LE’SEAN GROUP LTD v. MOSS McBLACK GROUP LTD AND ANOTHER

HCA 201/2018

[2018] HKCFI 861

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 201 OF 2018

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DECISION

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1.  This is the plaintiff’s application for an injunction restraining the defendants from passing off their business as that of the plaintiff. The business concerned is a flower business.

2.  The plaintiff’s claim is based on the similarity between the name of the defendant’s business and that of the plaintiff, the fact that the logos are similar, and points relating to packaging and presentation.

3.  The protagonists are Mr Lam Wing-lung, known as Sean Lam and Ms Tang Nga-fung, known as Alice Tang, the 2^nd defendant.  Mr Lam is the sole director and shareholder of the plaintiff company, Le’ Sean Group Limited, and Ms Tang is the sole director and shareholder of the 1^st defendant company, which was incorporated as Moss McBlack Group Limited and now renamed Blake McBlack Group Limited.

4.  The proceedings were issued on 23 January 2018 with a return date on 26 January 2018.  A hearing due to take place on 2 March 2018 was vacated and the matter came on for hearing on 27 March 2018.

5.  A considerable amount of evidence was filed by the parties and much of the actual content of the application is in dispute. These disputes cannot be resolved on the present interlocutory application.

6.  The facts are as follows.  Mr Lam and Ms Tang met in early 2011 and lived together until the relationship broke up at the beginning of 2017.  They developed an interest in flowers and a small florists shop was opened at the beginning of 2013 under the name Le’ Sean Seasons in San Po Kong.

7.  A significant factual dispute between them is whether this was Mr Lam’s business, in which Ms Tang was an employee, or whether Ms Tang played an instrumental part in the business, particularly on the marketing side, the couple being life and business partners who established the business together.

8.  The business seems to have done well and generated a considerable amount of publicity, the evidence being that both Mr Lam and Ms Tang played a significant part in this.

9.  On 30 September 2014, a flower shop was opened within a bookstore called Page One at Harbour City, Tsim Sha Tsui.  According to Mr Lam, in anticipation of the new venture, he created a new brand called “Moss McBlack”.  According to the defendants however, because Mr Lam’s name, Sean, had been used for the first shop, he and Ms Tang agreed to create a name using her name.  They used a nickname which Ms Tang says she had been using for many years, that is, “McBlack”.

10.  In this regard, there is evidence from social media going back to2010, that she did use this name.  They settled on “Moss McBlack”, the word “Moss” referring to the plant.  Ms Tang’s evidence is that she also uses the name Black. 

11.  It is clear from pictures in the evidence that the colour black was associated with the way the business presented its flowers in terms of décor, wrapping paper, etc.

12.  On 21 December 2015, the plaintiff company was incorporated.  Mr Lam’s evidence is that he looked after that side of the business, including making all the financial arrangements and so forth.  As noted, he was and is the only director and shareholder.

13.  On 5 January 2016, the second Moss McBlack shop was opened at the Page One Bookstore at Festival Walk, Kowloon Tong.  There is evidence that a few months later, a copycat business was opened in Kwun Tong and that this was closed down after a cease and desist letter from the plaintiffs’ lawyers.

14.  In November 2016, Page One went into receivership, and of course, the Moss McBlack shops had to be closed down.  A new Moss McBlack shop was opened at K11 Shopping Mall, Tsim Sha Tsui.  There was some suggestion that the shop was disadvantageously positioned at basement level, but there is no reason to suppose that it was established otherwise than as a shop to carry on an established business.

15.  In any case, as well as the walk‑in business, much of the florist’s business is carried out over social media.  The shop is, in effect, a physical manifestation of the brand.

16.  For the purposes of this application, the evidence is sufficient to show to the necessary standard, on an interlocutory application, that Moss McBlack was, by now, an established brand in the florist trade.  This required a considerable financial outlay and the evidence is that this came from Mr Lam.  The plaintiff company does, in fact, have five or six other florist shops, but these do business under the Sean Season brand.

17.  At the beginning of 2017, Mr Lam and Ms Tang broke up and have now started new relationships, but relations between them have perhaps inevitably deteriorated.

18.  The plaintiff’s case is that Mr Lam gave Ms Tang $500,000 under the impression that she was going to use it to set up a beauty salon.  However, on 12 April 2017, Ms Tang incorporated the 1^st defendant company under the name Moss McBlack Group Limited.  Mr Lam was unaware of this at the time.

19.  In June 2017, Ms Tang asked Mr Lam if he would agree to her taking over the “Moss McBlack” name, but he refused. Subsequently, Ms Tang decided to use the name, “Black McBlack”, and applied to register the brand as a trademark in her name.

20.  In December 2017, Ms Tang claimed a severance payment against the plaintiff at the Labour Tribunal.  The plaintiff says that this proves that she regarded herself as an employee and not a partner.  Her response is that she did not have legal advice at the time.  These proceedings have been discontinued, and in my view, nothing turns on them.

21.  In the month of December 2017, the defendants opened a new flower shop in Causeway Bay under the name of “Blake McBlack”.  Ms Tangposted an advertisement for the new shop on Facebook on 17 December 2017.  At about this time Mr Lam found out about the opening and these proceedings were started in January 2018.  There is some complaint on the defendants’ side about delay but I do not think that this is a justified criticism.

22.  On 5 February 2018, so after the proceedings had been started, the name of the 1^st defendant company was changed to “Black McBlack Group Limited”.  The defendants have offered an undertaking not to use the “Moss McBlack” name, including a search advertising keyword for their own business, but unfortunately, this has not resulted in the parties settling their differences.

23.  The parties’ respective cases are as follows. For the plaintiff, Mr Ling Chun Wai, who did not settle the skeleton argument in this case, contended that applying the conventional American Cyanamid test, it is plain that the defendants are passing off their business as that of the plaintiff.  The only defence suggested in that respect, he submitted, is that Ms Tang was a co-owner of the Moss McBlack brand.

24.  He submitted that damages are not an adequate remedy, so far asthe plaintiff is concerned, and that whilst the evidence is that the plaintiff would be good for any loss suffered by the defendants, there is no evidence of their means to make good the plaintiff’s loss, should the plaintiff succeed at trial.

25.  On the facts he submitted that it is obvious that there is what he described as a “huge likelihood of confusion” with the plaintiff’s business, caused by the name of the new business and its packaging, as well as what the plaintiff says was the defendants’ use of Google so that a search for “Moss McBlack” resulted in the defendant’s business, “Black McBlack”, being a top hit.  This would have required a payment to Google.  If this was done, it is common ground that this practice has since been discontinued.

26.  Counsel relies on evidence from customers as to confusion, as well as a tracked WhatsApp conversation with Ms Tang’s sister as to an order for flowers.  He submits that the continued use of the Black McBlack brand will erode goodwill and exclusivity in the Moss McBlack brand over time and loss may also be caused by the fact that customers may have a disappointing experience with the defendant’s business, which they will associate with the plaintiff’s business.

27.  Finally, Mr Ling Chun Wai submits that in a case of this kind, the court should favour the status quo and that it would be much better for the new business to change now, than wait until a trial, which may be some time off. Balancing all the factors, it is, he submits, claimed that the balance of convenience favours the grant of an injunction.

28.  Mr Douglas Clark, counsel for the defendants, submitted that the plaintiff’s application should be dismissed on the following basis:

(1)  The defendants have given an undertaking not to use the name, “Moss McBlack”, pending trial.

(2)  The 1^st defendant has already changed its name to “Black McBlack Group Limited”.

(3)  The plaintiff’s case is based on the premise that the Moss McBlack brand forms a large part of the plaintiff’s business.  In fact, almost no investment has been put into Moss McBlack in the past year.  Almost all of the plaintiff’s evidence of goodwill relates to the plaintiff’s main brand, Le’ Sean Seasons Florist.

(4)  As a corollary to (3), the plaintiff has a very weak case that it owns goodwill in the name of McBlack alone.

(5)  This was described by counsel as the core of the defence, the use of the name “Blake McBlack” does not amount to a misrepresentation sufficient to found a passing off action, particularly given: (i) The defendants are using the name “Blake McBlack”.  The first word of the name “Blake” is entirely different to “Moss”. (ii) The 2^nd defendant’s name is “Black” and “McBlack” is a play on that name.

(6)  The 2^nd defendant has a legitimate claim to be a co-owner in the name “Moss McBlack”.

(7)  It will be possible to compensate the plaintiff for any damages.

(8)  It would not be possible to compensate the 2^nd defendant for the inability to use her own name in business.

(9)  The plaintiff does not come to equity with clean hands.

(10)  Given the above, the balance of convenience does not favour granting an injunction any wider than the undertaking given.

29.  There is no dispute as to the applicable legal principles.  To make good a claim in passing off the plaintiff must establish:

(1)  that the plaintiff enjoys goodwill in the name, mark or indicia, which it wishes to prevent the defendant from using;

(2)  that the defendant has made a misrepresentation which is likely to lead members of the public to believe that his business, goods or services are the business, goods or services of the plaintiff; and

(3)  that the plaintiff is suffering or in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendants’ misrepresentation.

See, eg, Re Ping An Securities Ltd (2009) 12 HKCFAR 808 at 816–7, paragraph 17.

30.  On an application for an interlocutory injunction, there is no dispute that the American Cyanamid principles apply and that the question is whether there is a serious issue to be tried. It is not appropriate to resolve conflicts of evidence on the affidavits, though the court is, of course, entitled to form a view as to the strength or weakness of particular factual assertions.  The court considers whether damages would be an adequate remedy, and if not, whether the balance of convenience lies in favour of granting the injunction and whether it is just and convenient to do so.

31.  As Anthony Chan J noted in DBS Bank (Hong Kong) Limited v Tian Wen Quan HCA 3228/2016 (12 October 2017) at paragraph 12 (I note that this was not a passing off case):

“ The modern approach is to weigh the strength of the cases and the impact granting or not granting an injunction will cause, and to determine which course is likely to cause the least irremediable prejudice to one party or the other.”

32.  The defendants raise a preliminary issue which is that the plaintiff’s evidence in support of the application for the injunction was seriously misleading and that the application should be barred on the basis that a party seeking equity must come to court with clean hands.

33.  In my view, the first affirmation is open to substantial criticism on the basis that the part played by Ms Tang, and in particular the fact that the word “McBlack” is a play on the name “Black”, which she uses, was either glossed over or omitted. However, no ex parte application giving rise to the duty of full and frank disclosure was made in this case, and I do not consider that this is a case in which to apply the clean hands principle.

34.  The defendants also note that Ms Tang claims an ownership interest in the plaintiff company and in the mark, Moss McBlack.  Her case is that she and Mr Lam were life and business partners, who established the business together, and the fact that she was not shown on the records as a partner and did not handle financial matters does not mean that she was not a partner.  It is contended that where goodwill is co-owned, one co-owner cannot sue the other for passing off.

35.  The partnership question may well remain a live one at trial, should the case proceed that far, and an investigation of the facts such as inappropriate on an interlocutory application may have to take place then.  But it is not in dispute that the plaintiff company was incorporated in 2015.  Thereafter it has been the company which has carried on the business.

36.  It is also common ground that after they broke up, Ms Tang asked Mr Lam whether he would agree to her taking over the Moss McBlack name and he declined.  In other words, the assumption was that she did not have the right to use the name without his permission.

37.  Whilst the strength of this point remains to be tested, there is force in the plaintiff’s submission that the partnership point is an afterthought.  In any case, I agree with the plaintiff that Ms Tang would not be entitled to set up her own business passing it off as the business of the original partnership. I do not consider that this consideration can stand in the way of the grant of an interlocutory injunction, if the necessary ingredients of passing off are otherwise established.

38.  Turning to the goodwill issue, the plaintiff company carried on business under the Moss McBlack brand for an appreciable period of time and the evidence is that it sought to give its business a distinct identity by reference to the brand.

39.  The defendants’ case is that the Moss McBlack is, in effect, moribund and the defendants say that it makes up less than 10% of the plaintiff’s total business.  It is correct that there is evidence as to a lack of promotion of the brand currently, but as against that, the evidence is that the plaintiff intends to renovate the K11 shop and that the lease of the shop has recently been extended for another three years.

40.  The defendants argue that the plaintiff has a very weak case that it owns goodwill in the name of McBlack alone, and that if the plaintiff is relying on Moss McBlack, then the defendants are using an entirely different name, that is Blake McBlack.  This submission merges into the defendants’ submissions on misrepresentation.

41.  So far as the question of goodwill is concerned, in my view, the plaintiff has made out a case that it enjoys goodwill in the name Moss McBlack.  There is a serious issue to be tried in this regard, which is all that the plaintiff needs to show at this stage.

42.  Turning to the question of misrepresentation. There is some quite weak recent evidence of confusion on the part of customers to the K11 shop.  The tracked conversation with Ms Tang’s sister did not produce any very strong evidence either. The fact that her sister is a model, has promoted both the Moss McBlack business whilst Ms Tang was still involved in it, and is now promoting the Blake McBlack business, is neither here nor there.  She is fully entitled to do so.

43.  The suggestion that the use of the “Sparkling collection” copies the plaintiff’s “Bling collection” does not seem to me to carry much weight.  The same applies to the fact that the collections were similarly priced.

44.  There is, however, more significant evidence to take into account.  The first point to note is that Ms Tang incorporated her company on 12 April 2017 using the name Moss McBlack.  It is true that this has been changed nowto Blake McBlack, but this is nevertheless a point of considerable significance as to the misrepresentation issue.

45.  Although it is correct, as the defendants point out, that the word “Blake” is entirely different from the word “Moss”, this point loses much of its force once it is recognised that the words are used in conjunction with “McBlack” and when the use of the words is put into context. The context is important because, as can be appreciated by looking at the pictures in the bundles, the words are used in the same way by the defendants, as in the Moss McBlack brand.

46.  The logo consists of a simple square within which the words appear, with “McBlack” underneath “Moss”, or in the case of the defendant’s business, underneath the word “Blake”.  The similarities are accentuated by the fact that as in the Moss McBlack business, the pictures show that flowers are wrapped in black paper with a label prominently carrying the logo.  The logo of the new business is very similar to that of the old business and deployed in a very similar way.

47.  Mr Clark submits, by reference to Moroccanoil Israel Ltd v Aldi Stores Ltd [2014] EWHC 1686 (IPEC), that there is a difference between confusion and deception, which is the difference between an assumption on the part of the relevant public on the one hand and mere wondering on the other.

48.  He submits in the present case that the evidence goes no further than showing that members of the public would have wondered whether therewas a connection between the two businesses.  I do not accept this submission. 

49.  I consider that when the distinctive name “McBlack” is taken together with the distinctive logo, members of the public would assume that there is a connection between the two businesses and that the words “Blake McBlack” are a source of confusion.  There is certainly sufficient to establish a serious question to be tried as to misrepresentation at this stage.

50.  As regards damages, the defendants say that the use of “Black McBlack” in a store in Causeway Bay, compared to the use of “Moss McBlack” in a store in K11 in Tsim Sha Tsui, would be unlikely to cause any damage to the plaintiff.

51.  It is also to be noted that when the case came on at the first return date, immediate relief was not being sought.  Counsel for the plaintiff then appearing was asked by L Chan J whether harm to the plaintiff’s name and its goodwill would ensue between then and the hearing, which was some five weeks ago.  Counsel replied that the plaintiff could “stand that for the time being”.

52.  I accept that there is a real question mark over the extent of the loss that may be attributable to the establishment of the defendants’ business and the extent to which the plaintiff has been content to focus its business efforts on its other brand.  However, I am satisfied that the plaintiff is suffering, or is likely to suffer in the future, damage by reason of the erroneous belief engendered by the misrepresentation that I have described earlier.  In short, damages is likely to be incurred by reason of the confusion.

53.  So far as the defendants’ ability to make such damage good, it is understandable that, as a new business, the defendants are unable to produce figures to show that they will be good for any damages.  But the fact remains that there is no material to support their assertion in this regard.

54.  Having produced unsigned accounts in its evidence, the plaintiff produced certified accounts at the hearing.  These show a modest profit after taxation of $886,893 from incorporation to 31 March 2017.  Whilst, as the defendants pointed out, net current assets are negative in the sum of $715,081, on the whole, I consider that the plaintiff has demonstrated that it will be in a position to meet any damages that the defendants may have suffered, should this injunction be discharged at trial.

55.  Looking at the matter in the round, the plaintiff’s business has been operating for some three years, whilst the defendants’ business has only just started.  The balance of convenience favours the grant of an injunction, in my view, and this is likely to cause the least irremediable prejudice.  An order for an early trial, as suggested by the defendants, would not be a proper substitute. 

56.  The terms of the order are important because this injunction must not be used as an excuse illegitimately to hinder the start-up of Ms Tang’s business.  I record that it was made clear by counsel for the claimant, that there is no suggestion that she cannot use the name “Black”, or indeed the name “McBlack”, other than in connection with her florist business.

57.  The plaintiff’s legitimate concern is limited to the use, “McBlack”, in her flower business and the use by the defendants of a logo which is, as explained earlier, the same as the plaintiff’s logo, except for the use of the word “Blake” instead of “Moss”.  The terms of the order should be carefully focused, so as to avoid disputes as to its meaning.

58.  That is my decision, and I will hear counsel as to any consequential matters.

(Discussion re costs)

59.  So far as costs are concerned, the summons asked for costs to be plaintiff’s costs in the cause.  The plaintiffs, following the hearing, apply for an order for their costs of the interlocutory proceedings in any event.

60.  They submit that once the defendants saw the evidence, then it should have been plain that the balance of convenience leaned heavily in favour of the grant of an injunction and that would have prevented the necessity to have this hearing at not inconsiderable expense.

61.  I have been helpfully referred to two decisions, both of them of the Court of First Instance, that are relevant to this issue. In Mendlowitz v Winner International Group HCA 574/2009 which was a decision of Au J on 14 May 2010, he observed that costs in the cause was not necessarily the right order to make in a case of this kind. 

62.  This was expanded on by Madam Justice Au‑Yeung in Hengshi International Investments Ltd v Bayspring International Ltd HCMP 1916/2015, a decision handed down on 21 March 2016.  In paragraph 43 in particular, the learned judge said as follows:

“ A costs order should be made against the unsuccessful defendant inan application for interlocutory injunction where (a) the outcome of the hearing might be so plain to the parties that the court should conclude that an order should be made against the defendant for wasting time and money and fighting the issue (whether or not the defendant eventually concedes …), or (b) where the substantive merits were very plain and the court did not expect the case to go any further ….”

63.  The plaintiff submits that this case falls within (a) and that the outcome of the hearing was so plain that the defendants should have appreciated that it would simply be a waste of time and money in fighting the issue.

64.  I do not accept that that is the correct analysis in this case.  As matters have developed over the course of the argument in the hearing, it is truethat the issues narrowed very considerably.  But from the parties’ perspective, this is a case of considerable complexity, where each I am sure feels strongly that his or her position is the correct one.

65.  How far that proves to be the case will depend on a trial, though I hope that matters do not get to that stage and that the parties take the opportunity now to resolve their differences without further expense. 

66.  I consider that the correct order in the circumstances is an order for costs to be in the cause.  That is my decision.