ALAN TAM WING LUN AND OTHERS v. TAM KWOK HUNG t/a HANG MEI RECORD CO. AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. This is an action based on passing off.

2. The 1st Plaintiff has for many years been an actor and an extremely popular local Chinese popular song singer. The 2nd Plaintiff is and was, at all material times, a company involved in the promotion and management of services provided by entertainment artistes; the 3rd Plaintiff a producer of musical recordings and the 4th Plaintiff a promoter and producer of entertainment related activities and products. The Plaintiffs have produced many musical and video recordings of the 1st Plaintiff in the form of musical and video records, cassette tapes, compact discs, video cassettes and laser video discs. They used the name and image of the 1st Plaintiff on labels and packaging materials appearing on these musical and video recordings. They promoted and advertised for the sale of these musical and video recordings by reference to the 1st Plaintiff's name and image. This has been very successful.

3. The 1st and 2nd Defendants are and were, at all material times, sellers and suppliers of musical recordings. While the 2nd Defendant is represented, the 1st Defendant is not and is absent in these proceedings. However, from their respective addresses, it is clear that the 1st and 2nd Defendants are immediate neighbours. In the bundle of Statements of Account produced by the 2nd Defendant, apart from the letterhead and logo of the 2nd Defendant, the 1st Defendant's  logo and name are also printed thereon. Documents bearing the 2nd Defendant's letterheads were also found in the desks occupied by the 1st Defendant. It seems therefore that for the purposes of these proceedings, the two are closely associated companies.

4. In July, 1990, the Plaintiffs discovered that the Defendants had sold or put on the market various cassette tapes and compact discs with labels and packaging materials bearing the name and image of the 1st Plaintiff. They were not produced or manufactured by the Plaintiffs and although the musical pieces were versions of songs sung by the 1st Plaintiff, they were actually not sung by him but by other artistes. In an affirmation made by a Mr. Yiu Hing Leung for the Defendants on 4 September, 1990 (which was relied on by the parties in this assessment), he admitted on behalf of the Defendants that since about 1984, the 2nd Defendant had agreed to do duplication and packaging work for one Rainbow Company. They had produced copies of popular songs selected by the said Rainbow Company in the form of cassette tapes which were packed with inlaid cards and labels provided by that company. Some of these cassette tapes contained versions of popular songs first sung by the 1st Plaintiff. These cassette tapes had inlaid cards and labels bearing the name and image of the 1st Plaintiff. However, none of these had anything to do with the Plaintiffs, although they were sold or put on the market as if they were sung by the 1st Plaintiff. There is evidence to the effect that the Defendants' cassette tapes were offered for sale at a very low price (around $10 per piece compared with the usual $30 odd) from hawker stalls some of which were operating right outside record shops selling the Plaintiff's products.

5. Naturally, the Plaintiffs sued. The Writ was issued on 7 August, 1990. Interlocutory injunctions and sweeping Anton Pillar Orders were granted by Barnes J. on the same day against the 1st Defendant. On 15 August, 1990, Jones J. continued these injunctions and orders and the 2nd Defendant was also joined. The Statement of Claim was filed on 21 September, 1990. On 24 October, 1990, Deputy Judge Perrior granted permanent injunctions and other ancillary orders against the 1st and 2nd Defendants. He also ordered that the 2 Defendants do jointly and severally pay to the Plaintiff damages to be assessed.

6. At this assessment, the parties were content to rely on an Agreed Bundle of Affirmations and exhibits and a further affirmation made on 2 May, 1991 by one Mr. Fan Sheung Kei for the 2nd Defendant. Neither party called any witness nor applied to cross-examine any of the deponents of the affirmations.

7. Counsel for the Plaintiffs submitted that there were 2 heads of damages, namely, general damages for the injury caused to the Plaintiffs' particularly the 1st Plaintiff's goodwill and reputation, and secondly, loss of profit to the Plaintiffs. He relied on the classic case of Draper v. Trist and others [1939] 3 All E.R. 513 and C. Wadlow on The Law of Passing-off. The first head of damages, he said, contained 2 sub-heads, i.e. injury to the Plaintiffs' reputation and misappropriation of reputation by the Defendants' products. At the adjourned hearing, Counsel abandoned the claim for loss of profit. However, he submitted that the profit elements should also be considered in the award in respect of the damage to reputation. The 1st Plaintiff, he said, had been such a successful singer that his business reputation was in fact his personal reputation and vice versa. The award of damages should reflect his social status as well. This head of damages, Counsel submitted, was akin to damages in defamation cases. For this, reliance was placed on Sir Wilfrid Greene M.R.'s dictum in Draper v Trist, supra. A number of local defamation cases were cited showing awards which, he said, were comparables or could at least serve as useful guidelines. He further added that the 1st Plaintiff was more well known and successful in his own line of business than the persons in the cited cases. With regard to the aspect of misappropriation of reputation, Counsel urged me to take into account the gross profit margin which the Plaintiffs had made from their own products and apply such margin on the amount of tapes alleged to have been produced by the Defendants.

8. Counsel for the 2nd Defendant on the other hand asked me not to make any award of damages on the ground that the Plaintiffs had failed to prove that they had sustained any loss or damage. In particular, since the 1st Plaintiff was so well-known that there was no or unlikely to be any damage to his reputation by the circulation of the Defendants' goods. Counsel relied on a passage in Drysdale's Passing Off (p.82). He further argued that the Plaintiffs were prompt in getting injunctions and Anton Pillar Orders and that as a result of these pre-emptive actions, further sales by the Defendants had effectively been stopped. Hence, he said, no damages should be awarded. In support of this, he cited Ideal General Supply Ltd. v. Louis Edelson [1957] RPC 252. He further submitted that even if there was any loss, it was minimal and the Plaintiffs had not shown any substantial drop in their sales. Since the 2nd Defendant had only sold 7,173 pieces of cassette tapes and received $2,151.90, any calculation of damages should be made on that basis.

9. This is an area of the law of damages in which we do not have the benefit of too many cases for reference with regard to quantum. In Hong Kong, as far as I can find, there is only one case: Xiang Si Hua v. Bailey Record Co. Ltd., HCA 3317 of 1986 which also involved a breach of copyright. It may be that many plaintiffs in earlier cases were content with injunctions and did not for one reason or another, persue their claims for damages. But it is incorrect to say that a plaintiff is not entitled to more than nominal damages unless he can prove actual damage to his goodwill/reputation or a substantial drop in his business by reason of the defendant's passing off. The principles established by the authorities may be summarised as follows.

10. The basis of a passing off claim is that the defendant has sold or put on the market goods which are calculated to deceive or mislead the public. (See Sir Wilfrid Greene M.R. in Draper v. Trist [1939] 3 All E.R. 513, at 517 and 518). The wrong lies in the defendant's get-up and description of his goods which constitutes a false representation to the public and this is sufficient to found a claim in passing off. It is not necessary for the plaintiff to show that the public had actually been deceived or misled. "The court is entitled, if it were shown that goods were sold under a deceptive appearance or description, to award something more than nominal damages...." (Sir Wilfrid Greene M.R. in Draper v. Trist, supra, case at p. 519).

11. Not is it necessary for the plaintiff to prove that his reputation or goodwill has been damaged. This is because, as a matter of law, this is presumed. Goddard L.J. in Draper v. Trist, supra, at p. 526 said:

"In passing off cases, however, the true basis of the action is that the passing off by the defendant of his goods as the goods of the plaintiff injures the right of property in the plaintiff, that right of property being his right to the goodwill of his business. The law assumes, or presumes, that, if, the goodwill of a man's business has been interfered with by the passing off of goods, damage results therefrom. He need not wait to show that damage has resulted. He can bring his action as soon as he can prove the passing-off, because it is one of the class of cases in which the law presumes that the plaintiff has suffered damage. It is in fact, I think, in the same category in this respect as is an action for libel. We know that for written defamation a plaintiff need prove no damage. He proves his defamation. So it is with a trader. The law has always been particularly tender to the reputation and goodwill of traders. If a trader is slandered in the way of his business, an action lies without proof of damage. That does not mean to say that the plaintiff cannot give evidence showing that he has suffered damage in fact. The more he can show that he has suffered damage in fact, the larger the damages he can recover. The more the defendant can show that he has suffered no damage in fact, the less he will recover."

 

Again on p. 527, Goddard L.J. said:

 

"I think that Rodgers v. Nowill shows that once one has established passing off, there is injury to goodwill, and this court or the jury must assess, by the best means they can, what is a fair and temperate sum to give to the plaintiff for that injury."

 

12. If a plaintiff can prove that there is a drop in the sales of his goods because of a defendant's passing off, this may be evidence of the effect of the passing off on his goodwill or reputation or evidence of the misappropriation of his goodwill or reputation by the defendant. However, failure on the part of the plaintiff to prove a drop in sales is not fatal. As Sir Wilfrid Greene M.R. commented in Draper v. Trist, supra at p.522:

"Evidence of a general drop in sales may be valuable or may be quite valueless in cases of this kind. Similarly, evidence of no drop in sales again may be valuable or may be quite valueless. It does not in the least follow that, because there has been a drop in sales, it is necessarily due to the deceptive trading complained of, nor does it in the least follow that because there has been no drop in sales, therefore the deceptive trading has had no effect. Evidence of that kind is evidence which must be regarded with very great caution."

 

13. With regard to the quantum of damages, I think Counsel for the Plaintiff is correct and it is not seriously disputed that there are generally 2 principal heads of damages: loss of business profits and damage to goodwill and reputation. This is clearly established in A.G. Spalding & Brothers v. A.W. Gamage Ltd. (1918) 35 RPC 101.

"... and the Defendants are liable, in my opinion, for all loss actually sustained by the Plaintiffs, which is the natural and direct consequence of the unlawful acts of the Defendants: this will include any loss of trade actually suffered by the Plaintiffs, either directly from the acts complained of, or properly attributable to injury to the Plaintiffs' reputation, business, goodwill, and trade and business connections caused by the acts complained of; in other words, such damages as flow directly, and in the usual course of things, from the wrongful acts, and excluding any speculative and unproven damage." (per Swinfen Eady L.J. at p. 117)

 

"... any damage which flows directly or naturally from the Defendants' wrongful act whether it consists of loss of anticipated profits or of damage to the Plaintiffs' business reputation." (per, Bankes L.J. at p. 120)

 

14. The Plaintiffs in the present case had abandoned their claim for loss of profits. I think this is a proper concession. The evidence adduced by the Plaintiffs in respect of loss of profit was scanty. It was shown that most of the selection of songs in the Defendants' cassette tapes resembled the Plaintiffs' release from time to time of "Alan Tam The Best", which was a selection of the 1st Plaintiff's most popular songs. In 1989, when there was such a release by the Plaintiffs entitled "Go On Romance" the quantity of cassette tapes sold was 31,226 pieces. However, in 1990, there was another similar release and the sales had dropped to 10,691 pieces. There may be a number of reasons for the drop in sales including perhaps the possible decrease in popularity of the songs or even that of the 1st Plaintiff. From all the evidence before me (including the Plaintiffs' previous sales record), while I am satisfied that the Defendants' products in the market had affected the Plaintiffs' sales, there is no sufficient evidence to show how much profit the Plaintiffs had lost because of the Defendants' passing off. In these circumstances, I do not think I can make any award for loss of profit.

15. As to the award for damage to reputation, Counsel for the Plaintiffs submitted that apart from the injury to the Plaintiffs' particularly the 1st Plaintiff's reputation, I should also consider the misappropriation of their reputation by the Defendant's products. He asked me to have regard to the profits made by the Defendants out of such production and sales and the possible profits the Plaintiffs could have made if the Defendants had not produced tapes with the false labels and packaging.

16. According to Mr. Yip for the 2nd Defendant, between 1984 and 1990, the 2nd Defendant had produced about 27,800 pieces of cassette tapes from songs selected by Rainbow Company and labels and packaging materials supplied by that company bearing the image and name of the 1st Plaintiff. For these, the 2nd Defendant charged $1.80 per piece which was later revised to $2.00 in 1989. He further said that Rainbow Company was not very successful in selling these tapes and so some of the goods were left in the 2nd Defendant's premises. Upon the request of Rainbow Company, the 2nd Defendant would sell these uncollected tapes at a 10% commission. Up to the time of the Anton Pillar Orders, the 2nd Defendant had managed to sell 7,173 pieces of tapes earning a total commission of only $2151.90 since these tapes were sold at only $3.00 per piece.

17. On the other hand, there is evidence from the Plaintiffs to the effect that the gross profit margin of the Plaintiffs cassette tapes was in the range of 45.5% to 48.6%. Counsel for the Plaintiffs suggested that for the 27,800 pieces of tapes produced by the Defendants, the Plaintiffs would have made a profit of $300,000.00 on the basis that each tape was sold at $33.00 or the new price of $42.00.

18. In a passing off claim, a plaintiff, apart from obtaining an injunction and pre-emptive orders, usually has 2 options. He can claim damages which represent the loss he has suffered. Alternatively in appropriate cases, he can seek an account of the defendant's profits which represent the gain to the defendant in making use of the plaintiff's name and reputation. (See the comments of Sir Wilfrid Greene M.R. in Draper v. Trist, supra at p. 523.) They are separate remedies and it is doubtful whether one can claim both at the same time. In any event, in the present case, the Plaintiffs are claiming damages and not seeking an account of the profits made by the Defendants. I agree that in considering the award for damage to reputation, the conduct of the Defendants, the financial gain to the Defendants and the possible loss to the Plaintiffs may be relevant factors to be taken into account. They are relevant because they tend to show how the Defendants have taken advantage of the Plaintiffs' name and reputation to the Defendants' benefit and/or to the Plaintiffs' detriment. However, in my opinion, it would be wrong to quantify the gain to the Defendants and include it in the award of damages. To do this is to confuse the two alternative remedies and run the risk of a double recovery. Any evaluation of the profits received by the Defendants in the sale of their products, be it to a middleman, i.e. Rainbow Company or to the public would be an attempt to get an account of profits under a claim for damages. Similarly, when considering damages for injury to reputation, I should not quantify the possible loss of the Plaintiffs' business. To do so would, as Counsel for the 2nd Defendant correctly put it, be a disguise to recover loss of profit which the Plaintiffs had already abandoned.

19. In assessing the award for damage to reputation, the authorities clearly establish that the Court must consider all the circumstances of the case and try its best to arrive at a fair and temperate sum for the injury. (See Draper v Trist, supra, which was applied in the Hong Kong case of Xiang Si Hua v. Bailey Record Co. Ltd., supra) In this respect, it is, as Goddard L.J. in Draper v. Trist, (supra) said, similar to an action for libel. In my view, in making an assessment, the Court is entitled to take into consideration the following circumstances: the plaintiff's reputation or goodwill; the conduct of the defendant, whether, for example, the passing off is fraudulent or deliberate; the circulation of the passing off items or goods; the publicity given by the defendant to his items or goods; the fact that the defendant has made a gain out of the passing off and the effect on the plaintiff or loss to him.

20. The 1st Plaintiff's reputation in the local musical scene can hardly be doubled. He has been one of the top popular song singers in Hong Kong for the last few years and, one may say, the most popular male singer at one time or another. He has held public concerts in the Hong Kong Coliseum almost every year and on many occasions there were as much as over twenty shows. His popularity can be reflected in the sales of his musical recordings. During the last 8 years, he has released through the other Plaintiffs not less than 35 cassette tape items on the market. There was a total sale of over 3 million pieces of musical recordings including records, cassette tapes, compact disc, video and laser discs. Of these over two thirds were cassette tapes. Between 1986 and 1990, the total receipts from musical recordings made by the 1st Plaintiff in association with the other Plaintiffs amounted to about $97.5 million. I should also mention that the other Plaintiffs do not appear to be small enterprises.

21. Counsel for the 2nd Defendant submitted that because the 1st Plaintiff was so well-known that there was no damage to his reputation and that since the injunctions had effectively stopped the passing off, the Plaintiffs were not entitled to even nominal damages. I do not agree. There is in fact evidence before me that the sales of the Plaintiffs' cassette tapes had decreased although the evidence is not sufficient to quantify a claim for loss of profit. Furthermore, the case of Ideal General Supply Ltd v. Louis Edelson, supra, relied upon by the 2nd Defendant is clearly distinguishable on the facts. In that case, the plaintiff there managed to put an end to the defendants' passing off by an injunction, as soon as the defendants started their advertising campaign and hence, the learned judge there found that the plaintiff had suffered no damage at all. In the present case, the Defendants on their own admission had perpetrated the passing off for some time and the Plaintiffs had indeed been affected.

22. In Xiang Si Hua's case, the court awarded $75,000.00 for damage to reputation resulting from passing off in addition to other awards for copyright infringement. There the plaintiff was a world renowned player of the Chinese musical instrument, the Zheng. With respect to Miss Xiang, Zheng music is not as wide spread in Hong Kong as popular Chinese songs and her reputation was not as high as that of the 1st Plaintiff in the local musical scene. Further, the Defendants' passing off in the present case was, in my view, deliberate. They produced copies of the songs selected by Rainbow Company and hence must be aware that they were not sung by the 1st Plaintiff. It is also interesting to note that on the in-laid cards of the Defendants' tapes, it was stated: "Copyright reserved"! Moreover, the Defendants had produced about 27,800 pieces of tapes for Rainbow Company. The latter collected part of this stock. Of the remaining stock, the Defendants admitted they had sold 7,173 pieces on behalf of Rainbow Company and only about 1, 013 pieces were seized by the Plaintiffs. In other words, they had sold about 19,600 pieces to a middleman and about 7,000 to the public. By way of comparison, the defendants in Xiang Si Hua's case were shown to have sold only 2,287 copies of the infringed tapes. On the other hand, I do accept that in the present case the evidence is not entirely clear as to the extent of the Defendants' circulation or publicity in selling their tapes. All I know is that some of them were sold at hawker stalls outside shops selling the Plaintiffs' tapes, particularly in Temple Street and Tung Choi Street areas. There is also no evidence that the Defendants had made a huge profit out of their production and sales or that the Plaintiffs had suffered a substantial loss of profit. Doing the best I can and considering all the circumstances of this case, particularly the 1st Plaintiff's wide spread popularity and reputation and the Plaintiffs' business goodwill, I think $125,000.00 would be a fair and temperate sum to compensate all the Plaintiffs for the injury to their reputation and goodwill.

23. There being no other head of damages, I would assess the damages to the Plaintiffs at the sum of $125,000.00. There shall be interest at 2% p.a. from the date of the writ to the date of this judgment and thereafter at judgment rate. I also make an order nisi for costs in favour of the Plaintiffs with a Certificate for Counsel.