J.C. Penney Co Incorporated and Another v. Penneys Ltd and Another
Read the full judgment text of HCA 2083/1975 on BabelCite. This High Court CFI judgment.
1. The Plaintiffs seek to extend an interim injunction, granted ex parte, until further order. That injunction restrained the first Defendant
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HCA002083/1975 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 2083 of 1975 -----------------
----------------- Coram: Huggins, J. Date of Judgment: 23rd September 1975. ----------------- JUDGMENT ----------------- 1. The Plaintiffs seek to extend an interim injunction, granted ex parte, until further order. That injunction restrained the first Defendant
The first Plaintiff is a corporation with limited liability incorporated in the State of Delaware in the United States of America and carries on a very large scale retail business in the United States, Puerto Rico and Italy, partly by mail order and partly in stores. A subsidiary operates some ninety retail stores in Belgium. The second Plaintiff is another subsidiary of the first Plaintiff and, like the parent company, is a corporation with limited liability incorporated in the State of Delaware. As its name suggests it is concerned with purchasing goods to be sold by the first Plaintiff and for that purpose it maintains buying offices in several places overseas. One of those offices is in Hong Kong and that office commenced trading on 20th April 1966. The second Plaintiff was already making substantial purchases from Hong Kong prior to that, but the establishment of the local office led to a big increase in the volume of purchases from the Colony. Neither Plaintiff has any retail stores in Hong Kong. The first Defendant (the only Respondent to the ex parte application) is a corporation with limited liability incorporated in Eire in 1969. It operates retail stores in Eire, Northern Ireland, Scotland, England and Wales and deals in goods of the same kind as those sold by the first Plaintiff. The second Defendant is a corporation with limited liability incorporated in Hong Kong on or about 6th September 1975 and is intended to perform for the first Defendant functions similar to those performed by the second Plaintiff for the first Plaintiff. 2. This is not the first time the first Defendant has found itself involved in litigation over its use of the name "Penneys", but, as I see it, the proceedings now pending in other jurisdictions have no direct bearing on the questions I have to decide, by reason of the fact that in Hong Kong none of the parties is engaged in selling to local purchasers. However, the Plaintiffs do rely upon the observation of Graham, J. in his judgment upon a motion for an interlocutory injunction in England when, having referred to a letter written to the first Defendant by patent agents in Dublin acting on behalf of the Plaintiffs, he said:
The present conflict arose when an advertisement appeared in the South China Morning Post Newspaper of 5th August 1975 announcing the opening in Hong Kong of a buying office for four companies including the first Defendant. The Plaintiffs contend that they have established a reputation for the name "Penneys" in Hong Kong in relation to textiles, clothing and footwear and that they are threatened with damage should the Defendants trade here under the same name. 3. At the outset I am faced with an apparent difficulty concerning the proper approach to the general question whether an interlocutory injunction ought to be granted. The Court of Appeal in England in Fellowes & Sons v. Fisher 1975 3 W.L.R. 184 has found difficulty in applying the principles laid down by the House of Lords in American Cyanamid Co. v. Ethicon Ltd. 1975 2 W.L.R. 316. I am not sure whether Lord Denning, M.R. has gone so far as to say that as the Cyanamid Case conflicts with an earlier decision which was not cited to their Lordships the Court of Appeal is at liberty to follow the earlier case, but the other Lords Justices clearly thought themselves bound by the later case, although they, too, had some misgivings about it. For my part I am, with respect, inclined to think that the difficulty created by the Cyanamid Case is more apparent than real. The only possible difficulty I see in the speech of Lord Diplock is as to whether the adequacy of the respective remedies in damages does or does not form part of the balance of convenience. Sir John Pennycuick suggests that by using the words "As to that" at p.323 D Lord Diplock was laying down that the adequacy of the remedies was the overriding factor in deciding the balance of convenience. However, at p.323 G Lord Diplock said:
The difficulty to which I refer is probably one of semantics only. For the rest, Lord Diplock said (1975 2 W.L.R. 320):
and he pointed out that in the case before him
That is the error into which a court may readily fall if it speaks of finding a prima facie case and it seems to me that the sole purpose of all that Lord Diplock said on this matter was to avoid such errors in future. If it had been clear that courts, when they talk of finding a prima facie case, had always meant that the plaintiff's evidence was such as might properly have been left to a jury, I suspect that the case would never have found its way into the law reports, for Lord Diplock said at p.323:
There are possibly two reasons why a court may decide that there is a serious question to be tried: first there may be a triable issue on one or more questions of material fact and, secondly, there may be disputed questions of law even where the facts are undisputed. Thus in the Cyanamid Case the issues were substantially questions of fact: the defendant sought a narrow interpretation of the chemical term "Polyhydroxyacetic ester" in a patent and argued, in the alternative, that if the term bore the wider interpretation contended for by the plaintiff the patent was invalid on grounds of inutility, insufficiency, unfair basis and false suggestion. Sir John Pennycuick in Fellowes v. Fisher at p.200 suggested that the House of Lords may not have had in mind a case where the issue was substantially one of law, as where the court was called upon to construe a written instrument. In Fellowes v. Fisher itself the primary facts were common ground. J.T. Stratford & Sons Ltd. v. Lindley 1965 A.C. 269, the earlier decision of the House of Lords, was a case where the substantial questions were ones of law, namely whether the respondents had established a prima facie case that there was a trade dispute in existence or in contemplation within the meaning of s.5(3) of the Trade Disputes Act 1906 and whether it could be a proper inference from the evidence of primary facts that the defendants had knowingly induced breaches of contract, and intended to repeat such conduct. In practice I do not think that the Cyanamid Case, when properly understood, will present any problems. I respectfully adopt Sir John Pennycuick's summary of that case (1975 3 W.L.R. 199):
The first step is, therefore, to ascertain that there is a serious question to be tried. Where the only possible issue is one of of law and the court is satisfied that that issue ought clearly to be decided against the plaintiff I do not read the decision of the House of Lords as holding that the court must go on to consider the rest of the procedure just outlined: there is then no serious issue still to be tried. In the present case there may on the face of it be triable issues of fact but the Defendants submit, first, that the Plaintiffs' case is so defective that those issues cease to be relevant. 4. Mr. Walton invites me to say that, even assuming the facts alleged by the Plaintiffs, they have not begun to establish a cause of action in passing off and that the very foundation for an injunction, interlocutory or final, is absent. I shall not review the evidence in detail. Both sides can produce witnesses in the trade in Hong Kong to say that the name "Penneys" is understood to mean themselves and that those witnesses have no knowledge of the opposite parties. That is not surprising when both sides are only purchasing in the Colony and, though there is some evidence of the Defendants' having advertised locally, that advertising has been on a very limited scale. Equally I do not find it surprising that there is no evidence of actual confusion or that the Plaintiffs have not noticed what Mr. Walton called "a leak in the bath", i.e. a variation in the value of purchases they have been able to make for which they could not account: on the contrary, apart from the fact that purchasing from a local office has not yet begun, I would be surprised if manufacturers in Hong Kong could not expand their production to fulfil any order for textiles, clothing or footwear which may reasonably be anticipated. Nevertheless Mr. Walton points out that no case has been cited where a defendant engaged solely in the purchasing of goods has been held liable in passing off for buying in a name which, if both parties had been selling the goods, would undoubtedly have been likely to cause confusion and damage. The essence of the tort, he says, is that confusion should be likely and that such confusion is likely to cause damage: there must be some evidence which would justify the court in concluding that damage might be caused and it is not enough merely that the Plaintiff should depose to his fear of damage. In this connection he objects to the admission of an affidavit sworn on 18th September 1975 by Merwin Allen Hale as being an attempt to introduce such evidence for the first time in the guise of an affidavit in reply. On this issue of admissibility I think he is right and I shall disregard paras. 4 and 5 of that affidavit. It is none the less argued on behalf of the Plaintiffs that the court may infer from the admissible evidence that damage would be likely to result. At the same time the Plaintiffs concede for the purposes of this application that they cannot prevent the Defendants from continuing to purchase goods in Hong Kong in the name of the second Defendant if the orders are placed from an office or offices abroad. Mr. Walton points out that it is thereby conceded (albeit for the purposes of this application only) that so long as the Defendants buy from Dublin the Plaintiffs suffer no damage whilst if the Defendants buy from an office in Hong Kong the Plaintiffs do suffer damage. In effect he says that any gain which may accrue to the Defendants from the opening of a Hong Kong office will not necessarily be the Plaintiffs' loss: there can be no question of the Defendants' "filching the business" of the Plaintiffs, to use a phrase from the leading case of Reddaway v. Banham (1896) 13 R.P.C. 218, 228. Both sides rely upon Norman Kark Publications Ltd. v. Odhams Press Ltd. 1962 R.P.C. 163 where Wilberforce, J. (as he then was) said at p.167:
I would have thought that that statement of the law clearly supported the Defendants rather than the Plaintiffs, because there is no evidence that a reputation has, or could have, attached to the Plaintiffs' goods under the name "Penneys" in Hong Kong. (It is not material here that "goods" must now be given a very wide interpretation so as to include services and literary or other artistic work). As I see it loss could result to the Plaintiffs in only two ways. First their reputation might suffer if they were confused with another business which proved to be a bad customer. The possibility of such loss I would be prepared to infer, although I doubt whether confusion of this sort is likely in the present case. The other possible loss would be inconvenience here, and even loss of retail business abroad, if their reputation included that of requiring special standards of quality and they were confused with another business which did not require the same standards. There is no admissible evidence that loss of that kind is likely, and loss abroad is in any event irrelevant. For my part I would unhesitatingly have agreed with Mr. Walton's submission that neither of these types of loss would bring the Plaintiffs within the tort of passing off were it not for a decision of Leonard, J. in an action brought in 1972 by the first Plaintiff against a merchant who started to carry on a retail business in Hong Kong under the name "Penneys Fashion": O.J. Action No. 1613 of 1972. The learned judge expressly referred to the fact that J.C. Penney & Company, Inc. had no retail outlets in the Colony, but in his view this was not a fatal objection to its claim to interlocutory relief. The case was argued at greater length than appears from the judgment and Leonard, J. was referred to many cases which he did not think it necessary to cite and which counsel in the present case have not thought it relevant to cite to me. His ratio decidendi was set out as follows:
Again in the present case Mr. Price does not seek to rely on any possible damage to the Plaintiffs' reputation in the United States of America. The importance of this passage is that Leonard, J. thought it was clear that J.C. Penney & Company, Inc. were entitled to protection of the reputation they had established in Hong Kong as purchasers against a defendant who was selling retail. It is implicit that he thought confusion might arise. Both findings were essential to his decision and he may have been right, although I confess it is not obvious to me that actionable damage might result in such a case. It is sufficient that in deference to his view I think it would be wrong for me to say that there is not a serious question to be tried and that the Plaintiffs have no reasonable prospect of success in their action, however much I may doubt the propriety of extending the tort in this way. The fact that he found that the defendant in that case had a deliberate intent to benefit from the plaintiff's reputation appears to me to be nihil ad rem. Leonard, J. refers to no evidence adduced before him as to the nature and extent of the damage threatened by the defendant's conduct and he must have taken judicial notice of the likelihood of damage. I would certainly be prepared to do that in a case where a defendant passed off goods by way of retail sale as those of the plaintiff and, assuming that purchasers can rely on this tort, I see no reason why the court should not similarly take judicial notice of the likelihood of damage in such a case. 5. For these reasons I hold that the Plaintiffs do not fail in limine and I go on to consider the other steps in the procedure laid down by Lord Diplock. Would the Plaintiffs be adequately compensated by damages for any loss they may sustain between the present application and the trial Mr. Price argues, as I understand him, that loss of "reputation" in the sense in which that word is used in relation to the tort of passing off i.e. an exclusive reputation, can never be sufficiently compensated by damages: it is essential to preserve the exclusiveness. On the other hand he submits that the Defendants do not claim any exclusiveness which is in danger, so that all they could possibly lose if an injunction were granted would be an increased volume of business, which loss could be compensated by damages. Mr. Walton cannot take his argument much further at this point, for his contention is that the Plaintiffs could not suffer any loss and without knowing the nature of their anticipated loss he can only say that it is for the Plaintiffs to show that the loss they fear is such that it would not be compensated by damages. As to the Defendants he says it is not denied that they would suffer damage if an injunction were granted. That is so, but Mr. Price argues that this inevitable damage could be adequately compensated by damages, and although the assessment might be difficult I think it could be made. Some of the fears of the Defendants as to the extent of the possible damage to them arise from their interpretation of the injunction granted on the ex parte application: they read it as preventing them from placing orders from abroad for goods to be manufactured with the mark "Penneys" for sale in countries where such sales are permissible. I shall not spend time considering whether their interpretation is right, since the Plaintiffs are content that upon any extension of the injunction the terms should be expressly limited. Bearing that in mind I am not persuaded that any damage which would be suffered by the Defendants could not be adequately compensated by damages. However, I think the loss to the Plaintiffs if they were to lose an exclusive reputation could not be so compensated. 6. On my first suggested interpretation of Lord Diplock's speech that is the and of the matter and it is not necessary to go on to consider the question of balance of convenience. Even if the true view be that the adequacy of the respective remedies is just one factor (albeit an important one) in deciding the balance of convenience, I do not think any other factor has been suggested here which could outweigh it. It was suggested in the Plaintiffs' favour that the Defendants have no assets within the jurisdiction which would meet any award of damages made in the action. There is, of course, no evidence as to their assets, but Mr. Price says I may infer that they have none from the Defendants' own evidence as to the development of their business. If it were necessary I would probably assume an absence of assets, but, whilst that might be important if both Defendants were companies of no substance, I am satisfied that the first Defendant is not impecunious. If the worst came to the worst the judgment could be enforced against it in the United Kingdom. Mr. Walton does complain of delay in bringing these proceedings. There has been no material delay since the publishing of the advertisement in the South China Morning Post on 5th August, for the ex parte application was dated 28th August. However, Mr. Walton's point is that the opening of a local office would result only in a change of address and, possibly, in the volume of the Defendants' business but not in the nature of that business, so that in reality the Plaintiffs have delayed from the moment when they first knew that the Defendants were purchasing under the name "Penneys" in Hong Kong. They knew that at least as long ago as March 1974, when the existence of the Defendants' purchasing operations in Hong Kong was revealed in the course of proceedings in England. This brings us once more back to the main issue between the parties and I do not think I can properly attach any weight to this argument of delay. 7. The only other factor mentioned was, I think, the desirability of preserving the status quo and that is a factor which is to be considered only where the other factors are evenly balanced: per Lord Diplock in the Cyanamid Case at p.323 H. Sir John Pennycuick said at 1975 3 W.L.R. 199 H:
The contentions in the present case suggest that that definition does not go far enough. What the Plaintiffs seek to preserve is a state of affairs in which the Defendants do not make purchases in Hong Kong from a local office. Mr. Walton would describe the status quo as one in which the Defendants are buying goods in Hong Kong in the name Penneys, a position which would not be changed by the opening of a purchasing office in Hong Kong so, he says, an injunction is not necessary. As it seems to me that again really begs the question which is at the root of the whole case - whether purchasing goods in the name "Penneys" from a local office would constitute the tort of passing off. When one speaks of the "status quo" in this context I think one must mean the situation as regards the matter or matters in dispute between the parties which it is alleged will create damage not hitherto suffered by the Plaintiff. If, therefore, it be necessary to consider the preservation of the status quo, I think an injunction in the limited form now sought is necessary and desirable. 8. In the result I think I must grant the injunction asked for. I do so with great hesitation and only because another judge has thought it was obvious that the tort of passing off extends to cases other than those where both parties are selling similar goods. 9. The form of order which I propose is
23rd September 1975. Note. After hearing counsel the Court made an order in the proposed terms save that the word "office" was substituted for "place". Representation: |