REEBOK INTERNATIONAL LTD AND OTHERS v. LAWS FASHION KNITTERS LTD AND OTHERS

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J U D G M E N T

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Fuad, V.-P.:

1. This is an appeal by the three plaintiffs in this action against the decision of Mayo, J. made on 23rd May 1989 whereby he ordered the Statement of Claim as against the 1st defendant to be struck out and the action against it dismissed. Similar orders were made in respect of the 2nd defendant but the plaintiffs do not appeal those orders.

2. The 1st plaintiff, Reebok International Limited, is incorporated in the United Kingdom and is a wholly owned subsidiary of the 2nd plaintiff, Reebok International Ltd., the Massachusetts parent company of the Reebok Group of Companies. The group sells and supplies sportwear manufactured on behalf of the 2nd plaintiff under or by reference to, inter alia, the trademark "REEBOK" of which the 1st plaintiff is the registered owner. The 3rd plaintiff, a Hong Kong company, is a joint venture company owned by the Swire Group and the 1st plaintiff, and markets and distributes the plaintiffs' products in Hong Kong.

3. The 2nd plaintiff claims to be the owner of the copyrights subsisting in some 21 works in respect of models of shoes manufactured on its behalf, which works it is said, constituted original artistic works within the meaning of section 3 of the Copyright Act 1956. The 2nd plaintiff also avers that it is the registered proprietor of a U.K. registered design in respect of a particular shoe giving them the right etc. conferred by the United Kingdom Designs (Protection) Ordinance, Cap.44.

4. The affidavit evidence before the judge told him that REEBOK shoes first appeared on the market in Hong Kong in 1978 when a few models of running shoes made in England were made available here. REEBOK shoes were properly launched in Hong Kong when the Swire Group acquired Marathon Sports Limited which was the 2nd plaintiff's distributor in Hong Kong until 1986 when the 2nd plaintiff took over. At first only three models of shoes were sold but later the full range of the Reebok International Division shoes began to be sold in Hong Kong. The evidence showed that the approximate figures for annual sales of these sport shoes under the REEBOK mark in Hong Kong rose from $600,000 in 1984 to $128,000,000 in 1988.

5. The 1st defendant, Laws Fashion Knitters Limited (The respondent this appeal) is a listed company, with incorporated in Hong Kong. The Development Limited is a company with incorporated in Hong Kong. The 2nd defendant, Law Development Limited is a company with limited liability, incorporated in Hong Kong. The 3th defendant, J & R Bossini International Limited, the 4th defendant, J & Sparkle Trading Companies Limited and the 5th defendant, Bossini Marketing Limited are also companies with limited liability incorporated in Hong Kong. The 6th defendant is an individual who at one time worked for the 3rd plaintiff.

6. By their Amended Statement of Claim, the plaintiffs say that these 5 companies which, for the purposes of the pleading they called "the Laws Group of Companies", have infringed the copyrights in the original artistic works pleaded by reproducing and/or authorising the reproduction of the original works. It was pleaded, that further or in the alternative, that the Laws Group of Companies have infringed the copyrights by importing into Hong Kong, selling and by way of trade offering for sale, and distributing for the purposes of trade, reproductions or substantial reproductions of the original artistic works in the knowledge that the making of these reproductions or substantial reproductions constituted infringement of the copyrights. The material facts relied upon for these averments are listed in 9 paragraphs and particulars of knowledge on the part of the defendants are set out in 6 paragraphs.

7. The plaintiffs also claimed that the defendants have infringed the exclusive privileges and rights of the registered design earlier mentioned by making, importing for sale or for use for the purpose of trade or business, selling and offering for sale shoes to which the registered design or a design not substantially different from the registered design has been applied. The same particulars are relied upon.

8. There is also a passing off claim, a breach of confidence claim and what might be called a "trade libel" claim, pleaded further or in the alternative.

9. The causes of action which I have summarised are against the 1st defendant and the others as primary wrongdoers but there are also claims against all the defendants in the alternative averring that they are joint tortfeasors. The relevant pleading states further or in the alternative that the 1st, 2nd, 4th, 5th and 6th defendants and each of them have counselled, encouraged, instigated and/or procured the 3rd defendant to commit or cause to be committed the acts complained of as part of a common design snared by them all to manufacture, import, offer for sale and sell shoes similar to those of the plaintiffs and to market and promote the shoes by the scheme earlier relied upon. This was a reference to averments concerning television commercials on the English and Chinese channels and a performance in an hotel said to have been caused or arranged by the Laws Grout) of Companies at the official launching of the BOSSINI range of sports shoes.

10. The material facts relied upon to support the averment that the 1st defendant is a joint tortfeasor with the other five defendants may be summarised thus:

(a) Among the 8 directors of the 1st defendant are Messrs. Law Ka Kui, Raymond, and Hui Lam Po, who with four other directors are also directors of the 2nd defendant. The two named men, together with Mr. Wong Kin Chung, Michael are also directors of the 3rd, 4th and 5th defendants.

(b) The 1st and 2nd defendant have the same registered address, 2nd Floor, Laws Industrial Plaza, 786-788, Cheung Sha Wan Road, Kowloon. The 3rd, 4th and 5th defendants share the same registered address on the 6th Floor of the Laws Industrial Plaza.

(c) All but one of the 2nd defendant's 7,000 shares are owned by the 1st defendant, the remaining share by Mr. Raymond Law, who, as we have seen, is a director of the 1st, 2nd, 3rd, 4th and 5th defendants.

(d) The 3rd defendant is jointly owned by the 2nd defendant (999,900 shares) and the 4th defendant (100 shares).

(e) The 4th defendant's shareholders include the 2nd defendant (about 55%) and Mr. Michael Wong (about 17%).

(f) The 5th defendant has a paid up capital of $100 made up of 100 shares, 83 of which are held by the 3rd defendant, and 15 by the 6th defendant.

(g) The 2nd, 4th and 5th defenants share the same company secretary, Mr. Chan Pui Man.

11. Both in relation to the averments that the 1st defendant is a primary wrongdoer and to those that it is a joint tortfeasor, various press reports are relied upon. I shall have to return to them presently.

12. The plaintiffs say that they first bought a sample of the allegedly infringing shoes from a Bossini shop on 5th January 1988. More allegedly infringing shoes were bought on 22nd December 1988 and 10th January 1989. Three more models of allegedly infringing shoes were bought from the Bossini shop on 13th February 1989.

13. The Writ in the action was issued on 27th February 1989 and the Statement of Claim filed on 13th April. On 27th April, the 1st and 2nd defendants took out a summons applying for an order to strike out the Statement of Claim as against them (and, consequently, the action too, under RSC 0.18, r.19 and the inherent jurisdiction). The application was made on all the grounds mentioned in para.(1) of the rule.

14. Two affirmations were filed in support of this application. The first was by Mr. Joseph Tong Yee Yung, who affirmed as "Assistant to the directors of the 1st defendant". His affirmation exhibits the 1st defendant's latest annual report and a chart showing the relationship, as at 3rd May 1989, between the 1st to 5th defendants. This was the chart which the learned judge annexed to his judgment. Mr. Tong states that the Laws Group of Companies comprises 43 companies, including companies incorporated and operating in and out of Sri Lanka, the Philippines the Channel Islands, Portugual, Singapore and Macau. These companies, he says, are subdivided into three divisions-manufacturing, wholesale and retail and property. The 1st defendant is part of the manufacturing division with no retail trade at all and without even a "factory outlet". Since its incorporation in November 1975 it has conducted business as a designer, manufacturer and exporter of knitted clothing. The company's shares were offered for sale to the public in March 1987 and the company remains listed.

15. Mr. Tong further affirms that the company manufactures about 120,000 dozen garments per month; 70% of these garments are exported to the U.S.A. and the rest to wholesalers and retailers in the BBC. A very small proportion of its output is sold to the 3rd and 4th defendants in what he calls "arms' length" transactions.

16. Mr. Tong goes on to say that the 2nd defendant is a holding company and that neither the 1st nor the 2nd defendant is involved in the retail division of the group. The 1st defendant, as parent company of the Group "makes decisions concerning broad direction and policy guidelines" for the Group. He says that Mr. Raymond Law and Mr. Danny Hui "as directors of each of the companies act as a conduit between the subsidiary and the parent and enable the 1st defendant company to exercise a degree of financial supervision over its subsidiaries". However, Mr. Tong says, neither has any "executive role in any companies in the retail division". Michael Wong is the person "with overall control of each of the companies within that division" and is the Managing Director of each such company.

17. Mr. Tong also states that the 1st defendant occupies the 2nd and 3rd floors of the six-storey Laws Industrial Plaza. The 1st and 2nd defendants have their registered offices on the 2nd floor. The 3rd to 5th defendants are all on the 6th floor but each occupied a separate suite of offices.

18. Mr. Tong acknowledges that there are common directors in the 5 companies but asserts that each is separately administered. The 1st, 3rd, 4th and 5th defendants each has its own administration manager and accountant, with its own budget. Each company, in Mr. Tong's words, "has its own team performing the functions of design, production, merchandising and quality control, and each has its own sourcing". 80% of what is sold by the 3rd and 4th defendant is bought from outside the Group. The 2nd, 3rd, 4th and 5th defendants share the same company secretary merely for convenience. Mr. Tong concludes his affirmation by saying this:

"Neither the 1st nor the 2nd defendant companies is the controlling mind of the 3rd, 4th or 5th defendant companies. The allegations made against it in the Statement of Claim are demonstrably and irrefutably untrue, without merit and misconceived……"

19. An affirmation by Mr. Tommy Lui Chun Sing was also relied upon by the 1st and 2nd defendants. He is a Chartered Accountant and a Certified Public Accountant and is a partner in a firm of Certified Public Accountants. He affirms that his firm has been the Laws Group auditors since 1984 and they now audit all the companies in the group, save one Macau company. He explains that a complete and separate audit is carried out for each company in the Group before the accounts are consolidated. The 1st and 2nd defendant, share an accounting department managed by Chief Accountant. The 3rd, 4th and 5th defendants each has its own accountant who reports to the Managing Director of each (Mr. Wong). Each of the 1st, 3rd, 4th and 5th defendants takes its own inventory. Separate representation letters are furnished by each of these companies to his firm and the firm's fees are apportioned between the companies.

20. In his reserved judgment of 23rd May 1989, Mayo, J. dealt with the three summonses which had been before him and which he had heard together. With regard to the summons out of which this appeal arises, he briefly reviewed the evidence and the competing contentions of counsel and after citing the observations of Roskill, L.J. in The Albazero [1977] AC 774, at p.807 C-G, remarked that he had no doubt that that passage correctly stated the law. At the end of the passage the judge cited, Roskill, L.J. had emphasised that each company in a group of companies is a separate legal entity which has separate legal rights and liabilities.

21. The judge then said that when considering whether on the material available it was conceivably possible that either the 1st or the 2nd defendants could be deemed to be joint tortfeasors, he had found assistance from the speech of Lord Templeman in CBS Songs Ltd. v. Amstrad Consumer Electronic Plc. [1988] 1 AC 1013 (p.1056 E-H, p.1057 A-D). In that passage Lord Templeman, after stating the proposition that joint infringers of a patent were two or more persons who act in concert with another pursuant to a common design in the infringement, went on to observe that in the case that was before the House of Lords there was no common design.

22. Mayo J. concluded the relevant part of his judgment by saying:

"The evidence in this case falls far short of showing sufficient knowledge on the part of the Directors of the 1st or 2nd Defendants to bring them within the scope of being joint tortfeasors as above indicated. Indeed I am satisfied that the 1st and 2nd Defendants are able to meet the stringent requirements of Order 18 Rule 19 and that it is right that I should strike the Plaintiffs' claims out against them in accordance with the relief sought in the summons before me."

23. I would here observe, and with great respect to the learned judge, that it would have peen helpful to the parties and ultimately to this Court had he indicated under which of the sub-paragraphs of paragraph (1) of 0.18, r19, he had reached his conclusions. But it does seem clear that he was not deciding to strike out the pleading and the claim on the ground that the Statement of Claim disclosed no reasonable cause of action against the two defendants concerned. He did not discuss the pleading and find fault with it but went on almost immediately to review, from the affirmations which were before him, evidence which could not have been considered had the only ground for the application been under 0.18, r.19(1)(a).

24. In his review of the evidence, the judge mentioned that the plaintiffs had relied upon various articles which had appeared in the newspapers. I think that these are important to the issues before us on this appeal and I will quote them at some length.

25. There was an article in the business section of the South China Morning Post of 19th December 1988 with the headline "Laws to add sports shoe line". This is what the article said:

"    Laws Fashion Knitters plans to add sports shoes to its garments retail line to cash in on what it said was the local market's great potential.

    The garment maker said it would also look into establishing a sports shoes production line in China with an experienced manufacturer.

    Coelton Yau, Laws fashion's investment strategy manager, said the garment industry had little room to develop under the various quota restraints.

………

    He said the sports shoe market had great potential for development although many famous brand names had established its status in the market.

………

    He said Laws was optimistic about the sports shoes market and believed the consumption power of both local customers and tourists was increasing.

    Laws started selling its new sports shoes - called Bossini - at its Bossini retail outlets this month.

    Mr. Yau said the sports shoes were designed by Laws and made in South Korea underan original equipment manufacturing licence with raw material from the US.

………

    Mr. Yau said that in order to compete in the existing sports shoe market, the firm would price the shoes competitively and would embark on an aggressive $2 million promotion campaign.

    Laws intended to export the Bossini sport shoes to other markets, such as Japan and Singapore, where retail outlets had been opened by Laws, Mr. Yau said."

26. Then there was a long article in the same section of the South China Morning Post edition of 20th March 1989 under the heading "Laws set to expand into shoes, property". The reporter quotes a number of statements allegedly made by Mr. Raymond Law who is the Chief Executive of the first five defendants. I will not refer to all that he was reported to have said, but included in the remarks reported is the following statement:

"Four months ago we entered into the sports shoes market with Bossini sports shoes. Now comes expansion in the area in which we are underdeveloped, such as leather shoes, and then luggage and handbags - both plastic and leather."

27. In the 10th April 1989 issue of an American journal called "Footwear News", Mr. Coelton Yau, is again described as the investment strategy manager, this time of Laws Fashion Knitters Ltd. This is the whole text of the article:

"    Laws Fashion Knitters Ltd., one of Hong Kong's largest knitwear manufacturers and exporters to the U.S., is planning to set up retail outlets in America to sell footwear, apparel and other items.

    Coelton Yau, investment strategy manager, said the company is looking for possible sites on the West Coast. The retail operations will be called Bossini after the in-house brand label of men's and women's casual shoes and garments. In addition to casual shoes, sport shoes and clothes, the shops would feature private label handbags, luggage, sunglasses and other items.

    'We think we can do well in the U.S. market,' said Yau. 'We can offer first-rate quality and styles but a medium price level. So this should be very competitive with other foreign brands now selling in the U.S.' He said the company's footwear is being sourced in South Korea.

    The overseas project is an expansion of the company's retail operations in Southeast Asia. Laws has 30 Bossini shops in Hong Kong, 16 in Taiwan, two in Macau and nine in Singapore. Plus, there are 30 Sparkle outlets in the British colony. Sparkle is another in-house label of mainly men's shoes and garments."

28. In the business section of the South China Morning Post dated 20th April 1989 there was a short reference to the action out of which this appeal arises and the last paragraph of that acticle is as follows:

"    The dispute centres around a range of sorts shoes launched under the Bossini brand name with a $2 milion marketing campaign at the end of last year.

    The Laws Group said it designed them in-house.

    Laws is selling them in its chain of Bossini fashion shops and other outlets."

29. On 24th April 1989, the following appeared in the business section of the South China Morning Post above the signature "Lai See":

"    We were interested to yet a call from Coelton Yau, investment strategy, manager of Laws Fashion Knitters, a firm that has locked horns with British-based Reebok over alleged copyright, infringements of sports shoes.

    He wanted to know where we got the information, printed in Business Post on Thursday, that Laws designs its shoes in-house, but has them manufactured in South Korea.

    Happy to oblige, we traced the information to an interview in December, in which a reporter spoke to none other than Coeltou Yau, investment strategy manager of Laws Fashion Knitters.

    We explained this to him.

    'Aahh,' he said. 'This matter definitely needs some clarification. In actual fact, the shoes are designed by the manufacturers. We just monitor and supervise the operation.'

    Consider it clarified, Mr. Yau."

30. The articles published on 19th December 1988, on 20th March 1988 and on 10th April 1989 were all relied upon in the Statement of Claim. All these articles as well as the passages I have cited from the articles of the 20th and 24th April 1989 were relied upon to resist the striking out application.

31. I do not to intend to review and discuss the authorities which govern the exercise of the jurisdiction to strike out a Statement of Claim or a Defence to a claim. A party is mot to have the doors of the Court closed in its face without a hearing on the merits unless its claim or defence is hopeless and bound to fail. It is a jurisdiction, as the cases show, which roust be sparingly exercised and only in very clear cases. This is not to say, of course, that the Court will shrink from using this salutary jurisdiction in a proper case to prevent a party having to dispute a claim, with the anxiety and expense which is involved, which should never have been brought.

32. Mr. Sussex is right when he submits that if the claim against the respondent was shown to be plainly groundless and unfounded then it was rightly struck out for the Court will not allow its machinery to be used improperly and will prevent vexation and oppression to a party which should never have been impleaded in the action.

33. I will say a word or two about the Statement of Claim. Mr. Sussex is on sure ground in saying that the respondent was entitled to have the case against him presented in an intelligible form so that he could plead to it without embarrassment. Although, no doubt, the amended Statement of Claim could be improved upon, and more particulars will undoubtedly eventually have to be given, I find no justification for holding that there are such defects in the pleading itself that would help to sustain the order that was made.

34. I think that Mr. Sussex's main difficulty in this appeal is the fact that the judge did not express his views on the relevance of, and the weight to be attached to, the press statements relied upon by the plaintiffs to involve the 1st defendant in the action. Mr. Sussex has not suggested that the reports are inadmissible in the sense that they should be totally disregarded. Rather, he suggests that the newspaper articles are evidence of the flimsiest Possible nature and are in themselves contradictory and inconsistent with other evidence.

35. In my judgment, when considering the effect of the press statements relied upon by the plaintiffs, it was not necessary at the interlocutory stage to go into the niceties of the rules of evidence, and indeed, Mr. Sussex has not submitted that they are not potentially admissible as informal admissions aginst the 1st defendant.

36. When looking at all the material before the judge, what seems to me to be most significant is that there is no denial by Mr. Yau or Mr. Raymond Law that the statements attributed to them were ever made or that either of them was misquoted or that the meanings attributed to them on behalf of the plaintiffs were not the true ones. It seems to me that these statements, as they stand unexplained and uncontroverted, are crucial in this appeal. Of course, a parent company is not to be held responsible for the acts of its subsidiary simply by virtue of the fact that it is the subsidiary of the parent company. On the other hand, just like the case of individuals, it is perfectly possible for a parent company to be so involved in the activities of a subsidiary that, depending on the facts, it can be shown to be either a primary wrongdoer or a joint tortfeasor.

37. We are not concerned with the question whether the evidence that was before the judge if proved, would be sufficient to enable the plaintiffs to succeed in their action against the 1st defendant. No one can say what will transpire after discovery and any interrogatories that may be properly administered, or how the evidence will turn out at the trial.

38. The question, it seems to me, which has to be asked is whether in the light of the material which was before the judge he properly exercised his discretion in deciding to strike out the claim against the 1st defendant. As I have noted earlier, although the judge mentioned the press reports he did not say what he thought of them or to what extent he took them into account in reaching his decision. It is difficult to escape the conclusion that the judge thought that little or no weight at all should be attached to them in determining the application that was before hiss. With very great respect to the learned judge, in my judgment, to give no weight or sufficient weight to these press statements, when they had not been explained or challenged in any way at the stage the proceedings had reached, was wrong.

39. I would say here that in my view the statement in Mr. Tong's affirmation (who, it will be recalled, deposed as Assistant to the Directors of the 1st defendant) that the allegations made against his company were "demonstrably and irrefutably untrue, without merit and misconceived" is a wholly inadequate response to the press articles, and to the reliance placed upon them by the plaintiffs.

40. It may be that events will prove that the plaintiffs have set their case too high by trying to bring in the 1st defendant, but on the material before the judge this, in my opinion, was not so plainly apparent as to justify the order that he made.

41. I have come to these conclusions only after the most anxious consideration because the judge was exercising a discretion but I think that justice demands that the claims against the 1st defendant should proceed to trial in the normal way and that therefore it is the duty of this Court to interfere.

42. I would therefore allow the appeal and set aside the judge's order of 23rd may 1989 in so far as it refers to the 1st defendant.

Penlington, J.A.:

43. I agree.

]Macdougall, J.A.:

44. I also agree.

Fuad, V.-P.:

45. In handing down these judgments, we make an order nisi that the 1st defendant/respondent do pay the appellant's costs of this appeal and the costs below which relate to the summons issued on 27th April 1989.