TKI LTD. AND ANOTHER v. NEW HAPPY LTD. AND ANOTHER

IN THE COURT OF APPEAL

1994, No. 153
(Civil)

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REASONS FOR JUDGMENT

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Nazareth, V.-P. (giving the judgment of the Court)

1. The defendants appealed against the interlocutory injunction granted by Liu J, as he then was, ordering the defendants to deliver up a large number of moulds, and that the costs of the hearing and of the summonses before him be to the plaintiffs. Having heard counsel, we dismissed the appeal against the order for delivery up of the moulds, but allowed it in relation to the order for payment of costs, setting aside that order and substituting an order that the costs of the hearing and summonses before the judge be costs in the cause. We now give our reasons.

2. The 1st plaintiff ("TKI") is, according to the statement of claim dated 28th July 1994, a trading company engaged in the business of exporting inter alia cutlery and kitchen utensils to countries in Europe. Contracts with foreign buyers were entered into in the name of the 2nd plaintiff. Between 1988 and 1992 TKI placed a number of orders for the manufacture of various moulds with the 1st defendant ("New Happy"). Upon the manufacture of the moulds, New Happy sent invoices to TKI for the cost of the moulds which invoices were duly settled by TKI. Property in the moulds therefore passed to TKI. As the moulds were required by New Happy to manufacture goods ordered by TKI (China) Ltd, an associated company of TKI, the moulds were left with New Happy as bailee.

3. The 2nd defendant was employed by TKI as a merchandiser from 5th February 1991 until he resigned on 23rd May 1994, stating that he was going to join his brother's business. On 30th June 1994 two of the plaintiffs' customers, Prestige Group UK Plc and Prestige France S.A., received faxed messages from New Happy signed by the 2nd defendant as its manager - "R & D/Export Div." The faxed messages, which were exhibited, informed the recipients that -

(a) New Happy were the actual manufacturers/suppliers of goods to the trader, TKI (Europe) Ltd (the 2nd plaintiff);

(b) New Happy would cease to supply goods to the 2nd plaintiff with effect from 1st July 1994;

(c) New Happy could continue to supply the goods to the recipients with "present moulds/toolings of your ranges" if the buyers would consider building up a "direct" relationship with them; and

(d) TKI had received clients' complaints about product quality and shipment delays, and upon investigation had proved that duplicate products were involved, manufactured by others indicating that TKI had secretly established a new factory of their own to duplicate New Happy products over the past 1 1/2 years at least.

4. This led to the plaintiffs complaining to the defendants through their solicitors. The defendants rejected the complaints and, again through their solicitors, the plaintiffs demanded the return of the moulds. The demand was rejected and on 28th July 1994 the plaintiffs issued their writ. They claimed against the 1st defendant:

(1) The return of the moulds;

(2) Further and/or alternatively damages for detinue/conversion;

(3) An injunction to restrain New Happy from interfering with the 2nd plaintiff's contracts with its customers.

Against the 2nd defendant:

(4) an injunction to restrain the 2nd defendant from further divulging confidential information gained during employment with TKI;

(5) Damages for breach of trust and confidence;

Against both defendants:

(6) An injunction to restrain both defendants from further publication of the libel pleaded; and

(7) Damages for defamation.

5. On 30th July 1994, the plaintiffs took out the summons pursuant to which Liu J granted the interlocutory injunction that is the subject of this appeal.

6. The plaintiffs' case consistently remained that TKI had ordered, been invoiced for and had paid for the moulds. In those circumstances, they contended, New Happy could not, as it claimed, have any proprietary interest in the moulds, indeed that it had had nothing to design, that having been done by the customer.

7. New Happy's case was that it was not in the business of mould making, but the manufacture and production of the end product. Therefore to ensure their customers meant business, they were required to contribute to the heavy cost of making the moulds. The contribution was significantly lower than the cost of the moulds, and New Happy was entitled to use the moulds to produce items for persons other than the customer. Indeed, it had contracts to produce goods for TKI (China) Ltd, a company in the same group as TKI.

8. It was common ground that for an interlocutory mandatory injunction, the plaintiff's case had to be made out to a higher standard of proof than is required for a prohibitory injunction (Shepherd Homes Ltd v Sandham [1971]1 Ch 340 at 351 G per Megarry J, as he then was) and that such higher standard had been described in various acceptable ways: "a very strong probability upon the facts" (Morris v Redland Bricks Ltd [1970] AC 652 at 665 per Lord Upjohn); "a strong prima facie case" De Falco v Crawley Council [1980]1 QB 460 at 478 per Lord Denning MR contrasting the position of an interim mandatory injunction with that of an interlocutory prohibitory injunction under the principles in the American Cyanamid [1975] AC 396 case; "the court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted" per Megarry J in Shepherd Homes at p.351G.

9. The determinative question that therefore arose upon the defendant's main grounds of appeal and counsel's submissions was whether the defendant had shown a strong prima facie case.

10. It has to be said at the outset that New Happy's case as set out in the correspondence and other documents exhibited and in the affidavit it submitted was, by and large, by no means as clear and consistent as that of TKI.

From the documentary evidence it is clear that in April 1994, not much more than two months before the writ was filed, New Happy in a letter seeking increased prices for its production items was saying:

"Our Company has been co-operating with your Company happily in the past."

It added as its only complaint that TKI had got it to expand its factory, increase its equipment and train more staff, thereby causing it to be faced with financial difficulties but had not rendered it assistance. Moreover, when TKI first demanded the return of the moulds on 24th June 1994 the response from New Happy's solicitors was that "the moulds were designed by our client and our client has an industrial proprietary right over them", and not that the plaintiff had not paid for them but only made a contribution as subsequently suggested. Furthermore, contrary to its submissions, New Happy had in one of its letters suggested that the moulds were supplied at cost and not at below cost.

11. In addition it was contended for New Happy that some of the moulds had been provided by New Happy at its own expense to replace moulds worn out by massive and long use. Why that should have been is not entirely clear; nor has New Happy identified those moulds. However that may be, in our view, TKI had clearly made out a strong prima facie case. Although the judge did not expressly say so, it seemed to us that he was of the like view from his observations and robust dismissal of New Happy's "assertions" as he referred to them. It followed that the main grounds of the appeal failed.

12. Likewise we found no merit in the remaining grounds. For those reasons, we dismissed the appeal against the order for delivery up of the moulds.

13. So far as the order for costs is concerned, no good reasons were drawn to our attention that would justify what was conceded to be an unusual order, and one which we are satisfied was plainly wrong. The appropriate order in the particular circumstances in our view is that the costs before the judge and of the summonses should be costs in the cause.

14. Finally, as to the costs of this appeal, although the defendants can be said to have succeeded on the single matter of the costs below, that was a very minor uncomplicated issue which was of minimal significance in point of time and effort. In all the circumstances we think that the appropriate order should be that the plaintiffs should have their costs of the appeal; we will make an order nisi to that effect.