In addition, Best Alliance and New Horizons Hong Kong had obtained leave from court, in 2009, to be represented by a director on the ground that they were insolvent.[47]  In the circumstances, the defendant argued that the plaintiffs must be aware of the insolvency of the two companies.  Their decision to proceed only against the two companies in the 2008 action was unreasonable.

42.  First of all, the application by a body corporate to be represented by its director must be made ex parte.[48]  The other party in the action would not necessarily know the reasons behind.  In the present case, there was no evidence that the insolvency of the defendant companies was disclosed to the plaintiffs in 2009.

43.  According to the transcript of proceedings, the defendant gave the above evidence on 10 June 2011.  This was the first time the defendant companies confirmed their insolvency.  Apart from the defendant, there was no other evidence whatsoever to support the insolvency.  Besides, this occurred during the last day of the trial.  Under those circumstances, it was unreasonable to expect the plaintiffs to take immediate decision joining the defendant in the 2008 action.

44.  After all, the most important consideration was whether there was sufficient evidence to hold the defendant personally liable in the light of the circumstances around the 2008 action.

45.  In the amended defence of the defendant companies, they denied any infringement of trade mark or passing off.  There was no mention about any post-termination de-identification.[49]

46.  In his witness statement for the 2008 action, the defendant revealed that New Horizons Hong Kong gave instructions to Burnet Lee Wai Hong, Business Development Manager, to take actions to de-identify New Horizons Hong Kong from the franchised business.  These included removal of signboard and other signs from all material that carried the plaintiffs’ logo and trade marks.[50]  Nowhere in the defendant’s statement revealed any evidence which might implicate him personally in the tortious act of New Horizons Hong Kong.

47.  In my view, the personal liability of the defendant became more obvious after the trial.  I agree with Mr Yee, counsel for the plaintiffs, that the findings by Deputy Judge Seagroatt catalyzed the 2012 claim.

48.  Having considered the circumstances around the 2008 action, I do not think there was any impropriety on the part of the plaintiffs. The argument on abuse of process must fail.

The costs of the 2008 action

49.  The defendant pointed out that the costs of the 2008 action had not been taxed.  It was non-compliance with the previous court order.  The plaintiffs should not be allowed to pursue the costs under Order 62 r 6A.

50.  First of all, I agree with Mr Yee, counsel for the plaintiffs, that once Best Alliance and New Horizons Hong Kong are insolvent, there is no point to incur further costs to tax the costs bill of the 2008 action.

51.  Secondly, I am satisfied that the defendant is personally liable for the torts committed by Best Alliance and New Horizons Hong Kong in 2008.  It is also reasonably foreseeable by the defendant that costs would be incurred by the plaintiffs to stop the two defendant companies from infringement of trade marks and passing off.  The legal costs of the 2008 action is therefore recoverable as special damages.[51]

52.  As a matter of fact, this is not the proceedings for the purpose of costs only.  The plaintiffs did not rely on O. 62 r. 6A.

CONCLUSION

53.  For the above reasons, I grant summary judgment against the defendant.  I make the following orders:

a. Judgment on liability be entered in favour of the plaintiffs.

b. Damages to be assessed.

c. Costs order nisi that the defendant is to pay the plaintiffs’ costs.

d. Interest order nisi from the date of the writ to the date of the judgment.