TSUI WAI KUEN v. CHEUNG KING CHUNG RAY AND OTHERS

HCA 2405/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2405 OF 2007

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J U D G M E N T

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Introduction

1.  Having dismissed the Defendants’ application for a stay, I have heard the Plaintiff’s summons for a series of injunctions as appear in the body of his summons at pages 17-22 of the bundle.  The factual background to this dispute has been set out by me in paragraphs 1-10 of my judgment of 26 November to which reference may be made.  I do not propose to repeat that here again.

2.  Mr Abraham Chan, who appears for the Defendants on this occasion, accepts that the factual dispute raises serious issues to be tried between the parties.  That is a proper concession with the result that the Plaintiff has cleared the first hurdle.  What I need to concentrate on are the issues of whether the balance of convenience favours the refusal of an injunction and the related issue of whether damages would be an adequate remedy.

The Argument

3.  Mr Lau, for the Plaintiff, has stressed the fact that this is a passing-off action and has referred to a number of authorities in that type of case where interlocutory injunctions have been granted to restrain further acts of passing-off until the trial of the action.  The decision of Whitford J in Alltransport International Group v Alltrans Express Ltd (1976) FSR 13 was a case where an interlocutory injunction went to restrain the defendant from passing-off its business as that of the Plaintiff.  Whitford J observed that:

“	the Plaintiffs would suffer unascertainable damage pending the trial if no interim relief were to be granted, whereas the defendants would not suffer serious damage if they were prevented from using the name.”

This is the approach which Mr Lau urges on me.

4.  Contrary to that view of the case, Mr Chan submits that this is in substance and reality a shareholder’s dispute in which a disgruntled minority shareholder is seeking redress by launching a section 168A Companies Ordinance Petition and a parallel derivative action.  In my judgment, this is the correct characterisation, whilst not forgetting that the basis of the complaint is that the Plaintiff is said to be passing-off the new companies as the original Hong Kong company.

5.  In addressing the balance of convenience, Mr Lau submits that it would not be possible to quantify the loss of business incurred by the Hong Kong company as a result of the passing-off.  There is no way of telling how many existing clients and potential new clients will have been lost as a result of the establishment of the new companies.  In such circumstances, where damages could not be properly identified the correct remedy would be the grant of the injunctions that are sought.

6.  So far as the defendants are concerned, Mr Lau submits that there is no reason to believe, if they are restrained from using the name R J Models, that they will suffer any irreparable damage.

7.  Mr Chan submits that in the event of the Plaintiff being successful at the trial of the action, the loss of profit is well capable of being quantified.  The profits of the new companies would stand as the profit of the Hong Kong company and Mr Chan has, on instructions, offered an undertaking in the following terms which should provide considerable comfort to the court and, in turn, to the Plaintiff:

“	The 1st, 2nd, 4th, 5th and 6th  Defendants hereby undertake to (a) give account and (b) provide access to all relevant documents and information to the Plaintiff in respect of all business and transactions of the 5th and 6th Defendants from the time of their incorporation until the resolution of the present action.
	In respect of (a) above, the 1st, 2nd, 4th, 5th and 6th Defendants further undertake to instruct [independent accounting firm of standing] to conduct a monthly audit of the businesses conducted by the 5th and 6th Defendants, and to provide a monthly audit report to the Plaintiff.”

8.  Mr Chan has also referred to a decision of Brightman J (as he then was) in John Walker & Son Ltd v Rothman International Ltd & Anr (1978) FSR 357 which was also a passing-off action.  In that case, the judge refused the application for an interlocutory injunction.  He held on the evidence that:

(i)	there was, as here, a serious issue to be tried;
(ii)	that there was a risk of unquantifiable damage to the Plaintiffs if the application were refused and they should be successful in the action.  In the present case such a risk exists but in my view it is likely to be a small risk for the reasons that I have given in the previous paragraph;
(iii)	that there was a certainty of unquantifiable damages to the Defendants if the application was granted and the Plaintiffs were unsuccessful at trial.  In the present case, I am satisfied that this must also be so because it will be impossible to tell what contracts the Defendants would have failed to obtain as a result of the injunction.
(iv)	that where both parties might suffer unquantifiable damage, the status quo should be maintained unless there were compelling reasons to the contrary.
(v)	In the case before Brightman J, there were compelling reasons to the contrary, namely only a risk of unquantifiable damage to the Plaintiff yet a certainty of unquantifiable damage to the Defendant.

9.  In his analysis, Brightman J, referring to the status quo and when it should be preserved said this [the foot of p.362 to the middle of p.363]:

“	At the next stage of the American Cyanamid analysis it is laid down as a counsel of prudence, where other factors appear to be evenly balanced, to take such measures as are calculated to preserve the status quo.  I respectfully adopt in this connection what was said by Sir John Pennycuick in Fellowes & Son v. Fisher [1976] Q.B. at 141:
	‘	By the expression ‘status quo’ I understand to be meant the position prevailing when the defendant embarked upon the activity sought to be restrained.  Different considerations might apply if the plaintiff delays unduly his application to relief.’
	Unless, therefore, there are compelling reasons to the contrary I am led at this stage to the conclusion that the plaintiffs are entitled to the relief that they seek, so I must ask myself:  Are there compelling reasons to the contrary?  I think that there are.  First, if the plaintiffs are refused an injunction but succeed at the trial they will in the meantime run only a risk, and not a certainty, of damage and it is a risk which in the short term appears to me somewhat remote, having regard to the reputation of the Rothman Group of Companies.  Per contra, if the plaintiffs are granted an injunction but fail at the trail the defendants incur the certainty of unquantifiable damage.”

10.  It seems to me that this is the appropriate approach for me to adopt applying the facts as they presently stand before me.  I have already held that the plaintiff only faces a risk of unquantifiable damage and for the reasons which I have given the risk would only relate to a limited amount of damage because it would appear that the Defendant companies are merely carrying on the business of the Hong Kong company with the result that their profit would be the profit that the Hong Kong company would have obtained.  Nevertheless, if the Defendants are made the subject of the injunctions asked for there is a certainty of unquantifiable damages.  It is for these reasons that Mr Chan submits that the status quo as defined by Sir John Pennycuick supra should not be preserved and the matter should therefore be allowed to go to trial.  If the Plaintiff succeeds, there are ample grounds to expect that the Plaintiff will be fully compensated.  It seems to me that Mr Chan’s analysis is the correct one in this case.  Overwhelmingly, the balance of convenience favours a refusal of the injunction.  One other matter which I should also refer to which will sound in the discretion is that there has been a real element of delay by the Plaintiff from July to November before this application was brought.  Initially, he came in the Companies Court asking for a winding-up order and/or a purchase of his shares by Mr Cheung.  He then abandoned the application to wind-up the Hong Kong company and later on brought this action after which he applied for these injunctions.  In the meantime, the Defendant companies have been allowed to trade actively.  It seems to me that I ought to have regard to this delay as an additional factor for refusing the injunctions.

11.  Accordingly, upon the Plaintiff’s undertaking, which I have set out above which I accept and which will provide the Plaintiff with sufficient comfort, I will dismiss the summons with an order nisi that the costs should be to the Defendants in any event.