GUANGDONG FOODSTUFFS IMPORT & EXPORT (GROUP) CORPORATION v. TUNG FOOK CHINESE WINE (1982) CO LTD AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.7759, 9547 AND 11061 OF 1995

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HCA7759/95
HCA9547/95

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J U D G M E N T

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Part I

1. Introduction

These actions are concerned with the intellectual property rights of two rice wine, namely, Super Mellow Mijiu (特醇米酒) and Shiwan Mijiu (石灣米酒). The main cause of action of the Plaintiffs is that of passing off. The other disputes between the parties are concerned with a registered trade mark (TM.No.02010/95) in respect of the pictorial part of a label used for the Super Mellow Mijiu, the copyright of the labels of the two wine, injurious falsehood and unlawful interference with business and contractual relationships.

2. The parties

(1) Guangdong Foodstuffs Import & Export (Group) Corporation ("GDF")

GDF is a state owned corporation established in 1954 under the Laws of the People's Republic of China ("the Mainland"). It's principal place of business is in Guangzhou. GDF has for many years carried on business in the export of foodstuffs including livestock, poultry, vegetables, fruits, soy sauce, rice wine, canned and other processed foods. These are products of the Guangdong Province in the Mainland. The products have been exported to Hong Kong, Macau and countries throughout the world. GDF claims ownership of the goodwill of the Super Mellow Mijiu and the Shiwan Mijiu. It claims to be the owner of the copyright in the labels of the two rice wine.

(2) Yau Shing Hong Provisions Limited ("Yau Shing Hong")

Yau Shing Hong is a Hong Kong company and has been the distributor in Hong Kong of GDF's Pearl River Bridge Super Mellow Mijiu and Shiwan Mijiu since February 1995.

(3) Tung Fook Chinese Wine (1982) Co. Ltd. ("Tung Fook (1982)")

Tung Fook (1982) is a Hong Kong company incorporated in 1982. It was the distributor in Hong Kong of GDF's Pearl River Bridge Super Mellow Mijiu from 1982 to January 1995. Since January 1995, Tung Fook (1982) has distributed in Hong Kong the Zu Miao (祖廟) Super Mellow Mijiu which is the subject of complaint by GDF in these proceedings. It claims to be the successor of Tung Fook Liqueur Dealer which had earlier distributed the Pearl River Bridge Super Mellow Mijiu.

(4) Shiwan Brewery of Foshan City in Guangdong Province ("Shiwan Brewery")

Shiwan Brewery is a state owned distillery and a maker of rice wine in Shiwan Town, Foshan, Guangdong Province. Before 1995, it produced for GDF (this is the case of GDF) the Pearl River Bridge Super Mellow Mijiu and Shiwan Mijiu. Since 1995, it produced for export to Hong Kong the Zu Miao Super Mellow Mijiu and Shiwan Mijiu.

(5) China Resources Advertising & Exhibition Company Limited ("CRA")

CRA is a Hong Kong company carrying on business as an advertising agent and designer in advertising. GDF claims that it commissioned China Advertising Company, the predecessors of CRA, to design the label of the Super Mellow Mijiu. By an assignment dated 1st September 1995, CRA assigned the copyright in the label to Tung Fook (1982).

(6) Chung Tai Wine & Spirit Company Limited ("Chung Tai")

Chung Tai and its predecessor were the distributors in Hong Kong of GDF's Pearl River Bridge Shiwan Mijiu. Since 1995, Chung Tai distributed in Hong Kong the Zu Miao Shiwan Mijiu.

(7) Foshan Foods Import & Export Company of Guangdong ("Foshan Foods")

Foshan Foods is not a party in the actions. However it played a major role in the disputes. It is a state owned enterprises based in Foshan. Foshan Foods was the sub-branch company of GDF from 1961 to 1994.

3. Cause of dispute

The Plaintiffs' case is that from 1974 or 1975, GDF started to sell in Hong Kong, through its Hong Kong distributor, the Pearl River Bridge Shiwan Mijiu. Starting from 1979, GDF had been selling through its local distributor the Pearl River Bridge Super Mellow Mijiu. The wine were produced by the Shiwan Brewery. They were exported to Hong Kong by Foshan Foods for and on behalf of GDF.

In January 1995, Tung Fook (1982) and Chung Tai introduced for sale in Hong Kong the Zu Miao brand of Super Mellow Mijiu and the Shiwan Mijiu. The wine were produced by Shiwan Brewery and supplied by Foshan Foods. This led to the present dispute between the parties.

4. Background

(1) Export trade

Before I deal with the history of the two wine, I will briefly set out the Plaintiffs' case on the economic background of the Mainland between 1949 and 1995, and the relationship of the units engaged in foreign trade.

From its establishment in 1949 and until the introduction of the open door policy in the 1980s, the Mainland vigorously adopted a centralized planned economy. The export of foodstuffs was vested in the China National Cereals, Oils and Foodstuffs Import and Export Corporation (中國糧油食品出口總公司) ("CNC"). CNC set up branches in the provinces which handled the import and export of foodstuffs of the provinces. In May 1954 GDF was formed as a state corporation under the name "Chinese Foodstuffs Export Corporation Guangzhou Branch Corporation" (中國食品出口公司廣州分公司). The name had changed many times since 1954. In 1979, it was re-named "China Cereals Oils Foods Import Export Head Corporation Guangdong Province Foods Branch Corporation" (中國糧油食品進出口總公司廣東省食品分公司). In 1990, it was re-named "Guangdong Province Foods Import Export Corporation" (廣東省食品進出口公司). Its current name was adopted in March 1993. At some stage, the original provincial company was divided into two, namely GDF and Guangdong Cereals and Oils Import & Export Corporation ("GCO") (廣東省糧油進口公司). As its name shows, GCO is engaged in the cereal and oil products. GDF and GCO were engaged in a series of mergers and separation before their eventual separation.

GDF commenced export business immediately upon its formation. It also began to organize the establishment of sub-branch companies (支公司). One of these companies was Foshan Foods. Its former name was China National Cereals, Oils and Foodstuffs Import and Export Corporation Kwangtung Branch Fatsan District Office (中國粮油食品進出口公司廣東省食品分公司佛山地區支公司). Its present name of Foshan Foods Import & Export Company of Guangdong (廣東省佛山食品進出口公司) was adopted in 1988. Not all sub-branch companies would be engaged in the export trade. Those engaged in the export trade were known as coastal companies (口岸支公司). Foshan Foods was a coastal company.

(2) Relationship between CNC and GDF

Under the planned economy, GDF had to comply with the export plans prepared by CNC. This means that GDF had to earn the required level of foreign currency from the export trade and the earning had to be remitted to CNC. CNC would in turn provide the resources, both in terms of finance and raw material, to enable GDF to fulfill the target. The Mainland introduced the open door policy on economic matters in the 1980s. However, the lifting of export control of foodstuffs only came about in 1993. Before 1993, export of foodstuffs was tightly controlled by the state. One reason was that the export of foodstuff was a loss-making business.

(3) Changes in 1988

In 1988, there was a severance of relationship between GDF and CNC. The financial control by CNC on provincial companies such as GDF was severed. Instead, the provincial companies, such as GDF would be responsible to the provincial authorities the financial target they had to meet. The system was known as the "contract system" ("承包制度"). The local authority in this regard was the Provincial Foreign Trade Bureau which in turn was responsible to the Ministry of Foreign Economy Relationship and Trade ("MOFERT") in Beijing. This system lasted from 1988, 1989 and 1990.

(4) Changes in 1991

In 1991, there was a further change in that the provincial companies had to be self-sufficient in four respects :

(1) management of their organization;

(2) profit and loss in their trading;

(3) control of their organization; and

(4) development of their business.

Whereas under the "contract system" ("承包制度"), the provincial authority would still reimburse the provincial company deficit in the business operation, this was cancelled in 1991.

5. Export of rice wine : GDF's case

I will set out GDF's case on the export of rice wine and the roles played by it, Foshan Foods and Shiwan Brewery. During the export control period, GDF was the only company which could export the rice wine and decide on :

(a) the kinds of rice wine, the quantity and the overseas markets they were to be exported;

(b) which person or company was to be engaged as distributor for a particular product in a given market;

(c) the supply and price of product;

(d) which of GDF's trade marks was to be used;

(e) which sub-branch companies should be appointed as the coastal company to carry out supply and shipment under sales contracts signed with overseas distributors; and

(f) which factory should be appointed to make the products.

Furthermore, during this period, GDF had the sole power to :

(a) introduce a new product in any market;

(b) terminate an existing product in any market;

(c) terminate a particular overseas distributor;

(d) terminate the assignment of a coastal company; and

(e) terminate appointment of a factory as a maker of its product.

(1) Signing of sales contracts

Sales contracts with overseas buyers were signed by GDF in the two bi-annual Trade Fairs held in Guangzhou every Spring (15th April to 15th May) and Autumn (15th October to 15th November). The duration of the contract signed at each Trade Fair was six months. Prior to the Fair, GDF would decide which customer it would sign the contract with, the type of goods and the quantity involved. Contracts would be signed by representatives designated by GDF.

(2) Execution of sales contracts

GDF carried out the sales contracts by assigning the supply and shipment of its products to one or more of the coastal companies. These coastal company would establish direct contact with the factory appointed on matters such as costs and quality control. The coastal company would arrange for shipment and custom clearance of the goods to be shipped to the distributors who had signed the sales contract with GDF. The distributors would issue documentary credit in favour of the coastal company which would issue invoices for the goods and present shipping and commercial documents for negotiation of the documentary credit. The coastal company would receive the credit proceeds and pay the factory on invoices issued to the coastal company. The surplus, if any, were held by the coastal company for GDF. If a loss was made, it would be made good by GDF eventually.

(3) Relationship of GDF and Foshan Foods

Mr Hu Chang Fu, who until 1996 was the General Manager and the representative of GDF, stated that the relationship between GDF and its sub-branch companies was one of parent and sons. In two major areas, GDF and the sub-branch companies were said to be 'pegged' (掛勾), namely, planning and finance. In terms of planning, GDF received the annual plans from CNC. GDF would then seek to accomplish these plans by co-ordinating its sub-branch companies. They would have to achieve the plans transmitted by GDF. They would have to submit to GDF their annual targets of production. GDF would then allocate the resources to the sub-branch companies. In terms of finance, the sub-branch companies had to report to GDF its financial position on a regular basis by monthly, quarterly and yearly reports. It had to send to GDF profits made in a given year, and where losses were sustained, GDF would make good such losses. The sub-branch companies could not and had no right to decide on their own finance and expenditures.

The financial and planning peg was removed in 1993 and 1994 respectively. After 1994, the sub-branch companies were no longer required to submit their annual production targets to GDF or comply with the plans of GDF. Further, after 1993 they would no longer be financially dependent on GDF. The sub-branch companies could carry out business on their own subject to possible control of the local export authorities in their district.

After the severance with its former sub-branch companies, GDF was re-grouped and was later called Guangdong Foodstuffs Import & Export (Group) Corporation. Certain previous departments within GDF were incorporated as companies under GDF's direct control. However links with the former sub-branch companies are still maintained. About 40 of them, including Foshan Foods, voluntarily joined Guangdong Foodstuffs Import & Export Enterprise Group ("GDF Enterprise Group"). This group is headed by GDF. According to Mr Hu, this served as some kind of chamber of commerce for the various former sub-branch companies. GDF would provide co-ordination among the members of this group and assistance to expand the export market on foodstuff.

(4) Pearl River Bridge marks

Since the late 1950s, the products of GDF were marketed in the overseas countries under one or more of its trade marks. In the case of rice wine and soy sauce, the name and mark Pearl River Bridge (珠江橋牌) and an oval shaped logo depicting a bridge (the Pearl River Bridge marks) have been used from the late 1950s to the present in Hong Kong and in other countries. Originally, the bridge depicted on the logo was that of the Sea Pearl Bridge (海珠橋) in Guangzhou. In the late 60's it was substituted by the People's Bridge (人民橋) in Guangzhou.

The new mark :

 

 

The old mark :

 

 

In 1957 CNC was registered in the Mainland as the owner of the Pearl River Bridge trade mark in respect of canned food. From 1979 onwards, GDF was registered in the Mainland as the owners of the Pearl River Bridge trade mark of wine, soy sauce and other products. CNC still retains ownership of the trade mark in relation to canned foods. It was decided by CNC to hold the trade mark on canned foods for the time being. The reason for retaining the ownership of the trade mark was to take into account changes in the administrative structure of Hainan Island and Guangzhou City which ceased to be under the administrative control of the Guangdong Province.

In Hong Kong, CNC was registered as the owner of the Pearl River Bridge trade mark on wine on 3rd November 1970. On 19th November 1991, CNC assigned the trade mark and related goodwill in respect of wine, spirits and liquor to GDF (Bundle J/17). The assignment was accepted by the Trade Mark Office on 26th May 1996 (Bundle D11/486).

CNC was also the owner of the Pearl River Bridge trade mark in 11 foreign countries. In 1990 to 1991 it transferred the ownership of the trade marks to GDF.

(5) Production base

GDF would provide the sub-branch companies with the necessary finance to build factories for the production of articles destined for export purposes. The raw material used in the production would be provided by GDF to the sub-branch companies which in turn would provide the same to the factories. When the sub-branch companies purchased articles from the factories, it would be conducted on the basis of a purchase and sale with the sub-branch companies paying the factories the price of the goods in RMB.

(6) Transportation of goods

The actual transportation of goods would be carried out by the sub-branch companies. However, GDF would provide trucks and ships to the sub-branch companies and GDF would also assist the sub-branch companies to build piers. When a sub-branch company was unable to carry out the transportation, GDF would assist it in arranging transportation.

(7) Quality control

Quality control of products was exercised by the sub-branch companies. However, GDF also exercised control by carrying out inspection of products and sending heads of department or trade representatives to inspect the production together with the representatives of the sub-branch companies. There would be regular meetings between GDF and the sub-branch on matters of production and quality control. GDF could stop the production export and cancel the right of the sub-branch companies to purchase the goods from the factories.

(8) Local factories

The factories belonged to the local authorities, the relationship between the factories and the sub-branch was simply that of a seller and buyer.

6. History of Shiwan Mijiu (石灣米酒)

(1) Plaintiffs' evidence

A. Mr Lor Kwok Tsam

Mr Lor Kwok Tsam (羅國參) was the Deputy Head and later Head of the Processed Foods Department (糖雜科) of GDF between 1969-1984. He said that in about 1973/1974, there were only a few bottled rice wine in the Hong Kong market, namely, "九江雙蒸" (Jiu Jiang Shuang Jin), "醇舊三蒸" (Shun Jiu Shan Jin) and "玉冰燒" (Yu Bing Shiao). The sale of these wine was on the decline. Having consulted Wu Fung Hong (五豐行), which was GDF's Hong Kong agent, Mr Lor considered that there was room for expansion of the rice wine market in Hong Kong.

With this in mind, at a meeting held at GDF in 1974 by the Processed Foods Department and attended by the staff involved in the wine trade of the sub-branch companies, Mr Lor informed those present that GDF had decided to introduce new rice wine in Hong Kong and invited their views on the subject. Having listened to the views, it was decided that GDF would introduce four new products into the Hong Kong market as part of the Pearl River Bridge rice wine range. GDF named these four products as "中山米酒" (Zhongshan Mijiu), "石灣米酒" (Shiwan Mijiu), "石岐米酒" "(Shiqi Mijiu) and "紅牌雙蒸" (Red Label Shuang Jin). Zhongshan, Shiwan and Shiqi were all geographical areas in Guangdong.

Mr Lor appointed the following factories, coastal companies and distributors for the rice wine, namely :

Name of Product	Coastal Co.	Brewery	Distributor in Hong Kong
1. Zhongshan Mijiu	Shiqi Foods	Shiqi Distillery	Kwong Tai Sik Pun
2. Shiwan Mijiu	Foshan Foods	Shiwan Brewery	Chung Tai
3. Shiqi Mijiu	Shiqi Foods	Shiqi Distillery	Tai Shun
4. Red Shuang Jin	Guangzhou Cereals and Oils Import & Export Corp.	Bai Yuen Distillery (in Guangzhou)	Yau Shing Hong

The raw materials, packaging materials and capital for the introduction of these rice wine, as, indeed, in the case of all other rice wine, were provided by GDF.

The new wine were introduced in the Hong Kong market in or about 1975. They were all exported and marketed under their own labels bearing the Pearl River Bridge mark.

As for the labels, Mr Lor instructed Mr Chiu Kong of Foshan Foods to arrange for the label design of the Shiwan Mijiu. The other coastal companies were also asked to arrange for the label design of the other three rice wine assigned to them. The labels had to be submitted by the coastal companies for his approval. Each of the label design for the four rice wine were later submitted to him and he approved them eventually. The label of the Shiwan Mijiu was as follows:

 

 

After a year or so, Wu Fung Hong reported to GDF that the Hong Kong market was rendered slightly chaotic with the simultaneous influx of the four different kinds of new wine and suggested that GDF should cut down the number of wine. Mr Lor consulted his colleagues and later decided to terminate all the four new wine and introduce instead a single new rice wine. This decision was later implemented and the new wine was introduced in or about 1977 and was named "廣東米酒" (Guangdong Mijiu). Production and export of Zhongshan Mijiu, Shiwan Mijiu, Shiqi Mijiu and Red Label Shuang Jin were then terminated. The breweries then produce the new wine instead. The label previously used on the Shiwan Mijiu was adopted as the label of the Guangdong Mijiu.

Tai Shing Wine Co. Ltd. (大成酒業) which was a joint-venture company of Yau Shing Hong and Chung Tai was appointed the distributor of the wine.

About a year after the introduction of the Guangdong Mijiu, Madam Wong, a manageress of Chung Tai, asked Mr Lor to reinstate the Shiwan Mijiu in the Hong Kong market. Mr Lor after consulting his colleagues at the Processed Foods Department later agreed to reintroduce the Shiwan Mijiu for Chung Tai. Yau Shing Hong also asked Mr Lor to reintroduce the other three rice wine which had been terminated. After consideration, Mr Lor agreed to reintroduce the Zhongshan Mijiu and the Shiqi Mijiu only for Yau Shing Hong. The re-introduced rice wine all resumed their previous labels.

(2) Defendants' evidence

A. Mr Chiu Kong

DW14 Chiu Kong (趙崗) ("Mr Chiu") was a vice manager in Foshan Foods. He joined Foshan Foods in 1961 and retired in 1993. He became the 雜品股股長in 1975.

Mr Chiu said that the Shiwan Brewery had asked him to raise at the Guangzhou Trade Fair whether a new wine could be introduced into the market because the sale of the traditional wine of 玉冰燒 had dropped. At the Trade Fair, Mr Chiu talked to Mr Sik Bei Chung (薜備忠) of Wu Fung Hong on this issue. Mr Sik suggested introducing a new wine which might suit the Hong Kong market. Mr Chiu was happy with the decision. Mr Lor of GDF was also there. He also supported Mr Sik's idea.

Mr Chiu then informed Mr Chen Bing Hao and others of the Shiwan Brewery of the decision. Mr Chiu told them to prepare the samples and also design the label of the wine. When the samples were ready, he took the samples to the Trade Fair. The samples were shown to Mr Cheung Shing Hung (also known as Mr Cheung Loy Chun) of Chung Tai which later became the distributor of Shiwan Mijiu. Chung Tai was introduced to Foshan Foods by Wu Fung Hong. Mr Chiu said that the distributor was decided by Wu Fung Hong, neither GDF nor Foshan Foods could decide on the distributor.

Mr Chiu said that a few designs on the label were prepared by Shiwan Brewery, the one that was chosen was the label now being used on the Shiwan Mijiu. The design he saw was in colour but without the Pearl River Bridge trade mark or the name of the company. The design was also shown to Mr Lor. The samples of wine were taken back to Hong Kong for tasting by representatives of Chung Tai. They also saw the design.

The first contract for the Shiwan Mijiu was signed in the Autumn Trade Fair of 1975. The contract was signed by Mr Tang Tak Kwan (鄧德焜(坤)) since he was the leader of the wine group (酒組組長) at the Trade Fair.

Mr Chiu denied that he had attended a conference in 1974 in Guangzhou organized by GDF which discussed the new wine to be produced by the coastal companies. Mr Chiu said that at that time 紅牌雙蒸 had already been produced and there was no point in discussing this wine. He also said that he did not know of discussions on 中山米酒 and 石岐米酒 at that time. He was only aware of these two wine after they were produced.

Mr Chiu further denied that Mr Lor had asked the sub-branch companies to design the labels for the four new wine and present the labels for GDF's approval. He said that the labels need not be approved by GDF. He said that there were many products and their labels were not subject to GDF's approval. The concept of copyright did not exist at that time. Mr Chiu could not recall when was the name Shiwan Mijiu being decided. He said that the label was taken to Foshan Foods and shown to Mr Yau Koon Wah of GDF who was in Foshan Foods at that time. He denied that Mr Yau Koon Wah had supplied him with the Pearl River Bridge standard design which was to be used on the new label.

Mr Chiu further said that he took the samples of wine to the 1975 Trade Fair. He also showed to Mr Sik of Wu Fung Hong two identical labels which were not yet printed. He said that he had taken six to seven bottles of sample to the Trade Fair, but only three to four bottles were given to Chung Tai. In respect of the name Shiwan Mijiu, he said that the words "米酒" (rice wine) were suggested by Mr Sik. This was to solve the problems with the 玉冰燒. The word "玉" means meat which was used in the production of the wine.

B. Mr Chen Bing Hao

Mr Chen Bing Hao (陳炳豪) ("Mr Chen") of Shiwan Brewery said that the predecessor of the Shiwan Brewery was 陳太吉酒廠which had a long history of producing quality wine. In 1973, he attended a conference on trade and industry organised by Foshan Foods. Mr Chiu of Foshan Foods suggested in the conference that a new product should be introduced to meet the young market. A few days later, representatives from Foshan Foods and Foshan City Food Company (佛山市食物公司) came to the Shiwan Brewery and asked it to produce the new wine. The brewery then started developing the new wine.

By April/May 1974, a product was selected. In June/July 1974, the Foshan City Light Industry Bureau (佛山市輕工局) approved the new product and it was sent to Foshan Foods. This Bureau controlled the operation of the Shiwan Brewery. When the idea of the new wine was conceived, the idea was to develop a wine with the local flavour. The Brewery wished to call the new product "石灣米酒" (Shiwan Mijiu) because wine-drinkers knew of 石灣 (Shiwan). The new product was intended for both export and import purposes.

In July, Mr Chen instructed the colour printing factory in Foshan City to design the label for the new wine. He told the designer that the product was intended for both export and internal sale. Hence, the space in the middle part of the label was left blank for the trade mark to be inserted. Afterwards a number of designs were produced by the designer. By February/March 1975, the basic design was agreed upon. The design was required to be approved by the local Revolutionary Committee to see if the content was politically acceptable. The original colour design was lost but the draft at Exhibit D11 was the draft prepared for the purpose of preparation of colour scheme. Mr Chiu of Foshan Foods was shown the design and was happy with it. Mr Chen said in June/July 1975, production of the Shiwan Mijiu began for export purposes. By 1978, there was internal sale of the wine. He denied that he had knowledge that four new wine were introduced in Hong Kong between 1975 to 1978.

C. Mr Chan Wan Fai

DW15 Mr Chan Wan Fai (陳運輝) ("Mr Chan") worked in Foshan Foods between 1962 and 1984. He said that at the beginning of 1975, Mr Chen of Shiwan Brewery took two to three designs of the Shiwan Mijiu label to him. The designs were in colour and were hand-drawn. At that time, there was a soy sauce conference and Mr Wah Chi Yee (華梓宜) of Wu Fung Hong was also there. Mr Wah was shown the design and said that the words 石灣米酒 (Shiwan Mijiu) were outstanding and clear (突出，一目了然). The design did not have the Pearl River Bridge trade mark or the words "中華人民共和國" People's Republic of China on the label. There was also a neck label as well, these labels are the same as the labels now appearing on the Shiwan Mijiu.

Mr Chan instructed the printing factory to produce the labels. He told the factory that the products were for export and asked it to produce the labels quickly. He also told the factory that Foshan Foods would be responsible for the paper required for the printing of the label.

D. Cancellation of the Shiwan Mijiu

Mr Chiu said that during a Trade Fair, a visit was made to the 九江酒廠 by Mr Kwok Kan Kei (郭鏡溪) of Wu Fung Hong and other representatives of CNC. During the visit Mr Kwok said that there were too many rice wine in Guangdong and suggested that all rice wine in Guangdong should be called Guangdong Mijiu (廣東米酒). Mr Chiu who was also present objected to this proposal but it was decided that other than 雙蒸, 三蒸 and 玉冰燒, all rice wine would be called Guangdong Mijiu. Mr Chiu maintained his objection because Guangdong Mijiu was selling at a lower price, whereas Shiwan Mijiu was selling at a higher price. Eventually, the decision to introduce Guangdong Mijiu was made. Mr Chiu did not know how the decision was made, he said that Wu Fung Hong notified GDF of the change and GDF issued notice to change the wine to Guangdong Mijiu. After the change, representations were made to higher authorities to revive the Shiwan Mijiu and the wine was revived about a year later. Mr Chiu said that Chung Tai had done a lot of work in this regard.

Mr Chen Bing Hao said that in 1978 at a conference organized by Foshan Foods on industry and trade, the Shiwan Brewery learned that the export of the Shiwan Mijiu was to be cancelled and instead, the Shiwan Brewery together with other breweries would export a wine called the Guangdong Mijiu. It objected and had, by letter dated 25th March 1978 and another letter of 8th May 1979, asked the authority for the retention of the Shiwan Mijiu. The letters were addressed to the local units and Foshan Foods but not to GDF. The Shiwan Mijiu was revived in October 1979, but at the meantime, the Shiwan Brewery continued to sell Shiwan Brand Shiwan Mijiu ("石灣牌石灣米酒") in the Mainland.

7. History of Super Mellow Mijiu

(1) Plaintiffs' evidence

A. PW2 Mr Chung Hau Yuen (鍾厚源)

Chung Hau Yuen joined Tung Fook Liqueur Dealer (同福酒行) ("Tung Fook") in 1971 at the insistence of his father, Mr Chung Cheong (鍾昌), who was its sole proprietor. He worked in Tung Fook until 1981 which was shortly after his father passed away. Initially, Tung Fook did not have any sole distribution right of rice wine. It co-operated with Luk Hop Company (六合公司) ("Luk Hop") which was one of the Chinese wine distributors.

From 1977/1978 onwards, Chung Hau Yuen was asked by his father to take a more active role in the management of the business. Chung Hau Yuen managed to convince Wu Fung Hong to let Tung Fook to become a distributor of a Chinese wine. This took place in 1977 when Mr Lor of GDF allowed Tung Fook to distribute the Pearl River Bridge Brand Shi Yen Bao Jiu (珠江橋牌石燕補酒). Although this wine did not do well, in 1978, Tung Fook was given the distributorship of the smaller jars of "雙蒸" and "三蒸" rice wine. Tung Fook and Luk Hop were the joint distributors of these wine.

Chung Hau Yuen later conceived of the idea of producing a rice wine of a higher quality. He conceived the idea of the Super Mellow Mijiu to be sold in a glass cup. Throughout 1978 he had repeatedly persuaded Mr Kwok Kan Kei (郭鏡溪) of Wu Fung Hong on the new product. In turn, Mr Kwok persuaded his manager Mr Lau Cheong Sei (劉昌璽) to introduce this new product. This took about eight to nine months. Then at the end of 1978, Mr Kwok informed Chung Hau Yuen that the matter should be all right and arranged for Chung Hau Yuen to go to GDF in February 1979.

In February 1979, Chung Hau Yuen went to Guangzhou and met Mr Lor of GDF and also Miss Kuk Bor ("曲波"), the sales representative of GDF. He also met Mr Chiu of Foshan Foods. At the meeting, it was decided that :

(1) the sale of the Pearl River Bridge Super Mellow Mijiu would be handled by Tung Fook;

(2) Tung Fook would provide the packaging material for the wine which would be deducted from the cost of the price of the wine;

(3) Tung Fook would design the label for the wine in Hong Kong, Tung Fook would pay the design fees which would be later deducted from the price of the goods. The right to the label belonged to GDF;

(4) Foshan Food was to be the coastal company (口岸公司) and Shiwan Brewery was to be the producer of the wine. Shiwan Brewery was chosen because it had produced the "雙蒸" and it produced good quality wine.

The packaging material supplied by Tung Fook included the PVC cap for the cup, the front and neck labels and the machines for installing the cap. At this meeting Mr Lor also specified that the Pearl River Bridge trade mark must be in the middle of the label and the label must state that the production of the wine was under the supervision of GDF. Mr Lor also said that the label would belong to GDF.

After this meeting, there were a number of further meetings, but Shiwan Brewery did not take part in these meetings. Chung Hau Yuen asked Mr Chiu of Foshan Foods to prepare a number of samples of the rice wine. When the samples were ready, Mr Chung took his father to Shiwan Brewery for tasting.

After Chung Hau Yuen returned to Hong Kong from the meeting with GDF, he discussed the design with Mr Ngai (魏羽中) of China Advertising Agency (中國廣告公司). At that time, he had already agreed with GDF and Mr Kwok of the name Super Mellow Mijiu (特醇米酒). He said the name Super Mellow Mijiu was decided before he went to the Mainland in February 1979. As a matter of fact, the name of Super Mellow Mijiu was discussed with Mr Kwok in 1978 and they also discussed the use of a chop shape design for the label. However, he also thought of the name 特質米酒 (Super Quality Mijiu) and he had a discussion with Mr Ngai on this name. Eventually Mr Ngai designed the label for the Super Mellow Mijiu and Chung Hau Yuen took the design to Mr Kwok of Wu Fung Hong. He also showed the design to his father, Mr Chung Cheong, who had no views on the matter.

After the label was approved by Wu Fung Hong, Mr Chung showed the label to Mr Lor of GDF at the Spring Trade Fair of 1979. The design fee was about $1,000 odd and was deducted from the price of the wine. The labels were printed in Hong Kong and paid for by Tung Fook, the cost was again deducted from the price of the wine. The label of the Super Mellow Mijiu was as follows :

 

 

In the Trade Fair, Mr Kwok told Mr Lor that a memorandum needed to be issued to Tung Fook. Mr Lor then asked Mr Tang Tak Kwan ("Mr Tang") to prepare the memorandum. The memorandum was dated 12th May 1979 (Defendants' Core Bundle 34-1). Chung Hau Yuen signed on behalf of Tung Fook and Mr Tang signed on behalf of Foshan Foods. The memorandum stated that :

" 關於佛山食出支公司提供之特醇米酒，經與同福酒行品藝研究，以為產品之品質酒度，口味等，均以32-33度三樣品作為今後生產之標準。出口規格為600克瓶庄和125克玻璃杯庄二種，所使用之玻璃杯及杯蓋，招紙，杯蓋封口機等。均由同福酒行提供，所需費用。在今後出口商品貨款中扣除。至於今後具體作法和如有未盡之處，雙方本着平等互利的精神協商解決。"

(i) 1st Contract

After the agreement was reached with GDF in February 1979, Chung Hau Yuen then dealt with Foshan Foods directly, because there was no need to deal with GDF. The first contract on the Super Mellow Mijiu was signed in the Autumn Trade Fair of 1979. This contract was no longer available. The contract was signed by Chung Hau Yuen on behalf of Tung Fook and Mr Tang of the wine group of the Trade Fair.

(ii) Promotion

Chung Hau Yuen also promoted the wine by using an advertising agency. He conceived of the idea of promoting the wine as the "XO" of the rice wine (米酒中的XO). The Super Mellow Mijiu was introduced in Hong Kong in November 1979. In respect of the advertising fee, GDF allowed 15% of the contract sum for advertising and the rest would be contributed by Tung Fook. When Tung Fook issued the letter of credit for the purchase, 15% would be deducted from purchase price. The 15% advertising fees would be paid to GDF's agent in Hong Kong. The agent was initially Wu Fung Hong, and later Guangnam Hong (廣南行). After Tung Fook incurred the advertising expenses, it would claim reimbursement from the agent.

(iii) Bo Man Hong 寶文行

In May 1981, Chung Hau Yuen's father passed away. His father left the business of Tung Fook to his wife. Disagreement occurred between Chung Hau Yuen and his eldest brother Chung Who Cheung (鍾厚祥). He left Tung Fook and later set up Bo Man Hong(寶文行) with his sister.

After Chung Hau Yuen left Tung Fook, Mr Kwok approached him and asked him to continue to handle the Super Mellow Mijiu. Mr Kwok had also contacted Mr Lor of GDF. Mr Kwok told Chung Hau Yuen that in principle GDF agreed to let him handle Super Mellow Mijiu and he asked Chung Hau Yuen to set up a new company for this purpose. Chung Hau Yuen signed the sales contract with GDF at the Autumn Trade Fair of 1981 and in the early part of 1982, at the "江門小交會" (Kong Mun Small Trade Fair). Mr Hu who was the wine group leader signed the contract with Chung Hau Yuen in 江門.

(iv) Tung Fook taking back the distributorship

Before the Autumn Trade Fair of 1982, Chung Hau Yuen was informed by Guangnam Hong that there might be changes in the distributorship and the distributorship might be given back to Tung Fook. At the Trade Fair, Chung Hau Yuen saw Mr Tang who was the leader of the wine group and Mr Chiu. Mr Tang told Chung Hau Yuen that he could not sign the contract for the wine with him and he was asked to see GDF.

A meeting was arranged with Mr Lau Hung Man (劉洪文), the manager of GDF. Mr Lau told Chung Hau Yuen that his mother wanted to handle the business and there would be two distributors. Despite Chung Hau Yuen's objection, Mr Lau told him that the matter was already decided by GDF. Chung Hau Yuen had previously been advised by Guangnam Hong not to sign any contract in case he was not given the sole distributorship. He did not sign any contract and returned to Hong Kong. He approached Guangnam Hong and Wu Fung Hong for assistance.

Mr Wong Shuang Kong (黃湘江) of Guangnam Hong asked Chung Hau Yuen to prepare two quotations. The first was on the basis of only one distributor and the second on the basis of two distributors. Chung Hau Yuen accordingly prepared two purchase orders and gave them to Mr Wong. After the closing of the Trade Fair, Mr Wong asked Chung Hau Yuen to open the letters of credit in favour of Foshan Foods. A few days later, Mr Wong told him that despite his efforts, he was not able to ask GDF to give the sole distributorship to him. The Super Mellow Mijiu had to be handled by two distributors. Chung Hau Yuen was also asked to sign on a contract which had already been signed by Mr Tang and stamped with a chop. He had no alternative but to sign on the contract. He did not notice the date that was placed on the contract. The contract was dated 1st November 1982.

(v) Termination of the distributorship

There were price competitions by Bo Man Hong and Tung Fook (1982) which took over from Tung Fook. This affected other types of rice wine. As a result, Guangnam Hong and GDF told Foshan Foods to stop the supply of Super Mellow Mijiu to the two distributors. In 1982, a team from Foshan Foods came to Hong Kong. Mr Lor Qing Qin (羅慶秋) and Mr Chiu of Foshan Foods told Chung Hau Yuen and Chung Who Cheung not to continue in this manner.

Chung Hau Yuen said that the termination of the distributorship was related to the supply of another new product called陳年玉冰燒. It was a new wine developed by him and distributed by Bo Man Hong. The wine had the same content as the Super Mellow Mijiu.

The sale of the 陳年玉冰燒 caused dissatisfaction of the distributor of 玉冰燒. This distributor tried to stop others from buying from Bo Man Hong. Chung Hau Yuen sought the help of Foshan Foods and GDF, but Mr Lor of GDF merely said that he would look into the problem. Chung Hau Yuen felt that GDF was not trustworthy and he had lost interest in the business. He sold the whole of the wine stock to a company called City Mineral Water 城巿蒸溜水 ("City"). City in turn sold the wine to retailers at very low price. In 1985 GDF sent a telex to Chung Hau Yuen informing him that the supply of the Super Mellow Mijiu would be stopped. He then emigrated to Canada in 1986. Since 1994, Mr Chung had become the East Canada distributor of GDF for the Pearl River Bridge Brand soy sauce.

(vi) Cross-examination of Chung Hau Yuen

Chung Hau Yuen was cross-examined at great length. The purpose was to show that he was not a credible witness. It was suggested that the events described by him did not take place, namely, the design of the label was not conceived by him but by Mr Ngai and the meeting in February 1979 on the Super Mellow Mijiu did not take place. The Defendants' case was that there never was a meeting in February 1979 in which decision was made by GDF on the Super Mellow Mijiu. Chung Hau Yuen said that the tasting of samples was held sometime between the meeting in February 1979 and the Autumn Trade Fair of 1979. He could not give the exact date of the tasting. He denied that samples were provided to him in Hong Kong on the new product. In a letter dated 12th June 1979, (Bundle D(2), p.916) sent by Foshan Foodstuff to Tung Fook, it referred to Tung Fook's request to send further samples of the rice wine. He said he did make such request but he had never received the samples in Hong Kong.

He was referred to a draft designs of the words of Super Mellow Mijiu. They were dated 2nd July 1978 and 25th July 1978 respectively. He said that he did not know whether the dates were correct or not, but if they were the correct dates, then Mr Kwok must have already by then agreed to his proposal and had asked the advertising agency to prepare the design. As to the design of the label, it was sketched by Mr Ngai in front of him in his office. He agreed that he and Mr Kwok had jointly raised the idea of using the shape of a Chinese chop as part of the label. The chop was quite similar to the logo of the Independent Commission Against Corruption and this idea was conceived by him. The diamond shape of the logo was also conceived by him. He denied that the chop shape and the diamond shape of the label were conceived by Mr Ngai. He denied that the words "石灣佳釀" on the neck label was suggested by Shiwan Brewery. He said that the characters were meant to state the product came from 石灣 (Shiwan) but it was not an emphasis. He denied it was Shiwan Brewery's idea to have the design made in Hong Kong. He said that the idea was raised by GDF. Chung Hau Yuen denied that it was Tung Fook who paid for the design fees and Tung Fook had not sought the reimbursement of the fees.

(vii) 1995 Visit of Foshan Foods and subsequent events

He was also cross-examined about his visit to Foshan in 1995 and a letter he wrote to Foshan Foods in November 1995. The parties agreed that I need not be concerned with these matters.

B. PW3, Tang Tak Kwan (鄧德焜) (坤)

PW3, Tang Tak Kwan, gave evidence for the Plaintiffs on the history of the two wine. He formally worked in the Shiqi sub-branch company between 1969 and 1988. He belonged to the wine group of the Trade Fair in Guangzhou. He was either the Group Leader (組長) or Deputy Group Leader (副組長) in the wine group. His duty at the Trade Fair was to negotiate with the distributors and sign contracts with them.

Mr Tang confirmed Chung Hau Yuen's evidence. He knew Mr Chung Cheong of Tung Fook since 1959. In 1969, Mr Chung Cheong took Chung Hau Yuen with him to the Trade Fair. From 1977 to 1978 onwards, Mr Chung Cheong stopped going to the Trade Fair and Chung Hau Yuen came to the Trade Fair instead. He confirmed that he had signed contracts on the 石燕補酒 with Chung Hau Yuen. Before the Super Mellow Mijiu was exported, he was told by Mr Lor that the labels, caps for the bottle and machines for inserting the caps would be provided by Chung Hau Yuen, and that the memorandum dated 12th May 1979 was signed. He also introduced Chung Hau Yuen to the glass factory in Shiqi to make the glass cups for the Super Mellow Mijiu.

C. Mr Lor

Mr Lor confirmed the evidence of Chung Hau Yuen on how the Super Mellow Mijiu came into being.

(2) Defendants' evidence

A. Mr Chen Bing Hao

Mr Chen Bing Hao said that in June 1978, Mr Chiu and Mr Lee Wan Fung (李雲峰) of Foshan Foods came to Shiwan Brewery to see him and others. They said that Mr Chung Cheong from Hong Kong wanted to develop a new product and they asked the Shiwan Brewery to develop the Super Mellow Mijiu.

In July or August of 1978, representatives from Foshan Foods including its Manager, Mr Lor Qing Qin (羅慶秋), Mr Chiu, Mr Chan (陳運輝)，Mr Lee (李雲峰) and Mr Fei Hau Chung (費孝忠) came to the Shiwan Brewery and discussed the new product. Mr Chung Cheong and his wife also came. Although Mr Chen initially said he could not recall whether Chung Hau Yuen came as well, eventually he agreed that Chung Hau Yuen also came. By that time the Brewery had developed six to seven samples; they were tasted but found not acceptable. The request was to develop a product with a alcoholic content above that of Shiwan Mijiu but below the三蒸. Mr Chung Cheong had taken two bottles of wine from Hong Kong, one was from昌源酒廠，and the other one was from陳太吉酒廠. In the same meeting, the question of who should design the label was raised. Mr Chung Cheong said that Shiwan Brewery was to deal with the wine while Tung Fook was to deal with the design in Hong Kong.

After the visit, the Shiwan Brewery continued to develop the new wine. By September/October 1978, Shiwan Brewery had decided on the new wine. In February/March 1979, the basic product was produced and six samples were provided to Foshan Foods. Some time later, Foshan Foods told them that the wine was good but asked for the bitterness in the taste to be removed. Mr Chen then decided to mix the product with old wine from the Shiwan Brewery. The alcoholic content of the product was adjusted. Six new samples were delivered to Foshan Foods for tasting. These samples were delivered to Tung Fook by Foshan Foods. About 10 days later, the Shiwan Brewery was told to produce the wine.

In about April/May 1979, Chung Cheong, his wife and Chung Hau Yuen came to the Shiwan Brewery together with Mr Chiu of Foshan Foods, Kuk-Bor of GDF, Mr Kwok of Wu Fung Hong and representatives from the Foshan Light Industrial Bureau. The new wine was highly praised at this meeting and the alcoholic content was agreed upon. The parties then decided on the name of the wine. The visitors brought a draft design which was similar to the present Super Mellow Mijiu label. On the main label two names appeared, namely, "特質米酒" (Super Quality Mijiu) and "特級米酒" (Super Class Mijiu). Mr Chen then consulted an employee of the Brewery, Mr Lam Chun (林振) who said these two names could not be used and new wine should be called Super Mellow Mijiu "特醇米酒". Chung Cheong and Chung Hau Yuen agreed to the name.

The neck label was also discussed. Mr Chen suggested using the words "石灣佳釀" in the middle of the neck label. This was objected by Foshan Foods. Chung Cheong, however, said that the idea was good because this would show that the product came from his native village. Mr So (蘇局長) of the Foshan Light Industry Bureau stated that unless the words "石灣佳釀" were used, they would not produce the wine. Mr Chen also suggested adding a back label to the bottle. Mr So (蘇局長) said that the back label would not be added for the time being.

Mr Chen gave the order to produce the new wine in June 1979. The raw material for the production was provided by Foshan Foods. The glass bottles were provided by glass bottle factories in the Mainland. The Super Mellow Mijiu labels were supplied by Tung Fook from Hong Kong. The first contract on the Super Mellow Mijiu was dated 11th October 1979 (Bundle D12/74) and the first batch of wine was delivered to Foshan Foods in October 1979.

From 1980 onwards, there was also internal sale of the Super Mellow Mijiu. The internal sale increased each year.

Mr Chen denied that before the tasting in April and May 1979, the name "Super Mellow Mijiu" was already decided. He further denied that the Shiwan Brewery was not required to be consulted on the name of the new wine and he denied that his evidence of the discussion on the name of the Super Mellow Mijiu was for the purpose of raising the level of involvement by Shiwan Brewery in this litigation.

B. Mr Chan Wan Fai

Mr Chan Wan Fai confirmed Mr Chen Bing Hao's evidence on the two tastings in Shiwan Brewery in 1978 and 1979 and also the discussion on the name of Super Mellow Mijiu. Mr Chan further mentioned that Mr So (蘇局長) stated that Foshan had suffered a set back before in relation to soy sauce. It was said that the Pearl River Bridge soy sauce (生抽王) was developed by Foshan, and the words 創制 (develop) that appeared in the label of the 生抽王 was such an indication. However, because Foshan did not emphasize that the product belonged to it, other factories in the Guangdong Province also produced products with the same name.

C. Mr Chiu Kong

Mr Chiu also said that Mr Chung Cheong of Tung Fook suggested the idea of producing the new wine. Mr Chung Cheong was a native in the Foshan area and he suggested the Shiwan Brewery to produce a better quality wine. On an occasion in which the "long-an" fruit (龍眼) was in season, Chung Cheong and his wife, Chung Hau Yuen, Luk Chou, Kuk-Bor (曲波) and Mr Kwok came to Foshan Foods to discuss the wine. Mr Chung Cheong suggested how the wine could be improved. The party also went to the Shiwan Brewery which was a short distance away and met Mr Chen and the others. Mr Chiu could not recall how many tastings were made or where the tastings were conducted.

Although Mr Chiu in his evidence-in-chief said that it was Mr Chung Cheong who mentioned about the new wine, he said, in his cross-examination, that before Mr Chung Cheong came, he had already heard from Chung Hau Yuen in the Trade Fair that Tung Fook wanted the new wine in the market. Mr Kwok was also present.

Mr Chiu denied that there was a discussion on the Super Mellow Mijiu in the office of GDF in February 1979. He also said that he could not recall such a meeting and if there were such a meeting, he should have remembered it.

In his evidence-in-chief, Mr Chiu seemed to say that Mr Chung Cheong and the parties had visited the Shiwan Brewery twice. However, in cross-examination, Mr Chiu admitted that he was not present in the second visit. He also said Mr Chung Cheong only brought along the two wine on the second visit. While Mr Chiu was initially assertive that the first contract of the Super Mellow Mijiu was discussed between him and Mr Chung Cheong and Chung Hau Yuen, he somehow relented in cross-examination when it was put to him that Mr Chung Cheong was not present in the Autumn Trade Fair of 1979.

Mr Chiu said in the Autumn Trade Fair of 1981, Chung Hau Yuen informed him that his father had died and his mother did not want to handle the Super Mellow Mijiu. Chung Hau Yuen wanted to set up Bo Man Hong to handle the Super Mellow Mijiu. Mr Chiu told him that there was no problem. He said that the decision to give the distributorship to Bo Man Hong was not made by him alone. It was also not made by Mr Lor alone. He denied that the change required GDF's approval. He said that the decision vested with Wu Fung Hong.

The contract on the supply of the Supper Mellow Mijiu was signed again with Tung Fook in the Autumn Trade Fair of 1982. Since Chung Hau Yuen had done a lot of work for the wine, he could not be excluded totally from the distributorship of the Super Mellow Mijiu. Mr Chiu said that he had suggested to Mr Lau Hung Man of GDF that both Tung Fook and Bo Man Hong should handle the wine but he did not know who made the actual decision.

Mr Chiu stated that because of the difference in price offered by Tung Fook (1982) and Bo Man Hong on the Super Mellow Mijiu, Mr Yuan had a discussion with them on the matter. He said the meeting with Tung Fook (1982) and Bo Man Hong was chaired by Mr Yuan. Mr Chiu did not take part in the meeting. The agreement dated 29th March 1985 was prepared and drafted by Mr Yuan.

D. Mr Chung Who Cheung

Mr Chung Who Cheung is the eldest son of Mr Chung Cheong. He took over the operation of Tung Fook after the death of his father. A limited company, namely Tung Fook (1982) was established. Although in his witness statement he stated that his father developed the Super Mellow Mijiu, obviously he was not in a position to give personal knowledge on this matter. He gave evidence on how he was refused the distribution contract of Super Mellow Mijiu in the Trade Fair and his attempts to get back the distributorship through the assistance of his acquaintances in various Chinese government departments.

He said he was refused the contract in the Autumn Trade Fair 1981, he eventually met Mr Lau Hung Man (劉洪文), the manager of GDF and Mr Hu. He was told by Mr Lau that he would be given back the distributorship at the next trade fair and Mr Hu was asked by Mr Lau to follow up the matter. In the Spring Trade Fair of 1982 he met Mr Lau again. At the meeting, Mr Hu was also present. Mr Lau told Chung Who Cheung that he should set up a limited company and hire Chung Hau Yuen as the manager. Bo Man Hong should be allowed to carry on trading for six months. After the meeting, Chung Who Cheung was asked by his acquaintance in the Mainland to prepare a record of the meeting and the copies were to be sent to the relevant organizations. Chung Who Cheung prepared the record (Bundle C4/97). His acquaintance told him that he would send the copies of the record to the organizations.

By a letter dated 10th September 1982, Tung Fook offered Chung Hau Yuen to be the manager of the sales department of Tung Fook from 1st December 1982. The offer was rejected by Chung Hau Yuen.

Chung Who Cheung attended the Autumn Trade Fair of 1982. He met Ms Kuk and Mr Chiu and placed the orders with them. However, no contract was signed and it was only after ten days that a meeting was set up in which he met Mr Hu, Ms Kuk, Mr Tang and Mr Chiu. Mr Hu announced that the Super Mellow Mijiu distributorship would be given to Tung Fook. He also stated that all contracts signed outside the Trade Fair was illegal. Chung Who Cheung, however, did not know what Mr Hu meant by that. Later, Chung Who Cheung gave the order to Mr Chiu who confirmed that the terms of sale would be the same as before.

E. Mr Yuan Jin Yuan : Cancellation of Bo Man Hong's Distributorship

DW3 Yuan Jin Yuan ("Mr Yuan") (袁晉淵) is the general manager of Foshan Foods. Mr Yuan said that Bo Man Hong did not have a warehouse of its own and it distributed the wine at the pier after they arrived in Hong Kong by boat. There was price difference between Bo Man Hong and Tung Fook (1982) in the same product. Foshan Foods had warned both Tung Fook (1982) and Bo Man Hong to comply with the contract terms, otherwise it would cancel the contracts with them (telex dated 28th November 1984, D12/58). In a meeting in Hong Kong in March 1985, Mr Yuan met the representative of both companies. He drafted an agreement requesting both companies to sign. The agreement dated 29th March 1985 (D5/2313) was signed by Tung Fook (1982). Mr Yuan said that Chung Hau Yuen should have signed a similar agreement, otherwise he would not have continued to supply the wine to Bo Man Hong. After the meeting in March 1985, Bo Man Hong was still distributing the wine in the pier and shortly thereafter Foshan Foods cancelled the contract with Bo Man Hong. The agreement of 29th March 1985 was signed within the authority of Mr Yuan. He did not inform GDF of this. Further the decision to stop the supply to Bo Man Hong was also not made known to GDF.

F. DW9 Mr Ngai Yue Chung (魏羽中) ("Mr Ngai") : Design of the Super Mellow Mijiu Label

Mr Ngai formally worked in China Advertising Company (中國廣告公司). He joined the company in 1975 and retired in 1990. Initially, he worked in the Production Department and subsequently joined the Business Department and retired in 1990 as the Assistant Manager of Customers' Service. Before he joined China Advertising, he worked in Wu Fung Hong. He knew Mr Chung Cheong very well in the various business promotion activities of Chinese products.

In relation to the design of the Super Mellow Mijiu label, he said that he was asked by Mr Kwok of Wu Fung Hong to prepare a design for a new rice wine. He was told that the design should not be similar to other rice wine already in the market. At that time, there were in the market 中山米酒，石岐米酒 and 石灣米酒. In his discussion with Mr Kwok, he learned that the new rice wine would be handled by Tung Fook. He thought of using the style of a Chinese New Year paper decoration (揮春) for the design. The word "同" ("Tung") is squarish, it would be put in the centre of the design. The names of other wine were usually placed horizontally from left to right. He thought of the design of a Chinese seal or chop and the words would begin from top to bottom. During the discussion, he made sketches of his design in front of Mr Kwok. Then he asked his production unit to prepare a layout (草圖) for Mr Kwok which was later accepted by Mr Kwok. In the discussion with Mr Kwok, the name of rice wine was discussed. The name 特質 (Super Quality) was suggested but since it was difficult to pronounce, it was agreed to use the name 特醇 (Super Mellow) instead. Mr Ngai chose the type of the Chinese characters used. He suggested that the characters should have some feeling of stone carving (金石味道). The words were prepared by the production unit and were eventually given to Mr Kwok. Later on, the final draft (in black and white) was supplied to Mr Kwok. Mr Ngai, however, was not given back the final draft for the purpose of printing. Mr Ngai also said that the idea of two dragons on the main label and the colouring all came from him.

Afterwards, when Mr Ngai visited Tung Fook he asked Mr Chung Cheong about the draft label and whether the business of the new wine was finalized. Mr Chung Cheong asked him to talk to Chung Hau Yuen on the matter. About a year later, Chung Hau Yuen told Mr Ngai that the new wine would soon be arriving in Hong Kong and asked him to design posters for the Super Mellow Mijiu. The matter was then handled by an assistant of Mr Ngai. Mr Ngai said that China Advertising received a design fee for the label, this was included in the charge for supplying the poster to Chung Hau Yuen.

The gist of Mr Ngai's evidence is that the design of the Super Mellow Mijiu label was discussed between him and Mr Kwok. It was after he had prepared the design that he talked to Chung Hau Yuen. Mr Ngai had previously signed three written documents for this case, the first was in the form of a statement in Chinese while the other two were affirmations.

The first statement was dated 16th September 1995. He said he was asked by a former colleague of China Advertising to meet Mr Dong of GDF and a solicitor. The solicitor prepared the statement for him to sign. In this statement, he said that it was Chung Hau Yuen who instructed him to prepare the Super Mellow Mijiu label. It was stated that in 1979, Chung Hau Yuen of Tung Fook telephoned him and asked him to prepare a design for the label of a wine. He then went to Chung Hau Yuen's office. On arrival in Tung Fook, Mr Chung Cheong told him that the matter of the design would be handled by Chung Hau Yuen and he could discuss the matter with Chung Hau Yuen. Chung Hau Yuen told him that Tung Fook would introduce a rice wine and he hoped that it would be distinctive from the other wine of Tung Fook. Chung Hau Yuen had also asked him about the names of the wine and the names mentioned were 特質米酒 and 特醇米酒 but the matter was not concluded then. Afterwards, there were further discussions. He told Chung Hau Yuen that as the name of his company had the word "Fook" "福", the design should use the idea of the Chinese New Year paper decoration (揮春). The idea of dragons and the shape of a Chinese seal chop were also mentioned. It was decided to use the 北魏字體 for the words Super Mellow Mijiu, 特醇米酒. Thereafter, Chung Hau Yuen took him to see Mr Kwok of Wu Fung Hong to consult his views.

On 18th September 1995, Mr Ngai made an affirmation ("the first affirmation"). He was told by the lawyer that it was a matter of procedure to sign the document. Apart from some minor aspects, the content of the affirmation was the same as the Chinese statement. Mr Ngai said that the contents of these two documents were different from what he had told the lawyer. Nonetheless, he was asked by the lawyer to sign these two documents. When he was asked to prepare to sign the affirmation, he told the lawyer that it was in English and he did not understand English and the lawyer orally explained to him in Cantonese about the content.

Apart from these two documents, Mr Ngai had given a further affirmation ("the second affirmation") to the Defendants' solicitors. In it he stated that part of the content of the first affirmation was not what he had said and he made the second affirmation to clarify the position. In the second affirmation, he said that he had informed the Plaintiffs' lawyer and Mr Dong that it was Chung Hau Yuen of Tung Fook who contacted him for the design of the labels. He also stated that he did not tell the lawyer that Mr Chung Cheong had retired at that time and that the business of Tung Fook was handled by Chung Hau Yuen. Further, Chung Hau Yuen did not mention about rice wine from Guangdong. In the first affirmation, it was stated that :

"5. .... I was instructed by Mr Chung Hau Yuen to design and write this Chinese characters of 特醇米酒. The idea came from him and not from me."

In paragraph 4C of his second affirmation, he stated that :

"I never said the words 'The idea came from him and not from me' and I will not agree to that. During the design process, Mr Chung Hau Yuen gave me some indication about how he wanted the label to be, and after getting an understanding of what he wanted I started to design the labels by expressing the ideas on paper and preparing drafts. Mr Chung Hau Yuen, and other people like Mr Kwok Kang Kai of Ng Fung Hong, gave their comments and after several exchange of ideas and several amendments by the design staff of China Advertising, the final version of the labels for the 'Super Mellow Mijiu' were finalized."

Mr Ngai also denied that Chung Hau Yuen took him to see Mr Kwok. He further denied he had said that the words "XO" were added to the product by Chung Hau Yuen himself.

(3) The solicitors' evidence : rebuttal of Ngai Chung's evidence

The Plaintiffs called Mr Kwong Mun Fai, the solicitor who described the meeting he had with Mr Ngai and Mr Dong and a Vice Manager of China Advertising on 16th September 1995. He had also prepared an affidavit about the meeting. Mr Kwong said that he explained to Mr Ngai the purpose of the meeting and that he had to ask him the facts surrounding the design of the label of the Super Mellow Mijiu. He then asked Mr Ngai on the history of the design and told him specifically that he was required to tell the truth no more and no less. Mr Ngai then gave him an account of what had happened. Mr Kwong also asked him some questions on matters specifically which he answered. After Mr Ngai had finished, he reduced the information into a Chinese written statement. He asked Mr Ngai to read the statement. He read and confirmed the statement by signing his name and initialing the amendments on the statement. He then told Mr Ngai that he would be preparing an affirmation based on what he had said and Mr Ngai would be asked to sign the affirmation in the next few days.

A few days later, when the affirmation (i.e. the first affirmation) was ready, he asked Mr Ngai to come to his office so that he could bring him to another solicitor to have the affirmation affirmed. Mr Ngai, however, told him that he could not leave his office. He then arranged Mr Eddy Wong of Messrs Anthony Kwan & Co. to go with him to meet Mr Ngai in order to administer the oath. Arriving at Mr Ngai's office, he introduced Mr Ngai to Mr Wong and explained to him that Mr Wong's role was to administer his oath on the affirmation. He then explained to Mr Ngai in Chinese the contents of the first affirmation paragraph by paragraph. After he finished, he asked Mr Ngai whether he agreed with the contents. Mr Ngai said he agreed. Mr Wong also asked Mr Ngai whether he understood the affirmation and Mr Ngai answered in the affirmative. Mr Wong then asked Mr Ngai to sign the affirmation. No pressure was brought to bear on Mr Ngai.

Mr Eddy Wong had also prepared an affirmation dealing with the taking of the affirmation of Mr Ngai.

The evidence of the two solicitors was not challenged.

8. Deterioration of relationship between GDF and Foshan Foods : The 1993 Soy sauce Incident

The evidence was given by Mr Hu and Mr Dong Shi Sen (董士森) who is the current Deputy General Manager of GDF. Between May 1991 and March 1994, he was the head of the Processed Food Unit (糖雜科科長). From March 1994, he became the Deputy General Manager of GDF.

On two occasions in 1993, the Pearl River Bridge soy sauce produced by Foshan Foods were found to be below the required standard. It was discovered that Foshan Foods had asked a soy sauce factory in Pun Yi (番禺) to produce the soy sauce instead of the designated factory and had given misleading information on its origin. GDF decided to notify the other sub-branches of this matter. Following the notice by GDF, Foshan Foods and Mr Yuan wrote to GDF on the incident. Foshan Foods further approached GDF to explain the position. By a notice dated 18th November 1993, GDF informed the various sub-branches and organizations that GDF would not consider signing a new trade mark licence with Foshan Foods. By a letter dated 4th December 1993 to GDF, Foshan Foods accepted the criticism made by GDF. It also requested GDF to sign a new trade mark licence with Foshan Foods. But GDF did not allow Foshan Foods to use the Pearl River Bridge trade mark on soy sauce but only on other products.

Mr Yuan did not dispute what had happened in relation to the soy sauce incident. He merely stated that the wrong was done by two staff of Foshan Foods. He said that he sent the self-criticism letter because he wished to complete the contracts on the supply of the Pearl River Bridge soy sauce.

9. Trade mark licence

On 30th December 1993, GDF entered into a trade mark licence with Foshan Foods for the use of the Pearl River Bridge trade mark on the Super Mellow Mijiu and the Shiwan Mijiu (Bundle J/1). Foshan Foods said that the agreement was signed on 7th January 1994. The duration of the licence was until 1st February 1995.

10. Production Letter

By a Production Letter signed by Shiwan Brewery in April 1994, GDF entrusted Shiwan Brewery to produce three types of wine with the Pearl River Bridge trade mark, namely, 雙蒸，三蒸，玉冰燒.

11. The 1995 advertisement on the Zu Miao 祖廟 wine

Around the Chinese New Year of 1995, Mr Dong was notified by Mr Leung Koon Hei of Yau Shing Hong in Hong Kong that an advertisement appeared in the Hong Kong newspaper. Later, he received the advertisement which stated that :

"	特醇米酒
珠江橋牌	石灣米酒	更改為『祖廟牌』商標
	雙蒸米酒
	三蒸米酒

啟事

佛山石灣酒廠出品之特醇米酒、石灣米酒、雙蒸米酒、 三蒸米酒等均為佛山食品進出口公司之傳統名牌商品，過去因限制關系，沿用珠江橋牌為商標。現為突出該系列產品之地方特色，並為適應今後大力發展業務，開拓巿場之需要，特更改為祖廟牌商標。

為報答消費者幾十年來對該系列產品之愛護和支持，我們保證在原有基礎上精益求精，進一步提高產品質素，在包裝裝璜上也有新的改進，將以高質鋁蓋取代原膠蓋，令產品更瑧完美。請認明祖廟牌商標及玻璃瓶下方之「佛山食品進出口公司經營」字樣，方為正貨。

今後祖廟牌特醇米酒、石灣米酒、雙蒸米酒、三蒸米酒仍分別委托原經銷商香港同福酒行（1982）有限公司、中大酒業有限公司及生發酒業有限公司為香港地區之經銷，敬希垂注。

廣東省佛山食品進出口公司
一九九五年一月二十八日”

“ 聲明

佛山巿石灣酒廠出品之正宗特醇米酒、石灣米酒、豉味玉冰燒、雙蒸米酒、三蒸米酒，已有165年歷史。秉承石灣陳太吉傳統釀酒工藝技術，純米釀造，質量上乘，規模最大；系列產品凡有「玉結冰清、豉香獨佳、醇和細膩、餘味甘爽」的特點。均為傳統名牌產品。為突出我廠系列產品之地方特色，慎防假冒，保障消費者權益，我廠今後不再生產珠江橋牌商標的系列米酒，改為生產「祖廟牌」商標的系列米酒，由佛山食品進出口公司獨家經營出口。並承諾在原有的基礎上，進一步提高產品質量，改進包裝裝璜，令產品更具特色，顧客購買時，請認明祖廟牌商標，方為正貨。特此聲明，敬希垂注。

佛山巿石灣酒廠
一九九五年一月二十八日”

The Zu Miao Super Mellow Mijiu and Shiwan Mijiu labels are as follows :

 

 

 

(1) Mr Dong's view

Mr Dong said that the advertisement was misleading and incorrect because :

(1) the Pearl River Bridge trade mark was held by GDF and Foshan Foods had no right to change the brand name of the products;

(2) the advertisement referred to the production of "雙蒸" and "三蒸" by Shiwan Brewery and that they were the traditional products of Foshan Foods. This was incorrect because these two products were also produced by breweries in 三水、南海 and 九江;

(3) it was wrong to ask the consumers to recognize the Zu Miao as the real or genuine product because the Pearl River Bridge line of rice wine had been on sale from the 1970's to 1994. And GDF had allowed Foshan Foods to use the trade mark until 1st February 1995.

Mr Dong reported the matter to Mr Hu and GDF decided to appoint Yau Shing Hong to be the distributor of the Pearl River Bridge rice wine in Hong Kong. A new brewery was appointed to produce the Super Mellow Mijiu and Shiwan Mijiu.

12. Announcement by GDF

On 25th February 1995, GDF advertised in the newspapers that it was the owner of the Pearl River Bridge trade mark and had not authorized any company to change the Pearl River Bridge line of rice wine to any other label. The announcement was made in response to the notice issued by Foshan Foods and Shiwan Factory in the newspaper.

13. Registration by Tung Fook (1982) of the Super Mellow Mijiu trade mark

On 29th, 30th and 31st May 1995, Tung Fook (1982) advertised in the Tin Tin Daily News that it was the owner of the Super Mellow Mijiu trade mark. The announcement stated that :

" 鄭重聲明

佛山巿石灣酒廠生產之'特醇米酒'，品質醇厚，獨具風味，深受消費者歡迎與愛護，歷來由佛山食品進出口公司出口，由 同福酒行(1982)有限公司在香港經銷。為保証該產品免受冒牌商品侵權，香港同福酒行(1982)有限公司已將'特醇米酒'招紙圖案，色標(圖外框黃金色，內框圖邊紙大紅色，標紙土黃色)辦理註冊(註冊專用No : 02010/1995)，依法享有專用權，在香港地區受法律保護 。

近來巿場上發現非石灣酒廠生產的'特醇米酒'，並且用我司專有招紙圖案，色標及字體，混淆石灣酒廠的酒品，嚴重侵犯了本公司的合法權益，也捐害了廣大消費者的利益，為此，本公司特嚴正聲明如下：未經我公司許可或授權，不得製作和銷售招紙外觀與我註冊圖案相同或相近的'特醇米酒'；凡侵犯我權益者，必須立即停止侵權行為，否則，將依法追究侵權者的經濟和法律責任。

慎防假冒，購買者請認明石灣酒廠出品，中國廣東佛山食品進出口公司監制之'祖廟牌'、'特醇米酒'專用色彩圖案，方為正貨。"

GDF was again informed by Mr Leung of Yau Shing Hong of the advertisement and it was then discovered for the first time that Tung Fook (1982) had applied for registration of the trade mark No.02010/95 on 8th June 1993. (See Certificate of Registration dated 20th March 1995, Bundle CB/297).

14. Newspaper Article

On 2nd June 1995 an article appeared in the Tin Tin Daily News on the confusion caused by the Pearl River Bridge Brand and the Zu Miao brand Super Mellow Mijiu (Bundle CB/286)).

15. Actions taken by Tung Fook (1982)

On 8th June 1995, Hastings & Co., the solicitors for Tung Fook (1982), wrote to Yau Shing Hong stating that Tung Fook (1982) was the registered owner of the Super Mellow Mijiu trade mark and alleged Yau Shing Hong had infringed the trade mark and passed off wine of Tung Fook (1982).

GDF was informed by Yau Shing Hong of this letter. As GDF was not familiar with the laws of Hong Kong, it decided to ask Yau Shing Hong to design a new label for the Super Mellow Mijiu for the purpose of testing the Hong Kong market.

In June or July 1995, GDF's Super Mellow Mijiu with the new label was sold in Hong Kong. The wine with the new label was also advertised in the newspaper. After the advertisement, Tung Fook (1982)'s solicitors issued letters to the Park'n Shop Supermarket in Hong Kong demanding it to stop selling the Pearl River Bridge Super Mellow Mijiu.

After GDF was informed of this by Yau Shing Hong, it decided to seek legal advice and after consulting lawyers in Hong Kong, GDF commenced the present proceedings. GDF also resumed the use of the old Super Mellow Mijiu label.

16. Withdrawal of stocks from Park'n Shop

DW7 Mr Leung Koon Hei is a Director and Deputy General Manager of Yau Shing Hong. He said that after Park'n Shop received Hastings' letter in July 1995, Yau Shing Hong was forced to withdraw the stock from Park'n Shop. Park'n Shop only resumed the sale of the Super Mellow Mijiu in November 1995. Mr Leung had calculated the loss of the four months' sale in the sum of HK$103,063. The particulars are set out at Bundle B6/207.

17. Litigation in the Mainland

There had been litigation between Shiwan Brewery and GDF in the Mainland concerning the use of the labels and names of the wine. There were also competiting registration of the trade marks. The parties agreed that these matters are of no relevance to the present litigation.

Part II

1. Findings on the Shiwan Mijiu

(1) Plaintiffs' evidence

I accept the evidence of Mr Lor and Mr Tang on the history of Shiwan Mijiu. Mr Lor was in charge of the Processed Food Department of GDF when the decision to introduce the wine was made. He was the only one who could give a comprehensive picture of the history of Shiwan Mijiu from its development to its subsequent cancellation and later revival. I find his evidence truthful. Mr Tang signed the contract with Chung Tai for the Shiwan Mijiu in the Autumn Trade Fair 1975. In my view one of the best evidence which supported the decision to introduce four new wine in 1975 was the contract signed in the same Trade Fair by Mr Tang for the 中山米酒 (Bundle D(11a)/493). The Defendants' allegation that the 紅牌雙蒸 was already in the market when the Shiwan Mijiu was introduced was not put to the Plaintiffs' witnesses.

(2) Assessment of Mr Chiu

I do not accept Mr Chiu's evidence on the Shiwan Mijiu. I find him to be selective in his memory. His denial of attending the conference which discussed the introduction of four new wine (he also denied attending the conference in February 1979 in which the Super Mellow Mijiu was agreed to be introduced) was a deliberate attempt of not telling the truth. I do not accept that a new wine could be introduced after discussion between a sub-branch company and the brewery. It would be too much of an co-incidence that at some time, three other types of new wine were also introduced without GDF agreeing to their production. Although Mr Chiu denied that the production of the new wine would require the approval of GDF because he said that Wu Fung Hong had already given its approval, his view was different from that of Mr Yuan who said that the approval of GDF, Foshan Foods and Wu Fung Hong must all be obtained first.

(3) Assessment of Mr Chen

During the planned economy, Shiwan Brewery was only a production unit. It was not engaged in the export trade. I do not accept that in relation to a decision which introduced four new wine to the Hong Kong market, the name of the wine would be left to the production unit. I find that the names of the four new wine were already decided at an earlier stage at the conference of the Processed Food Section before Shiwan Brewery was instructed to produce the wine. As it was only involved in the actual production of the wine, it would not know many of the decisions reached earlier or how the export was to be carried out.

(4) Assessment of Mr Cheung's evidence

Mr Cheung Loy Chun of Chung Tai also gave evidence on how Chung Tai became the distributor of the Shiwan Mijiu and his efforts in trying to revive the Shiwan Mijiu after its cancellation. His evidence does not advance the Defendants' case further. The Plaintiffs' case as disclosed by Mr Tang is that Mr Tang was introduced to Mr Cheung in the Autumn Trade Fair of 1975 and the contract for the Shiwan Mijiu was signed at that Trade Fair. Mr Cheung's evidence was that he was promised by Mr Sik of Wu Fung Hong before the Spring Trade Fair that Chung Tai would be given the distributorship. Mr Cheung and another person from Chung Tai, namely, Mr Kung Shui Chian had attended the Spring Trade Fair of 1975. At this Trade Fair, they were introduced to Mr Chiu and they were given samples of the Shiwan Mijiu and labels of the Shiwan Mijiu.

The episode of the Spring Trade Fair was not even put to the Plaintiffs' witnesses. It is apparent from the evidence adduced in this case that the Defendants are trying to boost the role played by Foshan Foods and minimize the importance of GDF. Mr Cheung and Mr Kung's evidence are not reliable. The labels for the Shiwan Mijiu could not possibly have been given to them at the Spring Trade Fair of 1975. Even according to Mr Chen, the draft label was only shown to Chiu Kong in the Spring Trade Fair of 1975 who returned it to him two or three days later and printing of the labels only started in June or July of that year.

2. Findings on Super Mellow Mijiu

(1) Assessment of Chung Hau Yuen

In my view, Chung Hau Yuen is a truthful witness. The impression that comes out from his two and a half days of evidence is that he is a man with an acute business sense. I have no doubt whatsoever that he conceived the idea of the Super Mellow Mijiu and it was through his efforts that this product came to the market and became a success. He obviously, after so many years, still took great pride in what he had achieved in this regard. I accept his evidence relating to the meeting with GDF in February 1979 and the wine tasting in Shiwan Brewery that took place on an occasion between February and May 1979. I accept his evidence that he also conceived of the label design of the Super Mellow Mijiu. He accepted that Mr Kwok might have discussed with Mr Ngai in 1978 about the name and design of the Super Mellow Mijiu.

Mr Tang S.C., Counsel for the Defendants, submitted that Chung Hau Yuen had deliberately minimized the role of Mr Chung Cheong in the development of the Super Mellow Mijiu. He stated that Mr Chung Cheong was a well-established wine merchant; he was the representative of the Chambers of Commerce, and he had been received by the Mainland as a State guest. None of these, in my view, casts doubt on the credibility of Chung Hau Yuen's evidence. By the time the Super Mellow Mijiu was developed, I find as a fact that Mr Chung Cheong had let his younger son taking over the operation of the wine business. Even according to Mr Ngai, he was told by Mr Chung Cheong to discuss the matter of the Super Mellow Mijiu label with Chung Hau Yuen. Mr Tang Tak Kwan further stated that from 1977 to 1978 onwards, Mr Chung Cheong had stopped going to the Trade Fair.

I accept Chung Hau Yuen's evidence that the reason why he set up Bo Man Hong was not because he deliberately left Tung Fook and set up a rival business. Bo Man was the alias of his father. Obviously, there was sibling rivalry and discord within the family and he was not the favourite son of his mother. For someone who had to give up his studies to comply with the wishes of his father to work in Tung Fook, it would be very difficult indeed to accept the sudden intrusion at the scene of his elder brother Chung Who Cheung who obviously was the favoured son of the mother.

I further accept his evidence that after the meeting with the Foshan Foods' representatives in Hong Kong in March 1985, he did not sign the written agreement drafted by Mr Yuan. Had he done so, one would expect a copy or the original of the document to be in the possession of Foshan Foods. I further accept his evidence as to why he had eventually lost interest in the wine business. Obviously he was disillusioned with the approach of GDF in first granting him the distributorship of the Super Mellow Mijiu and then allowed Tung Fook (1982) to be a co-distributor. The problem with GDF failing to actively assist him when he encountered problems from the distributor of 玉冰燒, contributed to his decision to sell the stock of wine to City Mineral Water. I accept that it was GDF which determined Bo Man Hong's distributorship although the actual telex of termination was not produced in evidence.

(2) Assessment of Mr Lor's evidence

It was suggested that Mr Lor had mishandled the distributorship of the Super Mellow Mijiu and was thus side-stepped by GDF in later dealings of the wine. The evidence showed that Mr Lor was in fact promoted in GDF and his lack of knowledge on subsequent dealings of the wine was not attributable to his being reprimanded for not handling the distributorship properly.

(3) Assessment of Mr Ngai's evidence

I do not find Mr Ngai to be a credible witness, he is now 70 years of age and he was dealing with a matter that took place 20 years ago. Although he maintained that he remembered the Super Mellow Mijiu design because it was his design, obviously, his evidence on the circumstances in which the design came into being was faulted. He repeatedly said in his evidence that he had done many designs before. In my view, either he was deliberately lying or he was totally confused and could not remember what had actually transpired.

The Plaintiffs accepted that Mr Ngai might have some contact with Mr Kwok in 1978 and Mr Ngai might have done some work before, but the idea all came from Chung Hau Yuen. I accept the evidence of Chung Hau Yuen that it was he who had suggested how the design should be like. I accept what the two solicitors said regarding the taking of the Chinese statement and the first affirmation of Mr Ngai. I find that no pressure was brought on Mr Ngai when he signed these two documents. There are differences in the contents of the first and second documents. But in the main, they confirmed that it was Chung Hau Yuen who had contacted Mr Ngai and discussed the Super Mellow Mijiu design.

While there may be minor disputes to the contents of the first affirmation, the overall impression one gets from reading Mr Ngai's second affirmation is that it was Chung Hau Yuen who first contacted him and discussed with him about the design. This is totally contrary to his evidence in Court which suggested that Chung Hau Yuen only came into the picture after the design was finalized.

(4) Assessment of Mr Chen Bing Hao's evidence

I do not find Mr Chen Bing Hao to be a credible witness. The impression of his evidence is that he attempted to raise the role of Shiwan Brewery in the Super Mellow Mijiu episode. I do not accept Mr Chen's evidence that the name of the Super Mellow Mijiu was discussed in April/May 1979 in Shiwan Brewery. By that time, the name of the wine had already been decided. Mr Chen said that in April/May 1979, the label that was brought to Shiwan Brewery was blank in the middle and there were two names of 特質米酒 and 特級米酒. This is simply not believable. By that time, I find that the label had been finalized and the name that appeared on the label was the Super Mellow Mijiu. Mr Chen's witness statements made no reference to Mr Lam Chun, who allegedly advised on the name of Super Mellow Mijiu. This was not something that was put to the Plaintiffs' witnesses. I do not accept that such an event had occurred. On the Defendants' own case, if the dates inserted on the draft design of the words and logo of Super Mellow Mijiu were correct, then the name of Super Mellow Mijiu must have been decided before April and May 1979 which Mr Ngai said was the time the name was decided. This is inherently improbable.

(5) Assessment of Chan Wan Fai's evidence

I also do not find Mr Chan Wan Fai's (陳運輝) evidence on the question of Super Mellow Mijiu to be convincing. He said that at the second visit, the design was shown but he could not recall the name of the wine on the label. I find that the name of the wine had clearly appeared on the label and Mr Chan's evidence was a concerted attempt together with Mr Chen and Mr Chiu to minimize the role of Chung Hau Yuen in this regard. I find that the name of the Super Mellow Mijiu had been chosen before the tasting in the Brewery. I have given due consideration to the fact that as the events took place many years ago, the memory of the witnesses might not be as factually accurate as one is dealing with recent events. But even with this consideration, the overall impression is that the inaccuracy is due to more than merely lapses in memory.

Although Mr Chan said that Mr Chung Cheong was the one who raised the matters such as the use of the glass cups for the wine, he conceded that he referred to the role played by Mr Chung Cheong because he was the head of Tung Fook.

Mr Chan also said that it was Shiwan Brewery who suggested the name Super Mellow Mijiu. In his written declaration dated 15th August 1995, he stated that it was Tung Fook who decided on the name "當時是同福酒行定品名" (Bundle D2/927). Although initially in his evidence he denied that he had said Tung Fook named the wine, he conceded after seeing his declaration that he had. He explained that the name was suggested by Shiwan Brewery and later when the label was printed, the name was mentioned by Tung Fook. His statement, however, did not mention about Shiwan Brewery suggesting the name. He explained that the statement did not give details of the discussion between the parties. I find it difficult to accept his explanation. I consider this to be an afterthought. There had been a long history of litigation between GDF and the Shiwan Brewery, and the matter regarding the discussion of the name of Super Mellow Mijiu ought to have been raised by the Defendants earlier.

The evidence of what Mr So said was clearly hearsay in nature. Mr So had in fact attended court but chosen not to give evidence. The explanation given was that he was ill. I would attach no weight to what Mr So had allegedly said. I do not accept the evidence of the Defendants' witnesses who deposed to what Mr So had said. I do not accept that in the discussions in 1979, the question of local flavour was raised.

(6) Assessment of Mr Chiu's evidence

Obviously, Mr Chiu was selective in his evidence. While he could give detail account of the names of persons who attended certain meetings, he could not recall important event such as the 1974 conference in which the four types of new wine were to be introduced by GDF in the market, nor could he recall the important meeting on the Super Mellow Mijiu in February 1979. Although he said he was 65 years of age, I do not accept that his lack of memory on these important issues was due to his age. It was rather a deliberate attempt not to reveal the truth of the development in these two wine. Another example of this is his evidence regarding the label of the Super Mellow Mijiu. While he praised the design of the label, he said that he could not recall whether the name of the wine was placed on the label. Similar evidence came from DW15 Chan Wan Fai.

(7) Contract with Bo Man Hong

I accept what Mr Tang said regarding the signing of the contract dated 1st November 1982 with Bo Man Hong. What he had disclosed in his evidence earlier did not contradict with what he subsequently said on this matter. His earlier evidence merely stated that he did not know whether after the contract with Tung Fook (1982) signed in the Autumn Trade Fair of 1982, there was further supply of products to Bo Man Hong.

Chung Hau Yuen was not cross-examined on the contract with Bo Man Hong dated 1st November 1982 when his evidence was taken in Canada. He also prepared a written witness statement dealing with this contract which I had referred to earlier. The admissibility of the statement was not contested but the content was. There really is no evidence to contradict what Mr Tang and Chung Hau Yuen said on the contract with Bo Man Hong.

(8) Assessment of Chung Who Cheung's evidence

The record of the meeting between Mr Lau and Chung Who Cheung in the Spring Trade Fair of 1982 was not sent to GDF. It is the Plaintiffs' case that only Mr Hu and Ms Kuk were present at this meeting. During the cross-examination of Chung Who Cheung, he said that the original photocopy of the record of meeting was still with Tung Fook (1982). He was asked to locate the document. On the following day, he said he was unable to find the original photocopy. He said that the photocopy, together with other documents, were given to his solicitors and they had not returned the documents to him. Mr Tang, S.C., informed the Court that Hastings & Co. had conducted a search of their office and could not find the original photocopy. Then on the next day, Chung Who Cheung said that he had found the original photocopy. He said that the document was given back to him by Hastings & Co. together with other documents but he did not realise the document was in that bundle of documents. The bundle was with the representatives of Shiwan Brewery who were staying in a hotel in Hong Kong. He only discovered the document after he tried to look for it again.

The Plaintiffs had contested the authenticity of the document at the opening of the case and suggested that the record was not a contemporary document. This document was only disclosed on 11th May 1998, a few days into the trial. Chung Who Cheung said that he had the original photocopy for a long time. The original photocopy in fact was found by him two to three months before the trial. Although he said that he did not know whether the document was important or not, he also said that he was reluctant to reveal his documents to the Plaintiffs. His explanation was not credible. He must have realised the importance of the document, otherwise there was no reason for him to withhold the disclosure earlier.

He had given two witness statements. The first was given in 1997, it did not mention the meeting. Among the odd things of this record is the name of GDF. The name used by him was 廣東省食品進出口公司. This name was only changed in 1988. Mr Chung said that he always used the name 進出口公司. However, on the first page of the record, the name he used was 廣東省食品公司 and on the second page, he also used the name 廣東省食品公司.

I am not satisfied with the authenticity of the record of the meeting. In my view, the only explanation for Chung Who Cheung's reluctance to produce the original photocopy is that he was concerned with the challenge to the authenticity of the document by the Plaintiffs. I find his explanation on how he was unable to locate the document suspicious. Mr Lau of GDF had since died and was of course unable to give evidence. Mr Tang, S.C., submitted that the contemporary evidence supported Chung Who Cheung's case that there was such a meeting with Mr Lau and Mr Hu. He referred, for example, to the reference letter by Mr Lin Gwun (連貫國務院僑務辦公室副主任), the offer of employment by Tung Fook (1982) to Chung Hau Yuen and his rejection of the offer. He also referred to Chung Hau Yuen's evidence that Mr Lau had informed him that the distributorship would be given to Tung Fook (1982) and Bo Man Hong.

None of these, in my view, casts doubt on Mr Hu's evidence in this regard. He was adamant that he did not know how Bo Man Hong became the distributor again. In my view, it may well be that Mr Lau had separately dealt with this matter with Chung Who Cheung and with Chung Hau Yuen. It is not necessary to speculate on the matter. But as far as Mr Hu was concerned, his role was merely to tell Chung Who Cheung that Tung Fook would be given back the distributorship. I accept Mr Hu's evidence that it was he who informed Chung Who Cheung that he would be given the distributorship.

I do not accept Chung Who Cheung to be a credible witness. What he said regarding the meeting of May 1982 was inherently incredible. If what he said was true, GDF would hand back the distributorship to him in the Autumn Trade Fair of 1982. GDF had also suggested the elaborate arrangement of inviting Chung Hau Yuen to be a director of Tung Fook (1982). Yet, when he subsequently met those who he had sought help, such as Mr Lin Gwun and Mr Yim Sheung Man (嚴尚民) of "粵海投資有限公司" which is a company of the Guangdong Province in Hong Kong, he did not tell them that an agreement had been reached with GDF on the change of distributorship. The impression one gets from his evidence is that he did not treat the agreement as something of importance or significance. Yet it was important for him to reduce the agreement into writing so as to bind GDF. He had further gone so far as to obtain a letter from Mr Lin in which Mr Lin asked his friend to intervene in the matter because the question of the distributorship with Tung Fook had not been satisfactorily resolved. The letter was dated 26th August 1982, which was three months after the alleged meeting. In a further letter dated 30th September 1982, written by Chung Who Cheung to GDF, regarding Guangnam Hong's refusal to take the orders of Tung Fook, he merely asked GDF to deal with the matter fairly (秉公辦理) and to provide reasonable arrangements (合理安排). If GDF had indeed agreed to give back the distributorship to Tung Fook, one would expect Chung Who Cheung to say this in the letter instead of merely asking GDF to deal with the matter fairly. This is totally inconsistent with the terms of the alleged meeting. On the other hand, the letter of 30th September 1982 was consistent with Mr Hu telling him and his mother that GDF would consider their request to be given back the distributorship. At the Autumn Trade Fair of 1982, Chung Who Cheung had to wait for ten days before the distributorship was given back to him. This is consistent with the Plaintiffs' case that the decision to give the distributorship to Tung Fook (1982) was only reached at the Trade Fair.

Likewise, Chung Who Cheung's evidence that in the Autumn Trade Fair 1981, Mr Lau had promised to give him back the distributorship at the next trade fair was equally incredible. Mr Hu must be a bold person and acted contrary to the instructions of his superior if, notwithstanding the clear direction of Mr Lau, he chose to give the contract to Bo Man Hong at the 江門小交會. All these matters lead me to accept the evidence of Mr Hu that it was he who dealt with Chung Who Cheung and his mother when they requested for the return of the distributorship. Some Government officials might have intervened in the matter, but I find that the ultimate decision rested with GDF on the change of distributorship. Chung Who Cheung must have realized that this was the case, otherwise, he would not have taken all the steps of securing supports from his acquaintances.

Part III

1. Passing-off

(1) The Law

Passing-off is concerned with misrepresentations made by one trader which damage the goodwill of another. Misrepresentation, damage and goodwill are the three essential elements of the plot of passing-off : The Law of Passing-off by Wadlow, 2nd Edn.

(2) Relevant date

In passing-off action, the relevant date must be earlier than the date of the writ, for there must have been an actual or threatened infraction by the Defendants of a pre-existing reputation : J.C. Penney v. Penneys [1975] FSR 367 at 381. The parties agreed that the relevant time is early 1995 when the Zu Miao Super Mellow Mijiu and Shiwan Mijiu were introduced by the Shiwan Brewery in Hong Kong.

(3) Goodwill

The meaning of goodwill was discussed in the Privy Council decision of Star Industrial Company Limited v. Yap Kwee Kor (trading as New Star Industrial Co.) [1975] FSR 256. Lord Diplock at p.269 stated that :

"....A passing-off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing-off one person's goods as the goods of another. Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached. It is local in character and divisible; if the business is carried on in several countries a separate goodwill attaches to it in each. So when the business is abandoned in one country in which it has acquired a goodwill the goodwill in that country perishes with it although the business may continue to be carried on in other countries."

Goodwill is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in customers. It is the one thing which distinguishes an old established business from a new business at its first start : The Commissioners of Inland Revenue v. Muller & Co.'s Margarine Ltd. [1901] A.C. 217, per Lord Macnaghten.

(4) Misrepresentation

In A.G. Spalding & Bros. v. A.W. Gamage Ltd. [1915] 32 R.P.C.273 Lord Parker at 284 stated that :

" My Lords, the basis of a passing-off action being a false representation by the defendant, it must be proved in each case as a fact that the false representation was made. It may, of course, have been made in express words, but cases of express misrepresentation of this sort are rare. The more common case is, where the representation is implied in the use or imitation of a mark, trade name, or get-up with which the goods of another are associated in the minds of the public, or of a particular class of the public."

(5) Ownership of Goodwill

Wadlow in the Law of Passing-Off para.2.53 stated this :

"...... Goodwill is created by trading activities, but it often happens that more than one business is involved in the sequence which results in goods or services being made available to the consuming public. If so, then the question arises of which of those businesses is the owner of goodwill which the law recognizes as damaged when a third party passes off his goods or business as those with which the public is acquainted. The problem arises in two main contexts. One is where two or more businesses which have previously worked together fall out. ......"

" There are two distinct, and not necessarily consistent, standards in this passage. One is to ask who is in fact most responsible for the character or quality of the goods; the other is to ask who is perceived by the public as being responsible. The latter is the more important, but it does not provide a complete answer to the problem because in many cases the public is not concerned with identifying or distinguishing between the various parties who may be associated with the goods. If so, actual control provides a less conclusive test, but one which does yield a definite answer.

To expand, the following questions are relevant as to who owns the goodwill in respect of a particular line of goods, or, mutatis mutandis, a business for the provision of services:

(1) Are the goods bought on the strength of the reputation of an identifiable trader?

(2) Who does the public perceive as responsible for the character or quality of the goods? Who would be blamed if they were bad?

(3) Who is most responsible in fact for the character or quality of the goods?

(4) What circumstances support or contradict the claim of any particular trader to be the owner of the goodwill? For example, goodwill is more likely to belong to the manufacturer if the goods are distributed through more than one dealer, either at once or in succession. If more than one manufacturer supplies goods to a dealer and they are indistinguishable, the dealer is more likely to own the goodwill.

If none of these gives a result, the goodwill may generally be assumed to belong to the actual manufacturer of the goods."

In T. Oertli AG v. E. J. Bowman (London) Ltd. and Others [1957] 16 RPC 388 (Court of Appeal) and [1959] RPC 1 (House of Lords), OAG the manufacturers in Switzerland of a mixing machine there known as "Turmix", granted to P. Ltd. an exclusive licence to manufacture and sell the machines in Great Britain, and to use the Trade Mark "Turmix" which OAG had registered in Great Britain. The licence was informally transferred from P. Ltd. to B. Ltd. with the knowledge and consent of OAG. B. Ltd. manufactured and sold the machines under the name of "Turmix" but neither on the machines nor their containers, nor on their stationery, etc., was there any reference to OAG. After the licence was terminated, B. Ltd. continued to sell the machine under this name but then commenced to manufacture and sell a machine called "Magimix" which they stated was an improvement on their former machine. OAG then commenced an action alleging, inter alia, that B. Ltd. had passed-off their goods as the goods of OAG. Jenkins, L.J. held that :

".... It is, of course, essential to the success of any claim in respect of passing-off based on the use of a given mark or get-up that the plaintiff should be able to show that the disputed mark or get-up has become by user in this country distinctive of the plaintiff's goods so that the use in relation to any goods of the kind dealt in by the plaintiff or that mark or get-up will be understood by the trade and the public in this country as meaning that the goods are the plaintiff's goods. The gist of the action is that the plaintiff, by using and making known the mark or get-up in relation to his goods, and thus causing it to be associated or identified with those goods, has acquired a quasi-proprietary right to the exclusive use of the mark or get-up in relation to goods of that kind, which right is invaded by any person who, by using the same or some deceptively similar mark or get-up in relation to goods not of the plaintiff's manufacture, induces customers to buy from him goods not of the plaintiff's manufacture as goods of the plaintiff's manufacture, thereby diverting to himself orders intended for and rightfully belonging to the plaintiff. But, as appears from 'Kerly on Trade Marks', 7th Edition, at page 521,

'.... it is not, however, necessary to show that the customers who knew the goods of the plaintiff's firm by a particular name or get-up knew anything whatever about the plaintiff. It is immaterial that they did not even know his name; for it is sufficient to prove that purchasers of his goods recognized, by the use of the marks in question in connection with them, that they were goods of a particular class, and to show that such class is, in fact, constituted by his goods.' (emphasis added)

See also William Edge & Sons Ld. v. William Niccolls & Sons Ld., [1911] A.C. 693. Nevertheless, if the plaintiff cannot prove the association or identification of the disputed mark or get-up in this country with goods in fact of his manufacture, the action fails in limine."

The court held that B. Ltd.'s manufacture and sale of "Turmix" machines did nothing to make the word "Turmix" distinctive of the Plaintiff's goods in Great Britain.

Lord Reid in the House of Lords held that :

".... during the currency of the Appellants' licence to Bowmans, Bowmans made and marketed the "Turmix" machines without the Appellants having controlled or having had any power to control the manufacturer, distribution or sale of the machines, and without there having been notice of any kind to purchasers that the Appellants had any connection with the machines."

From this case, the two tests to be used in ascertaining ownership of goodwill are the public perception test and the control test. As Wadlow at para 2.54 observed, the plaintiff in a passing off action must be a business whose goodwill fulfills two essential requirements : (1) the goodwill should relate specifically to the goods or services in question and, (2) it should be goodwill quoad the consuming public for those goods, whether or not the public are the immediate customers of the Plaintiff. In Dental Manufacturing Company Limited v. C. de Trey & Co. [1912] 3 KB 76, X was the sole agent for sale in UK of an article made by a manufacturer in USA. X sold the article just as it was made and got up by the manufacturer. Nothing in the "get-up" of the article as sold by it indicated any association of it or its business with that article. It sued a company for passing-off when that company manufactured and sold articles of the same kind with a get-up similar to the article supplied by the US manufacturer. The court rejected the sole agent's action, Fletcher Moulton L.J. held that :

".... But in this case it is clear that in no proper sense of the word were these goods ever regarded by the public as, nor were they in truth, De Trey & Co.'s (i.e. the sole agent's) goods, and there never was any representation on the part of the plaintiffs that the alleged infringing articles were De Trey & Co.'s goods."

Buckley L.J. held that :

".... The plaintiff's goods need not be goods manufactured by the plaintiff. They may be goods which he purchases, or which he imports, or otherwise acquires, and which he sells under some "get-up" which conveys that they are goods which, whether made, imported, or sold by him, carry with them the advantage of the reputation that the plaintiff's well-known firm are responsible for their quality or their character."

A further illustration of this principle is the case of J. Defries & Sons Ltd. and Another v. Electric and Ordnance Accessories Company Ltd. [1906] 23 RPC 341. The Plaintiffs were the American manufacturers of, and their English agents for, the sale of electrical lamps and other accessories. In 1896, an English Syndicate called the "Stewart Electrical Syndicate Ld." began to sell in England lamps made to their order by the American Company, and sold by them under the name "Stewart Arc Lamps." In 1903 the Syndicate was wound up, and in 1904 the Receiver sold its goodwill and its rights to the use of the word "Stewart" in connection with the goods by auction to the Defendants, who continued the sale of the goods under that name. The Plaintiffs having commenced to sell similar goods under the name "Stewart" sought an injunction to restrain the Defendants from selling them under that name; the Defendants thereupon counterclaimed for similar relief. The plaintiff's claim was dismissed, the defendants obtained the injunction against the plaintiff. Joyce J. held that the word "Stewart" as associated with lamps and other wares had only one meaning and that was that those wares were wares vended by the "Stewart" syndicate. The position is to be contrasted with Hirsch v. Jonas [1876] 3 Ch. D. 584. The plaintiff was a cigar merchant in London, he registered a label and he requested the manufacturer at Havannh who supplied him with the cigars of a particular description, to affix the label to each box consigned to him. The manufacturer affixed the label with his own name as manufacturer to all the boxes so consigned. The plaintiff subsequently discovered that the manufacturer was supplying cigars of the same description and with the same label to the defendants who were the manufacturer's agent. The plaintiff's application for an interlocutory injunction against the defendants were refused, the Court held that the only representation on the box was that the cigars were those of the manufacturer.

(6) Foreign businesses and their representatives

Wadlow at para.2.57 stated that :

" A foreign business may have a goodwill in the jurisdiction even though it may not trade here in its own right. It is sufficient that customers for its goods are to be found here, whether or not the foreign business is in direct contractual relations with them. In particular, if the foreign business is represented by a legally distinct person of whatever capacity then the goodwill will in general belong to the foreign business rather than its local representative provided that the foreign business is recognised as the ultimate source of the goods. It is not necessary, or common, for the relationship to be one of agency in the strict legal sense."

"... The relevant English goodwill most clearly belongs to the foreign business if the foreign business is in fact predominantly responsible for the character or quality of the goods and the English business is held out as representing the foreign one, either expressly or by implication.

On general principles it is unnecessary for the foreign business to be known by name provided its existence is known or assumed. The most important factor would appear to be the state of the public mind, so that if the public attributes the goods to the foreign business then it may not matter that the foreign business does not manufacture them, and may exercise less control over the local business or the goods themselves than the public may suppose." (emphasis added)

(7) Importers, dealers and retailers

Wadlow at para.2.60 stated that :

" It is possible for a business which imports to have a goodwill in its capacity as an importer, and likewise for any business which is known to obtain its goods from third parties to have a goodwill which reflects public trust in its ability to select or handle goods to a particular standard. This goodwill can co-exist with the goodwill of another business such as that of a manufacturer in the sense that the public may prefer goods manufactured by A and imported or otherwise handled by B to goods known to be manufactured by A but handled by another. This, however, is rare."

(8) Licensor and licensee

If a valid licence of a name or mark is in operation, then the goodwill in respect of the business so carried on accrues to the licensor rather than to the licensee : Wadlow para.2.62. The licensee acquires no interest in the name or mark, and must cease using it on termination of the licence. Provided the licence is a valid one, it does not matter that the licensee may be held out as the provider of the goods in question, and may in fact be primarily responsible for their character or quality.

2. Ownership of the Goodwill of Shiwan Mijiu and Super Mellow Mijiu

There is no dispute between the parties that goodwill subsists in the Pearl River Bridge Shiwan Mijiu and the Super Mellow Mijiu which was acquired by years of sale and marketing. There is a likelihood of confusion among the purchasing public if the same labels are to be used but with the different trade marks. There is likely to be damage occasioned to the goodwill and reputation by the likelihood of confusion. The real dispute is on the ownership of the goodwill.

(1) Economic structure

The Plaintiffs' case is that GDF has the goodwill to the Shiwan Mijiu and the Super Mellow Mijiu. The Defendants disputed this and contended that Foshan Foods was instrumental in obtaining the wine from the Shiwan Brewery and selling them to Hong Kong through the Hong Kong distributors. Both parties have called evidence on the economic structure of the Mainland during the planned economy and the period afterwards. The Plaintiffs' evidence came from Mr Hu and Mr Lor while the Defendants' evidence came from Mr Yuan, and to a certain extent from Mr Cheung Loy Chun. The relevance of the evidence is to establish the control of GDF over Foshan Foods and hence over the two wine resulting in GDF having the goodwill of the two wine. I accept the evidence of Mr Hu and Mr Lor.

(2) Starting point : constitutions of the enterprises

The topic of the economic structure of the Mainland is a vast subject. Different witnesses from each side had given different views on the role of CNC, GDF and the sub-branch companies and their relationship with each other. It would be dangerous and confusing to go into their evidence without a clear framework of the relationship of the parties. The starting point is to look at the constitutions of these enterprises. CNC's articles of association is not available but those of GDF and the sub-branch companies are available. These documents are : the Articles of Association of GDF, the Standard Articles of Association of the sub-branch companies ("the Standard Articles") and also the document approving the setting up of Foshan Foods.

(3) GDF's Articles of Association

The Articles of Association of GDF was approved by the 廣東省對外經濟貿易委員會 on 5th June 1987. The relevant parts of GDF's articles are :

"第一條 中國糧油食品進出口總公司廣東省食品分公司（以下簡稱公司）是經營食品進出口業務的全省性（計劃單列除外）專業公司，是具有獨立法人地位的經濟實體，全民所有制社會主義企業。"

"第九條 公司下設若干科室和經理部。經廣東省對外經濟貿易委員會批準，可在地巿或縣設立支公司，設立獨立核算的附屬企業；在國外出主要是場設立代理行、代表機構或海外企業。"

"第十一條 公司在國家有關方針、政策計劃指導下，對本系統的經營計劃、購銷業務、資金使用、資產處置 、國內外聯營等方面在上級規定的範圍內享受自主權。

第十二條 在經營方式上按總公司有關商品分工的規定，組織支公司統一對外成交或聯合成交，分公司之間也可以實行聯合經營。對於交叉經營的商品，由本公司組織支公司共與協商確定，擬定具體調經營方案。

第十三條 公司的計劃、財務、業務等均受總公司領導。支公司的出口計劃和經濟指標由本公司綜合平衡後下達, 並報廣東省對外經濟貿易委員會備案。組織所屬支公司全面完成國家下達的各項計劃。支公司的計劃、財務、業務等均受本公司領導。"

In my view, the words "本系統" ("the system") in Article 11 clearly referred to the hierarchy of CNC, GDF and the sub-branches. They do not mean the subsidiary companies of GDF in which it had shareholdings or directors representing its interest. Clause 11 further stated that GDF exercised self-determining authority (自主權) in terms of operation plan, the business of purchase and sale, use of capital and disposal of assets. This is of course subject to the State's overall policy and planning. Clause 13 puts the matter beyond doubt that planning, finance and business of the sub-branches are subject to the leadership of GDF.

(4) Document of 21st June 1961

If one is to ascertain the relationship between GDF and Foshan Foods prior to 1988, then one turns to the earlier document (D1-76) dated 21st June 1961 in which 廣東省對外貿易局 notified 佛山外貿局that it approved the setting up of Foshan Foods as a sub-branch company. The document stated that :

"一. 專區分公司為省公司所屬業務執行單位，獨立進行核算，負責全部活動（包括分支機構計劃、業務、財務、儲運等）並按省公司任務分工範圍對外進行貿易活動，及領導下屬支公司。

二. 專區分公司成立後，各支公司所經營的商品由專區分公司統一經營，支公司不直接進行對外活動，只作為分公司對外業務的執行單位（包括生產安排，加工挑選，出運等）。

三. 省公司今後計劃、業務、財務等活動直接與分公司掛鈎，有關省公司經營的商品對外成交後，屬專區生產的，分公司為省公司的執行單位。"

In my view this document puts beyond doubt the subordinate nature of Foshan Foods towards GDF. Foshan Foods was simply, according to Articles 1 and 3, the executing unit or trading arm (執行單位) of GDF. GDF and Foshan Foods were pegged in terms of planning, business and finance. The business activities were carried out by Foshan Foods for GDF from 1961 to 1994.

(5) Document of 27th October 1982

In a document dated 27th October 1982, Foshan Foods applied for a business licence from the Guangdong Government. In this document, it was stated that it was a "自營出口的獨立核算單位". I will deal with the issue self-trading export (自營出口) later but this document clearly does not support Foshan Foods' contention that it was engaged in independent exporting activities. All that it showed was that Foshan Foods was an independent accounting body.

(6) Standard Articles

The Standard Articles of the sub-branch companies adopted in 1987 are also clear that the sub-branches were subject to the business leadership of GDF. The Standard Articles were approved by the 廣東省對外經濟貿易委員會 on 3rd March 1987. The relevant parts of the Articles of Association of the sub-branches are set out below :

" 中 國 糧 油 食 品 進 出 口 公 司 廣 東 省

食 品 分 公 司 支 公 司 章 程

第 一 章 總 則

第一條 本公司定名為中國糧油食品進出口公司廣東省食品分公司支公司。是廣東省食品進出口分公司下屬的對外貿易專業公司，屬全民所有制企業。

第二條 本公司的宗旨是，遵循中華人民共和國政府的政策、法令和規定，積極開展對外貿易，努力增加出口，創造更多外滙，為發展出口商品，繁榮地方經濟，擴大海外巿場服務。

第三條 本公司是法人，經理是法人代表。

第四條 本公司設在 巿（縣）（現址 ）。

第五條 本公司接受地方外貿局的行政領導和管理，業務上服從廣東省食品進出口分公司的領導和指導。

第 二 章 任 務

第六條 本公司的主要任務是 ：

1． 經營食品出口業務，出口商品為活畜禽類、肉食類、蛋品類、水產類、水果類、果乾果脯類、蔬菜類、罐頭類、糖酒什品類（詳見商品目錄）。經營方式，進口、出口、收購、調撥、加工、國內銷售、代理出口等業務，自辦和聯辦出口商品生產場廠；

2． 執行上級下達的出口計劃和各項經濟指標，帶領所屬全面完.........

第 三 章 組 織 機 構

第七條 根據業務工作和政治工作的需要，並經上級批準，在公司本部設立若干個股室，其負責人的委任或聘任，按上級主管行政部門規定辦理。

第八條 按照《國營工業企業職工代表大會暫行條例》的規定，建立和健全職工代表大會制，發揚職工群的主人翁責任感，保障職工群眾當家作主管理企業的民主權利。

第九條 根據出口需要，可按商品流向在巿（縣）區內設立出口（收購）站和其它單獨核算的附屬企業。

第 四 章 財 務 會 計

第十條 本公司註冊資本為 萬元，其中固定資金 萬元，流動資金 萬元。

第十一條 本公司自有流動資金由國家撥給。為保證完成出口和生產任務而使用的流動資金，其來源主要由中國銀行貸款。

第十二條 本公司會計事項處理和財務管理，執行經貿部、財政部例定的《對外貿易企業基本業務統一會計制度》和有關規定。

第十三條 本公司是獨立核算單位，財務隸屬廣東省食品進出口公司，向省公司盈虧繳撥。

第十四條 本公司堅持勤儉辦企業的原則，履行增產節約，實現增收節支，加強企業管理，提高經濟效益。認真執行國家的分配政策和有關規定。反對貪污浪費。"

The very name of a sub-branch company denotes that it was under the hierarchy of GDF. It would be odd that the imposition of the name of GDF in the full title of the sub-branches would carry no significant meaning. Under Article 1, the sub-branch was clearly described as GDF's subordinate company. Although the sub-branches were legal entities and independent accounting units, Article 5 clearly stated that they were subject to the administrative leadership and management of the local Foreign Trade Bureau, while the business leadership belonged to that of GDF. The food export functions of the sub-branches under Clause 6(1) of the Articles were clearly subject to the earlier Article 5 which dealt with the business leadership of GDF. Clause 13 stated that the sub-branches' finance was pegged to GDF and had to pay profit to GDF and loss would be reimbursed from GDF.

In my view the Standard Articles formalized the position of the parties in the past. Foshan Foods remained to be the executing unit of GDF.

(7) Mr Yuan's evidence on Articles of Association

During the cross-examination of Mr Yuan, he said that according to his memory when Foshan Foods applied for business registration in 1988, the Articles of Association that was adopted was different from the Standard Articles. It had never been put to the Plaintiffs' witnesses that there was another set of Articles.

An inspection was then carried out during Mr Yuan's evidence by Foshan Foods at the office of the Business Registration Bureau in Guangzhou. Three articles were found in the file namely, the Standard Article, another set of Articles ("the New Articles") and a set of handwritten articles ("The Handwritten Articles").

(8) Handwritten Articles

The Handwritten Articles was dated 13th May 1986. It was written on the letterhead of "中國糧油食品進出口總公司廣東省分公司佛山巿支公司". The Articles stated that :

" 佛山市糧油食品進出口支公司章程

總則

佛山市糧油食品進出口支公司是中國糧油食品進出口總公司廣東省分公司下屬的外貿專業公司，是全民所有制的社會主義企業。公司的經營方向是根據國家計劃和政策決定的。在統一計劃、統一政策、統一對外的原則下，積極開展對外貿易活動，保證國家對外貿易計劃的具體實現。

.....

組別機構

佛山市糧油食品進出口支公司受中國糧油食品進出口總公司廣東省分公司和佛山市外貿局的雙重領導。.....

財務隸屬關係及制度

佛山市糧油食品進出口支公司的財務隸屬中國糧油食品進出口總公司廣東省分公司。是經濟獨立核算單位，執行對外貿易企業基本業務，統一財務會計制度，並與國內外有業務往來的客戶，廠企進行財務結算。"

No details were provided by Mr Yuan of the Handwritten Articles.

(9) The New Articles

The New Articles stated that :

" 廣東省佛山食品進出口公司章程

第一章 總則

第一條：廣東省佛山食品進出口公司（以下簡稱公司）是社會主義全民所有制企業，對外具有獨立法人地位。

第二條：公司的宗旨是按照國家有關法律、法令、條例和對外經濟貿易方針政策，在平等互利原則的基礎上，積極開展對外經濟貿易業務，擴大出口收匯。

第三條：公司的註冊資本1817.02萬元。

第二章 經營範圍

第五條：公司經營自營和聯營食品的出口業務，兼營：糧油類商品的收購、調撥和出口業務。對外車船運輪和倉儲業務。

第三章 組織機構

第十條：公司實行總經理負責制，總經理是公司法人代表，行使法人職權。

第四章 經營管理

第十四條：公司實行自主經營、獨立核算、自負盈虧。

第十五條：公司依照國家規定，向當地經貿主管部門報送計劃、財務報表等有關資料。

第五章 附則

第十八條：本章程經中華人民共和國對外經濟貿易部批淮後生效。條改時間。"

It is clear that although the New Articles was dated February 1987, it was not registered in 1987. The name of Foshan Foods was only changed in 1988. Mr Yuan explained that in 1996 when Foshan Foods upgraded its record office, the staff in charge was not aware of the history of Foshan Foods and had wrongly put down "February 1987" on the New Articles.

(10) Foshan Foods using the Standard Articles

I find Foshan Foods had been using the Standard Articles until the unpegging of the financial and planning pegs. It could not have used either the Handwritten Articles or the New Articles before that time. In the 1988 business registration of Foshan Foods lodged with the 廣東省對外經濟貿易委員會, it was clearly stated that the approved articles of association was that of the Standard Articles. The 1988 business registration certificate, apart from referring to the business leadership of GDF also referred to that of GCO. This does not lessen the control of GDF over Foshan Foods. GDF was involved with foodstuffs while GCO was involved with cereal and oil. The leadership of these two enterprises over Foshan Foods was not mutually exclusive.

Once this basic premises is ascertained, then the evidence regarding the economic structure of the Mainland will fall into place. The evidence points towards one conclusion only, namely the goodwill of the two wine established in Hong Kong through these years belongs to GDF.

(11) Administrative role of Foshan Foods

Mr Yuan emphasized the importance of the status of Foshan Foods by referring to the administrative functions it exercised over other sub-branch companies in the area. There is no doubt at some period of time Foshan Foods was responsible for the management and coordination of some sub-branch companies in the Foshan area. These included 台山，開平，恩平，斗門，珠海，新會，江門，中山，順德，鶴山，南海，三水 and 佛山巿. At some stage, these companies also reported their finance and planning to Foshan Foods. Mr Yuan said that the reason why Foshan Foods was established was because the Foshan area had a large export of livestocks and agricultural products to Hong Kong and Macao and an organ was required to coordinate and manage these activities.

Mr Yuan said that the decision to form Foshan Foods was not by GDF but by the 廣東省對外貿易局. The approval of 廣東省對外貿易局might be required but clearly GDF had played an important role in Foshan Foods' formation, otherwise GDF would not have been specified in the document of 21st June 1961 to be its business leader.

In paragraph 2 of the document of 21st June 1961, it is stated that the sub-branch companies could not carry out foreign trade activities. Mr Yuan said that by 1975 when he joined Foshan Foods, the sub-branch companies had already carried out export activities. Apart from this change, there is no evidence that there was a fundamental change in the status of Foshan Foods towards GDF.

It was suggested that in the business registration certificate of GDF of 16th April 1982, the listed subsidiary units of GDF did not include Foshan Foods. Also GDF's own Articles referred only to its subsidiary units. From the evidence it is clear that GDF had its own subsidiary companies, which did not include Foshan Foods. But at the same time Foshan Foods was a sub-branch company of GDF under the hierarchy of the foreign trade enterprises. This is clear from the constitutional documents. It is a bold argument that because Foshan Foods was not a subsidiary of GDF, it was accordingly not a sub-branch company of GDF.

(12) GDF : business leadership

Mr Yuan said that Foshan Foods is a State enterprise. Before 1988, it was a central enterprise (中央企業), like CNC and GDF. After 1988, Foshan Foods became a local enterprise (地方企業). In my view, these descriptions of the nature of these companies are not helpful and do not advance the Defendants' case on the role of the enterprises.

Mr Yuan said in his evidence in chief that in relation to the sub-branches, GDF exercised administrative management only. It did not exercise any business management over them. In cross-examination, he conceded that the administrative management by GDF was business in nature. In fact the very example given by Mr Yuan on the administrative management of GDF, namely, the coordination of the competing interest of the various sub-branches wishing to export the same product must be in the nature of the business operation of the export trade. In any event, what Mr Yuan said about the administrative management of GDF on Foshan Foods and other sub-branches cannot be correct. If it was merely exercising an administrative function, it would be superfluous to involve the local authorities such as the local 經貿部, 計劃委員會 in the foreign trade. In terms of the actual business activities, GDF might carry out very few trading activities on its own, the reality is that GDF's trading activities were executed by the sub-branches including Foshan Foods. The Shiwan Mijiu and the Super Mellow Mijiu are the best examples of the business leadership of GDF over Foshan Foods.

(13) Other sub-branches

Mr Yuan further denied that GDF set up other sub-branches. He said the setting up of the sub-branch companies was decided by the local authorities and it was not the wish of GDF to have these companies established. He gave the example of Zhongshan Foods (中山支公司) which was later divided into four sub-branches. This was against the wish of GDF, but, nonetheless, the local authorities approved the setting up of the four sub-branch companies. Another example was the Ting Woo Company (鼎湖支公司). GDF was against the setting up of this company, but again the local authorities asked the Provincial Government to set up this company. Mr Yuan said that Foshan Foods assisted in the setting up of the sub-branch companies by sending out working teams there and by organizing the first exports from these companies.

In respect of the examples given by Mr Yuan on the setting up of sub-branches which GDF disapproved, he really was not in a position to give evidence as to what had actually transpired in the setting up of these companies. Afterall, witnesses from GDF were not cross-examined on those matters. I accept Mr Hu's evidence that GDF established the sub-branch companies.

(14) Planning peg

The Plaintiffs' case is that until 1988 business plans were transmitted from CNC to GDF which in turn transmitted the plans to the sub-branch companies in the Guangdong Province. From 1988 until 1993, GDF continued to transmit plans to the sub-branches. These plans had to be complied with by the sub-branch companies.

Mr Yuan said that parallel to the hierarchy of enterprises engaged in foreign trade was a line of government bodies dealing with foreign trade and planning. These bodies existed from the local area to the provincial level and onto the central level. The economic plans were prepared by the planning unit of the government. Before the plans were transmitted from above, they were firstly formulated from below and reported to a higher level. In other words, the sub-branch companies in the counties and towns (巿縣公司) would, first of all, formulate their purchase and export plans together with the planning unit (計劃委員會) and the foreign trade bureau (外貿局) in that particular level of government. The planning unit would then refer the plan higher to the area level. The two relevant units of that level would discuss the plans with Foshan Foods. After the plans had been formulated, they would be referred to the provincial level. At the provincial level, the two similar units would discuss the plans with GDF. After the plans were discussed, they would be referred to the Central Government where the planning unit, the foreign trade unit and CNC would discuss and approve of the plans.

CNC would transmit the plan to GDF which would in turn transmit the plans to the various sub-branch companies. At the same time, the central foreign trade unit would transmit the plans to the same unit on the provincial level which in turn would transmit them to the same unit in the local area. The foreign trade unit would also transmit the plans to the enterprises engaged in foreign trade in the hierarchy. Thus Foshan Foods received plans from the Foshan Area Foreign Trade Bureau (佛山地區外貿局). Mr Yuan said that the plans transmitted to Foshan Foods by this unit was in the nature of commands (指令性) which must be complied with. Mr Yuan produced a number of plans transmitted to Foshan Foods by the Foshan Foreign Trade Bureau.

Mr Yuan disagreed with Mr Hu's comment that GDF could decide whether to transmit the plans to Foshan Foods or not. Mr Yuan said that in the planned economy, plans were decided by the planning authority and were based on the history and quantity of production of the area. GDF's plans were to meet (銜接) the plans of the planning authority. Thus it was wrong for GDF to say it could "give" or "not to give" the plans to Foshan Foods. The documents also showed that GDF transmitted the plans to the sub-branches from the plans it received from above.

Mr Yuan said that Foshan Foods had to co-ordinate the activities of the companies under its management so that the plans could be met (銜接). Mr Yuan said that the plans transmitted by the foreign trade bureau to the sub-branch companies were purchase plans and export plans, whereas GDF only transmitted the export plans to the sub-branches. The two plans, however, matched with each other.

Evidence was given of "vertical control or management" (條條管理), i.e. control of a lower unit by a higher level unit in a vertical hierarchy and "horizontal management or control" (塊塊管理). An example of the latter is the control and management of Foshan Foods by the Foshan Foreign Trade Bureau. Another concept that was discussed was double track transmission of plans to the lower units (雙軌下達).

(15) Parallel transmission of plans

In my view, under the economic structure of the Mainland during the planned economy, the economic plans were transmitted from two lines. In relation to the CNC line of companies, they came from CNC to GDF and then to the various sub-branch companies. At the same time the local authorities also provided the plans to the sub-branch companies. In my view, the Defendants' case is not advanced any further by saying the plans transmitted from the local government were more important than those from CNC and GDF. These two lines of transmission were part of the system at that time. The Defendants admitted that the two plans were consistent and GDF had the right to adjust the plan in a minor manner (微調). Likewise the reference in some of GDF's plans to plans transmitted from the provincial planning unit is not an indication that there was lesser control by GDF on the sub-branch companies.

In any event, according to the document entitled "佛山行署外貿局文件" dated 23rd January 1985, it was stated that the plan transmitted from the province to Foshan City was a plan in the nature of instructions ("指導性計劃"). According to Mr Yuan, in respect of these plans, the units should try their best to complete the plan but it was not mandatory to do so. Even if this document was only intended to be used from 1988 onwards when the contract system was introduced, it showed that plans from the local governments were instructive in nature only. The actual carrying out of the business activities was obviously done by the CNC line of companies.

The local authorities no doubt also played a role in the administration of Foshan Foods because the personnel working in Foshan Foods were appointed by the Foshan area local authorities and GDF had no right to remove them. But it is clear from the Standard Articles the Foshan Foreign Trade Bureau was exercising administrative leadership of Foshan Foods. This unit also had to ensure that Foshan Foods in performing the export plan was able to purchase (收購) the necessary products from the local area in accordance with the purchase plan. This does not in any way detract from the fact that GDF was the business leader of Foshan Foods during the planned economy. What is more important is that trading loss of Foshan Foods was reimbursed by CNC through GDF. The local authorities were not responsible to reimburse Foshan Foods of the trading loss. Mr Yuan was reluctant to agree that the plans formulated by Foshan Foods would have to be transmitted to GDF. It is clear that such plans would have to be transmitted. This is clear from the document entitled : "對外貿易企業基本業務 统一會計制度 : 經貿部、財政部制定一九九Ο年一月". The sub-branch companies have to inform GDF the raw materials they would require in order to complete the purchase plan. This is another indication that Foshan Foods was pegged to GDF in terms of planning and subject to its control.

(16) Financial peg

Mr Yuan said that the system from the early stage of the planned economy until 1988 was that of 統收統支，統負盈虧. This means that profit earned by the sub-branches would be reported to CNC and whatever loss it incurred would be reimbursed from CNC. From 1988 to 1990, the system was one of contract system. This means the provincial governments were required to fulfill the target of foreign currency earning with the Central Government. To achieve this goal, GDF, like other State business enterprises in the province, had to fulfill a target of foreign currency earnings for the provincial government. GDF would sub-contract the task to the various sub-branches. The first round of contract system was in 1988, 1989 and 1990. The second stage of the contract system occurred in 1991 and 1992. In January 1993, the sub-branches were unpegged financially from GDF.

Mr Yuan disagreed that Foshan Foods was pegged to GDF in terms of finance (and also planning). He said that this is contrary to the State Council Document of 1988, which stated that :

"... 國務院決定全面推行對外貿易承包經營責任制，進一步加快和深化對外貿易體制改革。

加快和深化對外貿易體制改革的基本內容是：全面推行對外貿易承包經營責任制：主要由各省、自治區、直轄市、計劃單列市人民政府（以下簡稱各地方）向國家承包出口收匯基數、上繳外匯額度基數、出口收匯基數內人民幣補貼基數、外匯額度掛帳數額，超過出口收匯基數的外匯收入實行分成。自負盈虧；少數商品由外貿和工貿進出口總公司承包並統一經營，不下放的部分工貿總公司仍由其承包經營。各外貿進出口總公司和部分工貿進出口總公司的地方分支機構（經營國家統一經營出口商品的有關企業除外）與總公司脫鈎，作為企業法人，下放地方管理，財務上與地方財政掛鈎。"

Mr Yuan said that from 1988 onwards, the profit and loss of Foshan Foods was a matter for Foshan Foods, and GDF could not give it any money since each of them were responsible for its own operation. Mr Yuan said that under the contract system, the policy was 超虧不補、減虧留用. In other words loss that exceeded the target would not be reimbursed while the enterprise could retain profit for its business operation. In the first year of the contract system, Foshan Foods had actually incurred a loss of $300,000 and this amount was not reimbursed. It had to bear this loss itself.

The statement by Mr Yuan that Foshan Foods was not pegged to GDF financially and in terms of planning was a bold one. It certainly was incorrect in respect of the situation before 1988. Even after 1988, I find that Foshan Foods was still pegged to GDF financially and in terms of planning. What had changed from 1988 until 1993 was that instead of GDF being responsible to CNC, it became responsible to the provincial authorities. I do not accept Mr Yuan's evidence that from 1988 to 1993, the situation had changed so drastically that what had taken place in the past in terms of financial and planning peg was completely removed. On the contrary, the document dated 15th April 1993 from 廣東省對外經濟貿易委員會 and 廣東省計劃委員會, stated that it was only from 1st January 1994 that the planning peg of GDF and the sub-branches were severed. The documents stated that :

"一、 .....從一九九四年一月一日起，專業外貿公司巿、縣分（支）公司的上述計劃（指出口計劃）與省公司脱鈎，改為以巿為主管理。外貿業務統計的渠道及辦法另行布置。

二、 從一九九三年一月一日起，專業外貿公司市、縣分（支）公司的出口收計劃、上繳國家外額度計劃與省公司脫鈎，連同原由各市承担的出口收計劃和上繳國家外額度計劃（包括來料加工收和上繳總額），由省經貿委會同省計委、國家外管理局廣東分局直接下達到各市人民政府，再由各市人民政府通過市有關部門分解下達到本地區各類外貿企業（合新批准成立的各類有進出口經營權企業）。"

In relation to financial peg, the earlier 廣東省財政廳文件 dated 28th May 1993 had stated that the financial peg of GDF and the sub-branches was severed from 1st January 1993. The documents stated that :

"一、 ....從一九九三年一月一日起，財務關係與省公司脫鈎下放地方，納入當地財政管理。

二、 .....

市、縣專業外貿公司一律實行獨立核算、自負盈虧、虧損不補、盈利分成的財務管理體制。”

三、 財務體制下放後，下放的專業外貿分（支）公司出口收留成接國家規定上繳省部分，省不再統籌，留給當地政府安排。...."

Mr Hu said that it was in 1991 that the State stopped the policy of reimbursing the trading loss. From that time onwards, the enterprises had to adopt four practices, namely : "自主經營" (independent trading), "自負盈虧" (self-responsible for profit and loss), "自我約束" (self-control) and "自我發展" (self-development). The allegation of Foshan Foods not being reimbursed the sum of $300,000 was something not put to the Plaintiffs' witnesses. This may well be an isolated incident and the occurrence does not support Mr Yuan's suggestion that from 1988 to 1993, Foshan Foods was financially and in terms of planning independent from GDF.

The Defendants further argued that the pegging of Foshan Foods to GDF did not mean that GDF owned the goodwill to the two wine. I disagree. The financial pegging of Foshan Foods to GDF, viewed in the context that Foshan Foods was the executing unit of GDF, must be the strongest indication that GDF owned the goodwill of the two wine.

(17) Trading loss

One prominent feature of the export of foodstuffs from the Mainland up to 1993 is the question of loss which would be invariably incurred. The foreign trade enterprises were given targets such as "外滙指標", "換滙成本" and "虧損指標". The "外滙指摽" was the foreign income target that the enterprises had to achieve for that year. It was based on US dollar. The "換滙成本" was also in US dollar. Because of the use of different exchange rates, a loss would arise by reason of the difference between "換滙成本" and the converted income. The State would reimburse the enterprise for the loss. The figure chosen for the "換滙成本" would have a direct effect on the loss sustained by an enterprise. When asked whether the "換滙成本" was decided by GDF, Mr Yuan could only say that the decision was based on the historical performance of a product, the condition of trade, the market condition and the import price.

Mr Yuan denied that the "虧損指標" was allotted by GDF to the sub-branch. He said that the "虧損指標" was based on reports submitted to GDF by the sub-branches. He further denied that GDF audited the permitted level of loss. He said that the 中央企業審計組 (Central Enterprises Auditing Unit) carried out the audit.

Although the "換滙指標" and the "虧損指標" had to be decided on a rational basis, the fundamental question is that the figures had to be decided, and the task was vested with GDF. This is another illustration of the leading role and the control of GDF towards Foshan Foods.

(18) Reimbursement of trading loss

Mr Hu said that GDF could decide how much to reimburse the branch companies which had suffered trading loss. As have been seen earlier trading loss would inevitably incur in the export trade in the planned economy. Mr Yuan said that the total amount of reimbursement transmitted from CNC was based on the loss incurred by the sub-branches. The reimbursement would be based on the actual loss incurred by the branch companies. GDF did not have the power to decide how much reimbursement would be given to them. Mr Yuan, however, agreed that if GDF managed to obtain more reimbursement from CNC, then it could use the excess to assist those companies which were in financial difficulties.

In terms of Clause 13 of the Standard Articles, Mr Yuan said that the income received by the export companies would be transmitted to CNC. The profit and loss belonged to CNC. The role of GDF was to coordinate the reports of the sub-branches and then report to CNC. CNC would then transmit the money to GDF and GCO. The money did not belong to GDF.

The important issue in this regard is that in the foreign trade hierarchy, GDF was directly responsible to deal with the trading loss of Foshan Foods. This confirmed the subordinate role of Foshan Foods in the economic structure of export trade and the control of GDF over Foshan Foods.

(19) Loans

Mr Yuan said that under the planned economy, money required for trading was provided to Foshan Foods in two ways : First by way of loan from the Central Government. This was the State's support of foreign trade, the money would be transmitted from the Bank of China in Beijing to its branch in Foshan and Foshan Foods would borrow from the bank. The second was also the State's assistance of export trade. Money and raw material would be supplied from CNC to GDF to Foshan Foods.

Mr Yuan disagreed with Mr Hu's evidence that GDF and the bank agreed on the limit of the loans that might be obtained by the sub-branches. Mr Yuan said that the foreign trade bureau had a foreign trade capital and it was allotted to the Bank of China in Guangdong which in turn allotted a portion of the capital to each area. The amount to be lent to Foshan Foods was based on the trading activities of Foshan Foods.

I accept Mr Hu's evidence that GDF in fact discussed with the bank on the limit of the loans to be allowed to the sub-branches. Mr Yuan was certainly not in a position to give evidence on the allotments of loans between GDF and the bank.

(20) Export quota

Mr Yuan disputed Mr Hu's evidence that any export that exceeded or outside the plan must have the approval of GDF first. Mr Yuan said that if the activities were carried out in accordance with the plan, GDF could not interfere with Foshan Foods. In relation to exports that would exceed the plan, Foshan Foods would make the request to the Quota Office of the Guangdong Foreign Trade Bureau ("the Quota Office") (省外貿局配額辦公室). If there was an available quota, this office would approve the application. If not, the matter would be referred to the Guangdong Office of the Ministry of Foreign Trade of the Central Government (經貿辦駐廣州特派辦公室). Mr Yuan said that the Quota Office was based in the office of GDF and Mr Hu had mistaken that the authority to grant the extra quota lied with GDF. Mr Yuan, however, accepted that Foshan Foods would first approach GDF to see if the quota could be given.

Mr Yuan said that the function of GFD was to manage and coordinate, but it could not disallow Foshan Foods from engaging in export activities. An example he gave was of pigs. That was a profitable export and every coastal companies were competing to export and the role of GDF was to carry out minor co-ordination (微調). It was the Quota Office which adjusted the competitive requests of the various sub-branches.

Mr Yuan also disputed Mr Hu's evidence that GDF could refuse Foshan Foods from exporting rice wine. He said that under the planned economy, if GDF refused, Foshan Foods could go to CNC because the export of rice wine was Foshan Foods' traditional export.

One handicap faced by Mr Yuan is his position in the economic structure. He was, after all, only concerned with the activities in the Foshan area. The Foshan area is only part of the Guangdong province. Without a doubt, because of its strategic position in the Pearl River Delta, Foshan is blessed with fertile soil and it produces an abundance of agricultural, fishery and poultry products. It has been described as 魚米之鄉 (the place of fish and rice). Foshan Foods also plays a very important role in the food exports from the Guangdong province. However, it remains the case that Mr Yuan is unable to give evidence on the role of GDF on the provincial level. In any event, even based on Mr Yuan's own evidence, if GDF was authorised to co-ordinate the activities of the sub-branch companies in the whole of the province, then clearly it had to adjust their competitive claims resulting in their not being able to export as much as they liked. The Shiwan Mijiu is clearly an example that GDF could discontinue the export of a particular product. Furthermore, there were certain products the sub-branches could not export, for example, sugar. They were handled exclusively by GDF. This re-affirmed the dominant position of GDF.

(21) Packagings/Raw materials/distributor/price

Although the packaging for the products were provided by GDF to the sub-branches, they were ultimately provided by CNC. Likewise, although the raw materials were provided by GDF to the sub-branches, ultimately the raw materials were provided by CNC. This is shown in a document entitled : 《省食品進出口公司系統工業食品材料調撥管理核銷結算暫行辦法》 (Bundle D10/24) in which it was stated that :

" 2. 省公司根據省外貿局下送的收購計劃。按上級下撥的原材料，分期分批下調給各支公司。省、支公司均應建立原材料發，收登記帳目，定期核對。"

In relation to the purchase of raw material for the production of rice wine, Mr Yuan stated that Foshan Foods had to pay for the purchase. Based on the result of export, Foshan Foods would be allotted a foreign currency quota (外滙額度), the raw material was purchased by the use of this quota, although the purchase price was paid by way of Reminbi. An illustration was the contract for the sale of rice between 南海縣糧油食品公司 and GDF and Foshan Foods dated 11th December 1980 (Bundle D11/395).

I find that as a general rule, the raw material and packagings were provided by GDF to the branch companies. This again reflects the importance of GDF in this regard. The raw material and packaging of course came from CNC but it was GDF which co-ordinated the allocation of the materials. There might be circumstances in which raw materials had to be acquired other than from CNC. I find this to be the exception rather than the rule. Even in such a situation, GDF was still a party to the purchase of the raw material as illustrated by the contract dated 11th December 1980.

Mr Yuan said that decisions on the distributor, price and packaging were reached after discussions by GDF, Foshan Foods and GDF's agent in Hong Kong, namely, either Wu Fung Hong or Guangnam Hong. Wu Fung Hong formerly represented GDF as its agent in Hong Kong, later on Guangnam Hong took over. It represents the interest of the Guangdong Provincial Government in Hong Kong. Wu Fung Hong is a State organisation and wielded considerable power but again, Mr Yuan is not in a position to tell the role of GDF in its dealings with these two organisations. Despite his initial position, he conceded that GDF had to be consulted on the appointment of distributors. I find that GDF decided on the distributors, price and labels for the two wine. No doubt GDF would take heed of the views of the agents, after all, they were more familiar with the market situation in Hong Kong, but the final decision on these matters clearly laid with GDF. The change of distributorship of the Super Mellow Mijiu initially from Tung Fook to Bo Man Hong then later to both of them was clearly the best illustration of GDF's authority in this regard. One can find a further example of the deciding role of GDF in the appointment of Hong Kong Rice Merchants Enterprises Co. Ltd. and Tai Wah Chinese Sauce Co. Ltd. as distributors in soy sauce : Notice dated 29th October 1981.

By a letter dated 25th April 1984 Bo Man Hong announced that it was appointed by CNC, GDF and Foshan Foods as the distributor of 陳年玉冰燒. Mr Tang S.C. submitted that this shows Bo Man Hong recognized it was the distributor of Foshan Foods and this confirms the leading role of Foshan Foods in the export trade. In my view, the status of Foshan Foods can only be determined by reference to the constitutional documents and the activities that are outlined in this part of the judgment. What Bo Man Hong said cannot be determinative of the issue. In any event, the letter did not refer exclusively to Foshan Foods.

(22) Assets

Mr Hu had at one stage categorically stated that the assets of Foshan Foods belonged to GDF. Mr Yuan said that before 1988, the assets of Foshan Foods and GDF belonged to CNC but he vehemently denied that GDF owned the assets of Foshan Foods.

It is a difficult question as to who owned the assets of Foshan Foods and GDF. It is not appropriate to make a general ruling about the ownership of the different types of assets of these two companies. In any event it is not necessary to do so for the purpose of this case. Passing-off is concerned with the question of goodwill, which is a form of legal property. The point is best understood by reference to Wadlow at para. 2.05 :

" Although the passages cited above speak in terms of damage being caused either to the plaintiff's business or to his goodwill, the two are not strictly speaking comparable. Goodwill is undoubtedly legal property and its nature is reasonably well understood. A business, however, is something rather broader and would not normally be thought of as a form of property at all. This may account for Lord Parker's caution in accepting that passing-off necessarily protects a proprietary right. English law has tended to understand passing-off primarily in terms of damage to goodwill, partly because goodwill has not always been distinguished from the plaintiff's reputation in the indicia taken by the defendant.

It is sometimes said that goodwill itself is the essential basis of the action for passing-off. This is an attractive point of view. First, it deals with the question of why damages for passing-off are not recoverable by every business in the chain of distribution from manufacturer to retailer. In general, only one business in the chain is likely to have any relevant goodwill with the consuming public and it is only that business which can complain of passing-off. However, if damage to business generally were sufficient, then each party from manufacturer to retailer would apparently be able to sue, since an order lost is a loss to all. Secondly, goodwill is undoubtedly a form of legal property. It has a clearly understood meaning, and is particularly liable to be damaged by the misrepresentations recognised in passing-off. The concept of 'business' is wide and indeterminate in comparison."

In so far as the goodwill of these two wine is concerned, it belonged to GDF. The business activities of these two wine were carried out by GDF through Foshan Foods. The goodwill of the two wine did not belong to CNC because from 1988 onwards, GDF was no longer pegged to CNC and the goodwill acquired from 1988 onwards belonged to GDF. Even before 1988, the goodwill of the two wine did not belong to CNC because the actual business of the two wine was controlled by GDF. I will deal with the position of Shiwan Brewery and Tung Fook (1982) in the later part of the judgment.

(23) Meaning of "自營出口" (self-trading export)

The Defendants relied on the term of "自營出口" (self-trading export) to prove that Foshan Foods had the right to export on its own. This term appeared in many documents including the accounts and reports from Foshan Foods to GDF and from GDF's reports to CNC.

I accept the evidence of Mr Lor on the meaning of this term. Mr Lor said that this item had two meanings. First, it was an item relating to statistics and accounting and second it was a method of trade. On the first aspect, it is clear from the document entitled "對外貿易企業基本業務統一會計制度 : 經貿部、財政部制定一九九Ο年一月", the term "自營出口" was an accounting term. This was one of the items in the standard form financial report. On the second aspect, both GDF and the sub-branch companies had the right of "自營出口" (self-trading export). The term means that GDF or the sub-branches would purchase the products, export them and receive payment for the sale. However, the difference between GDF and the sub-branches in this aspect is that while GDF could carry out this activity on its own, the self-trading export of the sub-branches was under the plan transmitted by GDF to the sub-branches and the control of GDF. The sub-branches must account the profit and loss of such activities to GDF which would reimburse the loss to the sub-branches. As the Shiwan Mijiu and the Super Mellow Mijiu were produced in the locality of Foshan Foods, they were Foshan Foods' self-trading export under the plans transmitted by GDF. It is incorrect simply to refer to the literal meaning of the term and conclude that Foshan Foods was engaged in independent trading activities.

Foshan Foods' right of self-trading export was confined to Hong Kong and Macau. It had no right to "遠洋自營出口" (overseas trade). In such circumstances, Foshan Foods would transfer the goods to GDF for export. Two methods were adopted in this respect. The first method was by way of "調撥出口". Mr Lor said that in relation to "調撥出口", there was no question of loss sustained by the sub-branch companies, the principle at that time was that 調撥單位不蝕不賺, i.e. no loss or gain would be attributed to the unit which transferred the goods. Foshan Foods would transfer the products to GDF and receive payment of the price of the goods and expenses. GDF would then export the goods and receive the payment for the goods. The profit and loss would be treated as that of GDF . The second method was called "代理出口". The sub-branches would transfer the products to GDF. After GDF had exported the goods and received the earning, it would account the foreign currency quota ("外匯額度") to the sub-branches so that they could complete the plans. In relation to overseas trade, the method initially adopted was the "調撥出口", then later the "代理出口". Mr Lor said that while he was at the Processed Food Section, the second method, namely "代理出口" was already adopted. GDF merely recovered the disbursements, such as expenses incurred in telexes, from the sub-branches when it handled the overseas trade for them.

Mr Lor said that there were practical differences between these two methods but ultimately at the end of the year, irrespective of what method was adopted, the accounts would be that of GDF's accounts. Where products had been transferred (調撥) to GDF, it would be GDF's self-trading export because GDF would receive the foreign currency from the export. As to the question whether it was GDF's self-trading export in relation to the second method of "代理出口", Mr Lor explained that it would depend on who received the price in foreign currency. Whoever received the price would be engaged in self-trading export. Mr Lor disagreed that if the "調撥" or the "代理出口" was adopted, the business would be treated as the self-trading export of the sub-branches.

I accept Mr Lor's evidence. One fundamental principle that has to be borne in mind is that until 1993, with the exception of Guangzhou, GDF was the only entity in Guangdong which could carry out trade in foodstuff with foreign traders. This covered all overseas markets including Hong Kong and Macau. Guangzhou was an exception because since the 1980s it became a specially listed city with direct links to Beijing (單列城市) and was severed from GDF. In my view, it would be odd under the planned economy, notwithstanding the control by the State on exports, the coastal companies such as Foshan Foods could engage in export activities independent of any restriction and control. It is clear from the constitution documents of Foshan Foods that ever since 1961, there was no reference to any independent self-trading right. The foreign trade activities of Foshan Foods was clearly within the responsibilities given to it by GDF. As a trading arm or executing unit of GDF, it would be natural for Foshan Foods to be given export right so that, for example, custom requirements could be met. This, however, does not mean that the export activities of Foshan Foods was carried out independently and distinct from its responsibility as a trading arm of GDF.

Mr Tang S.C. argued that the distinction between Foshan Foods being entitled to deal with the Hong Kong and Macau market and GDF handling all other overseas markets showed that Foshan Foods had the independent trading right. He referred to GDF's 管理制度 (辦法匯編) at p. 62 which stated that :

"三、口岸經營管理

商品經營分工，按原有經營分工不變。增加現有經營範圍以外的商品品種，要報經省公司同意。

口岸分工，在上級未有新規定前，仍維持原規定不變。即：汕頭公司可對港澳、新馬婆、遠洋出口，廣州、江門公司可對港澳、新馬婆出口，其餘市、縣公司只對港澳出口。但醬油出口的分工仍按原規定，即：汕頭食出公司經營的金標、銀標醬油、老抽王可對香港、新馬婆、遠洋出口；對澳門，生抽王、老抽王由石歧公司出口，草菇老抽由佛山公司出口，金標生抽王由江門公司出口；對新馬婆生抽王、草菇抽由江門公司出口；對香港，由現有經營的醬油的現有品種的市、縣公司出口，對遠洋地區的出口，除汕頭外，仍由省公司統一經營，如將來條件許可，可改為由省公司代理出口，由經營的市、縣公司統一核算盈虧。"

In my view, the division of the trading activities is a historical fact. Mr Hu's evidence, which I accept, is that GDF took up the overseas export because the sub-branches were not familiar with international trade practice and lack proficiency in English. GDF's overseas export does not assist the Defendants that Foshan Foods was engaged in independent trading activities. If anything, the overseas trade demonstrated that Foshan Foods was not free to carry out export trading activities as it wished. The 1987 report submitted by GDF to CNC (Exhibit P21) is the clearest indication that Foshan Foods was not engaged in any independent trading activities. In this report the self-trading exports of the sub-branches were grouped under the self-trading export of GDF. Mr Yuan said that the duty of GDF was merely to collect and report (滙總上報). However, it is clear from the report that the self-trading export of the sub-branches were not individually listed in the report. If these activities were indeed carried out independent from the plans of GDF, one would expect individual items to appear in the report. The restriction on the trading activities of Foshan Foods continued to at least January 1993 when the financial peg was severed or January 1994 when the planning peg was severed.

(24) Trade Fairs/Contracts

Before 1993, when Foshan Foods was unpegged from GDF, its name appeared in the sales contracts signed at Trade Fairs. In my view, this did not make it a seller of these products. I accept the evidence of the Plaintiffs that the name of Foshan Foods appeared in the contracts because it was the coastal company responsible for the export of the goods.

The Defendants' witnesses such as Chung Who Cheung and Mr Cheung said that at the Trade Fairs they would discuss the purchase of wine directly with Mr Chiu, the representative of Foshan Foods. It may be, as a matter of convenience, the distributors and the Hong Kong merchants would discuss with Mr Chiu on products which Foshan Foods would eventually ship to them. After all, it was not disputed that the purchasers would open letters of credit directly in favour of Foshan Foods. However, this does not mean that the contracts that were eventually signed were the contracts between Foshan Foods and the distributors. From the evidence, Mr Chiu had only signed contracts in the Trade Fair in 1983. He could not recall whether he was the group leader of the wine group in that year. In my view, it was likely that he was the wine group leader of that year.

The notice given by CNC in respect of the 1991 Autumn Trade Fair (Bundle D(1)/476-489) is a good indication as to the function of GDF. At p.489 one can see the number of representatives from each province attending the Trade Fair. In respect of Guangdong, representatives came from GDF and GCO. In respect of the wine group, there were 26 members. The group leader and deputy group leader were appointed from the provincial food companies and the sales representatives would also come from the provinces engaged in wine trade. Obviously, GDF had to decide who from the various coastal companies would be attending the Trade Fair as representatives of Guangdong in the wine group.

(25) Others

I accept the majority of the quality inspection of the products was carried out by the sub-branches which acquired the products from the factories, but Mr Yuan agreed that GDF also carried out quality inspection. This is another indication of the business leadership of GDF and its control over the products.

Export permits were required for certain products including wine between 1986 and 1993. Mr Yuan accepted that GDF applied for the permits on behalf of the sub-branches. Evidence was adduced as to the description of the supplying or applying units in the permits. In my view, it is not necessary to deal with these matters in detail. The business leadership of GDF is shown by the fact that it had to apply for the export permits on behalf of the sub-branches.

On advertising fees, Mr Yuan said that the distributors would report to Foshan Foods on the advertising fees because the fees would have to be deducted from the cost of production. I do not rule out that this had happened, but it must be borne in mind that the advertising fees were dealt with by the Hong Kong distributors with GDF's agents in Hong Kong, namely, Guangnam Hong and Wu Fung Hong.

(26) Mr Cheung's evidence

One of the Defendants' witnesses, namely Mr Cheung, attempted to give some evidence on the functions of GDF and its relationship with the sub-branches. He said that the function of GDF was to manage the whole of the food export in Guangdong. It was an administrative unit. Although it was a superior unit, it had no substantial trading activities. He also said that Foshan Foods was also an administrative unit but at a lower level.

Although Mr Cheung has years of trading activities with the Mainland, he obviously was not in a position to give any useful evidence on the economic structure of the Mainland during the planned economy. Certainly Mr Tang, S.C., did not tender him as an expert witness in this regard. Mr Cheung was not aware of the provisions of the Articles of Association of GDF and the sub-branches. When he stated that GDF had no trading activities, he was not aware that GDF had in fact engaged directly in the export of sugar. His comment that Foshan Foods was also an administrative unit is equally off the mark. While Foshan Food may at one stage managed some of the sub-branches in the local areas, it was ultimately an unit subject to the control of GDF in terms of planning, finance and business. He said that GDF was an administrative management unit because it only acquired and purchased the products from the local areas. But that was how the system operated. He was not in a position to tell the structure and function of the enterprises that dealt with foreign trade.

Mr Cheung said that the distributorship of the Shiwan Mijiu was given to Chung Tai by Wu Fung Hong. The decisions to regroup the four wine into one and the later revival of the Shiwan Mijiu were all made by Wu Fung Hong. He said that as Wu Fung Hong was based in Hong Kong, it exercised a lot of power, it was the only arm of the Mainland Government which was aware of the demands of the customers in Hong Kong. Evidence of the same vein was given by Mr Chiu. The role of Wu Fung Hong should clearly be recognized but obviously Mr Cheung and Mr Chiu were trying to play down the importance of GDF. What Mr Cheung said about the decision of Wu Fung Hong on the Shiwan Mijiu flies in the face of what he had written to the Mayor of the Guangdong Province in his letter dated 10th May 1995. In this letter, he stated that :

"...現特向省長申訢一宗由廣東食品進出口公司一手挑起和製造的商品糾紛，....

...七八年春交會後，省食出公司竟將一個在短短兩年半，將銷量由零增加到每年六萬多箱的名牌產品，‘石灣米酒’取銷出口香港，而將不同生產風格的四個地方酒廠生產的米酒，同用‘廣東米酒’這一牌子推出香港巿場，..."

According to this letter, it was GDF which cancelled this popular wine. This must be the best indication of the control GDF had over the product. I am unable to conclude from the evidence that the reintroduction of the Shiwan Mijiu was the result of intervention or pressure from higher government bodies. The decision was made by GDF. The significance of this episode in fact turns the other way, namely, neither Shiwan Brewery nor Foshan Foods was able on its own to decide what products they could produce or sell during the planned economy.

(27) Publication

Vice Premier Li Lan Ching (李嵐清副總理) at page 79 of a publication entitled《中國對外經營貿易的改革與發展》stated that :

" 當時，我國外貿企業體制上存在的主要問題，一是外貿企業還不是一個獨立的經濟實體。我國的外貿體制是在產品經濟和國家單一的計劃經濟的基礎上形成和發展起來的。長期以來是一個由國家統負盈虧、‘吃大鍋飯’的體制。外貿企業的主要任務是保證完成計劃收購和出口任務。它既像管理部門又不像管理部門。既像企業又不像企業。既像事業單位又不像事業單位。是一種非常特殊的經濟組織。在經營管理上，對外以獨立經濟法人的自資格進行經營活動，但在內部實行盈虧由國家統負、實際上是實報實銷的財務制度。在經營方式上，專業進出口總公司系統為了保證完成國家下達的指令性進出口計劃任務，帶有壟斷經營的性質。並肩負着某些專業進出口行業管理和協調的職能。企業的人員編制等方面的管理上，某些方面又類似事業單位，總之，當時的外貿企業還不是一個真正的企業。"

What Vice Premier Li said about the peculiarity of a foreign trade enterprise which was neither a full administrative unit nor a full enterprise, must be considered in the context in which it was said. He was simply describing the unique role of the foreign trade enterprise in a planned economy. Earlier, at page 78, he stated that :-

" 長期以來，我國的外貿企業主要是各外貿專業總公司以及其所屬的省、巿、自治區外貿專業分公司和地（巿）縣（巿）的支公司（外貿局）。其主要特點是:1.這三級外貿企業是業務隸屬關係，實行總公司統負盈虧下的分級經營管理。總公司主要是進行管理和協調 ，本身直接經營的外貿業務很少；分公司主要是經營；支公司主要是組織貨源。2.外貿進出口按商品進行分工，專業化較強，具帶有壟斷經營的性質，甚至有的專業總公司系統主要是搞進口的，另一些專業總公司系統主要是搞出口的。"

This observation clearly confirms the role of GDF by reference to the constitutional documents and its trading activities.

(28) Control test satisfied

A review of the role of GDF clearly confirms that it has satisfied the control test in proving ownership of the goodwill in the two wine. It is ultimately and most responsible for the products.

3. Relevance of the Pearl River Bridge Trade Mark

(1) Mark denoting trade source

In considering the goodwill of the two wine, it is necessary to bear in mind the use of the Pearl River Bridge trade mark on their labels and in advertisements. The significance of the use of the mark is best illustrated by Wadlow at p.104 :

" With a well-known and widely used mark it is often obvious who owns the goodwill in the line of business in respect of which it is used. Two interchangeable items may stand side-by-side on the supermarket shelf, and may even have been made in the same factory. It is self-evident that the goodwill for the supermarket 'own brand' belongs to the retailer, and that of the nationally advertised market leader to the manufacturer. However, passing-off is not confined to misuse of household names. All that is necessary for a mark to be capable of being protected is that the public should rely on the mark as denoting that the quality or character of the goods so marked is the responsibility of some one trader. The public need not be able to identify him by name, they need not even know the capacity in which he stands in relation to the goods. (emphasis added） ... Many marks, such as get-up, most visual marks and many arbitrary words coined for specific lines of goods may not correspond to the name of any trader involved. This is why there is a need for objective criteria from which ownership of the goodwill may be determined, irrespective of the way the goods are marked."

Lord Herschell in Powell v. The Birmingham Vinegar Brewery Company Ltd. [1897] AC 710 stated that :

" I think that the fallacy of the Appellants' argument rests on this : that it is assumed that one trader cannot be passing off his goods as the manufacture of another unless it be shown that the persons purchasing the goods known of the manufacturer by name, and have in their mind when they purchase the goods that they are made by a particular individual. It seems to me that one man may quite well pass off his goods as the goods of another if he passes them off to people who will accept them as the manufacture of another, though they do not know that other by name at all." (emphasis added)

A similar view was expressed by Jenkins L.J. in T. Oertli when he approved of the comments in Kerly.

(2) Trade connection required

Wadlow at para. 2.11 stated that if the plaintiff cannot fairly be said in engage in any kind of trade at all then he cannot sue for passing-off.

"... The concept of trader for the purposes of passing-off is extremely wide. No general definition exists and to give one would risk excluding unusual businesses for no good reason. However, it seems that any person who derives an income from the provision of goods and services can be said to be a trader. '[T]he word 'trade' is widely interpreted and includes persons engaged in a professional, artistic or literary occupation.' Examples include writers, a cartoonist, performers, and, in Australia, professional ballroom dancers. In a very early case a barrister recovered nominal damages in his capacity as the author of a legal textbook, but not for alleged damage to his professional practice as such. It is not necessary for the plaintiff to aim to trade at a profit, nor does it matter that the trade may be carried on for public or altruistic reasons. The British Broadcasting Corporation has been a successful plaintiff, as has a statutory totalisator board."

In Kerly's Law of Trade Marks and Trade Names 12th Edition at para 2-15, the authors dealing with the requirement of the connection "in the course of trade" for the purpose of trade mark registration stated that :

" In the earlier days of trade marks, the connection indicated was generally with a manufacturer; and observations may be found in which, no doubt unintentionally, words are used which might suggest that trade marks always indicated a manufacturing source. Such a limitation has never been recognised. ...

.....

It is in accordance with current business practice that an entrepreneur may do no more than organise the putting of goods upon the market, and yet may cause them to be marked with his mark. It is submitted that the wording of the present Act is wide enough for that to be use of the mark by him as a trade mark, provided that the purpose of its use is indeed to show that the goods are his and he retains control over the use made of the mark.

Thus a proprietor of a mark who does not himself manufacture the marked goods nor apply the mark, but who retains for himself either the power to control the activities of the trader who actually applies the mark (as where that trader is a subsidiary company of the proprietor), or the power to ensure compliance with manufacturing specifications or standards of quality that he lays down, is sufficiently connected in the course of trade with the goods to which the mark is applied to be properly registered.

The current insistence on control by the proprietor has little logic to it. What matters is that the proprietor is willing, by authorising use of his mark, to put his reputation behind the goods. How he satisfies himself that the goods are suitable for this should no more concern the law of trade marks, than the workshop practices of a manufacturing proprietor do."

It is clear from the case of G.E. Trade Mark [1973] RPC 297 (House of Lords) the English Trade Mark Act gave recognition to right in equity to prevent deception as to the origin of the goods. Lord Diplock at page 325 stated that :

" The right of property in a trade mark was recognised at common law before it was the subject of any enactment. The Act of 1875 did not itself create any right of property in trade marks. As its title itself indicates and its provisions confirm, it simply provided for the registration of trade marks and spelled out the consequences of registration and non-registration upon the proprietary rights of the owner of the trade mark and the remedies available to him for the protection of those proprietary rights. The Act of 1875 must, therefore, be construed in the light of the common law relating to trade marks in 1875. I use the expression 'common law' to include the doctrines of equity applied in what at that time was the separate court of chancery."

And at p. 326 he stated that :

" But the interest of the public in not being deceived about the origin of goods had and has to be accommodated with the vested right of property of traders in trade marks which they have honestly adopted and which by public use have attracted a valuable goodwill."

The Hong Kong position is the same, the trade mark is used for the purpose of indicating a trade connection. Section 2 of the Trade Marks Ordinance, Cap 43 defines a trade mark relating to goods as follows :

"'trade mark relating to goods' (貨品商標) means a mark used or proposed to be used in relation to goods for the purpose of indicating, or so as to indicate, a connection in the course of trade between the goods and some person having the right either as proprietor or as registered user to use the mark, whether with or without any indication of the identity of that person;"

In Molyslip Trade Mark [1978] RPC 211 the question was whether a registered proprietor had exercised control over the mark. It was held by the Trade Mark Register that :

"The fact that they (i.e. the registered proprietor) could terminate the provision on quality control if, for example, there were complaints about the unsatisfactory nature of the products (which I am not suggesting will in fact happen) seems to me to ensure that the RPs do retain control over the quality of the goods sold under the marks and that there is a sufficient connection in the course of trade between the products and the RPs to satisfy section 68 of the Act."

(3) Pearl River Bridge products

The Pearl River Bridge trade mark had been used on GDF products since the 1950s. It can hardly be disputed that the Pearl River Bridge trade mark enjoys a long reputation in Hong Kong. Before the introduction of the Shiwan Mijiu in 1975, there were already Pearl River Bridge wine such as 九江雙蒸 and 玉冰燒. When the Super Mellow Mijiu was introduced in 1979, apart from the products I have referred to, there were also other Pearl River Bridge rice wine such as 廣東米酒 and 中山米酒. Another product with the Pearl River Bridge trade mark is the soy sauce.

(4) Mr Yong Sin Tung (楊勝通)

The reputation of the Pearl River Bridge soy sauce is given by Mr Yong Sin Tung. Mr Yong is a Director of the Hong Kong Rice Merchant Enterprises Limited ("Rice Merchant"). The Rice Merchant is the distributor of the bottled Pearl River Bridge soy sauce. There are different types of Pearl River Bridge soy sauce. Apart from one particular type, the seller of the Pearl River Bridge soy sauce is GDF. Pearl River Bridge soy sauce has a large market in Hong Kong, although in recent years there has been a decline in the sales figures. In the 1970's, according to a survey of the domestic households, the Pearl River Bridge soy sauce captured 70% of the market. In recent years the percentage is between 30 to 40%. Mr Yong accounted the drop to the competition in the soy sauce market by other brands such as Amoy, Lee Kam Kee, Tung Chun and Kam Lan. There is also supply of other brands of soy sauce in recent years from other parts of the Guangdong province such as 佛山，南海，中山，開平 and 廣州.

Another example of the popularity of the Pearl River Bridge soy sauce is found in the evidence of Mr Yuan. He attributed the refusal by Mr Hu of GDF to allow Foshan Foods producing the Pearl River Bridge soy sauce as the factor in the breaking up of the relationship between the two companies. Mr Yuan obviously attached great importance to the Pearl River Bridge soy sauce.

All the public witnesses had heard of the Pearl River Bridge Trade Mark. Even with the Defendants' public witnesses, with the exception of DW11 劉木欽, they had heard of this trade mark for a long time.

(5) Uniform trade mark

Apart from one or two products such as canned food or sesame oil, GDF is the registered owner of the Pearl River Bridge trade mark in respect of food products and wine. The Defendants' case is that the Pearl River Bridge trade mark does not belong to GDF personally.

The Plaintiffs' case is that the Pearl River Bridge Trade Mark was registered initially by CNC because of the uniform foreign trade policy ("統一對外"). The trade mark was held by CNC on behalf of GDF. I accept this to be correct. The subsequent transfer of the trade mark registration to GDF in Hong Kong and in foreign countries clearly indicated that CNC was holding the trade mark for and on behalf of GDF. The assignment in Hong Kong was for the consideration of $10. It covered both the trade mark and the goodwill generated from the use of the labels. The transfer of the trade mark from CNC to GDF in some foreign countries had not been carried out. I accept the Plaintiffs' evidence this was due to the problem created by associated trade mark. As CNC was still the owner of the trade mark in respect of the canned food, it could not sign the associated trade mark in respect of wine to GDF. I further accept Mr Hu's evidence that the reason why CNC retained the canned food trade mark registration was because of the matters relating to the changes in the administrative structure of Hai Nan Island and Guangzhou City which ceased to be under the administrative control of Guangdong.

Mr Yan Guo Shan (嚴國山), the Vice General Manager of Foshan Foods said that during the planned economy, the Pearl River Bridge trade mark was a 統一共用商標 (uniform and common used trade mark). He explained the meaning of uniform trade mark ("統一商標") as follows : during the planned economy, the State did not encourage competition among products exported from the Mainland in overseas markets. Hence, an uniform trade mark was used on products. This would discourage competition in price and supply. He said that all the foreign trade enterprises in Guangdong were entitled to use the uniform trade mark. He relied on the publication entitled : 對外經濟貿易部、國家工商行政管理局關於發布《出口商品商標管理辦法》的通知（1983年12月23日）附：出口商品商標管理辦法（1983年9月14日國務院批准）which stated that :

" 第四條 各經營出口業務的專業總公司應當掌握本系統商標的國內外使用和註冊情況，維護我國商標在國外的權益，指導所屬分、支公司的商標工作，統一安排和協調多口岸使用同一商標的商品銷售價格、客戶和巿場。

各分、支公司的商標在使用前需徵得總公司的同意。"

In my view, this publication does not support Mr Yan's statement because clearly the publication envisaged that the use by the sub-branches of the trade mark would require the prior approval of the head company. He also relied on the publication《出口商品商標管理》which stated that :

" （五）使用上的問題

‘共用商標’多

應當指出，多口岸多家公司使用同一商標從事出口業務的現象是歷史和體制原因造成的，與無標企業一樣，這幾年來‘共用商標’現象越來越嚴重，成為專業外貿公司向前發展的一大歷史包袱，不放掉這種包袱，這種無標企業絕無發展後勁。

從法理上講，商標的專用權是受法律保護的，商標屬於知識產權，是企業（註冊人）的無形資產，不可能‘共有’或‘共用’。然而在以往的年代‘共用商標’這個詞一直流行，這也是在我國特定條件下產生的。在向巿埸經濟轉型過程中，‘共用商標’這個詞應成為歷史的陳跡，但許多公司經註冊人許可使用同一商標經營同類商品出口業務的現象依然存在，必須從戰略上進行研究這種現象，以克服事實上的‘共用’而帶來的消極影響。"

It was clearly stated that as a matter of law, the trade mark belonged to the registered owner and it was not possible to have a commonly used trade mark.

Further in a document dated 4th February 1980 and entitled《關於出口商品使用商標問題的聯合通知》, issued by the 進出口管委會, 外貿部，國家經委，工商管理總局 it was stated, inter alia, that :

" ...........

四、外貿總公司、分公司和工廠企業、工業專業公司都可就其出口商品上使用的商標申請國内註册。未辦國内註册的商標不得對外使用。 在外貿公司註册的商標中，跨省、巿、自治區使用的商標，一般由外貿專業總公司申請註册；在一個省、巿、自治區内使用的商標，由地方外貿總公司或專業分公司申請註册。外貿專業總公司可以直接向工商行政管理總局申請註册。外貿公司還可以註册少量備用商標，在出口需要時使用。

............

六、出口商品的商標，原則上是誰註册的，就由誰專用。....."

Paragraph 6 of the publication clearly stated that the registered owner of the trade mark was entitled to the sole use of the mark. The Defendants have not adduced any evidence that notwithstanding such a clear statement, the Pearl River Bridge trade mark was still a uniform trade mark which could be used by all the foreign trade enterprises as of right.

(6) Trade marks of the provinces

In further support of the Defendants' contention, Mr Cheung said that it was the requirement of the State that food products from Guangdong should use the Pearl River Bridge trade mark. Likewise, products from Beijing (北京) should use the "長城" trade mark, "梅林" trade mark was for products from Shanghai (上海) and "水仙花" trade mark was for products from Fujian (福建).

Mr Cheung was simply not in a position to give a comprehensive answer. It is a generalization that all products from Guangdong should bear the Pearl River Bridge trade mark. As can be seen in the publication of GDF, there are other trade marks used in export products from GDF. They are the 天壇牌、樓花牌、韓江牌. There are also trade marks such as 三鹿牌、百利牌、旗桿、雙燕、帆船、海天、海印、志美齋、强力牌 and 長春牌. Further，Beijing products also bear the trade mark of 豐收牌 and 夜光杯牌. Shanghai products also bear the trade mark of 佛手齋廚. Mr Cheung's comment that at the early stage, including 1975, only the Pearl River Bridge trade mark was used could not be right because many of the other trade marks of GDF were registered much earlier than 1975.

(7) The source of the Pearl River Bridge products

The Defendants' contention that the Pearl River Bridge Trade Mark merely indicated products using that trade mark came from Guangdong cannot be right. It is clear from the labels of the wine that the trade origin of the products is specified.

In respect of the Shiwan Mijiu main label, from 1975 to 1991, it bore the words in Chinese :

"People's Republic of China"

"Production under the supervision of CNC, Guangdong"

"中華人民共和國中國糧油食品進出口公司監製廣東".

From 1991 onwards to the present, the words that appeared are "Production under the supervision of GDF" ("廣東食品進出口公司監製"). In respect of the Super Mellow Mijiu, from 1979 to 1991, the main label also bore the words "中華人民共和國糧油食品進出口公司監製廣東". From 1991 onwards to the present, the words are also "廣東食品進出口公司監製". The Plaintiffs' case is that in the former description, the words "Guangdong" ("廣東") meant GDF. This can be found from the evidence of Chung Hau Yuen, Mr Lor and Mr Leung of Yau Shing Hong. On the other hand, the Defendants' witnesses, for example, Mr Cheung, stated that the words "廣東" in the former description meant that the product was produced in the coast of Guangdong (廣東口岸).

I accept that the words "廣東" in the label is capable of referring to GDF. However, for the ordinary consumer, the words may bear no such connotation. In my view, the Plaintiffs' case on the ownership of the goodwill does not need to be decided on such a narrow basis. As shown from Powell, T Oertli and Wadlow, it is sufficient if the public rely on the mark as denoting that the quality and character of the goods so marked is the responsibility of some trader. The public need not be able to identify him by a name. The public witnesses of both sides had heard of the Pearl River Bridge brand (some for many years) and they could identify products such as wine and soy sauce produced with this brand. The source of the products is clearly identified by the words on the label : it was a company in the Guangdong province. This company could only be GDF who is the owner of the trade mark and ultimately responsible for the products produced with the trade mark. It would be absurd, if despite the singular company named on the label, different products bearing the same label would be considered by the public to be produced by different companies. In my view, GDF has also fulfilled the public perception test in proving the ownership of the goodwill of the two wine. In any event, after 1991, the full name of GDF appears on the main label. The goodwill generated from 1991 to 1995 by reference to the name of GDF on the main label would certainly belong to GDF.

(8) Trade mark licences

Furthermore, irrespective of the past position, from 1987 onwards, the sub-branches were using the Pearl River Bridge Trade Mark on licence from GDF. This must be the best indication that the concept of an uniform trade mark was no longer applicable after that time. The mark was used only with the permission of GDF. Foshan Foods had been using the Pearl River Bridge Trade Mark under licence from GDF since 1987. The first licence was dated 30th April 1987 in relation to wine (D2/904) and soy sauce (D11/353), the second licence agreement was dated 30th December 1993 and was on wine. The second licence was part of the documents introduced after the Trade Mark Conference organised by GDF in 1993. Representatives of CNC and the former sub-branches attended as well. The other documents include the Trade Mark and Bar Code Regulations which clearly stated that the Pearl River Bridge trade mark was registered in the name of GDF and could only be used with the permission of GDF. It further provided that the labels of the export products could not be altered and the licensees could not imitate the trade mark, get up and design of GDF's products.

Mr Yuan said that even though Foshan Foods had used a lot of effort in relation to the Pearl River Bridge Trade Mark, because the mark was registered in the name of GDF, it decided to sign the licence agreements. It complied with the law on trade mark.

Mr Yan said that the 1987 trade mark licence agreement with GDF was signed because at that time Foshan Foods was still pegged to the Central Government in terms of finance. The second licence agreement dated 30th December 1993 was signed because this followed the 1987 agreement and there was no problem in signing. At that time, the trade mark law was introduced and money would be required to manage the trade marks.

The explanation of Mr Yuan and Mr Yan on why Foshan Foods signed the two licence agreements does not in any way detract from the position that Foshan Foods used the Pearl River Bridge trade mark under licence from GDF. The fact that no charge was payable under the first licence agreement, and that under the second licence agreement, the licence fee was to be used for the administration of the trade mark ("專款專用") does not detract from the position that GDF was permitting the sub-branch companies to the use of the Pearl River Bridge Trade Mark. This is contrary to any suggestion that the trade mark continued to be a uniform trade mark to be used commonly by all the sub-branches.

Once it has been established that GDF is the owner of the Pearl River Bridge trade mark, it is an inevitable conclusion that the goodwill acquired on the two wine belong to GDF as well. Because the reputation of the two wine was built on the reputation of the Pearl River Bridge Trade Mark, and the trade mark is so inextricably linked to the products and the labels, that it is not possible to consider the goodwill of the two wine without regard to the reputation of the Pearl River Bridge Trade Mark. The reputation acquired through the use of the trade mark by licences would also belong to GDF.

Mr Tang S.C. relied on the Scandecor Development AB v. Scandecor Marketing AB and Others [1998] FSR 500 in which it was held that there was no general principle that all goodwill generated by use of a mark under licence should accrue to the licensor on termination of the licence. It was a question of fact as to whether the name was distinctive of a particular party's goods, not of fiction or equitable doctrine.

It may well be what Wadlow said at para. 2.62 needs to be reconsidered in the light of Scandecor. However, as far as the Pearl River Bridge Trade Mark is concerned, the goodwill generated by the use of the trade mark under licence can only be accrued to GDF. GDF had already built up a long reputation with this mark and I just cannot see how a licensee could have acquired the goodwill from the use of the mark.

(9) Payment of fees for use of trade mark

A question was raised whether the licence fees were paid by Foshan Foods to GDF or to CNC. By a notice dated 11th March 1994 (Bundle D9/252), GDF requested Foshan Foods to pay the 1993 fees for the use of the Pearl River Bridge trade mark. In the notice, Foshan Foods was asked to remit the money to the account of the CNC, Guangzhou Trade Mark Management Office. Mr Dong explained that CNC had a Trade Mark Management Office in the office of GDF, the staff was from GDF as well. Since the Pearl River Bridge trade mark on canned food belonged to CNC, CNC established a Trade Mark Management Office in order to facilitate the collection of trade mark fees and trade mark management. Mr Dong was also the Deputy Secretary of the Trade Mark Office. After the unpegging of GDF and the sub-branch companies in January 1993, GDF used the CNC account to collect fees from the sub-branch companies. The CNC account was used for three reasons : (1) it was the first time GDF collected fees from the sub-branch companies; (2) GDF had no separate account; and (3) the fees were to be used on trade mark management and not for other purpose. In fact there were separate entries in this account, one entry was for CNC's trade mark fees on canned food and the other entry was for the GDF trade mark fees on processed food. The fees were used for trade mark management and expenses in relation to the trade mark and they were not intended to be profits.

After 1993 the trade mark fees were remitted to the separate account of GDF. GDF continued to collect fees separately for CNC until the Autumn Trade Fair of 1997. On 7th March 1995, Foshan Foods remitted to GDF money for the use of the Pearl River Bridge trade mark in 1994 (Bundle B1b/435).

I accept the evidence of Mr Dong. I am satisfied that the fees were collected by GDF for itself.

(10) The Production Agreement珠江橋牌米酒生產委託書（Bundle D2/899）

In April 1994, the Shiwan Brewery signed a Production Agreement with GDF. By this document GDF entrusted Shiwan Brewery to produce the Pearl River Bridge 玉冰燒，雙蒸，and 三蒸. GDF had signed similar documents with other factories.

Mr Chen explained that at the beginning of 1994, Shiwan Brewery was informed by Foshan Foods that from 1994 onwards, GDF would purchase from Shiwan Brewery玉冰燒，雙蒸and三蒸 and this was agreeable to Foshan Foods. Later on, Mr Dong and Mr Leung of GDF came to see him at the Brewery. Mr Dong said that they had discussed with Foshan Foods, and because of the change in the foreign trade, GDF needed to find its own products (找米下鍋). Between January and February 1994, Shiwan Brewery received plans from GDF on the production of the three wine. On 20th April 1994, Mr Dong came to Shiwan Brewery and said that GDF had registered the Pearl River Bridge Trade Mark and in order to strengthen the trade mark management, GDF asked Shiwan Brewery to sign the Production Agreement. After consulting the Factory Manager, the document was signed. After the Production Agreement was signed with GDF, Shiwan Brewery suggested to Foshan Foods that a similar agreement should be signed with it as well so as to ensure the Brewery receive protection in the use of the trade mark. The Production Agreement with Foshan Foods was then signed (Exhibit D9).

In the Production Agreement signed with GDF, it was clearly stated that GDF was the lawful owner of the Pearl River Bridge Trade Mark. What Mr Chen said about the circumstances in which these documents were signed does not diminish Shiwan Brewery or Foshan Foods' recognition of the right of GDF of the trade mark. The Production Agreement with Foshan Foods merely stated that Foshan Foods was the lawful user of the Pearl River Bridge Trade Mark. This document clearly is not sufficient to support the Defendants' case that the Pearl River Bridge Trade Mark was a uniform trade mark.

In the Production Agreement with Shiwan Brewery, it was stated that GDF agreed to Foshan Foods acquiring from Shiwan Brewery the Super Mellow Mijiu and the Shiwan Mijiu. An issue arises that GDF recognized the Super Mellow Mijiu and the Shiwan Mijiu belonged to Foshan Foods and hence GDF only asked the Brewery to produce other types of wine.

Mr Dong denied that GDF did not take back Super Mellow Mijiu and Shiwan Mijiu because it knew that they were products of Foshan Foods whereas the other three types of wine, namely, 玉冰燒、雙蒸 and 三蒸 were traditional wine. He agreed that from an economic point of view, the more products GDF could export on its own, the more profit it would make. However the decision of not handling the Super Mellow Mijiu and Shiwan Mijiu at that stage was because if GDF recovered all the products from the sub-branches, then they would not have any business to conduct and it might cause unemployment to the workers. It was not possible to carry out too drastic an action in a socialist system. After all from 1954 to 1992, GDF had been responsible for the loss of the sub-branch companies. After considering the business activities that the sub-branch companies had carried out for GDF, the welfare of the employees of these companies, GDF decided not to take back all the export products from the sub-branches.

I accept what Mr Dong said regarding the reason for only taking back three of the wine. The decision was not a recognition of the propriety interest of Foshan Foods in the Super Mellow Mijiu and the Shiwan Mijiu.

(11) Use of the Pearl River Bridge Trade Mark in advertisement

The Pearl River Bridge Trade Mark was used in the advertising campaigns. The Defendants' witnesses again played down the importance of the trade mark. Mr Cheung said that the emphasis of the advertisements was on Shiwan Mijiu. Certainly from the advertisements, the words "Shiwan Mijiu" were featured most prominently. However, in the advertisement in 1976 when the Shiwan Mijiu was first introduced and in the advertisement in 1979 when Shiwan Mijiu was reintroduced in the market, the Pearl River Bridge trade mark was also featured separately and prominently in the advertisements. Similarly in the advertisement on buses, even in the 1990s, there was a separate feature of the Pearl River Bridge Trade Mark. Likewise, in respect of the Super Mellow Mijiu, the Pearl River Bridge trade mark was featured prominently in the advertisements. Similarly the same trade mark was applied, again prominently, throughout the years in advertisements of other rice wine such as 雙蒸，廣東米酒，中山米酒，玉冰燒，九江米酒王. The indication is clearly that the Shiwan Mijiu and Super Mellow Mijiu are part of the Pearl River Bridge brand line of wine.

Mr Cheung said that the Pearl River Bridge Trade Mark had a certain use or value ("作用"), but he said the emphasis was still on the Shiwan Mijiu. He played down the importance of the trade mark by saying the Guangdong Mijiu which also bear the Pearl River Bridge Trade Mark did not sell well. He further said that the use of Pearl River Bridge Trade Mark was not the deciding factor in the quality of the product. Before 1979, quality control on products with the trade mark in the Mainland was good but after that the control was less effective.

In my view, the product may not sell well for a number of reasons such as quality and the amount of promotion involved. However there is no denial that the Pearl River Bridge Trade Mark helped to sell products. Certainly in the consumer market in Hong Kong, the Pearl River Bridge Trade Mark has acquired a general reputation of quality. A goodwill has certainly been built up on products of the Pearl River Bridge Trade Mark such as soy sauce and other types of rice wine. The use by the two wine of the Pearl River Bridge Trade Mark in labels and advertisements was to ride on the goodwill already generated by the trade mark so as to give recognition to the new products.

(12) Period from 1993-1995

From the time of their introduction in 1975 and 1979 respectively until January 1995 when the Zu Miao brand of wine were introduced, the goodwill generated by the Super Mellow Mijiu and the Shiwan Mijiu clearly belonged to GDF. After the financial peg was removed in January 1993, Foshan Foods used the Pearl River Bridge Trade Mark under licence from GDF. The earlier licence was extended to 1993 and licence fees for that year was paid. This was followed by the new licence Agreement signed by Foshan Foods in early 1994.

4. Public perception : Reference to the parties on wine labels

(1) Main label

I have already dealt with the question of public perception on the ownership of the goodwill in relation to the main label. The activities of GDF which I have dealt with extensively in the earlier part of the judgment clearly indicated that it was engaged in a trade which would entitle it to sue for passing-off. The public perception test in proving ownership of the goodwill has clearly been satisfied by GDF.

(2) Neck label : Use of the words "石灣佳釀"

The original neck label contained the words "石灣佳釀" (Shiwan Fine Brew). This neck label was used for a very short period of time. The new neck label had the larger letters "XO" at the center and the words "石灣佳釀" was reduced in size and appeared on the top. The Defendants argued that the words "石灣" referred to Shiwan Brewery.

Mr Dong denied that it was misleading to the consumers to use the words "石灣佳釀" on products not produced by Shiwan Brewery but by the Namhai Xianhua Brewery which now produces the Shiwan Mijiu and Super Mellow Mijiu for GDF. He said that the words had been used on the Pearl River Bridge trade mark wine for many years. He said the words Shiwan Mijiu ("石灣米酒") represent the name of the product, consumers did not identify the wine with the Shiwan Brewery but rather with the Pearl River Bridge trade mark. He said that there are two places in Guangdong with the name of "石灣" and in a town called "博羅", there was another wine factory called "石灣酒廠". Mr Dong further gave the example of the "紹慶酒" produced in 浙江. He said 紹慶 is the name of an area, there are many different brands of 紹慶花雕酒, for example, "塔牌" and "古月牌".

From the second half of 1995, GDF stopped using the words "石灣佳釀" on its Super Mellow Mijiu because in May or June 1995, 佛山巿工商行政管理局 informed GDF that the words "石灣" had been registered by Foshan Foods, GDF's decision to stop using "石灣佳釀" from that point onwards was to respect the law of the State. For a short period, Super Mellow Mijiu was exported in bottles without any label. It then decided to print a simplified label which is shown as an annexure to the letter dated 30th October 1996 from GDF to the Foshan City Middle Court (Bundle D10/203-207). He said that the label was used when GDF exported the wine and when the wine arrived in Hong Kong, the diamond shape label would be imposed in replacement of the simplified label. This step was confirmed by Mr Leung of Yau Shing Hong, the new distributor in Hong Kong of the Pearl River Bridge Super Mellow Mijiu.

(3) Public perception of Shiwan Brewery

In a letter dated 7th June1995 from GDF to 佛山巿工商局, GDF did recognize the words "石灣" refers to the special products of the area, it was stated that :

" 關於招紙使用問題，有個歷史的情况，原有的外貿體制是由省公司統一組織出口，安排工廠生產。因而，招紙是由省公司設計提供，工廠只負責貼招。由於特醇米酒在石灣生產，後常在招紙上冠以'石灣'兩字，表示是地方特產。"

In my view, "石灣" refers to a geographical location. However, it would be a quantum leap to say that the words "石灣" would mean Shiwan Brewery or that consumers would know of this connotation.

The Defendants argued that in the promotional articles written on the Super Mellow Mijiu in 1979 and in the beginning of 1980s, there were extensive reference to the Shiwan Brewery. Further, there was a popular television programme in 1980 which featured the Shiwan Brewery as well. It was submitted that the consumers would associate the Super Mellow Mijiu and Shiwan Mijiu with the Shiwan Brewery which was formerly the 陳太吉酒廠.

It is clear that although the promotional articles (they were published in November and December 1979 and May and June of 1980) referred to the Shiwan Brewery, the actual advertisements of the two wine made no reference at all to the Shiwan Brewery. The evidence showed that there is also a 陳太吉酒廠 in Hong Kong but it is a distinct and separate entity from the one in the Mainland. Furthermore, the actual evidence including those adduced by the Defendants on public perception just does not support the contention of the Defendants.

(i) DW7曹安文

DW7, 曹安文, whose family operated a Chinese product emporium, said that he only learned of the name Shiwan Brewery when he visited it in March 1995.

(ii) DW8李建榮

DW8, 李建榮, whose family operated a provisional store, said that there was a brewery in Shiwan. He understood the words "石灣佳釀" as meaning a good product produced by the brewery in Shiwan. However, he did not know of the Shiwan Brewery in Shiwan.

(iii) DW11劉木欽

DW11, 劉木欽, said that he was aware of the certificate of quality approval in the cartons of the wine. He also noticed the words Shiwan Brewery on the notice. He also said that he did not pay attention to the trade marks on the wine until 1995 to 1996.

(iv) DW12黃慶南

DW12, 黃慶南, said that the name Shiwan Brewery was printed on the label of the Zu Miao wine. Before the change of the label, he did not know which brewery produced the wine. He did not understand the meaning of "石灣佳釀 XO". He only knew they were the products of the Shiwan Brewery. He said the words Shiwan Mijiu represents products of Shiwan Brewery. He had seen the quality approval certificates but the words Shiwan Brewery only appeared in the past seven to eight years. The customers would not be given the certificates when they buy the wine.

(v) DW13林德如

DW13, 林德如, did not know which brewery produced the Shiwan Mijiu. As to the meaning of 石灣佳釀, in his evidence-in-chief he said that 石灣 is the name of the brewery and 佳釀means good wine. In cross-examination he said that he guessed 石灣 (Shiwan) is the name of a place, it is a 地方酒廠名 (the name of the brewery in the area), but he did not know if there is a brewery in Shiwan and he did not know how many Shiwan are there in Guangdong. As to the name Shiwan Mijiu, Mr Lam said that he did not know what it means. He did not know the meaning of Shiwan.

Based on the evidence I have heard, I do not find that the words "石灣佳釀" on the neck label affects the Plaintiffs' case that GDF had the goodwill to the product.

(4) Back label

The Defendants relied on a back label on the Super Mellow Mijiu which stated that :

"特醇米酒是佛山石灣酒廠的皇牌，由經驗豐富的石灣調酒師，採用各種成份的米酒，混和調制，取其酒精濃度適中，香醇溫厚，豉味金香，酒色晶瑩澄澈蘊藏於年代久遠的酒酲，而且蘊藏年期特別長堪稱米酒中的XO" (p.7 of Bundle F).

The relevance is that this label referred to the Shiwan Brewery.

Chung Hau Yuen had never seen such a back label. He recalled that he might have seen one with the words "米酒中嘅XO" (XO among the rice wine). Mr Lor had never seen such a back label. His evidence was that during the planned economy, the name of the factory which produced the product would not appear, and in fact was not allowed to appear, on labels of products destined for the export market. Mr Tang had never seen any back label. Mr Leung of Yau Shing Hong had not seen any back label. Mr Chiu said that initially there was a back label attached to the Super Mellow Mijiu. It was a white colour label describing the quality of the wine. It was later cancelled because of problems of sticking the label to the bottle. He, however, had not seen the back label now relied upon by the Defendants.

The two witnesses who said there was a back label to the Super Mellow Mijiu were Mr Chen and Chung Who Cheung. Mr Chen claimed that he had a discussion with Mr Chan Wan Fai of Foshan Foods on the back label. Mr Chan was not asked in his evidence about the back label. Chung Who Cheung also said that the back label was used in mid-1983 to 1986/87. The original case of the Defendants, as evidenced by Chung Who Cheung's affirmation in support of the Defendants' application for interlocutory injunction, is that the back label was used since the first bottle of the Super Mellow Mijiu was produced in 1979. Chung Who Cheung said that the idea of the back label was suggested by Leo Burnett. The back label ceased to be used when Shiwan Brewery changed the bottling of wine into an automatic system. In support of the Defendants' case that the back label was used, he relied on the promotional proposal by Leo Burnett, the advertising agency, (D3/1050) and a document dated 5th May 1983 (D9/151) in which the wording of the back label was specified. Apart from minor differences, they matched the label now relied by the Defendants. He further relied on delivery notes dated 15th August 1983 and 28th February 1984 (D3/1393-1414) in which the back label was included in the description of the goods delivered by Tung Fook (1982) to Shiwan Brewery.

Mr Chen stated that in 1983, a representative from Leo Burnett visited the Brewery, and he informed the representative that the Brewery wanted a better promotion of the special feature of their products (產品特點) and suggested the use of a back label. In the newspaper advertisements in 1979 and 1980, there were already reference to the石灣酒廠. The back label was used from September/October 1983 until 1986 when the new automatic label sticking machine could not arrange the front and back labels on a straight line without causing delays in the production. After discussion with the Hong Kong merchant (which I took it to be同福），the back label was stopped being used from 1987 onwards.

I do not find Chung Who Cheung and Mr Chen to be credible witnesses on the back label. Chung Who Cheung had given evidence on many issues which were not within his knowledge. He explained that he said the back label was used since 1979 because his staff had told him that there were a back label to the wine. He then said that Leo Burnett suggested the use of the back label in a proposal prepared by it. Then he said that the original proposal did not contain any reference to the back label. The idea only came from Leo Burnett some time later in 1983. Mr Chen conceded that in 1983 the name of the Brewery could not appear on the products, but he tried to explain that the restriction only apply to the main labels but not the back labels.

I find that GDF had not approved of the use of a back label. Tung Fook (1982) might have supplied some back labels, but I accept Mr Liao S.C.'s submissions that if they were used, they were being used secretly and only for a short period of time, or they were used on bottles destined for the domestic market. The Defendants relied on shipping documents, invoices and printing orders in which the back labels were included in the description of the goods. From these documents it appeared that the labels, together with other labels, were delivered on two occasions in 1983. The labels were, according to the documents, consigned to Foshan Foods. It is extremely odd that Foshan Foods was not able to say that there was the back label on the Super Mellow Mijiu. In any event, I find the back label had no effect on consumers or had any bearings on the question of goodwill. The size of the back label was so small, and as Mr Liao, S.C., said, the words could only be discerned by the use of a magnifying device. When the back label is compared with the main label, it dwarfed into total insignificance.

(5) Bar Code

As requested by the supermarkets in Hong Kong, GDF started to use bar codes on its products. This started in June 1990. It is not necessary to base my finding on the ownership of goodwill on the use of the Bar Codes.

(6) Name of Shiwan Brewery in the cartons

Mr Chen said that Shiwan Brewery would put a quality inspection certificate in the cartons containing the wine. The certificate referred to Shiwan Brewery and gave a description of Shiwan Brewery.

As these certificates were found only in the cartons, the ordinary consumers of the two types of wine would not be provided with such inspection certificates.

(7) The manufacturer as owner of the goodwill

Mr Tang S.C., referred to Passing Off Law and Practice 2nd Edition by Drysdale and Silverleaf at para.3.13 in which it was said that :

"...Disputes not infrequently arise between the manufacturer and importer over who is entitled to the reputation in England. At common law as a general rule the owner of the reputation is the foreign manufacturer and not the importer even if the importer is the sole agent or distributor in this country of the goods in question."

In Van Zeller v. Mason, Cattley and Co. [1907] 25 Reports of Patent, Design and Trade Mark Cases 37, a wine vineyard known as the Quinta de Roriz and a wine shipping business were originally in the same hands but belonged to different owners at a later date. After the severance, the successors of the wine shipping business registered Kopke Roriz as a trade mark for wine. The owner of the vineyard applied to restrain the owners of the Kopke business of this mark. The defendant shipped to the English market wine of the Kopke Roriz brand although such wine did not contain the products of the vineyard. The Court held that the defendants passed off the goods of the defendant as and for the goods of the vineyard.

Many of the cases in this area arose as a result of the dispute between the manufacturer and the importer. However, the conflicting claim of the manufacturer and the importer is not the only situation when one considers the ownership of the goodwill. Hence, I do not find it helpful to rely, as a principle of law, that the goodwill or reputation belongs to that of the manufacturer. Mr Tang S.C. is of course right when he said that the mere fact that there was a trade connection between the product and its owner is not sufficient to establish an ownership of goodwill. The trade connection cases relied by the Plaintiffs are illustrations of the control exercised by a trade mark proprietor who himself is not the manufacturer. In this case, GDF has clearly satisfied the control test in establishing the ownership of goodwill in the two wine and is successful in its claim based on passing off.

(8) Tung Fook (1982)

The status of Tung Fook (1982) was merely the distributor of the Pearl River Bridge Super Mellow Mijiu. This is clearly spelt out in some of the advertisements of this product. It cannot satisfy either of the tests in proving the ownership of the goodwill.

5. Trade Mark

(1) Registration of trade mark by Tung Fook (1982)

The Plaintiffs seek rectification of Trade Mark No.2010/95, registered by Tung Fook (1982) by substituting GDF's name as the proprietor or by expunging the registration from the Trade Mark Registry.

Tung Fook (1982) applied for registration of the Super Mellow Mijiu trade mark in 1993 and the application was approved in 1995. Chung Who Cheung stated that as early as 1989 he had asked Samuel Yeung & Co., Solicitors, to apply for the registration of the Super Mellow Mijiu trade mark. He wanted the registration because in the market there were other types of Super Mellow Mijiu produced in the Mainland with similar labels. In his evidence-in-chief, he stated that GDF and Foshan Foods also suggested to him to register the trade mark. He stated that during the 1992 Trade Fair he had invited Mr Ching Yau Yau of GDF and Mr Yuan of Foshan Foods to lunch. During the conversation, they asked him to register the trade mark quickly so as to protect himself from imitation products. Later on, it was discovered that Samuel Yeung & Co. had not proceeded with the trade mark application. He was then referred to Hastings & Co. to apply for the registration. The application was made on 10th June 1993.

At the end of 1993, during a meeting with the representatives of GDF, namely Mr Leung (梁國鴻), Mr Chu (朱華) and Mr Dong, Chung Who Cheung informed them that he had already applied to register the Super Mellow Mijiu label when Mr Leung informed him that GDF intended to supply Super Mellow Mijiu in Hong Kong. At this meeting Mr Leung took out a label which was similar to the Super Mellow Mijiu label. In another Trade Fair, either in 1993 or 1994, in the presence of Mr Chu and Mr Fung, who was a manager of GDF, Chung Who Cheung further informed them that he had registered the Super Mellow Mijiu label.

The Defendants' case as pleaded and as contained in Chung Who Cheung's affirmation in support of the Defendants' application for injunction against GDF was that Tung Fook did not and was not required to inform GDF of the registration of the Super Mellow Mijiu label because GDF had no interest in the label. Chung Who Cheung's affirmation expressly dealt with Mr Dong's contention that GDF had never been informed of the application by Tung Fook (1982). However, Chung Who Cheung changed his approach in his evidence.

I do not accept that he had informed GDF either in casual conversations or in meetings that he had applied for the registration of the Super Mellow Mijiu label. GDF had previously wanted to register the Super Mellow Mijiu label and was advised by Wu Fung Hong that it was not possible to do so. Had Chung Who Cheung informed GDF of what he had done, I have no doubt that GDF would have taken action on this matter. Furthermore, what Chung Who Cheung said regarding the reason for registering the label was unconvincing. In paragraph 35 of his first witness statement, he stated that in 1993, Shiwan Brewery, Foshan Foods and Tung Fook (1982) decided to apply to register the label. No reason was given why this decision was made. Chung Who Cheung now said that he decided to register the label earlier and he tried to explain paragraph 35 by saying that after GDF and Foshan Foods suggested that he should register the label, he pressed Mr Samuel Yeung on the matter.

Mr Samuel Yeung is no longer practising in Hong Kong. Mr Ching had left GDF in 1991. I find too much of an coincidence that the application for registration of the Super Mellow Mijiu Trade Mark was lodged by Tung Fook (1982) on 10th June 1993 when during the same year GDF and Foshan Foods became unpegged and the requirement of export licence was cancelled.

Mr Yuan also said that he had suggested to Chung Who Cheung to register the Super Mellow Mijiu trade mark in order to protect the product because of imitations in the market. He said that someone from GDF was also present at the discussion. He said that the person might be Mr Ching Yau-yau. I find his evidence to be extremely odd and not credible. Foshan Foods had already registered the Zu Miao Trade Mark in the Mainland in 1986 to 1988. The Zu Miao Trade Mark was also registered in Hong Kong on 5th October 1993 by a subsidiary company of Foshan Foods in Hong Kong. Foshan Foods regarded the Super Mellow Mijiu to be its own product. In the ordinary cause of events, it would be extremely odd for Foshan Foods to ask or allow Tung Fook (1982) to register the Super Mellow Mijiu Trade Mark to protect against other imitators. In my view, it was part of the concerted effort by Foshan Foods and Tung Fook (1982) to have the Super Mellow Mijiu Trade Mark registered behind the back of GDF. I find that Tung Fook (1982) clearly did not have any permission from GDF to register the Super Mellow Mijiu Trade Mark.

(2) Rectification

The power to rectify entries in the register is governed by s.48 of the Trade Marks Ordinance, Cap.43 which provides that :

"(1) Subject to the provisions of this Ordinance -

(a) any person aggrieved by the non-insertion in or omission from the register of any entry, or by any entry made in the register without sufficient cause, or by any entry wrongly remaining on the register, or by any error or defect in any entry in the register, may apply in the prescribed manner to the Court or, at the option of the applicant and subject to the provisions of section 80, to the Registrar, and the tribunal may make such order for making, expunging or varying the entry as the tribunal may think fit;"

I am satisfied that the grounds for rectification have been proved by the Plaintiffs :-

(i) The registration was applied for and obtained by Tung Fook (1982) in fraud of GDF's right in the label in that the goodwill in the label has been vested with GDF. The label had been in use long before Tung Fook (1982)'s application in 1993. The label has always been an integral label incorporating the Pearl River Bridge Trade Mark and GDF's name in Chinese and English. Section 12(1) of the Trade Marks Ordinance provides that :

"(1) It shall not be lawful to register as a trade mark or part of a trade mark any matter the use of which would be likely to deceive or would be disentitled to protection in a court of justice or world be contrary to law or morality, or any scandalous design."

In Smith Hayden, the owners of the mark "Hovis" opposed to an application to register "Ovax" for impovers and moistening agents to be used in making cakes. Evershed J. held :

"(a) (under section 11) [i.e. H.K. S.12(1)] 'Having regard to the reputation acquired by the name 'Hovis,' is the court satisfied that the mark applied for, if used in a normal and fair manner in connection with any goods covered by the registration proposed, will not be reasonably likely to cause deception and confusion amongst a substantial number of persons?"

The authors of Kerly's Law of Trade Marks and Trade Names 12th ed. suggested that the qualification to the principle should be as follows :

"It would seem, however, that on the one hand (a) here should rather read: 'Having regard to the user of the name 'Hovis' ...'; whilst on the other hand the requirement that the deception and confusion be amongst a substantial number of persons is a judicial gloss which needs to be properly and sensibly applied. Also the inquiry must now be directed, both for goods and for services, also to marks for 'associated' services or goods."

In Hong Kong Caterers Limited v. Maxim's Limited [1983] HKLR 287, Hunter J. held that in Hong Kong s.12(1) makes the likelihood of deception and independent ground of objection.

(ii) Tung Fook (1982) was, until 1995, the distributor in Hong Kong of GDF's Super Mellow Mijiu. GDF had, by a licence agreement made in January 1994 licensed Foshan Foods to produce the wine and used the label. Tung Fook (1982) had applied for the registration without notice to or the prior knowledge or consent of GDF.

In GYNOMIN Trade Mark [1961] RPC 408, a former agent of a foreign manufacturer, having received in confidence knowledge of the formula of a product of the principal, marketed the product under a trade mark knowing it to be a mark of the former principal, and registered that mark. It was held that in view of the close relationship between the parties and the respondents, knowledge of the information which was communicated to them in confidence, they were not entitled to claim to be the proprietors of the trade mark "GYNOMIN".

(iii) Tung Fook (1982) is not entitled to claim to be the proprietor of the label because it was merely GDF's distributor of the Super Mellow Mijiu. The reputation and goodwill of the label vested in GDF and not in Tung Fook (1982). Section 13 of the Trade Marks Ordinance enables "any person claiming to be entitled to be registered as the proprietor of a trade mark" to apply for registration. In the matter of the trade mark of Elaine Inescourt [1928] 46 RPC 13, a businessman in Switzerland manufactured and sold a self massage rollers under the trade mark "Le Vampire". An English merchant imported the rollers to England and registered the words "Le Vampire" in England. The Swiss merchant applied to expunge the trade mark from the register. The trade mark was struck off, Eve J said :

"The result of the evidence is that the Mark was used in this country in connection and as identified with the Applicant's goods before the application to register, and when that application was made it was not open to the Respondent to claim successfully any right to the mark for herself."

In the Australian Law of Trade Marks and Passing Off by Shanahan, it is stated that :

"A manufacturer who has applied a mark to goods to indicate that he or she is the 'origin' of the goods is most unlikely to be denied proprietorship because of the activities of some dealer in those goods. The evidence in these cases will generally show that in the hands of the dealer, the mark has retained its initial significance as an indication of the manufacturing source of the product. The dealer does not establish proprietorship by showing only that purchasers look to the dealer as the sole supplier of the goods; they might well do that in recognition of the dealer's exclusive selling right, while aware all the while that the mark denotes some manufacturing origin. This is particularly likely where the manufacturer is actually identified by the labels or the goods are clearly of foreign origin."

In this case, it is GDF who is identified as the trade source of the wine.

(iv) The copyright subsisting in the label is vested in GDF beneficially. The trade mark is a reproduction of the label and the use by Tung Fook (1982) of the trade mark constitutes infringements of GDF's copyright and it is unlawful : s.12(1) Trade Marks Ordinance.

(3) Expunging a registration

Section 49 of the Trade Marks Ordinance enables the court to expunge the registration of a trade mark,

"... of any contravention of, or failure to observe, a condition entered on the register in relation thereto."

The question of condition is discussed in Kerly's at para.8-57 as follows :

"A trade mark may consist of a device: the 'logos' recently fashionable as house-marks of commercial groups are examples. In general, the only question is whether the device is striking enough or well-known enough to be distinctive. Colour may contribute to distinctiveness. Where, however, the device includes words, letters or numerals, the question arises whether the mark does not essentially consist merely of them: whether, that is, if those words, letters or numerals are disclaimed (as the Registrar will normally require) there is really anything left.

'Blank space conditions': If it is sought to overcome the above difficulty by registering such a mark with the words, letters, etc., omitted, leaving blank space, the Registrar will if it appears to him that the mark does include a blank intended to be filled in when the mark is used consider not only whether the mark is distinctive as it stands, but also whether it will remain so when the blank is filled. Accordingly, from about 1950 the practice grew up of requiring, as a condition of registration, that, in use, the blank be occupied only by matter of a wholly descriptive, non-trade mark character."

In the present case, the trade mark was registered subject to the condition that "the blank space in the mark shall, when the mark is in use, be occupied only by matter of a wholly descriptive and non-trade mark character". Tung Fook (1982) secured the registration of the trade mark with full knowledge that the mark had been used before the application in a manner contrary to the condition and would be used after registration in breach of the condition. The trade mark has always been used with matters not of a wholly descriptive and non-trade mark character. Before 1995, the blank space was occupied by the Pearl River Bridge Trade Mark, GDF's corporate names in Chinese and English and the names "Super Mellow Mijiu" and "特醇米酒". Since early 1995, the blank space has been occupied by the Zu Miao trade mark (which does not belong to Tung Fook (1982)), the Chinese and English names of Foshan Foods and Shiwan Brewery, the names "Super Mellow Mijiu" and "特醇米酒". The conduct of Tung Fook (1982) clearly constitutes a breach of faith and a fraud on the registry.

In TIME Trade Mark [1961] RPC 381, Time Inc. applied to register as a trade mark the cover of the magazine "Time", the space normally occupied by pictorial matter special to a particular issue being left blank. It was held that :

"In my view as a general rule, where the Registrar sees in a mark a blank space clearly intended to be filled in with undisclosed matter which might affect the identity of the mark unless it were of a wholly descriptive non-trade mark character, he is justified in requiring an undertaking that, when the mark is used, the blank space will be occupied only by matter of such character."

In Dunhill's Trade Marks [1969] RPC 640, it was held that :

"If the appellants in use insert distinctive matter, for example, other trade marks owned by them in the relevant blank space the effect of the mark as a whole in my view is likely to be totally altered."

(4) Submission by Trade Mark Registrar

There is no dispute that GDF and Yau Shing Hong are persons aggrieved by the registration of the trade mark. They were alleged by Tung Fook (1982) to have infringed its trade mark. The Defendants have not shown why the discretion to rectify the entries should not be made. However, before I order a rectification of the entry, I would, as suggested by Mr Liao S.C., invite the Trade Mark Registrar to make representations on whether he will remove the blank space conditions. This is an issue that will invariably arise if I substitute GDF as the owner of the trade mark in the Registry. Hence, this matter should be dealt with first before any order is to be made in this regard.

6. Copyright

GDF argued that it is the beneficial owner of the copyright in the labels of the Shiwan Mijiu and the Super Mellow Mijiu.

(1) The Law

In The Modern Law of Copyright and Designs by Laddie, Prescott and Victoria, a useful summary is given on the ownership of copyright in equity :

"11.79 Ownership in equity can arise where the circumstances are such that the copyright, although belonging to the author at law, can properly be regarded as being held on trust by him for another person. For example, a work may have been created by a partnership or by a director of a company or by an employee in circumstances where it would be inequitable for him to claim rights in the work as against the partnership or the company and he will be regarded as a constructive trustee of the copyright. Or a copyright work may have been brought into existence at the request of or on the instructions of the intended owner who has paid for the making of the work.

Illustration (1) In Massine v de Basil [1936-45] MCC223, Massine, the choreographer, agreed with the director of the Russian Ballet at Covent Garden that he would compose and arrange suitable dances for the ballet. He was held to be under a contract of service but the court said that even if he were an independent contractor and entitled to the copyright he would nevertheless hold it on trust for the ballet as he had been paid specifically by them to produce the works in question.

(2) In Harold Drabble v Hycolite Manufacturing Co [1923-28] MCC322, D, an advertising agent, had written to the H Co offering to improve on the wording and layout of their existing advertisements. H Co supplied D with information and paid for the materials used in such re-design. H Co placed the resultant advertisement in a newspaper and D was paid a commission by the newspaper. Later H Co placed the advertisement in another newspaper without the consent of D. It was held that there was insufficient originality in D's advertisement for copyright to subsist therein but that if it was a copyright work there must be inferred a plain consent that the advertisement should remain the property of the H Co to insert whenever they chose."

"11.80 Such a situation commonly arises where a manufacturer pays an outside designer to design either a new or a modified product to the manufacturer's specifications. It may be a matter of dispute whether the manufacturer has merely purchased the physical designs and has a licence to manufacture from those designs or whether he has bought the copyright and, being the owner in equity, is entitled to call for a legal assignment to him. Where the outside draftsman was merely commissioned to produce engineering or production drawings from rough sketches supplied by the manufacturer the case for saying that the manufacturer is the owner in equity is very strong indeed. The principle in operation in all these cases is that both parties intended that the manufacturer or commissioner should have the rights necessary for him to protect the property he has purchased and the enterprise for which the drawings were intended to be used."

Copinger and Skone James on Copyright at para.4-67 stated that there are no set rules for determining equitable ownership. In James Arnold and Co. Limited v. Miafern Limited and Others [1980] RPC 397, Paul Baker QC at p.404 stated that :

"Mr Spalding argues on the other hand that in the case of commissioned works where part of the process is sub-contracted it is the person who commissioned the ultimate article and is to pay ultimately for the process who has commissioned the making of the engraving. With a little hesitation I accept that argument. Someone who orders a particular design to be made and executed by a particular method may fairly be said to have commissioned all the necessary articles to be made even though he may be unaware of the need for them."

(2) Copyright of the Shiwan Mijiu main label

I accept Mr Lor's evidence that he instructed the sub-branches to prepare the labels for the new wine. The Plaintiffs' pleaded case is that there was an express agreement that the Shiwan Mijiu label was to belong to GDF and that there was a similar understanding in this regard. Mr Tang S.C. referred to the contemporary documents which he said reflected the political climate at that time. Slogans of political class struggles can be found in the reports submitted by the sub-branches, Shiwan Brewery and the Foshan Foreign Trade Bureau. Mr Tang S.C. submitted that in such a climate, it would be highly improbable that the parties would consider intellectual property issues such as labels on the wine. These are capitalistic ideas not in vogue at that time.

In my view, looking at Mr Lor's evidence, the Plaintiffs' case that the label belonged to GDF was one of understanding and not of an express agreement. The reason why the label belonged to GDF was because of the use of the GDF's Pearl River Bridge Trade Mark on the label. It was only when being pressed by Mr Tang S.C. in his cross-examination that Mr Lor seemed to suggest that there was a discussion on this matter as well. This, however, does not cast doubt on the credibility of Mr Lor. The Shiwan Mijiu was a product developed with the authority of GDF. I find that the label belonged to GDF. Certainly, at the time when the wine was developed, there was no contrary indication that the label would somehow belong either to a brewery which produced the wine or to Foshan Foods, which was merely executing the business activities of GDF. I find that Mr Chiu and Mr Chen must have understood and accepted that the label belonged to GDF. In John Richardson Computers Ltd v. Handers and Anr. [1993] FSR 497, where R engaged two computer programmes W and H to refine and improve a programme. W's evidence was that it was always understood between R and him that R owned all rights in the programme. It was held that this amounted to an acceptance that W held any copyright which in law belonged to him on trust for R.

Although Shiwan Brewery actually carried out the instruction to commission the design, it was merely acting on behalf of Foshan Foods as GDF's agent. The design fees were not separately charged but were included in the cost of the printing of the labels for the Shiwan Mijiu. The fees were accounted for and included as part of the cost of the Shiwan Mijiu for export. It is significant that after the cancellation of the four rice wine, the label that was being used for the new Guangdong Mijiu was the same label as the Shiwan Mijiu. The Guangdong Mijiu was produced by different breweries, the decision by GDF to use the Shiwan Mijiu label for the new product can only point to one conclusion, namely, the Shiwan Brewery was merely a production unit and the label belonged to GDF. I accept that GDF was the owner in equity of the copyright in the Shiwan Mijiu label.

In a letter dated 12th March 1992, GDF's Trade Mark Department requested Foshan Foods to provide information on the following matter :

" 請提供石灣特醇，石灣米酒最早使用証據，包括圖案的變遷，顏色深淺變化，字體變化等等，最早銷售情形，外貿公司及工廠在改革開放前的分工和做法，結論是珠江橋商標的使用與圖案的使用是分不開的。"

Mr Dong said that at that time GDF was still pegged with Foshan Foods, the request was a normal request and this was not an indication that the label did not belong to GDF even though it had paid for the design. I accept what he said. The ownership of the label has to be determined by reference to all the evidence and not simply on this letter.

There was clearly an infringement of the copyright when in February 1995 the Shiwan Mijiu produced by Shiwan Brewery, supplied by Foshan Foods and distributed by Chung Tai used the same design with the substitution of the Zu Miao trade mark instead of the Pearl River Bridge trade mark. This was done without GDF's permission.

(3) Copyright of the Super Mellow Mijiu main label

It cannot be disputed that Chung Hau Yuen was acting on behalf of GDF when he instructed Ngai Chung to prepare the main label of the Super Mellow Mijiu. The contract was entered on behalf of GDF. This is clear from the evidence of Chung Hau Yuen and Mr Lor. Tung Fook did not have any beneficial interest in the copyright. The beneficial ownership belonged to GDF. I find that there was an express agreement between Mr Lor and Chung Hau Yuen that the label belonged to GDF. This was not the usual arrangement in which the label was designed and printed in the Mainland. On the contrary it was to be dealt with by Chung Hau Yuen in Hong Kong. It was reasonable for the parties to have expressly agreed on the ownership of the label.

(4) Domestic sales

The Defendants relied on the domestic sale of the two wine, although the purpose of this is not clear. Certainly it has no bearing on the question of goodwill of the two wine in Hong Kong. The Defendants seemed to suggest that GDF, by reason of the domestic sale, must have knowledge of the use of the two labels by Shiwan Brewery in the Mainland. This constituted acknowledgement of Shiwan Brewery's rights in the two labels.

The Plaintiffs accepted that there might have been some domestic sale of the Shiwan brand (石灣牌) Shiwan Mijiu and Super Mellow Mijiu in the late 1980s, but there could not have been any domestic sale of the Shiwan Mijiu in the 1970s. The evidence adduced by the Plaintiffs' witnesses such as Mr Lor, Mr Tang and Mr Hu is that in the 1970s, there was still a shortage of food supplies in the Mainland, and Shiwan Brewery just could not obtain the raw material, namely, rice, for the production of wine in the domestic market. The raw material must be supplied by GDF. Furthermore, there was shortage of packaging material, namely bottles and paper for printing labels. I accept their evidence. The witnesses from Foshan Foods did not deal with the question of domestic sale. The only evidence came from Mr Chen of Shiwan Brewery. I do not find Mr Chen to be a credible witness. He referred to tables showing the figures of domestic sale. The tables were only prepared in the course of the trial and no discovery was made of the documents on which the figures were based. In my view, in the 1970s, if there had been sale of the Super Mellow Mijiu and the Shiwan Mijiu in the domestic market, they would be under the Pearl River Bridge brand and of very small quantity.

Shiwan Brewery had applied for quality awards of their wine. The applications showed that the Shiwan brand of products were only mentioned from the 1980s onwards. Mr Chen attempted to boost up his case on domestic sale by saying that he had told the designer of the Shiwan Mijiu label that the wine was for both export and domestic sale. His evidence is not credible. I do not accept that Mr Chen had informed the designer that the same design for Shiwan Mijiu label was to be used for both export purpose and internal sale. The new product was introduced by organizations engaged in export trade and was intended for export. I do not accept that in 1973/1974, when Mr Chen instructed the designer to prepare the design for the label, he would at the same time inform the designer that the product was to be used for internal sale. Attached to the draft label design for Shiwan Mijiu was a white sticker. Mr Chen seemed to rely on the wording on the sticker to support his contention that he had instructed the designer that the design was to be used for both export and internal sale. He said that the phrase "三百克出口、內銷成品" indicated that these two matters were discussed at the same time. I find this to be unlikely. There is no evidence as to when the sticker was put onto the design. In any event, if the label was intended for both purposes, it would not be necessary to put the words "export type" ("出口裝") on the sticker.

(5) No enforcement

Even if the copyright of the label design of the two wine is not vested in GDF but in Shiwan Brewery or Tung Fook (1982), such copyright is not enforceable by either of them because GDF is the owner of the reputation and goodwill associated with these two labels in Hong Kong. As pointed out in Copinger at paragraph 2-38 :

"... there are a variety of cases where a claim of copyright in a work has not been enforced because the court has considered the work to be libellous, immoral, obscene, scandalous or irreligious, or to involve deception of the public."

In Wright v. Tallis [1845] I CB 893, a plaintiff failed in an action against the defendant for pirating a work of a devotional character, on the ground that the plaintiff's work falsely professed to be a translation from the German of an author who had a high reputation for writings of this kind, and that this had been done to deceive purchases and to give the work a value which it would not otherwise have had. Tindal CJ held that :

"The cases in which a copyright has been held not to subsist where the work is subversive of good order, morality, or religion, do not, indeed, bear directly on the case before us; but they have this analogy with the present inquiry - that they prove that the rule which denies the existence of copyright in those cases, is a rule established for the benefit and protection of the public. And we think the best protection that the law can afford to the public against such a fraud as that laid open by this plea, is, to make the practice of it unprofitable to its author."

Other cases illustrating this principle are Slingsby v. Bradford Patent Truck and Trolley Co. [1906] WN 51 (CA), Bile Bean Manufacturing Co. v. Davidson (1906) 23 RPC 725 and Davies v. Bowes [1911-16] MCC 131 (US).

(6) Name of the Author

The Plaintiffs further relied on s.115(2) of the Copyright Ordinance (Cap.528) (section 20(4) of the Copyright Act 1956). They argued that when the copyright relating to the design of the Shiwan Mijiu label and the Super Mellow Mijiu label was published in Hong Kong, the name of GDF or its pseudonym appeared on the two labels; GDF is either the author or publisher of these two labels and under s.115 is deemed to be the owner of the copyright unless the contrary is proved. In view of my finding on the ownership of copyright, it is not necessary for me to deal further with this point.

(7) Assignment of the copyright in the Super Mellow Mijiu label

Chung Who Cheung said that his solicitor advised him that he had to show that Tung Fook (1982) had the copyright in the label of the Super Mellow Mijiu. After the actions were commenced, he asked Mr Ngai if he could obtain the copyright of the label. Mr Ngai said that since the label belonged to Tung Fook, it should be given back to Tung Fook (1982) but he needed to consult China Advertising first. An assignment was later executed in favour of Tung Fook (1982). It was accepted by Tung Fook (1982) that the assignment was made for the purpose of the litigation.

Mr Lau Kar Yee (劉家儀) was the former Assistant General Manager of the China Advertising and Exhibition Limited Company. He joined in 1963 when it was known as the China Advertising Agency (中國廣告公司). He had a deep impression that the Super Mellow label was handled by Mr Ngai who drafted the layout (草圖). In 1995, Chung Who Cheung and Mr Ngai asked him to execute the Assignment of the copyright. He considered it reasonable because Tung Fook (1982) had instructed his company to prepare the design and they had received the design fees. The copyright was no longer of use to his company and he agreed to the assignment.

In my view, China Advertising held the legal title to the copyright of the design on trust for GDF and owed a fiduciary duty towards GDF. As part of the business operation engaged in the promotion of the Mainland export products, China Advertising must be aware of the significance of the Pearl River Bridge trade mark and the words on the label of CNC, Guangdong supervising the production. By reason of the incorporation of these two items, China Advertising just could not say that the copyright of the main label belonged to Tung Fook (1982). This is so irrespective of whether Tung Fook (1982) is a successor of Tung Fook.

By assigning the copyright to Tung Fook (1982), China Advertising had clearly acted in breach of trust and its fiduciary duties towards GDF. The breach was knowingly and intentionally induced by Tung Fook (1982). By misappropriating the trust property belonging to GDF, Tung Fook (1982) became a constructive trustee of the copyright in the works of GDF.

Furthermore, China Advertising had acted in breach of contract with GDF by assigning the copyright to Tung Fook (1982) and Tung Fook (1982) had induced and procured the breach.

Shiwan Brewery produced the two wine, Chung Tai and Tung Fook (1982) distributed them by using the same main labels as before but with the substitution of the Zu Miao trade mark. This clearly constituted a copyright infringement on the part of these Defendants. It should be pointed out that the Plaintiffs have not sought relief against Shiwan Brewery for infringing the Super Mellow Mijiu label.

7. Injurious falsehood

(1) The Law

In Gatley on Libel and Slander at para.301, it is stated that :

"There are dicta from which it might be inferred that an action will lie for any words, whether they are defamatory or not, which are followed by special damage."

"But if the plaintiff can prove (i) that the words are false; (ii) that they were published maliciously, and (iii) that special damage has followed as the direct and natural result of their publication, an action on the case will lie at common law Ratcliffe v. Evans [1892] 2 Q.B. 524 (C.A.)."

"303. Malice. The malice essential to support the action is some dishonest or otherwise improper motive. Such a motive will be inferred on proof that the words were calculated to produce actual damage, and that the defendant knew that they were false when he published them, or was recklessly indifferent as to whether they were false or not."

"Malice in its proper and accurate sense is a question of motive, intention, or state of mind."

"328. The damage must be pecuniary. Such damage must be pecuniary or capable of being estimated in money."

Section 24 of the Defamation Ordinance, Cap.21 further provides that :

"24. Slander of title, etc.

(1) In an action for slander of title, slander of goods or other malicious falsehood, it shall not be necessary to allege or prove special damage -

(a) if the words upon which the action is founded are calculated to cause pecuniary damage to the plaintiff and are published in writing or other permanent form; or

(b) if the said words are calculated to cause pecuniary damage to the plaintiff in respect of any office, profession, calling, trade or business held or carried on by him at the time of the publication.

(2) Section 22 shall apply for the purposes of this section as it applies for the purposes of the law of libel and slander."

(2) Newspaper announcement and letters

The cause of action is based on statements published in the newspapers on 28th January 1995, 29th - 31st May 1995 and 2nd June 1995 and also statements contained in letters dated 8th June 1995, 28th June 1995 and 11th July 1995 from Tung Fook (1982)'s solicitors to GDF.

In respect of the newspaper announcement of 28th January 1995, the Plaintiffs' case is that until 1995, the Super Mellow Mijiu, Shiwan Mijiu and the Yu Bing Shiao were produced by Foshan Foods and Shiwan Brewery for GDF. The production was under the appointment, direction or control of GDF. The Pearl River Bridge trade marks were used on these wine under the licence of GDF. Neither Foshan Foods nor Shiwan Brewery had any right in the Pearl River Bridge Trade Mark and they were not entitled to replace the Pearl River Bridge Trade Mark on these wine with another trade mark. The announcements stated that products with the Zu Miao Trade Mark were genuine articles. This impliedly suggested that the Super Mellow Mijiu, Shiwan Mijiu, Yu Bing Shiao of the Pearl River Bridge Trade Mark were false articles. The newspaper announcement also referred to 雙蒸 and 三蒸 rice wine. The Pearl River Bridge Trade Mark was also used in the 雙蒸 and三蒸 produced by another brewery. The announcement further implied that 雙蒸 and 三蒸 rice wine of the Pearl River Bridge Trade Mark were also not genuine articles.

The newspaper announcement on 29th - 31st May 1995 further stated that only the Zu Miao Super Mellow Mijiu was the genuine article.

(3) Chung Who Cheung's evidence

Chung Who Cheung said that he did not know GDF is the holder of the Pearl River Bridge Trade Mark but he knew the mark is registered in Hong Kong by CNC. In January 1985, Foshan Foods asked him to go to Shenzhen. He went with a representative of Chung Tai. Foshan Foods informed him that it would not use the Pearl River Bridge Trade Mark but the Zu Miao Trade Mark. He said that Tung Fook (1982) would continue to buy the wine if there was no change of the brewery, the quality and the label of the wine.

In March 1995, Tung Fook (1982) organized 60 wine merchants in Hong Kong to visit the Shiwan Brewery.

(4) Cheung Loy Chun's evidence

Regarding the advertisement of 28th January 1995, Mr Cheung Loy Chun (張來鎮) said that he had read the advertisement but he did not know of it before the publication. After the publication, Chung Tai continued to sell the Pearl River Bridge Shiwan Mijiu for a while. Mr Cheung said that Chung Tai decided to change to the Zu Miao Shiwan Mijiu because it did not matter whether Zu Miao or Pearl River Bridge brand was used, the most important thing is the Shiwan Mijiu. He denied that he had participated in discussions with Foshan Foods to change to the Zu Miao brand but others in Chung Tai might have discussed it. He further said that Chung Tai agreed to the change because Foshan Foods and GDF had arguments on the trade mark and the situation in the 1992 and 1993 Trade Fair had changed, and GDF wanted to get back some products and produce them on its own. Mr Cheung denied that the reason why the Zu Miao Trade Mark was adopted was because Chung Tai and Foshan Foods wished to set up a "separate stove" to exclude GDF from the business. He also denied that the new trade mark was adopted so that Chung Tai, Foshan Foods and Shiwan Brewery could use it to take over the goodwill of the Pearl River Bridge Trade Mark products.

(5) Change of Trade Mark

It is unbelievable that for such a drastic measure of changing the trade mark of the wine from Pearl River Bridge to Zu Miao, the two distributors would only be notified in January 1995. Both of them were extremely reticent in disclosing their knowledge of the change. The true picture only came at the end of the Defendants' evidence when Mr Yan gave evidence. Mr Yan said that the idea of using the Zu Miao trade mark was first conceived by Foshan Foods in 1993. At that time, the Government encouraged the enterprises to develop their own brand (創名牌). The decision to change to Zu Miao was reached around the Spring Trade Fair of 1994. He said Shiwan Brewery and the distributors were also notified of Foshan Foods' decision around that time and at the end of 1994, there was a business meeting in Shenzhen with the distributors and Shiwan Brewery in which Foshan Foods informed them that the Zu Miao would be used.

(6) The decision to change the brewery

I accept Mr Dong's evidence that GDF's decision to instruct a new brewery to produce the rice wine including Super Mellow Mijiu and Shiwan Mijiu was because of the newspaper announcement in January 1995. Mr Chen seemed to suggest that even before the newspaper announcement, GDF had instructed other breweries to produce wine including Super Mellow Mijiu. He said that in November and December 1994, the staff from the Shiwan Brewery was visiting the Namhai Xianhua Brewery and they discovered a few bottles of Super Mellow Mijiu in its laboratory. He further said that GDF had stopped placing orders for the 玉冰燒 since July 1994. And there was a discovery that large quantities of 玉冰燒 were exported to Hong Kong with a different taste and without the certificate of quality inspection. What Mr Chen said regarding the discovery of Super Mellow Mijiu in the Namhai Xianhua Brewery was not put to any of the Plaintiffs' witnesses. I do not accept his evidence. I further accept Mr Dong's evidence that the reason why GDF stopped placing further orders with Shiwan Brewery for other types of wine was because Shiwan Brewery had delayed in the production.

(7) Malice established

Stable J. in Wilts United Dairies, Ld. v. Thomas Robinson Sons & Coy., Ld. [1957] Reports Of Patent, Design, And Trade Mark Cases 220 held that :

".... As I understand the law it is this :

1. That if you publish a defamatory statement about a man's goods which is injurious to him, honestly believing that it is true, your object being your own advantage and no detriment to him, you obviously are not liable.

2. If you publish a statement which turns out to be false but which you honestly believe to be true, but you publish that statement not for the purpose of protecting your own interests and achieving some advantage to yourself but for the purpose of doing him harm, and it transpires, contrary to your belief, that the statement that you believed to be true has turned out to be false, notwithstanding the bona fides of your belief because the object that you had in mind was to injure him and not to advantage yourself, you would be liable for an injurious falsehood.

3. The third proposition which I derive from the cases is this, that if you publish an injurious falsehood which you know to be false, albeit that your only object is your own advantage and with no intention or desire to injure the person in relation to whose goods the falsehood is published, then provided that it is clear from the nature of the falsehood that it is intrinsically injurious I say 'intrinsically', meaning not deliberately aimed with intent to injure but as being inherent in the statement itself, the defendant is responsible, the malice consisting in the fact that what he published he knew to be false."

For ease of reading, I have numbered the three tests in the judgment.

The issue is whether Shiwan Brewery had acted maliciously in causing the newspaper announcement to be published on 28th January 1995. Although Shiwan Brewery said that it was only responsible for its part of the announcement, it is clear that the wording of the two announcements was very similar. It is inconceivable that the newspaper announcements were prepared by each of them without consulting each other and later inserted as one piece of publication. The heading of the announcement must be applicable to both of these announcements. I think the reality is that Shiwan Brewery and Foshan Foods must have discussed the matter beforehand before the newspaper announcement was published.

The heading referred to two other types of rice wine, namely, the Pearl River Bridge 雙蒸 and 三蒸. They were produced not only by the Shiwan Brewery but by other breweries as well. Whatever right Shiwan Brewery or Foshan Foods might consider to have in Super Mellow Mijiu and Shiwan Mijiu, clearly the announcement that only the Zu Miao Brand 雙蒸 and 三蒸 were genuine articles must be false. They must know that this announcement was false. In my view malice is established under the third proposition of Stable J. in Wilts United Dairies Limited.

Malice is also established under the second proposition as well. It is clear that Shiwan Brewery had overstepped the line of simply protecting its own interest. The announcement that Zu Miao Brand wine were the genuine articles and the reference to prevention of imitation is clearly for the purpose of harming GDF in respect of wine produced under the Pearl River Bridge Trade Mark.

Likewise, the newspaper announcements by Tung Fook (1982) on 29th - 31st May 1995 clearly constituted the tort of injurious falsehood. Tung Fook (1982) just could not have any bona fide belief that it was entitled to register the Super Mellow Mijiu Trade Mark. The only other Super Mellow Mijiu available in the market at that time was the Pearl River Bridge brand by GDF. The reference to the counterfeit products and infringing articles were clearly intended to injure GDF.

The series of letters written by Hastings and Co. to Yau Shing Hong (8th June 1995), Sun Fung Lin Trading Co. Ltd. (28th June 1995) and Park'n Shop (11th July 1995 after GDF adopted the new label) could only have been written under the instruction of Tung Fook (1982). These letters repeated the newspaper announcement of Tung Fook (1982) issued on 29th - 31st May 1995. These letters went beyond merely protecting the rights of Tung Fook (1982), but were clearly intended to cause harm to GDF.

The newspaper article in Tin Tin Daily News on 2nd June 1995 appeared almost immediately after the newspaper announcements on the previous three days. It is inconceivable that the writer of the article had not obtained information from either Shiwan Brewery or Tung Fook (1982). However, it is not necessary for me to deal with this matter further.

In considering the question of malice, it is relevant to consider the background in which these newspaper announcements and letters came into being.

(1) On 5th November 1992, GDF notified Tung Fook (1982) that in future GDF would directly sign and carry out sales contracts in respect of the Super Mellow Mijiu.

(2) On 10th June 1993, Tung Fook (1982) applied to register the pictorial part of the Super Mellow Mijiu label when it was still the distributor without notice to GDF.

(3) At the beginning of 1994, Shiwan Brewery signed the Production Agreement with GDF to produce for GDF the Pearl River Bridge line of rice wine.

(4) At the beginning of 1994, Foshan Foods signed a licence agreement for the use of the Pearl River Bridge trade mark and label for one year ending 1st February 1995.

(5) Tung Fook (1982) and Shiwan Brewery shortly before the expiry of the licence agreement embarked upon a series of publications of false statements making threats against GDF's distributor and Yau Shing Hong's retailers.

(6) Tung Fook (1982) wrongfully obtained an assignment of the copyright in the Super Mellow Mijiu label.

With this background, the publications were clearly made maliciously. Tung Fook (1982), Shiwan Brewery and in my view, Foshan Foods as well, had clearly acted in concert in a scheme aiming at injuring GDF's business.

The Plaintiffs further relied on some recent events, namely, in October 1998 it was discovered that Tung Fook (1982) had posted up on its show window the announcement which appeared in the Tin Tin Daily News of 29th - 31st May 1995. There was also a recent television advertisement by Shiwan Brewery in which the Shiwan brand of Super Mellow Mijiu was said to have changed its design a bottle bearing the Super Mellow Mijiu label now under consideration was shown in the advertisement. It is not necessary for me to make a finding of malice based on these two new events. What had transpired previously clearly establishes a cause of action of injurious falsehood against Tung Fook (1982) and Shiwan Brewery.

8. Unlawful interference with business and contractual relationship

(1) The Law

In Clerk & Lindsell on Torts 17th ed. para.23-56, it is stated that :

"Unlawful interference with economic and other interests. There exists a tort of uncertain ambit which consists in one person using unlawful means with the object and effect of causing damage to another."

"For example, in J. T. Stratford & Son Ltd v. Lindley, two of their Lordships gave, as an alternative ground of their decision that an injunction should lie, the fact that the defendants had used unlawful means to interfere with the business of the plaintiffs. 'In addition to interfering with existing contracts the respondents' action made it practically impossible for the appellants to do any new business with the barge hirers. It was not disputed that such interference with business is tortious if any unlawful means are employed.'"

"... damage is essential to the cause of action and must be shown to have been, or to be about to be, caused by the unlawful interference. 'The essence of the tort is deliberate interference with the plaintiff's interests by unlawful means'; and the intention to injure must be a 'contributing cause' of the plaintiff's loss."

The Plaintiffs' claim is that the letters sent by the solicitors for Tung Fook (1982) consisted of false claims and unlawful threats which interfered with the contractual relationship between GDF and Yau Shing Hong and also the contractual relationship between these two entities and their retailers. These letters clearly had such effect as shown by the withdrawal of the stocks from Park'n Shop. However, as I have already found for the Plaintiffs, it is not necessary for me to deal further with this cause of action.

9. Estoppel

The Plaintiffs further relied on estoppel against the Defendants. The grounds relied upon were the Trade Mark Licence Agreements, the Production Agreements, Tung Fook (1982)'s application to GDF to be a distributor of the Super Mellow Mijiu, Chung Tai's request to GDF to reintroduce the Shiwan Mijiu, and its application to GDF to become a distributor of the Shiwan Mijiu. The Plaintiffs argued that the Defendants are estopped from denying that GDF is the proprietor of the Pearl River Bridge Trade Mark and of the labels of the two wine. In view of my findings in this case, I also do not think it is necessary for me to deal with this aspect of the Plaintiffs' claim.

10. Counterclaim

The Defendants are represented by Messrs Hastings & Co. At one stage it ceased to act for the Defendants but has since resumed its representation. On 24th August 1998, Master Poon, on Hastings' application, allowed it to cease to act for the Defendants. This was shortly before the case was due to resume for submission. Following this order, the Plaintiffs applied for security of costs against Tung Fook (1982). On 7th September 1998, I granted an order requiring Tung Fook (1982) which had lodged counterclaims against the Plaintiffs, to provide security for costs in the sum of HK$4 million. The security was not furnished within time and Tung Fook (1982)'s counterclaim was dismissed in accordance with the terms of my order.

In any event, Tung Fook (1982)'s counterclaim on passing-off of the Super Mellow Mijiu would fail because it was not the owner of the goodwill of the Super Mellow Mijiu. Further its counterclaim on infringement of the copyright of the Super Mellow Mijiu by GDF and Yau Shing Hong failed because the ownership of the copyright is not vested in Tung Fook (1982).

Likewise, the counterclaim by Shiwan Brewery on the passing-off of the Super Mellow Mijiu and the Shiwan Mijiu would also fail because again it was not the owner of the goodwill of these two wine. Its claim based on the copyright of the Shiwan Mijiu label would also fail because the ownership of the copyright vests in GDF.

Part IV

CONCLUSION

In the end, I find that the Plaintiffs are successful in their claims. I will grant the following orders :-

1. As against Tung Fook (1982) and Shiwan Brewery.

1. An injunction against them for passing-off by the use of the name of Super Mellow Mijiu and its label; and

2. An injunction to prevent further publications of the false statements contained in the newspaper announcements and letters.

I would defer dealing with the remedies arising from the registration of Trade Mark 02010/95 until I have heard from the Registrar of Trade Marks.

2. As against Shiwan Brewery and Chung Tai

1. An injunction against them for passing-off by the use of the name of Shiwan Mijiu and its label;

2. A declaration that GDF is the owner of the copyright in the Shiwan Mijiu label; and

3. An injunction against them for infringement of the copyright in the label.

3. As against Tung Fook (1982) and China Resources Advertising (HCA No.A11061/1995)

1. A declaration that GDF is the owner of the copyright of the Super Mellow Mijiu label;

2. A declaration that the assignment of 1st September 1995 by China Resources Advertising to Tung Fook (1982) is null and void;

3. An order setting aside the assignment; and

4. An injunction against Tung Fook (1982) for infringement of the copyright in the label.

4. Consequential relief

The consequential relief, including assessment of damages, arising from these orders have to be dealt with at another hearing when I will also deal with the submission from the Registrar of Trade Marks. I will ask the parties to agree on their terms before the next hearing.

5. Counterclaim

The counterclaim by Shiwan Brewery is accordingly dismissed.

6. Costs

I will order costs nisi to the Plaintiffs in respect of their claims and the Defendants' counterclaim.

7. Remarks

This is a lengthy and complicated case lengthy because the history of the subject matter spanned over 20 years; complicated because of the many issues involved and the lack of published materials on the operation of the economic structure of the Mainland during the planned economy. I wish to thank Counsel for their assistance. The solicitors on both sides have also spent much effort in the preparation of the case and their work is also appreciated. The evidence in this case was given in Chinese without translation (except Cantonese translation for Mandarin speaking witnesses) while the submission was given in English. This approach was adopted to maximize the efficient use of Court time and service of Counsel. This, in my view, represents a truly effective bilingual system and reflects the unique position of Hong Kong in the crossroads of East and West. A translation of this judgment will be provided to the parties in due course.