TAIWAN FU HSING INDUSTRIAL CO LTD v. E. BON BUILDING MATERIALS CO LTD

                      HCA 849/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 849 OF 2004

________________________

J U D G M E N T

1. The plaintiff is a corporation organized and existing under the laws of the Republic of China with its principal place of business in Taiwan, Republic of China.

2. The plaintiff has for many years carried on business in, inter alia, the development, manufacture and export of, inter alia, door locks and door closer products for commercial and residential purposes.

3. The defendant is a company incorporated in Hong Kong.  The defendant is a wholly owned subsidiary of E. Bon Holdings Limited a company listed on the Hong Kong Stock Exchange.  The defendant supplies, inter alia, door ironmongery, bathroom accessories, door locks and door closers and has been trading in Hong Kong since about 1975.  The defendant has also been manufacturing and importing metal door locks into Hong Kong and has been the agent for several overseas manufacturers.

4. These proceedings concern the rightful ownership of the Leado LD 勵多 trade mark (“the Leado trade mark”) registered in Hong Kong by the defendant under trade mark registration no. 03219 of 1999 (“the trade mark registration”) in Class 6 in respect of “locks, metallic pipes and tubes; door handles; level handles; hinges; unwrought and partly wrought common metals and their alloys; grab bars; towel bars; towel racks and goods of common metal not included in other classes; all included in Class 6”.

Background

5. By a written agreement between Leado Enterprises Co. Ltd, (“Leado Enterprises”) a Taiwanese company and the defendant dated 16 February 1989 Leado Enterprises appointed the defendant as the exclusive marketing agent in Hong Kong, Macau and the Mainland for one of Leado Enterprises’ products namely, the 1200 series door closer bearing the Leado trade mark on the terms and conditions contained therein for the period of 5 years which was renewable automatically for a further 5 years (“the distribution agreement”).

6. The distribution agreement was signed by John Yo for Leado Enterprises and Almond Tse for the defendant.

7. By a written agreement dated 20 October 1995 between the plaintiff and Leado Enterprises (“the 1995 agreement”) the plaintiff purchased from Leado Enterprises for the total sum of NT$72,068,328 Leado Enterprises’

“goods in stock, advance payments, transportation equipment, tools of trade, miscellaneous equipment, moulding equipment, machinery equipment, electronic equipment, goods for factory use, testing tools, testing equipment, trade marks, patent right, advance receipts etc.”

on the terms contained therein.

8. There can be no doubt that by the 1995 agreement the plaintiff acquired, inter alia, all trade marks and patent rights of Leado Enterprises.

9. Both before and after the 1995 agreement the defendant was marketing and selling products bearing the Leado trade mark in Hong Kong.  Under the distribution agreement the defendant first sold door closers of the 1200 series bearing the Leado trade mark in 1989.  Later on the defendant also sold door closers of other series including 980 series and 730 series bearing the Leado trade mark.

10. After the execution of the 1995 agreement John Yo, the founder and managing director of Leado Enterprises and the person who created the Leado trade mark, worked for the plaintiff until 1997.  He left the plaintiff on or about 31 December 1997.  After that he incorporated in Taiwan another company, Leado Door Controls Ltd, which is his present company in Taiwan dealing in the manufacture and distribution of door closers and exit devices under a trade mark other than the Leado trade mark.

11. It is common ground that even after the 1995 agreement the defendant remained the plaintiff’s sole distribution agent of door closers bearing the Leado trade mark in Hong Kong until termination in 2001.

12. On 14 May 1998 without prior notice to the plaintiff, the defendant applied for registration of the Leado trade mark in Hong Kong at the Trade Marks Registry.  The trade mark registration was granted on 16 March 1999.      

13. Also without prior notice to the plaintiff, the defendant applied on 11 November 1998 for registration of the Leado trade mark in the Mainland and this was subsequently granted.

14. According to the agreed chronology, on 16 September 1999 the plaintiff applied to register the Leado trade mark in the Mainland.  On 5 November 1999 the plaintiff’s trade mark agent in the Mainland informed the plaintiff of the rejection of the application due to the defendant’s registration of the Leado trade mark.  The plaintiff conducted a trade mark search in Hong Kong and discovered that the defendant had registered the Leado trade mark in Hong Kong.  It is not disputed that the applications for registration of the Leado trade mark in the Mainland and Hong Kong were made by the defendant without the plaintiff’s knowledge or consent.

15. After the discovery by the plaintiff of the defendant’s registration of the Leado trade mark, the plaintiff instructed solicitors Messrs P. C. Woo who made a demand by letter dated 30 November 1999 to the defendant to assign the right of the Leado trade mark to the plaintiff.

16. By letter dated 10 December 1999 Messrs Shea & Co for the defendant in reply informed Messrs P. C. Woo that the plaintiff and the defendant had reached a settlement regarding the Leado trade mark.

17. By letter dated 10 December 1999 which was faxed from Max Lo of the plaintiff to Henry Tse of the defendant and copied to Joseph Chu of the plaintiff, the plaintiff put on record the contents of the telephone conversation that Max Lo had with Henry Tse the previous day.  The said letter stated :

“Dear Henry,

Thanks for your call yesterday concerning the “LEADO” trade mark register in Hong Kong & China issue.

We also thanks for your kind consideration by register the “LEADO” immediately to protect our right when you aware that the China made imitation product might hurt our market & growth.  Anyhow, you knew that we own this trade mark for years & it’s surprised to learn that you already took action on that without prior notice us.

We also appreciate that E-Bon is willing to transfer the “LEADO” trade mark, both in Hong Kong & China, back to us.  We are willing to pay the expense occurred during registration of “LEADO” trade mark and cost for the transfer process from E-Bon to Taiwan Fu Hsing.  Please provide invoice for our reference.  Should you have any other proposal, please also advise.  We do believe this could be easily solved based on our long-term relationship ……………………………………………”

18. By letter faxed on 16 December 1999 from Simon Shum of the defendant to Joseph Chu of the plaintiff, the defendant confirmed that it was going to transfer the Leado trade mark to the plaintiff.  The reason given by the defendant for having registered the Leado trade mark was stated as follows :

“ Nobody concerns the market of Leado in Hong Kong as much as we do.  Once the urgency of imitation products, we immediately apply the Trade mark but wonder that the Leado trade mark has not yet been registered by you despite of you claim the mark own by you in Taiwan for years.  Due to some misunderstanding of annual sponsorship and its urgency, the Trade mark has been registered at that time here.

For the registration of Trade mark in China, we are now rejected by a similar name “Leader”.  This Trade mark is still in processing.  Do you want us to transfer also this Trade mark at this processing stage or after our completion of the Trade mark registration?  We look forward to receiving your reply to finalize the transfer.”

19. By letter dated 23 December 1999 faxed to the plaintiff the defendant sent its invoice for the expenses involved in the registration of the trade marks in Hong Kong and the Mainland and also informed the plaintiff of the charges for the assignment of the trade mark.  The plaintiff was prepared to and had agreed to pay the defendant the expenses incurred in the registration of the Leado trade mark by the defendant and the cost of the assignment to the plaintiff.

20. As the defendant had not yet received the assignment of the trade mark for its execution from the plaintiff, by letter dated 14 January 2000 faxed to the plaintiff, the defendant pressed the plaintiff to finalise the matter before the Chinese New Year.  The letter was signed by Simon Shum and copied to Max Lo of the plaintiff and to Henry Tse of the defendant.

21. The assignment was eventually prepared by the plaintiff’s trade mark agents in Taiwan and sent to the defendant for execution.  The assignment was executed by the defendant and the plaintiff on 28 January 2000 (“the assignment”).  By the assignment the defendant “hereby assigns and transfers the entire right, title and interest” of the Leado trade mark to the plaintiff.  The defendant also agreed to execute “all lawful documents and papers which may be necessary to complete the assignment to the [plaintiff]”.

22. Even after the assignment was executed the defendant was keen to and did press the plaintiff to finalise matters by registering the assignment with the Trade Marks Registry.

23. The plaintiff was subsequently advised by its then solicitors Messrs Hastings & Co (“Hastings”) that the assignment did not conform with the standard form documents for assignments to be registered at the Trade Marks Registry in Hong Kong.  Hastings were instructed by the plaintiff to deal with the matter.

24. By letter dated 17 February 2001 Hastings wrote to the defendant enclosing a standard form assignment for the defendant to execute.  There being no reply from the defendant a reminder was sent on 7 March 2001 for the attention of Simon Shum and Henry Tse.  The defendant did not reply to Hastings nor did it execute the document sent by Hastings.

25. However, by a fax dated 12 March 2001 from Simon Shum addressed to Joseph Chu the defendant stated :

“ We receive as attached document from your agent in Hong Kong about the transfer of trade mark “Leado” with you.

To my memory, you also need at the same time to have the transfer of “Leado” in China.  As our confirmation, the China Trade mark will be issued this month.  Do you want to transfer only in Hong Kong the trade mark and next time another document for China Trade mark?

Further, before we take any further action in this matter.  Please fax your Credit Note as agreed each other.”

26. By letter dated 5 June 2001 from the plaintiff addressed to the defendant for the attention of Henry Tse, the plaintiff informed the defendant that as the defendant had failed to achieve agreed targets for purchasing Leado 1200 series door closers, the plaintiff gave notice to the defendant of the termination of the distribution agreement with immediate effect (“the letter of termination”).

27. Despite demands, the defendant failed to execute the documents sent by Hastings to complete a valid assignment of the Leado trade mark to the plaintiff.

28. The plaintiff was unable to proceed with the registration of the assignment of the Leado trade mark as the defendant failed or refused to execute the said documents.

29. The defendant did, however, validly assign the Leado trade mark in the Mainland to the plaintiff.  The assignment of registered trade mark no. 1448263 to the plaintiff was approved by the Trade Mark Office of State Administration for Industry and Commerce.  The effective registration period was from 21 September 2000 to 20 September 2010.

30. There was subsequent correspondence between the plaintiff’s present solicitors and the defendant’s present solicitors.  By letter dated 11 September 2003 the defendant through its solicitors stated for the first time that the defendant was the legitimate owner of the Leado trade mark in Hong Kong.  The defendant also made an allegation for the first time that the agreement to assign the Leado trade mark was “subject to the proviso that the exclusive licence arrangement for the territory of Hong Kong would continue”.

31. The above facts are not really in dispute.  I find them proved.

The proceedings

32. Proceedings were commenced by the plaintiff against the defendant on 14 April 2004 in HCA 849 of 2004 for the relief sought in the prayer.

33. As the relief sought by the plaintiff included orders under the Trade Marks Ordinance Cap 559, the plaintiff ought to have issued an originating motion (O.100; r.2(2) RHC).  At the pre-trial review this was pointed out by the Court to the parties.  Subsequently, the originating motion in HCMP 185 of 2008 was issued on 31 January 2008 and amended on 11 February 2008.

34. As both parties wished to proceed with the trial on the dates which had been fixed, by my order made at the pre-trial review on 6 February 2008, HCA 849 of 2004 and HCMP 185 of 2008, were consolidated.  I also gave directions for the expedited filing and service of pleadings in the consolidated proceedings so that the trial of the consolidated proceedings could properly proceed on the original dates fixed for trial.

The Agreed Issues

35. The agreed issues are :

(1)       Whether the rights in the Leado trade mark in Hong Kong had been assigned by Leado Enterprises to the defendant prior to 1995 and whether the goodwill of the Leado products belonged either to the plaintiff or the defendant.

Mr Lam, together with Mr Wong, for the plaintiff, in his closing submissions submitted that if Issue (1) were resolved in the plaintiff’s favour then the primary relief sought by the plaintiff was as contained at prayer (3) of the consolidated statement of claim namely, a declaration of invalidity of the trade mark registration pursuant to section 53 of the Trade Marks Ordinance Cap 559 (“the Ordinance”).

If Issue (1) were resolved in favour of the plaintiff, it is common ground that Issues (2) and (3) do not arise.

If, however, Issue (1) were resolved in favour of the defendant, then it is also common ground that Issue (2) arises.

(2)       whether the assignment was valid in transferring the Leado trade mark in Hong Kong to the plaintiff or whether it was invalid in law or of no legal effect or unenforceable pursuant to section 41(4) and/or 41(6) of the old Trade Marks Ordinance Cap. 43.

If Issue (2) were resolved in favour of the plaintiff, Mr Lam in his closing submissions submitted that the relief then sought by the plaintiff was as contained at prayer (2) namely, rectification of the Trade Mark Register by removing therefrom the name of the defendant as the proprietor of the trade mark registration and substituting therefor the name of the plaintiff as the registered proprietor pursuant to section 57 of the Ordinance.

If Issue (2) were resolved in favour of the plaintiff, it is common ground that Issue (3) does not arise.  If, however, Issue (2) were resolved in favour of the defendant, then Issue (3) arises.

(3)       If the assignment is not valid, whether there was a binding and enforceable agreement between the plaintiff and the defendant made on or about 28 January 2000 whereby the defendant agreed to transfer the Leado trade mark in Hong Kong to the plaintiff.

In particular:

(a) whether there was, in fact, any such agreement;

(b) whether there was any consideration in support of the agreement;

(c) whether it was subject to the condition that the defendant would continue to act as the exclusive distributor in the exclusive territories including Hong Kong;

(d) if binding, whether it should be specifically enforced.

36. If Issue (3) were resolved in the plaintiff’s favour, Mr Lam in his closing submissions submitted that the plaintiff was entitled to the relief sought at prayer (8) namely, specific performance of the agreement to assign the trade mark registration to the plaintiff.

37. Mr Lam confirmed in his closing submissions that prayers (1), (4), (5), (6), (7), (9) and (10) of the consolidated statement of claim were not being pursued.

38. Although there was a counterclaim by the defendant, Mr Pao, for the defendant, confirmed in his closing submissions that the counterclaim was not being pursued. 

The witnesses

39. The plaintiff’s witnesses were Choi Chun Yau (“Choi”) a practising lawyer in Taiwan, Chong Shun Fook (“Chong”), a patent engineer of the plaintiff’s research and development centre, Lin Jui Chang, also known as Jesse Lin, the President of the plaintiff and Chu Jung Ho also known as Joseph Chu (“Joseph Chu”), the Vice President of Sales and Marketing of the plaintiff.

40. The defendant’s witnesses were John Yo and Henry Tse.

41. I heard evidence from the above witnesses.  I have no hesitation in finding that all of the plaintiff’s witnesses were honest and credible witnesses who told me the truth.  They were also reliable witnesses.  I believe them and accept their evidence.

42. I cannot say the same for the defendant’s witnesses.  They were neither honest nor credible witnesses.  They were also unreliable witnesses.  I am satisfied that where the evidence of the plaintiff’s witnesses are at variance with the evidence of the defendant’s witnesses, the evidence of the plaintiff’s witnesses is to be much preferred.

Issue (1)

43. The first question to consider under Issue (1) is whether the rights in the Leado trade mark in Hong Kong had been assigned by Leado Enterprises to the defendant prior to 1995.

44. By the 1995 agreement the plaintiff acquired, inter alia, all the trade marks and patent rights of Leado Enterprises.  This would include the Leado trade mark for door locks and door closers.

45. The defendant’s case, however, is that the Leado trade mark had been assigned by Leado Enterprises to the defendant prior to 1995.

46. It is important to see how the defendant has put its case at different stages.

47. At paragraphs 9 to 11 of its consolidated defence and counterclaim filed and served on 18 February 2008 the defendant pleaded the three written agreements that it relied on namely, the distribution agreement in relation to the 1200 series door closers (“the First Agreement”), the further written agreement made between the defendant and Leado Enterprises on 30 April 1990 in relation to the 980 door closer series (“the Second Agreement”) and a further written agreement made between the defendant and Leado Enterprises on 15 May 1990 whereby Leado Enterprises assigned all the rights of its registration in the Leado trade mark to the defendant for the exclusive territories including Hong Kong (“the Third Agreement”).

48. It was further pleaded at paragraphs 12 and 13 of the consolidated defence and counterclaim as follows :

“ 12. By reason of the agreements made between Leado Enterprises and the Defendant, namely the First Agreement, the Second Agreement, and the Third Agreement (hereinafter collectively referred to as ‘the Hong Kong Agreements’) Leado Enterprises assigned and transferred to the Defendant all its right, title and interest in the name and trade mark ‘Leado’ for the Exclusive Territories, and thereby conferred upon the Defendant an exclusive right to the use of the name and trade mark ‘Leado’ in Hong Kong.

13. In pursuance of the Hong Kong Agreements and not otherwise, the Defendant on or about 14^th May 1998, applied for registration of the Hong Kong Mark in respect of locks; metallic pipes and tubes; door handles; lever handles; hinges; unwrought and partly wrought common metals and their alloys; grab bars; towel bars; towel racks and goods of common metal not included in other classes; all included in Class 6.”

49. This was in effect the same case as pleaded in the original defence and counterclaim filed on 28 June 2004 in HCA 849 of 2004.

50. It is clear that the defendant’s pleaded case (before the amendments to the consolidated defence and counterclaim) was that by the written agreements relied on including the written agreement made on 15 May 1990 Leado Enterprises assigned and transferred all its right, title and interest in the Leado trade mark for the exclusive territories including Hong Kong and that in pursuance of the same “and not otherwise” the defendant applied for registration of the trade mark in Hong Kong on 14 May 1998.

51. Among the documents disclosed by the defendant in its list of documents filed on 14 October 2004 in Part 1 of Schedule 1 was item 3 described as copy of supplemental assignment between Leado and the defendant.  This was presumably the Third Agreement relied on by the defendant namely, the written agreement dated 15 May 1990.

52. The plaintiff by a notice dated 29 March 2005 disputed the authenticity of the 15 May 1990 document disclosed by the defendant.

53. In preparation for trial, the defendant filed a witness statement of John Yo on 8 May 2006.

54. By his witness statement John Yo at paragraph 16 purported to confirm that agreements in writing between Leado Enterprises and the defendant were made in writing on 30 April 1990 and 15 May 1990 as pleaded.

55. On 2 April 2007 the plaintiff filed and served witness statements of Choi, Chong and Joseph Chu.

56. It was clear from the plaintiff’s witness statements that the plaintiff was going to call evidence to dispute the authenticity of the 15 May 1990 document (page 584 of Bundle C).  The plaintiff’s evidence was to the effect that the 15 May 1990 document could not possibly have been made on and dated 15 May 1990 for the simple reason that the telephone number printed on the letter head of Leado Enterprises was not then in use in Taiwan.  That telephone number was only installed for use on 26 February 1992.  The evidence of Choi, Chong and Joseph Chu on this was unchallenged and I have no hesitation in accepting their evidence.

57. Faced with the plaintiff’s witness statements, shortly before trial the defendant filed a supplemental witness statement of John Yo dated 28 February 2008 and amended the defence and counterclaim whereby the defendant changed its case to assert that the agreement made on 15 May 1990 was not in fact a written agreement but a verbal agreement made between John Yo and Almond Tse of the defendant which was subsequently reduced into writing.  Paragraph 11 of the consolidated defence and counterclaim was amended to plead that it was not a written but a verbal agreement made between the defendant and Leado Enterprises “in some time before 1992”.  It was also pleaded that the verbal agreement was subsequently reduced into writing “in some time after 1992”.  Thus in effect it pleaded that the 15 May 1990 document was backdated to 15 May 1990 and that the backdating was done some time after 1992.

58. Until shortly before trial the defendant’s only witness to be called at trial was John Yo.  Henry Tse was not put forward as a witness for the defendant until a belated application was made at a pre-trial review on 3 March 2008 shortly before trial for Henry Tse to be an additional witness for the defendant.  Leave was then given for his witness statement to be filed.

59. The 15 May 1990 document was purportedly signed by John Yo as director of Leado Enterprises on Leado Enterprises’ letterhead and addressed to the defendant.  It states :

“ FURTHER TO OUR LETTER OF APRIL 30, 1990, WE LEADO ENTERPRISE CO., LTD.  ASSIGH (sic) ALL THE RIGHTS OF THE REGISTRATION OF TRADE MARK “LEADO” TO E. BON BUILDING MATERIALS CO., LTD.-HONG KONG FOR HONG KONG, MACAU & CHINA AS WE WORK FOR E. BON BUILDING MATERIAL CO., LTD.-HONG KONG TO SUPPLY “LEADO” EXCLUSIVELY FOR THESE MARKET AREAS.”

60. The 15 May 1990 document is obviously an important document.  It was the only document in evidence before me which purported to assign all the rights of the registration of the Leado trade mark from Leado Enterprises to the defendant for the exclusive territories including Hong Kong.

61. The evidence called by the defendant on this matter was highly unsatisfactory.

62. The defendant relied on the evidence of John Yo.  He gave evidence that he had dealt with Almond Tse of the defendant when the distribution agreement was entered into.  He also gave evidence that he had sold his manufactured products in Hong Kong to a company called Max before he dealt with the defendant but Max only managed to sell 200 sets of door closers.  He also said that Leado Enterprises had a few small customers in Hong Kong before he appointed the defendant as the sole distributor of the Leado products in Hong Kong.

63. As to whether Leado Enterprises’ first dealing with the defendant was after the execution of the distribution agreement, John Yo said in evidence that it was only after the defendant had proven itself with satisfactory sales that he was prepared to grant the defendant exclusive distribution rights.  He thought that he had already been dealing with the defendant before the distribution agreement and that the Leado products were selling very well.  Later on in evidence, however, he said that as these things happened almost 20 years ago he could not really remember.  Then he later said that he could now remember that before the distribution agreement came into existence he did not have any business with the defendant.  His evidence on these matters is unreliable.

64. It is clear, however, and I so find, from the documentary evidence that the defendant did obtain the sole distribution rights to market the Leado 1200 series door closers by the distribution agreement dated 16 February 1989.

65. The 1200 series was the only series of door closers in respect of which sole distribution rights were initially granted to the defendant.  I accept that the defendant did achieve satisfactory sales performances which pleased Leado Enterprises and this led to the granting of sole distribution rights to the defendant for the Leado 980 series door closers on 30 April 1990 as evidenced by the document of that date (page 583 of Bundle C).  That was, however, only a sole distribution agreement for the Leado 980 series which was in addition to the Leado 1200 series in respect of which sole distribution rights had already been granted to the defendant under the distribution agreement. 

66. I would observe that the distribution agreement and the 30 April 1990 document only granted sole distribution rights in respect of the two particular series of door closers but nothing more.  I also accept that subsequently further series of door closers were also supplied to the defendant.

67. The 15 May 1990 document is suspect and the evidence on this is highly unsatisfactory.  As I have said, the defendant’s case as pleaded from 28 June 2004 right up to the amendments to the consolidated defence and counterclaim made on 28 February 2008 was that the 15 May 1990 document was a written agreement whereby the rights to the registration of the Leado trade mark were assigned by Leado Enterprises to the defendant on 15 May 1990. 

68. When the defendant was faced with the cogent and compelling evidence provided by the plaintiff in the plaintiff’s witness statements that the telephone number as printed on the 15 May 1990 document was not in use in Taiwan until after February 1992, the defendant changed its case.  It then relied on a verbal agreement as pleaded in the amended defence and counterclaim.

69. John Yo in his supplemental witness statement said that the agreement was in fact a verbal agreement that he had reached with Almond Tse of the defendant but that it was subsequently reduced into writing after 1992 as requested by the defendant but he could not recall the person who made this request.  When cross-examined he said that it was really hard to recall these matters as more than 18 years had elapsed.  However, he also said that after he had signed the 30 April 1990 document (page 583 Bundle C) the defendant did not find it agreeable and did not sign it.  Hence according to him there was no agreement as to the sole distribution rights for the 980 series of door closers.  He said that discussions went on with the defendant until an oral agreement was made on 15 May 1990 when he gave the defendant all kinds of rights for the defendant to distribute the Leado products and also the trade marks etc.  Although in his supplemental witness statement he had said that the verbal agreement was made before 1992 and in evidence he said that in view of the lapse of time it was very hard for him to recall these matters, he contradicted his supplemental witness statement and said that the oral agreement he had made with Almond Tse was made on 15 May 1990.

70. I do not believe John Yo and I reject his evidence on these matters.  I find that he has not been truthful.  He was evasive when giving evidence about this.  He even said that this was really a very vague incident.  He also said that the 15 May 1990 document was passed onto him for his signature by his secretary and that he simply signed it without second thought.  I do not believe him and reject his evidence on these matters.

71. John Yo’s evidence is also incredible.  On his evidence, the defendant only started selling Leado products in the exclusive territories by the distribution agreement dated 16 February 1989.  He hardly knew Almond Tse then and only started dealing with him at that time according to him.  Even by 30 April 1990 John Yo was only prepared to grant exclusive distribution rights to the defendant for another series of door closers namely, 980 series and nothing more as evidenced by the 30 April 1990 document.  It is, in my view, inconceivable that by 15 May 1990 John Yo would have been prepared to assign all the rights to the registration of the Leado trade mark in the exclusive territories including Hong Kong to the defendant without being paid anything for this.  The Leado trade mark was after all the mark that John Yo had created and had been used by him successfully. 

72. Henry Tse was unable to give any evidence of the relationship between the parties and Leado Enterprises prior to 1997.  He was only personally involved in the dealings between the plaintiff and the defendant sometime in 1997.  As regards the 15 May 1990 document, Henry Tse said that it was only in about 2003 that he first saw that document.

73. The defendant has failed or refused to call the relevant person or persons who could have given evidence about these matters and of the verbal agreement purportedly entered into with John Yo as subsequently recorded in the backdated document dated 15 May 1990.  Almond Tse was a director of the defendant at the material time and the person who was dealing with John Yo.  He is a cousin of Henry Tse.  He is no longer a director of the defendant but he is still actively involved in a company or companies in the group of the defendant’s holding company.  Henry Tse is the Chairman of the holding company.  Henry Tse was unable to give any satisfactory explanation as to why Almond Tse was not asked to provide any witness statement for the defendant.  The defendant has failed to provide a satisfactory explanation for not calling Almond Tse as a witness.  In my view an adverse inference can and should be drawn against the defendant that if Almond Tse had been called to give evidence his evidence would not have supported the defendant’s case (see the observations of Le Pichon JA in Li Sau Keung v Maxcredit Engineering Ltd & Another [2004] 1 HKC 434 at 443-444).

74. I would also observe that the defendant also failed or refused to call Simon Shum as a witness.  He is still employed by the defendant.  Henry Tse said that in 1995 Simon Shum was the one dealing with the plaintiff.  He was also the person who was mentioned in contemporaneous correspondence between the parties.  Yet for some unexplained reason he has also not been asked to provide a witness statement for the defendant.  Likewise, in my view, an adverse inference can and should be drawn against the defendant that if Simon Shum had been called to give evidence his evidence would not have supported the defendant’s case.

75. I reject the case of the defendant that there was a verbal agreement between the defendant and Leado Enterprises either on 15 May 1990 or sometime before 1992 assigning all the rights to the registration of the Leado trade mark to the defendant for the exclusive territories including Hong Kong.  I also reject the defendant’s case that the verbal agreement was subsequently reduced into writing some time after 1992. 

76. It is, in my view, inconceivable that if such a verbal agreement had actually been made the defendant would not have mentioned it or referred to it or the 15 May 1990 document in any of its contemporaneous discussions or correspondence with the plaintiff after the plaintiff discovered that the defendant had registered the Leado trade mark in the Mainland and in Hong Kong.  Instead of referring and relying on the verbal agreement or the 15 May 1990 document the reason given by the defendant for having registered the Leado trade mark was so as to protect the plaintiff’s right after China made imitation products were found in the market.  The letter dated 10 December 1999 from Max Lo of the plaintiff faxed to Henry Tse confirms this.  Also in the letter faxed from Simon Shum of the defendant to the plaintiff on 16 December 1999 as set out at paragraph 18 above the reason given for having registered the Leado trade mark was “the urgency of the imitation products” and “due to some misunderstanding of annual sponsorship and its urgency”.  The 15 May 1990 document was first mentioned by the defendant only in the defence and counterclaim filed on 28 June 2004 in HCA 849 of 2004.

77. I find that there was no such verbal agreement which was subsequently reduced into writing.

78. In my judgment the first question in Issue (1) is resolved in the plaintiff’s favour.  In my judgment the rights in the Leado trade mark in Hong Kong had not been assigned by Leado Enterprises to the defendant prior to 1995.

79. The next question to consider under Issue (1) is whether the goodwill of the Leado products belonged either to the plaintiff or defendant.  This is a question of fact.

The applicable principles

80. Section 80 of the Ordinance provides that in any proceedings relating to a registered trade mark the registration of a person as owner of the trade mark shall be prima facie evidence of the validity of the original registration.

81. Thus the trade mark registration of the Leado trade mark by the defendant is prima facie valid.  It is for the plaintiff to displace the prima facie position and to prove that the registration of the defendant as the owner of the trade mark is invalid.

82. The relief sought by the plaintiff under Issue (1) is a declaration of invalidity of the trade mark registration.

83. By section 53(5)(b) of the Ordinance the registration of the trade mark may be declared invalid on the ground that there is “an earlier right in relation to which the condition set out in section 12(4) or (5) (relative grounds for refusal of registration) is satisfied”.

84. Section 12(5)(a) provides that a trade mark shall not be registered if, or to the extent that, its use in Hong Kong is liable to be prevented “by virtue of any rule of law protecting an unregistered trade mark or other sign used in the course of trade or business (in particular, by virtue of the law of passing off)”.

85. It is for the plaintiff to establish that a declaration of invalidity ought to be granted on the basis of an earlier right protected under the law of passing off.

86. This depends on whether the goodwill of the Leado products belonged to the plaintiff or to the defendant as at 14 May 1998, the date of registration.

87. As to goodwill, it was succinctly stated by the English Court of Appeal inScandecor Development AB v Scandecor Marketing AB and another [1999] FSR 26 at 41 that :

“        No one, judge or jurist, has yet improved on Lord Macnaghten’s description of goodwill as:

       … the benefit and advantage of the good name, reputation and connection of a business.  It is the attractive force which brings in custom.  (See Inland Revenue Commissioners v. Muller & Co.’s Margarine Ltd [1901] A.C. 217 at 223).

       The gist of passing off, as an action for the protection of goodwill, is explained by Lord Diplock in Star Industrial Co. Ltd v. Yap Kwee Kor [1976] F.S.R. 256 at 269:

A passing-off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing off one person’s goods as the goods of another.  Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself.  It has no independent existence apart from the business to which it is attached.  It is local in character and divisible; if the business is carried on in several countries a separate goodwill attaches to it in each.”

88. On the evidence, neither Leado Enterprises nor the plaintiff had a place of business in Hong Kong.  To acquire the relevant goodwill in Hong Kong, however, it was not necessary for the plaintiff to have a place of business here.

89. As stated at paragraph 3-68 Wadlow’s The Law of Passing-Off 3^rd edn :

“The test for whether a foreign claimant may succeed in a passing-off action is normally stated in terms of whether his business has a goodwill in England. This criterion is broader than obsolete statements that the claimant must have a business or place of business in England.  Provided there are customers or ultimate consumers for the claimant’s goods or services in England then the claimant stands in the same position as a domestic trader.  It is of no importance whether the foreign claimant conducts his English business directly or through intermediaries of whatever legal status …………………………………………………………….”

90. And it is also stated at paragraph 3-124 of Wadlow’s The Law of Passing Off :

“ A foreign business may have a goodwill in the jurisdiction even though it may not trade here in its own right.  As the Court of Appeal acknowledged in Scandecor Development v Scandecor Marketing :

 “We accept that, in an appropriate case, it is legally and factually possible for a business based overseas to acquire a goodwill in this country by the supply of its products or services through a subsidiary, agent or licensee.  Whether or not that occurs must depend on the facts of the particular case.”

It is sufficient that customers for its goods are to be found here, whether or not the foreign business is in direct contractual relations with them.  In particular, if the foreign business is represented by a legally distinct person of whatever capacity then the goodwill will in general belong to the foreign business rather than its local representative provided that the foreign business is recognised as the ultimate source of the goods.”

91. And at paragraph 3-125 it is also stated that:

“ On general principles it is unnecessary for the foreign business to be known by name, provided its existence is known or assumed.  The most important factor would appear to be the state of the public mind, so that if the public attributes the goods to the foreign business then it may not matter that the foreign business does not manufacture them, and may exercise less control over the local business or the goods themselves than the public may suppose.”

92. It is useful to bear in mind that the purpose of a trade mark is and always has been to indicate origin (Stichting Greenpeace Council v. Income Team Ltd and others [1996] 1 HKLR 269).

93. As regards a manufacturer’s mark, Shanahan’s Australian Law of Trade Marks and Passing Off  3^rd edn states at paragraph 3.70 :

“  A manufacturer who has applied a trade mark to goods to indicate that it is the “origin” of the goods is most unlikely to be denied ownership because of the activities of some dealer in those goods.  The evidence in these cases will generally show that in the hands of the dealer, the trade mark has retained its initial significance as an indication of the manufacturing source of the product.  The dealer does not establish ownership by showing only that purchasers look to the dealer as the sole supplier of the goods; they might well do that in recognition of the dealer’s exclusive selling right, while aware all the while that the trade mark denotes some manufacturing origin.  This is particularly likely where the manufacturer is actually identified by the labels or the goods are clearly of foreign origin.”

94. Shanahan’s Australian Law of Trade Marks and Passing Off also discusses dealer’s marks at paragraph 3.75.  As stated, this is

“  a class of case in which the trade mark is clearly that of the distributor or importer.  Here the dealer has “selected” the goods.  They have been made to the dealer’s specifications (to the dealer’s “special order”) by a manufacturer (or by several manufacturers) who have applied the trade mark to the goods at the dealer’s instigation to indicate that the dealer is connected in the course of trade with those goods.  In such cases the dealer will usually have nominated the trade mark to be used; however, the dealer’s ownership is not based essentially on that circumstance (though it may well be relevant to the implication of some agreement affecting ownership) but on what the trade mark symbolises, namely, that the goods have been issued under the “aegis” of the dealer.”

95. I would also observe that in Bayer Pharma Pty Ltd v Farbenfabriken Bayer Aktien Gesellschaft (1965) 120 CLR 285 Barwick CJ said at 323 :

“It may be that, in some circumstances, what begins as a foreign manufacturer’s mark may in time end as the registrable mark of the local distributor of that manufacturer’s products, or for that matter, of that distributor’s own manufactured goods.  But in such cases, at least there must be a clear dissociation from the initial significance of the mark so as to warrant the conclusion that the mark has become exclusively indicative in Australia of the local distributor’s goods.”

96. On the evidence I have no hesitation in finding that the Leado trade mark applied to door closers sold in Hong Kong by the defendant as the sole distribution agent initially of Leado Enterprises and then the plaintiff was clearly a manufacturer’s mark and not a dealer’s mark.  The Leado trade mark was applied to the Leado products sold, inter alia, in Hong Kong to indicate that it was the manufacturing origin of the goods.  The Leado trade mark was created by John Yo and applied by Leado Enterprises to the products sold in Hong Kong right up to the 1995 agreement with the plaintiff.  Thereafter the same Leado trade mark without any modification was applied to goods manufactured by the plaintiff and sold by the defendant as the plaintiff’s sole distributor in Hong Kong.  There was no dissociation by the defendant from the initial significance of the Leado trade mark. 

97. It must be remembered that the defendant started off as the sole distribution agent of only the 1200 series.  The defendant was later given the sole distribution rights in Hong Kong for the 980 series on 30 April 1990 and at some stage, although it is not clear on the evidence when this occurred, the sole distribution rights to other series of door closers.  The same trade mark without modification was always applied to the products manufactured in Taiwan.  The defendant continued to be the sole distribution agent of the plaintiff until termination of the distribution agreement by the plaintiff by notice to the defendant dated 5 June 2001.

98. In my judgment the Leado trade mark applied to the door closers sold in Hong Kong by the defendant as the sole distribution agent of first Leado Enterprises and then the plaintiff was a manufacturer’s mark which was applied to indicate the manufacturing origin of the products.  The Leado trade mark was not a dealer’s mark.

99. It is clear on the evidence that before 16 February 1989 when the defendant became the sole distributor of Leado Enterprises, Leado Enterprises did have customers in Hong Kong who had purchased door closers bearing the Leado trade mark.  John Yo said that Max company had purchased 200 sets before Leado Enterprises ever dealt with the defendant.  He also said that there were other customers in Hong Kong.  He accepted that he had sent to Almond Tse the fax dated 7 May 1990 which stated that Leado Enterprises would send on the following day fax letters to “Hong Kong customers” informing them that the defendant had the agency rights from Leado and telling them to place orders with the defendant from 1 June 1990 onwards.  Although John Yo said in evidence that when he sent this fax to Almond Tse he was thinking of only Max company, I do not believe him.  In my view, he would not have said that he would be sending a fax to “Hong Kong customers” if he was only thinking of Max company at the time.  I find that Leado Enterprises did have other customers at the time.  The fax to be sent to them by Leado Enterprises must have been for the purpose of informing them that they should deal with the defendant as the defendant had been appointed the sole distribution agent of Leado Enterprises of Leado products in Hong Kong.

100. There was also evidence that a Hong Kong company by the name of Alutech (Far East) Co. Ltd sent a fax on 24 October 1989 directly to Leado Enterprises expressing an interest in the door closers of Leado Enterprises in particular, the 1200 and the 980 series.  Those door closers were sold under the Leado trade mark.  This was a direct enquiry made from a Hong Kong company who was interested in purchasing Leado door closers from Leado Enterprises in Taiwan.  In my view this enquiry demonstrates that the Leado trade mark applied to door closers in particular, of the 1200 series and the 980 series at that time was known to customers and potential customers in Hong Kong to have been produced by Leado Enterprises at that time.

101. The undisputed evidence is that the plaintiff’s name and address was not printed on the packaging or on catalogues for the Leado products sold in Hong Kong.  In my judgment this does not assist the defendant.  The evidence was that the defendant did ask the plaintiff to confirm in writing that it was the manufacturer of the Leado products sold in Hong Kong so that it could show the same to the Hong Kong customers.  By showing the customers such letters, it is abundantly clear that those Hong Kong customers would have known that the products were manufactured and supplied by the plaintiff.

102. Henry Tse gave evidence that in September 1998 the defendant was asked to certify that the products for a project in Tin Shiu Wai were manufactured in Taiwan.  The defendant then asked the plaintiff to confirm this in writing.  By letter dated 1 October 1998 from the plaintiff to the defendant the plaintiff certified that the Leado door closers mentioned in the letter were shipped from Taiwan.  It also stated :

“ ‘LEADO’ now is a brand name only instead of a company because [the plaintiff] acquired Leado Company on October 01, 1996.  Therefore, [the plaintiff] took and will take full responsible for all ‘LEADO’ door closers.

Should you have any questions, please feel free to contact us.”

103. By asking for this letter from the plaintiff in relation to the Tin Shui Wai project the defendant obviously wanted to show the same to its customers who had asked for the manufacturer’s confirmation that the Leado door closers were manufactured in Taiwan.  

104. By another letter dated 13 February 1999 from the plaintiff to the defendant (for the attention of Henry Tse) the plaintiff confirmed that the defendant was the sole distribution agent of Leado door closers in Hong Kong and Mainland China.  The plaintiff also guaranteed that there would be no trader interfering with that arrangement and that the plaintiff would pass inquiries of their products from those territories to the defendant. 

105. Henry Tse gave evidence that he obtained that letter dated 13 February 1999 from the plaintiff so that he could show the same to his customers.  He agreed that his customers would know that the plaintiff was the manufacturer who supplied the Leado products to the defendant.  He also said that the reason why the customers came to the defendant for Leado products was because the products had a good reputation and not because the defendant was the dealer.  He accepted that by showing that letter to the customers they would identify the Leado trade mark with the manufacturer.  I accept this evidence of Henry Tse.  There is no dispute that the defendant’s customers in Hong Kong for the Leado products were mainly the subcontractors of Government Housing projects in Hong Kong as well as private developers.  The letter provides cogent evidence that the defendant was keen to satisfy the Hong Kong customers that the plaintiff was the manufacturer of the products bearing the Leado trade mark and to confirm that the defendant was its sole distribution agent of Leado door closers in Hong Kong and the Mainland. 

106. The plaintiff was also asked to provide written confirmations to the Housing Authority that it was the manufacturer of the products bearing the Leado trade mark which were supplied to Government Housing projects in Hong Kong.  An example of a letter of confirmation from the plaintiff as the manufacturer is at page 580-3 of Bundle C.  This also provides cogent evidence that Hong Kong customers would have known that the Leado products bearing the Leado trade mark sold in Hong Kong were manufactured by the plaintiff.

107. It is abundantly clear, and I so find, that the Hong Kong customers would have known that the plaintiff was the foreign manufacturer of the door closers bearing the Leado trade mark.  It is plain that the Leado trade mark was at all times a manufacturer’s mark that was applied to the products to indicate the manufacturing origin of the products and was not a dealer’s mark.

108. Henry Tse gave evidence that when the defendant’s application for registration of the Leado trade mark was made in Hong Kong on 14 May 1998 he thought that the defendant had the right to deal with the Leado brand name.  I do not believe him. 

109. If the defendant had really thought that it had the right to apply for registration when it made the application it is, in my view, inconceivable that the defendant would not have mentioned this after receiving the letter of complaint from Messrs P. C. Woo dated 30 November 1999.  In response to the letter from Messrs P. C. Woo where the plaintiff claimed proprietary right in the Leado trade mark the defendant never mentioned that it had the right to register the mark or that it had acquired the goodwill in the Leado trade mark or anything of the sort.  Instead, as I have said, the reason given by the defendant for having registered the mark was so as to protect the plaintiff’s right after China made imitation products were found in the market. 

110. Henry Tse also gave evidence that in the conversation referred to in the letter dated 10 December 1999 from Max Lo he had reached an agreement with Max Lo that the defendant would assign the Leado trade mark to the plaintiff on the condition that the defendant would still be the sole distribution agent of the plaintiff in the exclusive territories.  I do not believe him.  I do not believe that there was ever such a condition mentioned or agreed in the telephone conversation.  This was never mentioned in the contemporaneous fax of 10 December 1999.  If such a condition had been agreed it is inconceivable that the defendant did not correct the plaintiff as to the understanding which Henry Tse said had been agreed orally only the day before the fax was sent.  It is also inconceivable that this condition was never mentioned in any of the discussions between the representatives of the plaintiff and the defendant or in any of the written communications between them and their solicitors.  It was also not mentioned by the defendant even after it received the letter of termination of the distribution agreed by letter dated 5 June 2001.  This purported condition was only first mentioned years later in the letter of the defendant’s present solicitors dated 11 September 2003 when it was by then abundantly clear that there would be litigation over this matter.

111. The letter dated 11 September 2003 from the defendant’s solicitors was also the first time that the defendant claimed to be the legitimate owner of the Leado trade mark in Hong Kong.

112. The way that the defendant has behaved over the years demonstrates quite clearly in my judgment that it never considered itself to have acquired the goodwill in products bearing the Leado trade mark in Hong Kong.  It only claimed to be the legitimate owner of the Leado trade mark by its solicitor’s letter of 11 September 2003 when it was clear that there would be litigation over this matter.

113. I have no difficulty in finding that the goodwill associated with the Leado trade mark in Hong Kong belonged to the plaintiff and not to the defendant as at 14 May 1998, the date of registration.

114. The defendant also relied on the fact that the plaintiff’s name and address was not printed on the catalogues distributed in Hong Kong for the door closers sold in Hong Kong.  Instead, the defendant’s name and address were printed thereon.  In my view, these matters do not assist the defendant.

115. Henry Tse in his supplemental witness statement said that the defendant had designed its own catalogue to promote the Leado door closers.  However, when he gave evidence he said that he had been misinformed by a colleague and said that from enquires he had recently made from Taiwan he understood that the catalogue at pages 650 to 657 of Bundle C had been printed in Taiwan with the defendant’s name and address printed thereon at page 653 of Bundle C and supplied to the defendant.  I do not place much weight on this hearsay evidence of Henry Tse.  It was never mentioned before and Henry Tse himself did not even know whether the catalogue was designed by the defendant or not.  The evidence of the defendant on this is unsatisfactory.  I would also observe that it was pointed out in evidence that in the catalogue a wrong fax number of the defendant was printed thereon.  It is unlikely that this was the catalogue that was actually used by the defendant. 

116. Joseph Chu gave evidence that he had not previously seen the catalogue with the defendant’s name and address printed thereon at page 653 of Bundle C relied on by the defendant.  Joseph Chu said that the plaintiff had supplied the defendant with catalogues without the defendant’s name and address printed thereon.  I believe him.  

117. In any event, even if the catalogue used by the defendant in promoting the Leado products in Hong Kong had the defendant’s name and address printed thereon it does not assist the defendant.  The guarantee given in the catalogue relied on is the same guarantee given in the catalogue that Joseph Chu said was supplied to the defendant.  The door closers were “guaranteed for 5 years from date of manufacture against any defects in material or workmanship.  Defective products will be replaced with a new unit”.  This was quite clearly a manufacturer’s warranty against defective products which would be replaced with a new unit.  Henry Tse accepted that defective products which were replaced by the defendant to its customers were ultimately replaced by the plaintiff without charge.  Even if the defendant’s name and address and not the plaintiff’s name and address were printed on the catalogue, this does not assist the defendant.

118. Issue (1) is resolved in the plaintiff’s favour.  In my judgment the goodwill of the Leado products belonged to the plaintiff.  Although the registration is prima facie evidence of validity of the Leado trade mark I am satisfied that the goodwill belonged to the plaintiff and not to the defendant.  I am also satisfied that the plaintiff had an earlier right protected under the law of passing off when the Leado trade mark was registered on 14 May 1998 within the meaning of section 12(5)(a) of the Ordinance.

Conclusion

119. As Issue (1) is resolved in favour of the plaintiff, Issues (2) and (3) do not arise.

120. The plaintiff is entitled to the declaration sought at prayer 3 of the consolidated statement of claim.  I give judgment to the plaintiff and grant a declaration of invalidity of the trade mark registration pursuant to section 53 of the Ordinance.

121. I also dismiss the counterclaim of the defendant.

122. I also make an order nisi that the costs of the consolidated proceedings and the costs of the counterclaim be costs to the plaintiff to be paid by the defendant.