POWER DEKOR (HONG KONG) LTD v. POWER DEKOR GROUP CO LTD

HCA 1139/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1139 OF 2013

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D E C I S I O N

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1.  The plaintiff, Power Dekor (Hong Kong) Limited, seeks judgment in default of notice of intention to defend and of defence against the defendant, Power Dekor Group Co Limited.[1]

2.  Upon being satisfied that service of the relevant papers had been properly effected and having considered the papers filed with the court and the submissions for the plaintiff, I accordingly entered judgment for the plaintiff against the defendant and ordered the relief claimed by the plaintiff in its Statement of Claim.  I indicated that I would give brief reasons, and address the issue of shadow companies, which I now do.

3.  The plaintiff’s claim against the defendant concerns trademark infringement and passing off.  There have been a number of cases of this type coming before the courts with the same characteristic features.  In this case, the defendant company was incorporated in Hong Kong on 2 August 2010 with a name very similar to the plaintiff company. On the same day, the defendant company’s name was registered as a business name.  The address of the registered office and place of business of the defendant company is that of the company provider which is also the corporate secretary of the defendant company.  The company records reveal that the sole shareholder and director of the defendant company is an individual with an address in Mainland China.  The last annual return of the defendant company was filed by the company provider with the same particulars upon incorporation.  Service of documents in these proceedings were made at the registered office of the defendant company with no response.

4.  I am informed that the defendant company is not active in Hong Kong.  It is believed that the person or persons behind the defendant company will use the company records in Mainland China to pass off as the plaintiff company and infringe its trade marks.

5.  The plaintiff company is an established company in Hong Kong in the business of trading in building and decoration materials.  Its major shareholder is Power Dekor Group Company Limited which is a company incorporated under the laws of the People’s Republic of China (PRC) and the registered proprietor of various trade marks in the PRC and elsewhere.  The plaintiff company has been forced to institute proceedings because the defendant company has been allowed to register as a company with a name very similar to its own and out of concern that the defendant company has or will infringe its trade marks it seeks injunctive relief and related orders, including a direction that the defendant company change its name.  However, as is generally the case with a shadow company, it exists in Hong Kong as an empty company shell and there is no contest to the proceedings brought against the defendant company and no effective remedy other than obtaining an order to change the defendant company’s name.  It would seem, however, that the person or persons behind the defendant company have achieved their objective in registering the name of the company in Hong Kong and armed with corporate records from Hong Kong are able to use them in Mainland China to deceive would-be customers.

6.  The creation and use of shadow companies has been the subject of concern in Hong Kong for some time.  The practice involves incorporating a company in Hong Kong with a name which is very similar to a well known brand name or trade mark and using its incorporation and company records in order to pass off as the real company in conducting business in Mainland China.  The use of shadow companies was raised in the case Hitachi Ltd v Hitachi Wei Chu (Hong Kong) Ltd [2007] 4 HKLRD 431. There followed amendments to the Companies Ordinance, Cap 32 under the Companies (Amendment) Ordinance 2010 to tackle the problem of shadow companies through the company registration process.  The enforcement measures under the 2010 amendments empower the Registrar to direct a shadow company to change its name pursuant to a court order and disallow companies to register with a name which is the same as a name in relation to which a direction has previously been issued.  Failure to comply with the Registrar’s direction can result in the imposition of penal sanctions and replacing the company name with the company’s registration number. [2]  In my view, these provisions do not go far enough and serious consideration should be given to enacting provisions that give the Registrar of Companies, in the appropriate circumstances, far more effective measures, including the power not to register a company name or to deregister a company with a name that is the “same as or too like” another. [3]  It seems that greater scrutiny needs to be employed in the approval process to ensure that a company name will not be accepted for registration if it is the same or very similar as a name appearing in the Registrar’s index of company names.[4]

7.  I direct that a copy of my decision be referred to the Registrar of Companies.