XCHRX ASTG INTERNATIONAL (H.K.) LTD. v. ASTG CONTAINER LINE LTD.

HCA7642/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7642 OF 1999

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J U D G M E N T

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1. The Plaintiff brings this action against the Defendant in passing-off. In the Statement of Claim filed on 10 May 1999, the Plaintiff claims that it commenced business in Hong Kong and the neighbouring region as a freight forwarder or carrier since 1992. In the course of doing so, the name "ASTG" has been used by it extensively. The Plaintiff claims that it has thereby acquired a substantial reputation in "ASTG".

2. The Plaintiff complains in the Statement of Claim that since about February or March 1999, the Defendant began to provide similar freight services, also using a name consisting "ASTG". The Plaintiff pleads that the Defendant's acts were calculated to pass off its business as that of the Plaintiff's business. Certain alleged express misrepresentations of the Defendant were given as particulars under paragraph 8 of the Statement of Claim and these alleged representations were to the effect that the Defendant was affiliated with the Plaintiff when in fact it was not.

3. The Defence filed on 8 June 1999 raises in essence two lines of defence :

a) The goodwill of the freight forwarder business does not belong to the Plaintiff but to a BVI company called "ASTG Container Line Limited" (same as the Defendant's name). According to the affirmations filed herein, this is because prior to 30 June 1998, the Plaintiff was only one of a number of subsidiaries of the BVI company and the Plaintiff was said to be only one of its operating arms and it was the BVI company which has acquired "substantial international reputation".

b) The Defendant has been duly authorized by the BVI company to use the present name (same as the name of the BVI company) in relation to the Defendant's business.

The Defence also denied the Plaintiff's assertions that there were acts of passing off on the Defendant's part.

4. On 29 July 1999, the Plaintiff took out an inter partes application for an interim injunction against the Defendant restraining it from the said acts of passing off. That application is returnable for hearing today.

5. It is common ground between the parties that in deciding this application, the two main matters I should have regard to are (1) whether there are serious questions to be tried; and (2) the question of balance of convenience. I shall deal with each under separate headings below.

(1) Serious questions to be tried

6. The Plaintiff contends that there are serious questions to be tried regarding the matters raised by the Defendant in the Defence whereas the Defendant argued to the contrary. The various lines of defence will be dealt with under separate sub-headings as follows :

(a) Whether the Plaintiff has a substantial reputation (or goodwill) in its business

7. Both the Plaintiff's pleading and affirmation evidence state that it has been conducting the freight forwarder or carrier business in Hong Kong since 1992 up to now. Various documents were exhibited (including exhibit "KHHK-11" being a letter from the Hongkong & Shanghai Banking Corporation dated 2 February 1998) to establish this point. The Defendant's case on this point is that whatever reputation was acquired before 30 June 1998 (at least) were acquired by the BVI company and not the Plaintiff.

8. I do not agree with Miss Cheng for the Defendant that the evidence in this case are so obvious that the Plaintiff has not been able to establish that there is a serious question to be tried over this point. The mere fact that an overseas parent company enjoys, or has acquired, a substantial international reputation in a certain line of business does not necessarily mean that the local subsidiary company cannot acquire its own reputation for the same line of business.

(b) Whether the Defendant has been duly authorized by the BVI company

9. The position of the BVI company vis-a-vis the Plaintiff can be summarized as follows. Between about 1992 to 30 June 1998, the Plaintiff was one of the wholly owned subsidiaries of the BVI company. The BVI company can arguably be regarded as a tool for carrying out the partnership among a number of individuals including a Mr Lan Hsiao Lien (also known as Terry Lan), and a Mr Kenneth Kou (the deponent of the affirmation filed for the Plaintiff). Each individual would be in charge of a company with the "ASTG" name. Mr Kou was in charge of the Plaintiff which was a company operating its business in Hong Kong, while Mr Lan was in charge of the company operating a similar business in Taiwan. The same applied to other individuals and their respective companies in Thailand and Germany.

10. Differences developed among the "partners" and an agreement dated 30 June 1998 was signed by the concerned individuals including Mr Kou and Mr Lan (called the "June 98 Agreement"). The BVI company itself was not a party to the June 98 Agreement and did not sign it. In paragraphs 10 to 12 of his affirmation, Mr Kou described that the June 98 Agreement was to bring the "partnership" (in the form of the BVI company) to an end. This was achieved by its shareholders taking over the respective subsidiary companies. The BVI company itself would be given to Mr Lan who "shall keep [the BVI company] available to the parties for common interest" (Clause 3.03 of the June 98 Agreement) (underline supplied). Mr Kou said in his affirmation that the BVI company since then would divest itself of its role as a holding company and its purpose as a "multi-corporate vehicle" was spent. Despite the Defence's evidence and Miss Cheng's argument to the contrary, I regard what Mr Kou stated in his affirmation as having raised a serious question to be tried on this point (having also examined the provisions of the June 98 Agreement).

11. In exhibit "CCT-5" to the affirmation of Mr Chau Chuen Tak (for the Defendant), letters between early June 1999 and late August 1999 passing between solicitors acting for the Plaintiff and solicitors acting for the BVI company were produced. The solicitors acting for the BVI company complained that the Plaintiff wrongfully issued bills of lading in the name of the BVI company. When the solicitors for the Plaintiff responded by relying on the June 98 Agreement as authority for the Plaintiff to do so, the solicitors for the BVI company stated that the BVI company was not a party to the June 98 Agreement and was not bound by it. I pause to observe that the firm of solicitors acting for the BVI company was the same firm of solicitors acting for the Defendant herein.

12. I consider that the solicitors for the BVI company have overlooked two points which warrant consideration in their correspondence :

1) Although the BVI company was not a signatory of the June 98 Agreement, Mr Lan was. Since the date of the June 98 Agreement and according to its terms; he (meaning Mr Lan) was the only person in charge of it. There is a serious question to be tried as to whether the corporate veil can be lifted to enforce the terms of the June 98 Agreement.

2) Even if the corporate veil cannot be lifted, since Mr Lan has since then been the person in control of the BVI company, there is a serious question to be tired as to whether he can be enjoined to procure the BVI company to abide by the terms of the June 98 Agreement.

13. For similar reasons, in relation to the alleged authorization of the Defendant by the BVI company to use the present name, there is a serious question to be tried as to whether Mr Lan/the BVI company could properly authorize the Defendant to do so in view of Clause 3.03 which states that the BVI company was kept "available to the parties for common interest" only. It is quite arguable that to authorize a non-contracting party to use the name of the BVI company does not fall within the purpose stated in Clause 3.03 of the June 98 Agreement.

(c) Whether the Defendant has committed acts of passing off

14. As stated earlier, the Plaintiff has pleaded in paragraph 8 of the Statement of Claim that there were expressed misrepresentations made by the Defendant. This was repeated in paragraph 14 of Mr Kou's affirmation. A fact-finder's report supporting this point was exhibited in Mr Kou's 2nd affirmation. In both the Defence and Mr Lan's affirmation, this was denied. Further, I have examined the shipping documents of the Plaintiff and the Defendant exhibited to Mr Kou's affirmation. An artistic logo or representation of "ASTG" appears in both sets of document. I notice that the logo or representation in both sets are similar in appearance. Although Miss Cheng launched an attack on the Plaintiff's evidence as regards the question of confusion, she fairly accepted that the Plaintiff managed to establish two examples of transactions which arguably can amount to confusion on the part of the customers.

15. By reason of all the above said matters, I find that there is also a serious question to be tried as to whether or not the Defendant had committed acts of passing off.

(2) Balance of Convenience

16. I do not propose to set out all the matters relating to this part of the case suffice it to say that the matters raised by the parties include the following :

a) The adequacy of damages on the part of the Plaintiff;

b) The adequacy of damages on the part of the Defendant;

c) Preservation of the status quo; and

d) The time lapse between the date of the writ and the date of the present application.

For the avoidance of doubt, I have already considered these matters (as well as others) when deciding this application.

17. I regard two matters to be worthy of mention in particular :

i) If the interim order is refused, there is a risk that the Plaintiff cannot be adequately compensated by way of damages. This is because although the Plaintiff can still operate without the interim order, it would be extremely difficult, if not impossible, for the Plaintiff to prove or quantify its loss caused by the passing off if the Plaintiff proves its case at trial. On the other hand, if the interim order is granted, there is a risk that the Defendant's business will not only come to a standstill, it may even be stifled because there is likely to be a substantial time lapse between the interim order and the time of trial. On the other hand, Mr Cheung for the Plaintiff pointed out that the Defendant has not produced any evidence of its trading record and it is possible that the Defendant will not suffer any substantial loss even if the interim order is granted. At the end, I regard the party's position over this matter as a being finely balanced.

ii) That being the case, I regard the strength of the respective party's case to be a relevant factor to be taken into consideration : see, for example, the following cases Serious 5 Software v. Clarke [1996] FSR 273 at 286 to 287; Barnsley Brewery v. RNRB [1997] FSR 462 at 472 to 473; and Centalic Technology Development v. Worldwild Industrial Limited [1996] 3 HKC 498 at 570.

18. Bearing in mind :

(1) The provisions of the June 98 Agreement;

(2) The relatively obscure way in which the Defendant pleaded its "due authorization" by the BVI Company, and the vague manner in which it was set out in Mr Chau's 1st affirmation;

(3) In Mr Chau's 2nd affirmation, the Defendant exhibited a board resolution of the BVI company signed by Mr Lan authorizing the Defendant to use its name. In relation to these, I adopt what I said about the arguments that he might have been acting in breach of the June 98 Agreement in doing so;

(4) The respective times at which the Plaintiff and the Defendant commenced their respective businesses;

(5) The use of the name "ASTG" and the similarity in the artistic logo or representation "ASTG" in the shipping documents of the parties;

(6) The nature of the lines of defence raised by the Defendant,

I consider the merits of the Plaintiff's case are such that an interim order ought to be granted.

19. Miss Cheng also questioned the financial ability of the Plaintiff to meet its cross-undertaking as damages. Mr Cheung said although he does not admit this accusation, his client is prepared to fortify its cross-undertaking by providing security in the sum of $500,000.

Conclusion

20. For the above reasons, I will make an order in terms of paragraph 1 of the Plaintiff's summons, agreed by Counsel to read :

" An interlocutory injunction until the determination of this action or until further order to restrain the Defendant whether by its directors officers servants or agents or any of them from doing the following acts or any of them, that is to say, passing off or attempting to pass off or causing enabling or assisting others to the pass off the services not the services of the Plaintiff as and for the services of the Plaintiff by the use or in connection therewith in the course in the course of trade of the name "ASTG" or any colourable imitation thereof or by any other means; and ...."

21. The Plaintiff's cross-undertaking as to damages is to be fortified by the provision of a bank guarantee in the sum of $500,000 within seven days from today. The form of the guarantee is to be agreed between the parties or, failing agreement, as directed by Court.

22. [Submission from Counsel]

23. Having heard the parties, I consider that a suspension of the order for 14 days should be adequate for the Defendant to deal with the matters arising from the order.