AQUA CONCEPTS LTD AND OTHERS v. HONG KONG RESORT CO. LTD AND ANOTHER

HCA 1658/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1658 OF 2007

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D E C I S I O N

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1.  This is an application by the plaintiffs for an interlocutory injunction to enjoin the defendants from using any one of the names or marks “Water Margin”, “水滸坊” and “水滸” or any expression confusingly similar thereto.

The 1st plaintiff and the Aqua Group

2.  The 1^st plaintiff is the holding company of a group of companies.  It has been operating restaurants in Hong Kong since August 2000.  It does so in the name of the “Aqua Group”.  The 2^nd and 3^rd plaintiffs are wholly owned subsidiaries of the 1^st plaintiff. 

The 2nd plaintiff and “Water Margin”

3.  The 2^nd plaintiff operates a restaurant in the English name of “Water Margin”.  Its Chinese name is called “梁山泊”. 

“Water Margin” and “水滸傳”; the novel

4.  “Water Margin” is also the English name given to a famous Chinese novel called “水滸傳”.  It is a picaresque story of 108 bandits operating in a marsh on a lakeside in Shangdong province in mid-Soong Dynasty.  The bandits later surrendered to the government.  The novel has been given a few other English names that are less famous than “Water Margin”.

5.  In the Chinese name “水滸傳”, the first character “水” means water and the middle character “滸” means marsh on the lakeside.  However, the compound noun “水滸” is always reminiscent of the novel.

6.  The marsh where the bandits in the novel gathered was called “梁山泊” which has been adopted by the 2^nd plaintiff as the Chinese name of its restaurant.  However, “Water Margin” is not a translation of “梁山泊” which was the name of the particular location and not a description of marsh or lakeside ground.  This case has nothing to do with the name “梁山泊”.

The 3rd plaintiff and “水滸居”

7.  The 3^rd plaintiff operates a restaurant called “水滸居”.  Its English name is “Shui Hu Ju” which is just the Putunghua pinyin of the Chinese name.  I have already referred to the particularity of the compound noun “水滸” which is reminiscent of the famous novel.  The last character in the name of the restaurant “居” normally means a dwelling house or a place of residence.  However, its use here is as part of the name of a restaurant or teahouse.  Teahouse is called “茶居” with “茶” meaning tea.  Other examples of restaurants using the character “居” as the last word in their names are “泉章居” (Quan Zhang Ju) and “陶陶居” (Tao Tao Ju).

8.  The plaintiffs’ complaint is on the defendants’ use of the English name of the 2^nd plaintiff’s restaurant “Water Margin” and part of the Chinese name of the 3^rd plaintiff’s restaurant “水滸”. 

The Aqua Group

9.  This Group now has eight restaurants and one sailing junk.  Apart from the two restaurants operated by the 2^nd and 3^rd plaintiffs respectively, there are three other restaurants the names of which make reference to water.  They are the “aqua spirit/aqua roma/aqua tokyo” dining and bar complex, the “Mizu” restaurant and the “aqua luna” sailing junk, which offers catering service.  Aqua is the Latin word for water and is used as a prefix for water.  Mizu is the Japanese word for water.  But the plaintiffs are not claiming any goodwill over the word “water” in whatever language.

Goodwill of the restaurants

10.  The 2^nd plaintiff has been operating its restaurant since October 2000.  The 3^rd plaintiff and its predecessor have been operating their restaurant since July 2000.

11.  The plaintiffs have made efforts to promote their restaurants.  The 1^st plaintiff has a website in the domain name of www.aqua.com.hk which provides information on all the restaurants in the Aqua Group.  The 2^nd and 3^rd plaintiffs have since 2004 engaged a specialist food and beverage public relations firm to promote “Water Margin” and “水滸居”.  The promotion was by different means through different channels.  They include press releases and hosting food-journalists to the signature dishes and new menus of the restaurants. 

12.  These two restaurants have also been reviewed individually and as members of the Aqua Group in many articles both in local publications and in overseas publications that are available in Hong Kong.  Leading local and foreign entertainment magazines and local newspapers have voted these two restaurants as amongst the best in Hong Kong for a number of years since 2001.  The evidence also showed that these two restaurants were known to be members of the Aqua Group.  Sometimes, they were also mentioned together with some other members of the Aqua Group.  They also feature in websites on dining and entertainment in Hong Kong.

13.  The plaintiffs therefore say that they have acquired a substantial reputation and goodwill in the names “Water Margin”, “水滸居” and “水滸” in the restaurant trade.

The defendants’ dining hub - “Water Margin” and “水滸坊”

14.  The 2^nd defendant is a company listed in the Hong Kong Stock Exchange.  The 1^st defendant is one of its subsidiaries.  The 1^st defendant operates and manages the residential development in Discovery Bay including the dining hub there.  This dining hub comprises no less than 20 restaurants and bars.  It used to be part of a commercial hub called DB Plaza.  In about February 2007, it took on new names in English and Chinese.  The new names are “Water Margin” and “水滸坊”. 

15.  The English name“Water Margin” is identical to the English name of the 2^nd plaintiff’s restaurant.  The Chinese name “水滸坊” is also very similar to the Chinese name of the 3^rd plaintiff’s restaurant “水滸居”.  The first two Chinese characters of “水滸坊” are identical to the first two characters of “水滸居”.  The 3^rd character “坊” means an alley or a precinct.  It also means a market or a shop in the commercial sector.  It is often used as the last character in the names of lanes and alleys.  Common examples are青河坊 “Tsing Ho Fong” in Tuen Mun, 渣甸坊 “Jardine’s Crescent” in Causeway Bay, 九如坊 “Kau U Fong” and 蘭桂坊 “Lan Kwai Fong” both in Central.

The plaintiffs sued

16.  A director of the plaintiffs Mr Yeo was first told about the defendants’ use of these names on about 9 February 2007.  He then searched the internet which revealed this dining hub.  Its operator expressed the vision of transforming it into a “distinct international seaside dining spot in Hong Kong”.  Mr Yeo then took legal advice from solicitors.  A cease and desist letter was issued by the plaintiffs’ solicitors to the 1^st defendant on 15 March 2007 on the ground of passing off.  The 1^st defendant refuted the plaintiffs’ claim.  The matter eventually developed into this litigation.

The defendants acknowledged the plaintiffs’ goodwill

17.  The defendants acknowledged that there is a serious question to be tried on whether the 2^nd plaintiff has goodwill in the name “Water Margin” and the 3^rd plaintiff has goodwill in the name “水滸居” in the restaurants trade.  The acknowledgments were rightly made.  In the light of the weight of the evidence, I would go further and find that there is a serious question to be tried on whether the 1^st plaintiff in the name of the Aqua Group owns the goodwill in “Water Margin”, “水滸居” and “水滸” for the running of restaurants.

The defendants did not regard confusion was likely

18.  The defendants, however, argue that there is no likelihood of deception of the public or damage to the plaintiffs.  The defendants’ staff admitted that when they were considering whether to use the names “Water Margin” and “水滸坊”, they were aware that the restaurants of the 2^nd and 3^rd plaintiffs were in the names of “Water Margin” and “水滸居” respectively.  They had also taken legal advice on passing off.  They, however, thought that their food hub was so different from the two restaurants of the plaintiffs that there was no risk of confusion.  They therefore adopted the two names for the food hub and spent substantial sums on public relations and advertising campaigns to bolster the image of the hub in its new names.

The law of passing off

19.  Lord Oliver of Aylmerton has summarized the law of passing off in Reckitt & Colman Products Ltd v Borden Inc. & Ors [1990] RPC 341 at 406, lines 23-43:

“The law of passing off can be summarised in one short general proposition - no man may pass off his goods as those of another.  More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed.  These are three in number.  First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying ‘get-up’ (whether it consists simply of a brand name or a trade description, or the individual features of labelling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff’s goods or services.  Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff.  Whether the public is aware of the plaintiff’s identity as the manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff.  For example, if the public is accustomed to rely upon a particular brand name in purchasing goods of a particular description, it matters not at all that there is little or no public awareness of the identity of the proprietor of the brand name.  Thirdly, he must demonstrate that he suffers or, in a quia timet action that he is likely to suffer, damage by reason of the erroneous belief engendered by the defendant’s misrepresentation that the source of the defendant’s goods or services is the same as the source of those offered by the plaintiff.”

Confusion?

20.  Leading counsel for the defendants submitted that the plaintiffs’ restaurant could not be more different from the defendants’ dining complex in terms of the nature of services, get-up and atmosphere.  The plaintiffs’ restaurants serve regional Chinese cuisine in a dark setting reminiscent of a kung-fu set.  They have a theatrical, retro, rustic and period Chinese theme.  Their theme is similar to some other restaurants in the Aqua Group the names of which have nothing to do with water.  However, the defendants’ dining place is essentially a food court centred around an open piazza.  It is an outdoor dining area and a seaside promenade.

21.  Leading counsel also relied on TGI Friday’s Australia Pty Ltd & Anor v TGI Friday’s Inc & Anor [2000] 45 IPR 43.  The respondents in that case operated a chain of over 400 restaurants in the United State and 29 other countries.  Two of the restaurants were in Australia.  All these restaurants were under the name “TGI Friday’s”.  The appellants operated a business which included a hotel and tavern in Sydney’s western suburbs in the name of “TGI Friday”.  The respondents sued the appellants for, among other things, passing off.  The trial judge found that the public was likely to believe that the services offered by the appellants were those of the respondents.  He therefore held for the respondents on passing off.  The appellants appealed to the Federal Court of Australia.

22.  The evidence in that case showed that the full name of “TGI Friday’s” or some recognisable corruption of it was widely used by a wide range of business in Australia offering relaxation and refreshment.  However, the respondents’ use of this name was always associated with a particular “distinctive layout” and type of décor.  There is a consistency of style even for their restaurants in different countries.  The name is shown in block capital letters with “TGI” being smaller than the word “Friday’s”.  Subject to a few exceptions, the outside of the building was adorned with a red and white diagonal striped awning.  The combination of these elements made the outside of the respondents’ restaurants instantly recognisable to any person who has been to anyone of them.  When one entered the restaurant, there were the peculiarities of the décor.  The elements of the décor together presented a visual package that was unique to the respondents’ restaurants.

23.  However, the appellants’ use of the name was for two very ordinary bars each housed inside a very ordinary suburban hotel.  The word “Friday’s” was also written in cursive script and not in block capitals.  There was also no red and white awning.  The internal décor also had no resemblance with that of the respondents. 

24.  The Federal Court took the view that all these differences would be so obvious to any intending patron of the appellants’ hotels who knew of the respondents’ restaurants that he/she would immediately assume the hotel’s use of the name to be coincidental.  For these reasons, the appeal was allowed.

25.  Unlike the name “TGI Friday’s”, which was widely used in Australia for business purpose, the names of “Water Margin” and “水滸” have not been widely used by many business in Hong Kong whether it be for the sale of goods or provision of services.  Insofar as the running of restaurants is concerned, there is a serious question to be tried on whether the plaintiffs own the goodwill of these two names.  The goodwill is also not in the form of a unique visual presentation as in the chain of restaurants in TGI Friday’s.  Different restaurant in the Aqua Group has different décor.  One cannot say that the restaurant in the name of “Water Margin” or “水滸居” has such a distinctly recognizable theme of décor as in TGI Friday’s.

26.  Regarding the names for the dining hub, the English name is identical to that of the 2^nd plaintiff’s restaurant and the Chinese name is confusingly similar to that of the 3^rd plaintiff.  The use of the third character “坊” in the hub may simply indicate a bigger scale of operation by the 3rd plaintiff or the Aqua Group.  The use of both “Water Margin” and “水滸坊” may also convey a stronger impression of the presence of the Aqua Group as the names of two of its restaurants are there.  Indeed, leading counsel of the plaintiffs has rightly submitted that the public may just think that the plaintiffs are managing the dining hub.  The public may also think that it is part of the Aqua Group.  Since there are a number of restaurants in the hub, the décor for the individual restaurant must be different.

27.  Leading counsel for the defendants refer to the Chinese name of the 2^nd plaintiff’s restaurant “梁山泊” and the English name of the 3^rd plaintiff’s restaurant “Shui Hu Ju”which are different from and not used as part of the names of the hub.  However, I do not think I need to consider these names as the plaintiffs’ restaurants are not known by their Chinese and English names being read together.  They are known by their Chinese or English names being read independently.  I only have to consider the names which are identical or confusingly similar which may give rise to confusion.  Furthermore, I have also referred to the use by the defendants of both “Water Margin” and “水滸坊”which may reinforce the confusion, if any, despite the absence of the names “梁山泊” and “Shui Hu Ju”.

28.  The plaintiffs have also produced some affidavit evidence of a few members of the public who said they had been confused by the defendants’ use of these names.  The defendants have also produced affidavits by witnesses saying the contrary.  However, that does not turn the tide as the law does not require everybody to be confused or misled. 

29.  In the premises, I hold that there is a serious question to be tried on whether there has been a misrepresentation by the defendant to the public, though said to be unintentional.

Damage to the plaintiffs?

30.  The next point argued by the defendant is the absence of any damage to the plaintiffs.  It is submitted that mere confusion which does not lead to a sale is not sufficient (see Rickitt at p.417, line 7).

31.  The plaintiffs’ concern is the dilution of the exclusivity they enjoy in these two names.  They also have no control over the quality of the food and services provided by the restaurants in the defendants’ place.  It has been said that damage to goodwill is the most important damage likely to flow from passing off (Marlborough Motors v Marlborough Motor Co. 19 May 1986, Chancery Div., by Falconer J (unreported at p.4)) and it is rare to have damages to be an adequate remedy in cases where one of the allegations is the likelihood of confusion in the trade (Sodastream Ltd v Thorn Cascade Co. Ltd & Anor [1982] RPC 459 at 471, lines 2-4).  I agree.  I do not accept the defendants’ argument. 

Damages an adequate remedy?

32.  I do not think that damages would be an adequate remedy for the plaintiffs’ loss which lies in the damage to its goodwill.  On the other hand, damages would be an adequate remedy for the defendants if I should grant the injunction.  The injunction would only prevent the defendants from using either of the two names for the dining hub.  The restaurants there can continue to operate.  The evidence shows that some of the restaurants in October 2007 were still using the name DB Plaza in their address cards.  The defendants’ loss in the advertising and promotion expenses can always be ascertained.

Delay of the plaintiffs

33.  The defendants’ next argument is the plaintiffs’ delay in making this application.  Mr Yeo of the plaintiffs learnt about the defendants’ use of the two names in the dining hub on about 9 February 2007.  He said he and his colleagues were most concerned about it.  They immediately took legal advice on the matter.  Their solicitors then issued a cease and desist letter dated 15 March 2007 to the 1^st defendant. 

34.  The 1^st defendant’s solicitors sought particulars of the plaintiffs’ claim of goodwill on 23 March 2007.  Some particulars were provided on 4 April 2007.  The 1^st defendant’s solicitors on 13 April 2007 asked for more time to reply and requested the withholding of proceedings in the meantime.  On 23 April 2007, the plaintiffs’ solicitors demanded a reply again.  On 27 April 2007 the 1^st defendant’s solicitors denied the plaintiffs’ claim of goodwill in the two names of “Water Margin” or “水滸”or that there would be any confusion with the defendants’ dining hub “水滸坊”.

35.  The plaintiffs’ solicitors wrote again on 11 May 2007 to further reason with the 1^st defendant by providing more evidence of goodwill in the form of articles published in the local and international media.  The 1^st defendant’s solicitors replied on 26 May 2007 and only denied likelihood of confusion on the ground that the defendants themselves were not operating any restaurant.  They did not deny the plaintiffs’ ownership of the goodwill.  They in this letter further suggested the possibility of a co-existence agreement between the parties.

36.  It was then apparent that the 1^st defendant was not going to voluntarily give up the use of the two names.  Despite that, the plaintiffs did not resort to litigation immediately.  Mr Yeo said in his affirmation that the Aqua Group was not litigious and they considered how they could convince the defendants to comply with their demands without litigation.

37.  Any how, Mr Yeo learnt on about 28 June that the defendants had on 20 March filed two trademark applications for “Water Margin” and “水滸坊” which covered restaurant, food mall, bar, cafeteria etc, many of which overlapped with the core business of the Aqua Group.  Mr Yeo took this as evidence of the defendants’ bad faith.  His concern for confusion was also intensified by the defendants’ new theme of advertisement for the hub.  The plaintiffs then decided to take the matter to court.

38.  On 15 July 2007, the plaintiffs’ investigator made a trip to Discovery Bay to investigate the defendants’ operations.  On 2 August 2007, the plaintiffs’ solicitors served on the defendants a writ together with a demand for the defendants to drop the two names within five days.  The defendants replied on 7 August 2007 and sought clarification on the identity of the plaintiffs (as they were not the same as the one used in correspondence) as well as information on the plaintiffs’ right in the names in question.

39.  The plaintiffs’ solicitors provided some explanation on 15 August 2007 and demanded the defendants’ undertaking to cease and desist by 17 August 2007.  The defendants did not and the plaintiffs applied for interlocutory relief on 21 August 2007.

40.  Though Mr Yeo discovered the defendants’ use of the names on about 9 February 2007, the 1^st cease and desist letter was not issued until 15 March 2007.  I think there was a delay of about two to three weeks.

41.  When the 1^st defendant denied the plaintiffs’ ownership of the goodwill in the two names on 27 April 2007, it was not unreasonable for the plaintiffs to have sent the 1^st defendant a further demand letter, which was backed by copy articles from the local and international media on the restaurants of the 2nd, and 3^rd plaintiffs.  These articles were important evidence on the existence of goodwill.  This letter brought about a change in the defendants’ attitude in their letter of 26 May 2007.  They no longer denied the plaintiffs’ goodwill.  They only argued that there was no confusion as they themselves were not operating any restaurant.  They even suggested that an agreement of co-existence.  However, it was clear by this time that the 1^st defendant was not going to stop using the names.  The plaintiffs should decide to take the matter to court or to leave it as it was.  Nonetheless, their investigator only went to Discovery Bay on 15 July 2007.  There was a delay of about one month and one week.  There was a further delay of about one week before the writ was issued on 2 August 2007.  The total delay was about two months to two months and a week.

42.  Counsel for the plaintiffs submitted that the plaintiffs are not litigious and the defendants are formidable giants vis-à-vis the plaintiffs.  However, these are not justifications for delaying the matter.  If the plaintiffs for whatever reason do not want to take the matter to court, then they have to live with it.  These grounds are not excuses for them to sit on the matter and keep their options open.  It is not a case where the evidence of infringement only appeared in dribs and drabs.  In that case, it may be necessary to wait for a more concrete picture of infringement to emerge before taking action.  In the present case, all the evidence for launching the claim and for an interlocutory application was there at the latest by the end of May 2007.

43.  The defendants also refer to the statement by Rogers VP in King Fun Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785 at para. 20 for due expedition in applications for interlocutory injunction:

“There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay.  Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction.  Since the American Cyanamid decision the importance of irreparable damage in an application for an interlocutory injunction is paramount.  If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown.  This is important because of the approach that the courts take to interlocutory injunctions.  They are not the trial of the action and the court is concerned with whether irreparable damage will occur before a trial can take place.  It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage and that is the case here.”

44.  The plaintiffs rely on Nin Jiom Medicine Manufactory (Hong Kong) Ltd v Wai Kong Yiu trading as Chai Tin Sow Medicine Factory & Anor, HCA 11494 of 1996 (unreported) where Rogers J (as he then was) granted an injunction on the manufacturing in Hong Kong of certain cough medicine and did not even allow it to be made in Hong Kong for sale in the Mainland.  The learned judge did so despite the long delay of the plaintiff in that case.

45.  Leading counsel for the plaintiffs submitted that the reason for the grant of the injunction in Nin Jiom in those terms was because the defendants had no defence.  I think there were more factors than just a lack of defence.  One reason was that the plaintiffs might not have known that it could have sued the defendants earlier because the sale of the medicine was in the Mainland.  Another reason was the hitherto comparatively small scale of sale by the defendants until shortly before the commencement of the action.

46.  In the present case, I also do not think the defendants have demonstrated any solid ground of defence either.  Looking at the matter in the round, I think the plaintiffs have indeed delayed the application for interlocutory relief as pointed out above.  But I do not think the delay has reached the stage of fatality for its application.  I decline the defendants’ argument though not without reluctance.

Injunction equivalent to summary judgment?

47.  The defendants’ last point is that to grant the injunction would amount to giving summary judgment for the plaintiffs as it would preclude the defendants from contesting their grounds of defence at a full trial.

48.  I agree that if I should grant the injunction, the defendants for commercial reasons may not want to use these two names again even if they should succeed in a full trial.  Hence, if I should grant the injunction, there may not be any incentive for them to proceed with the action to a full trial.

49.  This submission is, however, built on the argument that the risk of damage as may be caused by the defendants’ use of the two names to the plaintiffs is non-existent or negligible.  I do not think this argument is sound.  I have already referred to the problem of dilution of exclusivity and damage to goodwill.

Order

50.  In the premises, I grant the plaintiffs an injunction in terms of their summons dated 21 August 2007, though I would not include the defendants’ affiliated or associated companies in the order.  I also make a costs order nisi that the costs of this application be the plaintiffs’ costs in the cause.

51.  If the defendants wish to contest the action at a full trial and if successful, to use these names again, they can apply to me for directions for speedy trial so that the life of the interlocutory injunction can be kept to the minimum.