MGA ENTERTAINMENT INC. v. TOYS & TRENDS (HONG KONG) LTD AND OTHERS

CACV 104/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 104 OF 2011

(ON APPEAL FROM HCA NO. 2152 OF 2002)

---------------------------

BETWEEN

______________________________

______________________________

REASON FOR DECISION

______________________________

Hon Tang VP:

1.  These proceedings concern an assessment of damages following the discharge of an interlocutory injunction.

2.  The injunction was first granted on the 5 July 2002 upon the Plaintiff’s application by summons filed on 18 June 2002.  That summons culminated in a consent order dated 11 November 2002.  After the injunction was discharged by summons dated 27 May 2008, the Defendants applied for directions

“… as to Form and Manner of the Enquiry as to Damages on the Undertaking of the Plaintiff for Damages on the grant of an Interlocutory Injunction.”

3.  On the 19 May 2011, Deputy High Court Judge Seagroatt awarded damages of US$7,250,000 to the Defendants.  That decision was affirmed by a majority in this Court (“the Judgment”).  The Plaintiff seeks leave to appeal to the Court of Final Appeal.

4.  At trial an important issue between the parties was whether the Defendants had suffered any damage as a result of the injunction.  The Plaintiff contended that the Defendants had suffered no damage and that the Defendants’ loss, if any, was the result of certain Cease and Desist Letters (“C&D letters”) which had been sent by the Plaintiff to the Defendants’ major customers.

5.  It was common ground that it was for the party who sought to enforce the undertaking to show that the damages claimed would not have been sustained but for the injunction.  The leading authority on the subject is Air Express Limited v Ansett Transport Industries (Operations) Proprietary Limited (1981) 146 CLR 249.

6.  The C&D letters had been sent to customers or potential customers of the Defendants.  We were told on appeal that the letter dated 24 May 2002 exhibited to Mr Poole's report was a representative sample, it read:

"Bratz dolls, the dolls appearance, name, packaging, copyright, and trademark are all the Intellectual Property of ABC International Company, Inc. dba MGA Entertainment.  It has come to our attention that TRU Canada has purchased a blatant knock-off of Bratz dolls under the name of Funky Tweens (see attached copy of TRU Canada's screen page of these dolls).  We demand that TRU Canada immediately cease and desist any further distribution of sales of this product.  We also demand that you let us know by May 30^th, 2002 the total quantity of the Funky Tweens product on hand, on order, sold, and information concerning the consumers to whom the products were sold.

If TRU Canada refuses to voluntarily cease and desist as demanded in this letter, we will have no choice but to take legal action against TRU Canada for trademark and copyright infringement and seek damages accordingly.

We are presently in process of taking legal action against City World Toys and Toy and Trend in Hong Kong and China."

7.  Mr John Yan SC who appeared for the Plaintiff on the application for leave to appeal to Court of Final Appeal submitted first that the C&D letters quoted above and in para 38 of the Judgment, was not truely representative of the C&D letters which had been sent.  He has referred us, for example, to a letter dated 26 June 2002 where, instead of saying the Plaintiff was in the process of taking legal action, it said:

“…As you may know, there is pending legal action in Hong Kong against Toy and Trends and Jurg Willi Kesselring for the illegal manufacturing and sale of dolls ...”

8.  I do not believe that the letters referred to by Mr Yan are materially different from the C&D letter relied on by us.

9.  Mr Yan also made the point that these C&D letters did not in term threaten to apply for an injunction against the Defendants. I do not believe that matters.  In fact, as one would expect in this kind of disputes, an injunction was indeed applied for.

10.  Mr Yan also took exception with paras 51 to 53 of the Judgment.  However, I believe I was stating the obvious when I said if the Plaintiff had applied for an injunction and been refused, the C&D letters would have carried little weight.  Mr Yan also submitted that it was not the Defendants’ case that the C&D letters had no effect, and it was not open to the majority of this Court to say that, although such letters would have an immediate chilling effort, if there had been no follow through they would have been perceived as empty threats.

11.  As para 53 of the Judgment shows we recognised that the Defendants had also blamed the C&D letters for loss of custom.  But as the learned Deputy Judge has explained in paras 42 and 43 of his judgment, the Defendants did not have "to go further and show that the injunction was the exclusive cause of the loss".  Also, the learned Deputy Judge had the advantage of assessing the evidence of the 3^rd Defendant and he was entitled to conclude as he had done that the loss was caused by the injunction.

12.  I do not believe this is a case where we should give leave to appeal to the Court of Final Appeal.  No point of great general of public importance is involved.  The basis upon which damages should be assessed following the discharge of an injunction is not in doubt nor disputed. The parties were in agreement that only loss caused by the injunction could be the subject for compensation.  The parties disagreed on whether on the facts the Defendants had shown that they had suffered any loss, and, if so, how much, was as a result of the injunction.  That is a question of fact on which the learned judge had decided in favour of the Defendants and the majority in this court have upheld his decision.

13.  Mr Yan also submitted that leave to appeal should be granted on the “or otherwise” basis.  It is the usual practice of this Court not to grant leave on this basis

“it being generally a matter that should be decided by the Court of Final Appeal itself.” Le Pichon JA in Telings International Hong Kong Limited v John Ho & Others unreported CACV 10/2010, 2.3.2011”

14.  For the above reasons, I refuse leave to appeal and would dismiss the Plaintiff’s application.  I also make the cost order nisi in favour of the Defendants.

Hon Cheung JA:

15.  For my part I would grant leave.  The principles governing the assessment of damages arising from the undertaking given in an injunction and the application of the principles in the present case merit consideration by the Court of Final Appeal.

Hon Lunn JA:

16.  For the reasons given by Tang VP, I would refuse the application and make a costs order nisi in favour of the Defendants.

Hon Tang VP:

17.  By a majority leave is refused, I also make a cost order nisi in favour of the Defendants.