PARADOX SECURITY SYSTEMS LTD v. PROCEEDING ENGINEERING CO LTD AND OTHERS

HCA 266/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 266 OF 2003

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J U D G M E N T

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1.  This is an application by the Defendants to strike out certain paragraphs in the prayer for relief in the statement of claim in this action and to stay all further proceedings in this action, or alternatively to dismiss the action, essentially on the grounds of forum non conveniens and/or lis alibi pendens.  A third ground, namely that the proceedings in this action are frivolous or vexatious or otherwise constitute an abuse of the process of the court, is also relied on.  But in substance, the third ground is parasitic on the first two grounds, and adds nothing new to the former.

2.  I need not recite the facts in any detail in this judgment, which are well known to the parties themselves, who should have no difficulty in understanding the reasons I give for my decision in this judgment. 

3.  Material to the present application are two causes of action relied on by the Plaintiff, namely passing off and breach of agreement.  The subject matters in issue are firstly, the registration of the trademark “PARADOX” – which has been used by the Plaintiff, a Canadian company, since 1991 – by the 3^rd Defendant in the Mainland in 1999; and secondly, a Mainland domain name “www.paradox.com.cn” registered in the name of a Shenzhen company, which apparently is connected to the Defendants, for the use by the Defendants. 

4.  So far as forum non conveniens is concerned, it cannot be seriously disputed that the Defendants must show, the burden of proof being on them, not only that Hong Kong is not the natural or appropriate forum for the trial of the issue in question, but also that there is another available forum (namely a Mainland forum) which is clearly or distinctly more appropriate than the local forum to try the issue.  Spiliada Maritime Corp. v. Cansulex Ltd [1987] AC 460; Ho Siu Pui v. Yue Sheng Finance Ltd [2003] 1 HKC 621.

5.  In relation to the Plaintiff’s case based on passing off, I am of the firm view that the Defendants have failed to show that a Mainland forum would be the more appropriate forum for trying the Plaintiff’s claim.  As Mr Yan SC, leading counsel for the Plaintiff, has submitted, apart from pointing to the fact that the Plaintiff has filed an application to expunge the registration of the trademark in the Mainland with the Trademark Review Adjudication Board of the State Administration of Industry and Commerce (from which decision the losing party may appeal to the First Intermediate People’s Court in Beijing, the decision of which would be “final”), the Defendants have produced no or insufficient evidence to show that a Mainland forum would be the more appropriate forum for trying the claim based on passing off. 

6.  The Plaintiff’s case based on passing off and the injunctive relief that it seeks (in paragraph (4)(f) and (j) of the prayer for relief) involve legal principles (and the application thereof), which are rooted in common law.  It cannot be suggested that a Mainland forum would be in a better position to try such a claim based on common law than a Hong Kong court.

7.  Further, as Mr Yan has explained in his submission, the Plaintiff’s case will not be affected by the outcome of its pending application to expunge the registration of the trademark in the Mainland.  The Plaintiff will need to pursue the passing off action and the injunctive relief against the Defendants – they being companies incorporated or individuals ordinarily resident in Hong Kong – even if the registration of the trademark in the Mainland is successfully expunged.  On the other hand, even if the application is unsuccessful, and the 3^rd Defendant remains the registered owner of the trademark in the Mainland, Mr Yan submits that the Plaintiff will still have a cause of action against the Defendants on the ground that the registered trademark in fact constitutes an instrument of fraud and this court has jurisdiction to grant injunctive relief even though the actual passing off is to take place in another jurisdiction: see British Telecommunications plc v. One in a Million Ltd [1999] FSR 1; John Walker & Sons Ltd v. Henry Ost & Co. Ltd [1970] RPC 489.

8.  That the governing law of the trademark registration is Mainland law is neither here nor there.  The Plaintiff’s claim is based on the tort of passing off, not a registered trademark.  Nor should it be confused with the application to expunge the registration of the trademark in the Mainland, which is of course governed by Mainland law.  By the same token, the fact that the outcome of the application is subject to a right of appeal to the People’s Court in Beijing is quite irrelevant to whether the Plaintiff’s claim based on the tort of passing off should be tried also in the Mainland instead of Hong Kong.

9.  The Plaintiff cannot have made its application to expunge in any other forum than the one in the Mainland.  That, however, does not mean, in my judgment, a general (and exclusive) “submission” to the jurisdiction of a Mainland forum in respect of all other related disputes between the parties, including the claim based on passing off. 

10.  That the individual Defendants now spend more time in the Mainland than in Hong Kong and that the Plaintiff’s witnesses can fly from Canada to the Mainland instead of Hong Kong for trial are hardly sufficient reasons to say that the more natural and appropriate forum is in the Mainland.

11.  On the material, including the Mainland expert legal opinions, that has been placed before the Court, I am not satisfied that it has been shown that a Mainland forum would be the more appropriate forum, as opposed to the local court, to try the Plaintiff’s claim for injunctive relief based on passing off.  In my judgment, quite the reverse, the Hong Kong court is the more appropriate forum to try the claim.

12.  The same can be said in relation to the domain name.  Similarly, Mr Yan has categorised the domain name as an instrument of fraud in the possession of the Defendants.  It is true that there has been an unsuccessful complaint filed with the China International Economic Trade Adjudication Committee Domain Name Dispute Resolution Centre against the Shenzhen company which legally owns the domain name in the Mainland.  Essentially, the Dispute Resolution Centre found that the registration was done in bad faith, however for some technical reasons (essentially because of the registration of the trademark) no relief was granted in favour of the Plaintiff against the Shenzhen company.

13.  I agree with Mr Yan that that by itself does not even begin to found a case that a Mainland forum would be the more appropriate forum for trying the Plaintiff’s claim for injunctive relief relating to the domain name based on the common law tort of passing off.  Nor is there any question of a general, exclusive and open-ended submission to the jurisdiction of a Mainland forum.

14.  As regards the Plaintiff’s claim for the assignment and transfer of the registration of trademark in the Mainland to the Plaintiff (paragraph (6) of the prayer for relief) and an order that the Defendants cause the Shenzhen company to cause the domain name to be cancelled or transferred to the Plaintiff (paragraph (7) of the prayer for relief) based on contract, again I am not persuaded that a Mainland forum would be the more appropriate forum to try the claim.

15.  On the material before me, the Defendants have failed to show that as regards the alleged contract in question, which has been partly performed in relation to the assignment and transfer of the registration of the trademark in Hong Kong back to the Plaintiff, either it was made in the Mainland or the contract law of the Mainland would be the governing law, as opposed to the law of Hong Kong or that of Canada, the contract having been made allegedly by correspondence between the Plaintiff (a Canadian company) and the 3^rd Defendant (a Hong Kong company) through the 4^th Defendant (a local resident).

16.  Mr Ho, appearing for the Defendants, argued that the question of a breach of contract has already been raised by the Plaintiff in its application to expunge the registration of the trademark in the Mainland.  Leaving aside his argument based on lis alibi pendens for the time being, with respect, I fail to see how this fact alone can by itself help him mount a case of forum non conveniens.  That the subject matter may have been raised in the application to expunge is one matter.  Whether the Trademark Review Adjudication Board or a Mainland court is or would be the natural and appropriate forum for the resolution of the dispute is quite another.

17.  As I have indicated, given the nature of the Plaintiff’s claim in question and the facts involved, I am far from persuaded that a Mainland forum is or would be the natural and appropriate forum to resolve the dispute between the parties. 

18.  As regards lis alibi pendens, the Defendants’ case is restricted to the registration of the trademark in the Mainland.

19.  I agree with Mr Yan that the short and simple answer to the Defendants’ argument is that the application to expunge and the present proceedings do not involve the same or similar causes of action nor do they concern the same parties.  For the general principles governing an application based on lis alibi pendens, see The Abidin Daver [1984] AC 398; Linfield Ltd v. Taoho Design Architects Ltd [2002] 2 HKC 204.

20.  According to the expert Mainland legal evidence, the application to expunge is based on articles 15 and 31 of the Trademark Law in the Mainland.  Essentially, the Plaintiff’s case is that the application for registration and thus the registration itself were improper and wrongful.  Thus analysed, it can be immediately seen that the pending dispute in the Mainland before the Trademark Review Adjudication Board has nothing to do with the Plaintiff’s case based on breach of contract, as the alleged contract was made in April or May 2000, after the registration of the trademark in the Mainland in 1999.  Furthermore, according to the unchallenged legal opinion of the Plaintiff’s expert, the Trademark Review Adjudication Board is simply not concerned with any claim or dispute based on breach of contract.

21.  As regards the Plaintiff’s case based on passing off, I am with Mr Yan and reject Mr Ho’s contrary argument that this cause of action is the same as or similar to the basis of the application to expunge founded on articles 15 and 31 of the Trademark Law.  In the application to expunge, the Plaintiff is complaining that the Defendants as the Plaintiff’s (then) distributor of its products in the Mainland had no right to apply for registration of the trademark in the name of the 3^rd Defendant without the consent or approval of its lawful owner (the Plaintiff) and their doing so was improper or unlawful.  In the common law claim based on passing off, the Plaintiff is in essence complaining that the Defendants have been applying a confusingly similar mark to goods manufactured or marketed by them in the Mainland.  Registration of the trademark in the Mainland is just one facet of the tort under complaint.  Indeed as explained above, it is part of the Plaintiff’s case of passing off that the registered trademark (if not expunged) is and will remain an instrument of fraud in the hands of the Defendants.

22.  In those circumstances, I am not persuaded that the same or similar causes of action are involved.

23.  The situation bears some resemblance to what happened in La Chemise Lacoste SA v. Crocodile Garments Ltd, HCA 2401/1995, Findlay J (22/12/95), where the court refused to stay a local action based on breach of a settlement agreement.  There it was alleged that the defendant had in breach of the settlement agreement sought to register a confusingly similar trademark in the Mainland, which application was contested by the plaintiff.  The court refused to stay the local action because it was of the view that the questions raised in the trademark application and the local action were not the same or similar, and in any event the court was not satisfied that the Trademark Office in the Mainland was the natural and appropriate forum for resolving the dispute between the parties.  The decision was affirmed on appeal: Civ. App. No. 11 of 1996 (27/11/96).

24.  The matter may be looked at from another angle.  As explained above, the Plaintiff’s case on passing off is quite irrespective of the outcome of the application to expunge in the Mainland.  Whether the registration is successfully expunged or not, the Plaintiff will still pursue its passing off action against the Defendants.

25.  In those circumstances, the classic reason for staying a local action in favour of a prior action pending in a foreign court which is a natural and appropriate forum for the resolution of dispute between the parties is simply missing in the present case.

26.  As regards the parties, it cannot be disputed that in the present action, there are five Defendants, whereas only the 3^rd Defendant – the registered owner of the trademark in the Mainland – is the respondent in the application to expunge made by the Plaintiff as applicant in the Mainland.

27.  For all the above reasons, the Defendants’ case based on lis alibi pendens must also fail. 

28.  Although I have not specifically dealt with each and every argument raised by Mr Ho either orally or in his written submission, I wish to say specifically that I have considered all the points and factors that have been raised by him in coming to my above conclusions on the first two grounds of application.

29.  As mentioned at the beginning, the third ground mentioned in the summons, namely that the proceedings are frivolous or vexatious, or otherwise constitute an abuse of the process of the court, does not add anything substantive to the two main grounds relied on by Mr Ho in support of the Defendants’ application.  In my judgment, it does not assist their application at all.

30.  For all these reasons, the Defendants’ application must be dismissed.  I so order. 

31.  I also make a costs order nisi that the costs of the application be paid by the Defendants to the Plaintiff, to be taxed if not agreed.  Unless either party should apply to vary the costs order nisi within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14 days period.

32.  I thank counsel for their assistance.