BIOZEAL, LLC AND ANOTHER v. NATURE’S STORY CO LTD AND ANOTHER

HCIP 34/2021

[2021] HKCFI 3725

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 34 OF 2021

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DECISIONS

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1.  This is the Defendants’ application for: (i) leave to appeal against my decision to grant interlocutory injunctions (“the Injunctions”) against the Defendants (“the Leave Application”); and (2) stay of execution of the Injunctions pending the application for leave to appeal and the appeal (“the Stay Application”). The Reasons (“the Reasons”) for my earlier order to grant the Injunctions (“the Order”) was handed down by me on 20 October 2021. For the purpose of these Decisions, I would adopt the same abbreviations I used in the Reasons.

2.  The application for the Injunctions (“the Injunctions Application”) was first taken out by the Plaintiffs on 5 July 2021. By another application dated 8 July 2021, the Defendants applied to stay the present proceedings in favour of arbitration proceedings (“the Arbitration Application”) which they expressly told this court that they intended to commence.

3.  Both the Injunctions Application and the Arbitration Application came before me on 9 July 2021.  Directions were given for the filing of the affidavit evidence for both applications.  In the following two months, the parties had filed extensive evidence in relation to both applications, including expert evidence on California law in relation to the Arbitration Application.  Shortly before the substantive hearing of both applications on 28 September 2021 (“the Substantive Hearing”), the Defendants abandoned the Arbitration Application and took out the Forum Application instead.  No issue had been taken by the Defendants on jurisdiction ground.  In the Substantive Hearing, I myself raised the jurisdiction issue as to whether the Hong Kong courts have the power to grant interlocutory injunctions with extra-territorial effect in respect infringement of intellectual property rights.  After the Plaintiffs had referred me to authorities such as The Law of Passing-Off, Unfair Competition by Misrepresentation by Wadlow^[1] to show that the common law is treating passing-off differently from other intellectual property rights on this particular issue, the Defendants accepted the position without raising any counter arguments.

4.  Now the Defendants are seeking to appeal against the Order for the granting of the Injunctions.  In supporting the application, Ms Tam, SC, who did not appear before me in the Substantive Hearing and is the third senior counsel appearing for the Defendants in these proceedings, submits more than 37 pages of submissions and 35 authorities.  A substantial part of the arguments relate to jurisdiction issue which have not been canvassed before me in the Substantive Hearing.  Needless to say, most of the authorities had not been referred to me in the Substantive Hearing.

5.  Delay in litigation devalues intellectual property rights, in particular in modern world when commercial merchandise may not enjoy long product cycle.  That is why interlocutory injunction application plays an important role in IP litigations, and the court has to examine all the circumstances in such kind of application to decide what should be best way to protect the rights of the parties pending the final determination of the dispute. The parties are expected to put forward all the evidence and arguments to support their respective cases so that the court can make the right decision usually on an urgent basis.  The practice of putting forward a half-baked case in the first hearing, then appealing against the first instance decision and applying for stay of execution with a view to further delay the granting of interim relief should not therefore be encouraged.

6.  Despite these observations about the conduct of the case by the Defendants, the court should still consider carefully the arguments put forward by the Defendants in support of the Leave Application, in particular those on jurisdiction issues.  The appellate court is obliged to entertain challenges of jurisdiction on appeal.[2]  After all, it is the merits of the intended appeal that count.

7.  The Defendants have made it clear that they will only seek to appeal against the Injunctions in so far as they relate to the mark “童年時光”, i.e.the Chinese Mark.

PRINCIPLES GOVERNING LEAVE TO APPEAL APPLICATIONS

8.  For the purpose of the Leave Application, the following legal principles are relevant.

9.  Leave to appeal will only be granted if the appeal has a reasonable prospect of success, viz. the prospect of success must be more than fanciful though without having to be probable.  This is only a threshold.  The court has a discretion to refuse leave even if such threshold is met.[3] The court can also grant leave to appeal if there is some other reason in the interests of justice that the appeal should be heard.[4]

10.  The granting of an interlocutory injunction is a matter of discretion.  It is not enough that members of the appellate court would have exercised the discretion differently had they been the primary judge.[5]

11.  The English Court of Appeal has also stressed that the appellate court does not exist to provide a second bite at each interim cherry in the sense that it is open to parties, having failed in front of the first instance judge, simply to start again and have a de novo hearing in the hope that they will succeed in front of the appellate court.  The court also reiterated that particularly in the field of interim injunctions, it is primarily the trial judge who is appointed to decide whether or not an injunction should be granted.  There is a heavy burden on the appellant to show that the first instance judge has erred in principle, and that in exercising their discretion there is either an error of principle or that they exercised their discretion in a way which no reasonable judge properly directing themselves as to the relevant considerations could have exercised it.[6]

12.  Repeating the arguments that had been made before without demonstrating how and why the judge went wrong is of little assistance and does not begin to make out a case that the judge’s conclusion is plainly wrong.[7]

13.  Where a party omitted to take a point at trial and then seeks to raise it on appeal, they will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at trial.  The foundational imperative of the “state of the evidence bar” is fairness.[8]

14.  Similarly, in the context of an appeal in relation to interlocutory applications, whilst the appellate court has power to entertain new points in such an appeal, it is clearly and firmly established that new points which are fact sensitive or otherwise affect the course of evidence or conduct of the case at the hearing below should not be allowed.  Though this principle is usually applied in situations where the new points necessitate further evidence to be adduced, it is not confined to such scenarios.  Very often, the raising of new point by one party may lead to the other party raising counter arguments and the consideration of such counter arguments may involve factual assessment in a different light from that undertaken by the court below.  Sometimes, it may involve a different weighing of factors in the exercise of discretion.  Alternatively, the other party may embark on a different course of forensic conduct if the new point were taken earlier.  The appellate court, in considering whether the new point would be entertained, is entitled to take these matters into account in order to avoid unfairness to the other party.[9]

15.  Generally, a new point which is fact and evidence sensitive and for other reasons affecting the conduct of the case below by the other side should not be entertained on appeal.  It is not simply a matter of admitting new evidence in order to support the additional ground of appeal.  The more fundamental question is whether the additional ground can be entertained in the light of the deliberate choice of those acting for the appellant not to rely on that ground below.[10]

16.  The Ladd v Marshall principles governing admission of new evidence on appeal are trite and I do not intend to repeat the same here.  It is right to say that the application for leave to adduce new evidence cannot be entertained until after leave to appeal has been granted, but the court is entitled to take into account the likelihood of the intended appellant in satisfying the high threshold test in considering the prospect of success of the appeal.

GROUNDS FOR APPEAL

17.  I then consider the various grounds of appeal advanced by the Defendants.

(i)      Ground based on non-justiciability of validity of foreign trade marks

18.  The first ground of appeal is that the court has no subject matter jurisdiction.  Since the Plaintiffs’ passing-off claim involves challenging the validity of a foreign trade mark, the court should have held that the claim is non-justiciable.  The Defendants are relying on the Moçambique rule that the court should not claim jurisdiction to adjudicate upon matters which, under generally accepted principles of private international law, are within the peculiar province and competence of another jurisdiction.[11]

19.  This is an entirely new argument which was never raised or relied upon by the Defendants at the Substantive Hearing.  Though this court did, on its own volition, raise the issue as to whether a Hong Kong court does have the power to grant injunction to restrain passing-off activities which take place outside jurisdiction, this is quite different from the existing new argument put forward by the Defendants as to whether the Hong Kong court has the power to decide matters which are somewhat relate to the validity of trade marks registered outside jurisdiction.

20.  Even if the Defendants were to be allowed to run such argument at the appeal, I do not find that it can take the Defendants’ defence any further.  This is not a matter concerning the jurisdiction of the Hong Kong court.  The Hong Kong court does have personal jurisdiction over both Defendants in the present case, at least that was not disputed by the Defendants in the Substantive Hearing.  The issue then before the court was whether the Defendants’ passing-off activities (not trade mark infringement activities) in the Mainland are also actionable under Mainland law.

21.  One must understand that the Plaintiffs’ claim on passing-off is not based on the Mainland trade mark registrations.  The Plaintiffs’ claim on double-actionability is based on passing-off in Hong Kong and unfair competition in the Mainland.  As foreign law is a matter of fact, I find that the Plaintiffs have a strong case against the Defendants that the Defendants’ passing-off activities in the Mainland are also actionable under the Mainland Unfair Competition Law.  From the authorities cited in the Reasons[12], it is clear that, in so far as extra-territorial effect is concerned, the law is treating passing-off differently from the other intellectual property rights including registered trade marks.  Because the Chinese Mark has been used in the Defendants’ passing-off activities (unfair competition activities under the Mainland law), the Injunctions may cover the prohibition of the use of the Chinese Mark, but this court was not making a decision on the validity of the registration of the Chinese Mark in the Mainland.  Though the two may be related, the court is not trespassing on the jurisdiction of the Chinese authorities in so far as the validity of the registration of the Chinese Mark is concerned.

22.  The Defendants contend that because they have sought to raise the Mainland registrations as a defence to the Plaintiffs’ claims and this court has no subject matter jurisdiction over the validity of these Mainland registrations, it somehow also follows that Hong Kong court also has no subject matter jurisdiction over the unfair competition claim.  Apart from the lack of authorities to support such proposition, the Hong Kong court did not, in granting the Injunctions, assume or even purport to assume subject matter jurisdiction over the validity of the Mainland registrations.   Instead, I only stated that “[on] the basis of the Plaintiffs’ case as pleaded, they can apply to invalidate the registrations of the Chinese Mark and the Heart Device by TNSG.”^[13] I then went on to stress that “[whether] TNSG was acting in bad faith or maliciously in obtaining the registrations is certainly a fact-sensitive matter”, but pointed out that “[based] on the Plaintiffs’ alleged case, TNSG must have been acting maliciously, dishonestly, or at the very least in bad faith, when it applied to register the Chinese Mark and the Device Mark.”^[14]

23.  Thus, this court has never assumed nor sought to assume subject matter jurisdiction over the validity of the Mainland registrations. Instead, I merely dealt with the issue from the perspective of whether the Plaintiffs have demonstrated a serious issue to be tried in respect of the unfair competition claim in the Mainland.

24.  Considering the scenario that the Chinese authority eventually decides that the registration of the Chinese Mark is valid (despite the fact that TNSG was trying to register not just the Chinese Mark, but also the English Mark and the Device Mark which clearly belonged to the Plaintiffs, in 2011 and 2012), does it mean that the Defendants’ passing-off activities (including the use of the Chinese Mark) are not actionable under the Mainland Unfair Competition Law?  It may or may not be the case.  Dr Jiang’s Opinion points out that the Mainland registrations are not a bar to an unfair competition claim in the Mainland.  In other words, the Mainland court can determine such claims even if the Mainland registrations have yet to be declared invalid.^[15]  The Defendants’ experts may take a different view, but it clearly shows that the actionability of the Defendants’ passing-off activities in the Mainland and the validity of the Mainland registrations, thought related, are two distinct issues.

25.  Despite these observations, I, with great reluctance, agree to grant leave to the Defendants to appeal on such ground. The Defendants apparently accept that the Hong Kong courts have subject matter jurisdiction in respect of foreign acts amounting to passing-off, but Ms Tam submits that there is a proviso to such principle i.e. the validity of foreign trade marks is not a substantial or principal issue to be tried.

26.  There may be a lot of arguments as to whether this proviso is the law and whether the validity of the Chinese Mark registered in the Mainland is a substantial or principal issue to be tried in the present case.  Though these matters have not been canvassed before me, I have expressed my view on such issues above.  Further, no matter whether the Defendants’ argument can succeed or not, I take a firm view that it should not disturb the Injunctions as the court was entitled to make a preliminary assessment on the strength of the case based on foreign law (i.e. the Plaintiffs’ claim on passing-off is actionable under the Mainland Unfair Competition Law) which is a question of fact.

27.  Here I would put forward one more scenario for consideration.  The using of shadow companies to deceive the public is common in IP litigations in Hong Kong.  Most of these claims were not defended.  These cases usually involve a Hong Kong company using a well-known overseas trade mark as part of the name of its own company.  The shadow company would then be used to apply for registration of that well-known mark in the Mainland.  In most of these cases, the company would also issue licences to various Mainland entities to use that well-known mark as it forms part of the name of the shadow company.  Under such circumstances, the Hong Kong courts would step in and grant relief to stop such kind of activities in the Mainland, on the ground that the shadow company is being used as an instrument of deception to deceive the public outside jurisdiction.  As shown in §43 of the Reasons, the courts do not need to concern with double actionability in such scenario.

28.  Now, assuming that that shadow company somehow manages to obtain a registration of that well-known mark in the Mainland, does it mean that the Hong Kong courts should wait for result of the trade mark proceedings in the Mainland before granting any interim relief (if the all the conditions for the granting of such relief are met) to prohibit the use of a Hong Kong company as an instrument of deception elsewhere?  In my judgment, the answer is clearly no.  If the circumstances so warrant, the Hong Kong courts should act immediately and the Mainland proceedings should not be used as an excuse to delay the matter.  The Hong Kong courts cannot interfere with the businesses carried on by any Mainland entitles in the Mainland, but if that Mainland entity uses a Hong Kong company as part of the deception plan, then that Hong Kong company may be subject to the jurisdiction of the Hong Kong courts.  The Hong Kong courts must have their own role to play under such circumstances, so as to prevent Hong Kong companies from being used for deception activities elsewhere.

29.  Despite these observations, I do not think that I should shut the door for the Defendants to appeal on jurisdiction-related ground.  The Defendants should be allowed to advance their arguments on the part to play by the trade mark proceedings in the Mainland, which have not been canvassed before me in the Substantive Hearing.  Further, the recent United Kingdom Supreme Court’s decision of Lucasfilm v Ainsworth[16] might have qualified the Moçambique rule, when the court held that claims for infringement of foreign copyright were justiciable in the English courts.  The application of the relevant principles therein has yet to be tested in the Hong Kong courts.

30.  Jurisdiction is now a heated issue in IP litigations in the local scene.  Due to the close economic tie between the Mainland and Hong Kong, a lot of infringement activities have cross-border implications. Hence, the Hong Kong courts have to visit such issue from time to time, and this case is just one of them.  The decision by the appellate court on such issue may clarify the law on such area which may be beneficial for the development of Hong Kong as an IP hub in the region.

31.  For these reasons, I, with much reluctance, agree that this is an appropriate case for the granting of leave to appeal.

(ii)     Other grounds of appeal

32.  Though I find no merit in the other grounds of appeal, I decide to grant general leave to appeal as the appellate court may take a different view from my own on those issues.  For the sake of completeness, I will now express briefly my views on the merits of the other grounds.

33.  Ground 2 relates to personal jurisdiction over the 1^st Defendant. 

34.  This is the first time that the Defendants are complaining that the service of these proceedings on the 1^st Defendant was irregular.  The authorities are absolutely clear that this kind of new point relating to service should not be allowed to be argued for the first time on appeal for the reasons set out in §12 of LehmanBrown v Union Trade[17]. In any event, irrespective of whether the Plaintiffs had properly effected service of process on the 1^st Defendant pursuant to s 803(1) of the Companies Ordinance (Cap. 622), there can be no dispute that the Plaintiffs had, as early as on 6 July 2021, sent copies of all relevant papers (including the Writ of Summons) to the Defendants’ solicitors who had unequivocally stated that they had instructions to act for the 1^st and 2^nd Defendants in the subject proceedings and had requested for such documents to be also sent to them.   Further, for over 12 weeks until the Substantive Hearing, and despite being legally represented throughout (and represented by two different teams of senior counsel and counsel), the Defendants had never complained about the service of process on the 1^st Defendant.  The issue was only raised for the very first time in Guo’s 5^th Affirmation served on 26 October 2021, i.e. after the Substantive Hearing.  In the premises, it is simply unconscionable for the Defendants to raise such irregularity for the first time in the Leave Application.

35.  Ground 3^[18] relates to comity and need to respect Mainland jurisdiction process.  The Defendants contend that I have erred in refusing to withhold the granting of the Injunctions pending the determination of the Forum Application.

36.  I have already outlined the history of this case in §§ 3 and 4 above.  At the Substantive Hearing on 28 September 2021, the Defendants did not make any application to adjourn the Injunctions Application.   Instead, as pointed out in §129 of the Reasons, the Defendants’ previous senior counsel had, in concluding his submissions, merely asked the court to consider withholding the granting of any interim or interlocutory injunction pending the decision of the CNIPA and had made a faint suggestion that the court should not grant the Injunctions before hearing the Forum Application.

37.  The fact is that there had been substantial and unexplained delay in taking out the Forum Application.  The application had been made and the supporting evidence had been adduced only very shortly before the Substantive Hearing. In the Reasons, I have already explained in details as to why the court should grant interim relief without further delay.  In my judgment, the Defendants have failed to demonstrate that this court has made any error of the type which the appellate courts have repeatedly emphasized must be shown before they will interfere with the exercise of discretion by the lower courts.

38.  Ms Tam has kept on reminding this court that the Injunctions will interfere with the proceedings in the principal forum.  This is certainly an exaggeration.  First, this court, in the Reasons, has made it clear that the Hong Kong court has no jurisdiction to deal with passing-off activities committed outside jurisdiction by foreign entities.  The Injunctions cannot therefore stop TNSG from continuing to use the Chinese Mark in the Mainland.  On the other hand, if TNSG’s group decided to use Hong Kong company or company carrying on business in Hong Kong to deceive overseas customers, there is nothing to stop the Hong Kong court from granting interim relief if the circumstances so warrant.  Second, the Mainland authority would be free to make a decision upholding the Mainland registration of the Chinese Mark.  In the event that the Mainland authority upholds such registration, there is nothing to stop the Defendants from coming back to this court to discharge or vary the Injunctions.  However, if the Hong Kong court takes a particular view about the law in the Mainland i.e. whether the Defendants’ passing-off activities are actionable under the Mainland Unfair Competition Law, it should act without delay if it is in the interests of justice to do so.  Ample reasons for this have been set out in the Reasons.

39.  Ground 4[19] relates to the alleged final dispositive effect of the Injunctions.  In particular, the Defendants contend that I had failed to take into account the following matters:

(i)  That the Injunctions would allegedly have final dispositive effect and are likely to dispose of the need for a trial in the Mainland or in Hong Kong.

(ii)  That the Injunctions allegedly disturb the status quo and interrupt the Defendants’ conduct of their alleged established enterprise in the Flagship Stores.

(iii)  That the goodwill in connection with the Chinese Mark will be irremediably eroded, as neither the Plaintiffs nor the Defendants can use the Chinese Mark in the Mainland pending trial.

(iv)  That as the Injunctions would allegedly have final dispositive effect, a higher merits threshold should be adopted to assess the Plaintiffs’ case.

40.  However, the court’s exercise of discretion in granting the Injunctions simply cannot be faulted on the grounds that the matters set out in the previous paragraph had not been taken into account by the court, as these contentions (and the authorities relied upon) are new and had never been argued by the Defendants nor drawn to the attention of the court.[20] It is clear from the Defendants’ submissions (for example §§33-35) that these new contentions are fact and evidence sensitive, as demonstrated by the Defendants’ reliance on the new evidence in Guo’s 3^rd and 5^th Affirmations.  It is highly unlikely that the Defendants can satisfy the Ladd v Marshall test in adducing such new evidence in the appeal.

41.  In so far as the Defendants now contend that the Injunctions would have final dispositive effect, the Injunctions only target the Defendants and the Flagship Stores operated by them.  The Injunctions do not stop TNSG and other entities from using the Chinese Mark in the Mainland.  This is not the case that during this period of time, the Chinese Mark will disappear altogether from the market, as TNSG and its other affiliated companies can continue using the Chinese Mark.  In fact, the proviso at the end of Injunctions was specifically included at the request of the Defendants to ensure that the Injunctions will not catch TNSG.

42.  Further, in so far as the Defendants contend that the Injunctions disturb the status quo and interrupt the Defendants’ conduct of their alleged established enterprise in the Flagship Stores, I have already found that the evidence in the present case overwhelmingly shows that the Chinese Mark had only been used by the Defendants: (1) on and in relation to and for the purposes of promoting the Plaintiffs and the ChildLife Products; and (2) in conjunction with the English Mark and the Heart Device.[21] The Chinese Mark does not have any independent significance apart from being the Chinese version of the English “ChildLife” mark.  Accordingly, the Defendants’ established enterprise in the Flagship Stores for many years until the termination of the 2018 Distributorship Agreements was to use the Chinese Mark on and in relation to the Plaintiffs’ ChildLife Products.  There is no “established enterprise in the Flagship Stores” for the misuse of the Chinese Mark to mislead consumers into believing that the Inne Products are upgrade versions of Plaintiffs’ ChildLife Products or in any way associated with the ChildLife Products.

43.  As demonstrated in the Reasons, this court fully appreciated the effect of the Injunctions.  However, the Injunctions only target the Flagship Stores using the Chinese Mark.  The evidence shows that the Defendants are now using the Flagship Stores carrying the Chinese Mark, i.e. “童年時光”, only to market the Inne Products.  But before that and throughout the years, the Defendants had been using the Flagship Stores carrying the Chinese name of “童年時光” only to market the Plaintiffs’ ChildLife Products.  As the evidence shows that such name had only been used to describe the Plaintiffs’ ChildLife Products, and the Defendants had actively deceived the customers by describing that the Inne Products are upgraded versions of the Plaintiffs ChildLife Products, it is only just and fair to grant the Injunctions even at this interlocutory stage to stop the Defendants from using such name in the Flagship Stores to market different products.

44.  Ground 5^[22] involves a complaint that no strong case on the merits has been shown by the Plaintiffs.  The Defendants are contending that I have erred in concluding that the Plaintiffs have established a strong case that the Defendants’ wrongful activities are actionable under Mainland law.  Again I find no merit in this ground of appeal.

45.  First, I do not find that the dicta of the Court of Appeal in Tsit Wing (Hong Kong) Co Ltd v TWG Tea Co Pte Ltd[23] can in any way assist the Defendants.  The dicta was made in respect of the question of degree of evidence adduced by the defendants to show the extent of their international reputation.  It was in that context that Lam JA (as he then was) said it would be unfair to the defendants in that case to assume that they had placed before the court all the evidence relating to their alleged international reputation.  That is completely different from the context of the paragraphs in the Reasons referred to by the Defendants (§§13, 23, 54, 56, 59, 61-62 of the Reasons), as I was highlighting the complete absence of any explanation or justification by or evidence from the Defendants on matters which cried out for such explanation, justification or evidence.  More importantly, my conclusion was not based only on the absence of such explanations, justifications or evidence but on a detailed analysis of all the evidence and the Defendants’ submissions as contained in §§48-97 of the Reasons.

46.  Foreign law is question of fact.  The court can only take a particular view on the foreign law based on the expert evidence adduced by the parties.  Unless the Defendants can satisfy the high threshold of the Ladd v Marshall test, which I am of the view that the chance is slim, the Defendants cannot rely on the expert opinion on foreign law adduced by them for the Forum Application or the present Leave Application.

47.  The issue of double actionability only relates to the question as to whether the Defendants’ passing-off activities, given TNSG’s Mainland registration of the Chinese Mark, are actionable in the Mainland under the Mainland Unfair Competition Law.  In the Reasons, I have already given a detailed analysis as to why I say that, on the then existing evidence, the Plaintiffs have managed to establish a strong case on this issue.  In considering whether to grant the Injunctions, the court was obliged to take a preliminary view on the strength of the respective cases of the parties.

48.  In so far as the Defendants contend that this court’s conclusion that the Defendants may have acted maliciously, dishonestly or with bad faith when applying to register the Chinese Mark is inconsistent with the Chronology included in the submissions, the Defendants have deliberately left out important facts and circumstances leading to and surrounding TNSG’s application to register the Chinese Mark including, in particular, TNSG’s unexplained application to register the English Mark “CHILDLIFE” simultaneously with the Chinese Mark which I have highlighted in the Reasons.

49.  Further, whilst the Defendants have artfully eschewed any appeal against the Injunctions to restrain the Defendants’ wrongful use of the Heart Device (no doubt because they realise that TNSG’s application to register the 2^nd Plaintiff’s copyright work is indefensible), my finding that TNSG must have been acting maliciously, dishonestly or with bad faith was also based on TNSG’s wrongful registration of the Heart Device.  This court was clearly entitled to take into account TNSG’s entire course of conduct over the years in assessing whether it had acted maliciously, dishonestly or with bad faith, not just the limited facts set out in the Chronology.

50.  These observations also apply in respect of my finding that the Plaintiffs have a strong case on the ownership of the goodwill associated with the Chinese Mark.  Hence I find no merit in this ground of appeal.

51.  According to Ground 6^[24], the Defendants complain that  restraint of the use of the English mark and the Heart Device would be sufficient to protect the interests of the Plaintiffs.  The Injunctions do not need to cover the prohibition of the use of the Chinese Mark.

52.  However, as the evidence in this case overwhelmingly shows[25], the Defendants were using both the Chinese Mark and the Heart Device as well as other misleading representations to mislead customers into believing that the Inne products are upgraded versions of the Plaintiffs’ ChildLife Products.  Further, the history of the case clearly shows that the Defendants had been using the English Mark, the Chinese Mark and the Heart Device to promote and market the Plaintiffs’ ChildLife Products.  Given the likely confusion caused to the customers under such circumstances, the Plaintiffs would clearly not be sufficiently protected if the Defendants were not restrained from using the Chinese Mark.

53.  Ms Tam also submits that this court has not found the Defendants’ case that TNSG owns the goodwill in the Chinese Mark to be unarguable.  Hence, an injunction which precludes TNSG or the Defendants from reverting to the Chinese Mark after they succeed at trial goes beyond what is necessary to protect the Plaintiffs.

54.  Again Ms Tam has overlooked the analysis given by me in respect of such allegation contained in §§51-63 of the Reasons.  In this part of the Reasons, I have considered and addressed TNSG’s arguments in support of such case and found that the Plaintiffs have a strong case in defeating these arguments. Further, as mentioned above[26], the Injunctions do not preclude TNSG or the Defendants from reverting to the Chinese Mark if they were to succeed at trial nor do they go beyond what is necessary to protect the Plaintiffs.

55.  Ground 7^[27] is about a complaint that the court has no power to grant extra-territorial injunction over foreigners.  The Defendants are concerned that the conduct of the Defendants’ affiliates in the Mainland may be subject to the Injunctions.  This intended ground of appeal is entirely misconceived.

56.  First, I have made it clear at the Substantive Hearing that the Injunctions only cover the Defendants and anyone acting on behalf of or as agents of the Defendants.  §(1) of the Injunctions only restrains the Defendants, whether acting by themselves or through their employees, representatives, agents, etc..  The Injunctions do not restrain such employees, representatives or agents per se, but only when they are acting for or on behalf of the Defendants.

57.  Second, as the Defendants’ then senior counsel had expressed concern that TNSG^[28] would somehow be caught by the Injunctions, I had made it clear that the Injunctions would not bind TNSG for whatever it does in the Mainland and specifically fixed a hearing on 30 September 2021 to allow the parties time to draft a proviso to make sure that the Injunctions would not bind TNSG.

58.  Third, at the hearing on 30 September 2021, despite my pointing out that the Defendants could explicitly include any of their Mainland entities other than TNSG in the proviso to §(1) of the Injunctions, the Defendants did not identify any further entity which they were concerned might be, but should not be, caught by the Injunctions (as the Defendants now seek to do in their submissions). I then expressly granted liberty to apply to enable the Defendants to apply to vary or clarify the order if necessary, in particular as to whether any of the Defendants’ affiliated companies are allowed to carry on certain activities in the Mainland. Further, in §§134-137 of the Reasons, I specifically explained the terms of the Injunctions, in particular, the reason for the express grant of liberty to apply.

59.  Guo in his 5^th Affirmation has purportedly pointed out that some of the Defendants’ associates in the Mainland may be affected by the Injunctions.  If that is the case, I wonder why the Defendants have not raised the matter in the hearing on 30 September 2021 so that I could deal with the same in the proviso.  The Defendants are also at liberty to apply to the court to vary the terms of the Injunctions to expressly exclude these entities.

60.  For these reasons, none of the other grounds of appeal has any merit.

THE STAY APPLICATION

61.  Despite the granting of the leave to appeal, I take a firm view that the Order should not be stayed for execution pending the appeal.

(i)      The relevant legal principles

62.  For the Stay Application, the following legal principles are relevant.

63.  An appeal does not operate as a stay of execution of proceedings.[29]

64.  The legal principles applicable to stay of execution are well established, and they have been summarized by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management.[30]

65.  The applicant must show an arguable ground of appeal (viz. one with reasonable prospect of success) before the discretion to grant stay is engaged.  The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay.[31]

66.  Even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party the fruit of the judgment. Sometimes, the applicant may do so by showing the existence of strong ground of appeal.  Sometimes, the applicant may do so by showing that the appeal would be rendered nugatory if no stay is granted.  In either case, the court must also have regard to the prejudice that may be suffered by the successful party if a stay is granted.  In all cases where the discretion is engaged, ultimately it is a balancing process with common sense.[32]

67.  When conducting the balancing exercise, the starting point is that the successful party should not be deprived of the fruits of their success.[33]

(ii)     Discussions

68.  The Defendants only seek a stay of the Injunctions in relation to the Chinese Mark.  But even if the Defendants can show arguable grounds of appeal in respect of the use of the Chinese Mark, there should not be a stay of the Injunctions for the following reasons.

69.  First, the starting point is that the Plaintiffs, being the successful party, should not be deprived of the fruits of their success.  When exercising the discretion in granting the Injunctions, the court had already considered all the irreparable damage which the Defendants allege they will suffer if the Injunctions are granted.  After balancing all the factors, the court considered it necessary and fair and just to grant the interim relief to protect the interests of the Plaintiffs pending the trial of the action.

70.  Second, and more importantly, it would be grossly unfair to the Plaintiffs as a stay would mean the suspension of the Injunctions for at least another 6 months (according to the Defendants’ own estimate), which will entirely defeat the whole purpose of applying for the Injunctions in the first place.

71.  I have already highlighted the way in which the Defendants conducted the opposition in §§3 and 4 above.  The Defendants intended to oppose the Injunctions Application initially on arbitration ground.  By dropping the Arbitration Application at the last minute, a lot of preparation works had been wasted.  Even at the Substantive Hearing, apart from the issue of double actionability, the Defendants did not rely on any other jurisdiction grounds to oppose the Injunctions Application.  It follows that no evidence had been adduced by the Defendants specifically for these other grounds.  After the court had alerted the parties in the Substantive Hearing about the possible extra-territorial effect of the Injunctions, the Defendants did not advance any counter arguments.  Now in this intended appeal, the Defendants are relying on jurisdiction ground advanced for the first time to oppose the Injunctions Application.  Numerous new authorities are cited to the court.  In support of the Leave Application, the Defendants are relying on evidence adduced by them for the first time in the Forum Application and the Leave Application (which was filed after the Substantive Hearing).  In my judgment, the Defendants should not be allowed to benefit from the fact that they only put forward a half-baked case in the Substantive Hearing, then advanced new grounds and evidence in support of the appeal and applied for stay of execution pending appeal.

72.  As I have demonstrated in the Reasons, the Plaintiffs have a very strong case on the other grounds:

(i)  the Defendants had engaged in the practice of actively deceiving the customers into believing that the Inne Products are upgraded versions of the Plaintiffs’ ChildLife Products;

(ii)  in doing so, the Defendants had been using both the Chinese Mark and the Device Mark, the latter of which clearly belonged to the Plaintiffs;

(iii)  the Plaintiffs had a strong case on the ownership of the Chinese Mark, taking into account, inter alia, what happened when TNSG came to be the agent for the distribution of the Plaintiffs’ ChildLife Products in the Mainland and the terms of the 2018 Distributorship Agreements;

(iv)  until the alleged wrongful conduct of the Defendants, the Chinese Mark had been used by the Defendants only to promote the Plaintiffs’ ChildLife Products and nothing else;

(v)  until the alleged wrongful conduct of the Defendants, only the Plaintiffs’ ChildLife Products had been sold in the Flagship Stores using the Chinese Mark as their shop name;

(vi)  the Plaintiffs had granted licence to the Defendants to use the Chinese Mark when the Flagship Stores were first set up;

(vii)  the Defendants cannot offer any explanation as to why they applied to register also the English Mark and the Device Mark which clearly belonged to the Plaintiffs.

73.  These are only some of the factors highlighted in the Reasons as to why the Plaintiffs have a strong case on the non-jurisdiction grounds. Under such circumstances, it would be grossly unfair to the Plaintiffs if the Defendants are allowed to rely on new arguments and evidence on jurisdiction ground to delay the process and the granting of the interim relief.

74.  Third, despite the granting of the leave to appeal (mainly for the purpose of clarifying the law relating to the power of the court to grant injunctions to prevent passing-off activities outside jurisdiction which may involve the validity of foreign trade mark registration), I cannot say that the Defendants have demonstrated strong ground of appeal.

75.  Fourth, the Defendants point out that, through their good faith and for compliance, the names of the Flagship Stores have been changed on 19 to 20 October 2021 to “綠野仙踪海外旗艦店” on JD.hk and “Inne母嬰海外旗艦店” on Tmall.hk.[34]  But should the Defendants be required to adopt a new name for an extended period of time, the Defendants argue that it would be pointless to revert the names of the Defendants’ Flagship Stores to the Chinese Mark even if the Defendants succeed on appeal.

76.  However, it is important to note that, as emphasized many times in these Decisions and the Reasons, the Injunctions only target the Defendants and the Flagship Stores operated by them.  The Injunctions do not stop TNSG and other entities from using the Chinese Mark in the Mainland.  This is notthe case that during this period of time, the Chinese Mark will disappear altogether from the market, as TNSG and its other affiliated companies can continue using the Chinese Mark.  In fact, the proviso at the end of Injunctions was specifically included at the request of the Defendants to ensure that the Injunctions will not catch TNSG.  Accordingly, even if the Defendants succeed in the appeal, there is no reason why the Defendants cannot revert the names of the Flagship Stores back to the Chinese Mark if they so wish.

77.  Fifth, the Defendants have set out the damage they have allegedly suffered as a result of the Injunctions in their written submissions, such as the loss of sales through the Flagship Stores.  However, the presence of any such alleged damage is not a reason justifying the stay of the Injunctions. The Injunctions were granted precisely to stop the wrongful acts of the Defendants pending the trial of the action.  Naturally, the Defendants would have suffered by reason of the Injunctions, because they can no longer make any misrepresentation to the public or make use of the Plaintiffs’ various trade marks and goodwill for their own benefits.  Accordingly, the alleged loss in sales and the alleged drop in traffic in respect of the Defendants’ Flagship Stores can hardly justify the stay of the Injunctions.

78.  In fact, Mr Yan, SC, counsel for the Plaintiffs, points out that some of the new evidence in support of the Defendants’ case on losses as stated in Guo’s 5^th Affirmation (which is supposed to be a reply affirmation) may not even be true.  But given that there would not be further round of evidence, the Plaintiffs do not have the opportunity to adduce further rebuttal evidence.

79.  In so far as the Defendants contend that they cannot sell the ChildLife Products on the Flagship Stores given §1 of the Injunctions, and that the Defendants have remaining stocks of the ChildLife Products which amount to about HK$25 million, such argument is plainly unmeritorious.  First, there is no documentary evidence adduced in support of the alleged remaining stocks of the ChildLife Products.^[35] More importantly, there is clear evidence that the Defendants had deliberately stepped down the marketing, promotion and sales of the ChildLife Products in the Flagship Stores even before the Injunctions took effect.^[36]  The Defendants could have continued to market the genuine ChildLife Products on the Flagship Stores if they had wished to do so.  Yet, they deliberately chose not to do so.  Further, I cannot understand why the Defendants have not put forward such argument to oppose the Injunctions Application in the Substantive Hearing.  In the premises, the contention that the Defendants will not be able to market the ChildLife Products because of the Injunctions is plainly disingenuous and unmeritorious.

80.  Sixth, the factors considered in the balance of convenience exercise in the Reasons are also relevant as to why the Order should not be stayed for execution pending appeal.  In particular, there is possible immense irreparable damage resulting from: (i) the confusion caused to the public by using the Chinese Mark for the Inne Products; (ii) damage to the well-established brand of the Plaintiffs’ ChildLife Products.  Weighing this possible harm to a well-established brand with the possible harm to a new brand now marketed by the Defendants, I take the firm view that there should be no stay pending the appeal.  It carries the least injustice to the parties even if this court turns out to be wrong.

81.  As a last desperate attempt, the Defendants contend that the fortification of HK$5 million as to the Plaintiffs’ cross-undertaking is insufficient to make good the Defendants’ losses and that the Plaintiffs have no assets or financial means in Hong Kong to honour the cross-undertaking. Such contention is again entirely unmeritorious.  The fortification was ordered precisely in response to the Defendants’ submissions at the Substantive Hearing that there is no evidence showing that the Plaintiffs have assets within the jurisdiction.  The Defendants have not appealed against the amount of fortification ordered by this court.  In the premises, it is not open to the Defendants to contend now that the amount of fortification ordered is not sufficient to protect the Defendants.

82.  For the above reasons, I grant general leave to the Defendants to appeal against the Order but dismiss the Stay Application.  I also make a costs order nisi that the costs of both applications be costs in the cause of the appeal with certificate for 2 counsel, which shall be made absolute 14 days after the date of the handing down of these Decisions.