YING KUT LEE MEDICINE FACTORY LTD. v. PANG SIU MING

HCA 7966/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7966 OF 1993

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J U D G M E N T

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Background

1. These two actions are tried together pursuant to the direction of Hartmann J of 31 July 2000. In both actions, the Defendant is Pang Siu Ming ["PSM"]. The Plaintiff in High Court Action No.7966 of 1993 ["the 1993 Action"] is Ying Ku Lee Medicine Factory Limited ["YKL"] whilst the Plaintiff in High Court Action No.2246 of 1995 ["the 1995 Action"] is Chan Kwok Ki ["CKK"]. CKK is the major shareholder of YKL. Prior to the incorporation of YKL in 1984, the business was run as a firm called Ying Kut Lee Medicine Factory ["the Firm"]. The Firm commenced business in 1964. It was then owned by Chan Yui Kwun ["CYK"]. It produced and traded in Chinese medicated oil including Pat Shu Oil, Kui Fing Oil and Red Flower Oil. At some stage, CKK joined the Firm although it is not clear to me when was he formally admitted as a partner.

2. With the incorporation of YKL in 1984, CKK held equal shares in the company as CYK. CYK passed away in March 1992. By his last will dated 29 October 1991, he gave everything to CKK. That will was proved and Probate for CYK's estate was granted to CKK on 18 May 1993 in Grant No.2560 of 1993.

3. In or about 1984, YKL adopted two new marks for its products. The first one is a device mark. The device was in a coin shape with an emblem made up of a lion on the right, a horse on the left and a dragon in the middle. I shall call this the Device Mark. The second one is a word mark. It is again in coin shape with the Chinese characters "獅馬龍" meaning "Lion Horse and Dragon". I shall call this the Word Mark. These two marks were subsequently registered by CKK and CYK in the Hong Kong Trade Mark Registry. The Device Mark was registered on 23 November 1985 under No.2487 of 1985 in respect of medicated oil. It took effect from date of application, viz. 20 June 1984. The Word Mark was also registered on 23 November 1985 under No.2489 of 1985 in respect of medicated oil. It took effect from 16 November 1984.

4. On 19 February 1986, CYK and CKK assigned the two trademarks together with the goodwill to YKL. I shall call this the First Assignment. The First Assignment was duly registered at the Trade Mark Registry on 4 February 1987 and entries regarding such assignment were made in the Register.

5. In 1986, YKL started production of another kind of medicated oil called Wood Lock Oil and marketed the same with the two trademarks. YKL also registered similar marks in China, the details of which I see no need to go into in the context of the present actions.

6. PSM started his business as a trader in February 1987 under the name of Wan Li Trading Company ["Wan Li"]. He traded in medicated oil. In April 1987, PSM made a distributorship agreement ["the Agreement"] with YKL. Although the signed copy of the agreement was undated, it was common ground that,

(a) the agreement was made in April 1987;

(b) the territory covered by the agreement was mainland China although the schedule providing for the same was missing in the agreement;

(c) for the purposes of these actions, all the material terms of the agreement were set out in the written agreement.

7. Under the Agreement, PSM would have the exclusive right to sell and distribute YKL's Wood Lock Oil in mainland China using the marks. Under Clause 5 of the Agreement, PSM acknowledged that the trademarks were the property of YKL. Two specific clauses are relevant,

"5.4 The Trademark is the property of [YKL]. The use of the Trademark by the Distributor shall inure to the benefit of [YKL] and in no case shall the Distributor be deemed to have acquired own rights thereon.

5.5 Nothing contained in this Agreement shall be interpreted as giving the Distributor a right to use the Trademark or portions thereof or the name "Ying Kut Kee Medicine Factory Limited" or any words similar thereto as the Distributor corporate name or any part thereof. The Distributor shall not adopt during the term of this Agreement, or thereafter any word or symbol which is similar to the Trademark."

8. On 11 December 1989, the Bureau of Drug Administration in China issued an Import Drug Permit to Wan Li regarding "獅馬龍" Wood Lock Oil. In that permit, YKL was identified as the manufacturer of "獅馬龍" Wood Lock Oil.

9. Further, in 1989, a factory was set up in Zhuhai called Zhuhai Ying Kut Lee Medicine Factory ["ZHYKL"] to produce and pack medicated oil. I do not propose to go into the details regarding the structure and ownership of ZHYKL. The dispute regarding ZHYKL was the subject matter in another action, High Court Action No.10751 of 1994. That action was to be tried after these two actions. However, the parties have settled that action on 17 June 2002. In the context of these two actions, it would be sufficient to note that both PSM and YKL had some interest in ZHYKL and Miss Tam, counsel for YKL and CKK, told the court that implied licence was given by YKL to ZHYKL to use the two marks regarding production of Wood Lock Oil until the cessation of production by ZHYKL in 1993.

10. On 28 July 1991, CKK and CYK executed two assignments ["the Second Assignments"] purportedly assigned the two trademarks and goodwill to CKK, CYK and PSM. As mentioned, by that stage, CKK and CYK were no longer the owners of the trademarks and PSM was aware of that by reason of the terms of the Agreement. It was all the more bizarre by reason of the fact that the registration of the trademarks, the preparation and attestation of the First and Second Assignments, the preparation of the Agreement and the applications for recordal of change of proprietorship of the trademarks as a result of the First and Second Assignments were all handled by the same firm of solicitors. Notwithstanding the recordal of change of proprietorship of the trademarks to YKL after the First Assignment, the Trade Marks Registry accepted a similar application regarding the Second Assignments. On 28 September 1992, the Trade Marks Registry made entries in the Register regarding the Second Assignments.

11. In August 1992, PSM entered into a joint venture contract with Zhuhai Special Economic Zone Medicine Company, a quasi-government corporation, to set up a new company called Jizhu Medicinal Oil Limited ["Jizhu"]. PSM said he did that on behalf of himself as well as CKK. CKK was named as one of the directors of Jizhu. CKK said he had no knowledge about the matter at that time. When he first learnt of Jizhu in mid 1993, he thought that was PSM's private business and had nothing to do with him or YKL.

12. CKK and PSM fell out with each other in about the end of 1992. They had meetings to finalise the accounts of ZHYKL. By February 1993, ZHYKL ceased production. By a letter of 4 August 1993, the Agreement was terminated.

13. In about April or May 1993, CKK discovered counterfeit "獅馬龍" Wood Lock Oil at the Zhuhai Friendship Store (珠海友誼商店). A Chinese Patent Agent was engaged and further counterfeit products were bought in July 1993 at that Friendship Store and the Duty Free Shop at Zhuhai. A Chinese lawyer engaged by the Patent Agent carried out a raid at the premises of Jizhu with officials from the Trade Mark Division of the Industry and Commerce Bureau, Zhuhai (珠海市工商局商標科) on 18 September 1993. Some quantities of alleged infringing articles were found and impounded by the Bureau.

14. In the 1993 Action, YKL claimed against PSM regarding passing off and rectification of the Register by removing therefrom the entries regarding the Second Assignments. PSM counterclaimed for declaratory relief that he was a co-owner of the trademarks and the goodwill of Wood Lock Oil and sought to enforce the Agreement and to recover damages arising from alleged breaches thereof by YKL.

15. In the 1995 Action, CKK claimed against PSM for rescission of the Second Assignments and related relief including an order to expunge the registration of the Second Assignments. It was alleged that the Second Assignments were executed by reason of misrepresentation from PSM. There was an alternative case of mistake. There is no Counterclaim by PSM in this action.

The trial and the outstanding issues

16. On the first day of the trial, Miss Tam opened the case on behalf of YKL and CKK. After her opening, the court made certain enquiries with Mr Cheung, counsel for PSM (at that stage, Mr Chan has not yet been brought in by PSM). Mr Cheung informed the court that he would not be pursuing Prayers (3) and (4) of the Counterclaim in the 1993 Action. Regarding Prayers (1) and (2), Mr Cheung said that he was solely relying on the Second Assignments to support the same. He conceded that but for the Second Assignments, the goodwill attached to the trademarks belonged to YKL. In my view, that concession was properly made in view of the provisions of the Agreement.

17. A legal point was raised in the course of Miss Tam's opening. It was a simple point: by reason of the First Assignment, the Second Assignments could not be valid because by the time of the Second Assignments, CKK and CYK were no longer owners of the trademarks and goodwill. Nemo dat quod non habet. She argued that by reason of that, the rectification claim must succeed.

18. If Miss Tam were correct, the resolution of that point could substantially cut down the evidence in these two actions. In fact, there would not be any need to deal with the other issues in the 1995 Action. The court therefore invited the parties to consider whether this point should be dispose of by way of preliminary issue. After some discussions, parties agreed in the afternoon of 11 June 2002 that three issues could be formulated and a summons was subsequently issued on 12 June 2002 for the determination of those issues. By reason of the good sense of counsel, the issues were further cut down by concessions of the parties. Mr Cheung indicated that he conceded that the Second Assignments were invalid. Miss Tam conceded that the court has a discretion on an application for rectification. The only issue became,

"whether the court's discretion should be exercised in favour of the Defendant on the following grounds, which are agreed facts for the purpose of this application:

(1) That at the time of the execution of [the Second Assignments], CKK and CYK believed they were still the registered proprietors of the Registered Marks and were entitled to assign them in favour of CKK, CYK and PSM;

(2) That at the said time, CKK and CYK intended to give effect to the Assignments."

19. On 12 June 2002, I heard submissions from the parties regarding this point. Mr Kripas of the Trade Mark Registry also attended the court and with the consent of the parties produced the relevant documents in the file of the Trade Mark Registry regarding the registration of the Second Assignments. On 13 June 2002, I decided the issue in favour of rectification for reasons to be set out in my written judgment.

20. As a result of the concession of Mr Cheung as to the invalidity of the Second Assignments and my decision on rectification of the Register, there was no further need to consider the issues in the 1995 Action.

21. Regarding the 1993 Action, Mr Cheung informed the court that due to evidential difficulties, PSM also abandoned the claim for damages regarding the alleged breach of the Agreement. Since Prayers (1) and (2) were disposed of by the concession of Mr Cheung on invalidity of the Second Assignment and my decision on rectification, there was nothing left in the Counterclaim in that action.

22. Regarding the passing off claim, Mr Cheung told the court that PSM did not dispute that the goodwill belonged to YKL. He also accepted that the requirement of double actionability in respect of torts committed outside the jurisdiction was satisfied. It was further accepted that certain articles were found at the premises of Jizhu and some counterfeit products were bought by CKK and the Chinese Patent Agent at retail outlets in Zhuhai. According to Mr Cheung, the remaining issues were,

(a) in respect of the counterfeit products found at the retail outlets, whether they originated from PSM. PSM said they had nothing to do with him;

(b) in respect of the articles found at Jizhu, whether they were infringing articles. PSM's case was that those articles were left behind by ZHYKL since it had previously used the same premises.

23. I shall therefore deal with the following in this judgment,

(a) give reasons for my decision on 13 June 2002 as to rectification of the Register;

(b) decide on the remaining issues with regard to the passing off claim;

(c) set out the orders I make in these two actions.

Reasons for rectification of the Register

24. The statutory framework for rectification of the Register is as follows. Section 43 of the Trade Marks Ordinance, Cap.43 governs the registration of assignments and transmissions.

"(1) Where a person becomes entitled by assignment or transmission to a registered trade mark, he shall make application to the Registrar to register his title, and the Registrar shall, on receipt of such application and on proof of title to his satisfaction, register him as the proprietor of the trade mark in respect of the goods or services in respect of which the assignment or transmission has effect, and shall cause particulars of the assignment or transmission to be entered on the register."

25. Section 48(1) provides for rectification of the entries in the register. In the present context, the relevant parts of that section are as follows,

"(1) Subject to the provisions of this Ordinance ---

(a) any person aggrieved ... by any entry made in the register without sufficient cause, or by any entry wrongly remaining on the register ... may apply in the prescribed manner to the Court ... and the tribunal may make such order for making, expunging or varying the entry as the tribunal make think fit;

(b) the tribunal may in any proceeding under this section decide any question that it may be necessary or expedient to decide in connexion with the rectification of the register;"

26. Miss Tam argued that because of the invalidity of the Second Assignments, the assignees under those assignments could not have become the proprietors of the trademarks and the entries in respect of the same in the Register were made without sufficient cause. She submitted that the Registrar could not possibly be satisfied as to title of these assignees in view of the First Assignment that had been registered. Further she submitted that for the same reason, they remain on the Register wrongly.

27. As mentioned, Mr Cheung accepted that the Second Assignments were invalid. He however queried whether the entries in respect of the Second Assignments were wrongly made in the Register in the absence of any evidence from the Trade Marks Registry as to what enquiries had been made by the Registrar before making those entries.

28. Although the Trade Marks Registry has been served with the papers of these actions, they indicated that they do not intend to appear at the trial so long as the parties would not ask for any order affecting the Trade Marks Registry apart from the rectification regarding the Second Assignments. Miss Tam invited me to infer that the Trade Mark Registry had nothing to say in respect of such rectification. In the letter dated 7 June 2002, the Trade Marks Registry also indicated that should the court require their assistance, attendance could be arranged.

29. In effect the court was being invited to hold that the Registrar made a mistake when the Second Assignments were registered. In such circumstances, the court should be provided with full information as to what material had been produced to the Trade Mark Registry before the registration. In my judgment, when it is possible to have direct evidence on the matter, the court should strive to have such evidence instead of drawing inferences on incomplete information. With the consent of all the parties, the court requested a representative of the Trade Marks Registry to attend court in the afternoon of 12 June 2002.

30. According to Mr Kripas, who attended the trial on behalf of the Trade Marks Registry, the only documents sent to the Trade Marks Registry for the purpose of the registration of the Second Assignments were only those assignments with a set of prescribed forms duly filled in and signed by the parties. Those documents were sent under cover of a letter dated 30 December 1991 from the firm of solicitors handling the matter. Mr Kripas could not explain why the First Assignment escaped the attention of the Registry. I should mention that Mr Kripas was not the person who handled the file at the material time.

31. In the light of such evidence, it must be concluded that the Second Assignments were wrongly registered. The only question is whether the court should exercise its discretion by ordering rectification. Given the fact that the persons registered as proprietors are not the real owners of the trademarks, in my judgment, there must be very good and cogent reasons before the court should refuse rectification. Otherwise, the Register would be misleading and liable to cause confusion. The purity of the Register is of great importance. In Paine v Daniells [1893] 2 Ch 567 at p.584, Bowen LJ said,

"The purity of the register of trade marks --- if one may use the expression --- is of much importance to trade in general: quite apart from the merits or demerits of particular litigants. If on a motion like the present the attention of the court is called to an entry on the register of a trade mark which cannot in law be justified as a trade mark, it seems to me that the court's duty may well be --- whatever the demerits of the applicant --- to purify the register and to expunge the illegal entry in the interests of trade, as was done in the Stone Ale case. As a rule the court, on being seized of the matter, would doubtless put an end to the existence of a trade mark which could not possibly be justified by law."

32. That was said by reference to a trade mark which was of such a nature that it could not be registered. On the facts of that case, the court dealt with a different situation. The only person who could have successfully opposed the registration had not opposed and had subsequently abandoned the mark. The Court of Appeal held that the court should not displace the entry in the register at the instance of another person who had infringed the trade mark in the meantime.

33. The discretion was again exercised against rectification in the case of Wells Fargo Trade Mark [1977] RPC 503. The ground for removal in that case was non-use and it was held that the applicants were not persons aggrieved. At p.510, the Assistant Registrar observed,

"But there is nothing inherently wrong with the mark itself. Nor do I think that if the mark remains on the register it will be there to the detriment of the public interest since, as I have held, there is no evidence that the applicants themselves are involved in a business of trading here in goods within class 16 under the trade mark WELLS FARGO."

34. Another instance of refusal of rectification was the case of Phantom Trade Mark [1978] RPC 245. The assignee of a mark was registered as proprietor. Rectification was applied for on the ground that partial assignment of associated marks was prohibited. The Court of Appeal ruled against such ground. Goff LJ did however consider how the discretion should be exercised if the ground could be sustained at p.251,

"In the present case I would have thought that the reasons advanced by Colt [viz. the registered proprietor] for exercising that discretion in favour of allowing the entry to stand, are such that if it were necessary we ought so to exercise our discretion. He relied first upon the good faith of Colt; their genuine interest in the mark; that the use of the mark has continued to this day; that the parties have to rely upon the practice of the Registrar [in accepting such assignment as valid], which Colt did; that there was no evidence that there was anybody deceived or likely so to be; that it was not in the public interest to rectify the Register; and that Chrysler [the applicant for rectification] had now completely lost interest in the whole matter."

It should be noted that by the time the case came before the Court of Appeal, the applicant for rectification had lost interest for commercial reasons and did not appear before the court.

35. In the local case of Chi Wing v. Bensunville Ltd., HCMP 2026 of 1998, 8.1.2002, Yuen J (as she then was) ordered rectification even though the applicants were commercially and morally unmeritorious. One of the applicants applied in 1987 for registration as the proprietor of a mark. Registration was granted in 1989. The other applicant for rectification was her husband. In 1993, that original registered proprietor assigned the mark to her husband. Afterwards, through a series of transactions, the mark was assigned to the respondent and it was registered as the proprietor in 1997. In 1998, the respondent discovered that the mark was being used by the applicants without its permission. Report was made to the police and in response, the applicants sought the mark to be expunged on the ground that she was not in truth the proprietor when she applied for registration. She said the mark was copied from another trader. The court found that the applicant made a false claim to the Registrar when she applied for registration of the mark and held that the entry of the mark on the register had been made without sufficient cause.

36. Yuen J discussed how the discretion should be exercised in Paras.108 to 113 of her judgment. Her Ladyship stressed the importance with regard to the purity of the register and it should take precedence over individual merits and demerits.

37. In my judgment, the overriding consideration must be the public interest. If there are risks of confusion or deception to the public caused by a wrong entry being allowed to remain in the Register, rectification should be ordered. On the other hand, if the court is satisfied that there would not be any risk of confusion and the registered proprietors do have legitimate interest in retaining the registration, the court could balance that against the interest of the other parties. In appropriate circumstances, the court may exercise its discretion to allow the entry to stand.

38. In the present case, I regard the following factors as important. It is not disputed that the marks have always been used by YKL since the First Assignment and it is still being so used. The goodwill attached to the marks must belong to YKL. This was accepted by Mr Cheung and PSM acknowledged that in the Agreement. YKL is the registered proprietor of similar marks in China. With the termination of the Agreement, PSM no longer has any connection with YKL and Mr Cheung could not satisfy me why PSM should have any legitimate interest in the marks. If the entries were not expunged, PSM will be entitled to object to the continuous use of the marks by YKL and there is every reason for me to infer that PSM might threaten YKL with legal proceedings on the strength of such registration. PSM would not give any undertaking to the court that he would not do so. He is now a trade rival of YKL, having set up his own brand of Wood Lock Oil. By procuring wrongful registration of several packaging features as his registered marks in China, PSM had tried to prevent YKL from using a packaging which YKL had been using all along. Those registrations were subsequently expunged. Although PSM said he would not use the marks again since he has now established his own brand, when I enquired with Mr Cheung as to why PSM wished to keep the registration he could not give me any good answer. Against these backgrounds, it is clear to me that there must be risks of confusion and deception if anyone other than YKL is allowed to remain as the registered proprietors of the marks.

39. Mr Cheung urged me to take into account the dealings between PSM and CYK and CKK in the exercise of my discretion. He submitted that it was clear that but for a mistake as to the true owners of the marks in 1991, CKK and CYK would have procure YKL to assign the marks to PSM. He stressed that PSM was actually a victim of such mistake. That may or may not be correct. In the 1995 Action, CKK alleged that the Second Assignments were procured by PSM by misrepresentation. Even assuming Mr Cheung was correct, the fact remains that YKL, the rightful owner of the marks, had not assigned them to PSM. Mr Cheung was constrained by the terms of the Second Assignments and he accepted that this is not a case where the court could lift the corporate veil and treat the properties of YKL as belonging to its shareholders, CYK and CKK. In fact, PSM was not entirely ignorant. As mentioned, he acknowledged in the Agreement that the marks belonged to YKL. Hence, he should have known at the time of the Second Assignments that CYK and CKK were no longer the owners of the marks.

40. I think the strongest point Mr Cheung could rely upon is that YKL had imputed knowledge of the Second Assignments and the registration of the same through its directors, CKK and CYK. If PSM had built up a substantial goodwill in the marks on the strength of such registration, this might be a significant factor. However, by the time of the Second Assignments, YKL had already built up substantial goodwill in the marks. In the Agreement, PSM agreed that the goodwill related to the use of the marks would belong to YKL. Hence, PSM could not appropriate such goodwill as his property. I agree with the submission of Miss Tam that even on the pleaded case of PSM, the Second Assignments were gift unsupported by any consideration.

41. Taking all the matters into account, I regard PSM's interest in maintaining the registration must pale into insignificance when compared with the paramount importance of public interest in maintaining the purity of the Register and avoiding the confusion caused by allowing the wrong entry to remain. I therefore decided that the Register should be rectified by removing the entries relating to the Second Assignments.

Passing-off

42. I have identified the remaining issues in the passing-off claim in Paragraph 22 above. In the closing submissions, Mr Chan (who has been brought in by PSM as his counsel by that time) confirmed that the following matters were not disputed by PSM,

(a) that YKL is and was at all material times the owner of the goodwill subsisting in the name "獅馬龍活絡油", YKL's corporate name and get-up in respect of Wood Lock Oil;

(b) that the acts of passing-off complained of, if proven, are actionable under PRC law;

(c) that representatives of YKL found Wood Lock Oil products, bottles, labels and packaging boxes at Jizhu factory on 18 September 1993;

(d) that between about April to May 1993 and September 1993 samples of counterfeit Wood Lock Oil were available in the market in Zhuhai in packaging different from the genuine products and bearing Wan Li stickers.

43. There is also no dispute that YKL established a substantial goodwill in China in respect of "獅馬龍活絡油". This is self-evident from the sale volumes of that product. The acts of passing-off relied upon by YKL were the sales of counterfeit products in Zhuhai Friendship Store and Zhuhai Duty Free Shop. YKL also relied on the discovery of the alleged infringing articles at the premises of Jizhu.

44. There is no doubt in my mind that the samples bought by CKK and the Chinese Patent Agent in 1993 at Zhuhai Friendship Store and Zhuhai Duty Free Shop were counterfeit products. Exhibit P-8 was bought by CKK at the Zhuhai Friendship Store in April or May. Exhibit P-10 was bought in July. A comparison of these with the genuine products showed at least the following features in P-8 and P-10 which did not exist in the genuine product (a sample of which was produced as P-13):

(a) in the name of the manufacturer printed on P-8 and P-10, the word "Ltd." was missing;

(b) the bar code identifying the product was missing;

(c) the import licence number is missing;

(d) there was a label bearing Wan Li's name and logo in P-8 and P-10.

Given the substantial similarities in the packaging of such counterfeit products with those of the genuine products, I am satisfied that the public was likely to be misled that the counterfeits were products of YKL.

45. Although there was more than one printer supplying packaging material to YKL, based on the evidence of Kwong Kam Chiu (PW3), I am satisfied that all the packaging material used by YKL and ZHYKL in 1993 were the same as P-13. P-8 and P-10 must therefore be counterfeits.

46. At the trial, PSM denied that these counterfeit products originated from him. However, he agreed that the logo in the label found on the counterfeit products were the same as the logo used by Wan Li in its letterhead at that time although the colours of some features were different.

47. After the discovery of counterfeit products, CKK said he had a dinner with PSM to discuss about the matter. CKK gave evidence that in that meeting in June 1993, PSM admitted that these products were manufactured by him since ZHYKL had ceased production. In his evidence, PSM denied that such dinner meeting had ever taken place.

48. Although CKK did not mention this meeting until his Third Supplemental Witness Statement filed on 7 June 2002, I find him to be a truthful witness. He was unshaken under cross-examination. Further, it was natural that he should pursue the matter with PSM after the discovery of the counterfeits bearing a label of Wan Li. In contrast, PSM did not impress me as a reliable witness. He denied that CKK had ever complaint to him about counterfeit products. That seems to me to be inherently unlikely. Further, he gave evidence in the witness box that were substantially different from what he said in his witness statements, in particular Paragraph 17 of his statement of 6 July 1999. He could not explain about the discrepancy in his evidence regarding the origin of Jizhu and Ying Pat Lee. He tried to explain in the witness box that the reference to Ying Pat Lee in that paragraph should be Jizhu. That clearly was not his intention when he made the witness statement. Paragraph 17 went on to describe CKK appropriated Ying Pat Lee as his own company. That could not be a reference to Jizhu.

49. PSM denied that he had authorized the labels bearing the logo of Wan Li to be used with the counterfeit products. Although the colours of the logo were not the same as the one used subsequently by Wan Li in its own brand of Wood Lock Oil, the design of the logo was the same and the only possible purpose of attaching those labels to the products was the promotion of Wan Li. If the counterfeit products were supplied by a third party, it is difficult to see why such person would differentiate the counterfeit from the genuine products by putting labels bearing Wan Li's logo on the counterfeits.

50. Further, as shown in the photographs of the articles seized at the premises of Jizhu, those packaging boxes shared at least one similar feature with the counterfeits found at the Friendship Store and the Duty Free Shop: the word "Ltd." was missing.

51. CKK testified that the counterfeits were placed at the shops side by side with the genuine products. Although PSM said he did not sell directly to these shops, these were reputable retailers and it was unlikely that they would deliberately traded in counterfeit products. I think it is more likely than not that they obtained the counterfeits together with the genuine products from the same supplier. PSM said he distributed Wood Lock Oil through a quasi-governmental agency called Zhuhai Special Economic Zone Medicine Company. It is no coincidence that this company was the partner to Wan Li in Jizhu.

52. On the whole, I accept the evidence of CKK and I do not believe PSM. On the balance of probabilities, I make the following finding of facts. PSM did cause the counterfeit products to be manufactured at the premises of Jizhu after ZHYKL ceased production. PSM wrongly believed he had the right to do so (such belief is evidenced by the terms of the Jizhu joint venture agreement regarding the scope of its business). Hence, he procured Wan Li's labels to be put onto those products. That's why he readily admitted to CKK that the counterfeits found at the retail outlets were produced by him during the dinner in June, 1993. Neither CKK nor YKL had ever authorized such production and they did not have any interest in Jizhu.

53. I also reject the explanation of PSM that the articles found at the premises of Jizhu in September 1993 were left behind by ZHYKL. As mentioned, the packaging boxes were different from the genuine ones. After the cessation of business of ZHYKL, CKK and YKL continued their activities in China through the vehicle of Ying Pat Lee. The articles would be useful for such activities and there was no reason why they would leave these articles behind. According to the report of the Chinese Patent Agent, the articles seized included 12 cartons of finished products, 20 cartons of bottles and substantial number of packaging material. I do not see any merits in Mr Chan's criticism of the report. In the report, it was clearly stated that inventory of the infringing articles found at the premises of Jizhu had been taken before they were impounded. The index of the photos attached to the report also clearly identified photos 6A to 8B as showing articles found at Jizhu.

54. In this connection, I find as a fact that ZHYKL had already moved to Tong Ka since March 1991. Hence, it was unlikely that there were still articles left behind by it at Kwun Chuen in September 1993. I do not believe PSM's evidence that after such move, ZHYKL subsequently moved back to Kwun Chuen. This was not mentioned in any of his witness statements. The insurance policies clearly showed that ZHYKL used the premises at Tong Ka in 1992 and 1993. I do not think PSM could rely on the Certificate of Ownership of 15 February 1992 regarding the Kwun Chuen premises as evidence of use of the same by ZHYKL in 1992. That document has not been put in as evidence for the purposes of these two actions. It was not put to any of the witnesses. It was only brought up in the course of closing submissions by Mr Chan. It would be most unfair if I allow such document to be relied upon. Furthermore, the document does not prove by itself that ZHYKL was using the premises in 1992 and 1993. I have no idea as to who procured such certificate and under what circumstances ZHYKL's name was put down as owner of the premises. PSM himself gave evidence that the premises was the property of his wife and he also had an interest in it. He did not say that it was the property of ZHYKL. Even if the document can be relied upon, I would not be able to draw an inference that ZHYKL used the premises until 1993.

55. Therefore regarding both remaining issues in the passing-off claim (as set out in Paragraph 22 above), my findings are against PSM. I hold that PSM is liable to YKL in respect of the passing-off claim.

Relief

56. In the 1993 Action, I make an order in terms of the draft submitted to me by Miss Tam. Given the concessions by PSM in terms of Para.42(a) above and in Para.7 (c) and (d) of the Amended Defence and Counterclaim, I would grant the order regarding "get-up" as well. However, I must also state at the same time that apart from the trade marks and corporate names of YKL, there is no evidence before me as to the distinctiveness as to other features in the packaging box, the bottle and the label. I specifically eschew from deciding whether the current packaging of Wan Li's Wood Lock Oil (produced as Exhibit D-3) constituted a colourable imitation of YKL's products. I also dismiss the Counterclaim of PSM in the 1993 Action.

57. For the 1995 Action, there was no need to pursue the same in view of my decision on rectification in the 1993 Action. I make no order in that action except the order for costs below.

58. On the question of costs, Mr Chan urged me to take into account that PSM was an innocent party regarding the rectification claim. But PSM maintained his opposition to rectification after YKL pleaded the First Assignment. Having failed in that opposition, I see no reason why PSM should not bear the costs consequence. I will order PSM to bear the costs of YKL in the 1993 Action, such costs to be taxed if not agreed.

59. The 1995 Action was different. That was a claim by CKK instead of YKL. In respect of a claim of rectification based on the principle of nemo dat, the 1993 Action could have adequately served the same purpose and it is difficult to justify the need for the 1995 Action. In respect of the alternative claim of misrepresentation, I have not decided on the merits thereof. It was unfortunate that YKL, CKK and their then legal advisers forgot completely about the First Assignment when these actions were commenced. If the First Assignment was relied upon right from the beginning, I doubt very much whether the 1995 Action would be commenced. As a result, unnecessary legal costs have been incurred. As between CKK and PSM, I order that each party to bear his own costs regarding the 1995 Action. However, I will give each of them liberty to apply within 21 days under O.62 r.8 for an order that his own costs should be borne by the former solicitors of CKK. I give such a direction in the light of the following matters. Up to November 1999, that firm acted for YKL and CKK in these actions. As mentioned, the same firm handled the registration of the trade marks and the First and Second Assignments. That firm apparently did not bring the First Assignment to the attention of the parties when the Second Assignments were prepared. When the 1993 Action and the 1995 Action were commenced, the firm did not refer to the First Assignment. Instead, it pleaded the case of YKL and CKK on the basis that the Second Assignments effectively assigned the trademarks to PSM as one of the co-owners. It was only after another firm was instructed to act for CKK and YKL and enquiries being made with the Trade Marks Registry that the First Assignment was introduced into the pleadings in 2000. Of course, if an application under O.62 r.8 were made, I would have to give a reasonable opportunity to that firm to show cause before I make any decision regarding the liability of that firm, if any.