Wienerwald Holding Ag v. Kwan, Wong, Tan and Fong (Sued As a Firm)

HCA004654/1978

Coram: Leonard, J.

Date of Judgment: 20 January 1979

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JUDGMENT

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1. The plaintiff is a company incorporated under the laws of Switzerland. As its name suggests it is a holding company for a number of subsidiaries incorporated in Switzerland, Germany, Austria, France, the Netherlands, the United States of America and South Africa which concern themselves with the ownership management or running of what is referred to as a "chain" of some 420 restaurants which trade under the name of "Wienerwald" throughout Continental Europe, the United States of America, South Africa and Japan.

2. I have no information as to the culinary achievements of the organisation but its commercial success is apparent from the facts that the first restaurant bearing the name "Wienerwald" was founded in Munich as recently as 1955, that there are now more than 400 in existence and that the "turnover" for the group in 1977 came to more than seven hundred million deutchmarks and advertising expenses to six million.

3. It would appear that establishments trading under the name throughout Europe and the United States are owned by the plaintiff or its subsidiary but this is not so in South Africa, Namibia or Japan. In those territories restaurants trading under the name "Wienerwald" are not owned by the plaintiff or its subsidiary nor are they so run or managed except in a limited sense which I now outline.

4. Paragraph 3 of the affidavit sworn and filed herein on 21st December 1978 states that on 5th November 1978

"the plaintiff had entered the plaintiff's usual form of franchise agreement with a Mr. Jentes for the running of a Wienerwald Restaurant in Hong Kong."

That agreement is not exhibited but there is exhibited what is referred to as "the plaintiff's standard form of franchise agreement". I must assume that the agreement entered into with Mr. Jentes is substantially in this form for that suggestion appears to me to be implicit in the averments from which I have quoted. The object of the agreement is stated as follows:

The agreement goes on to impose obligations of the type one would anticipate on both plaintiff and franchise holder whereby the franchise holder is permitted to operate "the WW restaurants under the trade name or trade marks" of the plaintiff and controlled in very considerable detail as to the manner in which he shall do so. The degree of control to be exercised by the plaintiff is perhaps best illustrated by a requirement that the franchise holder shall comply "with the instructions of the 'Betriebshandbuch' (operating manual) and any amendments thereto" and an undertaking that he shall "serve mainly the dishes specified" in it but "shall be free to serve, in addition, to suit regional require-ments, other beverages (not exceeding five) and dishes (not exceeding five)". Notwithstanding these and other requirements as to the manner in which the restaurants are to be run the number to be run in each territory and the periods within which they are to be established it is provided that the franchise holder shall own the various restaurants to be operated under the agreement and "shall run all restaurants for his own account. For this purpose, he shall form a separate company in such corporate form as he may chose but which shall not in its name incorporate or make reference to the name 'Wienerwald' or its abbreviation 'WW'." He is to pay a lump sum in respect of each restaurant opened and a "royalty" based on gross sales.

5. I have dealt in some detail with the terms of this "standard form of franchise agreement" because two facts become clear from them. Firstly that it is not the present intention of the plaintiff by itself or its subsidiary to own or run restaurants in Hong Kong: the intention is rather that a Mr. Jentes shall do so "for his own account". Secondly the plaintiff has an immediate and pressing interest in all details of the operation of the restaurants. On termination by effluxion of time or otherwise of the agreement the franchise holder "undertakes to cease using any rights granted to him" to dismantle signs or emblems and "remove from all of the premises all matters which may designate such premises as having a connection with" the plaintiff. What however is not covered by the agreement is such goodwill as may have been built up by the franchise holder by his personal efforts which subject to the undertakings I have mentioned is the property of the franchise holder. He trades on his own account and becomes entitled to any goodwill earned although no longer entitled to suggest the existence of a connection with the plaintiff. The plaintiff by the terms of the agreement has no interest in any goodwill that the franchise holder may build up other than in the name, trade marks and 'trappings' to be used. The independence of the plaintiff is the subject of express stipulation in the standard form.

6. Consequent upon the plaintiff having entered into the franchise agreement with Mr. Jentes its solicitors wrote to the Registrar of Companies on 17th October 1978 requesting him to let them know if the name "Wienerwald Ltd." is available for registration as a private company "if such is not available, please advise whether the name 'Wienerwald Restaurant Ltd.' can be registered". A fee of $40 was enclosed. I should mention that this course is permitted by Sec. 20A of the Companies Ordinance (Cap. 32) which also provides for the reservation of names for future registration for periods up to 3 months. The Registrar of Companies advised that neither name was registrable they "being identical with or resembling the registered or reserved company name(s), details of which are set out hereunder (Section 20(1)) "sic"): - Wienerwald German-Style Restaurant Ltd. and Wienerwald Restaurant Ltd. names reserved for Messrs. Kwan Wong Tan & Fong" (the defendants) "up to 6.12.78". On the 29th November 1978 the plaintiff's solicitors wrote to the Registrar of Companies giving a brief history of the plaintiff and its operations and urging him not to "accept for for registration a company with the name of Wienerwald Ltd. or Wienerwald German Style Restaurant Ltd. or Wienerwald Restaurant Ltd. except to those who are entitled to use of such name. Also we trust that if no company has been submitted with such name prior to the expiry of the time reserved, no extension will be allowed by you." They wrote further to this letter on the 2nd December 1978 enclosing documentary evidence of the plaintiff's international repute and apparently having received no reply by the 15th December 1978 wrote again asking if an extension had been sought by the defendants. This letter was apparently crossed by a letter of the 12th December 1978 from the Registrar of Companies reading:

"Dear Sirs,

Apparently an application for extension had been received by the Registrar on the 4th December 1978, and granted or purportedly granted by him and incorporation papers were lodged on some date prior to the 19th December 1978. The Registrar clearly now regards himself as having a statutory obligation to complete incorporation.

7. I have set out this correspondence at some length as I am not without doubts as to the nature of the discretion vested in the Registrar to grant such an extension and the matters he should take into account when exercising that discretion.

8. Section 20(A) of the Companies Ordinance reads:

"(1) A person may apply in writing to the Registrar for advice as to whether a name set out in the application as -

It will be seen that the section itself gives little guidance as to the matters I have mentioned. However the Registrar is not a party to these proceedings and the questions have not been canvassed. Equally the nature of the statutory duty to register has not. In the circumstances I consider that I must, for the purposes of this application, assume that the Registrar has acted correctly throughout.

9. The plaintiff has never carried on business in Hong Kong nor indeed anywhere in the Far East. In Japan there are Wienerwald Restaurants carried on not by the plaintiff but by some company or companies enjoying a franchise similar to that previously outlined. It has engaged in no advertising here; such advertising as has come to the attention of the public in Hong Kong having come through German or other continental publications of which I have no details which have an international circulation or such advertising abroad as has come to the attention of the public here who have travelled abroad. The plaintiff has on the issue of local reputation filed 4 affidavits; each of these is by a European of Continental origin who has enjoyed prolonged residence here and who has travelled regularly in Europe; each avers that if he heard of a restaurant in Hongkong under the name "Wienerwald" he would at once think it was connected with the Wienerwald Restaurants in Europe. He would think it was "a further extension of the already existing chain" ... "directly connected with the organisation owning and running the restaurants in Europe". I do not consider that the plaintiff has established that there is a triable issue that it enjoys a reputation in Hong Kong in the minds of any sector of its residents other than this necessarily small but growing sector. In saying this I do not overlook the extensions that have been made to the chain constantly over the last quarter century nor the fact that it is part of the business of the plaintiff to grant franchises outside Europe which are presumably highly remunerative to them and that it proposes to grant such franchises throughout the territories in the Far East previously listed. These factors although they are clearly of great importance to the plaintiff and affect what I will call its "international reputation" do not save most indirectly effect its reputation in Hong Kong. I am of the view that the plaintiff has not shown that there is a question to be tried on the issue as to whether the plaintiff has acquired a reputation among a significant segment of the population of Hong Kong. The proportion of those to whom I refer for the sake of brevity as "Continental Europeans" to our population as a whole must be exceedingly small. I should be surprised if it numbered more than .2%. I do not loose sight of the fact that this small minority may be both affluent and able and by reason of position and education may play a part in our society wholly disproportionate to their number nor of the fact that by reason of their cultural and cultivated backgrounds they number among them many whom a restaurant owner would be proud to find among his clientele. Equally I do not loose sight of the fact that the defendants have offered no explanation for the choice of the name "Wienerwald". It is I consider a reasonable assumption that the choice was motivated by a knowledge of the international reputation of the plaintiff's brainchild. That choice, however, does not appear to have been the choice of the defendants who are a local firm of chartered accountants. It is the choice of their foreign undisclosed principal in Singapore. It does not spring from Hong Kong reputation. On the other hand I have no doubt but that the plaintiff has established that there is a triable issue that it enjoys an international reputation which has not yet penetrated to a significant extent to Hong Kong but which anyone would anticipate they would eventually seek to exploit here. The graph of the progress of that reputation could readily be extrapolated. Mr. Jahn the original founder started his first restaurant in Munich in 1955. By 1958 a firm of which he was a member owned 5 restaurants. He set up the plaintiff company in 1962 in Switzerland. It set up Wienerwald Gmbtt in Munich in 1963 in which 137 restaurants which by then existed in Germany were vested. Restaurants had been commenced in Switzerland, Austria and Belgium in 1962 were commenced in the Netherlands in 1965 in the U.S.A. in 1966 in Italy in 1968, in France in 1969 and in Lichtenstein in 1975. Meanwhile in 1973 the plaintiff had granted a franchise to an operator in Japan, in 1975 to one in South Africa and in 1976 to operators in Spain and South West Africa. It was inevitable that it should in the natural course of events seek to penetrate the various territories in the Far East listed in the "standard form of franchise" to which I have earlier referred. It is on this basis that I must consider whether the plaintiff has established the existence of a triable issue that of necessity being whether the plaintiff's international reputation can be protected here when it has not as yet acquired here "a local habitation and a name"? I emphasize the words "as yet" because I view with disquiet the notion that one businessman or company seeing the successful progress achieved internationally by another under a particular name may with impunity interrupt that progress by the registration locally of a company bearing that name without proffering any reason for his choice.

10. At the outset of my consideration of this I would say that I share the view expressed (obiter) by Kenny, J. in the Supreme Court of Ireland that

"the idea that some of the goodwill must be acquired by user or trading in the country where it is sought to protect it comes from the days when television and radio were unknown and when international trade in domestic goods was not as extensive as it is today. It is not an appropriate rule for this age ....".

What I have to decide as a judge and not as a legislator is whether there is an arguable case that the law of passing off may be so extended as to give protection to goodwill acquired internationally but not at the time of action acquired here. In the case from which this quotation arises Henchy, J. notes⁽¹⁾:

11. These passages read in their entirety appeal to me and I accept them so read with great respect as an exegesis of the Common Law. Read in context the sentence "goodwill does not necessarily stop at a frontier" is not to be taken as meaning that "goodwill knows no frontiers". Clearly, Henchy, J. did not so intend it. The sentences following with their references to a "particular area", "degree" and "generated within the State" make any argument that the sentence could be so meant untenable. I pause to remark that Henchy, J. apparently would be prepared to take a step which I feared to take in O.J. Action No. 1613 (unreported) when I sympathised with counsel's refusal to rely on the confusion which might arise in the minds of visitors to the Colony and said "I think he is right in the present state of the law's development. The confusion caused in their minds is damage to the goodwill which the plaintiff has built up in the U.S.rather than here." Henchy, J. is prepared to have regard to "intermittent customers". This robust view I would now be prepared to accept provided the presence of such "intermittent customers" was coupled with other factors to show the acquisition of local goodwill. (I trust I will be pardoned a digression if I remark that such robustness is to be anticipated in one so deeply read as is Henchy, J. in Celtic law and lore. Strong views as to copyright, the step-sister of passing off, dating from the 7th or 8th century are to be found there, enshrined in the pithy maxim "to every cow, its calf.")

12. In all the decided cases to which I have been referred in which interlocutory or final injunctions were granted the question whether the party seeking relief enjoyed goodwill and reputation in the country in which relief was sought was implicitly or explicitly regarded as fundamental. Maxim's Ltd. & Anor. v. Dve⁽²⁾ comes most readily to mind because it too concerned a restaurant and seems to me to approach a boundary not easy to pass. In that case the plaintiff company owned a restaurant in Paris known as 'Maxims'. It was well known in England and extensively patronised by persons resident in England. The defendant opened a restaurant in Norwich decorated in "period French style". In an application for judgment in default of defence the primary question for resolution was whether there was a requirement of English law that a plaintiff must have traded in England in order to succeed. It was held that it need not and that the geographical extent of a business goodwill was a question of fact, a business could have goodwill based on trading abroad. In that case, Graham, J. in granting relief refused to follow the Crazy Horse Case⁽³⁾ as incompatible with the law of the E.E.C. He particularly noted, however, that the facts disclosed by the Statement of Claim by which he was bound included allegations that :-

13. After an examination of such authorities as Baskin Robbins Ice Cream Co. v. Gutma⁽⁴⁾, Poiret v. Jules Poiret⁽⁵⁾, Sheraton Corp. of America v. Sheraton Motels Ltd.⁽⁶⁾ I.R.C. v. Muller & Co.'s Margarine Ltd.⁽⁷⁾, Panhard et Levassor v. Panhard Levassor Motor Co. Ltd.⁽⁸⁾ and Globelegance B.V. v. Sarhissian⁽⁹⁾. he sums up his views by quoting from his own judgment in the Baskin Robbins Case⁽⁴⁾ and saying:-

"In circumstances such as the present it also seems to me that a plaintiff's existing goodwill in this country, which derives from and is based on a foreign business, such as one in Paris or elsewhere in the Common Market, may be regarded as prospective but none the less real in relation to any future business which may later be set up by the plaintiff in this country."

14. I must confess to finding difficulty in understanding fully this passage. I think the key to its proper appreciation must be found in the reference in it to the Common Market and I do not believe that Graham, J. intends to suggest that a plaintiff's "existing goodwill in England" may consist solely of prospective goodwill "in relation to any future business which may later be set up by the plaintiff in this country." If he intends so to lead I would not feel able to follow much as I might like to do so. The case certainly does not decide that a plaintiff may succeed in interlocutory proceedings without establishing a triable issue on the question as to whether there is an existing goodwill. It will further be noted that its facts are a far cry from those in the present case for here the four affidavits as to reputation go little further than to establish that a small segment of our population knows of the plaintiff's business abroad. No one avers that he has been inside one of the plaintiff's restaurants or that anyone from Hong Kong has or even that he knows what they are like. The nature of the Wienerwald ambience remains a mystery.

15. In Bulmer and Anor. v. Bollinger S.A. and Anor.⁽¹⁰⁾, Buckley, L.J. had this to say, at page 94:-

It follows from this that it is not the name "Wienerwald" that is to be protected and that the reputation to be protected is reputation already existing in this Colony albeit that reputation may be acquired here even when no business is carried on here.

16. In this case the plaintiff has failed to show me that there is a triable issue as to whether there is at present any goodwill in the Colony attaching to the name "Wienerwald" to the initials "WW" or to the notion of a Wienerwald restaurant. It is only such goodwill can be protected in a passing off action. Having decided that, it is unnecessary for me to consider the complications arising from the proposed franchise agreement. Under it any goodwill attaching to any business set up that is not conferred by the "Wienerwald" name and "trappings" that are the subject of franchise belongs to the franchise holder but the trappings remain subject to the control of the plaintiff. It has an asset that might be of considerable value if Wienerwald became known here and I would be prepared, if there were any cogent evidence of goodwill already existing in this jurisdiction to hold that that asset could be protected in a passing off action. As I see it what cannot be protected in passing off is a goodwill existing elsewhere which has not yet penetrated to this jurisdiction.

17. I would say in closing that I think this a lamentable conclusion at which I find myself compelled to arrive on the evidence. For on the merits I find myself in sympathy with the plaintiff.

18. This application must be dismissed. Defendants' costs to be costs in the cause. There will be a certificate for counsel.

Representation:

Mr. A.G. Rogers (Wilkinson & Grist) for plaintiff.

Mr. R.G. Kotewall (F. Zimmern & Co.) for defendants.

(1) C & A Modes v. C. & A. (Waterford) Ltd. (1978) F.S.R. 126 at 140.

(2) (1977) F.S.R. 364.

(3) (1967) R.P.C. 581.

(4) (1976) F.S.R. 545.

(5) (192 ...(illegible) ) 37 R.P.C. 177.

(6) (1964) R.P.C. 202.

(7) (1901) A.C. 277.

(8) (1901) 18 R.P.C. 405.

(9) (1974) R.P.C. 603.

(10) (1978) R.P.C. 79.