TONG WAI MAN AND OTHERS t./a ISLAM FOOD 清真牛肉館 v. TAM LUN SANG t/a 北京清真牛肉館

HCA 1597/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1597 OF 2010

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ASSESSMENT OF DAMAGES

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BACKGROUND

1.  In this action, the plaintiff sues the defendant for passing-off and infringement of trade mark and copyright.

2.  Interlocutory Judgment was entered against the defendant on 30 June 2011 upon his failure to give notice of intention to defend.

3.  This hearing was held for the purpose of assessing the amount of damages to which the plaintiff is entitled by reason of the defendant’s infringement activities.  The defendant was again absent in the hearing.

THE ADMITTED FACTS

4.  As the defendant has failed to give notice of intention to defend, the following matters pleaded in the Statement of Claim (endorsed on the Writ) are taken as admitted (Cribb v Freyberger [1919] W.N. 22).

5.  The plaintiff’s business known as清真牛肉館 (“the Plaintiff’s Business”) was founded in 1950.  It has two shops in Kowloon City.  Its signature dish – “beef bun” – is very popular in Hong Kong.

6.  At all material times, Tong Wai Man, Mak Chi Ming, Chui Kai and Ma Yee Hung were and are the partners of the Plaintiff’s Business.  They have caused  (“Islam cuisine” in Arabic characters and “Islam beef shop” in Chinese characters and “Islam food” in English) to be registered as a trade mark (“the Plaintiff’s Mark”) in respect of “services for providing food and drink; restaurant services, catering services, preparation and provision of meals, food and beverages for dine-in; dining services” in Hong Kong.

7.  After all these years, substantial reputation and exclusive and valuable goodwill have accrued to the Plaintiff’s Business.

8.  The plaintiff has designed a menu (“the Plaintiff’s Menu”) in which special names have been created for different dishes that are arranged in a particular order.  Dishes have also been grouped into different set meals.  The Plaintiff’s Menu includes literary and graphic works within the meaning of the Copyright Ordinance and the plaintiff is the owner of the copyright of the said menu.

9.  The defendant was an employee who worked for the plaintiff from 1993 to 2006.  On 30 May 2010, he commenced his own business in Hung Hom under the name of 北京清真牛肉館 (“the Defendant’s Mark”) without licence or consent of the plaintiff to use the Plaintiff’s Mark.  By doing so, he has infringed the plaintiff’s exclusive right to use the Plaintiff’s Mark because the Defendant’s Mark is similar to the Plaintiff’s Mark in relation to the goods or services which are identical to those for which the Plaintiff’s Mark is registered.

10.  The defendant’s use of the Defendant’s Mark was calculated to deceive or confuse the public into the mistaken belief that the defendant was in some way associated with the plaintiff and that the defendant’s business, services and goods were the business, services and goods of, or were otherwise associated with or licenced or authorised by, the plaintiff.

11.  The defendant had also infringed the plaintiff’s copyright of the Plaintiff’s Menu by, without licence or consent of the plaintiff, copying the Plaintiff’s Menu and reproducing a menu which was substantially identical to the Plaintiff’s Menu.

THE PLAINTIFF’S CLAIM

12.  In his written Opening Submissions, Mr Yu who acted for the plaintiff asked for the following heads of damages:

(1)   Damages for loss of goodwill and reputation;

(2)   Loss of profit;

(3)   Alternative to item (2) above, loss of royalty.

13.  However, having taken further instructions, Mr Yu informed this court during his oral Opening Submissions that he would not ask for loss of royalty.  Therefore, I am only required to deal with items (1) and (2) above.

14.  There is no doubt that items (1) and (2) are heads of damages theoretically available to the plaintiff.  Paragraph 40-019 of McGregor on Damages (18^th edition, 2009) reads:

“The principal head of damage is the loss of business profits caused by the diversion of the claimant’s customers to the defendant as a result of the defendant’s misrepresentation; beyond this, damages may be awarded for any loss of business goodwill and reputation resulting from the passing off…”

15.  The questions are whether the plaintiff is able to prove these losses; if so, what should the quantum be.

Loss of profit

16.  The plaintiff’s claim for loss of profit may be disposed of quickly.

17.  At the hearing, by reference to various audited accounts of the plaintiff, Mr Yu pointed out that:

(1)   in 2007, the turnover of the Plaintiff’s Business had increased for 26.43% when compared with the corresponding figure in 2006;

(2)   in 2008, there was a further increase of 21.68% in the turnover of the Plaintiff’s Business;

(3)   in 2009, the turnover was more or less the same as the previous year, with a very slight increase of 0.28%;

(4)   in 2010, the turnover dropped slightly by 0.65%;

(5)   in 2011, the turnover rose again, this time by 8.66%.

18.  By relying on the above, Mr Yu submitted that since there was a noticeable increase of income in the Plaintiff’s Business upon the defendant’s cessation of infringement activities in mid-2011, it could be deduced that the Plaintiff’s Business had suffered loss of profit by reason of the defendant’s running of his business.

19.  Mr Yu suggested that the court should take the average of the plaintiff’s income earned in 2009 and 2011 respectively as the income that the plaintiff would have earned but for the loss caused by the diversion of the plaintiff’s customers to the defendant.  He further submitted that the difference between the said average and the actual amount of turnover in 2010 would be the loss of the plaintiff in income by reason of the defendant’s infringement.  By applying an appropriate profit ratio (he suggested 15.72% as this was the average of 2009 and 2011), it was said that the loss of profit could be arrived at.

20.  I have great difficulty in accepting Mr Yu’s argument.

21.  In order to claim damages under this head, the plaintiff has to prove that there was a drop in its profit and such a drop must be caused by the diversion of the plaintiff’s customers to the defendant (see paragraph 14 above).

22.  The plaintiff has not even passed the first hurdle.  Here, the plaintiff’s case is that the defendant’s infringement activities started in May 2010 but not earlier (see paragraph 9 above). However, it is evident that while there were substantial increases in the turnover in 2007 and 2008, the plaintiff’s turnover in 2009 was more or less the same as that in 2008.  In other words, the “rising trend” had already come to a halt before the defendant started his own business in Hung Hom.  Thus it cannot be said that the defendant’s commencement of his own business had led to a drop in the plaintiff’s turnover.

23.  This conclusion is also supported by the fact that the turnover of the Plaintiff’s Business in 2010 only dropped by 0.65% (less than HK$80,000) when compared to the corresponding figure in 2009.  The reduction was so minimal that, in my view, could not be regarded as anything other than a normal fluctuation in the Plaintiff’s Business.

24.  In any event, in my judgment, even if the figures could demonstrate that there was a drop in the turnover of the Plaintiff’s Business in the period between May 2010 and March 2011 (the period in respect of which the plaintiff alleged that the defendant was running his business), the plaintiff has failed to prove that such a drop was caused by the diversion of the plaintiff’s customers to the defendant, especially when the Plaintiff’s Business and the defendant’s shop are located in two totally different districts.

25.  The plaintiff’s claim for loss of profit is therefore rejected.

Loss of goodwill and reputation

26.  There are only a few authorities which may shed light on how the loss of goodwill and reputation in a passing-off case may be assessed.

27.  The most often cited case is Tam Wing Lun Alan & Others v Tam Kwok Hung trading as Hang Mei Record Co & Another [1991] 2 HKC 384, which is a judgment of Master P Chan (as his Lordship then was).  In this case, the applicable principles have been summarised as follows:

(1)   The basis of a passing-off claim is that the defendant has sold or put on the market goods which are calculated to deceive or mislead the public.  The wrong lies in the defendant’s get-up and description of his goods which constitutes a false representation to the public and this is sufficient to find a claim in passing-off.  It is not necessary for the plaintiff to show that the public had actually been deceived or misled (at 388C);

(2)   It is unnecessary for the plaintiff to prove that his reputation or goodwill has been damaged because this is presumed as a matter of law (at 388E);

(3)   If a plaintiff can prove that there is a drop in the sales of his goods because of a defendant’s passing-off, this may be evidence of the effect of the passing-off on his goodwill or reputation.  However, failure on the part of the plaintiff to prove a drop in sales is not fatal (at 389A – B);

(4)   In considering the quantum to be awarded, the court must take all the circumstances of the case into account and try its best to arrive at a fair and temperate sum for the injury (at 391C);

(5)   The court is entitled to take into consideration the following circumstances: the plaintiff’s reputation and goodwill; the conduct of the defendant (for example, whether the passing-off is fraudulent or deliberate); the circulation of the passing-off items or goods; the publicity given by the defendant to his items or goods; the fact that the defendant has made a gain out of the passing-off; and the effect on the plaintiff or loss to him (at 391C – E).

28.  In Tam Wing Lun Alan (supra), having considered that the defendants’ passing-off was deliberate, the first plaintiff’s high reputation and widespread popularity in the local popular song market, the fact that there was no evidence that the defendants had made a huge profit or that the plaintiffs had suffered a substantial loss of profit, the sum of $125,000 was considered to be a fair and temperate sum to compensate the plaintiffs for the injury to their reputation and goodwill.  Mr Yu, with the assistance of statistics obtained from the Census Department, submitted that the inflation rate since 1991 up to 2012 is about 68%, and that the sum of $125,000 should be equivalent to around $210,000 in 2012.

29.  In One Price Trading Co Ltd v Leung Chui Mui trading as Jade Fountain Trading Co (HCA 2327/1997, unreported, 1 June 2000), the plaintiff was a leather goods manufacturer.  The defendant was initially a customer of the plaintiff, purchasing goods which worth more than HK$9 million each year.  However, the defendant subsequently engaged in acts of infringement of the plaintiff’s goods, and as a result the sales by the plaintiff to the defendant dropped substantially.  Within around 3 to 4 years, the sales to the defendant ceased altogether.  Having taken into account the finding that the passing-off was deliberate, that the defendant set up her own supply of leather goods after she had built up a market for goods bearing the plaintiff’s trade mark, that the goods manufactured by the defendant were of inferior quality and the negative impact on the plaintiff, Master B Kwan found that a figure representing one to two percent of the plaintiff’s turnover at the time the defendant ceased buying from the plaintiff to be a fair and temperate sum for the injury.  She considered one or two percent of the plaintiff’s turnover to be a “very modest figure” in the circumstances.

30.  In P C International Marketing Limited v Best Power Enterprises Limited (HCA 159/2002, unreported, 15 April 2004), the defendant displayed 16 sample clocks bearing trade marks owned by the plaintiff at a trade fair in a not very conspicuous booth and distributed 20 odd leaflets which showed samples of clocks bearing such marks.  It was accepted that the defendant’s infringement was not fraudulent or deliberate although it was guilty of considerable carelessness in failing to confirm whether the third party, which purportedly granted it a licence in respect of the plaintiff’s trade marks, had the authority to do so.  As the defendant had not yet put any infringing goods in circulation nor made any gain, a sum of HK$50,000 was awarded as damages for loss of business reputation and goodwill.  On appeal, this sum was affirmed to be adequate in compensating the plaintiff in the circumstances of the case (see [2005] 2 HKC 242 at 247F).

31.  The cases referred to above may provide some useful guidance as to how the court should arrive at an appropriate figure for the said loss.  However, at the end of the day, each case must be decided on its own facts.

32.  Adopting the criteria set out in Tam Wing Lun Alan (supra), the following matters in the present case are relevant and should be taken into account for the purpose of assessing the loss of goodwill and reputation:

(1) The reputation and goodwill attached to the Plaintiff’s Mark and of the Plaintiff’s Business is substantial.  This is supported by:

(a) the large number of press clippings produced by the plaintiff;

(b) the number of awards won by the plaintiff prior to the infringement activities in question;

(c) the amount of turnover of the Plaintiff’s Business.

(2) I have no hesitation in finding that the passing-off was fraudulent and deliberate.  It is evident that the defendant started to work for the plaintiff as a waiter in 1993 and left the plaintiff’s employment in around 2006.   He then established his own business.  He had brought with him a dim-sum master and a chef who had worked for the plaintiff.  He chose to use a name which was very similar to that of the plaintiff.  He had also copied the Plaintiff’s Menu and served nearly identical cuisine as the plaintiff.  In my view, it is plain that the defendant’s conduct was calculated to deceive or confuse the public into the mistaken belief that his restaurant was in some way associated with the Plaintiff’s Business.

(3) It is also evident that the defendant has publicized his business on magazines.

(4) According to the evidence of Mr Chui Kai (which I accept), a lot of patrons had asked him whether the defendant’s restaurant was a branch of the Plaintiff’s Business. Even the Food and Environmental Hygiene Department had mixed up the Plaintiff’s Business and the defendant’s restaurant.

(5) Some of the patrons had complained to the plaintiff about the late delivery of food and food quality of the defendant’s restaurant.  This was particularly serious during the first month of operation of the defendant’s business.

33.  In my judgment, while the plaintiff enjoyed high reputation at the material time, it cannot be comparable to that of Mr Alan Tam.  Master P Chan (as he then was) described Mr Tam as “one of the top popular song singers in Hong Kong” and he may even be “the most popular male singer at one time or another” (at 391E – F of Tam Wing Lun Alan (supra)). Hence, this case is not comparable to Tam Wing Lun Alan (supra).

34.  On the other hand, P C International Marketing Limited (supra) is not a suitable comparable either, since the infringement activities involved in that case are not extensive nor deliberate.

35.  Having taken all relevant circumstances into consideration, in my view, $180,000 would be a fair and temperate sum which should be awarded to the plaintiff as compensation for its loss of reputation and goodwill.

Damages for copyright infringement

36.  During his oral Opening Submissions, Mr Yu has asked the court to award nominal damages for the defendant’s infringement of the plaintiff’s copyright on the Plaintiff’s Menu.  Given the fact that the defendant’s infringement in respect of the menu was not an isolated event but part and parcel of the defendant’s whole scheme of deceiving the public in believing that his restaurant was associated with the Plaintiff’s Business, I am of the view that making a separate award in respect of the Plaintiff’s Menu is artificial in nature and is inappropriate.  Further, since I have already taken this aspect of the plaintiff’s case into account when I awarded damages for loss of reputation and goodwill, any separate award for infringement of copyright would run the risk of a double recovery.  It is therefore my judgment that I should not accede to Mr Yu’s request.

Interest

37.  There shall be interest at 2% per annum from the date of the writ to the date of this judgment, and thereafter, at judgment rate.

Costs

38.  I also make an order nisi that the defendant do pay the plaintiff’s costs of the assessment, such costs to be taxed if not agreed.  In the avoidance of doubt, I also certify the engagement of counsel in this assessment hearing.  In the absence of application within 14 days to vary, this costs order shall become absolute.