XCHRX KENNY FOOD MANUFACTURING CO. LTD. v. LEE TAK FUK TRADING CO. LTD. t/a KA FOOK DISCOUNT STORE (a firm)

HCA3352/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3352 OF 2000

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J U D G M E N T

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1. This is the plaintiff's application for summary judgment for relief flowing from the defendant's alleged infringement of its trademark and passing-off. The origins of the dispute are summarised in the letter from the plaintiff's solicitors dated 22 February 2000 to the defendant, which is, inter alia, in the following terms :

"We act for Kenny Food Manufacturing Co. Ltd. ('Kenny Food'), the registered proprietor of the trademark No.0476 of 1985 ('the Mark'). ... Our client manufactures, inter alia, dried bean curd products ('the Products') in China under the brand name 'Shan Shui' which are sold worldwide.

Our client is also the owner of the copyright in the works which are embodied in the packaging ('Kenny Food's Packaging') of the Products and the proprietor of the goodwill in the appearance of Kenny Food's Packaging. ...

Our client has reason to believe that you are selling bean curd products from another manufacturer ('the Offending Materials'), the packaging of which is nearly identical to or substantially resembles that of Kenny Food (including the logo).

The importation and offer for sale of the Offending Materials constitutes an infringement of the Mark and of the copyright subsisting in the works which are embodied in Kenny Food's Packaging and constitutes a misrepresentation amounting to passing-off which is causing damage to our client's goodwill.

Our client takes strong objection to such wrongful activities on your part. We are instructed to demand that you provide an undertaking in accordance with the enclosed draft letter of undertaking to be retyped onto your headed notepaper, signed by an authorised officer and returned to us.

Unless we receive your undertaking within 14 days from the date of this letter, we are instructed to take any necessary steps to protect our client's rights without further notice. ..."

2. The draft Undertaking which was annexed provides in summary as follows :

In consideration of the Owner agreeing not to commence proceedings against us for (1) infringement of the Mark; (2) infringement of the copyright subsisting in the design of the packaging of the products sold under the Mark; (3) for passing-off which is calculated to cause damage to the Owner's goodwill in the dried bean curd products sold under the Mark, we :

(a) hereby acknowledge that the Owner is the proprietor of all its intellectual property rights including but not limited to the said rights;

(b) shall cease immediately and not in the future to manufacture, import, sell, offer for sale, distribute or otherwise deal in any packaging which includes any reproduction of the Mark or any part of it, the Works or any part of them and the packaging of the Products;

(c) shall deliver up immediately all and any packaging or advertising/promotional materials which would offend against the Undertaking ('the Offending Materials'), or to destroy such and confirm on oath that such has been done;

(d) shall provide within 14 days full details of all imports, sales and other dealings in the Offending Materials, including the names and addresses of all persons by whom such Offending Materials have been supplied, the price paid and the dates of all such sales or other dealings;

(e) further confirm that upon performance of paragraph (c) above we or any party under our control do not have in our possession, custody or control any articles that would contravene the said rights;

(f) hereby agree and declare that the Owner be at liberty to use any information and material obtained herein in any manner ... for the protection or better protection of its said rights; and

(g) hereby further undertake that in the event of breach by us of any term(s) of the Undertaking hereof we shall forthwith on demand pay to the Owner ... (the various sums specified).

3. The defendant's solicitors eventually replied on 16 March 2000 to the effect that the defendant was willing to give an amended undertaking, namely the Undertaking required by the plaintiff's solicitors but with paragraphs (c) and (d) deleted. The plaintiff's solicitors, by letter dated 28 March 2000, stated that they had instructions to initiate proceedings against the defendant, and on 30 March 2000, they served a copy of the Writ on the defendant.

4. In his affirmation, Mr Lee Kam Sang, the Managing Director of the plaintiff, stated that he has been engaged in the business of manufacturing and selling a range of soya bean and flour edible products since 1980 under the name of Kenny Food Manufacturing Company ("the Company"), which business was transferred to the plaintiff in 1994. The dry bean curd sticks and dry bean curd sheets have been manufactured by the Company since 1980. The brand name "Shan Shui" and its Chinese equivalent "山水牌" have been substantially used by the Company and the plaintiff in Hong Kong and overseas since 1984 or 1985. The plaintiff is one of the major companies which manufactures and supplies such products, including dry bean curd sheets and sticks, for sale in Hong Kong and abroad, both in the retail market as well as to various catering businesses. The sales of the plaintiff's products have totaled HK$108,203,594.00 in the last five years out of which HK$36,832,720.00 was made directly from products bearing the Device Mark, the brand name "Shan Shui" and its Chinese equivalent as well as the plaintiff's Get-Up. Mr Lee estimated that approximately 5% of these takings were from the sales of dry bean curd sheets and sticks. Purchase orders by people in the catering business often referred to the "Shan Shui" brand by name. The plaintiff has actively promoted its products under the trademark "Shan Shui 山水牌", the plaintiff's Get-Up and the Device Mark through various media, including newspapers and television, having spent approximately HK$3,200,000.00 on such advertising and promotional activities in the last five years. Mr Lee stated that he was not aware of any other traders using the same or similar Get-Up or marks to market their dry bean curd sheets and sticks. In the circumstances, the plaintiff's products sold and supplied under the plaintiff's trademark "Shan Shui 山水牌", the plaintiff's Get-Up and Device Mark have become distinctive of the plaintiff and the plaintiff is the owner of a substantial and valuable goodwill in Hong Kong and overseas as the seller and/or supplier of the products, marketed as aforesaid.

5. In about September or October 1999, the plaintiff was contacted by a Mr Eddie Ho of Edward Enterprises Limited, trading as Sing Fat Company in Birmingham, England, who was interested in purchasing "Shan Shui" dry bean curd sheets and sticks from the plaintiff. He asked the plaintiff for the supply of 6 oz packs of such products, and on being informed that the plaintiff did not manufacture them in 6 oz packs, he later returned and showed the plaintiff's staff a photocopy of the package of a 6 oz pack which he had purchased in England. The packaging was identical to the plaintiff's packaging, even including the plaintiff's name, address, telephone and fax numbers. It was thus that the plaintiff came to know that there were counterfeits being offered for sale in England, since it has never manufactured or sold "Shan Shui" dry bean curd sheets or sticks in 6 oz packs, but only in 7 and 8 oz packs.

6. The plaintiff then instructed solicitors in England, who in turn instructed private investigators. They discovered that one JK Foods (UK) Limited ("JK Foods") were selling the counterfeit dry bean curd sheets and sticks in 6 oz packs. From JK Foods, who has apparently co-operated completely with the plaintiff, the plaintiff ascertained that the counterfeits were supplied to JK Foods by the defendant on four occasions, namely 20 June, 11 July, 24 November 1998 and 26 March 1999 respectively.

7. Mr Cheung Bong Wa, a Director of the defendant, stated in his affirmation that JK Foods had approached the defendant in about June 1998 inquiring about the supply of dry bean curd sheets and sticks; the defendant approached the plaintiff for the same, and on ascertaining that it did not have sufficient stock, the defendant tried to locate the goods elsewhere, including in Macau and the PRC, and eventually found a supplier in Shenzhen City in the PRC, namely one Kin Shing Hong, from whom it purchased the products and sold them straight on to JK Foods in the United Kingdom on the four occasions in question, as evidenced in the purchase orders and receipts provided by JK Foods to the plaintiff. These four occasions, which involved a total purchase price of $54,100.00, were the only occasions upon which the defendant has dealt in the products in question.

8. Mr Cheung emphasised that the contracts for the purchase of the said products from Kin Shing Hong were concluded in Shenzhen in the PRC, and the goods were on each occasion shipped in a container to Hong Kong, stored in the same container during transit in Hong Kong, and then shipped in the same container from Hong Kong to JK Foods in the United Kingdom. In these circumstances, the defendant alleges that none of the transactions in relation to the sourcing and delivery of the products to JK Foods took place in Hong Kong.

The Trademark

9. The plaintiff's trademark is registered in Class 30 "in respect of coffee, tea, cocoa, sugar, rice, tapioca, sago, coffee substitutes; flour, and preparations made from cereals; bread, biscuits, cakes, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; pepper, vinegar, sauces; spices; ice". The defendant disputes that the trademark as thus registered applies to the products in question.

10. Section 27 of the Trade Marks Ordinance provides, inter alia, as follows :

"... the registration (whether before or after the commencement of this Ordinance) of a person in Part A of the register as proprietor of a trade mark (other than a certification trade mark) in respect of any goods shall, if valid, give or be deemed to have given to that person the exclusive right to the use of the trade mark in relation to those goods and, without prejudice to the generality of the foregoing words, that right shall be deemed to be infringed by any person who, not being the proprietor of the trade mark or a registered user thereof using by way of the permitted use, uses in the course of trade a mark identical with or nearly resembling it, in relation to any goods in respect of which it is registered, or in relation to goods of the same description where such use would result in a likelihood of confusion, ... "

11. The plaintiff's case is concisely set out by Mr Lee in his affirmation as follows :

"Under the Seventh Edition of the Nice Classification published by World Intellectual Property Organization in 1996 ('the Nice Classification'), the goods falling within Class 30 include 'bean meal' and 'soya flour'. ... The Plaintiff's dry bean curd sheets and sticks are goods of the same description as bean meal and soya flour. Firstly, dry bean curd sheets and sticks are made from soya flour which is obtained by grinding soya bean. They are the by-products of soya bean. The composition and nature of dry bean curd sheets and sticks, bean meal and soya flour are therefore the same. Secondly, dry bean curd sheets and sticks are commonly used in cooking and they form part of a meal. Beans and soya flour are similarly used for cooking and they are frequently included in one's diet. The use of dry bean curd sheets and sticks, bean meal and soya flour is therefore the same. Thirdly, dry bean curd sheets and sticks, beans and soya flour are usually sold and distributed through local markets, groceries and supermarkets. The trade channels for these products are therefore the same. ..."

12. I note that in Kerly's Law of Trademarks (12th Ed. 1986), the learned author, at paragraph 5-05, comments that the fact that certain goods may fall within the same class is not evidence that they are "of the same description". Further, it has been held that the use of a mark registered for flour on a loaf of bread is not use of the mark in relation to flour (since flour, as such, is no longer present in the loaf of bread).

13. Spillers [1954] 71 RPC 234.

In my view, a triable issue exists as to whether the dry bean curd sheets and sticks in question in these proceedings are "goods of the same description" as any of those listed in the registration of the plaintiff's trademark, and therefore whether the plaintiff's trademark as registered extends to them.

14. Since it is a requirement that any infringement of the trademark must occur within the jurisdiction of the registering authority in order to be actionable, a further triable issue has, in my view, been raised on the facts before me as to whether any infringement, if such be established, occurred within Hong Kong.

15. It follows from the above that the plaintiff is not, in my view, entitled to summary judgment for any relief arising out of the defendant's alleged infringement of its trademark.

Passing-off

16. It is common ground that the defendant supplied the 6 oz packs of dry bean curd sheets and sticks to JK Foods in England on three occasions in 1998 and one in March 1999. I have examined one of the counterfeit packs in question, and it is immediately clear that the get-up and packaging are identical to that of the plaintiff's products, including the use of the mark, the words "Shan Shui 山水牌", the colours and design of the packaging, and to clinch the matter, the packs in question all contained the plaintiff's name, address and contact details, in the same way as on the plaintiff's own packets.

17. The defendant's misrepresentation in these four instances (to the effect that the goods in question were the goods of the plaintiff) was as blatant as such a misrepresentation can be. Nor can there be any doubt that the members of the public who were exposed to such goods would be likely to be misled into believing that the goods offered by the defendant were the goods of the plaintiff. In these circumstances, it is not surprising that the plaintiff acted as swiftly and as firmly as it did, once it had discovered that these counterfeit goods were on sale at JK Foods in England, and that it was the defendant who had supplied them to JK Foods.

18. Mr Kwan based the plaintiff's claim of passing-off on two alternative bases :

(a) the supply of instruments of deception to the United Kingdom; and/or

(b) passing-off the products in question in the United Kingdom.

19. An essential element which the plaintiff has to prove in respect of a claim for passing-off is that it has established a goodwill in the mind of the purchasing public in relation to the products in question. On the facts before me, I am satisfied that the plaintiff has established such a goodwill in Hong Kong. (I note that the defendant itself, when asked by JK Foods to supply dry bean curd sheets and sticks went first to the plaintiff to source them; furthermore, Mr Cheung has affirmed that since the four transactions in question, the defendant does source the products in question exclusively from the plaintiff).

20. The position is less clear in respect of the United Kingdom. The matter was dealt with only very generally by Mr Lee who affirmed that the plaintiff has for years been selling its products, including the products in question, both in Hong Kong and abroad.

Supply of instruments of deception to the United Kingdom

21. As I have already found, the goods which the defendant sent to JK Foods were undoubtedly calculated to deceive both the middlemen such as Mr Eddie Ho of Sing Fat Company in Birmingham, and the ultimate consumers into believing that they were purchasing the goods of the plaintiff. It is not disputed that in relation to the four transactions in question, JK Foods sent its purchase orders to the defendant in Hong Kong, the defendant sent the invoices to JK Foods from Hong Kong via the banks, and also faxed copies of the invoices to JK Foods from its offices in Hong Kong; furthermore, the goods themselves, notwithstanding that they originated in Shenzhen in the PRC, were shipped to JK Foods via the defendant in Hong Kong. In other words, the defendant set in motion in Hong Kong a chain of events which would inevitably result in the end-user being deceived into believing that the goods supplied by the defendant were the goods of the plaintiff. This, I am satisfied, constituted the tort of passing-off.

22. Levi Strauss v. Maruichi [1992] 1 HKC 419, at 439I to 440A.

23. The defendant protests that it knew that at all material times the plaintiff has had its products manufactured in the PRC, that it had been led to believe that the goods which it purchased from Kin Sing Hong in Shenzhen had been manufactured by the plaintiff's manufacturer, and it believed that such goods, complete with the plaintiff's name, address and contact details on the packages, were legally available for sale in the PRC, and it had no reason to believe that such purchases involved any infringement of the plaintiff's rights.

24. These beliefs do not, however, avail the defendant. Not only are they based upon purely hearsay information, but in any event it is not necessary for a passing-off to have been committed intentionally in order to be actionable :

"No one has any right to represent his goods as being the goods of someone else ... the Court will restrain the making of any such representation even though it is not made fraudulently ... (the plaintiff) is likely to suffer and is entitled to be protected whether (the defendant) makes the representation innocently or fraudulently. ..."

Parker-Knoll Ltd v. Knoll International Ltd [1962] RPC 265 at 278 lines 34-41.

25. The fact is that the products which the defendant purchased and thereafter exported to JK Foods in the United Kingdom were counterfeits, and the plaintiff's rights were thereby invaded.

Passing-off the goods in the United Kingdom

26. There is no dispute that the defendant did supply the counterfeit goods to JK Foods in the United Kingdom on the four occasions in question. Since the goods were supplied in a get-up which was identical to the plaintiff's in every respect, save that the packages were 6 oz instead of the plaintiff's 7 or 8 oz packages, there can be no doubt that they were calculated to deceive purchasers in the United Kingdom into believing that these were the plaintiff's products. The plaintiff alleges that this constituted a passing-off by the defendant of the goods in question in the United Kingdom. Mr Kwan submits that it is not necessary for the passing-off to have taken place within Hong Kong, in order to be actionable. He referred me to the decision in John Walker v. Ost [1970] RPC 489 at 509, lines 25-30 as authority for the proposition that the plaintiff is entitled to restrain a passing-off committed by the defendant in a country overseas if the defendant's conduct is actionable both in the foreign country and in Hong Kong.

27. On the facts of the present case, I am satisfied that the defendant's actions would be actionable in Hong Kong at Common Law as constituting the tort of passing-off.

28. As far as the second element is concerned, Mr Kwan places heavy reliance upon the admission made by Mr Cheung in his first affirmation in paragraph 15(b) :

"15. The Defendant further avers that :-

(a) Since no sale of the goods had ever been made within the territory of Hong Kong, there is (as advised by the Defendant's lawyers) that there is no actionable action of 'passing off' in Hong Kong.

(b) In the meantime, even though there is actionable action of 'passing off' in UK, the same should not have been started in a court of Hong Kong."

29. It is quite clear, to my mind, that this "admission" cannot be relied upon as establishing that the defendant's conduct was actionable in the United Kingdom. Most importantly, whether it was or not is a question of mixed fact and law, and Mr Cheung's opinion on the matter, while possibly relevant to establishing the defendant's bona fides or otherwise, is not even admissible evidence on the question of the actionability of the matter in the United Kingdom, let alone binding upon the defendant in any way. (In any event, the reliability of the "admission" is further undermined by the distinct possibility that, as confirmed by Mr Mui in his submissions, what Mr Cheung intended to say in paragraph 15(b) was "even if" as opposed to "even though", which would change the meaning substantially. Having regard to the loose use of language in the remainder of the affirmation, this possibility cannot be discounted.)

30. Whether or not the defendant's conduct in question would be actionable in the United Kingdom as passing-off, would depend, inter alia, upon proof that the plaintiff had established a sufficient reputation and goodwill in the products in question in the United Kingdom, a matter which I have already found has not been established in these proceedings. In the circumstances, it has not been established that the defendant's passing-off in the United Kingdom is actionable in Hong Kong at Common Law.

Relief

31. The defendant has failed to discharge the threshold onus placed upon it by the Rules of the High Court, Order 14, rule 3, to satisfy me that there are any triable issues in relation to the plaintiff's claim for passing-off, by way of the defendant having supplied instruments of deception to JK Foods in the United Kingdom. The plaintiff is accordingly entitled to summary judgment upon such claim.

32. Tandy/Rank Video & Ano v. Yee Hing Cassette Factory Ltd [1991] HKC 136.

33. The Lady Anne Tennant v. Associated Newspapers Group Ltd [1979] FSR 298.

34. It remains to consider what relief the plaintiff is entitled to. The plaintiff alleges that by reason of the defendant's conduct, it has suffered loss and damage, and unless the defendant is restrained by injunction, it is likely to suffer further loss and damage, since the defendant "threatens and intends to continue the acts complained of". In support of this contention, the plaintiff relies on the fact that the defendant refused to enter into the Undertaking in the terms demanded by the plaintiff in its solicitors' letter of 22 February 2000, the defendant only being willing to give the undertaking with paragraphs (c) and (d) thereof deleted, namely without any undertaking that it would make delivery up of the offending materials or discovery in relation to its infringing activities. Such qualified undertaking was not acceptable to the plaintiff, who thereupon proceeded to issue the Writ herein. Mr Kwan has urged upon me that the defendant's actions in contesting the plaintiff's present claims make good the allegation that it threatens and intends to continue the acts complained of.

35. The defendant has however consistently made it clear since its solicitors' reply dated 16 March 2000 to the plaintiff's solicitors, that it was willing to enter into the undertaking, amended as aforesaid, most importantly the undertaking to immediately cease and refrain in future from having any dealings which would infringe the plaintiff's intellectual property rights. Mr Mui reiterated the defendant's continued willingness to give such a qualified undertaking, and submitted that in the circumstances, it was entirely unnecessary for the plaintiff to take out the present summary judgment application.

36. In these circumstances, in my view the plaintiff had no ground for alleging, or apprehending, that the defendant "threatens and intends to continue the acts complained of". The indications are all to the contrary : the defendant has admitted the four sales in question to JK Foods, made it clear that these were the only transactions in which it was involved, undertaken throughout not to engage in any further such transactions or dealings which would infringe the plaintiff's intellectual property rights, and has produced evidence to support its contention that it has recently been purchasing such products directly from the plaintiff for resale purposes.

37. The fact nevertheless remains that to date the defendant, albeit willing to give the amended undertaking, has not in fact given any undertaking. I note that the learned author of Kerly's Law of Trademarks and Tradenames, 12th Ed., in discussing the appropriateness of granting injunctive relief, states that where the defendant makes an offer to give an undertaking, the plaintiff is entitled to move the court for an order embodying the offer, and to the costs even if the costs are not offered. Furthermore :

"If an actual infringement is shown to have occurred, that is usually sufficient and the plaintiff is not bound to wait until it has been frequently repeated, or until warning has been given and been disregarded, for 'the life of a trademark depends upon the promptitude with which it is vindicated'". (page 318)

38. I also bear in mind the failure of the defendant to provide information to the plaintiff about its sales of the products in question to JK Foods, until confronted with the facts by the plaintiff, gleaned from its own investigations. In my view, it will be appropriate in all the circumstances to grant the plaintiff the injunction it seeks to restrain the defendant from passing-off its products as those of the plaintiff, and I accordingly grant a restraining order in terms of paragraph 2 of the summons.

39. The plaintiff is, in my view, entitled to relief not only in terms of the undertaking offered by the defendant, but in the full terms which it seeks in relation to the defendant's passing-off, including delivery up of the offending materials and the provision of all relevant information as to the identity of the persons who manufactured and/or supplied to the defendant, so as to enable the plaintiff to make its own investigations and thus satisfy itself that no further infringing activity has taken place, and that its rights have been effectively secured.

40. Norwich Pharmacal Co. v. Commissioner of Customs & Excise [1974] AC 133, at 175b-c.

41. I accordingly grant further orders for delivery up in terms of paragraph 3; an order for an inquiry as to damages or at the plaintiff's option an account of profits in respect of the defendant's wrongful acts of passing-off; an order for payment by the defendant of all sums found due together with interest thereon in terms of paragraph 5; an order that the defendant provide information in terms of paragraph 6; and an order that the plaintiff be at liberty to use any such information and other materials obtained in terms of paragraph 7 of the summons.

42. As far as costs are concerned, although the plaintiff has failed in its claim for relief at this stage in respect of the defendant's alleged infringement of its trademark, in respect of which the defendant has raised triable issues, it has nevertheless achieved substantial success in these proceedings, such that in my view it is entitled to all the costs thereof. I make an order nisi that the costs of this action, including the costs of this application, be paid by the defendant to the plaintiff with Certificate for Counsel.