GRACE SILVER MARKETING LTD AND ANOTHER v. HAIXIN YU GAR (H.K.) LTD AND ANOTHER

HCA 595/2006
HCA 2833/2006
(Consolidated)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 595 AND 2833 OF 2006

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1.  The 1^st plaintiff Grace Silver Marketing Limited (“GSM”) is a limited company incorporated in Hong Kong. GSM was incorporated on 23 January 2002.

2.  At all material times Shunsuke Urashima (“Urashima”) was and is a director and the major shareholder of GSM.

3.  Dennis Li Yat Tung (“Li”) was a director of GSM at all material times until 15 December 2005.  At all material times Li was and is a minor shareholder of GSM.

4.  Elvira Osti (“Osti”) is and was at all material times a minor shareholder of GSM holding 10% of the shares of GSM.

5.  The 2^nd plaintiff Grace Silver Company Limited (“GSC”) is a limited company incorporated in Hong Kong on 29 January 1991 under its former name Grace Silver Design Limited and changed its name to GSC on 4 April 1995.

6.  At all material times Urashima was and is a director and the major shareholder of GSC with the other shareholders being members of his family.

7.  The 1^st defendant Haixin Yu Gar (H.K.) Limited (“Haixin Yu Gar”) is a limited company incorporated in Hong Kong, under its former name Yu Gar Development Limited and changed its name to Haixin Yu Gar on 5 November 2004.  At all material times it carried on business in the retail, distribution and manufacture of brand name products.

8.  The 2^nd defendant Or Yi Tung (“Or”) is and at all material times was the managing director of Haixin Yu Gar.  She was also a shareholder of Haixin Yu Gar at all material times until 30 August 2006 when she transferred all her shares to a BVI company which is substantially owned by her.

9.  Edward Chow (“Chow”) was also a shareholder and director of Haixin Yu Gar at all material times until 9 November 2004.

10.  At all material times Krizia S.p.A (“Krizia”) was and is the owner of, inter alia, the trademark “BASIC by KRIZIA” later known as “B. by KRIZIA” (“the trademark”).  Krizia at all material times was and is a corporation existing under the laws of the Republic of Italy with its registered office in Milan.

11.  Osti at all material times was and is the founder and majority shareholder of Fashion’s Group S.R.L. (“Fashion’s Group”). The other shareholders are her sisters.  Fashion’s Group is and was the agent of a number of well-known fashion companies including Missoni, Trussardi and Krizia.

12.  At all material times, Fashion’s Group was the agent of Krizia in, inter alia, Hong Kong and the PRC.  Fashion’s Group was also the agent of GSC in its dealings with Krizia.

13.  Krizia is a well known fashion house in Milan, Italy with different fashion lines.  The line of products marketed and sold under the trademark is one of many lines of products sold under different marks and labels of Krizia.  Krizia has been using its well known main line KRIZIA trademark or brand name on products prior to using the trademark.

14.  Under a licence agreement entered into between Krizia and GSC dated 18 April 1994 (“the master licence”) GSC obtained from Krizia the exclusive right and licence to use the trademark in South East Asia and the Far East on all products designed or approved by Krizia and manufactured and sold by or for the account of GSC.

15.  By an agreement in writing dated 27 January 2004 made between GSM and Haixin Yu Gar (“the sub-licence”) GSM granted to Haixin Yu Gar a sub-licence to use the trademark in connection with the manufacturing, distribution, marketing, advertising and sale of the products set out therein within Macau and the People’s Republic of China (“the PRC”).  Haixin Yu Gar agreed to pay to GSM the royalties as set out therein.

16.  By a deed of joint and several guarantee also dated 27 January 2004 (“the deed”) Or and Chow jointly and severally agreed to guarantee the punctual performance of all the obligations of Haixin Yu Gar under the sub-licence and to indemnify GSM against any cost, loss, damage, expense, claim and liability of whatever kind resulting from or in connection with the non-payment of royalties or other moneys payable under the sub-licence or the non-performance of the obligations of Haixin Yu Gar under the sub-licence.

17.  Under the sub-licence Haixin Yu Gar was obliged to pay the total guaranteed minimum royalties of US$750,000 for the first, second and third contract years payable as follows :

(1) US$60,000 within 1 month of signing of the sub-licence but not later;

(2) US$140,000 on or before 1 September 2004;

(3) US$125,000 on or before 30 September 2005;

(4) US$125,000 on or before 30 March 2006;

(5) US$150,000 on or before 30 September 2006;

(6) US$150,000 on or before 30 March 2007.

18.  Up to September 2004 Haixin Yu Gar had made the first two payments of guaranteed minimum royalties under the sub-licence.  However, the third payment of US$125,000 which was due and payable on 30 September 2005 was not paid by Haixin Yu Gar. 

19.  By letter dated 3 March 2006 (“the letter of termination”) from GSM’s solicitors to Haixin Yu Gar’s solicitors, GSM exercised its right of termination of the sub-licence by accepting Haxin Yu Gar’s repudiation of the sub-licence.

20.  GSC and GSM jointly claim against Haixin Yu Gar and Or the loss and damage as particularized in the voluntary particulars of the amended statement of claim dated 20 January 2010 with interest and costs.

21.  Haixin Yu Gar and Or deny that they are liable as alleged.

22.  Haixin Yu Gar also counterclaims against GSC and GSM for rescission of the sub-licence, the return of the royalties paid and damages with interest and costs.

23.  By order of Master Lung dated 19 April 2007 it was ordered, inter alia, that High Court Action No. 595 of 2006 and High Court Action No. 2833 be consolidated and carried on as one action.

24.  At the pre-trial review on 9 December 2010 it was ordered, inter alia, that if Haixin Yu Gar succeeds on its counterclaim at trial, the issue of damages on the counterclaim should be separately assessed by a master.

The issues

25.  The agreed list of issues are :

(1) Whether GSC had at all material times the right, power and/or authority to sub-license the trademark to third parties pursuant to the master licence including to sub-license to Haixin Yu Gar through GSM as its authorized agent;

(2) Whether by agreement between Krizia and GSC on or around 3 October 2001, GSC was granted an irrevocable option (“the option”) to renew the master licence for a period of 5 additional years from 31 December 2006, to be noticed within 6 months from the date of termination of the sub-licence and that such option has been duly exercised by GSC by letter dated 20 June 2006;

(3) Whether by the undated letter of appointment (“the letter of appointment”):-

(i) GSM was granted by GSC the sole and exclusive right as master licensee to distribute, market, advertise, promote, sell, franchise, wholesale and retail the products bearing the trademark in the PRC, Taiwan and other countries in the Far East except Japan and Korea (“the territory”); and

(ii) GSM was granted by GSC the right to sub-license to any third party, including Haixin Yu Gar, within the territory, subject to the consent of GSC;

(iii) GSM was appointed by GSC as the authorized agent of GSC in its sub-licensing business in Hong Kong and the PRC;

(iv) Whether the letter of appointment came into existence in or about November 2003 or some time later in or about February 2005;

(4) Whether by the sub-licence GSM had validly granted Haixin Yu Gar a sub-licence in accordance with the terms of the sub-licence, in particular, clauses 3, 4 and 17 thereof;

(5) Whether the sub-licence contains an oral express term that GSM had the right from Krizia to, and would, sub-license the trademark to Haixin Yu Gar for a period of at least 3 years and an additional 3 years option starting from mid-October 2004 (“the oral express term”);

(6) Whether the sub-licence further contains an oral conditional term that upon signing the sub-licence GSM would immediately produce the master licence to Haixin Yu Gar and Or (“the oral conditional term”).  Alternatively, whether GSM has expressly indicated to Haixin Yu Gar and Or that the master licence could not be shown to Haixin Yu Gar and Or, as it is confidential between GSC and Krizia;

(7) Whether Haixin Yu Gar was induced by and/or had relied on the oral express term and/or the oral conditional term in entering into the sub-licence;

(8) Whether the deed is subject to an oral condition (“the condition”) that the deed was to be of a limited duration until Haixin Yu Gar completed its pending corporate restructuring and had increased assets, and that after such corporate restructuring, Or would be released from the deed;

(9) Whether the deed is a contract of indemnity under which Or is primarily liable as indemnifier unconditionally and irrevocably to GSM.  Alternatively, whether it is a contract of guarantee subject to the terms of the sub-licence and the condition;

(10) Whether prior to GSM and Haixin Yu Gar entering into the sub-licence GSM was made aware that:-

(i) Subject to GSM granting Haixin Yu Gar a sub-licence with the right to use the trademark for a period of at least 3 years and an additional 3 years option starting from mid-October 2004, Haixin Yu Gar would start a campaign of advertising, marketing and selling of products bearing the trademark in the PRC, including Harbin and Shanghai;

(ii) Haixin Yu Gar would open numerous retail shops selling products bearing the trademark in the PRC, including shopping malls and/or department stores such as the New World Department Store in Harbin, Shanghai Jiu Guang Department Store (SOGO) and Shanghai Times Square shopping mall in Shanghai;

(iii) Haixin Yu Gar would enter into a distributor agreement, as master distributor, with Little Angel International Company Limited (subsequently replaced by Beijing EFC Limited) and subsequently with Shanghai Haixin Yu Gar Trading Co. Limited, respectively as distributor, where the distributor would be granted a sub-licence to distribute, advertise and sell products bearing the trademark within the PRC (excluding Hong Kong and Macau);

(11) Accordingly, whether GSM and GSC are liable in damages (to be assessed) for breach of the oral express term or the oral conditional term;

(12) Further, whether GSM and GSC are liable to indemnify Haixin Yu Gar against:

(i) Legal action against Haixin Yu Gar for infringement of the trademark;

(ii) Any claims for loss and damage that Shanghai Haixin Yu Gar Trading Co. Ltd. has against Haixin Yu Gar for breach of the distributorship agreement arising out of and/or consequent upon GSM (and GSC’s breach(es) of the sub-licence;

(13) Having regard to the Court’s findings on the above factual issues, whether GSM and GSC are entitled to the reliefs sought as prayed.

26.  Issues (10) to (12) only arise if Haixin Yu Gar succeeds on its counterclaim.

27.  The parties have also agreed a chronology of relevant events as set out in the agreed chronology of events (“the agreed chronology”).

The witnesses

28.  I heard evidence from Urashima, Li and Osti who gave evidence on behalf of GSM and GSC.

29.  I also heard evidence from Or, Luca Maria Cosmai (“Cosmai”) and Colin Chui Ka Yin (“Chui”) who gave evidence on behalf of Haixin Yu Gar and Or.

30.  Cosmai who has always worked in the Italian fashion business started to work from about May 2005 for a subsidiary or associate company of Haixin Yu Gar as the vice general manager.  In July 2005 he became the sales manager of Haixin Yu Gar working under the direct supervision of Or until 2008.  At that time Haixin Yu Gar wanted to develop the retail fashion business in the PRC with international brands principally Italian brands.  At the time he joined Haixin Yu Gar the only business of Haixin Yu Gar was the sub-licence of the trademark.

31.  Chui is a solicitor who was an in house legal counsel.  At all material times from about May 2004 Chui was employed by a company called Advanced Antimicrobial Devices Limited which is one of the companies of a group of companies owned by Or.  At all material times from about May 2004 Chui was responsible for the legal and business developments of Haixin Yu Gar and other companies of Or.  He reported directly to Or.

32.  I also had the evidence of Maria Giuseppina Mandelli (“Mandelli”) given by affidavit sworn on 8 March 2007.

33.  I have no hesitation in accepting the evidence of Urashima, Li and Osti.  I believe them and find that they are honest, truthful and reliable witnesses.

34.  Where the evidence of Urashima, Li and Osti are at variance with the evidence of Or, I have no hesitation in preferring their evidence to the evidence of Or.  I accept their evidence and reject Or’s evidence.  In my view Or was an evasive, untruthful and unreliable witness.

35.  I also have no hesitation in preferring the evidence of Urashima and Li, which I accept, to the evidence of Cosmai and Chui, which I reject, where their evidence is at variance. 

36.  I would also observe that Haixin Yu Gar and Or have failed to call Chow as a witness.  Chow would have been an important witness to support their case.  There is no explanation for not calling Chow to give evidence in support of their case.  In my view an adverse inference can and should be drawn that if Chow had been called to give evidence his evidence would not have supported Haixin Yu Gar’s and Or’s case (Li Sau Keung v Maxcredit Engineering Ltd & Another [2004] 1 HKC 433 at pages 443 to 444; Hoie Sook Fong & Another v Ismail Halima & Another [2009] 1 HKC 326 at page 336).

37.  It is clear on the evidence of Urashima, Li and Osti, which I accept, that the master licence was renewed from time to time after it was granted by Krizia on 18 April 1994.

38.  As is set out in the agreed chronology, on 3 July 1996 the master licence was renewed until 30 June 2000 by agreement between Krizia and GSC with an option to renew for 3 years upon notice given 6 months from expiry of the term.

39.  On 26 May 2000 the master licence was further renewed until 30 June 2003 by agreement between Krizia and GSC with an option to renew for 3 years upon notice given 6 months from the expiry of the term.  This was confirmed by Krizia to GSC by letter dated 26 May 2000.

40.  On or around 3 October 2001 the master licence was further renewed starting from 1 January 2002 until 31 December 2006 by agreement between Krizia and GSC with an option to renew for 5 years upon notice given 6 months from expiry of the term.  The letter dated 3 October 2001 from Krizia to GSC confirming the same is Exhibit P5B.

41.  The sub-licence dated 27 January 2004 was made between GSM and Haixin Yu Gar (E31-49).  

42.  The case of Haixin Yu Gar and Or is that the sub-licence was partly written and partly oral.  The case of GSM and GSC is that the sub-licence was a written contract on the terms as set out in the sub-licence.

43.  The pre-contractual discussions and negotiations took place from late 2003 to 27 January 2004 between Urashima and Li on the part of GSC and GSM and Or and Chow on behalf of Haixin Yu Gar and themselves.

44.  On the evidence of Urashima and Li, which I accept, I find that GSM was incorporated in 2002 by Urashima and Li to engage primarily in the sub-licensing business in the garment and accessories industry in the PRC and other countries in the Far East except Korea and Japan. GSC did not have business experience in the PRC and having met Li, Urashima decided to set up GSM as the company to engage primarily in the sub-licensing business in, inter alia, the PRC.

45.  There is a dispute of fact as to when the letter of appointment (E29-30) was prepared.

46.  On the evidence of Urashima and Li the letter of appointment was prepared shortly before 25 November 2003 when the first sub-licence of the trademark was entered into between GSM and Staccato Footwear Co. Ltd. (“Staccato”) (Exhibit P1).

47.  Mr Lai, for Haixin Yu Gar and Or, submitted that it was more likely that the letter of appointment was prepared only in February 2005.  

48.  I have no hesitation in believing Urashima and Li and accepting their evidence on this dispute of fact.  I find that the letter of appointment was prepared shortly before 25 November 2003.

49.  GSC was the master licensee of Krizia under the master licence.  By the letter of appointment GSC appointed GSM as its authorized agent to sub-license its rights under the master licence to any third party in the territory which included the PRC.  On the evidence of Osti this was known to Fashion’s Group which acted as Krizia’s agent.  This was also known to Krizia as confirmed by Mandelli in her affidavit.  I believe them and accept their evidence.

50.  Osti gave evidence that Aldo Pinto (“Pinto”) was the person who was primarily in charge of the commercial matters in Krizia at all material times.  Although Mandelli was the president and sole administrator of Krizia at different times, it is plain on the evidence of Osti, which I accept, that Mandelli was the designer and an artist whereas her husband Pinto was the person in charge of commercial matters at all material times.

51.  According to the corporate documents of Krizia in evidence, Pinto was the vice-president of Krizia from 28 February 2005 to 9 January 2006.  During this time he also confirmed by letter dated 20 April 2005 (E132) that GSM was the authorized agent of GSC to act on its behalf in its sub-licensing business in Hong Kong and the PRC and that GSC was authorized by Krizia to sub-license products with the trademark to, inter alia, Haixin Yu Gar.

52.  Urashima also said, and I accept, that Pinto of Krizia had verbally given his consent to the letter of appointment before it was issued at the time shortly before 25 November 2003.

53.  It is clear from the evidence of Urashima, Li and Osti that Krizia was keen to develop the trademark in the PRC.

54.  Li gave evidence that when he visited Pinto in Italy with Osti in 2002 or 2003 Pinto knew of Li’s role in GSM.  Li was neither a shareholder nor a director of GSC at any time.  Li said, and I accept, that Pinto was keen and gave encouragement to Li to open up the PRC market for the trademark.

55.  On the evidence of Urashima and Osti, permission was granted generally by Pinto on behalf of Krizia for the sub-licensing of products with the trademark for, inter alia, the PRC. As regards Japan, this was granted on a case by case basis.

56.  Osti also gave evidence that Krizia was aware of and approved the sub-licences to Staccato in respect of shoes and to Polywide International Ltd. (“Polywide”) in respect of handbags.  This was also confirmed by Mandelli in her affidavit.

57.  Osti also said that before the sub-licence was granted to Haixin Yu Gar by GSM, Li had informed her of the background of Haixin Yu Gar and Or which was relayed to Pinto.

58.  Osti also gave evidence of the visit by Or and Mary Ma (“Ma”) to Milan in March 2004 after the sub-licence was entered into when purchases were made from Krizia.  Osti also introduced them to Pinto.

59.  It is abundantly clear on the evidence, which I accept, that Krizia knew of and approved of Haixin Yu Gar as the sub-licensee of the products with the trademark in the PRC.  I so find.  

60.  I am satisfied and find that Pinto on behalf of Krizia gave his consent to GSC to sub-license its rights under the master licence to third parties including Haixin Yu Gar.

61.  I find that Krizia had approved of and given its consent to the letter of appointment whereby GSC appointed GSM as its authorized agent to sub-license its rights under the master licence to any third party including Haixin Yu Gar under the sub-licence.

62.  On the evidence of Osti, which I accept, I am satisfied that Pinto knew at all material times that Osti was also a shareholder of GSM.  However, that did not pose a problem for Krizia. 

63.  Apart from a period between March 2005 to March 2006 where there was discord between Krizia and GSC and GSM, it is clear on the evidence, and I so find, that the relationship between Krizia and GSC and GSM was a cordial one over the years.  I shall refer to this period of discord below.

64.  The evidence shows that Or and her mother were involved in the fashion business in the PRC prior to the sub-licence granted by GSM to Haixin Yu Gar.  The company which they owned operated shops in the PRC.  Or also had some experience in the export of garments from the PRC which were manufactured to the specific designs of well known brands of fashion houses including Calvin Klein, Lacoste, Dolce & Gabanna and others.  

65.  Or also set up Yu Gar Limited a company incorporated in Hong Kong on 22 May 2002.  She and Alice Li were shareholders of Yu Gar Limited which was subsequently dissolved in December 2007.  Alice Li is Li’s sister.

66.  Li first met Or in 2003 through the introduction of his sister Alice.  Urashima said, and I accept, that he was informed by Li that Or, a friend of Li’s sister, was interested in obtaining a sub-licence to sell products under the trademark in the PRC.  That led to the negotiations for the sub-licence between Or and Chow on behalf of Haixin Yu Gar and between Urashima and Li on behalf of GSC and GSM.

67.  Yu Gar Limited was set up, as Or said, and I accept, to introduce another famous brand namely, the Verri Milano brand as a sub-licence to Shanghai Haixin Group Co. Ltd. (“Shanghai Haixin”), a listed company on the Shanghai Stock Exchange.

68.  As Or said, and I accept, it was initially intended that Yu Gar Limited would earn commission by introducing the Verri Milano label to Shanghai Haixin.  As it turned out, however, the negotiations for the sub-licensing of the Verri Milano label in the PRC by Shanghai Haixin did not result in any sub-licence being granted.  The contemporaneous documents, however, do show clearly that Or and Haixin Yu Gar were well aware of the different companies GSM and GSC.

69.  The letter dated 28 August 2003 (Exhibit P6A) from Haixin Yu Gar addressed to GSM for the attention of Li in respect of the Verri Milano brand made it plain that Haixin Yu Gar knew that there were two different companies namely, GSM and GSC, as both companies are mentioned therein.  Although the letter is said to be signed on behalf of Or, she denied knowledge of the letter in evidence.  I do not believe her.  There is no notice disputing the authenticity of this document.  In my view, there is no conceivable reason why someone from Haixin Yu Gar would record on the letter that it was signed on behalf of Or unless that were so and that Or knew about it.  The reply (Exhibit P6B) was from GSM to Or.  In my view, there is also no conceivable reason why she would not have known about this letter at the time.

70.  There is also a dispute of fact as to what transpired during the pre-contractual discussions and negotiations leading up to the signing of the sub-licence.  I have no hesitation in preferring the evidence of Urashima and Li to that of Or on this dispute of fact.

71.  Urashima and Li gave evidence that it was made clear to Or and Chow in the pre-contractual discussions and negotiations that it was GSC that held the master licence from Krizia but that it was the other company GSM that was granting the sub-licence.  I accept their evidence.

72.  During the pre-contractual discussions and negotiations Urashima, Li and the other staff of GSC and GSM had clearly drawn a distinction between the two companies GSC and GSM.  Exhibit P4 shows the name cards provided by Li and Ray Tsang which show clearly that they were representing GSM.  As Urashima said, and I accept, he also provided different name cards for the different companies to Or and Chow.  It is inconceivable in my view that Or and Chow did not know of the two different companies at all material times.  I find that they did.

73.  I would observe also that there is no dispute that during the pre-contractual negotiations, the first page and the last page of the master licence were shown to Or and Chow.  That being so, Or and Chow would have known who the master licensee was.  They would have known that the sub-licence was to be granted by GSM and not by GSC.

74.  Or tried to give the impression in evidence that she was not proficient in English and that when correspondence was received in the English language the contents thereof would be handed either to her secretary or to Chui who would relate the contents to her.  I do not believe Or.  It seems to me to be clear from the evidence of Cosmai and Chui that Or could communicate in English and that she could read English documents.  I prefer their evidence to Or’s evidence on these matters.  Chui said, and I accept, that Or would usually read the English correspondence but for thick documents she would ask him to give her a summary of the same.  Chui also said, and I accept, that Or did not require him to act as her interpreter in meetings where English was spoken as she appeared to understand what was discussed in English.

75.  Quite apart from Or, it is undisputed that Chow had no difficulty with the English language.

76.  Or initially said in cross-examination that the first time that she learnt that it was GSC and not GSM that was the master licensee under the master licence was when she received a copy of Krizia’s letter dated 20 April 2005 (E132).  She later changed her testimony and admitted that by the time of her email dated 23 July 2004 (B485-488) addressed to Urashima she had known that it was GSC and not GSM that was the master licensee.

77.  The said email dated 23 July 2004 shows clearly that not only did Or know about the fact that it was GSC and not GSM that was the master licensee of Krizia under the master licence, Shanghai Haixin had also known this as it was conducting due diligence enquiries before it made its investment into Haixin Yu Gar.  Upon completing its enquires, Shanghai Haixin was obviously satisfied with the existing sub-licence as it did not require any new sub-licence agreement to be entered into directly with GSC.

78.  By letter dated 17 August 2004 from Haixin Yu Gar to GSM (B510) Haixin Yu Gar asked for GSM’s consent to a possible change of shareholders and directors of Haixin Yu Gar.  The letter of consent from GSM was duly provided to Haixin Yu Gar (B512). 

79.  I am satisfied and find that in the pre-contractual negotiations between Urashima, Li, Or and Chow it was made clear to Or and Chow the roles of GSC and GSM.  I find that in fact Or and Chow had known that it was GSC and not GSM that was the master licensee of Krizia under the master licence during the pre-contractual discussions and negotiations with Urashima and Li.

80.  As I have mentioned, there was a period of discord between Krizia and GSC and GSM during the period from about March 2005 to about March 2006.  During this time Maurizio Pasi (“Pasi”) was appointed managing director of Krizia.  He remained managing director until around January 2006.  During the period of discord between Krizia and GSC and GSM, Krizia alleged, wrongly in my view, that GSC had lacked the authority to grant sub-licences.  

81.  By letter dated 1 April 2005 (E125-128) Krizia wrote to GSC alleging inter alia that GSC had wrongly granted sub-licences to Haixin Yu Gar, Staccato and Polywide which had not been approved.  At that time the option had not yet been exercised. 

82.  By letter dated 4 April 2005 (E129-131) GSC denied Krizia’s allegations made in their letter dated 1 April 2005.  

83.  It is not necessary to set out all the evidence dealing with the discord between Krizia and GSC and GSM.  I have no hesitation in accepting the evidence of Urashima, Li and Osti.  The letter dated 20 April 2005 from Krizia addressed “To Whom It May Concern” (E132) in my view correctly confirmed the true situation:

(1) that GSC was the authorized master licensee of the trademark and that as at the date of the letter the master licence had been renewed to 31 December 2006;

(2) that GSC had been authorized to sub-license the trademark to Haixin Yu Gar, Staccato and Polywide; and

(3) that GSM was the authorized agent of GSC to act on its behalf in the sub-licensing business in, inter alia, the PRC.

I so find.  The affidavit evidence of Mandelli, which I also accept, confirmed the same.

84.  Cosmai gave evidence that at a coffee shop in Milan in July 2005 a friend of his introduced him to Pasi.  On his evidence this was a chance meeting.  I do not believe him.  It is clear from the evidence of Chui, which I prefer and accept, that one of the purposes of the trip taken by Cosmai to Milan in July 2005 was to sort out the question of the authority of GSM to grant the sub-licence to Haixin Yu Gar.

85.  It seems clear on the evidence that Pasi and Cosmai were trying to find ways for Krizia to deal directly with Haixin Yu Gar as a sub-licensee and to oust the role of GSC and GSM.  Cosmai frankly admitted in evidence that his and Pasi’s targets were to convince their respective bosses, namely Mandelli and Or, to stop the contract with GSC and GSM and to deal directly with each other.

86.  By letter dated 26 October 2005 from Cosmai to Pasi (translation at C716-719) it was clear that Cosmai set out proposals for the consideration of Krizia to consider granting a direct licence to Haixin Yu Gar.  In a desperate attempt to avoid paying the royalties already due to GSM, Cosmai stated in the letter, inter alia, that

“As you may have understood by now, I have contacted you to inform you that my company requires URGENTLY the possibility of becoming to your direct licensee. The reasons for this urgency are the following:

a) We must pay Grace Silver Marketing at the soonest (the payment term has already expired) US$220,000, to be granted the sub-licence for 2006. Clearly, we do not intend to do so, as we feel they took us for a ride.

b) By 31.10.2005 we need to settle the payment in confirmation of the Shenyang and Hangzhou locations.

c) A meeting of the Board of Directors of my Company is scheduled for 31.10.2005, to discuss the Group’s strategies regarding future investments in the retail sector.

For these reasons, I am in a real hurry to receive your answer, whereby Krizia Spa affirms to have terminated the contract with Grace Silver Hong Kong. If I do not receive it at the soonest, my Board of Directors will resolve to close the B. by Krizia shops, and replace them with another brand. Believe me, Maurizio, I am in contact with several Italian fashion companies, which are ready to down sell their products to become our partners on the Chinese market. On the contrary, I do not wish to lose 14 months of hard, professional work with your brand, which is now starting to pay off.

For these reasons, I am asking for your help.”

87.  As part of the tactics employed by Haixin Yu Gar in an attempt to avoid paying the outstanding royalties already due, Cosmai on behalf of Haixin Yu Gar wrote a letter dated on 21 November 2005 (C729-730) to Pasi asking for Krizia’s assistance.  Haixin Yu Gar was obviously anticipating that GSM would bring proceedings against it.  Cosmai on behalf of Haixin Yu Gar asked Krizia to support it by issuing a letter confirming that GSC would no longer be their licensee as from 1 January 2007 and that they have not authorized GSM to sub-license the trademark. 

88.  By the said letter Haixin Yu Gar stated, inter alia,

“ ……I feel the need to inform you of our concerns regarding the possible conflicts that may arise between our Company and Grace Silver Marketing Limited (“GSM”) and affect the reputation, image, business and goodwill of the Brands of “KRlZIA” and “B. by KRIZIA” in the China market, which are more particularly set out below :-

1.    It is foreseeable that there is a high degree of likelihood that GSM will not accept this proposal, and my Company anticipates that they may take action to terminate the purported contract by serving on us, the management of the shopping malls throughout China, our factories, the Hong Kong’s Customs & Excise Department, China’s Customs & Excise Department, our suppliers and/or customers, a notice of termination of the purported contract;

2.    As a consequence of such anticipated actions by GSM, all our retail businesses in shops across China will have to be closed and terminated over night and all our production and manufacturing processes in our Group’s factories will be put on holt and come to a standstill.  We will no longer be able to transport in and out of China products bearing the Trademark of “B. by KRIZIA” and/or materials and fabrics for the purpose of productions of “B. by KRIZIA”.

3.    Not to mention the adverse and irreversible damaging effect that this may have on the reputation and image of KRIZIA in the China market and on the reputation on goodwill of “B. by KRIZIA” with the shopping malls and the China market as a whole; further also rendering an investments and developments into the marketing campaign of “B. by KRIZIA” in the whole of the China market in vain;

4.    The only way we can get around and resolve the above problem is by issuing in the Hong Kong courts an injunction to prevent GSM from doing such damaging things to the business, goodwill and Trademark of “B. by KRIZIA” and to maintain the status quo until the determination of the litigation process between GSM and our Company;

5.    This is more of a reason why we need to have your continuous support in defending the interests and intellectual property rights of the Trademark of “B. by KRIZIA” by first issuing to us a simple and succinct letter confirming that Grace Silver Company Limited will no longer be your Licensee as from the 1^st January 2007 and that your good Company have not, at all material times, authorized Grace Silver Marketing Limited to “sub-licence” the brand of “B. by KRlZIA” and hence is ultra vires in so doing;

6.    Upon receipt of such letter from your good Company, we shall endeavour to proceed taking relevant steps to try and ensure and/or procure the smooth transition of the handover of licence of “B. by KRIZIA” to cause the least disruption and damage to the business, goodwill and interests and intellectual rights of the Brand “B. by KRlZIA”  ”  

89.  Or gave evidence that she did not know about the said letter (C729-730) being sent out.  I do not believe her.

90.  Cosmai said that Or knew about the said letter as it was discussed but he said that Or did not agree to it being sent out.  He asked her to let him send it out.

91.  Chui made it plain when giving evidence that he did not draft any documents or letters and send it out without Or’s prior knowledge and approval.  Chui confirmed in evidence that he had explained to Or the purpose of the said letter (C729-730).  He emphasised that they always worked together, had discussions and meetings and decided the steps to take.  He confirmed that the sending of the said letter was a collaborative effort on the part of Cosmai, Or and himself.  I believe him.

92.  I prefer Chui’s evidence to that of Or and Cosmai.  It is clear from the evidence of Chui that Or and Cosmai knew of and approved the contents of the said letter (C729-730).  I find that the said letter (C729-730) was sent out to Krizia as a collaborative effort on the part of Cosmai, Or and Chui.

93.  I much prefer the evidence of Urashima, Li and Osti and the affidavit evidence of Mandelli to what is set out in the correspondence sent by Krizia during the period of discord.

94.  On the evidence of Urashima, Osti and Li, which I accept, there is no merit in any of the allegations made by Krizia during the period of discord.  It seems to me, and I so find, that Pasi, who was brought into Krizia by Mandelli to replace Pinto’s son, collaborated with Cosmai in an attempt to terminate the relationship between GSC and GSM with Krizia so that Haixin Yu Gar could avoid paying the royalties to GSM and so that a direct licence could be granted by Krizia to Haixin Yu Gar.  It seems to me, and I so find, that Pasi was trying to extricate Krizia out of the master licence so that they could deal directly with Haixin Yu Gar to earn more money.

95.  The period of discord culminated in the writ issued by Krizia in the Italian proceedings on 7 March 2006.  It is significant that in those proceedings Krizia never asserted that GSC or GSM had no right to grant the sub-licence.  Those proceedings were subsequently settled on 7 March 2007.

96.  I would also observe that it seems to me that neither Or, Chow or Haixin Yu Gar had any concerns about GSM’s right to grant the sub-licence.  It is plain on the evidence that Haixin Yu Gar took the benefit of the sub-licence by opening numerous B. by Krizia shops in the PRC from 2004 to 2006.  

97.  Even after termination of the sub-licence by notice dated 3 March 2006 (D780-781) the evidence shows that B. by Krizia shops were still operating in the PRC in breach of clause 18 of the sub-licence.

98.  Also, the fact that the first two payments of royalties were made by Haixin Yu Gar to GSM shows that there was no concern about GSM’s right to grant the sub-licence.  The first payment of US$60,000 was due under the sub-licence not later than 28 February 2004 and the second payment on or before 1 September 2004.  Those payments were made.

99.  The next payment of royalties was due on or before 30 September 2005 and it was in an effort to avoid making this payment that Haixin Yu Gar tried to get Krizia to collaborate with it to oust GSM and GSC and to get Krizia to collaborate directly with Haixin Yu Gar. 

100.  On the evidence of Urashima, Li and Osti it seems to me, and I so find, that the allegations made by Haixin Yu Gar and Krizia against GSC and GSM during the period of discord were unfounded.

101.  It is clear from the evidence of Cosmai that he was actively pursuing Krizia and that he was encouraged by Pasi and Mandelli to negotiate directly with Krizia for a direct licence from Krizia of the trademark for use in the PRC.  He admitted in evidence that he wanted to start a direct collaboration with Krizia in place of GSC as the master licensee of Krizia.  He frankly admitted that “I wanted to jump Grace Silver”.  No doubt with this in mind he and Or met Mandelli and Pasi.  However, nothing came of their negotiations as events transpired.

102.  As regards issue (1), I find that when the sub-licence was entered into by GSM on 27 January 2004 with Haixin Yu Gar, GSM had the authority to grant the sub-licence.  GSM derived its authority from GSC under the letter of appointment.  GSC was authorized by Krizia to do so as is confirmed in the letter dated 20 April 2005 (E132) and the affidavit evidence of Mandelli.

103.  I find that the granting of the sub-licence through GSM was with the knowledge and consent of Krizia.

104.  I am also satisfied that the master licence was renewed from time to time.  By letter dated 3 October 2001 (Exhibit P5B) in reply to GSC’s letter dated 19 September 2001 (Exhibit P5A) Krizia confirmed to GSC that the master licence was renewed for another 5 years until 31 December 2006.  It was also confirmed that there was to be an option for the renewal of the master licence for a period of 5 additional years with notice to be given 6 months before the termination of the master licence.  The option to renew was, in my judgment, clearly an irrevocable option on the part of GSC to renew the master licence for a further 5 years from 31 December 2006 by giving notice 6 months before the termination.

105.  I am satisfied and find that by letter dated 20 June 2006 (E211) to Krizia, GSC accordingly exercised its option to renew the master licence until 31 December 2011. 

106.  The sub-licence was for a period of 3 years from 15 October 2004 to 14 October 2007 (clause 4.1) with an option to renew for another 3 years subject to conditions.

107.  As regards issue (2), I find that by agreement between Krizia and GSC on or around 3 October 2011 GSC was granted the option to renew the master licence for a period of 5 additional years from 31 December 2006 to be noticed within 6 months from termination of the master licence.  I also find that the option was duly exercised by the letter dated 20 June 2006 (E211).

108.  There is no merit in the submission that at the time of the sub-licence GSM had no right to grant the sub-licence to Haixin Yu Gar for a term of 3 years with an option for another 3 years as the master licence was to expire in December 2006.  There was clearly an irrevocable option to renew granted to GSC under the master licence which when exercised would mean that the master licence would be renewed to 31 December 2011.

109.  As to issue (3), I find that the letter of appointment came into existence shortly before 25 November 2003 and not in February 2005.

110.  I find that by the letter of appointment GSM was granted by GSC the sole and exclusive right as master licensee to distribute, market, advertise, promote, sell, franchise, wholesale and retail the products bearing the trademark in the territory.  I also find

(1) that GSM was granted by GSC the authority to sub-license GSC’s rights under the master licence to third parties, including Haixin Yu Gar subject to the consent of GSC; and

(2) that GSM was appointed by GSC as the authorized agent of GSC in its sub-licence business in Hong Kong and the PRC.

111.  GSC was clearly the disclosed principal of GSM in the granting of the sub-licence to Haixin Yu Gar.  I so find.  As a disclosed principal GSC is entitled to sue on the sub-licence entered into by its authorised agent (paragraph 8-001 Bowstead & Reynolds on Agency 19^th Edn).  The agent GSM is also entitled to sue on the sub-licence.  I am satisfied that GSC and GSM are jointly entitled to bring this claim.

112.  As regards issue (4), I am satisfied that the sub-licence validly granted to Haixin Yu Gar a sub-licence in accordance with the terms of the sub-licence in particular clauses 3, 4 and 17 thereof.

113.  As regards issue (5), I find that the sub-licence was not partly oral and partly written as contended by Haixin Yu Gar and Or.  There is no merit in this assertion and I reject it.  The sub-licence was a written contract containing all the terms and it was not a partly written and partly oral contract.  There were pre-contractual negotiations for the entering into the sub-licence and a draft sub-licence was also provided to Or and Chow as Or admitted in evidence.  The sub-licence dated 27 January 2004 was then entered into and it was a written contract.  I so find.

114.  Clause 4 of the sub-licence made it plain that the sub-licence was to commence from 15 October 2004 until 14 October 2007 i.e. for 3 years with another 3 years renewal option to Haixin Yu Gar which could only be exercised if :

(1) Haixin Yu Gar had punctually paid all the payments due under the sub-licence;

(2) Haixin Yu Gar had complied with all the terms and conditions of the sub-licence; and

(3) the parties had agreed on the new terms and conditions for such renewal period.

115.  I find that the sub-licence did not contain the oral express term in addition to the matters set out in the sub-licence.

116.  As regards issue (6), there is no merit in the assertion that the sub-licence agreement contains the oral conditional term.  As I have found, at all material times during the pre-contractual discussions and negotiations Or and Chow were shown by Urashima the first and last page of the master licence.  I accept Urashima’s and Li’s evidence that the oral conditional term was never agreed.  As I have found, the sub-licence was a written contract and not a partly written and partly oral contract.

117.  The contemporaneous documentary evidence during the pre-contractual negotiations and even after the sub-licence was entered into does not support the assertion that there was the oral conditional term.  

118.  The first written request for the master licence to be produced was only made by Haixin Yu Gar by letter dated 29 November 2005 (E149) more than a year and a half after the signing of the sub-licence.  It was never suggested even then that there was the oral conditional term in the sub-licence.

119.  I would also observe that without production of the master licence Haixin Yu Gar went ahead and opened numerous B. by Krizia shops in the PRC and also paid the first and second payments of royalties under the sub-licence.

120.  I find that the sub-licence did not contain the oral conditional term.

121.  As regards issue (7), as I have found that there was no oral express term and no oral conditional term in the sub-licence I am satisfied that Haixin Yu Gar was neither induced by nor had relied on the oral express term and the oral conditional term in entering into the sub-licence.  I so find.

122.  As regards issue (8), I am also satisfied that the deed was not subject to the condition.

123.  Or gave evidence that it was agreed between Urashima, Li, Chow and herself that the deed to be provided by her and Chow was subject to a condition that once Haixin Yu Gar had completed its corporate restructuring the deed would be cancelled.  She further said that the deed would no longer be required once Shanghai Haixin became involved with Haixin Yu Gar and that both she and Chow would be released from the deed.  This was denied by Urashima and Li.  In cross-examination Or said that her and Chow’s understanding was that the deed was only to be for a short period and that it was pending Shanghai Haixin’s investment in Haixin Yu Gar. 

124.  I much prefer the evidence of Urashima and Li to the evidence of Or.  I believe them and accept their evidence.  I disbelieve Or whose evidence I reject.

125.  I would observe that at the time of the pre-contractual negotiations up to the time when the sub-licence was entered into on 27 January 2004, Shanghai Haixin did not participate at all in the pre-contractual negotiations. 

126.  Li said, and I accept, that Or had told him during the pre-contractual negotiations that perhaps the Shanghai Haixin group would give assistance to Haixin Yu Gar when it would open shops after the sub-licence was entered into.

127.  What is plain is that in the sub-licence there was no mention at all of Shanghai Haixin’s future investment in Haxin Yu Gar.  Clause 21 of the sub-licence made it plain that GSM was given the right to withhold consent to any future change in the shareholding of Haixin Yu Gar.

128.  Chui in evidence said, and I accept, that when he joined Haixin Yu Gar in about May 2004, Shanghai Haixin was not yet in the picture.  Chui accepted in evidence that his first contact with Shanghai Haixin in relation to the sub-licence was when their lawyers started looking at the sub-licence.  That was well after 27 January 2004.

129.  There is also no documentary evidence showing that Shanghai Haixin was involved prior to 27 January 2004 when the sub-licence and the deed were entered into.

130.  It seems from the contemporaneous documentary evidence that the potential investment of the Shanghai Haixin group was first referred to in a letter from Urashima to Or dated 3 June 2004 (E68.1) and in her reply email to him dated 4 June 2004 (E69.1).  I would observe that in Or’s reply email the subject matter of the email was described as “possible cooperation between Haixin & Yu Gar”.

131.  Or’s reply email to Urashima stated

“ Thank you for your fax dated June 3.

If Haixin is interested to procure; the following is likely to happen based on my best estimation:

- Yu Gar will be a subsidiary of Haixin (ie. Haixin will hold more than 51% of Yu Gar)

- Yu Gar as a company will have no change other than having new shareholder namely Haixin

- pending on the cooperative spirit among relevant parties; we anticipate the new set up would kick off within three months

………………………………………………………………………

………………………………………………………………………

………………………………………………………………………

Original contract

> continuation of original contract plus subsequent terms to be discussed for an additional 5 years

> expect existing PG removed

> Haixin as a listed co. is liable to procure all commercial terms agreed in new & existing contract therefore they’ll not further guarantee on personal capacity

>  will arrange the right personnel for you to meet during our Shanghai trip”  [Emphasis added]

132.  It is plain from Or’s reply that even by 4 June 2004 Shanghai Haixin had not committed itself to invest in Haixin Yu Gar.

133.  By her reply (E69.1) Or also expressed her expectation that the “existing PG” be removed.  There was no assertion that the deed was subject to the condition or that there was any right for her and Chow to be released from the deed.

134.  Urashima and Li both gave evidence that during the pre-contractual negotiations for the sub-licence they requested both Or and Chow to give their personal guarantees under the deed as Haixin Yu Gar was not a financially substantial company.  This was readily acceded to by Or and Chow and the deed was entered into.  I so find.

135.  It is inconceivable in my view that at the time of the sub-licence and the deed Urashima and Li would ever have agreed to release Chow and Or from their obligations under the deed in the event that at some future time Shanghai Haixin would make an investment by becoming a shareholder in Haixin Yu Gar.  

136.  The alleged limited duration of the deed, according to Or, could have been two to three months, half a year or even one year. It seems to me that in any event the condition was void for uncertainty.

137.  That Chow was subsequently released from his obligations under the deed is not disputed.  This does not, however, assist Or.  After Shangahi Haixin acquired an interest in Haixin Yu Gar through Shanghai Haixin (Hong Kong) International Investment Company Limited, Or informed Li that Haixin Yu Gar was going to increase its capital and requested Li to release her and Chow from the deed.  By letter dated 25 January 2005 (C541) Li on behalf of GSM wrote to Or asking her to provide more information on

“1. The Updated Company Book of [Haixin Yu Gar] showing the distribution of shares and name of directors.

2. Any document showing [Or] or [Chow] is free from any shares, duty or liabilities of [Haixin Yu Gar]

3. Any suggestion of alternative for replacing the Personal Guarantee”

138.  By letter dated 26 January 2005 (C542) Or stated in response

“ Point 3

We are of the view that no personal guarantee is necessary since (1) the Paid-Up Capital of our Company has been substantially increased unlike the status when the [sub-licence] was first signed; and (2) Shanghai Haixin Group’s capabilities in terms of both financial and man power are beyond doubt. Please let us know if there are any other concerns that you may have.

Kindly consider our application and let us have your patronizing advice thereon at your earliest convenience.”  [Emphasis added]

139.  There is no merit in the assertion the deed was subject to the condition.  This was never asserted by Or or by Chui on her behalf in any of the contemporaneous correspondence or emails to GSC or GSM.  No satisfactory explanation has been given for this.

140.  As to issue (9), it seems to me that clause 3 of the deed is clear.  This provides

“ 3. Indemnity

As original and independent obligations, [Or] and [Chow] shall JOINTLY AND SEVERALLY: -

(i) INDEMNIFY [GSM] and KEEP [GSM] INDEMNFIED against any cost loss damage expense claim and liability of whatever kind resulting from or in connection with the non-payment of Royalties (as defined under the [sub-licence]) or other moneys payable thereunder or the non-performance and non-observance of the Obligations or any of them; and

(ii) PAY to [GSM] ON DEMAND the amount of the cost loss damage expense claim and liability in the preceding paragraph whether or not [GSM] has attempted to enforce any rights against [Haixin Yu Gar] or any other person or otherwise.”

141.  As is stated at paragraph 1-94 of O’Donovan’s and Phillips’ The Modern Law of Guarantee 2^nd English Edition, the fact that the word “indemnity” appears in the deed is indicative of the parties’ intention.

142.  It seems to me, and I so find, that by clause 3 of the deed Or assumed an original and independent obligation as primary obligator for GSM’s loss resulting from or in connection with Haixin Yu Gar’s non-payment of royalties or other moneys payable under the sub-licence or the non-performance and non-observance of the obligations of Haixin Yu Gar under the sub-licence.

143.  By clause 2 of the deed Or also guaranteed the due punctual and diligent performance and observance of all the obligations of Haixin Yu Gar under the sub-licence.    

144.  In view of my findings, GSM and GSC succeed in their claims against Haixin Yu Gar and Or. 

145.  Haixin Yu Gar fails in its counterclaim. That being so, issues (10), (11) and (12) do not arise.

146.  As regards issue (13), in my judgment GSM and GSC are entitled to relief for breach of contract on the part of Haixin Yu Gar.  Their claim is first for the sum of US$125,000 being the outstanding royalties which were payable on or before 30 September 2005 under the sub-licence.  At the date of the termination of the sub-licence on 3 March 2006 by the letter of termination the said sum of US$125,000 had accrued up to the date of termination.  Haixin Yu Gar is liable to pay the same forthwith on termination of the sub-licence (clause 17.3).

147.  As regards the said sum of US$425,000 claimed as loss and damage the said sum is made up of the remaining amounts of guaranteed minimum royalties that Haixin Yu Gar was obliged to pay under the sub-licence during the currency of the sub-licence and if the contract had not been terminated namely

(1) US$125,000 which was payable on or before 30 March 2006;

(2) US$150,000 which was payable on or before 30 September 2006; and

(3) US$150,000 which was payable on or before 30 March 2007.

148.  I am unable to accept the submission of Ms Tam SC, with Ms Ho, that GSM and GSC are entitled to the said sums under (1), (2) and (3) in paragraph 147 above totalling US$425,000 as liquidated damages.

149.  Liquidated damages are damages awarded to a plaintiff the amount of which has been fixed by the parties as a genuine pre-estimate of the plaintiff’s loss in the event of the defendant’s breach or ascertainable by a simple calculation.  A claim for unliquidated damages is not made into a liquidated demand by the plaintiff naming a definite figure (page 574 Hong Kong Legal Dictionary).

150.  What then is the loss and damage to GSM and GSC by reason of the breach of Haixin Yu Gar and the termination of the sub-licence on 3 March 2006?

151.  As Chan PJ said in Chen & Another v Lord Energy Ltd (2002) 5 HKCFAR 29 at paragraph 21

“ Where damages have resulted from a breach of contract (or may fairly and reasonably be considered as arising naturally from the breach), the measure of damages would be such damages as the parties should reasonably have contemplated would flow from the breach. If the damages are within the reasonable contemplation of the parties, such damages would not be considered too remote and are therefore recoverable. What is within the reasonable contemplation of the parties is a question of fact depending on the circumstances of the case and the information available to the parties at the relevant time, usually the time of the contract.”

152.  I would observe that the sub-licence was signed on 27 January 2004 but the commencement of the term was about 9 months later on 15 October 2004.  It seems to me, and I so find, that it was within the parties’ reasonable contemplation at the time of the sub-licence that if the sub-licence were to be terminated prematurely before the end of its term and a sub-licence were to be granted to a new sub-licensee, such new sub-licensee would likewise require about 9 months to set up a retail network in the PRC before commencement of the new sub-licence.  During that time the loss and damage suffered by GSC and GSM would be the loss of the guaranteed minimum royalties for that period which would, in my view, be recoverable.  As the sub-licence was terminated on 3 March 2006 the 9 months’ period for the new sub-licence to commence would be not before December 2006.

153.  In my judgment, GSC and GSM are entitled to recover the amounts under (1) and (2) in paragraph 147 above in the total sum of US$275,000.

154.  As regards the remaining amount under (3) in paragraph 147 above in the sum of US$150,000, this was the amount which was payable on or before 30 March 2007 under the sub-licence.  It seems to me that GSM and GSC are not entitled to claim this sum.  It is clear on the evidence of Urashima and Mandelli that although the master licence was renewed until 31 December 2011, it was subsequently agreed between Krizia and GSC by a deed of settlement on 7 March 2007 that GSC would renounce enforcing the option to renew which had been exercised on 20 June 2006.  As a consequence, the master licence was, for the purposes of settlement between Krizia and GSC, deemed to have ended on 31 December 2006.  That being so, I am unable to see how it can be said that after 31 December 2006 GSM or GSC had suffered any further loss as a result of Haixin Yu Gar’s breach of the sub-licence.  As it was deemed by agreement between Krizia and GSC that the master licence ended on 31 December 2006, it seems to me that after that date there was no right to grant any further sub-licence for the trademark to any new sub-licensee.  In the circumstances I see no valid basis for awarding the amount under (3) in paragraph 147 above in the sum of US$150,000

155.  I give judgment to GSM and GSC jointly against Haixin Yu Gar and Or jointly and severally for :

(1) the sum of US$125,000;

(2) the sum of US$275,000;

(3) interest on the said sum of US$125,000 from 30 September 2005 until judgment at 1% above HSBC’s best lending rate and thereafter at judgment rate until payment;

(4) interest on the said sum of US$275,000 from 22 December 2006 (date of the writ in High Court Action No. 2833 of 2006) until judgment at 1% above HSBC’s best lending rate and thereafter at judgment rate until payment.

156.  I dismiss the counterclaim of Haixin Yu Gar.

157.  I also make an order nisi

(1) that Haixin Yu Gar and Or do jointly and severally pay GSM and GSC jointly their costs of the actions to be taxed if not agreed;

(2) that Haixin Yu Gar does pay GSM and GSC jointly their costs of the counterclaim to be taxed if not agreed.