LAU WING MOU v. LO KONG AND ANOTHER

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HEADNOTE

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Courts Practice & Procedure - injunction - principles for granting a mandatory injunction at the interlocutory stage - decision of Hoffmann J. in Films Rover Ltd. v. Cannon Film Sales Ltd. [1987] 1 W.L.R. 670 applied in granting relief in "exceptional" cases even when the "high degree of assurance" is lacking (per Megarry J. in Shepherd Homes Ltd. v. Sandham [1971] 1 Ch 340) - particular relevance where a prohibitory injunction affords no protection pending suit.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff is suing the defendants for infringement of copyright in design drawings and specifications and for passing off their goods and business as those of the plaintiff. At the present hearing the plaintiff seeks interlocutory injunctions for protection of its rights pending trial.

2. The plaintiff has operated for a number of years in Hung Hom as a seller and dealer in leaves, ginseng and dried seafood. In 1989 it pleads that the interior layout, furniture and fittings, decor and signboard of the Hung Hom shop were re-constructed according to certain conceptual designs. These designs were produced by one Lee Kwok Chu, a well-known "fung shui" expert, whom the plaintiff commissioned to do so. The property in the designs was then assigned by Mr Lee to the plaintiff in June 1989. For the purpose of these proceedings, none of this is contested .

3. It is also undisputed that in June 1990 the plaintiff opened another shop in Tsuen Wan based on the said designs, and that the 1st defendant was employed in that shop and the Hung Hom shop successively from June 1990 to June 1991.

4. The plaintiff pleads that the defendants have now opened a shop in Hung Hom, very close to its own, with similar design, similar fixtures and fittings, and trading in similar goad. This is said to infringe the plaintiff's copyright in the design drawings used for its own shops.

5. The plaintiff also pleads the use by the defendants in the course of their business of decorated red transparent plastic containers similar in style o those used by the plaintiff. This, coupled with the similar decor and layout of the defendants' shop, is said to be calculated to lead to confusion in public perception between the respective goods and businesses of the plaintiff and the defendants.

6. There are therefore two causes of action, breach of copyright and passing-off, for which the plaintiff seeks both damages and injunctions.

7. The summons seeking interlocutory relief was issued on 1st August 1991, shortly after the plaintiff claimed to have become aware of the defendants' shop. This summons, and a subsequent amendment of 9th August which was not formally filed, sought injunctive relief on a prohibitory basis only. However, the re-amended summons now before me, which was filed on 5th September 1991, seeks both mandatory and prohibitory injunctions.

8. The mandatory relief sought in the summons comprises the demolition of the existing decoration of the defendants' shop. However, at the hearing the plaintiff suggested that this relief be limited to altering the predominant red colour of the signboard and the terraced display counters, and to altering the terraced and open effect of the counters themselves. It is these factors which apparently most resemble the decor of the plaintiff's Hung Hom shop and which hence most offend the plaintiff.

9. In addition to the mandatory relief, the plaintiff also seeks two orders restraining both the infringement of the design drawings and the use of similar packaging to that of the plaintiff.

10. For the principles applicable to prohibitory injunctive relief at the interlocutory stage, I turn to the analysis of Lord Diplock in American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396. These have been summarised as:-

11. Whilst mandatory injunctions have long been accepted as available on interlocutory application, they have met greater resistance than prohibitory injunctions. The good practical reasons for this were discussed by Megarry J. in Shepherd homes Ltd. v. Sandham [1971] 1 Ch 340 at page 348:-

"By granting a prohibitory injunction the court does no more than prevent for the future the continuance or repetition of the conduct of which the plaintiff complains. The injunction does not attempt to deal with what has happened in the past; that is left for the trial, to be dealt with by damages or otherwise. On the other hand a mandatory injunction tends at least in part to look to the past, in that it is often a means of undoing what has been done, so far as that is possible. Furthermore, whereas a prohibitory injunction merely requires abstention from acting, a mandatory injunction requires the taking of positive steps and may require the dismantling or destruction of something already erected or constructed. This will result in a consequent waste of time, money and materials if it is ultimately established that the defendant is entitled to retain the erection."

The learned Judge went on to point out that :-

"....if a mandatory injunction is granted on motion, there will normally be no question of granting a further mandatory injunction at the trial; what is done is done and the plaintiff has on motion obtained, once and for all, the demolition or destruction that he seeks. Where the injunction is prohibitory, however, there will often still be a question at the trial whether the injunction should be dissolved or continued; except in relation to transient events, there will usually be no question of the plaintiff having obtained on motion all that he seeks."

12. I have quoted these passages at length as they contain much that is apposite to the present case. The mandatory relief is by far the most significant of the three orders sought by the plaintiff. It requires, even in its limited form now proposed, the demolition of important parts of the defendants' premises, with unavoidable expenditure and disruption to business meanwhile. It is a drastic remedy, and the principles on which it is to be applied have provoked a difference of opinion between counsel for the two parties.

13. Megarry J.'s decision in Shepherd preceeded American Cyanamid, a factor which has led Mr Pow for the plaintiff to argue that the earlier decision has lost some force. Mr Chow on the other hand argues that the American Cyanamid decision has not at all had that effect and cites the final paragraph of commentary 29/1/5 to Volume 1 of the Supreme Court Practice-

"The Cyanamid guidelines are not relevant to mandatory injunctions. The case has to be unusually strong and clear before a mandatory injunction will be granted at the interlocutory stage even if it is sought in order to enforce a contractual obligation."

The necessary inference is that this principle will be all the stronger when the remedy sought is based on an action in tort.

14. Mr Chow finds material support for his view in the judgment of Mustill L.J. in Locabail International Finance Ltd. v. Agroexport [1986] 1 W.L.R. 657 at page 664-

"It was pointed out in argument that the judgment of Megarry J. antedates the comprehensive view of the law as to injunctions .... in American Cyanamid .... but to my mind at least, the statement of principle by Megarry J. in relation to the very special case of the mandatory injunction is not affected by what the House of Lords said in the Cyanamid case. The matter before the Court is not only an application for a mandatory injunction, but is an application for a mandatory injunction which, if granted, would amount to the grant of a major part of the relief claimed in the action. Such an application should be approached with caution and the relief granted only in a clear case."

15. This would seem to end the matter, however shortly thereafter in a judgment, if I may say so, of great perception Hoffmann J. distinguished the earlier cases in introducing a more flexible approach. The case is Films Rover Ltd. v. Cannon Film Sales Ltd. [1987] 1 W.L.R. 670 and it warrants careful consideration.

16. Hoffmann J. was there also considering an application for an interlocutory mandatory injunction, which arose in that case out of a contractual obligation. In noting the view of Mustill L.J. that Megarry J's decision in Shepherd was unaffected by American Cyanamid, he nontheless drew a distinction between statements of principle and mere guidelines, He agreed that there was no inconsistency between the two cases, but found that Megarry J. intended his approach to provide guidelines only.

17. Megarry J's test obliged the court considering an interlocutory mandatory injunction to feel "a high degree of assurance" that at the trial the injunction would prove to be rightly granted. The standard here is higher than that required for a prohibitory injunction.

18. However Hoffmann J. decided in Rover Films that the "high degree of assurance" was a guidline in "a normal case" - using the words with which Megarry J. prefaced his formulation. There were moreover "exceptional" cases to which the guideline did not apply. He pointed out that the court’s dilemma in an interlocutory situation was that any injunction, prohibitory or mandatory, risked, in the outcome of the trial, being wrong. He went on to say -

"A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been "wrong" in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunction are derived from this principle."

19. The learned judge than reconciled his approach with that of Megarry J. He pointed out that the features of a mandatory injunction would, at the interlocutory stage, usually carry a greater risk of injustice in its granting rather than in its withholding. By this he was no doubt referring to positive acts, such as demolition, which would often accompany a mandatory injunction, as opposed to the mere passive restraint of its prohibitory counterpart. To overcome this greater degree of risk, Hoffmann J. said the court should have to feel Magarry J.'s "high degree of assurance" of the plaintiff's likely success at the trial, unless the case was within his own "exceptional" category.

20. Where Hoffmann J. appears to have taken the formulation further is in defining his "exceptional" category and in eschewing the "barren ... semantic arguments" over classifying injunctions as mandatory or prohibitory. He said that the question of substance was whether the granting of the injunction would carry that higher risk of injustice normally associated with the grant of a mandatory injunction. He continued -

"If it appears to the court that, exceptionally, the case is one in which withholding a mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel "a high degree of assurance" about the plaintiff's chances of establishing his right, there cannot be any rational basis for withholding the injunction."

21. With respect, this emphasis on the balance of the risk of injustice must be the correct approach. The presence or absence of the "high degree of assurance'' is merely a factor in the "exceptional" case in deciding which way the balance should tilt. Nor is this inconsistent with the American Cyanamid approach as Lord Diplock's formulation did not differentiate between prohibitory and mandatory injunctions and the case itself concerned only the former.

22. I have sought to analyse the approach at some length as I wish to make clear the basis on which I rest my decision on the application for mandatory relief. I shall relate this later to the various factors emerging from the particular facts of the case .

23. In considering the claims for both breach of copyright and passing-off I have been directed in particular to the plans and photographs of the respective premises appearing as annexures to Lau King-fai's first affirmation. The final draft of the design drawings is at annexure L.2 and the interior layout and photographs of the plaintiff's premises at L.3 and L.4. The defendants' premises are shown in plan and its shelves in cross-section at L.6, with photographs of the premises at L.7.

24. The approach to be adopted in copyright actions was summarised by Lord Wilberforce in L.B. Plastics Ltd. v. Swish Products Ltd. [1979] RPC 551 at page 619 :-

"There can be no copyright in a mere idea, so if all that the respondents had done was to take ... the appellants' .... idea, or any other idea implicit in their work, the appellants could not complain. Nor is there infringement, if a person arrives by independent work at a substantially similar result to that sought to be protected. The protection given by the law of copyright is against copying, the basis of the protection being that one man must not be permitted to appropriate the result of another's labour. That copying has taken place is for the plaintiff to establish and prove as a fact. The beginning of the necessary proof normally lies in the establishment of similarity combined with proof of access to the plaintiff's productions."

These comments were of course made in the context of deciding the final issue on appeal. The test at the interlocutory stage, at least for prohibitory relief, is merely that of establishing a serious issue for trial. To that extent, Lord Wilberforce's observation is particularly apposite when he says that "the beginning of the necessary proof" is normally found in "similarity combined with proof of access."

25. The 1st defendant was employed by the plaintiff for some months in the Hung Hom shop, during which he undoubtedly had access to the physical representation of the design drawings. Moreover there is evidence that the 1st defendant and two other persons visited the Hung Hom shop in early June and without permission took measurements and made notes. This appears from the affirmation of Chan Kam Kee, a salesman in the plaintiff's employ, who had known the 1st defendant as a colleague in the Hung Hom shop for the previous 6 months. This evidence is disputed by the 1st defendant, but it nontheless raises an issue.

26. The 1st defendant's access to the plaintiff's premises is therefore established as a certainty by his recent employment with the plaintiff. It is taken further and given greater significance by the disputed evidence of the measuring exercise in early June. Should the plaintiff establish an issue on the question of similarity, the serious issue for trial would appear to be established as to copyright, assuming the design drawings are protected property. It would also be a major step in establishing an issue as to passing-off.

27. It is not disputed by the defendants that the design drawings are artistic works, they are therefore capable of attracting the protection sought by the plaintiff. The defendants however deny that the plaintiff has established even an arguable case of breach of copyright.

28. Section 3(5) of the 1956 Copyright Act (which applies to Hong Kong) protects an artistic work by, inter alia, restricting the reproduction of the work "in any material form". Section 9(8) of the Act deals with the reproduction into 3-dimensional form of 2-dimensional drawings, as is evidently the case here. Whilst conferring the protection of the Act in such circumstances, the subsection does however restrict the protection to 3-dimensional reproductions which can be perceived by a non-expert to resemble the original. Expert evidence is therefore irrelevant in applying this test.

29. This subsection is relied on by the defendants and is pleaded at paragraph 16 of the defence. It is important to realise however that the subsection is of little value at the interlocutory stage. Firstly, the subsection is a defence and must be pleaded and proved by the defendants. It therefore only arises on the establishment by the plaintiff of what would otherwise be an infringement. The subsection is therefore virtually useless when the question to be decided is whether or not there is an issue for trial. If the defence calls in aid subsection 9(8), there inevitably will be an issue for trial. Secondly, the non-expert who decides the issue on the appearance of the reproduction will anyway be the judge, who will apply the same principles of common sense as he would without the subsection. He is merely deprived of the use of expert evidence.

30. I emphasise that it is not my function at this stage to decide complicated matters of law and resolve conflicts on the affidavits. I have to be satisfied that the plaintiff has an issue which is suitable for trial. The plaintiff must show an arguable case that the defendants have substantially reproduced the protected drawings in whole or in part. Moreover, in considering the defendants' 3-dimensional reproduction, the comparison should be with the original design drawings and not with the plaintiff's own shop.

31. Mr Pow for the plaintiff has drawn my attention to nine points of similarity between the defendants' shop and the Hung Hom shop of the plaintiff. I will restrict these similarities to five which are significant enough for consideration and relate them to the plaintiff's design drawings. The similarities are -

32. Mr Chow for the defendants has attacked these similarities in considerable depth and detail and has shown a number of differences between the defendants' shop and the proposals in the drawings. He has also correctly emphasised that it is the drawings that are protected and not the idea. Thus the idea of a large red signboard with gold lettering is not protected, it is the outward expression of that concept as originally expressed in the protected drawings. Again, if the 1st defendant has reached a similar conclusion to the plaintiff in terms of outward expression merely from observation of an idea, but with his own independent creative effort, that would not be a breach of copyright. In this regard the 1st defendant says at paragraph 10 of his first affirmation that -

"The interior layout and decoration of the (defendants') shop was worked out by consultation between myself and the decorator called Wong Yui Wing. Some of our ideas naturally came from our day to day experience of the usual manner in which such shops are being decorated."

This reflects the principle that there is no property in an idea, however it is noteworthy that the decorator himself has not given evidence.

33. In comparing the plaintiff's design drawings at exhibit L.2 with the photographs and plan of the defendants' premises at L.7 and L.6 I conclude that there is a marked similarity overall. It is the overall similarity which is the important factor and in this regard I particularly note the terraced display counters, which the defence has not adequately dealt with.

34. Once the similarity is established and is combined with the 1st defendant's proof of access, it is incumbent on the defence adequately to explain how the similarity arose independently of the plaintiff's drawings. The defendants may be able to explain this at the trial, but the explanation so far given is insufficient.

35. I therefore find that the plaintiff has made out a serious issue to be tried and the question of the prohibitory injunction falls to be resolved on the balance of convenience. The injunction sought is the second in the re-amended summons and it has no bearing on the status quo at the defendants' existing shop. Its effect would be confined to preventing the defendants from copying the plaintiff's designs in the future. For that reason the balance of convenience is very much in favour of granting the injunction and I make the order in the terms sought. I shall consider the mandatory injunction later.

36. The basis of the passing-off action is the substantial similarity in design and decoration of the two shops, coupled with the similarity of the goods sold and the wrappings used for customers. The reputation of the plaintiff's business is also relied on and it is not disputed that the Hung Hom shop has attracted a considerable clientele, nor that the goods traded in the two shops are substantially similar. The likelihood of confusion in the minds of members of the public between the two businesses is the wrong for which the plaintiff seeks redress. In proving its case, the plaintiff does not have to show that the defendants' business is thought by the public to be the plaintiff's. It is sufficient if the plaintiff can show an overall impression that the defendants' business is related to the plaintiff's business, and thereby a likely poaching of goodwill by the defendants.

37. The passing-off action on its own relates, for the purposes of this hearing, only to the third item of relief sought, namely the restraint on the use of the similar wrappings. The similar decor of the two premises is adduced with these wrappings to show a possibility of confusion in the mind of the typical Hung Hom shopper.

38. That there is a marked similarity between the wrappings, or boxes, in terms of size, colour and design is readily apparent. The defence however has shown that such designs are of common usage and has produced samples from other retailers to illustrate its argument. The red colour and the size and shape of the boxes I accept to be of frequent use. The theme of a ribbon design with a bow in the corner is also common to all those produced, although not in identical terms. I conclude therefore that in the boxes themselves there is no particular goodwill requiring protection and hence no confusion in public perception. The confusion may arise only when the boxes are taken together with the decor of the shop.

39. At this stage I will digress to consider the mandatory injunction, as the outcome of the relief claimed in the issue of the boxes will be affected by this larger issue.

40. The plaintiff has established, on my finding, a serious issue for trial on the breach of copyright claim. Whilst the American Cyanamid principles do not expressly apply to interlocutory mandatory injunctions, it would hardly be possible to consider mandatory relief if the "serious issue" threshold had not been passed. The next stage, on Hoffmann J's analysis, is to consider whether the case is "exceptional", or merely "normal", when the Megarry guidelines of a "high degree of assurance" of eventual success will be required.

41. The argument for the plaintiff is the continuing damage to its business by what it claims to be the defendants' unlawful use of its protected designs. This will, it argues, produce unquantifiable damages as some loss of turnover could be ascribed to the legitimate competition of the defendants’ shop even if designed on a totally dissimilar basis. What the plaintiff seeks is to limit its lost turnover to that emanating from fair competition and to exclude what arises from breach of copyright and/or passing-off.

42. The defendants' argument against a mandatory injunction at this stage is that it is a drastic remedy, expensive to the defendant, and moreover pre-supposes the major part of the relief sought at the trial.

43. In deciding whether or not the plaintiff's position should be protected by a mandatory injunction, I derive the basis for the exercise of discretion from Hoffmann J. in Rover Films. In assessing the balance of the risk of injustice he appears to have relied on four factors. These are -

I shall deal with these factors individually, noting that they would apply only if the facts of the case could also place it within the "exceptional" category.

44. The ease of formulating the order in enforceable form depends very much on the court. I am not bound by the terms of the order sought, even in its limited form, and the order should be in the minimum terms consistent with the plaintiff's protection.

45. The loss to the defendant may again be kept to a minimum by the nature of the order. The main source of loss would not be the cost of the decoration itself, but the disruption to trade caused by the necessary work. If the redecoration is kept to the minimum consistent with the plaintiff's protection, the effect on the business could be small and easily compensated by the cross-undertaking.

46. I am satisfied that the plaintiff would suffer an unquantifiable loss in the event of its eventual success. This is not only because of the difficulty of distinguishing recoverable loss from loss from fair competition, but also because the loss is presently open-ended. The pleadings have only just been closed and the case is unlikely to be heard before the end of 1992, possibly later.

47. The final factor according to Hoffmann J. is that of the status quo; the impetus necessarily being to preserve rather than otherwise. In this I find the advantage to be with the plaintiff insofar as its business had been trading for sometime prior to the opening of the defendants' shop. The status quo of the defendants relates to a mere two months prior to the amendment of the plaintiff's summons to include mandatory relief.

48. The balance of the risk of injustice is therefore very much in the plaintiff's favour. There is however a further factor material to the "exceptional" nature of the case to be found in the nature of the prohibitory relief already granted. This relief, expressed at paragraph 2 of the amended summons, is very nearly useless to the plaintiff. It would presumably protect him from any attempt by the defendants to open another similar shop, but as to the defendants' present shop it affords no protection whatsoever. This is an unusual situation which I find brings the plaintiff within Hoffmann J.'s "exceptional" category even without the "high degree of assurance" formulated by Megarry J. in Shepherd. I find that it calls for mandatory relief in the plaintiff's favour even at the interlocutory stage. This should however be so framed as to minimise expense and disruption to the defendants' business.

49. It is the red signboard and the predominant red colour in the defendants' fixtures which I find to be fundamental to the possible infringement of the plaintiff`s rights. This is the case whether the copyright or the passing-off action is considered, as I also find sufficient similarity to warrant relief on the latter basis, granted the plaintiff's established business reputation.

50. The plaintiff has offered a limited mandatory injunction embracing the signboard, the red fittings and the terraced open display drawers. The last named could however only be altered at greater expense and disruption to the plaintiff's business than I consider to be justified. There will therefore be a mandatory injunction directed to the defendants in the following terms-

"That the defendants do so alter the existing decoration of shop 99K(1), Ground Floor, Dock Street, Whampoa Estate, Hunghom, Kowloon, as to eliminate the red colour of the signboard and of the plastic fittings of the display drawers in the said shop."

51. I have yet to make an order as to paragraph 3 of the amended summons, concerning the plastic wrappings. Insofar as these may have infringed the plaintiff's rights, this can only be in conjunction with the similarity of the decor of the two businesses. The mandatory injunction will serve to remove any connection between the decor and the plastic wrappings and the latter do not warrant protection on their own. In the event paragraph 3 of the summons is dismissed.

52. I have already granted prohibitory relief in the terms sought at paragraph 2 of the summons. In respect of that and the mandatory relief now granted, there will of course be the usual cross-undertakings from the plaintiff. As the plaintiff has been substantially successful, there will be an order for costs in its favour.