MITSUMURA KABUSHIKI KAISHA v. MITSUMURA (HONG KONG) LTD.

HCA4948/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4948 OF 2001

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REASONS FOR DECISION

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1. By a summons dated 16 November 2001, the plaintiff applied for various interim injunctions and consequential orders against the defendants. At the hearing before me, the 2nd and 3rd defendants gave an undertaking in terms of the summons with some minor amendments, which the plaintiff accepted. The 1st and 4th defendants also offered to give an undertaking substantially in terms of the summons. But they objected to paragraph (1)(a)(ii) and (iii) of the summons which are in relation to the use of the name or mark "MITSUMURA" and/or "美津村", and a name confusingly similar to the plaintiff's corporate name, including the use of "美津村". The plaintiff insisted that it was entitled to an injunction in those terms. In the event, despite the considerable width of the injunctions originally sought by the summons, I was only concerned with a much narrower application.

2. After hearing the parties, I granted the injunction in terms of the above paragraphs subject to a proviso. These are my reasons.

Background

3. The background leading to this application may be summarised briefly as follows. I shall not state what is more than necessary to dispose of this application, bearing in mind that many matters need to be canvassed at trial.

4. Mr and Mrs Aoyama have been engaging in health food business in Japan since 1986. Mrs Aoyama is a qualified pharmacist. In 1995, they expanded their business activity to Hong Kong. In 1997, they decided to market their products in Hong Kong under a distinctive brand name so as to facilitate promotion and brand awareness. Eventually, the names "MITSUMURA" and "美津村" were conceived and adopted. Packaging design for products to be sold under these names was subsequently commissioned and made in Japan.

5. On 2 June 1997, the couple caused the 1st defendant to be incorporated. They were the only shareholders and directors at the time. They also took step to incorporate the plaintiff in Japan, which was done on 7 November 1997. The plaintiff is the registered owner of all relevant trade marks having the reference "MITSUMURA" and/or "美津村" in Hong Kong, Japan and the Mainland with one exception, which was registered in the name of Mr Aoyama prior to the incorporation of the plaintiff. The plaintiff supplied health products manufactured in Japan by its suppliers to the 1st defendant for sale to the general public in Hong Kong. The most successful product of all was called "MITSUMURA Bifidus Fibre" first introduced in May 1998, which eventually became the flagship of the health products marketed under the name "MITSUMURA" or "美津村". The sale proceeds generated by the MITSUMURA products were enormous. The 1st defendant operated four retail shops respectively in Central, Causeway Bay, Tsimshatsui and Shatin to sell the MITSUMURA products.

6. All the MITSUMURA products including MITSUMURA Bifidus Fibre were promoted with heavy emphasis on their Japanese origin. This is readily seen from the packaging, promotional materials and newsletters of the MITSUMURA club, members of which were patrons of the MITSUMURA products. On the packaging, the plaintiff was referred to as the seller. The 1st defendant's Chinese name appearing on the promotional materials and newsletters was stated as "美津村", giving it a Japanese flavour.

7. As noted, the Aoyamas were the first shareholders and directors of the plaintiff. In November 1997, their shares were all transferred to two BVI companies which have since been holding the shares on trust for Mr Aoyama. The 3rd defendant who was then an employee of the 1st defendant was at the same time appointed as a director to replace Mrs Aoyama. The 3rd defendant resigned on 12 July 2001 and formed the 2nd defendant. In the end of 1997, the 4th defendant, who was the 3rd defendant's boyfriend, joined the 1st defendant. He subsequently became a director to replace Mr Aoyama in 1998.

8. There are hotly contested issues as to why the above arrangements came about. It is the plaintiff's case that it was a move by the 3rd and 4th defendants to gain control of the 1st defendant, which they did eventually. It is the case of the 3rd and 4th defendants that it was a tax avoidance exercise done for the benefit of the Aoyamas.

9. The 3rd and 4th defendants further alleged that after lengthy negotiations, Mr Aoyama verbally agreed with them that he would leave the 1st defendant to them on the terms, inter alia, that the 4th defendant would be made the beneficial owner of the 1st defendant's shares, that the 3rd and 4th defendants would assume all future liabilities of the 1st defendant whereas Mr Aoyama would remain liable for all past liabilities up to the time when the 1st defendant was transferred to them; and that the English and Chinese brand names or trade marks "MITSUMURA" and "美津村" would be assigned to the 1st defendant. This oral agreement was strenuously denied by Mr Aoyama.

10. Whatever the real intention might be behind the arrangements, the parties' relationship broke down completely in March 2001. Although Mr Aoyama holds the shares in the 1st defendant beneficially, it is the 4th defendant who is now effectively running the company.

11. In May 2001, the 1st defendant began to market Bifidus Fibre under the name AMURA, alleging that it was an improved version which, would replace the MITSUMURA Bifidus Fibre eventually. The packaging of AMURA Bifidus Fibre is substantially similar to that of MITSUMURA Bifidus Fibre. The promotional materials also emphasised on its Japanese origin. The defendants did not seek to dispute that the AMURA Bifidus Fibre was confusingly similar to the MITSUMURA Bifidus Fibre.

12. On 16 November 2001, the plaintiff commenced the present proceedings and took out the present application, which was then adjourned for substantive argument. In January 2002, the plaintiff discovered that the 1st defendant had ceased to display in its shops the AMURA products. They were replaced by products under the name MIYURA with no reference to the plaintiff or the name "MITSUMURA" and "美津村".

Approach

13. Following the well-established principles, I approach the matter by asking two questions :

(1) Is there a serious question to be tried on the plaintiff's passing off claim?

(2) If so, is the balance of convenience in favour of granting the injunction sought?

Serious question to be tried

14. The only issue arising at this stage of the inquiry is whether the plaintiff has the requisite goodwill in the name "MITSUMURA" and "美津村". Mr Yan, counsel for the 1st and 4th defendants, first submitted that the plaintiff must show that it had the relevant goodwill at the time when the 1st defendant started to make use of it. This proposition is accepted by Mr Liao, SC for the plaintiff. Mr Yan then argued that the 1st defendant was incorporated before the plaintiff was and had been using its corporate name since then. At that time, that is, June 1997, the plaintiff did not have the relevant goodwill at all. Mr Liao submitted that the 1st defendant's use of the name must have been made with the implied consent firstly the Aoyamas and then by the plaintiff after its incorporation. The relevant time to consider if the plaintiff had the relevant goodwill is May 2001 when the 1st defendant first marketed the AMURA products. I agree. The question is therefore whether in May 2001, the plaintiff had the relevant goodwill. While accepting that the plaintiff had the relevant goodwill before March 2001, Mr Yan contended that the oral agreement reached in March 2001 changed the position. But counsel conceded that there is a triable issue as to the existence or otherwise of the alleged oral agreement. That being the case, it must follow that there is a serious question that the plaintiff continued to enjoy the relevant goodwill after March 2001.

15. For the above reasons, I will hold that the plaintiff has established a serious question on its passing off claim. I next consider the question of balance of convenience.

Balance of convenience

16. It should be noted that if an injunction is granted, the 1st defendant would effectively be enjoined from using its corporate name in connection with any health product business. Mr Liao submitted that the balance is strongly in favour of granting the injunction. If an injunction is not granted, the plaintiff will suffer irreparable damage. A lot of confusion had already arisen through the AMURA products. The plaintiff has always been very conscious of the quality of its products. The business philosophy of the 3rd and 4th defendants, and through them the 1st defendant, is different. They just wanted to exploit the potential of the name to the best as they could. The plaintiff is concerned about the quality of their products marked under the name confusingly similar to "MITSUMURA" and "美津村". If any damage is caused by the quality of their products, given the confusion, the plaintiff's reputation in the mark will be irreparably damaged. Further, the plaintiff has entered into a joint venture agreement with a local company to re-launch its MITSUMURA products in the near future. If no injunction is in place, the plaintiff simply cannot proceed with the exercise.

17. Mr Yan submitted that it would be wrong to stop the 1st defendant from using its corporate name in all sort of business activities including, say, entering into tenancy agreements or issuing invoices. The consequences are disastrous. Further, if the alleged oral agreement were found to be ineffective, any goodwill that the 1st defendant may generate by trading in health food products under the name "MITSUMURA" and "美津村" in the interim would only enure to the plaintiff. He pointed out that there is no evidence to show that the 1st defendant's AMURA products were of poor quality. He also complained that the plaintiff entered into the joint venture agreement well knowing that the proceedings are pending and the issues concerning the use of the names "MITSUMURA" and "美津村" are not settled yet. The 4th defendant's position is tied to the 1st defendant's in that he is a director and would be covered by any injunction against the 1st defendant. He has also signed personal guarantees to guarantee the 1st defendant's performance under the various tenancies for the retail shops.

18. Having considered the matters carefully, I agree with Mr Liao and conclude that the balance is in favour of granting the injunction. The only concern that I had was that the width of the injunction might jeopardise the 1st defendant's otherwise legitimate business activities. What the plaintiff is interested in restraining is misrepresentation aimed at the public. But the width of the injunction is wide enough to cover dealings beyond that. My concern was however addressed by Mr Liao who helpfully offered a proviso to the effect that the 1st defendant is entitled to use its corporate name for purposes other than dealing with the public if such use does not constitute a representation that the operation of their shops or their products are in any way connected with the plaintiff or the plaintiff's MITSUMURA products.

19. For the above reasons, I grant the injunction against the 1st and 4th defendants in terms of paragraph 1(a)(ii) and (iii) with the proviso.