Harbour Fit Industrial Ltd. v. LEON KOTan Kwai Garden Seafood Restaurant Ltd.

HCA 4535/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4535 OF 2001

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J U D G M E N T

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1. This is a summons for an interlocutory injunction in a passing off action. The plaintiff seeks a mandatory order requiring the defendant to cease using the name "Tan Gwai Hin" ("丹桂軒") and to take all necessary steps to remove the name from use by the defendant.

History

2. The plaintiff is incorporated in Hong Kong and has since 1994, operated restaurants in Lo Wu in Shenzhen. It now operates three restaurants, all under the name "Tan Gwai Hin". The first restaurant was opened in 1995, the second in March 1999, and the third on 21 May 2001. The restaurants have been very successful and are advertised in Hong Kong and are patronised by Hong Kong citizens who visit Shenzhen. With the flow of people going from Hong Kong to Shenzhen these days the restaurants look to both Shenzhen and Hong Kong for their trade.

3. The defendant was incorporated in Hong Kong on 16 May 2001, and on that same day registered a restaurant business at Whampoa Garden in Kowloon. The first three characters of the defendant's name, and the name under which it primarily styles itself as a restaurant are exactly identical to that of the plaintiff's three restaurants. The only difference is that the defendant adds to the first three characters, characters meaning "Seafood Restaurant" ("海鮮酒家"). The defendant's restaurant opened for business on 11 June 2001.

4. The existence of the defendant's restaurant and its use of the identical name came to the notice of the plaintiff soon after 11 June 2001 when friends and customers of the plaintiff sent congratulations to it's director, Alex Leung, mistakenly believing the Whampoa Gardens restaurant was a venture by the plaintiff. While the plaintiff has plans to extend into Hong Kong no steps have yet been taken in the fulfilment of those plans, other than a general decision that at some time in the future such a move will be made.

The law:

5. An interlocutory injunction falls to be determined applying the well-know principles in American Cyanamid v Ethicon [1975] AC 396. A plaintiff seeking an interlocutory injunction must establish first, a serious question to be tried, and second, if damages awarded at trial would not adequately compensate applicant, that the balance of convenience is in favour of the issue of an injunction.

6. In this case the defendant, while maintaining that there is no actionable passing off, accepts, for the present application only, that there is a serious issue to be tried. That was, on the evidence, a sensible concession. I am therefore primarily concerned with the balance of convenience.

The proceedings:

7. It is necessary to set out the course of the proceedings in some detail as the defendant contends that the plaintiff has been dilatory in the conduct of the action to the extent that the injunction sought ought to be denied.

8. The plaintiff became aware of the alleged passing off soon after 11 June 2001. On 30 June 2001 the plaintiff issued a letter before action, which was delivered by hand to the defendant. It required the defendant to cease using the name "Tan Gwai Hin" and make appropriate changes to its get-up within 7 days. The evidence of Yeung Wai-sing, the defendant's director, was that he sought advice on the matter from his accountant and was assured that there was no problem in the use of the name and so did not bother to respond to any of the letters. He sets out in his affidavit a laborious explanation as to how the name was chosen, but that is largely irrelevant as the innocence or otherwise of the use of a name is not a relevant factor in a passing off action.

9. On 24 July 2001 a second letter was issued repeating the demand and demanding that the alleged passing off be purged with in 7 days. There is no evidence that that letter was received by the defendant. On 6 August 2001 a third letter was sent, repeating the demand and this time giving the defendant 3 days to remedy the situation. Although Mr Yeung says that nothing further was heard from the plaintiff after the first letter, Ms Tam was obliged to accept that the third letter had been received by the defendant, for the plaintiff produced a copy, duly chopped and initialled by the same person who had received the first letter.

10. The writ, with statement of claim endorsed, was not issued until 18 October 2001, over 3 months after the expiry of the deadline imposed in the first letter before action. The interlocutory summons was issued on 22 October 2001, with a return day of 2 November 2001. On that day Suffiad J made the usual timetable order for the filing of affidavits, but the plaintiff did not then seek a hearing date for the summons.

11. No explanation was proffered by the plaintiff as to why it was felt necessary to issue three letters before filing the writ, neither was there any explanation for the delay in the issue of the writ.

12. Both parties sought extensions of time for the filing of affidavits, and it took until 8 February 2002 for the affidavits to be filed, with the plaintiff's final affidavit being filed 18 days after the time limit for its filing had expired, without consent, but also without opposition. There was then correspondence as to an issue over a reply to that affidavit and it was not until 4 March 2002 that the plaintiff sought a hearing of the summons.

13. In summary therefore, there was a delay of approximately 4 months from the time the plaintiff became aware of the situation until the writ was issued, and a further delay of 4 months from the return day of the summons for interlocutory injunction before a hearing date for the summons was sought.

14. The defendant, having opened its restaurant on 11 June 2001, and ignoring the three letters before action, proceeded to establish and develop its business without any change of name or get-up. The business has thrived and in November 2001 the restaurant was awarded the Gold Award in the seafood category in the "2001 Best of the Culinary Awards" by the Hong Kong Tourism Board. In the 5 month period to November 2001 the average monthly turnover was in excess of $1,680,000.

15. It is the plaintiff's contention that the success of the defendant's venture is, in part, a result of the use of the name established by the plaintiff and that the defendant has been riding on the back of the plaintiff's well deserved reputation in Hong Kong.

The issue of territoriality:

16. Ms. Tam faintly argued that, the plaintiff's restaurants being in Shenzhen, an action for passing off would not lie in Hong Kong. It is right that in Star Industrial Co. Ltd. V Yap Kwee Kor [1976] FSR 256 (PC, Singapore) it was held that the nature of goodwill as legal property with no physical existence meant that where a business is carried on in more than one country or jurisdiction there must be a separate goodwill in each. But it is clear that a business need not be physically carried on in a country for that business to have a goodwill in that country. That is clear from cases such as C & A Modes v C & A (Waterford) [1978] FSR 126 (Irish SC), Nishika Corp v Goodchild [1990] FSR 371, and, despite the academic criticisms, in Hong Kong, the decision of Sears J in Ten-Ichi v Jancar [1990] FSR 151.

17. The situation of the relationship between Australia and New Zealand is particularly instructive in this respect. There, like the relationship between the Hong Kong Special Administrative Region and Shenzhen there is a ready, easy and regular flow of people between the two jurisdictions, albeit requiring air travel, rather than the Kowloon Canton Railway. The courts of both countries have been ready and willing to protect the goodwill in one country of a trader in the other, with customers, but no physical business presence in the first country. Examples are to be found in Fletcher Challenge v Fletcher Challenge [1981] 1 NSWLR 196, and Dominion Rent a Car Systems v Budget Rent a Car Systems [1987] 2 NZLR 395 (CA).

18. The evidence establishes a strong case on the part of the plaintiff that it has an established goodwill in Hong Kong, and there is in that respect not only a serious case to be tried, but, arguably, a strong degree of assurance in the mind of the court that, on this issue at least, the plaintiff will succeed.

The balance of convenience:

19. The matters that impact upon the balance of convenience vary from case to case depending upon the particular facts of the case. In this case the matters that will need to be addressed are first, the adequacy of damages, second, whether the grant of an interlocutory injunction will amount to effective summary judgement and third, the plaintiff's delay.

Adequacy of damages:

20. The first matter to be assessed is whether damages at trial would adequately compensate the plaintiff, for if they will, an interlocutory injunction will usually be denied. This involves an examination of the damage likely to be suffered and whether it is inherently such that money would be an adequate reparation, the extent to which economic loss can be accurately assessed, the scale of the damage and whether the defendant could, if permitted to continue the activity, meet an award of damages.

21. On a "use of name" case it will be rare that damages will be an adequate remedy. The use of the name of another potentially involves the use of another's goodwill, the detraction from the first owner of the name of business, and the risk of damage to a good name by the interloper not living up to the name owner's standards. I am satisfied that I need consider this aspect no further. This is not a case where damages would be an adequate remedy for the plaintiff.

Effective summary judgement:

22. This was a central point to Ms. Tam's argument. Were there to be an injunction in the terms sought, and it is difficult to see what other terms might be able to satisfy the plaintiff's concern, the effect would be to require the defendant to forthwith change its name and make appropriate adjustments to everything bearing its name, such as chopstick covers and the like. It would be necessary also to change waitresses uniforms and anything else that might indicate the plaintiffs name or business.

23. Ms. Tam relied also upon a provision in the defendant's lease which requires it to use the leased premises for a high class Chinese seafood restaurant under the name "Tan Gwai Hin Seafood Restaurant". She said that as a result of this provision the consent of the landlord to a change of name may be required and that consent might not be forthcoming. A condition of such consent may be, it was argued, that a complete redecoration of the restaurant may be required. While I have grave doubts as to whether a landlord could be said to be acting reasonably in withholding such a consent, or imposing such a condition, this is a matter that I cannot dismiss.

24. It was argued, and there is force in the argument, that if the defendant were required now to change its name and get-up that would effectively end the matter for, even if it were successful in the action, there would be no point in reverting to the name after the change had been made. Thus, an grant now of an interlocutory injunction will be tantamount to giving summary judgement for the plaintiff. Mr Chong countered this submission by saying that the case for the plaintiff was so strong that the injunction ought to be granted, even if it did amount to effective summary judgement.

25. Although it was held in Elan Digital Systems v Elan Computers [1984] FSR 373 that American Cyanamid does not cease to apply in circumstances where the grant of an injunction would amount to effective summary judgement, there are numerous instances of an interlocutory judgement being refused because an injunction would, as a practical matter, dispose of the action. The clearest example is that in Blazer v Yardley [1992] FSR 501.

26. Ms. Tam acknowledged that had the injunction been sought either immediately before the defendant began trading under the Tan Gwai Hin name, or very soon thereafter, and before it established its reputation, this argument would have little strength, and that, there being a serious issue to be tried, it would be highly likely that in such circumstances the injunction would be granted. But that is not the case here. The defendant had been trading under the disputed name over four months before the writ was served and within a month of the service of the writ had won a culinary award, thereby enhancing its reputation. While it would plainly not be wrong to require a defendant to change its name and get-up before it has established a reputation, the length of time that this defendant has been able to trade under the name and get-up is a factor that weighs in the defendant's favour on the balance of convenience at this stage of the proceedings.

Delay:

27. The authorities show that delay in applying for interlocutory relief is a very serious matter. In The Law of Passing Off Wadlow 2nd ed, para 8.28, the author goes so far as to say the following:

"As a rule of thumb, delay of up to a month, or perhaps six weeks, generally has no effect on an inter partes application and delay of up to twice that period need not be fatal if it can be explained and the plaintiff's case is otherwise strong. On an ex parte application even a few days can be critical. Unjustified delay of more than a few months is almost always fatal to the plaintiff's case, even though this delay has no effect on the plaintiff's rights at trial."

28. The danger in delay is that a defendant will be lulled into a false sense of security that he will not be challenged. In Mirage Studios v Counter-feat Clothing [1991] FSR 145 a delay of 3 months was accounted for by the fact that the plaintiffs were trying to enforce their rights through the trading standards authorities. The defendant in that case could have had no doubts of the plaintiff's determination to end the use of the name. Negotiation between the parties does not provide an excuse for a delay: Wilson Development Co v Pro Taifong Co Ltd. [1991] 1 HKC 1, for in such a case negotiation may end in the defendant being able to use the name. In Novex Electronics Co Ltd v Wave-Sonic Electronics Ltd [1980] HKC 708 at 717 a delay of more than three months from the first sighting of the offending design to the hearing of the inter partes summons for an interlocutory injunction was fatal to the application.

29. It is right that by 6 August 2001 the defendant had had three letters but that was all it had had. It appears that a deliberate decision was made by the defendant to continue using the name and get-up, notwithstanding the warnings, and by mid October the defendant must have felt confident that it had weathered the potential storm. There is no precise evidence as to the date of service of the writ, but it must have been nearly 4 months after the first letter before action.

30. Where an interlocutory injunction is sought in a "name" passing off case it is incumbent upon the plaintiff to proceed with all speed. He must seek the injunction promptly and pursue it to a hearing as quickly as possible. On the return day of the summons he should seek an early hearing date, which, in such cases, will always be granted, and set about putting his case in order for the hearing. If he acts, as this plaintiff has, in not seeking a hearing date at the first available opportunity, he runs the risk that the consequent delay will result in the denial of the remedy.

31. Although damages will not be an effective remedy for the plaintiff, the summary judgement effect of the order and the plaintiff's delay are such that I refuse the injunction sought. In so doing I bear in mind that there is no direct evidence before the court of relevant confusion by anyone. The telephone congratulations, the only evidence of public confusion, do not constitute relevant confusion for a passing off action. There is no evidence of a direct decline of the plaintiff's turnover, but that is not to say that the plaintiff has suffered no damage for the mere riding on a reputation is damage for which a plaintiff is entitled to compensation. I am confident that no one who wishes to use the plaintiff's restaurants when in Shenzhen will be confused, as they will in fact be at the plaintiff's restaurants. There is the risk that poor performance by the defendant will reflect upon the plaintiff, but the award received by the defendant seems to indicate that, at least for the moment, that is not a problem.

The merits of the respective cases:

32. I have to say that I reach the conclusion that the interlocutory injunction should be refused most reluctantly. I of course make no findings as to the respective parties cases but I the remarks I propose to make will, I hope, assist the parties in resolving this matter quickly.

33. I am bound to say there appears, at least at first sight, to be a strong element of direct copying in the defendants' get-up. The menus of each restaurant feature a design that is also used on the main signboards of the restaurants. Both are the same shape. Both designs feature a vertically elongated central box, outlined in gold, featuring identical Chinese characters for "Tan Gwai Hin". There are very subtle calligraphic differences in the typeface chosen, upon which I am not qualified to comment, but I doubt that they would carry any weight. The lettering is, to all intents identical. The defendant does not dispute that the combination of characters "Tan Gwai" and "Hin" has apparently never been used before, either for a restaurant name or even in Chinese literature. I have already commented on the explanation for the choice of the name. It is laborious to say the least. Surrounding the central panel, on each, is a further vertically elongated panel containing a green stylised "fish scale" or "wave design". The designs are not identical but are strikingly similar. Below the central panel each has its English name with a solid gold line above and below the name. The further panel is itself, on each, bordered in gold. Again there are subtle style differences in the borders. There is, it seems to me, a very strong case to say that if one was not faced with both menus at the same time, it would be easy to think that they were from the same restaurant chain. I accept that they are, in other respects in different colours, but the overwhelming impression is one of striking similarity.

34. Exhibited are photographs of the uniforms of waitresses. It is right that they are different in colour. They may be in different material. But in all other respects they appear to be as nearly as may be identical, in style, cut and appearance. They are strong evidence of direct copying.

35. The remarks that I have made concerning confusion and damages should not be taken by the defendant as an indication that he has a strong case. The defendant must remember that the issues of delay which have enabled it to succeed on this application will carry no weight if it is found, as I think is more likely than not, that there has been a passing off. The court will not be slow to give the requested remedy at trial, if satisfied that the defendant is, innocently or otherwise, riding on the plaintiffs reputation.

36. These are matters that the defendant will be best advised to weigh very carefully before proceeding further.

A speedy trial:

37. This is plainly a case which must be brought to trial as a matter of urgency. To this end I propose to hold a directions hearing on 30 May 2002 at 9:30 am in chambers. At that hearing I expect the parties to be in a position to advise me first whether or not any amendments will be required to the pleadings. The defendant should have in hand a draft statement of defence. I will require to know if any further evidence will be required and if so the names of the witnesses. I shall also require a clear statement from each side as to any further discovery or other interlocutory matters. I will then establish a timetable in order to complete all matters and direct that an early trial date be given. It is unlikely that I will allow extensions of time to the timetable so both sides must be ready to proceed rapidly.

38. There will be an order nisi for the defendant's costs to be in the cause.