Ate Unique Transportation Ltd. and Others v. Ate Air Tiger Express Co. Ltd. and Others
Read the full judgment text of HCA 521/2002 on BabelCite. This High Court CFI judgment was delivered on 27 May 2002.
1. This is an application for an interlocutory injunction by the plaintiffs against the 1st and 4th defendants. I shall refer to the 1st and 2nd plaintiffs collectively as "ATE Hong Kong", and to the 3rd plaintiff as Mr. Lee. I shall refer to the 1st defendant as "Air Tiger Hong Kong", the 2nd defendant as "Air Tiger Taiwan" and the 3rd, 4th and 5th defendants as Mr. Fuh, Mr. Sheng and Mr. Yu respectively.
Cites 2 cases
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HCA000521/2002 HCA 521/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 521 OF 2002 ____________
____________ Coram: Deputy High Court Judge Saunders in Chambers Dates of Hearing: 10, 13 and 14 May 2002 Date of Judgment: 27 May 2002 _______________ J U D G M E N T _______________ Introduction: 1.This is an application for an interlocutory injunction by the plaintiffs against the 1st and 4th defendants. I shall refer to the 1st and 2nd plaintiffs collectively as "ATE Hong Kong", and to the 3rd plaintiff as Mr. Lee. I shall refer to the 1st defendant as "Air Tiger Hong Kong", the 2nd defendant as "Air Tiger Taiwan" and the 3rd, 4th and 5th defendants as Mr. Fuh, Mr. Sheng and Mr. Yu respectively. 2.The plaintiffs bring a claim against the defendants, first in contract, alleging a breach of an agreement entitled the "Strategic Alliance of ATE Members" ("the Rules"), and second in tort, alleging passing off. The plaintiffs, having issued the writ and statement of claim now seek an interlocutory injunction. The precise terms of the order sought against the defendants is that they:
3.Air Tiger Hong Kong and Mr. Sheng are represented by the same solicitors and counsel. There are issues as to service of the writ on the remaining defendants and they are not before the court today. That said, the relationship between the defendants, as will be seen, cannot be ignored. 4.Air Tiger Hong Kong was incorporated in Hong Kong on 28 July 2001 and is an air and sea freight forwarding agent. Air Tiger Taiwan is an air cargo company that has been incorporated in the Taiwan since 1971. Mr. Fuh is a director and shareholder of Air Tiger Taiwan, and a director of Air Tiger Hong Kong. Mr. Sheng is the general manager of Air Tiger Taiwan, and is a director of Air Tiger Hong Kong. Mr. Yu is the managing director and majority shareholder of Air Tiger Hong Kong, and, with Mr. Fuh, was one of the original founders of Air Tiger Express. Background: 5.In about 1976 a company was formed in Taiwan by one Richard Chu (Mr. Chu) and Mr. Fuh and Mr. Yu, called Air Tiger Express. The company prospered and in 1983 expanded into the United States. Other companies were formed in different cities and countries and used either the name "Air Tiger Express" with words to denote a local identity, or adopted the use of the letters ATE in their name. Mr. Chu, Mr. Fuh and Mr. Yu were shareholders in most of these companies, but most appear to have a strong element of local ownership. Collectively the international association of companies are known as the Air Tiger Express Group or the ATE Group ("the Group"). Each particular company's location is known in the Group as a "station". The Air Tiger Taiwan is the operator of the Taiwan station and the Mr. Yu, Mr. Sheng and Mr. Fuh are all involved in the Taiwan station. 6.The plaintiff companies began life in 1983 and 1984, originally as Unique Transportation Limited, an air cargo freight forwarder, and Unique Consolidators Limited, a sea cargo freight forwarder. In June 1997 ATE Hong Kong merged with the ATE Group and adopted the names the two companies now carry. A public announcement was made by Mr. Chu, as chairman and CEO of the Group, on 16 June 1997, that ATE Hong Kong was the "exclusive representative office in Hong Kong" for the ATE Group. 7.By 1993 a set of rules for the operation of the stations of the Group, in relation to each other, had been formulated. The rules have been changed from time to time, and the current Rules were formulated in 1999. 8.An important aspect of the Rules are those relating to territory. They provide, in paragraph E, as follows:
9.The plain intent of these provisions is to set up a mechanism for co-operation between the members of the Group, and at the same time to give each member a form of territorial protection. 10.Until October 2001 all appeared to work satisfactorily. But in October 2001 Mr. Sheng announced to the Group the commencement of business in Hong Kong of Air Tiger Hong Kong. There is no suggestion that there had been any consultation whatsoever with ATE Hong Kong or any other member of the Group prior to the announcement. 11.The plaintiffs say that the use of the letters "ATE" in the company name, and the use of the name "Air Tiger Express" has lead to confusion between ATE Hong Kong and Air Tiger Hong Kong. They say that the letters "ATE" are internationally known as an acronym for Air Tiger Express. They say also that the first defendant's operations in Hong Kong are a breach by the remaining defendants of the Strategic Alliance Rules. Hence this action. 12.ATE Hong Kong say that they should have an interlocutory injunction now to prevent Air Tiger Hong Kong from passing itself off in Hong Kong, and against Mr. Sheng from causing or permitting such passing off. The plaintiffs do not say that the business of freight forwarders cannot be carried on by the defendants in Hong Kong, but they say if it is, it must be carried on in accordance with the Strategic Alliance Rules, by which, say the plaintiffs, all are bound. The law: 13.The principles upon which an interlocutory injunction is to be considered are well known. The leading case is American Cyanamid v Ethicon [1975] AC 396 where Lord Diplock set out the principles. There is no doubt that these principles apply in Hong Kong, and in passing off cases; see; J C Penny Ltd v Pennys Ltd [1975] HKLR 598, Pfizer Ltd v Ultrasound Holdings Ltd. HCA 2712/1999 and San-X v Tai Pan Bread & Cakes Co Ltd HCA 78/2002. 14.The first issue that must be determined under American Cyanamid principles is whether there is a serious question to be tried. I propose to consider the situation, first as to the claim in relation to the Rules, a claim in contract, and second, in relation to the tort of passing off. The claim for breach of the Rules: 15.As to the breach of the Rules the defendants make three points. First they say that the Rules do not mean that, within a particular territory, only one member of the Group is permitted to have operations. Second they say that the Rules were not meant to be legally binding. Third, it is argued that even if the Rules are intended to be legally binding on the companies who are parties to the Rules, they are not binding on the individual defendants. (i) Territorial exclusivity: 16.From a first reading of paragraph E of the Rules, set out above, it is plain that there is a strong argument that the rules establish a principle of territorial exclusivity. Mr. Huggins was obliged to concede that there is, at the least, a triable issue as to the concept of "new facilities" as that expression is used in the Rules. The plaintiffs contend that it means that where the Group has a presence in a region, no duplicating facilities may be established by another member of the Group. If there is only an air freight presence, they say, another member of the Group would be entitled to establish a sea freight presence, but not an air freight presence. The defendant contends that the expression "new facilities" refers to a situation where the member of the Group wishing to establish a new facility has, itself, no facility in the area. I am satisfied that there is a triable issue and that the concession was right. (ii) Are the Rules legally binding?: 17.I am satisfied too, that there is a triable issue as to whether the parties to the Rules intended to create a legally binding document. First, the document itself uses terms such as "mandatory" and "must". That it does so in relation to the conduct of business between members carries a strong implication that the parties intended to be bound by the Rules. Second, in his affidavit Mr. Sheng says:
On his own evidence he treats the Rules as binding on Air Tiger Taiwan, and indeed, in the paragraph cited, is saying nothing more than that which the plain words of section E of the Rules appear to provide. It is right that there are affirmations from others who say that the rules are not legally binding, but all are connected with Air Tiger Taiwan, and in any event their views are essentially irrelevant as the issue of contractual intention is judged objectively: see Chitty on Contracts Vol 1 28 ed para 2-148. (iii) Are the Rules binding on the 1st and 4th Defendants?: 18.The third part of the argument involved first an argument that as Air Tiger Taiwan was not represented before the court at the hearing no orders could be made which would impact upon it, and second, that in any event, Mr. Sheng was not a party, personally, to the Rules and accordingly he could not be bound by them, and therefore not subject to an injunction in relation to them. The argument then relied upon the plaintiff's position that Air Tiger Hong Kong was not a member of the Group and accordingly the plaintiffs could not seek a remedy in contract against the company. 19.I reject the proposition that as Air Tiger Taiwan is not represented before me, no orders can be made. Air Tiger Taiwan is a party to the proceedings, and is disputing the effectiveness of service of the papers on it. In those circumstances it has elected not to be represented at the hearing. I say "elected" deliberately, for as Mr. Sheng is the general manager of Air Tiger Taiwan, and was able to give instructions for himself. I have no doubt that, as the human mind of the corporate entity, he could have secured instructions from Air Tiger Taiwan if he had wished. Indeed in the circumstances it may be seen as quite disingenuous for Air Tiger Taiwan to dispute service when its general manager acknowledges service on himself personally. I accept of course that technically service may not have been effected on the company, but neither Mr. Sheng nor the company can expect any sympathy from the court if they adopt the position they have as to service. 20.The plaintiff did not seek an injunction against Air Tiger Taiwan on an ex parte basis, although it would have been entitled to do so. The fact that the company has not yet been served is not a bar to an order against other defendants if there are proper grounds for orders against other defendants who have been served. Having regard to the position held by Mr. Sheng and the other individual directors in both Air Tiger Hong Kong and Air Tiger Taiwan it was simply not open to the defendants to argue that there was no basis for the plaintiff to say that the individual defendants and Air Tiger Taiwan were the motivating forces behind Air Tiger Hong Kong. The allegation might have been more precisely pleaded, but on any reading of the statement of claim the position for which the plaintiff contends is abundantly clear. I was left in no doubt at all that the plaintiffs contend that Air Tiger Taiwan, by its directors Mr. Yu, Mr. Fuh, and Mr. Sheng, has established Air Tiger Hong Kong in order to enter the Hong Kong market, in competition with ATE Hong Kong, and has thereby procured a breach of contract. 21.It is right that Air Tiger Hong Kong is not, on the plaintiffs case, a member of the Group. But that does not prevent the plaintiffs from contending that Air Tiger Hong Kong and Mr. Sheng and the other individual defendants have committed the tort or wrongful interference with contractual relations, established by Lumley v Gye (1853) 2 E & B 216, and illustrated by the modern decision of PSM International v Whitehouse [1992] FSR 489. Although the various causes of action have not, in the usual way, been separately identified and pleaded in the statement of claim, I am satisfied that the allegations in the statement of claim are sufficient for the plaintiff to found these arguments. Plainly the statement of claim will require amendment to make these matters clear to the defendants. 22.Finally, in this respect, there is force in the plaintiff's argument that it would be odd indeed if the Rules were intended to create legal relations and to prohibit corporate members such as Air Tiger Taiwan from intruding into another members region, but at the same time the individual shareholders and directors or the corporate members, and their employees and agents, were free to carry on activities which would have the same result. In simple terms there is little point in the parties intending to give legal effect to the Rules if the individuals who carry on the operations of the members are not also bound by the Rules. 23.I am satisfied that there is a serious issue to be tried on the issue of breach of the agreement in relation to all defendants. The passing off action: 24.It is next argued for the defendants that there is no serious issue to be tried in passing off. There are 3 elements to the tort of passing off; goodwill, misrepresentation and damage. Mr. Huggins argued that there was no basis to say that there was a serious question to be tried in respect of any of the three elements. (i) Goodwill: 25.As to goodwill Mr. Sheng does not dispute that the name "ATE" has considerable goodwill. He does not dispute the plaintiff's evidence as to their rankings and sponsorships. He does not dispute the fact that "Air Tiger Express" is a name which refers to the Group. His contention was first, that any goodwill in the names "ATE" and "Air Tiger Express" belongs not to the plaintiffs but to the Group, and second, that Air Tiger Hong Kong, being a part of the Group, was entitled to use the names. 26.As to the first argument, in Star Industrial v Yap Kwee Kor [1976] FSR 256 at 269 (PC Singapore) Lord Diplock said:
It is right that in each country or city where there are members of the Group, they use the names "ATE" or Air Tiger Express". But it is plainly arguable, from Lord Diplock's statement, that where a member of the Group, in a particular country or city, is using the names, it has a goodwill attached to the names in those countries or cities. 27.The plaintiffs need not show exclusive rights to the use of the name: see The Advocaat Case [1980] RPC 31 at 104-6 and Dawanay Dawn v Cantor Fitzgerald [2000] RPC 669. But in any event, the plaintiff's use of the name ATE in Hong Kong is long standing, and until October 2001 they were the only users of the name ATE in the freight forwarding business in Hong Kong. 28.The second part of the argument was that as Air Tiger Hong Kong was a member of the Group, it was entitled to use the names. There is nothing in the Rules as to how a company might become a member of the Group. The evidence relied upon by the defendants to contend that Air Tiger Hong Kong was a part of the Group was first, an e-mail sent by Mr. Sheng to other members of the Group on 12 October 2001 announcing the commencement of business in Hong Kong by Air Tiger Hong Kong, and second that Air Tiger Hong Kong has been invoiced for Group services. 29.The e-mail is entirely self serving. It is simply an announcement of the commencement of business and an assertion that Air Tiger Hong Kong is "a new born tiger". The matter was raised at meeting of the "ATE Working Committee" established under the Rules, on 6 & 7 December 2001 in Phuket. The minutes record a decision by the Working Committee:
There is nothing in the minutes upon which it could be said that any formal step was taken to admit Air Tiger Hong Kong to the ATE Group. It is significant that the decision of the committee is one which involves only ATE Hong Kong and Air Tiger Taiwan. 30.As far as the invoice is concerned, the services were provided by APICAL System Inc, an independent company which is not part of the Group. Quite how the very modest payments make Air Tiger Hong Kong a part of the Group was not in any way clear to me. The evidence is insufficient to permit even an argument that Air Tiger Hong Kong is a part of the Group and thereby entitled to use the names. Even if it was, its use of the names would still be subject to a serious question to be tried in the light of the law as to passing off. 31.I am satisfied that there is a serious issue to be tried in respect of goodwill. (ii) Misrepresentation: 32.There can be no doubt that it is strongly open to argument by the plaintiffs that the use by Air Tiger Hong Kong of the prefix ATE is liable and calculated to mislead. That risk is increased by the Air Tiger Hong Kong's use the name "Air Tiger Express and of the use of Chinese characters in its name which translate literally as "air tiger", for an argument can well be made that the trade will attach the initials "ATE" and to the name "Air Tiger Express" an immediate association with the Group and the plaintiff's activities in Hong Kong. There is evidence from the plaintiff of confusion in those who deal with freight forwarders. 33.It is irrelevant that the misrepresentation may not be deliberate and that there is no intention to deceive. The mere fact that there may not have been confusion yet is not sufficient to deny relief to a plaintiff, who establishes all other elements of the tort. The court will intervene in a passing off case in three circumstances; first, where there was passing off established or it was threatened; second, where the defendant was a joint tortfeasor with another in the passing off, actual or threatened, and third, where the defendant equipped himself with or intended to equip another with an instrument of fraud: British Telecommunications plc v One in a Million Ltd [1999] FSR 1. Here, at least, there are strong grounds to say that misrepresentation is threatened. 34.. Mr. Huggins relied heavily on Anderson & Lembke v Anderson & Lembke [1989] RPVC 124. But his submissions entirely avoided the fact the name in use in England by the defendant was a completely different trading name from its own name, the name in issue, and was a name carefully and deliberately chosen to avoid confusion and misrepresentation. It is plain from the judgement that if the defendant had used its own name, instead of a trading name, it would certainly have been restrained for passing off the plaintiff's business. 35.Mr. Huggins next argued that the expression "ATE" was not sufficiently distinctive to be entitled to protection. He said that what distinguished the plaintiffs was their common name "Unique" and not "ATE". First, I am satisfied from W & G Du Cross v Gold (1912) 30 RPC 117 that distinctive letters are capable of protection by way of a passing off action. That is the relevant decision; the decision in Registrar of Trade Marks v W & G Du Cross, [1913] AC 624 upon which Mr. Huggins relied, deals with quite separate, and unhelpful, trade mark registration issues. Second, there is merit in the plaintiff's argument that the real issue to be determined in this case is not whether the defendant is entitled to use the name, but whether the use by the defendants' of the names "ATE" and "Air Tiger Express" is likely to mislead and therefore should, prima facie, be restrained. It should be noted that actual ownership and prior use of a name elsewhere does not afford an answer to a passing off action: J C Penny Co In v Pennys Ltd [1975] HKLR 598. 36.At the very least, Air Tiger Hong Kong is equipped with a name used by the plaintiffs, which, in the circumstances, is arguably an instrument of fraud. I am satisfied that there is a triable issue on the misrepresentation point. (iii) Damage: 37.It is right that there is no tort of competition, or of taking a man's market or customers; see Jacob J in Hodgkinson v Corby & Wards [1994] 1 WLR 1564. But if it can be argued that by the use of a similar name a person either rides on the reputation of another (inverse passing off) or attracts business that would otherwise have gone to the other, then an act of passing off occurs and damage, either in the mere use of another's reputation, or taking of customers arguably follows. I am satisfied that there is a serious question to be tried on the issue as to whether the plaintiffs have suffered damage by the defendant's use of the names. The position of Mr. Sheng in the passing off action: 38.It is argued by Mr. Sheng that his being a director of the Air Tiger Hong Kong does not ipso facto make him liable for any passing off committed by Air Tiger Hong Kong. There is a strong argument that Mr. Sheng, with the other two individual defendants, has procured the setting up of Air Tiger Hong Kong and that they control and direct its operations in Hong Kong. They may be personally liable in such circumstances: see Evans v Spritebrand [1985] FSR 267 and MCA Records v Charly Records Ltd [2001] EMCA Civ 1441. In such circumstances there are strong grounds to contend that they are joint tortfeasors with Air Tiger Hong Kong in the tort of passing off: see British Telecommunications plc (above). The balance of convenience: 39.Having found that in both contract and in tort there are serious issues to be tried I must next determine whether the balance of convenience lies in favour of granting or refusing the interlocutory relief sought. The matters that impact upon the balance of convenience vary from case to case depending upon the particular facts of the case. In this case the matters that will need to be addressed are first, the adequacy of damages, second, whether the grant of an interlocutory injunction will amount to effective summary judgement and third, the plaintiff's delay. The adequacy of damages: 40.The plaintiff companies have been in existence since 1983 and 1984 and members of the Group since 1997. They have an annual turnover together in excess of $800 million. They have net assets in excess of $30 million. The plaintiffs offer an undertaking as to damages. It was not argued that the plaintiffs would not be good on their undertaking. 41.On the other hand, Air Tiger Hong Kong is a new company with a share capital of $2. Mr. Sheng, in his second affidavit, sworn on 10 May 2002, asserts that on 28 March 2002 the share capital was increased to $1,800,000. He does not explain why, when he swore his first affidavit on 24 April 2002, only a month after the increase of capital, in which he is said to have been involved, he said the capital of the company was only $2. Perhaps more significantly he does not say whether the additional share capital is paid up, neither does he say anything as to his own worth, or the worth of Mr. Fuh, the other shareholder. In these unsatisfactory circumstances I cannot say, with the required degree of certainty, that, even if damages were an appropriate remedy, the defendants would be able to meet an order for damages. In this respect the balance of convenience lies with the plaintiffs. Interlocutory injunction effectively a summary judgement: 42.Although it was held in Elan Digital Systems v Elan Computers [1984] FSR 373 that American Cyanamid does not cease to apply in circumstances where the grant of an injunction would amount to effective summary judgement, there are numerous instances of an interlocutory judgement being refused because an injunction would, as a practical matter, dispose of the action. The clearest example is that in Blazer v Yardley [1992] FSR 501. That was a case where a name was being used by a company which had no previous association with the name, and there was no relationship between the plaintiff and the defendant. The most common situations of "name" passing off are cases where quite unrelated parties find that one is using a name of the other on the establishment of a new business. If forced by injunction to change its name at an early stage, there is usually little incentive for a defendant to continue to seek to use the name and the litigation ends on the making of the interlocutory order. 43.In the present case the existence of the Rules casts a quite different light on the issues. There is a strong case to argue that not only do the Rules constitute a contract between ATE Hong Kong and Air Tiger Taiwan, a contract that may not be unlawfully interfered with by the remaining defendants, but also a contract that provides for territorial exclusivity. In the face of that territorial exclusivity the defendants have elected to establish themselves using names designed to confuse. If the defendants succeed at trial there will be every reason for them to wish to revert to the names they have chosen for it is those very names which identify them with the Group. So this is not a case in which an interlocutory injunction will mean the end of the proceedings. In this respect the balance of convenience lies with the plaintiffs. The issue of delay: 44.The final issue to be considered on the balance of convenience is the issue of delay. The authorities show that delay in applying for interlocutory relief is a very serious matter. In The Law of Passing Off Wadlow 2nd ed, para 8.28, the author goes so far as to say the following:
45.The danger in delay is that a defendant will be lulled into a false sense of security that he will not be challenged. In Mirage Studios v Counter-feat Clothing [1991] FSR 145 a delay of 3 months was accounted for by the fact that the plaintiffs were trying to enforce their rights through the trading standards authorities. The defendant in that case could have had no doubt of the plaintiff's determination to end the use of the name. Negotiation between the parties does not usually provide an excuse for a delay: Wilson Development Co v Pro Taifong Co Ltd. [1991] 1 HKC 1, for in such a case negotiation may end in the defendant being able to use the name. In Novex Electronics Co Ltd v Wave-Sonic Electronics Ltd [1980] HKC 708 at 717 a delay of more than three months from the first sighting of the offending design to the hearing of the inter partes summons for an interlocutory injunction was fatal to the application. 46.But in both Wilson Development and Novex the defendant was a pure interloper. Here the defendants are not pure interlopers but (with the exception of Air Tiger Hong Kong) have been involved with the plaintiffs for some time in both a business and a contractual relationship. The first steps the plaintiff took was to endeavour to resolve the matter through the internal facilities of the Group. That is entirely sensible when the parties are not completely at arms-length. That having failed in early December 2001, the writ was issued on 8 February 2002. The summons for the interlocutory injunction was filed on 19 February 2002 and that has been rapidly brought on for hearing. While the writ and the summons were not issued with the despatch that should have been following the failure of the Phuket meeting to resolve the matter, the delay has not been such that I find it to be a bar to the interlocutory remedy. The situation may well have been different, were the defendants arms length interlopers, but having regard to the terms of the Rules, the defendants must have known that by using the names they chose, they were at risk of an injunction such as that now sought. In this respect too, the balance of convenience favours the plaintiff. Conclusion: 47.For these reasons I am satisfied that an injunction restraining ATE Air Tiger Express Company Limited and Sheng Yuan Jai, Eric in terms of paragraphs 1 (a) and (b) of the summons dated 19 February 2002 should issue forthwith. There will be an order nisi that the costs on the summons will be to the plaintiffs, in the cause, with a certificate for second counsel. 48.. This is a case which requires a speedy trial. Were there no issues of service outstanding I would have fixed an early date for a directions hearing to ensure prompt completion of all interlocutory matters and an early trial date. I cannot do that now, however, as, despite the plain association between the defendants service is under challenge. It seems to me to be in the defendants' interests to resolve that issue quickly and seek an early directions hearing. The affidavits: 49.Mr. Huggins objected to the third affidavit of Mr. Lee on the ground that it offended O. 41 R. 5. I have considered each of the paragraphs that were the subject of complaint. I am satisfied that the assertions made are made by Mr. Lee on the basis of his own involvement on the Group and the freight forwarding industry and that they do not offend O. 41 R. 5. I have accordingly read all of the affidavits of Mr. Lee and also Mr. Sheng's 2nd affidavit.
Representation: Mr. Benjamin Yu SC and Mr. Samuel Chan, instructed by MS Baker & McKenzie, for the Plaintiffs Mr. Adrian Huggins SC, instructed by MS Clifford Chance, for the 1st & 4th Defendants |