MARY KAY INC. AND OTHERS v. ZHEJIANG TMALL NETWORK CO, LTD AND OTHERS

CAMP 301/2021

[2022] HKCA 360

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 301 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 2406 OF 2017)

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JUDGMENT

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Hon Chow JA (giving the Judgment of the Court):

Introduction

1.  This is the Plaintiffs’ application for leave to appeal against the decision of Lok J dated 20 May 2021 whereby the Judge:

(1)  set aside the order of Master M Lam dated 19 June 2018 granting leave to the Plaintiffs to issue a concurrent writ of summons for service out of the jurisdiction, and to serve the same on the 1^st and 2^nd Defendants in Mainland China; and

(2)  adjourned the Plaintiffs’ applications by summonses dated 28 January 2019 for default judgment against the 4^th and 5^th Defendants to the trial of the action against the remaining defendant(s).

Basic facts

(i)               The parties

2.  The 1^st Plaintiff is a company incorporated in Delaware, USA.  Together with the 2^nd Plaintiff (incorporated in Hong Kong) and the 3^rd Plaintiff (incorporated in Hangzhou, PRC), both being wholly-owned subsidiaries of the 1^st Plaintiff, they carry on business in the production and marketing of skin care, toiletries and cosmetic products under the trade marks or names of “MARY KAY” and “玫琳凱” (“Mary Kay Products”) worldwide, including Hong Kong and Mainland China.  The 1^st Plaintiff is the registered proprietor of various trade marks and/or service marks bearing the names or words “MARY KAY” and “玫琳凱” in Hong Kong in the classes and specifications as set out in Schedule 1 to the Amended Statement of Claim (“the Registered Trade Mark(s)”).

3.  According to the Plaintiffs, they have been promoting Mary Kay Products extensively in Hong Kong and China since at least 1994 under or by reference to the “MARY KAY” and “玫琳凱” marks through publicity and advertisements in trade press, other print media and websites, and have acquired substantial reputation and goodwill worldwide, including Hong Kong and Mainland China, in respect of the said trade marks and/or Registered Trade Marks.

4.  It is the Plaintiffs’ case that they conduct their business through the “direct-selling” or “network-marketing model”, under which authorized direct sales representatives (“DSRs”) market Mary Kay Products to individuals who can then enroll themselves as DSRs in order to enjoy a larger discount for more goods that they purchase.  There are currently more than 1 million DSRs in the Mainland and Hong Kong managed by the 2^nd and 3^rd Plaintiffs, and they are contractually bound to market and sell Mary Kay Products by direct-selling only, and are expressly prohibited from marketing or selling the same at retail levels including online-selling.

5.  The 1^st and 2^nd Defendants (both incorporated in the PRC) and the 3^rd Defendant (incorporated in Hong Kong) belong to the “Alibaba Group”.   The 1^st and 2^nd Defendants are operators of an e-commerce platform known as “Tmall China”, while the 3^rd Defendant is the operator of “Tmall Global”.  According to the 3^rd Defendant[1]:

(1)  Tmall China is a business-to-consumer online retail platform, through which independent businesses list products for purchase by consumers.  It is a neutral platform, or “marketplace’, in the sense that all products sold on Tmall China are those of, and sold directly by, independent businesses.  Tmall China is not the seller of such products.  It targets sellers and consumers in Mainland China. The website is in simplified Chinese and all prices are listed in RMB. Products sold on Tmall China are predominantly shipped to consumers in Mainland China, although some of the products may also be shipped to addresses outside Mainland China (including Hong Kong) if consumers access the site from outside Mainland China and the vendors allow shipping to such destinations.  A vendor who has been allowed to sell his products on Tmall China selects his shop name in accordance with the type of shop to be opened and what has been referred to as the “Tmall China naming convention”.  The vendor has full autonomy and control over all of the parameters of his sale operations including the products, price, countries to which he is willing to arrange for delivery of goods, etc.  There are currently tens of thousands of shops on Tmall China.

(2)  Tmall Global is a separate platform from Tmall China with entirely separate operations.  Tmall Global is a Chinese language business-to-consumer online retail platform for businesses outside the Mainland to sell goods to consumers in the Mainland only.  There are no claims made in relation to Tmall Global in this action.

6.  In the papers before the court, there are references to 2 other e-commerce platforms, namely, “Taobao China” and “Taobao World”, operated by the Alibaba Group which were not involved in the trap orders referred to below:

(1)  Taobao China is a Mainland China online retail platform for individuals and small businesses. Similar to Tmall China, it is a neutral platform and operates like a marketplace whereby individuals and small businesses can directly and autonomously list products for purchase by consumers, and determine all the parameters of the sale operations including the products, price and the countries to which the sellers are willing to arrange for delivery of goods. Taobao China targets sellers and consumers in Mainland China.  The website is in simplified Chinese and all prices are listed in RMB.

(2)  Taobao World is a sub-domain of Taobao China for overseas business.  When a person enters the web address for Taobao China in his browser but his IP address is outside China, he will automatically be diverted to Taobao World.  It is not possible to list products directly on Taobao World.  All products shown on Taobao World originate from another platform (eg Taobao China).  It operates on similar terms and conditions as Taobao China.

7.  The 4^th Defendant is a limited company incorporated in the PRC with its registered office situated in Anhui Province.  It is and was the registrant of “庆丰化妆品专营店” (“the QF Shop”) on Tmall China which the Plaintiffs allege to have sold Mary Kay Products to Hong Kong.  The QF Shop was closed by the “Platform Governance Team” of Tmall China on 1 July 2016 following a report made by an individual on or around 1 March 2016 that a document submitted by the 4^th Defendant as part of the application documents to open the QF Shop on Tmall China was forged and further investigations conducted by the Platform Governance Team (including inquiries with the Plaintiffs).  The Plaintiffs also claim that the 4^th Defendant then “re-opened” another shop on Tmall China called “加內喜专卖店” or “玫琳凱加內喜专卖店” (“the JNX Shop”) using the URL (Uniform Resource Locator) of “http://marykayjnx.tmall.com/”, which is also alleged to have sold Mary Kay Products to Hong Kong.  However, as stated in the decision of the Judge handed down on 20 May 2021 (“the Decision”), at §11, the undisputed evidence shows that the 4^th Defendant is and was not the registrant of the JNX Shop, which was registered and operated by another company incorporated in the PRC called “安徽加内喜商贸有限公司” (“JNX Co”).  There is no claim against JNX Co and no allegation that the 1^st to 3^rd Defendants have procured or combined with JNX Co to commit any tort in the Amended Statement of Claim.

8.  The 5^th Defendant is a limited company incorporated in the PRC with its registered office located in Shanghai.  It is and was the registrant of “Tmall Supermarket” (an online shop on Tmall China) which the Plaintiffs allege to have sold or offered for sale Mary Kay Products.  However, as mentioned in the Decision, at §13, there is no evidence of any sale of Mary Kay Products by the 5^th Defendant to anyone in Hong Kong.  In fact, the Plaintiffs admitted, and was at all material times aware, that Tmall Supermarket did not sell goods to Hong Kong.

(ii)             The trap orders

9.  In 2016, the Plaintiffs’ solicitors, ATL Law Offices (“ATL”), made 4 trap orders for Mary Kay Products through Tmall China.  Particulars of the trap orders are given under §25 of the Amended Statement of Claim:

“(a) The Plaintiffs have purchased samples of Mary Kay Products from [the QF Shop] and [the JNX Shop] on 7 June 2016, 16 June 2016, 29 June 2016 and 11 July 2016 and the goods were directly delivered by the respective vendors to an address in Hong Kong (‘Plaintiffs’ Test Buys’);

(b) Payments on all Plaintiffs’ Test Buys were collected by the Alibaba Group;

(c) The vast majority of the Mary Kay Products sold by the 4^th & 5^th Defendants have been tampered with by removing the production lot codes which are printed onto the packing prior to the products leaving the factories of the Plaintiffs (“Tampered Mary Kay’s Products”);

(d) The 4^th & 5^th Defendant has published statements or advertisements on Tmall that the production lot codes were/are removed;

(e) As a result of the above acts, the Plaintiffs could not trace and monitor the production, logistics, delivery and return of those Tampered Mary Kay’s Products sold by the 4^th & 5^th Defendants, in particular when consumers have allergic reactions and/or experience other negative effects and would like to return the products to the Plaintiffs;

(f) The sales of the Tampered Mary Kay’s Products is detrimental to the distinctive character and repute of the Registered Trade Mark and the goodwill of the Plaintiffs;

(g) The 1^st to 3^rd Defendants have collaborated with the 4^th and/or 5^th Defendants and have caused and/or facilitated the Tampered Mary Kay’s Products to be sold to consumers in China, Hong Kong and elsewhere via Tmall;

(h) The 1^st to 3^rd Defendants must have knowledge of the tampering acts of the 4^th and/or 5^th Defendants”.

10.  In respect of the 4 trap orders, 2 were placed with the QF Shop and 2 with the JNX Shop on Tmall China.  Those transactions had nothing to do with Tmall Supermarket operated by the 5^th Defendant.  As a matter of fact, the Plaintiffs had tried to place trap orders with Tmall Supermarket, but were told that Hong Kong was not within its service area[2].

11.  The “Tampered Mary Kay’s Products” referred to in §25(c) of the Amended Statement of Claim were genuine products originated from the Plaintiffs, save that the Plaintiffs’ production lot codes had been removed.   No counterfeits were involved in this action.  The fact that the production lot codes had been removed in order to prevent the Plaintiffs from being able to trace the source of the goods giving the discounts was expressly drawn to the attention of the customers by the QF Shop (see §67 of the Decision).  The Plaintiffs’ complaint is that they are unhappy with their products being offered on an online sales platform by their DSRs at a discount instead of being sold to downline DSRs with membership incentives.  As mentioned in the Decision, at §27, the Plaintiffs have decided not to sue the DSRs involved, but commence this action against, inter alia, the 1^st to 3^rd Defendants with the aim of halting online sales by framing this action as a typical infringement action, bringing in the operators of the online platforms for publicity and deterrent effect.

The present action

12.  The Plaintiffs commenced this action on 18 October 2017 against the 1^st to 5^th Defendants.  In the Amended Statement of Claim, the Plaintiffs advanced 2 causes of action, namely, (i) passing off, and (ii) trade mark infringement.

13.  In respect of the cause of action in passing off, the Plaintiffs allege, at §20 of the Amended Statement of Claim, that -

“The [QF Shop], Tmall Supermarket and all other shops and vendors on Tmall, all approved by Tmall, were set up and calculated and/or intended to mislead and deceive and cause the public to believe that the 4^th and/or 5^th Defendants and the Mary Kay Products sold by the 4^th and/or 5^th Defendants are authorized by, connected to, associated with or in some way related to the Plaintiffs, contrary to the facts. The Defendants have not sought consent or approval from the Plaintiffs or any of its affiliates to use the word ‘Mary Kay’ and ‘玫琳凱’ as the shop name or URL.”

14.  The particulars in support of the passing off claim, set out at §21 of the Amended Statement of Claim, allege that:

(1)  In reliance on a forged authorization letter (“the Forged Authorization Letter”) submitted by the 4^th Defendant purported to have been issued and sealed by the 3^rd Plaintiff, “Tmall” approved the 4^th Defendant to open the QF Shop on its platform to sell exclusively Mary Kay Products without seeking confirmation or verification from the Plaintiffs about the Forged Authorization Letter.

(2)  The 1^st to 3^rd Defendants advertised that all Tmall shops are a symbol of quality and authenticity of the Alibaba Group, as each shop on Tmall must go through stringent screening and approval by Tmall or the Alibaba Group.

(3)  In response to an inquiry from the Platform Governance Team, on or about 7 June 2016, the Plaintiffs replied and confirmed that the corporate seal of the 3^rd Plaintiff in the Forged Authorization Letter was forged.

(4)  Following a cease-and-desist letter sent by the Plaintiffs’ solicitors to the 1^st and 4^th Defendants, the QF Shop was “frozen” by Tmall.

(5)  On or about 29 June 2016, the Plaintiffs discovered that the 4^th Defendant had “re-opened” another shop on Tmall (ie the JNX Shop) using the URL of “http://marykayjnx.tmall.com/”.

(6)  On or about 19 July 2016, the Plaintiffs’ solicitors requested Alibaba to take down a total of 16 Tmall shops, including the JNX Shop, pointing out that they had never been authorised by the Plaintiffs to distribute Mary Kay Products or use shop names or URLs incorporating the Registered Trade Marks.

(7)  Subsequently, the 1^st to 3^rd Defendants removed all 16 Tmall shops complained of by the Plaintiffs’ solicitors.

(8)  In or about August 2016, the 4^th Defendant opened or caused to be opened a new shop (the MLD Store) on “Taobao” to continue to sell predominantly Mary Kay Products.  A complaint was made to the Platform Governance Team on 23 December 2016, but no reply to the complaint was received.

(9)  In or about September 2016, the 5^th Defendant’s Tmall Supermarket offered for sale Mary Kay Products.

(10)  Consumers were deceived into believing that the Mary Kay Products offered by Tmall Supermarket were authorized by the Plaintiffs.  Again, the 1^st to 3^rd Defendants did not verify with the Plaintiffs on whether the authorization letter to sell Mary Kay Products submitted by the 5^th Defendant was genuine.  Alternatively, the 1^st to 3^rd Defendants recklessly ignored the “Tmall Consumer Protection Policy”.

(11)  On or about 3 August 2017, the Plaintiffs’ solicitors sent a pre-litigation letter to the 1^st to 3^rd and 5^th Defendants requesting them to stop representing to the public that Tmall Supermarket had been authorized by the Plaintiffs to sell Mary Kay Products.

(12)  As of the date of the Writ, the 1^st to 3^rd Defendants and its associated companies continued to provide shelter to companies in China to advertise and distribute Mary Kay Products under the disguise that they had been and still were authorized by the Plaintiffs to do so on Tmall.

(13)  Alternatively, the 1^st to 3^rd Defendants are/were procuring the passing off acts of the 4^th and 5^th Defendants and the other 15 companies/vendors for deliberately refusing the request from the Plaintiffs to inspect the authorization letters.

(14)  By assigning the shop names and URLs, the 1^st to 3^rd Defendants ought to have known that these shops were selling Mary Kay Products, and the 1^st to 3^rd Defendants are/were facilitating the passing off by not verifying the authenticity of the documents and/or asking the trade mark owners to verify them.

(15)  Consumers are likely to be misled by the Tmall Consumer Protection Policy and led to believe that the QF Shop, the JNX Shop and Tmall Supermarket are endorsed, licensed and/or somehow authorized by the Plaintiffs to sell authentic Mary Kay Products on Tmall platforms.

(16)  The 1^st to 3^rd Defendants should have sought the Plaintiffs’ verification of all documents purported to be issued by the Plaintiffs but it chose not to do so.  The 1^st to 3^rd Defendants have acquired knowledge since at least 7 June 2016 after the Plaintiffs’ solicitors requested for provision of the documents.

(17)  In terms of knowledge of the 4^th Defendant, the Plaintiffs relied on (inter alia) the Forged Authorization Letter.

(18)  In terms of knowledge of the 5^th Defendant, the Plaintiffs relied on the pre-litigation letter of 3 August 2017.

(19)  The 1^st to 3^rd Defendants have acted and continued to act recklessly to authorize or allow the 5^th Defendant to sell Mary Kay Products through Tmall Supermarket.  They must have read the negative comments from the buyers of the Mary Kay Products sold by Tmall Supermarket.

(20)  The 1^st to 3^rd Defendants have duties to check the background and source of the supplies when they licensed or authorized the 5^th Defendant to sell products on Tmall in the name of Tmall Supermarket.

(21)  As to the duties owed to the Plaintiffs, the Plaintiffs rely on the act of the Alibaba Group in June and July 2016 to freeze or suspend all the Tmall shops and all their communication with the Plaintiffs and the published Tmall Consumer Protection Policy.

(22)  The Plaintiffs also rely on the matters pleaded in §25 of the Amended Statement of Claim (ie particulars of the trade mark infringement claim).

15.  In respect of the trade mark infringement claim, the Plaintiffs allege, at §§23-24 of the Amended Statement of Claim, that:

“[23] The 4^th and/or 5^th Defendants have, since a date prior to the issuance of the Writ in this action, infringed the Plaintiffs’ exclusive right to use the Registered Trade Marks by using, in the course of business or trade, a sign or signs which are identical to the Registered Trade Marks in connection with products or services which are identical to the products or services for which the Registered Trade Marks are registered.

[24] The 1^st to 3^rd Defendants have also procured, authorised, facilitated or assisted the 4^th and/or 5^th Defendants to infringe the Registered Trade Marks and/or [have] acted together with the 4^th and/or 5^th Defendants in the common design of infringing the Registered Trade Marks.”

16.  The particulars pleaded and relied upon by the Plaintiffs in support of the trade mark infringement claim, at §25 of the Amended Statement of Claim, include details of the 4 trap orders as set out in §9 above and the following additional matters:

“(i) The use of the URL http://marykayjnx.tmall.com/ by [the JNX Shop], which are highly similar or identical to the Registered Trade Mark of the Plaintiffs in providing identical services to consumers;

(j) The URL http://marykayjnx.tmall.com/ and shop name ‘玫琳凱’ of the 4^th Defendant are assigned by Tmall and used or caused to be used by the 4^th Defendant. The 1^st to 3^rd Defendants must be aware that both ‘MARY KAY’ and ‘玫琳凱’ are registered trade marks of the Plaintiffs in China, Hong Kong and worldwide;

(k) The 1^st to 3^rd Defendants also assigned or caused to be used URLs and shop names which contain “MARY KAY” and ‘玫琳凱’ to 8 other shops complained by the Plaintiffs’ solicitors on 19 July 2016;

(l) As a result, consumers were likely to be confused by the URL as to whether the shops were authorized by the Plaintiffs; and/or

(m) All the acts pleaded in Paragraph 21 are repeated.”

17.  The Plaintiffs further allege that the 1^st to 3^rd Defendants have authorized, procured and acted in concert with the 4^th and/or 5^th Defendants to further the common design of setting up shops on the Tmall platform, and the 1^st to 3^rd Defendants, being deliberate and reckless, have approved Tmall Shops and/or Tmall Supermarket selling Mary Kay Products without making proper enquiries or seeking verification as to the authorization documents submitted by them.  They benefit from the above infringement by charging commission on each sale conducted through Tmall shops and Tmall Supermarket.  Accordingly, they are jointly and severally liable with the 4^th and/or 5^th Defendants for all the acts of passing off and trade mark infringement complained of by the Plaintiffs in this action (see §§28-30 of the Amended Statement of Claim).

18.  In the prayer for relief, the Plaintiffs seek, inter alia:

(1)  an injunction to restrain each of the 1^st to 5^th Defendants from (a) passing off or attempting to pass off any business, goods or services as those of or in any way connected with the Plaintiffs or any of them, whether by advertising, carrying on any business or trade under, using in connection with any business or trade, or registering as a company name, business name, trade mark, trade name, domain name, URL, shop name or otherwise howsoever the names “Mary Kay”, “玫琳凱” or any other name or device identical or confusingly similar to any of them, (b) infringing the Registered Trade Marks of the 1^st Plaintiff, and/or (c) causing, enabling or assisting others to do any of the aforesaid acts;

(2)  an order that each of the Defendants do take all necessary steps within 14 days to permanently change its shop name and URL with Tmall to a name that does not include the words “Mary Kay” and “玫琳凱”, or any name confusingly similar to the names “Mary Kay” and “玫琳凱”; and

(3)  an order that the 1^st to 3^rd Defendants do take all necessary steps to permanently remove all the shop names and URLs on the Tmall platform to a name that does not include the word “Mary Kay” and “玫琳凱”, or any name confusingly similar to the names “Mary Kay” and “玫琳凱”.

Service Out

19.  The 3^rd Defendant, being a company incorporated in Hong Kong, was served with the Writ indorsed with the Statement of Claim in Hong Kong.  A defence was filed by the 3^rd Defendant on 11 May 2018.

20.  The rest of the defendants are PRC companies.  In May 2018, the Plaintiffs applied, ex parte, for leave to issue a Concurrent Amended Writ of Summons and to serve a copy thereof out of the jurisdiction on the 1^st, 2^nd, 4^th and 5^th Defendants in Mainland China (“the Service Out Application”).  The application was supported by 2 Affirmations of Law Hang, the principal of ATL, made on 9 May 2018 and 11 June 2018 respectively.  In the Affirmations of Law Hang, it was stated, amongst other things, that:

(1)  The Plaintiffs’ application was based on Order 11,

(a)  r 1(1)(b) - injunction;

(b)  r 1(1)(c) - necessary or proper party; and

(c)  r 1(1)(f) - tort,

of the Rules of the High Court, Cap 4A.

(2)  The Plaintiffs had a good cause of action against all the Defendants on their claims for trade mark infringement.

(3)  Hong Kong was the convenient forum, being the jurisdiction in which the action was most appropriately brought and the jurisdiction where the tortious acts of the Defendants were committed.

21.  On 19 June 2018, Master M Lam made an order granting leave to the Plaintiffs to issue a Concurrent Amended Writ of Summons for service out of the jurisdiction and to serve a copy thereof on the 1^st, 2^nd, 4^th and 5^th Defendants in Mainland China (“the Service Out Order”).  The Plaintiffs subsequently served the Concurrent Amended Writ of Summons on the 1^st, 2^nd, 4^th and 5^th Defendants in Mainland China pursuant to the Service Out Order.

The Applications before the judge

22.  By 2 summonses both dated 28 January 2019, the Plaintiff applied for leave to enter judgment against the 4^th and 5^th Defendants respectively for default in acknowledging service (“the Default Judgment Applications”).

23.  By a summons dated 11 April 2019, the 1^st and 2^nd Defendants applied for (i) an order to set aside the Concurrent Writ of Summons issued on 25 July 2018 and to discharge the Service Out Order, or alternatively (ii) a declaration that the Court should not exercise any jurisdiction it might have as against the 1^st and 2^nd Defendants under Order 12 r 8(2)(a), or an order staying the proceedings against the 1^st and 2^nd Defendants in this action under Order 12 r 8(2)(b) in favour of Hangzhou Yuhang People’s Court in Mainland China (“the Setting Aside Application”).  The following grounds were relied upon by the 1^st and 2^nd Defendants in support of their application:

(1)  there was no serious issue to be tried in respect of the Plaintiffs’ claim against the 1^st and 2^nd Defendants;

(2)  the Plaintiffs had failed to show a good arguable case that their claims against the 1^st and 2^nd Defendants fell within Order 11, r 1(1)(b), (c) or (f) of the Rules of the High Court;

(3)  Hong Kong was not clearly and distinctly the most appropriate forum for the determination of the issues raised by the Plaintiffs’ claims and the trial of the action; and

(4)  there were serious material and deliberate misstatements and non-disclosure by the Plaintiffs in the Service Out Application.

24.  By a summons dated 11 April 2019, the 3^rd Defendant applied for an order that the Default Judgment Applications be adjourned to be heard together with the Setting Aside Application, and for leave to oppose the Default Judgment Applications (“the 3^rd Defendant’s Opposing Application”).  On 16 April 2019, Lok J made an order that the Default Judgment Applications be adjourned to be heard together with the Setting Aside Application, and granted leave to the 3^rd Defendant to oppose the Default Judgment Applications.

The decision

25.  The Default Judgment Applications, the Setting Aside Application and the 3^rd Defendant’s Opposing Application came before Lok J for substantive hearing on 13 and 14 May 2020.  In his decision handed down on 20 May 2021, the Judge found in favour of the 1^st and 2^nd Defendants in relation to the Setting Aside Application on the following grounds:

(1)  There was no serious issue to be tried in respect of the trade mark infringement claim -

(a)  The “exhaustion of rights” defence under s 20(1) of the Trade Marks Ordinance, Cap 559 (“the TMO), applied on the facts of this case and the Plaintiffs’ claim based on trade mark infringement was doomed to fail (§§46 and 54 of the Decision).

(b)  There was no evidence of trade mark infringement by the 5^th Defendant in Hong Kong and thus the Plaintiffs’ claim against the 5^th Defendant for trade mark infringement was also bound to fail on this ground (§56 of the Decision).

(c)  Since the Plaintiffs’ claims against the 1^st and 2^nd Defendants were only “secondary” in nature (ie as joint tortfeasors for procuring the acts of the 4^th and 5^th Defendants, or for committing the acts together pursuant to a common design), if there was no serious issue to be tried in respect of the trade mark infringement claims against the 4^th and 5^th Defendants, there would likewise be no serious issue to be tried on whether 1^st and 2^nd Defendants should be liable as joint tortfeasors (§63 of the Decision).

(2)  There was no serious issue to be tried in respect of the passing off claim -

(a)  The goods in question were genuine goods originating from the Plaintiffs, and there was no deception (§65 of the Decision).

(b)  The Plaintiffs’ allegation that the public would be misled into believing that the 4^th or 5^th Defendants were authorized by, connected to, associated with or in some way related to the Plaintiffs was misconceived for a number of reasons (§66 of the Decision) -

(i)    there was no evidence whatsoever suggesting that the 4^th and 5^th Defendants had misrepresented to the public that they were related to the Plaintiffs (§67 of the Decision);

(ii)   the online stores of the 4^th and 5^th Defendants on Tmall China targeted the public in the Mainland and there was no evidence whatsoever suggesting that the public in Hong Kong had been or would be deceived (§68 of the Decision); and

(iii)  in so far as the Plaintiffs sought to rely on the annual report of the Alibaba Group filed with the United States (“US”) Securities and Exchange Commission which contained a statement to the effect that Tmall China was a trusted platform which all third party vendors who set up stores on the platform would be checked and verified, that statement, read in its proper context, could only mean that the operators of Tmall China had taken steps to try and check the vendors’ identity and where their goods were from to ascertain that the source of the goods on Tmall China were authorized (ie genuine products and not counterfeits), and not that Tmall China would check and verify with each and every brand or trade mark owner to see whether each new third party applicant applying to become a vendor on Tmall China was directly authorized by that brand or trade mark owner to sell on Tmall China as suggested by the Plaintiffs.  Moreover, the said annual report was filed in the US and not Hong Kong.  It was not open to the Plaintiffs to suggest that the public in Hong Kong would be aware of the particular statement made in the annual report filed with the US Securities and Exchange Commission and to interpret and rely on such statement in the way the Plaintiffs suggested (§69 of the Decision).

(c)  Accordingly, there was no misrepresentation made by the 4^th or 5^th Defendants, let alone misrepresentation made in Hong Kong.  As there was no passing-off committed by them, there was no basis for the Plaintiffs to allege that the 1^st to 3^rd Defendants were liable as joint tortfeasors for procuring the acts of the 4^th and 5^th Defendants or for committing the acts together pursuant to a common design (§70 of the Decision).

(3)  There was no serious issue to be tried on the joint liability of the 1^st and 2^nd Defendants as online platform operators -

(a)  Procurement, whether by inducement, incitement or persuasion, must be by a defendant to an individual infringer and must identifiably procure a particular infringement in order to make the defendant liable as a joint infringer.  To establish accessory liability in tort, it is not enough to show that the defendant did acts which facilitated the other’s commission of the tort.  The defendant will be jointly liable with that other person if they combined to do or secure the doing of acts which constituted a tort.  This requires proof of two elements: (i) the defendant must have acted in a way which furthered the commission of the tort by that other person; and (ii) the defendant must have done so in pursuance of a common design to do or secure the doing of the acts which constituted the tort (§§73-74 of the Decision).

(b)  Applying L’Oreal v eBay [2009] RPC 21, the 1^st and 2^nd Defendants were not liable as joint tortfeasors in this case -

(i)    There was no evidence of authorization or procurement by the 1^st or 2^nd Defendants of any alleged infringing acts by the 4^th or 5^th Defendants.  The mere proof that the 1^st and 2^nd Defendants provided online platforms to facilitate the marketing of the alleged infringing products by the 4^th and 5^th Defendants was not sufficient.  Neither the 1^st nor 2^nd Defendants had procured the 4^th or 5^th Defendants to market any products, and the Plaintiffs had not adduced any evidence to show otherwise (§79 of the Decision).

(ii)   There was no evidence of any common design between the 1^st and 2^nd Defendants on one hand, and the 4^th and 5^th Defendants on the other.  In fact, the Plaintiffs were not even able to identify the alleged “common design” and the particulars thereof they were relying on.  There was equally no evidence that the 1^st or 2^nd Defendants had acted pursuant to the alleged common design (§80 of the Decision).

(iii)  In so far as the setting up of the QF Shop by the 4^th Defendant and the Tmall Supermarket by the 5^th Defendant on Tmall China was concerned, the names and URLs of those shops did not contain the words “Mary Kay” or “玫琳凱” or any similar names.  There was nothing wrong in the setting up of those stores by the 4^th or 5^th Defendants.  Accordingly, even if the 1^st and 2^nd Defendants had authorized the setting up of the said stores, that did not assist the Plaintiffs’ claims (§81 of the Decision).

(iv)  The 1^st to 3^rd Defendants did not approve or procure the 4^th or 5^th Defendants to sell Mary Kay Products as alleged, and the Plaintiffs had not adduced any evidence in support of such allegation.  Tmall China was under no legal duty to prevent infringement.  Tmall China was also under no legal obligation to make enquiries with the brand owners in the way as suggested by the Plaintiffs.  The fact that the 1^st and 2^nd Defendants might have benefited from the acts of the 4^th and 5^th Defendants was not sufficient to make them liable (§§82-83 of the Decision).

(4)  The Plaintiffs failed to show a good arguable case that the present case fell within Order 11, r 1(1)(b) -

(a)  As the passing-off and the trade mark infringement claims against the 4^th and 5^th Defendants were bound to fail, there was no reasonable prospect of the court granting any of the injunctions sought.

(b)  In any event, all the shops complained of by the Plaintiffs had been removed from Tmall China and Taobao, except for shops which also sell other products, in which case the products complained of had been removed from those shops, before the commencement of the present action or before the Plaintiffs’ filing of the Service Out Application.  Hence, there was no reasonable prospect of the court granting the injunctions sought.

(c)  The injunctions sought did not appear to be limited to acts within Hong Kong.  They were in fact primarily related to acts on Tmall China and Taobao, which were platforms operated in the Mainland with goods marketed thereon being sold to Mainland customers.  The Plaintiffs had not provided any legal basis to justify such extra-territorial injunctions sought (§§90-91 of the Decision).

(5)  The Plaintiffs failed to show a good arguable case that the present case fell within Order 11, r 1(1)(c) -

(a)  Since the Plaintiffs were relying on the 3^rd Defendant as the “anchor” defendant, they must demonstrate a good arguable case that there was a legitimate claim against the 3^rd Defendant, and that the 1^st and 2^nd Defendants were necessary or proper parties thereto.

(b)  However, apart from the fact that the Plaintiffs’ claims for trade mark infringement and passing-off were bound to fail, there was no evidence to show that the 3^rd Defendant was in any way involved in the act of selling the goods under the trap orders to ATL.  The trap orders were placed through Tmall China of which the 3^rd Defendant had no involvement, and so the claims against the 3^rd Defendant was bound to fail and there was no “real issue” to be tried between them (§93 of the Decision).

(6)  The Plaintiffs failed to show a good arguable case that the present case fell within Order 11, r 1(1)(f) -

(a)  There was no evidence that the Plaintiffs had suffered any damage within the jurisdiction.

(b)  Further, the only acts committed within the jurisdiction were the alleged sale of Mary Kay Products to Hong Kong by the 4^th Defendant under the trap orders by ATL.  As the only acts committed within the jurisdiction related to the trap orders by ATL, it was difficult to see, and the Plaintiffs had failed to show, any damage arising from such trap orders.

(c)  In addition, there was no serious issue to be tried in respect of the trade mark infringement or passing-off claims (§§95-96 of the Decision).

(7)  The Plaintiffs failed to discharge the burden of showing that Hong Kong was clearly the most appropriate forum to try the present claims.  There existed another potential forum, namely, Hangzhou Yuhang People’s Court in the Mainland, which was the most natural and appropriate forum for the trial of the present claims because of the following factors -

(a)  the 1^st and 2^nd Defendants were companies incorporated in the Mainland and their business activities were predominantly conducted in the Mainland;

(b)  the 4^th and 5^th Defendants were also companies incorporated in the Mainland and they had no business in Hong Kong;

(c)  the online platforms in question, namely, Tmall China and Taobao China, were platforms which targeted the general public in the Mainland, not Hong Kong;

(d)  apart from the trap orders by ATL, the Plaintiffs had not adduced any evidence showing any other sale of products by the 4^th or 5^th Defendants to Hong Kong in the present proceedings;

(e)  the online shops complained of on Tmall China and Taobao targeted the public in the Mainland, not Hong Kong; and

(f)   most of the 1^st and 2^nd Defendants’ witnesses for this case were located in the Mainland (§§98 and 101 of the Decision).

(8)  There were significant and substantial material non-disclosures by the Plaintiffs in the Service Out Application, and most of them were deliberate and indefensible.  Had there been full and frank disclosure, it was likely that leave for service out would not have been granted.  Hence, this was not a case in which either the material non-disclosure should be ignored or there should be a re-grant of the leave to serve out of the jurisdiction (§116 of the Decision).  The material non-disclosures included -

(a)  The Plaintiffs had deliberately failed to inform the court that the products complained of in this action were “genuine” products originating from the Plaintiffs.   Instead, the Plaintiffs presented the case as if it was a typical counterfeiting case.  Prior to the commencement of the action, Deacons, solicitors for the 1^st to 3^rd Defendants, had specifically pointed out to ATL that the products complained of were “genuine” products.  Deacons further requested ATL to provide evidence showing that the products were “counterfeits” if the Plaintiffs so contended.  ATL thus had full notice that the fact that the goods were sourced from Plaintiffs (which they eventually admitted) is a fact considered to be highly significant to the defence case (§§105-107 of the Decision).

(b)  The Plaintiffs had failed to disclose the 1^st to 3^rd Defendants’ reliance on the legal defence of exhaustion of rights under s 20 of the TMO.  Section 20 of the TMO, if applicable, would provide the Defendants with a complete defence to the Plaintiffs’ trade mark infringement claim.  The reliance on s 20(1) by the 1^st to 3^rd Defendants, and their position on the inapplicability of s 20(2), had been made clear in the correspondence between the parties’ solicitors before the commencement of the action (§§108-110 of the Decision).

(c)  The Plaintiffs had completely failed to disclose to the court that there was in fact no evidence that the 5^th Defendant had committed any acts within the jurisdiction, and that there could be no claims against the 5^th Defendant.  The Plaintiffs were at all material times aware that Tmall Supermarket, the 5^th Defendant’s online store, did not sell goods to Hong Kong (§111 of the Decision).

(d)  The Plaintiffs had failed to disclose to the court that the online stores complained of in this action all targeted the public in the Mainland (§112 of the Decision).

(e)  The Plaintiffs had failed to draw the attention of the court to the defence available to neutral online platform operators as demonstrated by L’Oreal v eBay (§113 of the Decision).

(f)  The Plaintiffs had failed to disclose to the court that there might exist another potential and more appropriate forum to try the present claims (§114 of the Decision).

26.  The Judge also declined to enter default judgment against the 4^th and 5^th Defendants, for the following reasons:

(1)  The court had a discretion whether or not to grant default judgment (§123 of the Decision).

(2)  The Plaintiffs did not have any arguable claims for trade mark infringement or passing-off against any of the Defendants.  If the 4^th and 5^th Defendants were to make a similar application to set aside the service of the writ on them out of the jurisdiction, they would probably succeed.   The leave granted to serve the concurrent writ out of the jurisdiction on the 4^th and 5^th Defendants was improper (§§124 and 126 of the Decision).

(3)  It would be inconsistent for the court to enter default judgment against them having concluded that the Plaintiffs had no actionable trade mark infringement or passing-off claims against any of the Defendants (including the 4^th and 5^th Defendants), and absurd for the court to just turn a blind eye to the merits of the case (§126 of the Decision).

(4)  The court should take into account the potential risk of injustice to the 1^st to 3^rd Defendants if judgments were entered against the 4^th and 5^th Defendants at this stage.  The scope of the Plaintiffs’ orders sought against the 4^th and 5^th Defendants was extremely wide.  The orders, once granted and made known to third parties or the public, were bound to create a misleading message amongst users of the platforms and the public that even genuine products from “Mary Kay” or other makers were under trade mark law treated as fake or otherwise illegal once they had had the production lot codes removed, and were prohibited from being sold on the 1^st to 3^rd Defendants’ online platforms, since their platforms were specifically named and singled out in the orders sought. Members of the trade and the public might be misled into thinking that the products being restrained were counterfeit products or products which the Plaintiffs could demonstrate were of a substandard quality or otherwise in breach of the law, when the contrary was true.  If the members of the trade and the public were misled into thinking that the 1^st to 3^rd Defendants allowed such “counterfeit” products to be marketed through their online platforms, this would cause a severe blow to the businesses and reputations of the 1^st to 3^rd Defendants and their platforms, and would inevitably undermine or neutralize the efforts they had made in abating and discouraging counterfeit trading on their platforms (§§127-128 of the Decision).

(5)  There was no substantial prejudice caused to the Plaintiffs if the court did not grant default judgment at this stage.  The delay in granting judgment against the 4^th and 5^th Defendants would not enable them to continue their alleged infringing acts in Hong Kong because all those alleged acts had ceased even before the commencement of the action (in the case of the 5^th Defendant, there had never been any such act within the jurisdiction).  Also, the Plaintiffs could have taken legal action against the 4^th and 5^th Defendants in the Mainland to vindicate themselves, in contract or in intellectual property infringement, if they had any complaint that they could substantiate (§§132-133 of the Decision).

27.  As to whether the Default Judgment Applications should be dismissed outright or adjourned to the trial of the action against the remaining defendant(s), the Judge considered that there could technically still be a trial at least against the 3^rd Defendant, and the court might have to revisit the issues as to whether there was any actionable trade mark infringement or passing-off claims against the 4^th or 5^th Defendants.  Under such circumstances, the Judge considered that it would be safer to adjourn the Default Judgment Applications to the trial without dismissing them at this stage (§143 of the Decision).

28.  On 15 July 2021, the Judge dismissed the Plaintiffs’ application for leave to appeal against the Decision.

This Application

29.  By a summons dated 29 July 2021, the Plaintiffs renewed their application for leave to appeal to the Court of Appeal.  Attached to the summons is a draft Notice of Appeal containing 8 intended grounds of appeal seeking to challenge:

(1)  the Judge’s finding that there was no serious issue to be tried in respect of the trade mark infringement claim (Ground 1);

(2)  the Judge’s finding that there was no serious issue to be tried in respect of the passing off claim (Ground 2);

(3)  the Judge’s finding that there was no serious issue to be tried as against the 1^st and 2^nd Defendants as joint tortfeasors (Ground 3);

(4)  the Judge’s finding that the Plaintiffs had failed to show a good arguable case that the present case fell within Order 11, r 1(1)(b), (c) or (f) of the Rules of the High Court (Ground 4);

(5)  the Judge’s finding that Hong Kong was not the appropriate forum (Ground 5);

(6)  the Judge’s finding of material non-disclosure by the Plaintiffs (Ground 6);

(7)  the Judge’s exercise of discretion not to enter default judgment against the 4^th and 5^th Defendants (Ground 7); and

(8)  the Judge’s finding that the 1^st and 2^nd Defendants had not submitted to the jurisdiction of the Hong Kong court (Ground 8).

ground 6: Material Non-Disclosure

30.  We propose to first deal with the issue of material non-disclosure.  As mentioned in §25(8) above, the Judge found that there were 6 areas of significant and substantial material non-disclosure by the Plaintiffs, and most of them were deliberate and indefensible.  The Plaintiffs challenge this finding of the Judge in Ground 6 of the draft Notice of Appeal, arguing that the Judge erred in law, misapprehended the facts and wrongly exercised his discretion in the following aspects:

(1)  In failing to consider, adequately or at all, that the Plaintiffs’ pleaded case has never been that the relevant products are not genuine and the application for leave to serve out of the jurisdiction was not made on that basis.

(2)  In failing to consider, adequately or at all, that the burden is on the 4^th and 5^th Defendants (who have provided no evidence) to establish a possible exhaustion of rights defence, and that there is no material non-disclosure in the Plaintiffs not informing the Court that the Defendants may have a potential defence of exhaustion of rights, as in an application for leave to serve out of the jurisdiction, there is no obligation on a plaintiff to make full and frank disclosure of possible defences (unless they would render the plaintiff’s claims unarguable).

(3)  In wrongly holding that the Plaintiffs have failed to disclose to the Court that there was no evidence that the 5^th Defendant had committed any acts within the jurisdiction.  The Plaintiffs were seeking a quia timet injunction against the 5^th Defendant based upon the evidence before the Court that (i) its Tmall Supermarket website hosted on the Tmall China platform was newly established; and (ii) it intended to expand the operation of Tmall Supermarket into the Hong Kong consumer market.

(4)  In wrongly finding that the Plaintiff ought to have disclosed that the “online stores complained of in this action were all targeted at the public in the Mainland”, a finding contradicted by the Judge’s finding at §62 of the Decision.

(5)  In wrongly finding, at §113 of the Decision, that the 1^st to 3^rd Defendants are entitled to the defence of being a “neutral online platform operators” based solely on the legal authority, L’Oreal SA v eBay International AG, without proper consideration of the facts of this case.  Tmall is not a neutral platform operator because of its onboarding requirements which need to be satisfied, and reviewed, before a store can be opened on its platform.

(6)  In failing to consider, adequately or at all, that the Plaintiffs’ claims in this action are in respect of acts of infringement and passing off targeting consumers in Hong Kong and taking place in Hong Kong, under the Ordinance and common law; and that the Plaintiffs are not taking any action in respect of any acts occurring in Mainland China, and that Hong Kong, and not Hangzhou, is clearly the appropriate forum.

(7)  In the premises, the Judge ought to have held that there had not been material non-disclosure on the part of the Plaintiffs.  Alternatively, even if one or more of the alleged grounds of material non-disclosure had been made out, the Court ought in any event to have exercised its discretion to re-grant leave to serve out, in the interests of justice, and as the Plaintiffs’ claims satisfy the threshold of serious issue to be tried.

31.  In considering the argument referred to in §30(1) above, it is first necessary to have a look at the constituent elements of the “exhaustion of rights” defence under s 20 of the TMO, which states as follows:

“(1) Notwithstanding section 18 (infringement of registered trade mark), a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market anywhere in the world under that trade mark by the owner or with his consent (whether express or implied or conditional or unconditional).

(2) Subsection (1) does not apply where the condition of the goods has been changed or impaired after they have been put on the market, and the use of the registered trade mark in relation to those goods is detrimental to the distinctive character or repute of the trade mark.”

32.  It is clear that there are 3 conditions for the application of this defence:

(1)  the goods in question have been put on the market anywhere in the world under that trade mark by the owner or with his consent (whether express or implied or conditional or unconditional);

(2)  the condition of the goods has not been changed or impaired after they have been put on the market; and

(3)  the use of the registered trade mark in relation to those goods is not detrimental to the distinctive character or repute of the trade mark.

33.  Mr Hughes argues that this defence has no application to the present case because, amongst other things, the goods in question (ie the Mary Kay Products sold and delivered to Hong Kong under the 4 trap orders) had not been put on the market anywhere in the world under the relevant trade mark by the owner (ie the 1^st Plaintiff) or with its consent.   In other words, the 1^st condition is not satisfied.  At first sight, this argument seems to be at odds with the stance taken in the 1^st Affidavit of John D Wiseman filed on 4 June 2019 on behalf of the Plaintiffs, where it was stated, at §34 thereof, that the Plaintiffs’ case or complaint was that “the conditions of the goods has clearly been changed or impaired after they have been put on the market, and the use of the ‘MARY KAY’ trade marks on those tampered goods is clearly detrimental to the distinctive character and repute of the Mary Kay trade marks”.  It was not suggested in that affidavit that the goods had not been put on the market by the 1^st Plaintiff or with its consent.  It was apparently because of this reason that this 1^st condition received scant attention in the skeleton submissions of the parties filed prior to the hearing before the Judge.  However, as pointed out by Mr Hughes, the issue of whether the goods had been put on the market under the relevant trade mark by the 1^st Plaintiff or with its consent was raised in the pleadings (see §7 of the 1^st, 2^nd and 3^rd Plaintiffs’ Reply to the 3^rd Defendant’s Defence).  Further, it is not in dispute that Mr Hughes did raise the issue at the hearing, and handed up to the Judge the decision of George Wei J in Samsonite IP Holdings Sarl v An Sheng Trading Pte Ltd [2017] 4 SLR 99 (now heavily relied upon by Mr Hughes) on the proper interpretation of s 29(1) of the Trade Marks Act in Singapore (corresponding to s 20(1) of the TMO), and Miss Winne Tam, SC did deal with this issue in her submissions before the Judge.  As it was, the Judge did not address in detail the issue of whether the goods had been put on the market by the 1^st Plaintiff or with its consent, or refer to Samsonite, in the Decision, probably because of the way in which this issue was raised at the hearing.  It is not possible, in this interlocutory application, to resolve the question of whether the goods had been put on the market by the 1^st Plaintiff or with its consent for the purpose of s 20(1) of the TMO.  A proper resolution of this question would require a detailed examination of the facts in order to determine the relevant “market” under that subsection, in particular whether it refers to (i) the sale of the goods by the Plaintiffs to the DSRs, or (ii) the sale of the goods by the online stores to the public.  None of these matters was raised by the Plaintiffs in the Service Out Application for consideration by the Master.

34.  In our view, for the purpose of considering the issue of material non-disclosure, it is nothing to the point that (i) it is not the Plaintiffs’ pleaded case that the Mary Kay Products offered for sale on Tmall China were not “genuine” products, or (ii) their application for service out was not made on that basis.

35.  On any view of the matter, the question of whether the goods were genuine products would be relevant to the potential application of the defence under s 20 of the TMO, and the Plaintiffs were plainly put on notice of this potential defence prior to the Service Out Application.  In a letter sent by Deacons to ATL dated 25 August 2017 prior to the commencement of this action, Deacons had expressly raised the issue of whether there was any complaint by the Plaintiffs that the Mary Kay Products offered for sale on the Tmall/Taobao platforms were not genuine products or were counterfeits, and pointed out that (i) under Hong Kong law, it was not trade mark infringement if the products in question were genuine products unless it could be shown that the condition of the goods had been changed or impaired after they had been put on the market, and as a result the use of the registered trade marks in relation to those goods was detrimental to the distinctive character or repute of the trade marks, and (ii) for trade mark infringement to occur, the changes or impairment to the condition of the goods must be substantial and “case law in this area determined that the removal of production lot codes from the packaging of any products alone is not sufficient to constitute a change or impairment of the condition of the goods for the purpose of trade mark infringement”.  The “case law” mentioned by Deacons included the decision of Laddie J in Zino Davidoff SA v A&G Imports Ltd [2000] Ch 127 and the decision of L Chan J in Crestron Electronics, Inc v Crestron Asia Ltd (HCA 222/2017, unreported, 17 March 2017), referred to by the Judge at §§39 and 40 of the Decision.  In response to ATL’s letter dated 7 September 2017 that they were not “aware of any case law in this area relied upon by [Deacons]”, on 20 September 2017, Deacons expressly drew ATL’s attention to Zino Davidoff.

36.  It is not necessary to determine finally whether the Judge is correct in his conclusion that the Defendants can successfully rely on the exhaustion of rights defence. The fact that the products in question were genuine products and the potential applicability of this ground of defence are, in our view, of sufficient weight or significance that the Plaintiffs ought to have made full and frank disclosure of those matters in the Service Out Application.  Further, the fact that the products in question were genuine products is also highly material to the Plaintiffs’ passing off claim as described in §7 of the 1^st Affirmation of Law Hang, where it is alleged that the 1^st, 2^nd and 3^rd Defendants “deceive or cause the trade and/or the public to believe that the products supplied or offered for sale, sold by or otherwise emanating from the 4^th and 5^th Defendants are those of the said Plaintiffs or are authorized by or associated with the said Plaintiffs”.  For this reason also, the Plaintiff ought to have made full and frank disclosure of the fact that the goods were genuine products in the Service Out Application.

37.  In respect of the argument referred to in §30(2) above, Mr Hughes advances the broad proposition that in an application for service out, a failure to refer to potential grounds of defence will not amount to material non-disclosure[3].  In support of this proposition, Mr Hughes relies on the judgment of Deputy High Court Judge Peter Ng (as he then was) in Hady v Bazar [2012] 3 HKLRD 29, at §§102-103 and 116.

38.  In our view, the broad proposition advanced by Mr Hughes is wrong in principle, and is not supported by the judgment of Deputy High Court Judge Peter Ng in Hady. Whether materials relevant to a potential ground of defence ought to be disclosed in an application for service out must depend on the circumstances. In Hady, the learned judge, having referred to the principles that (i) an applicant in any ex parte application owes a duty to make full and frank disclosure of all material facts to the court (§99), and (ii) the test of materiality is whether “… the facts … are relevant to the weighing operations which the court has to make in deciding the point before it” (§100), went on to state the following:

“[101] In Mattel Inc v Tonka Corp [1991] 2 HKC 411, at 430A - B, Deputy High Court Judge Andrew Li QC (as he then was) reiterated the principle that material facts were those which were material for the judge to know in dealing with the particular application before it. Materiality was to be decided by the court.

[102] Hence, even though the principle requiring full and frank disclosure is the same whether the application is for the grant of an injunction or for leave to serve a writ outside jurisdiction, the context and the focus of the inquiry is different.

[103] In an application for leave to serve a writ outside jurisdiction, the court is concerned with whether it should assume jurisdiction – it is not concerned with the merits of the case, save that it has to be satisfied that there are serious issues to be tried: Ren Yun Liang & Ors v China Merchants Bank Company Ltd & Ors unrep.; HCA1456 of 2005; 29 January 2007; Recorder B Yu SC; paras 26 – 7; Hong Jing Company Ltd v Zhuhai Kwok Yuen Company Ltd unrep.; HCA156 of 2006; 14 September 2006; Deputy High Court Judge Saunders; para 17. In general, a failure to refer to arguments on the merits which the defendant may seek to raise in answer to the plaintiff’s claim would not amount to material non-disclosure, unless they are of such weight that their omission may mislead the court in exercising its jurisdiction under the rule and its discretion whether or not to grant leave: BP Exploration Company (Libya) v Hunt [1976] 3 All ER 879, 893 h - j.”

39.  In an application for service out, the plaintiff is required to satisfy the court, inter alia, that (i) there is a good arguable case that the case falls under one of the sub-paragraphs of Order 11, r 1(1) of the Rules of the High Court, and (ii) there is a serious issue to be tried on the merits of the substantive claim(s) advanced in the action.  Hence, if the materials concerned are relevant to a potential ground of defence and are of such weight that they bear on the “weighing operations” required to be carried out by the court in deciding whether to grant leave to serve out, the plaintiff ought to disclose such materials fully and frankly to the court.

40.  The fact that the burden is on the 4^th and 5^th Defendants to establish the exhaustion of rights defence does not relieve the Plaintiff of their duty of full and frank disclosure.  As earlier mentioned, this potential defence was expressly raised on behalf of the 1^st and 2^nd Defendants in Deacons’ letter to ATL dated 25 August 2017.  Thus, ATL was plainly aware of it at the time when they made the Service Out Application on behalf of the Plaintiffs[4]. In our view, the Plaintiffs ought to have fairly presented to the court the potential defence under s 20 of the TMO for its consideration of the Service Out Application.

41.  In respect of the argument referred to in §30(3) above, the fact that the Plaintiffs might have been seeking a quia timet injunction against the 5^th Defendant is beside the point.  In the 1^st Affirmation of Law Hang, at §20, it was positively represented to the court that (he believed) the Plaintiffs “have a good cause of action against all the Defendants on their claims of trade mark infringement” [emphasis added], whereas ATL/the Plaintiffs knew full well that (i) the 5^th Defendant (Tmall Supermarket) was not involved in the 4 trap orders at all, and (ii) the Plaintiffs attempted to purchase Mary Kay Products from Tmall Supermarket but was expressly told that Hong Kong was not within its service area.  These matters are plainly relevant to the issue of whether the Plaintiffs have a good cause of action against the 5^th Defendant on their trade mark infringement claim which ought to have been disclosed to the Master in the Service Out Application.

42.  In respect of the argument referred to in §30(4) above, it seems to us to be clear, on the basis of the matters referred to in §112 of the Decision, that the main or primary target of the online stores complained of by the Plaintiffs was the general public in the Mainland, even though some of the goods offered for sale on Tmall could or might also be available to the public in Hong Kong as mentioned in §62 of the Decision.  While the statement that “the online stores … were all targeted at the public in the Mainland” in §112 of the Decision may not be strictly accurate or may require some qualification, the Judge’s view that this factor is relevant in considering whether Hong Kong is clearly the appropriate forum to try the present claims is, in our view, still valid.  In any event, even if one disregards this aspect of material non-disclosure, there can be little doubt that the Judge would still have found against the Plaintiffs on the issue of material non-disclosure based on the other 5 aspects referred to in §§105-111 and 113-114 of the Decision.

43.  In respect of the argument referred to in §30(5) above, we have considerable reservation on the Plaintiffs’ argument that because Tmall has stringent onboarding requirements, it is therefore not to be regarded as a “neutral” platform operator for the purpose determining whether it is liable jointly as a tortfeasor in respect of acts of infringement by the sellers.  There is much force in Ms Tam’s submission that it simply defies common sense to say that the more conscientious a platform operator is in protecting intellectual property rights, the more easily it will fall victim to allegations of joint tort feasance from the intellectual property owner when his efforts fail to achieve their intended result.  In any event, we do not consider it necessary to determine finally whether the Judge is correct in his conclusion that the line of defence in L’Oreal v eBay is applicable to the position of the 1^st and 2^nd Defendants.  It is plainly an important line of defence which the Plaintiffs ought to have highlighted to the Master for his consideration in deciding whether to grant leave for service out.

44.  In respect of the argument referred to in §30(6) above, it seems to us to be clear that, at least in relation to the passing off claim, Hangzhou Yuhang People’s Court is potentially the more natural and appropriate forum than Hong Kong for the trial of that claim.  Again, without making any final determination on this issue, we consider that the Plaintiffs ought to have fully and frankly raised this competing forum for consideration by the Master in the Service Out Application since this was a matter relevant to the weighing operations to be carried out by him.

45.  Finally, in respect of the argument referred to in §30(7) above, we do not disagree with the Judge’s conclusion that there were significant and substantial material non-disclosures, and most of them were deliberate and indefensible.  The Judge considered that had there been full and frank disclosure, it was likely that leave to serve out would not have been granted.  Accordingly, he held that this was not a case in which either the material non-disclosure should be ignored, or there should be a re-grant of the leave for service out.  The Judge’s decision involved an exercise of discretion which we see no basis to disturb.

Ground 8: submission to jurisdiction

46.  Under this ground, Mr Hughes argues that the 1^st and 2^nd  Defendants have deployed voluminous evidence of the underlying facts, and asked the Court to make an assessment on the merits, which clearly demonstrates submission to jurisdiction[5]. This ground can be disposed of briefly.  As stated by Chu JA in RKL v WL [2016] 5 HKC 153, at §31, whether any particular matter amounts to a voluntary submission to jurisdiction must depend on the circumstances of the case, and the circumstances should be looked at sensibly, realistically and fairly.  At §32 of her judgment, the learned judge referred to Global Multimedia International Ltd v ARA Media Services [2007] 1 All ER (Comm) 1160, and stated that the test to be applied is an objective one, and what must be determined is “whether the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried in this jurisdiction”.  At §32 of her judgment, she further referred to the judgment of Colman J in Spargos Mining NL v Atlantic Capital Corp (1995) The Times, 11 December (quoted in SMAY Investments Ltd v Sachdev [2003] 1 WLR 1973 at §41).  In Spargos Mining NL, Colman J said: “… there will be an effective waiver, or a submission to the jurisdiction, only where the step relied upon as a waiver, or a submission to the jurisdiction, cannot be explained, except on the assumption that the party in question accepts that the court should be given jurisdiction”.

47.  In the present case, the evidence deployed by the 1^st and 2^nd Defendants was for the purpose of challenging the court’s jurisdiction, or exercise of jurisdiction, over them, and the arguments on the merits were directed towards showing that (i) the Plaintiffs had failed to make out a good arguable case that the present case fell under Order 11, r 1(1)(b), (c) or (f) of the Rules of the High Court, and/or (ii) there was no serious issue to be tried on the substantive claim(s) advanced in the action.  That the 1^st and 2^nd Defendants challenged the court’s jurisdiction, or exercise of jurisdiction, was expressly stated in §1 of the 1^st and 2^nd Defendants’ Defence dated 15 April 2019.  In the two relevant Affirmations of Jieyun Li filed on behalf of the 1^st and 2^nd Defendants on 17 April 2019 (at §3) and 11 July 2019 (at §1) respectively, it was expressly stated that the affirmations were made in support of the Setting Aside Application.  It would be fictional to say that the 1^st and 2^nd Defendants have by conduct submitted to the jurisdiction of the Hong Kong court in this case.

48.  Mr Hughes relies on Balram Chainrai v Kushnir Family (Holdings) Ltd [2016] HKC 153 in support of this ground of appeal.  We do not consider that Balram Chainrai assists the Plaintiffs because in that case, the defendant had applied to strike out the claims on the merits, and it was only after that application had failed that the defendant applied to set aside the order for service out.  In such circumstances, the defendant had plainly submitted to the jurisdiction of the court (see §§75-76, 79 and 85 of the Judgment of Mr Recorder Manzoni, SC).

49.  Having reached the above conclusions, it is clear that the service of the Amended Concurrent Writ of Summons on the 1^st and 2^nd Defendants out of the jurisdiction ought to be set aside, and the Service Out Order as against them ought to be discharged.  It becomes unnecessary for this Court to consider Grounds 1 to 5 in the draft Notice of Appeal.  Some of those grounds raise potential issues of great or general importance, including the issue of liability of retail online platform operators like Tmall and Taobao for infringing activities committed by the sellers, and the scope of the exhaustion of rights defence under s 20 of the TMO.  We do not propose to express any views on the Judge’s conclusions on those issues in the present interlocutory application, and prefer to leave them for further consideration should they arise for determination in future.

Ground 7: default judgments

50.  Under this ground, Mr Hughes argues that:

(1)  The 3^rd Defendant had no locus standi to make submissions on the merits on behalf of the 4^th and 5^th Defendants. The evidence of the 3^rd Defendant ought to have been restricted to evidence: (a) of the potential impact against it of default judgment being entered against the 4^th and 5^th Defendants, or (b) demonstrating that it should be allowed to step into the shoes of the 4^th and 5^th Defendants[6].

(2)  The Judge erred in the exercise of its discretion in not granting default judgment against the 4^th and 5^th Defendants: (a) as the 3^rd Defendant would suffer no prejudice - it is not a privy of the 4^th and 5^th Defendants and is not subject to res judicata, and (b) the 3^rd Defendant acknowledged to the Judge during the substantive hearing (and at the leave to appeal hearing) that it intended to apply to strike out the claim against the 3^rd Defendant[7].

51.  In respect of the argument referred to in §50(1) above, Mr Hughes relies on Jacques v Harrison (1884) 12 QBD 165 and a commentary in the UK White Book 2020 (at p 1384) to contend that the rules which empower the court to set aside or vary any judgment in default (ie Order 13, r 9 and Order 19, r 9) only enable judgments by default to be varied or set aside by persons who have or who can acquire locus standi, but do not give locus to persons who have none.  Assuming, without deciding, that these authorities are equally relevant to the situation of a person seeking to oppose a default judgment yet to be entered, it is significant that in the Default Judgment Applications, the Plaintiffs were seeking orders which expressly referred to “www.tmall.com”, “www.taobao.com” and “Tmall platform” (see §§1(a) and 2 of the draft order attached to the summonses dated 28 January 2019).  It is also the Plaintiffs’ pleaded case that the 3^rd Defendant is the “operating entity for the overseas business of Tmall and Taobao and has effectively full control of the operation of Tmall”[8].  We consider that the 3^rd Defendant has sufficient interest or locus to oppose the Default Judgment Applications.  In any event, the Judge had granted leave to the 3^rd Defendant to oppose the Default Judgment Applications in general terms (see §2 of the Judge’s order dated 16 April 2019).  The Plaintiffs did not appeal against that order, or apply to strike out any evidence of the 3^rd Defendant which they considered to have been improperly filed by the 3^rd Defendant.  In all the circumstances, we do not consider that there is any substance in the Plaintiffs’ complaint about the 3^rd Defendant being permitted to file evidence and make submissions on the merits in relation to the Default Judgment Applications.

52.  In respect of the argument referred to in §50(2) above, on the materials before the Judge, there were plainly substantial questions on the validity of the Plaintiffs’ claims against the 4^th and 5^th Defendants. That being so, the Judge was well entitled, in the exercise of his discretion, not to enter default judgment against them, regardless of whether the 3^rd Defendant would suffer any prejudice as a result of the default judgment.  The fact that the 3^rd Defendant intends to apply to strike out the Plaintiffs’ claim against it is, we consider, irrelevant to the question of whether default judgment ought to be entered against the 4^th and 5^th Defendants.

53.  In all, we are of the view that the Plaintiffs’ intended appeal does not have a reasonable prospect of success, and there is no other reason in the interests of justice why the appeal shall be heard, under s 14AA(4) of the High Court Ordinance.

disposition

54.  Leave to appeal the decision of Lok J dated 20 May 2021 is refused, and the Plaintiffs’ summons dated 29 July 2021 is dismissed.  We make an order nisi that the Plaintiffs shall pay the costs of the 1^st to 3^rd Defendants, with certificate for two counsel.  The order nisi shall become absolute unless the Plaintiffs apply to vary the order within 14 days.  In the absence of any such application, the Plaintiffs may lodge a statement of objections (limited to 2 page), if so advised, to the 1^st to 3^rd Defendants’ Statement of Costs dated 23 February 2022 within 14 days, and the court shall summarily assess the 1^st to 3^rd Defendants’ costs. 

[1] See §3(m)-(aa) of the 3^rd Defendant’s Defence.

[2] See §§60 and 111 of the Decision.

[3] See Plaintiffs’ Statement on Leave to Appeal dated 13 August 2021, at §15.

[4] The exhaustion of rights defence was also raised in §2(a) of the 3^rd Defendant’s Defence filed on 11 May 2018.  Although the 1^st Affirmation of Law Hang in support of the application was filed on 10 May 2018 (before the filing of the 3^rd Defendant’s Defence), the 2^nd Affirmation of Law Hang which sought to answer comments raised by Master M Wong was filed on 11 June 2018 (after the filing of the 3^rd Defendant’s Defence).

[5] See Plaintiffs’ Statement on Leave to Appeal, at §§18-19.

[6] See Plaintiffs’ Statement on Leave to Appeal, at §16.

[7] See Plaintiffs’ Statement on Leave to Appeal, at §17.

[8] This allegation is disputed by the 3^rd Defendant.