Guangzhou Green-enhan Bio-engineering Co Ltd and Another v. Green Power Health Products International Co Ltd and Others
Read the full judgment text of HCA 4651/2002 on BabelCite. This High Court CFI judgment was delivered on 8 April 2005.
1. The 2 nd Plaintiff in this consolidated action is a university in Guangzhou and has been incorporated since 1924. In 1991, it set up a Food Engineering Research Centre [“FERC”]. In 1995, the State Ministry of Education of the People’s Republic of China issued a document 教技 [1995] 27 号 (at Trial Bundle C81) converting the centre into an institute called “國家教委食品工程研究中心” (Food Engineering Research Centre of State Education Ministry) and appointing Liu Xin [“Liu”] as the head of the centre. The
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HCA 4651/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 4651 OF 2002, 2802 OF 2003 and MISCELLANEIOUS PROCEEDINGS NO. 74 OF 2004 ____________ BETWEEN
____________ (The Consolidated Action) Before: Hon Lam J in Court Dates of Hearing: 5, 6, 7, 8, 9, 12, 13, 14, 15, 16, 19, 20, 21, 22 & 23 July 2004; 21, 30 & 31 August 2004; 1, 2, 6, 7, 8, 9, 10, 13, 14, 15 & 16 September 2004; 8, 9, 10, 11, 12, 15, 16 & 17 November 2004 and 20 & 21 December 2004 Date of Last Written Submissions: 24 February 2005 Date of Judgment: 8 April 2005 ______________ J U D G M E N T ______________ Background 1.The 2nd Plaintiff in this consolidated action is a university in Guangzhou and has been incorporated since 1924. In 1991, it set up a Food Engineering Research Centre [“FERC”]. In 1995, the State Ministry of Education of the People’s Republic of China issued a document 教技 [1995] 27 号 (at Trial Bundle C81) converting the centre into an institute called “國家教委食品工程研究中心” (Food Engineering Research Centre of State Education Ministry) and appointing Liu Xin [“Liu”] as the head of the centre. The effect of that document is a subject matter of dispute between the parties. The 2nd Plaintiff said the centre remained part of the 2nd Plaintiff. The Defendants said it became a new legal entity. 2.The works of FERC consisted mainly of advanced scientific and technological research in life science and food science. There is a booklet at Trial Bundle C89 introducing FERC and the fruits of its research and their practical applications. A landmark achievement of FERC was a technology called “germination activated ganoderma lucidum spore and fully sporoderm broken technology” (萌動激活赤灵芝孢子及孢壁全破壁碎裂技術). Since this judgment is not intended to be a paper on scientific research, I think it is not necessary for me to set out the theory and details in respect of this technology despite Liu had spent some time in his evidence explaining what this is about. Suffice to say in layman’s term, the technology would enhance the health and healing effect of lingzhi. “萌動激活” and “全破壁” were expressions subsequently used in the commercial products sold by the 1st Plaintiff. 3.In order to facilitate commercial exploitation of the fruits of the research of FERC, the University set up the 1st Plaintiff in 1993. Its shareholders were the 2nd Plaintiff (62.99%), Science and Technology Development Centre of the State Ministry of Education of the People’s Republic of China (21.92%) and Liu (15.09%). The 1st Plaintiff has an exclusive licence from the 2nd Plaintiff regarding the latter’s intellectual property rights and has the exclusive right to manufacture and market products incorporating the 2nd Plaintiff’s inventions. 4.One of the products of the 1st Plaintiff was lingzhi spore powder (靈芝孢子粉) capsule. Since it is a health supplement product, a permit was required before the capsule could be produced and marketed for public consumption. The permit for the capsule was issued by the health authority in Guangdong Province, 廣東省衞生廳 in 1997. The permit was produced as exhibit P-14, 粤衛食健字[1997] 209 号. At the beginning, the capsules were marketed under the brand names 故乡牌, Hometown and Hometown Food. 5.The spore powder was first sold in Hong Kong under the brand name Hometown Food through a trader called Lam Po Sing who procured the same to be sold at various China Resource Limited (華潤) retail outlets. There were also earlier sales in small quantities through a Japanese in Cheung Chau. The Plaintiffs were keen to develop other sales network. Liu had discussions with a number of potential traders who might be interested in the product. In particular, several tests on the products had been done at the request of a Mr Cheng. At one stage Liu was optimistic that Cheng would make a substantial investment into the product and the 1st Plaintiff had therefore done a lot works on the same. Unfortunately, the discussion with Mr Cheng fell through at the second half of 1998. Liu therefore needed to find another interested investor. 6.The 2nd Defendant is an orthodontist by profession. He came to know about Liu and FERC through the introduction of Wu Xiao-Lan, the wife of a vice mayor of Shenzhen. There are disputes between the parties as to the circumstances and timing under which they were introduced to each other. The Plaintiffs said that happened in the end of 1998 whilst the Defendants said it occurred in the Chinese New Year of 1998. It is not disputed that there were active negotiations between the parties in January and February 1999. By an agreement concluded in February 1999 the 1st Defendant agreed to act as distributor of the lingzhi spore powder produced by the 1st Plaintiff. The 1st Defendant was a company acquired by the 2nd Defendant and his associates in July 1998 (as shown by the annual return filed in July1999). Apart from the 2nd Defendant and his wife Tong Siu Kan [“Tong”], the other persons involved included the cousin of the 2nd Defendant, Cheung Kwok Keung, and his friend Cheung Yin Fung [“CYF”] and one Lam Ky Quang. Tong was only officially registered as director and shareholder in April 1999. According to the annual return of 2003, the shareholders of the 1st Defendant as at 8 June 2003 were the 2nd Defendant, Tong, CYF and a BVI company called River Silk Development Ltd. 7.The agreement was executed in writing between FERC and the 1st Defendant. The 1st Plaintiff also executed the agreement as the manufacturer. There is a dispute as to whether the 2nd Plaintiff could enforce the agreement. The product was referred to in the agreement as “天維牌包装銷售純灵芝孢子粉膠囊”. The agreement was for a duration of three years, from 1 February 1999 to 31 January 2002. Subsequently, two more agreements were executed with adjustments in the price structuring. 8.The 1st Defendant marketed the lingzhi spore powder in Hong Kong under the brand names ENHANVOL 盈康活. Later on, the parties extended their business to a lingzhi tea product sold under the brand names ENHANTEA 盈康茶. The terms of distributorship were set out in another Chinese agreement dated 10 May 1999. Like the case of ENHANVOL, two agreements were executed subsequently adjusting the price structuring. 9.There was also another agreement dated 13 February 1999 between FERC, the 1st Plaintiff and the 1st Defendant. I will adopt the nomenclature of the Plaintiffs in the pleadings and call this the Collaboration Agreement. It is common ground that this was not executed on 13 February 1999 but there is dispute as to the date of its actual execution. More precisely, the dispute is as to the sequence in which this agreement was executed as compared with the distributorship agreements mentioned above. The Plaintiffs said the Collaboration Agreement was executed before the ENHANTEA distributorship agreement, the Defendants said it was executed after the same. 10.In the second half of 2001, a new product of the 1st Plaintiff was launched in Hong Kong by the 1st Defendant. The product was lingzhi lipid in capsule. It was marketed by the name ENHANOID. As regards the Chinese name, it was initially called 盈康力. Subsequently, it was changed to 盈康孢子油. There is dispute as to whether the name 盈康力 had ever been used for marketing in Hong Kong. 11.In parallel with the sale of these products by the 1st Defendant in Hong Kong, the 1st Plaintiff marketed the same in mainland China under different packaging. Various brand names were used on lingzhi spore powder capsules by the 1st Plaintiff including Hometown, 故鄉牌, Guru, 學者. The English name ENHANVOL had also been used together with the Chinese name學者灵芝. However, the name盈康活 was not used for products sold in mainland China. As regards盈康茶 and ENHANTEA, the evidence before me is not clear as to whether the tea had been sold under these names in mainland China. As regards ENHANOID and盈康孢子油, in the manual (Bundle V, p.94) contained inside the mainland packing, the product was also referred to as 學者牌灵芝孢子脂質精華膠丸. That manual referred to the tea product as故鄉牌灵芝茶 (at V97). 12.After the expiration of the distributorship agreements, the parties could not reach agreement on the renewal. The relationship between the parties worsened and the Plaintiffs claimed that the 1st Defendant had been in substantial arrears in payment for goods supplied by the 1st Plaintiff. As shown in exhibit P4-A, the last batch of spore powder was delivered by the 1st Plaintiff to the 1st Defendant on 29 June 2002 whilst the last batch of lingzhi lipid was supplied by the 1st Plaintiff to the 1st Defendant on 18 September 2002. 13.By a letter dated 5 October 2002 [Bundle S, p.63], the 1st Plaintiff reminded the 1st Defendant that upon termination of the relationship between the parties, without the consent of the 1st Plaintiff, the 1st Defendant had no right to use the trade names and trade marks of the 1st Plaintiff including ENHANVOL, ENHANOID and 盈康活. The 1st Defendant continued to sell products under those names after that letter. Since there was outstanding stock previously supplied by the 1st Plaintiff, the 1st Defendant did not consider the clearance of such stock to be objectionable. 14.In about late November 2002, the 1st Defendant marketed products manufactured by other suppliers under those names. The 1st Plaintiff and FERC published a public declaration in several Chinese newspapers on 4 December 2002 announcing that it had been the sole manufacturer of the lingzhi products under those brand names. It also stated that it was the owner of these trade names and trademarks. It declared that it had ceased supply to the 1st Defendant and starting from 1 December 2002, Care & Health Limited was appointed as the exclusive distributor of these products in Hong Kong, Shanghai, Taiwan, Macau and in the international market. The spore powder and lipid were depicted in that announcement in a new packing under the name Lingzhimaster 學者灵芝similar to exhibit LX-70. The 1st Plaintiff and FERC also indicated that it would take legal action against any passing off and imitation of their products. 15.On the same day, viz. 4 December 2002, the 1st Defendant placed advertisement in two Chinese newspapers announcing the transfer of the production of lingzhi products from FERC to another factory with a higher standard having a GMP certification. It also asked the consumers to note certain features of its products in order to avoid purchasing counterfeit products. This advertisement is the subject matter of the Plaintiffs’ claim of malicious falsehood. The same advertisement was placed on 5 December 2002. I shall call this “the GMP Advertisement”. 16.On 5 December 2002, the 1st Defendant made another public announcement in Chinese newspaper asserting that the 1st Plaintiff’s announcement of 4 December 2002 was misleading. In a nutshell, the 1st Defendant claimed to the owner of the brand names and package designs of ENHANVOL 盈康活, ENHANOID 盈康孢子油 and ENHANTEA 盈康茶. It reiterated the transfer of production to a factory with GMP certification and the new products were said to be of a better quality. 17.On 12 December 2002, the 1st Defendant held a press conference with an array of experts and celebrities promoting the ENHANVOL and ENHANOID sold by it. There were further newspaper and other mass media advertisement by the 1st Defendant with reference to ENHANVOL and ENHANOID. 18.At the same time, the Plaintiffs were collecting evidence. ENHANVOL marketed in Hong Kong were bought from sales outlets including Watsons, Mannings, Yue Hwa Chinese Products Emporium and Health Plus. Investigation was also made as to the new factory producing the lingzhi products for the Defendants. Tests were conducted to examine the level of impurity and heavy metal in the 1st Defendant’s products. 19.On 12 December 2002, the Plaintiffs issued the writ in High Court Action No.4651 of 2002 against the 1st and 2nd Defendants. The claims included passing off, infringement of copyright, breach of restrictive covenants in distributorship agreements. A claim of malicious falsehood was added later. 20.On 29 July 2003, the Plaintiffs commenced a new action in High Court Action No.2802 of 2003 against all three defendants for infringement of registered trademark and passing off by reference to “萌動激活”. That had been registered by the 1st Plaintiff as a trademark under No.B09183 of 2003. Based on the certificate of registration, the application was made on 24 December 2002 and the certificate was issued on 21 July 2003. The 3rd Defendant is a company that was described as a joint researcher of ENHANVOL products sold by the 1st Defendant after the break-up with the Plaintiffs. The 2nd Defendant and his wife are the shareholders and directors of the 3rd Defendant. 21.On 10 January 2004, the Plaintiffs issued an Originating Motion against the 1st Defendant seeking rectification of the Register of Trade Mark in respect of the mark ENHANVOL which had been registered by the 1st Defendant under its name. That registration was applied on 10 August 2001 without any prior notification or consent from the Plaintiffs. There was also an application for registration for盈康活 but it had been withdrawn. 22.There was an application for interlocutory injunction. Due to the lack of sufficient time to fully dispose of that application at the hearing in January 2004, the parties agreed to deal with the matter by way of speedy trial with the three actions consolidated. Directions for speedy trial were given on 16 January 2004. 23.In the Re-amended Consolidated Statement of Claim, the Plaintiffs pleaded several causes of action,
24.In the Re-amended Consolidated Defence and Counterclaim, the Defendants counterclaimed for a declaration that the registration of 萌動激活 is invalid under Section 53 of the Trade Marks Ordinance. Issues 25.Different issues call for determination in respect of different causes of action. For passing off, the main dispute in this case is who is the owner of the goodwill in Hong Kong attached to the following names or marks ENHANVOL, 盈康活, 萌動激活, ENHANOID, 盈康孢子油, ENHANTEA, 盈康茶 and the get-ups of these products marketed during the subsistence of the distributorship agreements or arrangements. In this connection, there is not much dispute of facts as to how these marks or names had been used in Hong Kong and the get-ups of the products. There are factual disputes as to how these names were coined except萌動激活. As for that expression, it is accepted by the Defendants that it was coined by Plaintiffs and the dispute on that focused on whether any goodwill attached to it. There are also factual disputes as to who designed the get-ups. These overlapped with the issues in the copyright claims. 26.Apart from the names, marks and get-ups, the Plaintiffs also advanced the claim of passing off based on other modes of alleged misrepresentation. In Paragraph 41 of the Re-Amended Statement of Claim, specific reference was made to the newspaper advertisements dated 4, 5 and 12 December 2002, statements made at the press conference on 12 December 2002 and the contents of a website of the 3rd Defendant. The Plaintiffs contended that there were separate misrepresentations in these publications that could constitute passing off even if it is held that goodwill of names, marks and get-ups belonged to the Defendants. I shall refer to these heads of claim as the “free standing passing off claims”. 27.For the breach of contract claims, the main issue is who was the party to the contracts. More specifically, the defence contended that FERC is not part of the 2nd Plaintiff and the contracts were therefore null and void. The defence also challenged the scope of the relevant restrictive covenants. It is contended that the subject matters of the contracts were 天維牌 lingzhi spore powder and lingzhi tea as opposed to ENHANVOL, 盈康活 and ENHANTEA, 盈康茶. The Defendants averred that the latter products were not covered by the scope of the agreements as they were differently priced and not in天維牌packaging. There is a factual dispute as to the sequence under which these agreements were signed. The Defendants asserted that the subsequent agreements (viz. Agreements B, C, E and F) were made “for the benefit of PRC custom authorities”. It is also pleaded that the restrictive covenants in the agreements were null and void for contravening the PRC law, in particular 反不正當競爭法 Articles 3(7) and 12 and 民法通則 Articles 4, 55, 58 and 108. 28.For malicious falsehood, the question of falsehood hinges upon whether the advertisements of 4 and 5 December 2002 implicated that the Plaintiffs’ products were counterfeit. The defence denied that the advertisements made any reference to the Plaintiffs’ products. It is said the advertisement was in fact aiming at other counterfeit products in the market. For that reason, malice is also disputed. By reason of Section 24 of the Defamation Ordinance, it is not necessary to prove special damage in respect of words published in writing calculated (meaning likely) to cause pecuniary damage to the plaintiff. The Plaintiffs relied on this provision. 29.The copyright claim is more complicated. Initially, the claim was made in respect of artistic as well as literary works relating to the packaging of the products. At the beginning of the trial, Mr Liao SC wisely cut down the scope to the claim. For the purpose of this action, the Plaintiffs confined the copyright claim to the following, Plaintiffs’ copyright works & infringement
30.The principal line of defence is pleaded in Paragraph 64A, 65A and 65B of the Re-Amended Consolidated Defence and Counterclaim. For most of these items, the main dispute is as to authorship. Each side claimed their designer(s) to be the author(s) of the relevant artistic work and alleged the other side of copying. It is primarily a question of fact that depends substantially on credibility of the witnesses. 31.However, two items require separate consideration. In respect of item (i), the Defence alleged in the pleadings that the relevant pictures at V162 and V221 were derived from an original design by Chan Chin Hung produced at E730. A careful comparison between E730 on the one hand and V162, V221 on the other reveals that the cracks on the two spores are different. The cracks appearing at V162 and V221 are clearly identical to the one appearing in the works relied upon by the Plaintiffs. 32.In respect of the photo referred to as item (ix), the use thereof was admitted by the Defendants in Paragraph 64 of the Re-amended Consolidated Defence and Counterclaim. 33.For these two items, the issues are therefore different and they have to be considered separately. 34.For the claim based on foreign tort, the Plaintiffs relied on the manufacturing and exporting from mainland China lingzhi products in packaging or get-ups identical or similar to those of the Plaintiffs’ products and using the disputed trade marks. On the evidence, there is no dispute that after the cessation of distributorship, the 1st Defendant contracted with other factories in mainland China to produce ENHANVOL and ENHANOID lingzhi products. 35.If the double actionability rule applies, the Plaintiffs have to establish that those acts would constitute an actionable tort in Hong Kong as well as in mainland China before they could succeed on this head of claim. Hence, the defence in respect of the passing off claim is equally applicable to this cause of action. In addition, there is an issue as to whether the Plaintiffs had any goodwill in respect of any of the disputed trade marks in mainland China and whether the acts infringed the Anti-Unfair Competition Law of the People’s Republic of China. 36.Due to the nature of the restrictive covenants in the contracts, for practical purposes, if the Plaintiffs succeed on the breach of contract claim, it would cover most of the injunctive relief sought under the other causes of action (with the exception of malicious falsehood) in the near future. However, there are three qualifications,
Credibility of the witnesses 37.Although on ultimate analysis, the outcome of this case in respect of most causes of action (except the copyright claim) does not simply hinge on the resolution of the factual issues, it is fair to say that there are serious disputes on the factual matrix. Whilst I do not find it necessary to resolve each and every single factual dispute, I would like to make some general observations as to credibility of the witnesses since their evidence has taken up much time in the course of this trial and counsel have made extensive submissions on the topic. 38.The Plaintiffs called three witnesses at the trial: Liu, Wang Jianghai (the vice-president of the 1st Plaintiff) and a designer called Chan Hon Chung陳漢聰. For reasons that I shall discuss in the context of the copyright and passing off claims, I do not accept Liu and Chan Hon Chung’s evidence on authorship in respect of the relevant drawings and design. Further, I reject their evidence as to the coining of the names ENHANVOL and盈康活. Given the nature of their evidence, once I reject their claims of authorship, I am driven to the conclusion that both of them put forward false evidence and drawings that were put together deliberately with a view to mislead this court. I appreciate that this is a serious allegation and I should not reach this conclusion without cogent evidence. But I am unable to see any other possible explanation that could absolve these gentlemen. I regret that I have to say so in respect of Liu who is apparently a well-respected figure in the academic world. 39.Moreover, Liu was not a satisfactory witness in many other aspects. The more important points are as follows.
40.By reason of their involvement in the Guangzhou proceedings, the credibility of Wang and Chan Hon Chung is also impugned. I find Chan Hon Chung to be evasive. He tried to exonerate himself by saying these were legal matters that he could not understand as a layman. I do not accept that for one moment. I am singularly unimpressed by his evidence about how the Plaintiffs’ designs for the subject matters of the copyright claims came into existence. I shall elaborate on that in my discussion on those claims. Wang’s evidence on the coining of the names conflicted with those of Dr Chow. Wang said he discussed with Liu in the conception of the name ENHANVOL whilst Dr Chow testified that the name was conceived in a telephone discussion with the 2nd Defendant. I preferred the evidence of Dr Chow and I rejected Wang’s version. Apart from the fact that Dr Chow impressed me as a more truthful witness, it is noteworthy that Wang was not an impartial witness. He is the vice president of the 1st Plaintiff and his part in the Guangzhou proceedings is a testimony to his partiality. 41.At the same time, I do not feel able to accept the entirety of the evidence adduced by the Defendants. I have reservations about certain aspects of the evidence of Tong and CYF, some of which I will mention in other parts of this judgment. In addition, I find Tong’s evidence about the telegraphic transfer of $360,000 unsatisfactory. The Plaintiffs alleged the document at S66 to be a forgery. There are features which obviously raise suspicion: the absence of any time chop evidencing the time when the application form was received by the bank, the striking resemblance between the bank’s chop at S66 and that at S67. The 2nd Defendant gave a rather strange response when questioned by袁建平 about the telegraphic transfer. He described it as a joke and said it was not a legal document. When pressed further, he said it was very difficult to explain it over phone. Despite the express invitation by the Plaintiffs’ solicitors, the Defendants declined to obtain the relevant documents from the bank to verify the authenticity of that telegraphic transfer. Neither did the Defendants call the staff in the 1st Defendant who handled the application to give evidence. 42.Tong testified that she had instructed a staff of the 1st Defendant to bring the application form to the bank and the staff subsequently reported to her that it had been done. She only discovered later that the transfer was not made due to insufficient fund in the relevant bank account. I note that she did not mention these in her witness statement or affirmations. I find it incredible if the transfer was not processed due to insufficient fund, Tong was not informed about it on the same day. Further, she could not explain about the suspicious features mentioned above. Nor is there any explanation why no step had been taken to obtain documents from the bank to corroborate her story. 43.Mr Liao invited this court to infer that Tong knew the document was a forgery and the explanation given by her in the witness box was false. I would not go that far. Suffice to say that I am not satisfied that Tong had told me whole truth about this document and I will bear this in mind in assessing the credibility of the other parts of her evidence. 44.As regards CYF, I also have reservations about his reliability. He was adamant about the cessation of delivery of goods to the Quarry Bay office of the 1st Defendant before Chinese New Year in 1999. However, when cross-examined about the Quarry Bay address being used by him on an import licence declaration dated 24 February 1999 at F962, he gave several answers which did not make sense to me. At first, he said the document was prepared well before that date. Then he corrected himself and said the goods had been shipped to Hong Kong without an import declaration and the document was prepared after the goods had been detained by the Custom authority. He said he still put down the Quarry Bay address because the goods were shipped earlier. When it was shown to him that the goods were shipped on 20 February 1999, viz. after the Chinese New Year, he explained that he put down that address because they had just moved and the incident occurred during the transitional period. Yet he maintained they had already moved their office by that time. When pressed further, he gave a further explanation by reference to his lack of knowledge as to whether the address of the 1st Defendant in the Business Registry had been changed. 45.CYF testified initially that he had not seen LX-26 before the 1st Defendant came up with the design of LX-28. He had to change his position when confronted with the fact that ENHANOID packed in LX-26 had been delivered to the 1st Defendant on several occasions before LX-28 was designed and the newspaper advertisement at D334 must have been seen by him. 46.I also find his evidence about what material he had referred to in the conception of the design of LX-28 unsatisfactory. On 12 November 2004, he said he was not told about the identity of the manufacturer of ENHANOID. Then on 15 November, he changed his position and said it had been mentioned although he was not sure whether it was the 2nd Plaintiff. He said he had to refer to some leaflets of ENHANVOL that had mentioned about ganoderma spore lipids in order to learn about the effect of the product. He did not specify what leaflets he was referring to. As far as the leaflets of ENHANVOL that have been produced as evidence is concerned, there was not much reference to the lipids. ENHANOID was 100% lipids and therefore more effective than ENHANVOL. In that sense, it was an improved product. Hence, it was rather strange that Cheung chose to refer to old leaflets of ENHANVOL to find out the effect of ENHANOID. Further, the most convenient and direct reference about the effect of ENHANOID available at that time was LX-26. Yet, Cheung somehow seems reluctant to mention that in his evidence. 47.On the whole, like the case of Tong, I am not satisfied that CYF had told me the whole truth and I will bear this in mind in assessing his evidence. 48.I find the other defence witnesses to be honest and truthful. Having considered their evidence in the light of the other witnesses, I do not think my reservations about the credibility of Tong and CYF tainted the reliability of these other witnesses. I shall discuss the relevant part of their evidence in the context of each head of claim. Passing off claims: ownership of the goodwill in Hong Kong 49.At the start of the relationship between the parties, neither party had any goodwill in Hong Kong in terms of the names or marks ENHANVOL, 盈康活, ENHANOID, 盈康孢子油, ENHANTEA, 盈康茶. Although the Plaintiffs had sold lingzhi products under other brand names like Hometown Food and 故鄉牌, I have no concrete evidence as to the sale volumes prior to 1999. In any event, it is not the Plaintiffs’ case that the goodwill of ENHANVOL was in any way built upon the pre-existing reputation of Hometown Food or故鄉牌lingzhi products in Hong Kong. 50.Mr Liao stressed the consumers’ confidence in the reputation of the 2nd Plaintiff in the promotion of the product as one backed up by its scientific research. That is a matter relevant to the determination of ownership of the goodwill generated from the sale of ENHANVOL, 盈康活, ENHANOID, 盈康孢子油, ENHANTEA, 盈康茶 and their advertisement. However, it does not follow that before ENHANVOL was launched in Hong Kong 1999, the Plaintiffs already had a goodwill in that name waiting to be tapped. The goodwill had to be built up through sales and advertisement. 51.As regards the 1st Defendant, it was a newly formed company without any track record in 1999. The 2nd Defendant had not been engaged in the trading of health product before and he could not claim to be an expert in lingzhi in those days. 52.In respect of dispute as to ownership of local goodwill between a foreign manufacturer and local distributor, the Court of Appeal observed in Scandecor Development v Scandecor Marketing [1999] FSR 26 at p.39,
53.Various tests have been suggested for the resolution of this dispute. Professor Wadlow put forward four criteria in The Law of Passing-off, 3rd Edn.Para.3-108 that had been applied by Cheung J (as he then was) in Guangdong Foodstuffs Import & Export (Group) Corp & Anor. v. Tung Fook Wine (1982) Co. Ltd. & Anor. [1999] 3 HKLRD 545, 586-590),
54.But these enquires would not be necessary if there is a binding agreement between the parties as to ownership of the relevant goodwill, see Wadlow, The Law of Passing-off, 3rd Edn.Paras.3-104, 3-106, 3-110, 3-119 to 3-121. At Para.3-106, the learned professor put forward the following legal analysis as to the ownership of goodwill,
Then, at Para.3-110,
55.In Growmax v Don & Low [1999] RPC 367, Lindsay J expressed certain reservations about a general proposition as to the prevalence of the terms of a licence agreement on ownership of goodwill at p.388,
56.Professor Wadlow responded to these remarks in Paras.3-121. He clarified that the proposition was not meant to be applied to a simple distributorship agreement that is silent as to whether the trade mark was being licensed at all. He identified the inherent characteristic of a licence agreement as the rationale behind the ownership of the goodwill by the licensor. It was suggested that any other consequence would destroy the licensor-licensee relationship as inevitably as allowing a tenant under a lease to claim adverse possession against his landlord. In the context of the present case, the scenario where there is no pre-existing goodwill is more relevant. The professor commented,
57.It is quite clear that Professor Wadlow was commenting with regard to both a real licence situation as well as an agreement dealing with a goodwill yet to be acquired. His view was that the law should give effect to the agreement of the parties in both cases. 58.The first question to ask is therefore what was the contractual arrangement between the parties. For reasons given later in the section dealing with the contractual claims, I find that FERC was part of the 2nd Plaintiff instead of being a separate legal entity and the Distributorship Agreements A to G and the Collaboration Agreement were made between the Plaintiffs and the 1st Defendant. I further find that they are valid and binding both as a matter of PRC law and Hong Kong law. Although the Distributorship Agreements did not refer to the names or marks ENHANVOL, 盈康活, ENHANTEA, 盈康茶and their get-ups explicitly, I find that it was intended by the parties that they fall within the scope of these agreements. In other words, these names and marks were encompassed in the references to《天維牌》包裝and 本合同書産品及産品名稱 under those agreements. ENHANOID, 盈康孢子油 are however outside the scope of the agreements. 59.The Distributorship Agreements did not expressly provided that the 2nd Plaintiff as “licensor” granted a “licence” to use these names or marks to the 1st Defendant as “licensee”. We are obviously talking about goodwill to be acquired in the future, hence the use of the expressions “licensor”, “licensee” and “licence” cannot be accurate in their strict legal sense. A more accurate formulation of the issue is whether the agreement provided for the ownership of the expected goodwill pertaining to these names or marks. The material clause is Clause 3 (I choose the clause from Agreement A by way of example, the clauses in the other agreements are essentially the same),
60.In both Clause 3(1) and the preamble, it was stated that “甲方同意乙方采用《天維牌》包裝銷售纯灵芝孢子粉膠囊”. This could be read as the grant of a licence to use to the names, marks and get-ups encompassed by the expression 《天維牌》包裝 by the 2nd Plaintiff to the 1st Defendant, viz. by implication providing for ownership of the goodwill by the 2nd Plaintiff. To identify the true intent of the parties, it is necessary to determine the common intention of the parties by reference to other features in the agreements. 61.There are features in the agreements that point strongly in favour of the existence of an implied agreement that the goodwill arising from the sale of the goods in 《天維牌》包裝 would be vested in the 2nd Plaintiff,
62.This conclusion is reinforced by the provisions in the Collaboration Agreement. It was recited in that agreement that the Plaintiffs consented to the use by the 1st Defendant of, inter alias, ENHANVOL, 盈康活, ENHANTEA, 盈康茶 to sell lingzhi products. The tenor of that agreement was a co-operation between the three parties in opening up the international market for these products. The arrangement between the parties was obviously much more than a series of sale of goods transaction. 63.Mr Chan argued that Clause 3(7) actually pointed towards the other direction. He submitted that if the goodwill was vested in the Plaintiffs, it made no sense to confine the limitation to 3 years. Hence, he contended that by implication the goodwill must be vested in the 1st Defendant. I do not think this is correct. To start with, as pointed out by Mr Liao, Clause 3(7) is drafted in wide terms and covered aspects other than use of similar names or marks. Secondly, there is no reason why an owner of goodwill should not secure double protection by way of restrictive covenant. An action on restrictive covenant obviates the need to prove goodwill. I reject the submission that Clause 3(7) is repugnant to ownership of goodwill by the Plaintiffs. 64.In this connection, I attach no weight the evidence of Tong and CYF that there was an agreement that the new brand name was to be a brand name belonged to the 1st Defendant. No doubt there was an agreement for new brand names or trade marks to be used. But it does not mean that it was agreed that those new names or marks belonged to the 1st Defendant. Tong and CYF were not privy to the negotiation for the terms of the distributorship agreements. The only person who had taken part on behalf of the 1st Defendant in the negotiations leading to the execution of the distributorship agreements was the 2nd Defendant. He chose not to give evidence. Whatever might have been said or discussed at meetings prior to the negotiation for the terms of the written agreements, they must be regarded as being overridden by the latter. 65.Moreover, I find it unbelievable that the 2nd Defendant had not shown a copy of the written agreements to Tong or CYF or informed them about the terms thereof. Tong was his wife and CYF was his business partner. If there were any prior oral agreement that the brand names would belong to the 1st Defendant, I believe they would have requested for this to be set out in the written agreements and protested about some of the terms which appeared in the agreements. Instead, the Defendants had done nothing to challenge the agreements until after the parties broke apart. 66.Although the 1st Defendant had to pay for the costs of promotion of 《天維牌》包裝 under the terms of the agreements, this could be regarded as the price that it had to pay for getting the distributorship. I do not think this factor could negate the common intention reflected in the other provisions set out above. I conclude that as a matter of construction, the parties had provided under Clause 3(1) that the 2nd Plaintiff would grant a licence to the 1st Defendant to use the names, marks and get-up encompassed by the expression 《天維牌》包裝. Further, Clauses and 3(7) and 5(4) implicitly governs the ownership of the goodwill pertaining to those names, marks and get-ups upon termination of the agreements. By necessary implication from those clauses, the parties agreed that the 2nd Plaintiff owned such goodwill and the 1st Defendant was not free to exploit the same without the consent of the 2nd Plaintiff. 67.Mr Chan submitted that the terms of a contract which purports to set out the rights and obligations of the parties in the supply of goods for export before any goodwill has been established through trading is of little or no assistance in determining the question and there is no presumption of ownership of goodwill in favour of a manufacturer who sells goods to an exclusive distributor for distribution in a foreign territory. He derived these propositions from the fundamental premises that goodwill is the attractive force that operates on the mind of the purchasing public and it is generated through trading by a business. 68.In the light of the detail provisions in the agreements governing the rights and obligations of the parties in the development of the market associated with the brand names and the use of the same, it is too simplistic to describe the arrangements as mere sale of goods transactions. 69.Further, I do not think the propositions of Mr Chan follow from those fundamental premises. Whilst I accept that goodwill must attach to a business, it does not necessarily attach to the local trader dealing in the goods of a foreign manufacturer. As Professor Wadlow put it in Para.3-125,
70.Hence, the relevant question is as between the foreign manufacturer and the local trader, who owns the goodwill. I do not think it is particularly helpful to discuss whether there is a presumption in favour of a foreign manufacturer if it is known to the consuming public as the ultimate source of the goods. It is always a question of fact to be decided on the evidence before the court. But in my judgment, the authorities clearly show that the agreement between the parties is relevant and if there are contractual terms governing the ownership of goodwill, the court will give effect to it. Apart from those authorities mentioned above, one can deduce this proposition from the following passage in the judgment of the Court of Appeal in Scandecor at p.38-39,
71.One of the criticisms leveled by the Court of Appeal against the judge in Scandecor was the under-estimation as to the significance of the division of territories on the break-up of the parties in 1979 and its impact on the entitlement to goodwill in the subsequent phases (see p.42). The Court of Appeal regarded it as critical that under the break-up arrangement, the United Kingdom market was allocated to the ultimate owner of the defendants (see p.44). Hence, the Court of Appeal emphasized that the parties’ agreement as to the distribution of goodwill should be recognized and legal effect should be given to the same in determining ownership of goodwill. 72.In the supplemental submissions filed by Mr Chan on 24 February 2005, he emphasized that we are dealing with a case where there was no pre-existing goodwill in either 天維牌 or other names or packaging to be designed. He said it was therefore unsound to talk about licensing as there was nothing to license in the first place. He referred to the judgment of the Court of Appeal in Scandecor in holding that the goodwill in question belonged to S Ltd even though there was a subsequent licence agreement from SIAB to S Ltd. The rationale was that SIAB had no pre-existing goodwill in the UK which it could license to S Ltd whilst S Ltd was already entitled to that goodwill. 73.It has to be remembered that Scandecor was actually a case where the court found on the special facts of that case that the relevant goodwill was in substance a retailer goodwill as opposed to a manufacturer goodwill. All along, it was S Ltd that provided the relevant services to generate the goodwill and that had already been so by the time of the licence agreement between SIAB and S Ltd. The situation is materially different from the one we are dealing with. Whilst admittedly we are talking about future goodwill as far as the state of affairs at the time of the Distributorship Agreement is concerned, the 1st Defendant cannot in any way be regarded as owner of any goodwill at that time. The situation in the present case was that the parties had agreed (albeit impliedly according to my above analysis) upon the ownership of a goodwill to be generated by activities involving both of them in the future. Is there any reason the law should not give effect to such agreement? In my judgment, the answer is no. It may not be a licensing agreement in the strict sense, it is still an agreement concerning ownership of goodwill that could be enforceable in the eyes of the law. 74.In the competition between a foreign manufacturer and a local distributor regarding the ownership of a goodwill built up during the course of a long term contractual relationship, I respectfully agree with Professor Wadlow that the ultimate determination as to legal ownership is a two-stage process. In most cases, both parties would have contributed to the establishment and promotion of the goodwill. On the facts of the present case, although the costs of the promotion of ENHANVOL, ENHANTEA and ENHANOID in Hong Kong were paid by the 1st Defendant, I do not think it is fair to suggest that the Plaintiffs did not play any part at all in such promotion. Whatever one may say as to the other aspects as to evidence of Liu, it cannot be denied that the products were the result of research under his leadership and the name of the 2nd Plaintiff was used repeatedly in various advertising material. The quality of the products depends on the quality control exercised by the Plaintiffs. Bearing in mind that this is a health product for human consumption, the standard of quality must have some significance in establishing and maintaining the goodwill. 75.In fact, from the introduction of the products at the side panels of the packaging for ENHANVOL and ENHANOID (e.g. exhibits LX-22 and LX-28), it is quite obvious that at least one of the selling points deployed in the marketing of the products was the advanced technology and research utilized in the production. This is also reflected in the advertisement of the products in Hong Kong. There was a reference to the technology of 萌動激活 in most, if not all, advertisements. Further, there were references to the technology being researched by the FERC in many of these advertisements. 76.In so saying, I am not going so far as suggesting that a manufacturer must have some legitimate claim to the ownership of the goodwill irrespective of the facts of the case. What I said is confined to the facts of the present case. Given the nature of the product (a health product with a number of competitors already in the market), the manner in which the products had been marketed here, the fact that when it was launched the Defendants were, if I may so without any disrespect, nobody in the field, and the undeniable assistance provided by the Plaintiffs in the promotion of the products in Hong Kong (the evidence clearly showed that in 1999, those in the 1st Defendant involved in the business did not have much knowledge about lingzhi and they had to be educated by Liu), the inevitable conclusion is that the Plaintiffs had played a part in the building up of the goodwill here. 77.It is primarily up to the commercial decision of the parties as regards how the fruits of their co-operation would be distributed. Goodwill is a legal property generated from the joint efforts of the parties and I see no reason why the parties could not agree on its ownership upon the termination of their relationship. Once it is concluded that the parties have agreed on the same, it is not for the court to say that such agreement should be upset unless the agreement is in breach of the rule of assignment or licence in gross (as in the case of Oertli v Bowman [1959] RPC 1). 78.In the context of the present case, it cannot be suggested that such rule had been breached. Nor do I understand Mr Chan to be arguing along that line. In fact, this is not a case where the consuming public had no idea that the Plaintiffs were the origin of the products. Mr Liao helpfully summarized the references to the Plaintiffs in the packaging of ENHAVOL, ENHANOID and ENHANTEA under Paragraph 5.9 of his Closing Submissions and similar references in advertising material under Paragraph 5.10. I have also examined to the advertisements alluded to by the defence in the table attached to their Closing Submissions. One should of course focus on the promotional material prior to December 2002, viz. before the parties fell out with each other. Mr Chan stressed that in the early advertisements, there was no reference to any company other than the 1st Defendant. In my view, that cannot be too weighty given the fact that in all the packaging for ENHANVOL, there was reference to FERC of the 2nd Plaintiff as the research unit of the product and the 1st Plaintiff as a joint manufacturer. There was also advertisement in 1999 referring to the works of FERC as assurance for the quality of the products, e.g. an article in the Hong Kong Standard on 13 August 1999 (E607). There were also numerous newspaper and magazine advertisements referring to the Plaintiffs as the product of research from FERC and the 1st Plaintiff. The insert contained in the package also made reference to the Plaintiffs. 79.Mr Chan submitted that the names of the Plaintiffs, whenever they appeared in the promotional material, were given the same prominence as the other names in a long list. Even so, it does not detract from the fact that the consuming public was informed that the Plaintiffs played their parts in the production and research of the products. Further, it can be seen from the inserts contained in the package that more emphasis was placed on the technology and research of the FERC than the other institutes in the list. There were also advertisements giving notable prominence to the association of the products with the Plaintiffs, e.g. D334-337, exhibit D1. In the light of these, I think the Plaintiffs had legitimate claim to the goodwill associated with the marks or names ENHANVOL, 盈康活, ENHANOID, 盈康孢子油, ENHANTEA, 盈康茶. I see no good reason why the ownership of such goodwill should not be governed by the agreement concluded between the parties. Of course, as pointed out above, the distributorship agreements did not cover ENHANOID and 盈康孢子油. I will have to deal with those names and marks on the basis that there was no specific agreement as to the ownership of the goodwill pertaining to the same upon the termination of the distributorship. But it is quite plain that all these products were marketed as a series of products, i.e. they were different products in the same family. 80.I cannot find anything inconsistent with my above analysis in the cases cited by Mr Chan. In Medgen Inc v Passion for Life Products Ltd. [2001] FSR 496 and Frankau v Pflueger (1910) 28 RPC 130, the court was not considering a situation where the parties had provided for the ownership of the goodwill upon termination of their relationship. In Diehl [1970] RPC 435, the court only concerned with the validity of a registered trade mark which was found by the court to be an importer’s mark as opposed to a manufacturer’s mark. There was no evidence before the court that the registered owner of the mark intended to sell products not manufactured by the applicant (who challenged the validity of the registration), see p.446. The implication of the relevant clause (clause 8) in the distributorship agreement was to be considered in another set of proceedings, see p.437, 445 and 447. 81.I therefore hold that as far as the goodwill associated with the names or marks ENHANVOL, 盈康活, ENHANTEA, 盈康茶 and their get-ups is concerned, the ownership should be governed by the agreements between the parties. In other words, the 2nd Plaintiff is the owner of such goodwill and the Defendants are not at liberty to exploit the same without the consent of the 2nd Plaintiff. 82.As regards ENHANOID and 盈康孢子油, they were not covered by the distributorship agreements. As pointed out by the Court of Appeal in Scandecor, in the absence of any agreement between the parties governing the ownership of the goodwill, the matter has to be resolved by way of a factual inquiry and there are no hard and fast legal rules in binding precedents or in factual or legal presumptions. Although quite a number of authorities had been cited by counsel, they serve no more than as illustrations of how the court might conduct the factual inquiry on the facts of a particular case. In Reckitt & Colman Properties Ltd v Borden Inc [1990] 1 WLR 491 at 499C, Lord Oliver observed that in this branch of the law, reference to other cases is generally not of any real assistance except analogically. Therefore, I do not find it necessary to discuss all the authorities at length. 83.It is common ground that the relevant date on which the factual inquiry should focus is around December 2002. 84.In Guangdong Foodstuffs Import & Export (Group) Corp v. Tung Fook Wine (1982) Co. Ltd. [1999] 3 HKLRD 545, Cheung J (as he then was) referred to several authorities and broadly approached the matter by reference to two tests: the public perception test and the control test. The former examines the public perception regarding who was responsible for the products whilst the latter focuses on asking who was in fact responsible for the character, quality control and production of the products. Both Mr Liao and Mr Chan made submissions based on these tests although they seem to have different understandings on their proper application. 85.Whilst these two tests could be adopted as useful starting points for the factual inquiry, I do not think they should be regarded as the exclusive tests to be applied. Recent cases show that the court should examine all the relevant circumstances in the case instead of focusing on these two aspects, see the Court of Appeal’s decision in Scandecor at p.43-45; Medgen Inc v Passion for Life Products Ltd. [2001] FSR 496 at p.512; Growmax v Don & Low [1999] RPC 367 at p.389-390. 86.Turning to the facts of the present case, it is in my view beyond dispute that the Plaintiffs were most responsible for the character and quality of ENHANOID as a matter of fact. The product was the result of the research of FERC of the 2nd Plaintiff and it was manufactured and subject to quality control by the 1st Plaintiff. I reject Mr Chan’s submission that in the application of the actual control test, one should ask who was responsible towards the consumers and examine the following,
In my judgment, those questions are pertinent to the public perception test but not the actual control test. 87.Turning then to public perception, ENHANOID was first introduced into the Hong Kong market in mid 2001. I find exhibits P-4A to P-4C, the records of sale by the 1st Plaintiff to the 1st Defendant (confirmed by the 2nd Defendant who signed on the same) to be a reliable records of the transactions between the parties at the material time. According to P-4B, the first lot consisting 100 bottles of ENHANOID was supplied to the 1st Defendant on 26 July 2001. 84 bottles were subsequently returned. Then on 10 August 2001, another 100 bottles were delivered, followed by 100 bottles on 19 September 2001. Further quantities were sold in November and December 2001 as well as in 2002. It would appear that the product was quite popular as the 1st Defendant kept ordering the same from the 1st Plaintiff right up to the end of their relationship. The last batch was an order for 300 bottles on 18 September 2002. By then, the 1st Plaintiff refused to sell the products to the 1st Defendant on credit. The 1st Defendant was so eager to have the goods that it sent a staff to bring a cashier order to the 1st Plaintiff in exchange for the goods. 88.In the course of Tong’s evidence by way of re-examination, some sales invoices of ENHANOID by the 1st Defendant were produced. They were not formally marked as an exhibit during the course of evidence as the Plaintiffs did not require the originals to be produced. At the trial, this court directed parties to insert the documents into the trial bundles but somehow it was not done. For the sake of identification and record, I marked the same as Exhibit D-25 after consultation with the parties by correspondence. Those records showed that between 30 August and 30 November 2001, 40 bottles of ENHANOID were sold to some individual customers. Further, on 29 November 2001, 60 bottles of ENHANOID were sold to Watsons. In December 2001, 37 bottles were sold. 89.Tong testified that the products were sold by the 1st Plaintiff to the 1st Defendant in the packing of LX-26. She said she did not like that packing and at the initial stage, when the 1st Defendant sold ENHANOID by way of soft launching to individual customers, it was sold without any packing. She said the 1st Defendant also removed the label on the bottle before sale. By the time the products were sold to Watsons, the 1st Defendant had already repacked ENHANOID in their own packing LX-28. The invoices in D-25 showed that the first sales to Watsons were on 29 November 2001. 90.Wong Yan Yan and CYF gave evidence for the Defendants regarding the design of the 1st Defendant’s packing for ENHANOID. I shall discuss their evidence further in dealing with the copyright claims. Suffice for me to state at this juncture my conclusion is that the design for LX-28 came into existence in the manner deposed to by Wong Yan Yan and LX-27 was produced afterwards with reference to LX-28. 91.On the other hand, there are certain aspects of the evidence of Tong pertaining to the packaging and advertisement for ENHANOID in Hong Kong that I do not accept. First, I do not accept her evidence that the advertisements at D334 and D-1 were made by the 1st Defendant at the request of Liu purely for the purpose of FERC at the trade fair in the mainland. Judging from the fact that the 1st Defendant had by then already ordered a substantial quantity of ENHANOID from the 1st Plaintiff and had in fact been selling those to individual customers since 30 August 2001, the 1st Defendant was clearly planning to promote ENHANOID in Hong Kong. When Tong was cross-examined about this aspect, I found her to be less than forthcoming. She gave me an impression that she wished to downplay the fact that there had been sale of ENHANOID in Hong Kong by the 1st Defendant before that advertisement. It is obvious to me the 1st Defendant was utilizing the opportunity of the trade fair to promote ENHANOID. The reason why they used LX-26 as product shot was that it was the only package available at that time. In the light of D-1, I accept that by early October 2001, the 1st Defendant was planning to have a different package for ENHANOID in Hong Kong. However, that does not mean that D334 and D-1 were not advertisements for the 1st Defendant’s promotion of ENHANOID. Insofar as Tong gave evidence to the contrary, I do not believe her. 92.Second, Tong said the 1st Defendant had removed the package and bottle label of LX-26 when they sold ENHANOID to individual customers before LX-28 was available. I find that difficult to believe. The evidence shows that the 1st Defendant was not giving away ENHANOID free of charge. They were sold at a substantial price although discounts at different rates were given. Some of the invoices in D-25 showed that they were sold at a price as high as $3,595.50 per bottle. Even taking into account of the prospect of changing the package, there was no absolute need to discard all the packages. Contrary to the evidence of Tong, I do not find the bottle label at LX-26 to be easily removable. It would in fact be quite cumbersome to remove that label and I do not believe this had been done when the 1st Defendant sold ENHANOID to its individual customers prior to the launch of LX-28. However, according to D-25, the number of bottles sold in such packaging is limited. 93.My relevant findings on the packaging of ENHANOID marketed in Hong Kong are as follows. For a brief period, it had been sold in LX-26 but the quantity was small. It had never been sold in Hong Kong in LX-27 packaging. Since about the end of November 2001, it was sold in LX-28 packaging. For the purpose of determining the ownership of goodwill, I should pay more regard to the LX-28 packaging than LX-26. In considering the LX-28 packaging, I would ignore the insert and the bottle label as I am not satisfied that those were part of the original packing. 94.The following features at LX-28 are relevant for determination of ownership of the goodwill attached to ENHANOID and 盈康孢子油,
95.As far as the ENHANOID advertisements in the promotional material are concerned, I shall focus on the advertisements between October 2001 and early December 2002. The earliest advertisements were D334 and D-1. Those advertisements laid emphasis on ENHANOID as the result of a breakthrough in the research of FERC. The 1st Plaintiff, FERC and 1st Defendant were introduced as the joint manufacturers of ENHANOID. The association with ENHANVOL was apparent by the reference to the technology of 萌動激活 and ENHANOID was introduced as a product of 盈康系列. 96.I have already mentioned the dispute between the parties as to the purpose of the advertisement. In my judgment, the motive behind the advertisement is of little moment. What is significant is the message conveyed to the consumers by the advertisement. 97.In later advertisements at D335 to D337, although the 1st Plaintiff’s name did not appear, there were still prominent statements (although not of the same size as in D334) that ENHANOID was the result of the research of FERC. Comparison with ENHANVOL was made expressly in D336 and D337. 98.The promotion of ENHANOID as coming from the same family as ENHANVOL is also evidenced by LX-41a. That exhibit consisted of various items sold at Watsons on 29 November 2002 in one set. By that stage, the parties had fell off with each other. The ENHANVOL in that set was in fact a version allegedly originated from Shanghai Second Medical University as opposed to that of FERC or the 1st Plaintiff. However, amongst the set, there was a small traveller’s pack identified as LX-41a(5). Inside that pack, there were several leaflets, including a leaflet for ENHANOID. There is no dispute by the Defendants that this was a leaflet of the 1st Defendant. I can therefore properly infer that it was a typical example of how ENHANOID had been marketed by the 1st Defendant before the termination of the relationship between the parties. The content of that leaflet speaks for itself. The association of ENHANOID with ENHANVOL was made and the major selling point of the product was the research of the FERC. 99.The importance of the technological research backing to the marketability of the products was, in my judgment, well demonstrated by the manner in which the 1st Defendant announced the breakup with the 1st Plaintiff and the FERC in newspaper on 4th and 5th December 2002 (at D414 and D415). Those advertisements, apart from the notice to the public to watch out for counterfeit products, emphasized that the production of ENHANVOL had been switched to a factory with GMP certification and the research partner had been switched to Shanghai Second Medical University as opposed to the FERC. This shows that the quality control for production and the technological research backing were two important selling points of the product. Although that was an advertisement for ENHANVOL, I can readily infer that the same can be said for ENHANOID. 100.This accords with common sense. We are talking about health products, more particularly lingzhi products. The primary concern of consumers purchasing these products must be the quality and effect of the products. Technological research backing and quality control in production are crucial. I can see the difference in the appeal to an average informed consumer between a lingzhi product manufactured by an unknown factory in Shenzhen and a lingzhi product manufactured by the 1st Plaintiff with the backing of the research by the 2nd Plaintiff. 101.By comparison, the after-sale services provided by 1st Defendant as a local distributor is relatively less important. Although Mr Chan highlighted the fact that it was the 1st Defendant who dealt with complaints from local customers, I do not think one can attach as much significance to the services by the 1st Defendant as that of a local dealer for electrical appliances who provides repair services or that of the defendant in Scandecor. 102.Moreover, at the beginning of the distributorship, the 1st Defendant was not known in the market and had no knowledge or expertise in respect of lingzhi products. It is not a case where a well-known trading firm sourced a product from an unknown supplier and then marketed the products in its own packaging without reference to the name of the manufacturer. Hence, to start with, the selling points must have been the quality assurance backed up by research from the FERC. 103.In contrast, although the 1st Plaintiff and FERC did not carry out any direct sales activities in Hong Kong, their products had been sold here under the brand name Hometown Food and to that extent had some exposure to local consumers of lingzhi products. Further, whilst the 2nd Plaintiff might not be, in the eyes of the general public in Hong Kong, on par with top class universities in the world, the research of FERC definitely provided some quality assurance to the products. Lingzhi is a traditional Chinese medicinal product and it is natural that consumers in Hong Kong attach importance to research by reputable institution in mainland China on the topic. I have no difficulty in appreciating the difference in marketability in Hong Kong between a lingzhi product not backed up by any research of the 2nd Plaintiff and one with such backing. On Tong’s evidence, after first rejected by Liu (when he was still hoping Mr Cheng would take up the distributorship), the 2nd Defendant was still keen on distributing the lingzhi products of the Plaintiffs. This shows that they recognized the market potential of the Plaintiffs’ products in Hong Kong. 104.In Shanahan, Australian Law of Trade Marks and Passing Off, 2nd Edition, p.42-43, a distinction was drawn between two classes of trade marks. The first class is manufacturer’s marks, which the learned author described as follows:
105.The second class is dealer’s mark.
106.Without losing sight of what I said earlier that the ownership of goodwill associated with a trade mark is ultimately a question of fact and no single test or factor could be regarded as conclusive, I find these passages from Shanahan illuminating. In the present context, bearing in mind how the names had been used (with significant references to the research of FERC as the selling point of the products), the relationship between the parties as reflected in the agreements (in the case of ENHANVOL and ENHANTEA) and other matters I have alluded to, I consider that it is more likely that the consumer public regarded the names as a manufacturer’s mark than a dealer’s mark. 107.Although the Defendants did specify the number of capsules in one box and the quantity of ENHANVOL in one capsule, I think it is going too far to suggest that these specifications indicated that the products were supplied under the aegis of the Defendants as opposed to being manufactured by the Plaintiffs. Indeed, the evidence shows that the 2nd Defendant was not the first trader with whom the Plaintiffs negotiated distributorship. It was only after negotiation with Mr Cheng had failed that the 2nd Defendant entered into serious negotiations with Liu for the distribution of ENHANVOL. Further, under Clause 3(1) of the Distributor Agreement, the 1st Defendant could only obtain supply of ENHANVOL from FERC. It is not a case where a trader selected a manufacturer or several manufacturers for a product conceived by the former. 108.In this connection, although Tong and CYF gave evidence about how the 1st Defendant wished to have its own brand names for the products in the course of negotiation and the 1st Defendant was to become the owner of such names, this wish was not reflected by the terms of the distributorship agreements. Given my reservations as to their credibility generally and the fact that the negotiation for the terms of the agreement was conducted between Liu and the 2nd Defendant (who chose not to give evidence), I do not attach much weight to the evidence of Tong and CYF in this regard. 109.Further, I accept the submissions of Mr Liao in Paragraph 5.11 of his written closing submissions that insofar as Tong and CYF gave evidence to the effect that the backing of the FERC was insignificant in the promotion of the products, such evidence should be rejected. I do not think I need to set out at length the arguments of Mr Liao on this point. Suffice to say that based on what I have already said above and the other matters alluded to by Mr Liao, it is quite obvious to me that Tong and CYF were biased in this regard and I do not believe them. If what they said were true, I believe the packaging, promotional material and inserts in the products would not be the same as they actually were. At least, less emphasis would have been placed on the research by FERC. 110.In some advertisements, certain celebrities or movie stars were engaged to promote the products. I do not think that is of much significance in determining who owned the goodwill. Surely it cannot be suggested that the goodwill belonged to the celebrities and I do not understand Mr Chan to be suggesting the same. 111.It has become fashionable in some trades to engage a celebrity as a product spokesman or spokeswoman. It is just a marketing technique and from a legal point of view, there is no distinction between that and the design of a get-up or a plot for promotional audio or video footage. For the purpose of ascertaining ownership of goodwill, in particular the competition for ownership between the parties in this action, it is not a significant factor. Nowadays, an average consumer in Hong Kong can readily appreciate that the endorsement or promotion of a product by a celebrity does not mean that he or she is the trader supplying the goods in question. Nor does it imply that the person who arranged for such endorsement must be the owner of the goodwill. These are all basically commercial arrangements with regard to the marketing of the products. An analogy can also be drawn with an advertising agent engaged by a local distributor for the promotion of an imported product. Even if he paid all the fees of the advertising agency, it would be wrong to suggest that by reason of that the local distributor must be the owner of the goodwill. 112.Counsel submitted that the packaging of a product could be regarded as the clothes for the product. In my view, these endorsements by celebrities are likewise measures adopted for enhancement of the product image. Although the person who determined and procured the design of the packaging and the manner in which the products would be advertised are not necessarily the owner of the goodwill generated therefrom, in most of the cases the owner of the goodwill would be interested and exercised control over such matters. Hence, depending on the facts of a case, it may be possible for the court to draw an inference in an appropriate case that such a person is more likely to be the owner of the goodwill. However, it must be stressed that all the circumstances have to be considered and there could be cases where a foreign owner of the goodwill is quite content to leave it to the local agent to decide these matters for him. The same applies as to the coining of the product names. Hence, whether such an inference would be drawn depends a lot on how the parties have dealt with each other. 113.Whilst there is no dispute that it was the 1st Defendant who paid for the advertising expenses in Hong Kong, it was an obligation undertaken by the 1st Defendant under Clauses 2(2) and 3(5) of the Distributorship Agreements. In the latter provision, the 1st Defendant agreed to incur not less than $1.5 million for the promotion of the products within the first six months after the making of the agreement. In short, it is a price that the 1st Defendant agreed to pay in order to get the distributorship. Against such background, in determining the ownership of the goodwill, little significance could be attached to the payment of advertising expenses and the arrangement for advertisement and promotion of the products (including the engagement of celebrities to endorse the products) by the 1st Defendant. 114.As regards the designs for the packaging of all the products that we are dealing with, for reasons given above and in my discussion on the copyright claims, my finding is that they were procured by the 1st Defendant as opposed to the Plaintiffs. As regards the coining of the names, subject to the question as to the timing, I accept the evidence of Dr Chow about the telephone conversation and reject the evidence of the Plaintiffs’ witnesses on the genesis of the name ENHANVOL. There cannot be any doubt as to the integrity of Dr Chow. He is a respectable person, being the associate dean of the Faculty of Dentistry at the University of Hong Kong. He has no interest in the Defendants’ businesses. He answered questions directly and he was frank about matters he could not recollect. Mr Liao fairly accepted that Dr Chow is an honest and truthful witness. 115.On the timing of the conversation between Dr Chow and the 2nd Defendant about the suffix for ENHANVOL, I think the doctor was mistaken. He said it happened around the end of 1998 and although possible, it was unlikely to be in January 1999. But he had no specific reason to capture the recollection as to the date of that conversation at the time of the event and he could not pinpoint any matter to assist him on that except that it happened after an examination. On the other hand, there are events that show objectively the conversation probably took place later.
116.But the mistake of Dr Chow in that regard does not matter much. The real significance of Dr Chow’s evidence lies in the fact that when the 2nd Defendant approached him, the English name was not yet completely coined and it was Dr Chow himself who contributed the finishing touch to the name by suggesting the suffix “vol”. Despite his mistake as to the timing of the conversation, I find the other aspects his evidence reliable and I accept the same. As Mr Chan submitted, once I made a finding that the suffix “vol” was contributed by Dr Chow, I could not accept Liu’s version as to the genesis of the name ENHANVOL. I have already alluded to the lack of credibility on the part of the Plaintiffs’ witnesses and I do not need to say more on the topic. 117.On the other hand, I also have misgivings about Tong’s evidence as to the coining of the name 盈康活. From the material produced by Chan Chin Hung, it was quite obvious that the 1st Defendant was aware of the name 盈活 used on a product sold by another trader. CYF testified that, some time in 1998, he had approached that trader to see whether the 1st Defendant could distribute their products. He said he had reported the same to the 2nd Defendant. Although it was said Tong was not involved in the business at that stage, I cannot believe that she was not aware of the name 盈活 when she was trying to get a new name for this product. I therefore find that she had not told this court the whole truth about the genesis of the name 盈康活. 118.Hence, whilst I reject the Plaintiffs’ case as to the coining of the product name, I cannot accept the Defendants’ case in its entirety. Even so, on the balance of probability, I find that the coining of the names ENHANVOL and 盈康活 was by the Defendants. 119.Having said so, it does not mean the Plaintiffs had no part to play with regard to these names. Since the products had to be promoted with the support of the Plaintiffs (as references had to be made to FERC’s research in advertisements and packages), the Defendants could not simply adopt such names without the consent of the Plaintiffs. Hence, the 2nd Defendant indicated in the letter of 17 January 1999 that he would inform Liu as to the name of the product when the 1st Defendant had decided on it and the name of FERC would be used in promotional material. This was subsequently expressly provided for under Clause 3(7) of the Distributorship Agreement. In view of that, I do not think too much weight could be attached to the fact that the names were coined by the Defendants in assessing the ownership of the goodwill. 120.Tong’s evidence was to the effect that on the coining the names, and also on the design of the packaging, the Defendants could decide on their own without consulting the Plaintiffs or Liu. Although I reject the Plaintiffs’ evidence that the names and designs were the brainchild of Liu, I do not accept that Liu was prepared to go along without being consulted on these matters. Given the character of Liu, I find it to be inherently most unlikely that he would just leave everything to the Defendants. As I said, the agreements provided for a right to veto on the part of FERC. It is rather unimaginable that Liu would permit the products to be sold in Hong Kong under a name or in a package which he found to be objectionable. In fact, Tong herself testified that at some stage, Liu objected to the lack of reference to the Plaintiffs in the advertisements and the Defendants took heed of that subsequently. On Tong’s case, the advertisement at D334 was made at the instigation of the Plaintiffs. In my judgment, the Plaintiffs clearly had some say on these matters. 121.Mr Chan tried to downplay the significance of that provision by contending that it was confined to literature or promotional material relating to FERC and its aim was to protect FERC in respect of what was said about it instead of the products. I think that submission fails to take into account of the underlying factual matrix. As I said, at that point in time, the most important selling point in the marketing of the products is the backing provided by the research of FERC. As a matter of fact, virtually all the promotional material and packaging contained references to FERC or its technology. The few advertisements without such references (Bundle T1, p.21 and 22) were not typical advertisements about the products. Against such background, and also having regard to the other terms in the agreement which envisaged the 2nd Plaintiff to be the owner of the goodwill attached to the names, my conclusion is that the agreements did in effect give the 2nd Plaintiff the right to veto on the names and designs of the products to be sold in Hong Kong. It may be that Liu did not deem it necessary to exercise that right with regard to the names and designs actually adopted. But this does not detract from the position that the Plaintiffs did have some control over the matter. 122.It seems that neither party continues to use the names ENHANTEA盈康茶 and I would not therefore lengthen this judgment by analysing this part of the case in great details. The Distributorship Agreements for ENHANTEA盈康茶 contained similar provisions with regard to the Plaintiffs’ approval for promotional items. The promotional material and the packaging for ENHANTEA盈康茶 and its insert also adopted the research of FERC as a selling point. In view of that, it cannot be disputed that the Plaintiffs did have some say in the brand names of the products irrespective of the initial authorship of the names and the design for packaging. 123.There is a conflict of evidence between Tong and Liu on the question of authorship. Tong claimed it to be her idea whilst Liu said it was his. The evidence on the topic primarily revolved around a document produced as exhibit P-8. The defence case as specifically put to Liu in cross-examination was that the names were decided at a meeting on 3 May 1999 when P-8 was written. Liu said the names had already been decided well before that meeting as it was referred to in the Collaboration Agreement which was executed prior to 3 May 1999. Although Tong adhered to the case put to Liu in her examination in chief, she accepted in cross-examination that the names had been communicated and understood between the parties prior to that meeting. 124.Given the general observations about Liu’s credibility and my reservations as to Tong’s credibility and the inconsistency in the defence case mentioned above, I do not feel confident to act upon the evidence of either of them on this issue. By reason of my conclusions as to the effect of the agreements and the Plaintiffs’ ultimate control over the names irrespective of authorship and the discontinuance of use of the names, I do not think it is absolutely necessary to resolve the dispute on authorship of ENHANTEA and 盈康茶. 125.Turning to ENHANOID and盈康孢子油, there is no dispute that initially the Chinese name was盈康力 (see LX-26 and D334). Whilst I find the Plaintiffs’ witnesses to be unreliable, I do not derive much help from the evidence of the Defendants as to the coining of these names. The 2nd Defendant was said to be the author but he chose not to give evidence. Tong’s evidence was ambivalent (based on what she was allegedly told by the 2nd Defendant) in this regard and for reasons already canvassed, I do not feel confident to act on her evidence alone. On such state of evidence, I simply cannot reach a conclusion as to the authorship of the names ENHANOID and盈康孢子油. 126.On the facts of the present case, for reasons already given, I do not think it is of vital importance to identify the author of the names ENHANOID and盈康孢子油. Even assuming that the names were coined by the Defendants, this is but one factor to be taken into account in deciding ownership of the goodwill attached to them. Taking other factors into account, I am able to conclude that the Plaintiffs are the owners even if the names were coined by the Defendants. 127.I consider it is important that ENHANOID was marketed as a product in the same family as ENHANVOL. It is unsatisfactory and most unlikely that the public would perceive the owner of the goodwill of one as different from that of the other. 128.Once it is concluded that the goodwill belonged to the Plaintiffs, the elements of misrepresentation (by the continued use of ENHANVOL, 盈康活, ENHANOID, 盈康孢子油 after the break-up of the relationship) and damages are self-evident. Therefore, I hold that the Plaintiffs succeed in their passing off claims in respect of these names. As regards ENHANTEA and 盈康茶, the evidence of Liu himself shows that by 5 December 2002, the Defendants had changed the name to “Mr Tea 灵芝孢子茶” (see Paragraph 84(vi) of his Affirmation of 23 August 2003 at B81). This was confirmed by Tong in her evidence. There is no evidence of continued use of the names ENHANTEA and 盈康茶 by the Defendants. The claims in respect of those could not be sustained. 129.Turning to the claims in respect of get-up, there is no evidence that the packages of ENHANVOL, 盈康活, ENHANOID, 盈康孢子油 or any other elements of their get-ups were, apart from their brand names, so distinctive that consumers identified the products by the get-ups. Having regard to these get-ups and the way they were advertised, I am not satisfied that the get-ups are so distinctive of the products that other trader using similar get-ups but different brand names would be successful in misappropriating the Plaintiffs’ goodwill. As far as I could see, the get-ups were not exceptionally eye-catching and basically consisted of ordinary features for get-ups of similar kinds of products. I therefore dismiss the passing off claims based on get-up. 130.On the passing off claim in respect of萌動激活, for reasons given under the section dealing with the registered trade mark claim, I hold that the expression did not perform the function of a trade mark as indicating the origin or distinguishing the identity of the source of the goods. Hence, the claim also fails. 131.Lastly, as regards the free standing passing off claims, neither party spent much time on that in the closing submissions. The newspaper advertisements dated 4, 5 and 12 December 2002 and statements made at the press conference on 12 December 2002 did contain misrepresentations to the effect that the production of lingzhi products properly bearing the name ENHANVOL had been shifted from FERC to other factories with the benefit of the same technology. Since I conclude that the name ENHANVOL indicated to the consumers that products bearing the name were manufactured and supervised by the Plaintiffs, it is a misrepresentation to suggest the production had been shifted to other factories. However, this element of misrepresentation stemmed solely from the use of the marks ENHANVOL盈康活. 132.In substance, I do not think the free standing passing off claims add anything to the passing off claim based on the marks or names ENHANVOL盈康活. I see no need to grant separate relief in connection with the passing off claim based on the advertisements or statements made by the Defendants in early December 2002. 133.As regards the alleged statement on the website, on the evidence available I am not satisfied that the website had been launched. Only Liu gave evidence on behalf of the Plaintiffs in respect of the webpage. He had not explained how he found out about the website and when was the webpage downloaded. On the other hand, Tong denied that the website had been launched. The burden of proof is on the Plaintiffs and in view of my assessment of credibility, I consider the Plaintiffs failed to discharge that burden. I therefore dismiss that head of claim as well. 134.Mr Liao submitted that on the facts of the present case, if the passing off claims succeeded, judgment should be entered in favour of both Plaintiffs. Mr Chan did not advance any submission on this aspect. Having regard to the matters alluded to in Paragraph 3 of Mr Liao’s supplemental submissions of 24 February 2005, I agree with his analysis that the goodwill is jointly owned by the Plaintiffs. 135.Hence, the Plaintiffs are entitled to relief in respect of passing off pertaining to the names or marks ENHANVOL, 盈康活, ENHANOID and 盈康孢子油. There will be usual injunction as well as consequential relief including inquiry of damages or, at the option of the Plaintiffs, account of profits. The rest of the claims under the head of passing off are dismissed. Breach of distributorship agreements 136.The first question is the identity of the parties to the contracts or more specifically, whether FERC is part of the 2nd Plaintiff. As I said in my Reasons for Ruling of 16 September 2004, it is primarily a question of fact. Notwithstanding the determination of the issue by the Intermediate People’s Court in Guangzhou, I should resolve the question by reference to the evidence before me. 137.According to a document issued by the 2nd Plaintiff on 25 June 1993, a 中山大學食品工程研究中心was set up by the 2nd Plaintiff on 8 July 1991. In 1993, there was an application for converting that into FERC. That application was approved in principle by the Ministry of Education in 1993 and subsequently further endorsed on 7 June 1995. 138.The question is whether such conversion established FERC as a separate legal entity with independent legal status on its own right. In a document 教技函 [2003] 59 號 dated 5 December 2003, the Ministry of Education confirmed that notwithstanding the conversion, FERC was still attached to the 2nd Plaintiff and the 2nd Plaintiff was the legal entity responsible for its affairs and undertook legal liabilities and obligations for the activities of FERC. There was a reorganization in 2000 which is not material for present purposes as the agreements were made in 1999. 139.The conversion in 1993 was made pursuant to 國家工程研究中心管理辦法 promulgated on 26 November 1992. Having examined the provisions therein, I do not think there is any provision therein inconsistent with the view of the Ministry of Education. Although the regulation provided for the independent finance and administration of a 工程研究中心, it does not confer a status of separate legal entity on the same. On the contrary, Article 20 stipulated that it would be attached to or entrusted with the organization setting up the centre (“工程研究中心是依托于建設單位”). 140.Insofar as it is still suggested that FERC is a different entity from 中山大學食品工程研究中心, I reject the same as the evidence before me did not provide any factual foundation for such suggestion. 141.The Intermediate People’s Court in Guangzhou concluded that FERC was part of the 2nd Plaintiff and the 2nd Plaintiff could therefore sue or be sued on the distributorship agreements. I respectfully share the same view. 142.The second question is the subject matters of these agreements. There was no reference to ENHANVOL, 盈康活, ENHANTEA, 盈康茶 in the Distributorship agreements (apart from the Collaboration Agreement). Instead they referred to《天維牌》包裝lingzhi spore powder and lingzhi tea. The only person who had given evidence before me who had personal knowledge about the negotiations and execution of these agreements was Liu. Although allegations were made by the 2nd Defendant, he did not give evidence. The other defence witnesses could not shed much light about the negotiations and execution of the agreements. 143.Liu testified that the first agreement about spore powder was made in February and the first agreement about lingzhi tea was made on 9 May 1999. He also said the Collaboration Agreement was made in March 1999 although on its face, the date was 13 February 1999. His evidence was based on entries in his diary. I have already explained why I do not attach any weight to those entries. Instead, I find the notations (which apparently is a shorthand of the dates) at the top left hand corner of the first page of each agreement to be more reliable. On that basis, I find that the agreements were executed on or about these dates,
I would not say the same for the date of execution of the Collaboration Agreement. The notation in my copy in the trial bundle is “99 20302-2”. I am not sure whether the blank is due to photocopying or otherwise. The Collaboration Agreement could not have been made on 3 February 1999. It is not essential for me to make any finding as to the actual date of execution of the Collaboration Agreement and I do not find able to do so on the evidence before me. 144.By reason of the following, I have no difficulty in concluding that the expression《天維牌》包裝 in the agreements were intended by the parties to refer to the lingzhi spore powder and lingzhi tea supplied by the Plaintiffs to the 1st Defendant subsequently under the names ENHANVOL, 盈康活, ENHANTEA, 盈康茶,
145.Mr Chan submitted that there is no claim for rectification of these agreements nor pleas based on variation of the agreements. In my judgment, the issue as to the scope or subject matters of these agreements had been adequately raised in the pleadings and evidence (see Paragraph 32 of the Re-Amended Consolidated Statement of Claim, Paragraph 42 of the Re-Amended Consolidated Defence and Counterclaim, Paragraph 27 of the Re-amended Consolidated Reply). It is not a case of rectification or variation. It is merely a question of what the parties intended to refer to when they described the subject matters of the agreements by reference to 《天維牌》包裝. Based on the evidence before me (and it is significant that the 2nd Defendant chose not to give evidence, and the court is therefore deprived of the benefit of hearing evidence from the only person in the 1st Defendant who was privy to the negotiation for the terms of distributorship), I conclude that it was the common intention of the parties that 《天維牌》包裝 encompassed the names ENHANVOL, 盈康活, ENHANTEA, 盈康茶 and had dealt with each other accordingly between 1999 and 2002. 146.Turning then to the legality of these agreements under PRC law, I have addressed the issue in the context of admissibility of expert opinion in my Reasons for Ruling of 16 September 2004 Paras.12 to 14. Up to the date when I write this judgment, the appeal court in Guangzhou has not yet delivered its judgment. I therefore see no reason to depart from my analysis in my said Ruling. I hold that the agreements were valid and enforceable under PRC law. 147.In the course of trial, Mr Liao indicated to this court that the Plaintiffs’ claim based on the agreements is confined to enforcing the part of Clause 3(7) relating to products which were an imitation of or passed off as the products of FERC under the agreements and products bearing product names or packaging designs similar to those under the agreements (see my Ruling of 16 September 2004 on the application for leave to amend). 148.The prohibition under Clause 3(7) runs up to 3 years after the termination of the right of the 1st Defendant to sell the products. Mr Liao submitted that the three years period should run from September 2002 when the parties formally terminated their relationship. The respective durations of distributorship provided for under the agreements were,
149.According to sales record at P-4-A, the last sale of spore powder by the 1st Plaintiff to the 1st Defendant was on 29 June 2002 whereas the last sale of lingzhi tea was on 16 April 2002. 150.However, in a letter dated 5 October 2002, the 1st Plaintiff pointed out that the agreement for ENHANVOL had expired on 31 January 2002. The second paragraph of that letter alluded to the restriction under Clause 3(7) although there was no express reference to the clause. 151.For reasons already given in the section dealing with passing off, I do not think there is evidence of breach in respect of ENHANTEA 盈康茶. The claim in respect thereof should therefore be dismissed. 152.As regards ENHANVOL, 盈康活, Mr Liao cited no authority to support an automatic extension of the period of restriction if parties continued to trade with each other after the contractual period. It is a matter of construction of Clause 3(7). In Para.16-096 of Chitty on Contracts, 29th Edn., it is said that covenants in restraint of trade must be clear and definite. Bearing in mind that the contract was drafted by the Plaintiffs, the expression “銷售權利終止” should be construed narrowly and taken to mean the end of right to sell under Clause 3(1). There is also no evidence that the parties intended such automatic extension. Hence, it ended on 31 January 2002 and this was how the matter was put by the 1st Plaintiff in the letter of 5 October 2002. The continued sale of products supplied by the 1st Plaintiff after 31 January 2002 conferred implied licence on the Defendants to sell the goods so supplied but did not extend the 3 years post distributorship restriction. Therefore the covenant lapsed on 31 January 2005. 153.I would therefore refuse injunctive relief under this head of claim. This might be academic in view of my judgment in respect of the passing off claim. 154.However, the Plaintiffs are entitled to damages for breach of contract in respect of the breach of Clause 3(7) for the 1st Defendant’s use of ENHANVOL, 盈康活 marks and packages. Clause 3(7) provided for liquidated damages. But the Re-amended Consolidated Statement of Claim did not ask for that. The Plaintiffs are confined to general damages. 155.Mr Chan submitted that the Plaintiffs did not any adduce any evidence on damages and at the most should only be awarded nominal damages. He relied on a number of cases: Born Chief v Tsai George [1996] 2 HKC 282, Excel Wood Limited v Charmed Investment Ltd HCMP 4130 of 1997, Century Crown Ltd v Ho Wing Chun HCMP 2147 of 1998. Mr Liao contended that this is primarily a case involving intellectual property disputes and this court should follow the usual Chancery practice of ordering inquiry as to damages or alternatively, at the option of the Plaintiffs, account of profits. The following cases supporting such a course were cited: Auto Treasure v Noble Diamond [1992] 1 HKC 117 and Full Range Electronics v General Tech Industrial Ltd [1997] 1 HKC 541. 156.In the present instance, given the nature of the claims, the damages for breach of contract must overlap with that for passing off. Since the Plaintiffs have yet to elect whether to seek inquiry of damages or account of profits under passing off, it would be inappropriate to deal with damages for breach of contract at this stage. I agree with Mr Liao that the Chancery practice should be followed in this case. Copyright claims 157.Liu claimed to be the author of several freehand sketches produced as exhibits P-1(A) to (J) and these were said to be the original drawings based on which the packages design for ENHANVOL at LX-19, LX-20 and LX-22 were created. P-1(A) is a pencil drawing of two spores, one cracked and the other broken with a droplet of oil spilling out. It was drawn on a piece of paper under the letterhead of the 1st Plaintiff. It was marked with “97.8” which purported to show that the drawing was made in August 1997. P-1(B) to P-1(D) were photocopies of P-1(A) with different colours added on it. 158.Liu testified that he drew P-1(A) to P1(E) in August 1997 based on what he observed under microscope and some drawings in other Chinese books about lingzhi. At first he drew the picture as a matter of interest to tell the story of lingzhi without any plan for it being used as a package design or other commercial purposes. It was only in early 1998 that the drawing was used and incorporated into a package design. When he drew P-1(A), he intended to show it to his colleagues, his patients and those admired him. 159.For reasons which would become apparent later on, it is significant to note that Liu testified categorically that he did not have the benefit of photographs taken by electron microscope when he drew P-1(A). Although he had photographs taken by ordinary microscope, he said they were of no assistance. He explained to this court the difference between photographs taken by electron microscope and ordinary microscope. The details shown by the former are, according to Liu, many times finer than an ordinary microscope. Ms Tam suggested to Liu that photographs taken by ordinary microscope could not show the tiny little holes on the surface of a spore. Liu said only very experienced expert could see such tiny little holes by means of ordinary microscope. 160.According to the evidence of Liu, he only took photographs together with Professor Ng Yuk Yin (吳育賢) by means of electron microscope in December 1998. Those were the photographs found on the side panel of the package design LX-20. Further photographs of lingzhi spores were taken by electron microscope in Japan in 2000 (“LX-13”). 161.The Plaintiffs did not produce all the photographs taken by electron microscope in respect of lingzhi spores used in the packaging boxes. Liu testified that he failed to retrieve some negatives. However, the evidence showed that the Plaintiffs did use some electron microscope photographs other than P-11 and LX-13 for its packaging and leaflets. For present purposes, I would identify the following photographs which had bearings on my assessment of the evidence,
162.In his evidence in chief on 2 September 2004 (p.30N), Chan Hon Chung testified that photographs of lingzhi spores were supplied by Liu and he added the oil like droplet to the photograph at Q48. The four photographs were later used on the side panel of LX-26. As regards the LX-20 broken spore, Chan Hon Chung’s evidence was that it was created by reference to the sketches by Liu (P-1(A) to (J)) and some material supplied by Liu, including some photographs, see p.28T to 29O. He admitted that the cracked spore was designed by using a photograph of a cracked spore. Although he did not quite spelt out what materials were used for creating the LX-20 broken spore, having regard to the photograph at V12, I come to the firm conclusion that the photograph was processed by Chan Hon Chung to come up with the graphic design for LX-20. 163.Liu testified that no electron microscope photograph has been taken by the Plaintiffs regarding lingzhi spore prior to December 1998. Although he did not give specific evidence about the photograph at V12 and the photograph of the broken pieces, I can safely infer that those photographs could not have been taken prior to December 1998. In other words, Liu could not have those photographs when he allegedly drew P-1(A) in August 1997. Nor could those photographs be used to create the designs by the Plaintiffs at any time prior to December 1998. 164.Liu mentioned about seeing photographs of spores from a Japanese magazine. But that was after he drew P-1(A) (X: 419R to U). A comparison between P-1(A), the LX-20 broken spore and the photograph on the right at V12 shows similarities between them. Having regard to all the electron microscope photographs placed before me, I am of the view such similarities could not be explained by mere co-incidence. As far as the evidence shows, the shape and configuration of each broken spore is quite distinct. Further, as Liu put it in Paragraph 34 of his First Affirmation filed in HCA 4651 of 2002 (B37), it is very rare to get photograph of broken lingzhi spore with its wall not completely crushed into pieces. It is most unlikely that Chan Hon Chung incidentally came across the photograph at V12 and found it matching with the design of Liu perfectly when he was asked to make a computer graphic based on P-1(A) and extracted that part of the photograph for such purpose. The more likely scenario, in my judgment, is that P-1(A) was drawn with reference to the photograph at V12 either directly or indirectly. In Paragraph 49 (b) and (c) of his first affirmation (B50 and 52), Liu admitted that the sketch drawings were made with reference to some photographs. 165.Given the earliest point in time the Plaintiffs could have obtained the photograph at V12 was December 1998, it follows from my above observations that P-1(A) to P-1(E) could not have been drawn in mid 1997 as suggested by Liu. Likewise, the package boxes produced by the Plaintiffs bearing designs derived from photographic images of spores taken by electron microscope could not exist prior to December 1998. 166.If the sketches were drawn in mid 1997 for leisure as claimed by Liu, it is difficult to understand why he would photocopy his own drawing and put different colours on the same in P-1(B) to (D). It is also difficult to see the purpose of drawing P-1(E) showing only the LX-20 broken spore. 167.Liu claimed that P-1(F) to (I) were drawn in January 1999 (X452 J to L, though in his evidence in chief, he claimed that P-1(I) was drawn in February 1999, see X15M). These were drawings of packaging boxes bearing the names ENHANVOL and 盈康活 (P-1(G) was a drawing of the word ENHANVOL in different styles). For reasons given above, my finding is that the names ENHANVOL and 盈康活were coined by the Defendants instead of Liu. The letter of 17 January 1999 showed that Liu was not told of those names by the time of the letter. Yet Liu’s evidence based on his diary entries at P-3 was that he had prepared the package drawings on 12 January and had given a set of those to the 2nd Defendant on 16 January 1999. That cannot be true. 168.Liu claimed that P-1(J) was created in February 1999 and was handed to the 2nd Defendant around the same time. If that were true, it is inherently unlikely that in March 1999 the 1st Defendant adopted the package design of cracked spore at D-21 even though Tong was not fully satisfied with it as it did not depict the idea of a fully broken spore (全破璧), a selling point which Tong wished to emphasize. The defence’s case is that the design of a fully broken spore similar to P-1(J) came into existence subsequently and the packaging box had to be changed accordingly in July 1999 to LX-22. A change of packaging within such a short time was not conducive to the promotion of the products. If a copy of P-1(J) had been given to the 2nd Defendant in February 1999, I believe that the 1st Defendant would have adopted it instead of using the D-21 design in March 1999. 169.Liu actually had difficulties in making up his mind as to his evidence on the dates when these sketches were made. Mr Chan referred to the wavering stance of Liu regarding the date of creation of P-1(E) in Paragraph 3.14 of his closing submissions by reference to the evidence of Liu in his various affirmations, witness statement and his testimony in witness box. I think the criticism is a fair one. In addition, Liu also had problem with the date of creation of P-1(J). On its face, it was marked “99.2” suggesting it was drawn in February 1999. However, in exhibit LX-23 (C280), a further date was put down at the bottom, “1997.6”. No satisfactory explanation had been forthcoming from the Plaintiffs’ evidence as to how this came about. Liu merely said “1997.6” was not in the original and he had no idea who added it. In cross-examination, he said he had drawn a similar picture in the summer of 1997 for artistic purpose. P-1(J) was, according to Liu, drawn in February 1999 specifically for the use of the 2nd Defendant. Yet quite inexplicably, the 1st Defendant did not adopt it until July 1999 and used D-21 instead in March 1999. 170.Liu also gave different dates as to when the package drawings were given to the 2nd Defendant. As mentioned, his diary entries suggested they were supplied on 16 January 1999. In the copy of the freehand sketches produced as exhibit LX-23 to Liu’s First Affirmation [C282-283], someone put down a notation “1999.2” seemingly suggesting that they were created in February 1999 although such notations could not be found in the original produced as P-1(H) and (I). Liu confirmed those dates in Paragraph 42 of his Second Affirmation filed in HCA No.A4651 of 2002 [B186]. On 23 July 2004, he testified in the witness box that C282 to 284, viz. copies of P-1(F), (H) and (I) were given to the 2nd Defendant in early February 1999 (X460). In my view, it is unlikely that those drawings were made in January 1999. These were all drawings of package boxes bearing the name ENHANVOL. On the Plaintiffs’ evidence, that name could not have been coined earlier than February 1999. Paragraph 46 of the Second Affirmation of Liu filed on 23 December 2003 suggested that at least up to the date of the Agreement A, parties were still discussing about using 天維丹 as the product name. On the face of that document, it was signed on 13 February 1999. Liu also said so in his testimony on 22 July 2004 (X 372F). But the notation at the top right hand corner suggested that it was executed on 19 February 1999. I preferred the latter and adopted that as my finding of fact. Liu did not have any credible explanation as to why Agreement A did not refer to the names ENHANVOL and 盈康活 if they were decided prior to 13 or 19 February 1999. I do not accept Liu’s account that the lack of reference to these names in Agreement A was due to the request of the 2nd Defendant because he intended to export ENHANVOL to other countries and it would be too cumbersome if names in foreign languages had to be added later. For me, such an explanation was just too unreal to be credible. 171.As explained in the context of my discussion on passing off, my finding is that the name was coined by the Defendants. The letter dated 17 January 1999 from the 2nd Defendant showed that the name had yet to be determined on 17 January. The diary entry could not be correct. Having regard to the date of Agreement A and the fact that the agreement still referred to天維丹 as opposed to ENHANVOL or 盈康活, I find on balance of probabilities that Liu was not told about the names ENHANVOL and 盈康活 until some time after 19 February 1999. 172.In making such a finding, I have taken into account of the evidence of Tong that her recollection was that Liu had been told about the names prior to the signing of Agreement A. I do not consider the evidence of Tong to be reliable in that respect. She was not involved in the negotiation and signing of Agreement A. Her recollection of the dates is not supported by any contemporaneous records. Just like Dr Chow, she was probably mistaken. In this respect, I regard what I could infer from Agreement A to be more likely to be the truth. 173.Another instance of Liu embellishing his case as he went along is his evidence as to how the materials were supplied to the 2nd Defendant and BBRD. In Paragraph 42 of his Second Affirmation in HCA No.A4651 of 2002 [B186], he said the design drawings had been supplied to BBRD directly by him as well as indirectly through the 2nd Defendant. He was quite specific in identifying the materials supplied by reference to LX-23, LX-27A, LX-95 and LX-96. He said quite specifically in Paragraph 43 that BBRD prepared the artworks by reproduction from the said design documents and instructions with slight modifications. Neither LX-20 nor J48 were included in those exhibits. He did not mention about giving any materials to the Defendants or BBRD stored in a MO. 174.In his witness statement of 1 April 2004, Liu added more documents to support his claim of authorship by way of LX-102 and LX-103. It is not clear whether he said all these were supplied to the 2nd Defendant or BBRD. 175.When Liu gave evidence in the witness box, he said for the first time that all the materials had been given to the 2nd Defendant and soft copies contained in MO were given as well. Under cross-examination, Liu admitted that he did not send material to BBRD directly. It is difficult to see why Liu was reticence about sending materials to the 2nd Defendant by MO in his written evidence. 176.The confusions in the dates of creation of these sketch drawings and the manner in which they were given to the Defendants or BBRD highlight the lack of veracity on Liu’s version of events. 177.The Plaintiffs adduced several pieces of evidence to corroborate the case of Liu that his sketch drawings were created prior to the design of D-21 by Chan Chin Hung. Firstly, some of the packaging boxes allegedly used by the Plaintiffs prior to March 1999 bearing designs in the sketch drawings were relied upon. These boxes included LX-19, LX-20, J47 and J48. The manufacturing dates of LX-20, J47 and J48 as printed on the exhibits were 19 February 1999, 3 October 1998 and 5 March 1999 respectively. LX-19 itself bears a manufacturing date of 19 June 2001 but Liu testified that the design was first used in the second half of 1998. 178.Regarding the design allegedly used in 1998 (J47 and LX-19), they both had images reproduced from photographs taken from electron microscope at the top of the package boxes. The images were described respectively as “Germination activating ganoderma spore (magnified by electron microscope)” and “The ganoderma spore flakes after sporoderm micro-breaking with enzyme engineering (magnified by electron microscope)”. Also the design of these two boxes incorporated the LX-20 broken spore design. As explained, the Plaintiffs did not have photographs taken by electron microscope prior to December 1998. Even if allowance is given to the suggestion that the image of the spore used in the cracked spore picture came from the Japanese magazine, the other features in the design derived from electron microscope photographs could not have been available prior to December 1998. Therefore, insofar as it is suggested that J47 and LX-19 had been printed and used in 1998, I reject the same. It is noteworthy that Liu testified that the dates printed on the boxes referred to the dates of the products instead of the dates of the boxes. Hence, it is possible that products manufactured on a date earlier than the boxes came into existence were packed into such boxes and the manufacturing date could be earlier than the date the boxes actually came into existence. If that were so, the dates printed on these boxes had no relevance to the question of authorship. I also find that Chan Hon Chung’s evidence in Paragraph 7 of his first witness statement (Q28) as corrected by his testimony in the witness box that the computer drawings for LX-19 at V2-7 were completed in December 1997 simply cannot be true. 179.Regarding LX-20 and J48, the integrity of those dates printed on the boxes is again doubtful. Both boxes specified that the product had a preservation period of 28 months. However, in 1999, the Plaintiffs only had licence to sell the product in mainland China with a preservation period of 24 months under粤衛食健字[1997] 209 号. It was only on 11 August 2000 by another licence粤衛食健字[2000] 393 号 that the preservation period was extended to 28 months. I have no hesitation in rejecting Liu’s explanation that since he was the top expert in the field and he was on the panel of experts consulted for this sort of applications, the Plaintiffs could stipulate a preservation period of 28 months even prior to the extension in 2000. If that were correct, I fail to see why a preservation period of 24 months was specified in LX-21. 180.In addition, LX-20 as well as J48 are designs bearing the name ENHANVOL. As explained earlier, Liu was not informed about this name until some time after 19 February 1999. It is therefore unlikely that LX-20 could have been produced on the date shown on the box, viz. 19 February 1999. 181.Moreover, it is simply inherently unlikely that the Plaintiffs adopted so many designs for its product packages under the same brand name 學者灵芝 around the same period. If the Plaintiffs’ case were accepted, it would mean that it was using LX-19, LX-20, J-48 and LX-21 in early 1999. This wholly defies common sense as such a practice would cause confusion in the market and diffuse the goodwill attached to the product. I do not accept Liu’s explanation that this was done as he liked to make new designs. 182.Mr Yan made a powerful submission to defend the integrity of the dates printed on these packages based on the conduct of the parties in the litigation. In essence, his point is that in view of the state of evidence disclosed by the defence, there was no point for these dates to be printed on the packages boxes if they were fabricated. LX-20 and J-48 should bear earlier dates in order to serve the interest of the Plaintiffs. 183.LX-20 was produced by Liu in his first affirmation of 23 August 2003. At that stage, the Defence in HCA No.A4651 of 2002 only contained a general averment in Paragraph 30 that the artworks were designed and created by BBRD in or about 1999. LX-20 bore a manufacturing date of 19 February 1999. J48 was produced as LX-2 to the Second Affirmation of Liu filed on 6 January 2004 in HCA No.A2802 of 2003. By that stage, the defence had filed an Affirmation of Law Fu Ming on 27 October 2003 in HCA No.A4651 of 2002. J48 bore a manufacturing date of 5 March 1999 In that affirmation, Law said BBRD was engaged by the 1st Defendant to design the package in or about January 1999. Mr Yan submitted that if the dates were fabricated, earlier dates would be selected. 184.In the affirmation of 27 October 2003, Law did not actually specify the date when the design used in D-21 (viz. first generation ENHANVOL packaging in Hong Kong) was created. He only said BBRD was engaged in about January 1999 and the first set of layouts (which were rejected) were shown to Tong about 10 days later. Moreover, J48 used the name ENHANVOL. As explained above, on the Plaintiffs’ own evidence filed up to January 2004 when J48 was produced, that name could not have been coined prior to mid February 1999. Due to such constraints, J48 could not have been designed (not to mentioned produced) much earlier than March 1999. 185.Further, one must not assume that the Plaintiffs’ only source of information as to the date of creation of the design of D-21 was from the pleadings and evidence filed by the Defendants. The Plaintiffs were in possession of P-10, a fax dated 26 March 1999 allegedly sent to Liu for his approval on the design. 186.Therefore, I do not think the ingenious argument by Mr Yan advances the Plaintiffs’ case as to the integrity of the dates these package boxes insofar as they are taken as the dates when the boxes were used. 187.Another problem about J48 is that if it had ever been designed and used by the Plaintiffs as alleged by Liu and Chan Hon Chung, it should have been in the forefront of the Plaintiffs’ claim for copyright infringement as far as ENHANVOL packaging is concerned. A comparison between J48 and D-21 would make this apparent. The designs of the two are basically the same with some very minor differences (e.g. the crack on the spore, the Chinese name). Yet surprisingly, it was not even pleaded in the copyright claims nor was it mentioned in the Plaintiffs’ evidence on copyright. In the witness statements, it was not included in the material alleged to have been supplied to the 2nd Defendant and Chan Hong Chung’s witness statement omitted any reference to J48. It was only produced in the context of the use of the expression “萌動激活” in Paragraph 4 of the Second Affirmation of Liu filed in HCA No.A2802 of 2003. Even Plaintiffs’ counsel were taken aback by Liu’s reference to it when cross-examined by Ms Tam. 188.In view of the fact that J48 had been disclosed as part of LX-2 in January 2004, could it be just an oversight on the part of the lawyers in omitting to refer to it in respect of the copyright claims? In my judgment, I do not think such omission can be so easily brushed aside. The correlation between J48 and D-21 is so clear that it could not have escaped the attention of Liu and Chan Hon Chung. Although I can understand that pleadings, affirmations and witness statements were drafted by lawyers, the instructions must have come from the clients. It did not take a lawyer to appreciate the significance of J48 in respect of the copyright claims. If J48 had been used by the Plaintiffs as alleged by Liu and Chan Hon Chung and if a copy of it had been supplied by Liu to the 2nd Defendant, I am sure that the first thing they would have done was to refer to it as the source of the design for D-21. It would have been one of the first things that they told their lawyers and they would have made sure that there was no room for any mistake or omission. They would have ensured that the point was made in their affirmations or witness statements. Even if the lawyers neglected to refer to the same in the context of copyright, they would have corrected the mistake. All along, the Plaintiffs were represented by a team of very experienced and competent lawyers and there must have been a lot of occasions where Liu or Chan Hon Chung could have brought up the omission. 189.Instead of having J48 put in the forefront of their case, Liu and Chan Hon Chung were silent about it in their affirmations and witness statements in the context of copyrights. In his First Affirmation filed in August 2003, Liu said in Paragraph 49 that the Plaintiffs’ lingzhi spore powders were marketed in mainland China initially in the packaging as per LX-19 and later on as per LX-20. He further said it was exported to Hong Kong as per LX-21 and repackaged into LX-22. He described how he designed LX-22. No reference whatsoever was made to J48. 190.There was an application by the Defendants for production of the artworks of the Plaintiffs. Liu referred to that in Paragraph 14 of his Second Affirmation filed in HCA No.A4651 of 2002 [B167-8]. In Paragraphs 42 and 43 of that affirmation, Liu described how he created the designs and how they were supplied to BBRD both directly and through the Defendants. That was a golden opportunity for J48 to be mentioned. Yet he failed to do so. Liu was painstakingly explaining how his sketches in “LX-23” and “LX-27A” were reproduced by BBRD and then generated into artworks by computer. One may ask rhetorically if J48 had been given to BBRD for reference, why would Liu forget to mention J48 as the link between D-21 and his designs in those paragraphs. 191.Liu made a witness statement on 1 April 2004. He referred to the materials he relied upon for the copyright claims. J48 was not amongst the drawings identified and there was no computer artwork for J48 in LX-103. The same applies to the witness statement of Chan Hon Chung made on the same date. 192.In his evidence in chief, Liu made no reference to J48. It was only raised by Liu in cross-examination. Chan Hon Chung made the correction in his examination in chief. However, he was unable to give a satisfactory account as to why he omitted to refer to J48 in his witness statement. He said he had remembered about it prior to July 2004 but the lawyers told him to supplement that in the witness box. He had made a Second Witness Statement on 10 August 2004 but there was still no reference to J48. I have no hesitation in rejecting the explanation by Chan Hon Chung. If he had raised the omission with the lawyers prior to July 2004, I am sure Mr Liao would mention the same in his opening and the particulars in respect of the copyright claims submitted to this court in the opening would also make reference to J48. 193.Another piece of evidence relied on by the Plaintiffs to establish priority of Liu’s sketch drawings is P-5A. Liu said that was a document produced by him at a discussion with the 2nd Defendant and CYF on 6 February 1999. He said it was supposed to be instructions to BBRD, the design firm engaged by the 1st Defendant, for the design of the package for ENHANVOL. Prior to the meeting, some designs had been produced by BBRD but they could not meet the requirements of Liu despite, according to Liu, the sketches and computer drawings produced by the Plaintiffs had been supplied to them. Hence, Liu felt that he needed to impress upon BBRD how the package should be designed and he made out P-5A on the spot for the 2nd Defendant to pass on to BBRD. 194.The first point to note about this document P-5A is that there was a reference to the name盈康活 in the first paragraph at the top of the document. On my finding as to the timing when Liu was told about the name as set out above, this document could not have been written on 6 February 1999 as alleged by Liu. 195.The manner in which P-5A or its copies were produced by the Plaintiffs draws adverse comments from Mr Chan. A copy was first produced as part of LX-27A in the First Affirmation of Liu dated 23 August 2003. It was described as one of the drawings created by Liu by reference to the photographs exhibited as LX-13. LX-13 is the Japanese electron microscope photographs taken in 2000. Liu subsequently corrected himself in his witness statement of 12 April 2004 that the photographs should be those taken in December 1998, viz. P-11 instead of LX-13. Although he made the correction by reference to LX-23 instead of LX-27A, I am prepared to regard that it was a mere slip that no reference was made to LX-27A in that correction. The copy of the document produced in LX-27A does not bear the chop of the 1st Defendant. In that affirmation, Liu did not explain the circumstances under which P-5A came into existence. 196.None of the figures in P-5A bears any resemblance to the photographs in P-11. In fact, Liu’s testimony in the witness box did not support his assertion in the affirmation that P-5A was created by reference to P-11. However, he did not explain why he said so in his affirmation. 197.In his witness statement of 1 April 2004, Liu made a brief reference to the meeting of 6 February 1999 [Q7]. However, notably, he made no reference to P-5A in that statement. Instead, he said in the witness statement that the drawings handed to the 2nd Defendant at that meeting were LX-23, viz. P-1(E), (F), (H), (I) and (J). There is no explanation by Liu as to why there was such a discrepancy. 198.Liu only revealed how P-5A came to be drawn by him in his evidence in chief and produced a copy of the document bearing the chop of the 1st Defendant (P-5). He explained that the chop was redacted by his colleague when copy was supplied to the lawyers for preparation of the affirmation in 2003. He said that was out of the ill-conceived belief that the chop of the 1st Defendant would somehow suggest that the designs were those of the 1st Defendant. However, that colleague Tong Chin Kau was not called to give evidence. 199.LX-27A is an exhibit to the First Affirmation of Liu. Liu should bear the primary responsibility in ensuring proper document was exhibited by him. He should have noted that the chop was missing and corrected the mistake before he made the affirmation. He did not do so and it is not excusable for him to say it was due to the mistake of his colleague. In my judgment, Liu had not satisfactorily explained about why he permitted the copy of P-5A in LX-27A to be produced to the court when he should be aware of its tampering. He also did not explain satisfactorily why he failed to correct the record until he gave his evidence in chief. On the whole, I do not accept that he was ignorant of the tampering, if there was any. 200.It is a serious matter to tamper with a document intended to be used for the purposes of legal proceedings. Putting forward a tampered document as evidence coupled with an intent that the tampering would place a party in better light than he otherwise would be is a grave misconduct which could lead to criminal sanction. As I said, Tong Chin Kau was not called as a witness and the Defendants did not have any chance to cross-examine him about the copy of P-5A in LX-27A. Given my misgivings on Liu’s credibility, I am not prepared to find that Tong committed such a serious misconduct on Liu’s words alone. 201.It was rather unusual for a Hong Kong company to place its chop on a document of this nature. It served no useful purpose. BBRD would probably accept the document as instructions from the 1st Defendant if it was given to them by Tong or the 2nd Defendant. Liu testified that the chop was put down at his request. But why would the Defendants oblige Liu on such a meaningless request? 202.The end result is that I am faced with a discrepancy between P-5A and the copy in LX-27A and there is no credible explanation for it. On the evidence, I am not satisfied that the chop was there when LX-27A was exhibited. It is equally possible that the chop was added later by someone who thought that with the 1st Defendant’s chop placed on the document, the Plaintiffs’ case would be improved. I do not think I need to make a finding as to what had actually happened. On either scenario, Liu’s credibility is seriously dented. 203.Liu put forward P-5A as his message to BBRD about how the package box was to be designed. I agree with Mr Chan that it was a very awkward way to achieve that objective bearing in mind that according the Liu, by that time the design drawings and packages had been supplied to the Defendants (and through them to BBRD) by means of MO and hardcopies. It would be much more direct and effective for Liu to pinpoint a particular box of the Plaintiffs (e.g. J48) for reference. In any event, there was no need to draw so many figures. If one were to examine P-5A, it is difficult to tell how BBRD was supposed to select one out of the many figures in that document as the theme of the design. 204.In the paragraph at the bottom of P-5A, Liu was apparently telling BBRD to emphasize the oil droplet filling up a broken spore. That idea was not adopted by BBRD in D-21. Yet Liu did not appear to have complained. 205.According to Liu, instead of giving the document to BBRD, Liu asked the 2nd Defendant to return the original of P-5A to him the next day. Since he had got all the original design drawings (the computer drawings by Chan Hon Chung as well as his free hand sketches), there was simply no point for Liu to keep P-5A. I am totally unimpressed by Liu’s explanation that his sixth sense told him the 2nd Defendant was unreliable and dispute might arise in the future. Liu’s evidence was that he kept the original and has been keeping it since 7 February 1999 and had only showed it once to Chan Hon Chung in the interim for the design of ENHANVOID. All these are, in my judgment, bizarre. 206.I therefore place no weight on P-5A except the discredit to Liu’s credibility occasioned by its production. 207.In respect of Chan Hon Chung, for the reasons given above regarding the time constraints as to the earliest possible use of the electron microscope photographs and the name ENHANVOL in the designs, I must reject his evidence as to the circumstances and dates of creation of the package boxes. I have also highlighted some other aspects as to his lack of credibility. 208.After Wong Yan Yan and Chan Chin Hung had produced their computer drawings with dates of creation, Chan Hon Chung was challenged to produce his working drawings of similar nature. He did not do so and chose to hide behind the pretext that the dates could be adjusted and such drawings were of no probative value. He however said he had not adjusted the dates in his computer. 209.I shall deal with the design in respect of ENHANOID later. As regards ENHANVOL, Chan Chin Hung’s produced drawings showing the different steps during the process of creation. At Y22 (which was copied from an earlier file he worked on), the layers for different colouring or shading of the cracked spore used on D-21 were shown. He also accounted for the genesis of the design of the grid by reference to Design D of the five initial lay-outs shown to Tong. For the exploding spore used in the second generation ENHANVOL design, Chan Chin Hung explained the different layering at R95 to 97. In contrast, Chan Hon Chung had not produced anything of a comparable nature. He could not even produce the artwork for J48. I do not accept the evidence of Liu and Chan Hon Chung that the Plaintiffs had lost many design drawings and gaps were therefore inevitable in proving their process of creation. Chan Hon Chung and his colleagues were working on computers and even if hard copies might have been misplaced, there must be drawings that could be retrieved from the computer. Unlike Chan Chin Hung’s company, the Plaintiffs had not ceased business and there is no suggestion of storage device being damaged. It is hard to believe that the only drawings available were those produced if the Plaintiffs actually designed the packaging as their witnesses testified. 210.Chan Hon Chung is obviously a biased witness who is prepared to do whatever Liu or the 1st Plaintiff told him to do. One example is his role in the Guangzhou proceedings. Another example is his execution of the assignment in favour of the 1st Plaintiff without even checking what drawings were to be included in the assignment. As it turned out, the drawings were not attached at the time of execution and he did not seem to care. 211.I agree with Mr Chan in his submissions that Chan Hon Chung’s evidence about the 8 December 1997 agreement and the 1 December 2001 conference is extremely unsatisfactory and dubious. I am not satisfied that Chan Hon Chung told me the truth with regard to those events. In addition to the inherent improbability of his version, the manner in which he gave evidence about those events did not impress me as that of a credible witness. He was selective in his memory and at times evasive in answering questions under cross-examination. 212.On the whole, I find Liu and Chan Hon Chung unreliable and I reject their evidence on the copyright claims in respect of ENHANVOL. 213.Having reached that conclusion, I would only deal with the Defendants’ evidence on the copyright of the ENHANVOL packaging briefly. I agree with Mr Liao that the Defendants’ evidence had been skeletal and cagey right up to the commencement of the trial. One only has to look at the first witness statement of Chan Chin Hung to see the point. During the course of trial, the evidence of the defence on copyright had been substantially expanded. Supplemental witness statements were filed in respect of the evidence of Chan Chin Hung and Wong Yan Yan. Two additional bundles of documents were added in the course of Chan Chin Hung’s testimony. All these would have a bearing on the question of costs. 214.I am however satisfied that despite that deficiencies in the preparation for trial, the Plaintiffs did not suffer any prejudice that could not be compensated by costs as a result of such late production of documents. I am also satisfied that such late disclosure was not due to any intention to conceal the truth by Chan Chin Hung. Having heard his evidence and assessed it in the light of all the materials before me, I find Chan Chin Hung to be an honest and reliable witness and I accept his evidence as to the genesis of the design for D-21 and LX-22. 215.He was so keen in letting the truth be revealed that he voluntarily produced the documents in Bundle Z which the parties had no means of knowing their existence. No-one could criticize him for not producing those documents in view of the fact that he was only involved with the design of ENHANVOL in 1999 and the 1st Defendant did not engage his firm thereafter. His firm Link Communication Limited had ceased business for quite some time. Yet he was able to retrieve these documents after his recollection as to some records being kept was triggered by Mr Yan’s cross-examination on a related topic. Amongst the documents he produced voluntarily, there were in fact some documents which discredited his earlier testimony, e.g. the package of the Hometown Food at Bundle Z. Instead of disclosing documents selectively, he readily produced the whole stack of documents for inspection by counsel. During cross-examination, when faced with questions which he could not give satisfactory explanations by way of answer, he did not hesitate to say so instead of prevaricating or engaging in a debate with counsel. I regard these as indicia of his truthfulness. 216.Mr Liao criticized Chan Chin Hung in his closing submissions about his failure to account for certain matters in his evidence. Having regard to the fact that the scanning and collecting of raw materials were not done by him alone, I do not find it surprising that he was unable to account for the Hometown Food packaging and leaflet, the use of Guru packaging material in Design E and the source of the spore photograph on which he worked out the cracked spore design. Since my ruling of 22 July 2004, the conduct of the evidence had subsequently been developed in a such manner that Mr Liao no had objection to evidence being led from Tong that Liu had given a Japanese magazine to the 1st Defendant which contained two spore photographs. Liu himself gave evidence to that effect. It is now common ground that the raw material for the cracked spore design in D-21 was a photograph from the Japanese magazine. I do not think Chan Chin Hung’s failure to account for the origins of these materials should lead this court to the conclusion that he must have copied those from the MO or other drawings allegedly supplied by Liu. 217.The apparent replacement of photographs in the design process had been explained by him in re-examination and given the lapse of time it is not remarkable that he might not be able to recall the exact details. The other points made by Mr Liao and Mr Yan in closing submissions about his credibility are peripheral and having considered those, I do not think they have any material impact on Chan Chin Hung’s credibility. 218.The essence of Chan Chin Hung’s evidence is that he conceived the design for D-21 and LX-22 on his own without any reference to the drawings by Liu or the Plaintiffs and he had not seen P-5A, LX-19, LX-20, J47, J48 in his process of creation. I have already stated how he had explained to this court these designs were conceived and corroborated his evidence by the computer drawings. It is notable that had he been simply copying from materials from the Plaintiffs like J48 and LX-20 (both soft and hard copies were said to have been supplied), those steps would not be necessary and drawings like Y22, R95-7 would not exist. There is no merit in Mr Yan’s submission that Chan Chin Hung could not explain how the designs were conceived. This also answers his speculation that although initially Chan Chin Hung did produce some designs of his own for the 1st Defendant, they were all unsatisfactory and in the end, the 1st Defendant and its designers were forced to copy from the materials of the Plaintiffs. 219.Chan Chin Hung is an independent witness. He was only engaged by BBRD on behalf of the 1st Defendant for this job and had no further engagements from the 1st Defendant since 1999. Whilst he understandably felt the need to defend his reputation as a designer when he learnt of the allegations of the Plaintiffs, he did not have any financial, economic or commercial interest in the outcome of this trial. 220.I accept the evidence of Chan Chin Hung and find accordingly that D-21 and LX-22 were designed by him without reference to the alleged copyright materials of the Plaintiffs. On the contrary, given the similarities and in the absence of credible explanation from the Plaintiffs’ witnesses, I am driven to conclude that LX-20 and J48 were produced by reference to D-21. In other words, my finding is that they were produced after Liu had seen and obtained a copy of the D-21 packaging. P-1(J) was drawn by Liu by reference to LX-22 instead of the other way round. 221.I should mention that Tong and Law also gave evidence relevant to the ENHANVOL packaging and I took them into account. I would not give them as much weight as the evidence of Chan Chin Hung since they were not the designer and they gave evidence before Bundles Y and Z were produced. Their evidence as to the timing of certain events may not be that accurate. On the whole, insofar as there are discrepancies between their versions and that of Chan Chin Hung, I prefer the evidence of Chan Chin Hung. 222.Turning to the design of the packages for ENHANOID, Liu and Chan gave evidence for the Plaintiffs to the effect that LX-27 was designed by them earlier than LX-28. On the other hand, the defence case is that LX-28 was designed by the in-house designer Wong Yan Yan without any reference to LX-27. The defence said that the design of LX-27 came into existence much later than LX-28. 223.According to Wong Yan Yan’s evidence, the design for LX-28 could not have been finalized before 5 November 2001. Her evidence was that the design for what I shall call the spheroid device at the front panel of the box did not come into existence until 5 November 2001 (Para.5 of her Second Witness Statement dated 29 July 2004, adopted as evidence in chief). This was corroborated by the computer drawing at R66. Wong Yan Yan’s evidence was that the design process started in October 2001. The first computer drawing produced by her was dated 11 October 2001 (R57). Although CYF produced an invoice dated 2 November 2001 issued by R & C Company to the 1st Defendant in respect of the production of these boxes (Exhibit D-18), he testified that the invoice could have been issued prior to the finalization of the design of the box. The full payment of the invoice was only made on 20 December 2001. 224.There is a dispute as to whether the 1st Plaintiff had sold ENHANOID to the 1st Defendant in package LX-27 prior to the design of its own package LX-28. The Plaintiffs’ case was that it had done so whilst the Defendants’ case was that LX-27 only came into being in 2002. A comparison between LX-27 and LX-28 shows that the two packages were substantially similar although there is a variation in the ring at the spheroid device. Liu testified that the 1st Plaintiff re-designed the package for ENHANOID and came up with LX-27 in August 2001 (transcript of 15 July 2004 p.274F; Bundle X-1, p.66T, 30 August 2004). They started using package LX-27 for products sold in the end of October or early November 2001 (Bundle X-1 p.67 E to I). Since November 2001, the 1st Plaintiff sold ENHANOID to 1st Defendant in LX-27 packing (Bundle X-1, p.71S). Liu further said he first saw the LX-28 package in January 2002 (Bundle X-1 p.74M). 225.For reasons given in the other parts of this judgment, I do not find the Plaintiffs’ witnesses to be credible or reliable and I cannot give weight to their evidence. On LX-27, I find the story of Liu inherently improbable. He testified that these designs were intended for Hong Kong market, hence the Chinese characters were in the form prevailed in Hong Kong (繁體). If that were so, I fail to see why LX-27 would have the 學者牌Guru logo at the side panel. Liu said in his own affirmation the Defendants repackaged the same after the goods were brought here. I can understand that in respect of LX-26 because of Tong’s objection to the name 盈康力 in LX-26. But I have difficulty in accepting that in respect of LX-27. If the 1st Plaintiff had actually supplied ENHANOID in LX-27 since November 2001, I do not think the Defendants would do any repacking. 226.According to Liu, LX-27 was designed about one month after LX-26 because he found LX-26 unsatisfactory. Yet the 1st Plaintiff continued to supply ENHANOID in LX-26 packing (LX-26 itself bears a manufacturing date of 18 January 2002) despite the alleged launch of LX-27. I have no hesitation in rejecting Liu’s feeble explanation that this was to maintain the goodwill of ENHANOID associated with LX-26. Given the alleged short time lapse between the marketing of ENHANOID in LX-26 and LX-27, there was simply no commercial justification for such concern. In fact, given that at that stage, the main market for ENHANOID was in Hong Kong (the permit for public sale of ENHANOID in mainland had yet to be issued) and the repacking in Hong Kong, I fail to see why the 1st Plaintiff could not switch to LX-27 completely after November 2001 if LX-27 had actually been designed and used for packing ENHANOID by November 2001. 227.The Plaintiffs relied on a certificate dated 27 February 2004 (S37) and two delivery notes dated 6 October 2001 (S38) issued by a printing company in Shenzhen to support their case that package bearing same design as LX-27 were produced in early October 2001. The document was produced by way of hearsay evidence. The makers had not been called to give evidence at the trial. I was not told why the makers could not be called. I shall assume in favour of the Plaintiffs that they were in Shenzhen. But that by itself is not a good reason for not calling them. As a matter of fact, all the witnesses called by the Plaintiffs were not based in Hong Kong. I have reminded myself as to the various matters set out in Section 49 of the Evidence Ordinance in assessing the weight to be attached to these documents. I would also assume in favour of the Plaintiffs that the omission to call those makers was not a deliberate attempt to prevent cross-examination of them by the defence. 228.The Plaintiffs submitted that S38 was unchallenged evidence and it conclusively resolved the priority of LX-27 over LX-28. I do not accept this submission. Whilst it is correct that the Plaintiffs’ witnesses were not specifically cross-examined in respect of S38 and the Defendants had not issued any notice disputing the authenticity of S38 pursuant to Order 27 Rule 4, I do not think this renders the contents of S38 as conclusive evidence. S38 was item 127 in the Plaintiffs’ List of Documents filed on 12 March 2004. It was described as “copy of 送貨單 issued by 深圳市佳信達印務有限公司”. The effect of Order 27 Rule 4, in the absence of a notice disputing authenticity, in respect of a copy document is set out under Rule 4(1)(b). The Defendants are deemed to admit that the copy is a true copy. 229.It is not clear whether the Plaintiffs could pray in aid of Rule 4(1)(a) which on its face only applies when a document is described in the list as an original document. Counsel have not addressed me on the point and I do find it necessary to decide it. Assuming Rule 4(1)(a) is applicable, there is still a distinction between an admission as to the authenticity of a document and admission as to its contents (see Style & Hollander, Documentary Evidence, 6th Edn (1997) p.334). At the most, the Defendants must be taken to have admitted that a delivery note as per S38 had been issued on 6 October 2001 by this company. As regards whether the goods were actually delivered and whether those were the packages for LX-27, there is no admission. The weight to be attached to such a delivery note is still a matter for this court to decide in the light of all the evidence. 230.As regards the omission to cross-examine Liu specifically about S38 and his evidence that it related to LX-27, I respectfully adopt the approach of the Court of Appeal in Tam Ka v Lam Hung Kwong CACV 75 of 1999, 6 July 1999 and Deputy Judge Reyes (as he then was) in Kaiifull Investments Limited v Commissioner of Inland Revenue HCIA 8 of 2001, 4 April 2002. In the present context, it is quite plain that the Defendants advanced the case that the design for LX-27 came after LX-28 had launched into the market. By necessary implication, the Defendants did not accept Liu’s evidence that S38 relates to LX-27. This should have been clear to everybody at the latest by the filing of the Re-amended Defence on 7 July 2004. Liu did not refer to S38 in his affirmations or witness statements. He only adverted to it in his examination in chief on 8 July 2004. 231.In view of the preponderance of the other evidence adduced before me, I am unable to attach much weight to S37 and S38. Even though S38 appeared to be a contemporaneous document, I am not satisfied that it relates to LX-27. Only Liu and Chan Hon Chung gave direct evidence in this respect and for reasons given elsewhere, I do not find them to be credible witnesses. Mr Liao also highlighted the description of the goods in S38 as “盈康孢子油包裝盒”, hence more likely to be LX-27 than LX-26. I have taken this into account but in the end I do not find this to be irrefutable evidence that S38 must relate to LX-27. I would not speculate the circumstances under which S38 was issued by the printing company. All I need to do is to take this piece of evidence into account in the overall assessment of the factual materials. Having done so, I reach a firm conclusion that on balance of probabilities the defence case as to the design of LX-28 is more likely to be the truth. 232.Another matter which the Plaintiffs urged this court to bear in mind in determining the priority of LX-28 and LX-27 is the insert and bottle label of LX-28. Obviously, the insert and bottle label bore the front panel design of LX-27 as opposed to that of LX-28. If this court accepts that the ENHANOID first sold by the 1st Defendant in the package box of LX-28 on 30 November 2001 were sold with such insert and bottle label, this would go a long way in establishing the priority of LX-27. 233.In my Reasons for Ruling of 23 September 2004, I held that due to manner in which the Defendants had conducted the case, they should not be permitted to adduce additional evidence to impinge upon LX-28. However, I also held that the Defendants should be allowed to make submissions about the insert and bottle label on existing evidence. In addition to the points mentioned in Paragraph 15 of my said Reasons for Ruling, Mr Chan referred to the reproduction of an article in Cancer Letters at p.14 and 15 of the insert. The date of that article, as stated in the insert, was 28 August 2002. These points are unanswerable and it is quite plain to me that the insert and the bottle label used in LX-28 could not have been part of the ENHANOID sold by the 1st Defendant on 30 November 2001 in their own packaging. This is also apparent from the bottle shown in the advertisement at D335. Hence, the insert and bottle label could not advance the Plaintiffs’ case as to the priority of LX-27. 234.Chan Hon Chung also gave evidence about LX-27. In addition to the reasons set out in other parts of this judgment, I do not find him to be a reliable witness because I find his story as to how the spheroid device at LX-27 was derived from the design drawings at Q49 and Q 50 to be incredible. 235.His evidence was that he created those design drawings in the first half of 2001 with reference to the document at C293 (viz. P-5A). He said Liu showed him that document in 1999 with the instruction to produce some computer drawing by reference to it. Then Liu took the document away. However, he did not consider it to be a task he needed to complete in a hurry and he did not produce Q49 and Q 50 until the first part of 2001. Liu did not talk to him about this task in between 1999 and 2001. When Liu mentioned the task in 2001, PW3 said he could recall the document without the need of seeing the same again. He said apart from the document at C293, the design was produced by reference to the logo of a television company (exhibit P-15) and a photo of lingzhi spore taken under electron microscope. 236.I wish to make several points about his evidence on this topic. It is simply incredible that he could have a recollection of the relevant drawing at C293 after a couple of years. There are a number of drawings on C293 and only the one at the bottom left hand corner was relevant for the design at Q49 and Q50. In fact, as far as I can see, only two features of that drawing at C293 bear some vague resemblance to the design at Q49 and Q50, namely the ring shaped feature and the swirling element within the ring. These are not the most striking features of that drawing. 237.Until he gave evidence in the witness box, he did not mention making reference to C293 in the course of designing Q49 and Q50 and LX-27. He did not mention this in his witness statements. I do not accept his explanation that he omitted to mention it because he could not locate C293 when he made the witness statements. He could easily have asked Liu for it and I believe that he would have naturally done so if what he testified in the witness box was the truth. 238.Further, if Q49 and Q50 were already produced in the first part of 2001, I did not understand why they were not used in LX-26. Liu and those responsible for changing the package to LX-26 to LX-27 must have found the spheroid device in LX-27 more appealing than the broken spore with oil droplet device in LX-26. Otherwise they would not change it. Hence, if Q49 and Q50 were the preliminary design drawings for the spheroid device in LX-27, there was no reason why they were not adopted in the first version of the 1st Plaintiff’s package for ENHANOID. 239.I have carefully compared Q49, Q50 with the spheroid device in LX-27. I cannot accept that the latter were derived from the formers. In my judgment, there is a quantum leap between the two and the evidence of the Plaintiffs had not accounted for the same satisfactorily. Some of the drawings attached to the witness statement of Liu concerning the spheroid design in LX-27 (e.g. Q21(k), Q21(l), Q21(m)) were not attached to the witness statement of Chan Hon Chung. In his examination in chief, Chan Hon Chung said they were drawings created by his colleague Cheung Hiu Jet (張曉喆). She was however not called as a witness during the trial. Although there is a confirmatory assignment P-16, I do not find that self-serving document to be a reliable piece of evidence with regard to authorship as to those drawings. In any event, those drawings could not account for the quantum leap mentioned earlier. It is difficult to see how Q21(k) and 21(l) were derived from Q49 or Q50. 240.On the other hand, the similarities between the spheroid device in LX-28 and that in LX-27 inevitably lead to the conclusion that one was derived from the other. The only question is which one was the original and which one was copy. I find Wong Yan Yan’s explanation as to how she came up with the design for that device by using the Japanese material at R26 much more convincing than Chan Hon Chung’s evidence. The similarities between the device in LX-28 and the ball shape device identified by Wong Yan Yan in D-17 (viz.R26) speak for themselves. Notwithstanding the criticism leveled against Wong Yan Yan in the Plaintiffs’ written submissions, I find her to be a credible witness and I accept her evidence as to the design for LX-28. Given the derivation of LX-27 from LX-28, it is not surprising that there were common features between the two. On the other hand, I do not find any significant similarity between the layout of LX-26 and LX-28 such that I could draw an inference of LX-28 being copied from LX-26. 241.There is no doubt in my mind who was telling the truth here. I have no hesitation in rejecting the evidence of Chan Hon Chung as to the conception of the design of LX-27. I find on the balance of probabilities LX-28 was designed in the manner as explained by Wong Yan Yan in early November 2001. The device in LX-27 came afterwards and it was derived from LX-28 with a modification at the ring. 242.Turning to the copyright claim under item (i) in the particulars supplied during the opening based on the cracked spore of the Plaintiffs, the subject matter of the claim is the drawings at S247-251, the freehand sketches by Liu. Although it is said to have been used in LX-19 and LX-21, the case as pleaded does not rely on the copyright subsisting in the computer drawings for the cracked spore as opposed to that subsisting in the freehand sketches. 243.It is quite obvious that the computer artwork for the cracked spore design of the Plaintiffs was based on the processing of a spore photograph from the Japanese magazine. This is also the evidence of Chan Hon Chung. There is no claim for copyright infringement in respect of the spore photograph. The cracks in the freehand sketches are different from those in the computer drawings and the final products appearing in LX-19 and LX-21. 244.I have found in earlier part of this judgment that LX-20 and J48 were produced by reference to D-21. Hence, insofar as the idea involved in the creation of the cracked spore design is concerned, it was taken from D-21 instead of Liu’s freehand sketches. With D-21 available for reference, there was no need for the Plaintiffs’ designers (whether it was Chan Hon Chung or someone else) to refer to any freehand sketches to create the Plaintiffs’ version of cracked spore. On the evidence, I am not satisfied that the computer artworks of the Plaintiffs’ cracked spore were derived from the freehand sketches. It may well be the other way round. In any event, the mere copying of the idea does not constitute infringement. 245.There was therefore no infringement of the copyright in the drawings at S247 to 251 even though the cracked spores found in the Defendants’ leaflet did appear to be substantially similar to the one found in LX-19 and LX-21. 246.The last item in the copyright claims is in respect of P-11. Mr Chan did not dispute ownership. He contended injunctive relief should not be granted as the use of the photographs in the leaflet was, based on Tong’s evidence, probably a mistake and it would be disproportionate to order inquiry as to damages. 247.I am not prepared to accept that the use of the leaflet was a mistake based on Tong’s evidence alone. She was not personally involved in the packing process and no corroborative evidence had been called on behalf of the Defendants. I do not understand why the Defendants still kept the old leaflets after they switched to new suppliers. Having said that, I am willing to infer on the available evidence that the continued use of the leaflet was limited. The Plaintiffs have continued to monitor the activities of the Defendants in the market and did not produce more substantial evidence of the photographs being used. 248.In the absence of any undertaking offered by the Defendants, I will grant an injunction in respect of P-11. I will also order delivery up. However, I agree that it is disproportionate to order an inquiry of damages. There is no evidence to suggest that the Plaintiffs suffered any loss of profits as a result of the use of photographs by the Defendants after the termination of the distributorship. Having regard to the extent the photographs had been used in the past and the limited scale of infringement, the depreciation caused by the infringement to the value of the right as a chose in action is insignificant. I will therefore award nominal damage in the sum of $1,000 in favour of the 2nd Plaintiff. 249.Apart from the claim arising from P-11, all the other copyright claims of the Plaintiffs are dismissed. Infringement of registered trade mark萌動激活 250.I now deal with the claim based on the registered trade mark 萌動激活. The main defence is that the mark is invalid because it should not have been registered. Section 11 of the Trade Marks Ordinance [“TMO”] Cap.559 is relied upon. In the Particulars of Objection filed on 18 February 2004, the Defendants submitted that “萌動激活” was wrongly registered because,
251.Another ground was raised in the Particulars of Objection (see Para.4 of that document). It was not pursued in the closing submissions of the defence. Therefore I need not consider it. 252.The application for the registration of the mark was made by the 1st Plaintiff on 24 December 2002. It is common ground that that is the relevant date for considering the various objections. 253.Counsel referred this court to several authorities on the proper construction of various limbs under Section 11. The English equivalent of Section 11 is Section 3 of the Trade Marks Act 1994. In Procter & Gamble Ltd’s Trade Mark Application [1999] RPC 673, Robert Walker LJ (as he then was) traced the legislative history of the section and in the light of legislative changes in 1994 and European Community origin thereof, cautioned against following old cases decided under the 1938 Act without having regard to background. The following opinion of Advocate General Cosmas in Windsurfing Chiemsee v Huber, Windsurfing Chiemsee v Attenberger ECJ Cases C-108 and 109/97 was cited by His Lordship at p.678-9 as a useful guidance as to the general legislative purpose behind the new trade mark law.
254.Robert Walker LJ held in Procter & Gamble at p.679 that Section 3(1)(b) of the 1994 Act (equivalent of Section 11(1)(b) of our TMO) performs a residual or sweeping-up function, backing up paragraphs (c) and (d). On the meaning of “devoid of any distinctive character” under our Section 11(1)(b), His Lordship referred to the dicta of Jacob J in British Sugar v James Robertson [1996] RPC 281 at 306,and again I can do no better than quoting the same,
As emphasized by Robert Walker LJ, the expression “inherently distinctive” was used here in a non-technical sense. 255.That was said in respect of Section 11(1)(b). In Bach & Bach Flower Remedies TM [2000] RPC 513, the EnglishCourt of Appeal considered the other limbs in that section. In essence, the court held that in dealing with an objection under our Section 11, the first question to ask is the one posed under Section 11(a): whether the sign satisfies the test for a trade mark set out in the definition section, viz. Section 3(1). Hence, it has to be a sign “capable of distinguishing goods or services from one undertaking from those of other undertakings”. 256.It was further held that in deciding that first question, prior use can be taken into account in ascertaining the meaning of a word alleged to be used as a mark. The court gave the following guidance in applying the test to a word mark,
257.In Jeryl Lynn TM [1999] FSR 491, the court stressed that there is a distinction under Section 3(1) between sign indicating the origin of a product and sign telling the customer what a product is in the context of a trader who enjoys de facto monopoly on the product (see discussion at p.497). The point was illustrated by Jacob J in British Sugar v James Robertson [1996] RPC 281 at 302,
In Jeryl Lynn TM, at p.504, Laddie J made the same point,
258.Laddie J discussed the distinctive character of a specifically coined word or name for a new product in Jeryl Lynn TM, at Paragraphs 12 and 14. By reason of the principle set out in preceding paragraph, His Lordship held at Para.12,
259.At Para.14, Laddie J identified several factors in considering whether a word that had been used for some time before the application to register has the capacity to distinguish,
260.Jeryl Lynn TM was decided on the equivalent of Section 11(1)(a). There is a recent case on mark made up of invented words decided on the equivalent of Section 11(1)(c). In Doublemint [2004] RPC 18, the European Court of Justice held at Paras.31 and 32 that the subsection protects a public interest in that descriptive signs or indications relating to characteristics of goods or services should be freely used by all. No trader should secure the monopolistic use of such a sign by registration. Therefore, it is not necessary that the relevant sign was actually being used in a way that was descriptive of the goods at the time of application for registration before registration is refused. It is sufficient that such sign could be used for such purposes. The court held that registration must be refused if at least one of the possible meanings of a sign or word designates a characteristic of the goods concerned. 261.In the Opinion of the Advocate General Jacobs in Doublemint at p.338 to 339, the point was made about the distinction between terms which may be used to designate products or their characteristics and those which are merely suggestive of such characteristics. The latter is registrable but not the former. The Advocate General then alluded to the approach in making such distinction at p.338 to 339,
262.The Advocate General then suggested at p.339 three points of view by which a mark could be assessed under the equivalent of Section 11(1)(c) in the light of existing practice and case law,
He stressed that the list was neither final nor exhaustive. He also pinpointed the importance of an overall assessment,
In the footnote to that passage, the Advocate General reminded that this approach must be tempered with common sense. (See also the factors referred to in Paras.49 to 51 of the judgment of the European Court of Justice in Windsurfing Chiemsee v Huber [2000] Ch 523 at p.555.) 263.The relationship between the different limbs under Section 11(1) was explained in a clear and admirable manner by Chadwick LJ in Bach & Bach Flower Remedies TM at p.533 to 534 and Geoffrey Hobbs QC in AD 2000 TM [1997] RPC 168. In the latter case, at p.175, the Appointed Person said,
264.These cases provided helpful guidance to the approach that a court could adopt in resolving questions relating to validity of a registration. However, ultimately these involves question of facts, see Morritt LJ in Bach & Bach Flower Remedies TM [2000] RPC 513 at p.528 Para.41; Laddie J in Jeryl Lynn TM [1999] FSR 491 at p.498 Paras.13 and 14. To an extent, it could at the end be a matter of impression, see Robert Walker LJ in Procter & Gamble at p.681. 265.So much for the law on the topic. In the present context, I have to examine the following questions in deciding on the validity of the registration for “萌動激活”,
266.Parties made no reference to Section 53(4) TMO in their closing submissions. Due to the paucity of evidence on the use of the words “萌動激活” after registration, in the absence of pleadings and submissions on the point, I take it that the 1st Plaintiff accepts it could not rely on that sub-section to resist a declaration of invalidity. 267.On the meaning of the expression “萌動激活”, the Defendants produced evidence as to the dictionary meaning of the two Chinese words that made up this expression: “萌動” and “激活”. Broadly speaking, they mean “germination” and “activation” respectively. Hence, in the English version of the packaging and inserts contained in the box, the expression was translated as “germination activation”. It was not an expression commonly used in Hong Kong prior to the sale of the Plaintiffs’ product here. 268.The application for registration was made in December 2002. By then the expression had been used in respect of the Plaintiffs’ products. As stated in the cases mentioned above, such usage might have a bearing on the meaning of the expression. In this connection, the Defendants made the following submission. Based on the use of the expression in the advertising material and packaging box up to 24 December 2002, an average consumer (who were reasonably well informed and reasonably observant and circumspect) of lingzhi products would understand the expression as designating or identifying the process whereby the pollens are “activated” through or by means of “germination”. It was further submitted that even the Plaintiffs themselves had used the term in a descriptive sense in all their packaging boxes (some of which were available in the Hong Kong market), commercial and academic literature to refer to a theory or the technology of which they claim to be the author or inventor. 269.The Defendants cited the following dicta of Laddie J in Jeryl Lynn TM [1999] FSR 491, Para.21 at p.501-2,
270.On the other hand, the Plaintiffs argued that the evidence shows that the expression had been used as a trade mark. They relied on the fact that the Plaintiffs were the first one to use the term "萌動激活" as a whole to refer to their products. Liu gave evidence that the term "萌動激活" had all along been used by Plaintiffs as their trademark and people understood "萌動激活" as referring to 學者靈芝. It was contended that if "萌動激活" had not been used as a trade mark, the Defendants would not have insisted on putting the English version of the term, i.e. "Germination Activation" on the packaging after being sued for trademark infringement. 271.With respect, I find most of the arguments of the Plaintiffs in this respect to be self-serving and circuitous. Liu’s evidence, apart from the problems as to his overall credibility, is bare assertion on his part and cannot stand in the light of the overwhelming evidence as to the actual use of the expression in packaging and advertising material. For the same reason, I attach little weight to the fact that the Defendants put “Germination Activation” in their packages after infringement action was launched by the Plaintiffs. The fact that the Plaintiffs were the first persons to use the expression in relation to lingzhi products is neither here nor there. As pointed out by Jacob J and Laddie J, evidence of use cannot be equated with evidence of distinctiveness. 272.In my judgment, the evidence clearly shows that the expression “萌動激活” had been used in the packaging and advertising material (both produced by the Plaintiffs and the Defendants) as description of the technological process which enhanced the extraction of bio-active substance from lingzhi spore. A typical example is the insert in ENHANOID at Bundle V 116. It contained an explanation of the process of “萌動激活”. Another example is the reference to this expression at the side panel of the package box LX-22 for ENHANVOL. It introduced the product as follows,
An English translation to the same effect can be found in the side panel of the package box for ENHAHOID,
In this connection, I find the observations of Laddie J in Jeryl Lynn TM [1999] FSR 491, Para.21 (cited above) particularly apposite. 273.The brand names of the products were clearly ENHANVOL and ENHANOID. On the other hand, “萌動激活” was used in these materials to refer to one of the process by which the goods were produced. In my view, the expression “萌動激活” did not serve as a guarantee to the consumer or end user the identity of the product's origin. I see no basis for suggesting that it had more significance in distinguishing the Plaintiffs’ product from other similar products as compared with the other descriptive expressions like “全破璧” or “純靈芝孢子精華”. 274.I put myself in the shoe of an average Hong Kong consumer and ask the question what did the expression “萌動激活” indicate as at 24 December 2002. As I said, it was not an expression commonly used in Hong Kong although one might have some vague idea that literally it had something to do with germination and activation. Considering the actual use of the expression in connection with lingzhi products prior to 24 December 2002, I find that the average consumer would understand the expression to mean the technological process by which highly bio-active substances were extracted from lingzhi spore. 275.Based on such finding as to the meaning of the expression as at 24 December 2002, the next question is whether those words were capable of distinguishing the goods of the 1st Plaintiff from those of the others. In my judgment, the expression “萌動激活” was initially capable of distinguishing the goods of a trader when first used in Hong Kong due to its novelty. However, by 24 December 2002, due to its continuous use in the manner mentioned above, in the context of lingzhi products, to a significant proportion of the average consumers, it came to be known as a generic description of a technological process by which lingzhi spore products were manufactured. As such, they would find it impossible to say that the expression identify for them the goods as originating from a particular undertaking. The sign therefore came within the same category as Jeryl Lynn and Bach Flower Remedies and was not registrable by reason of Section 11(1)(a). 276.Given that conclusion, there is no need to consider the objection under the other limbs of Section 11(1). However, for the sake of completeness, I would mention that even if the expression were somehow capable of distinguishing the goods of the 1st Plaintiff, I would find the objection under Section 11(1)(b) and (c) established by reason of the descriptive nature of the expression. The evidence of actual use of the expression does not indicate that it had acquired a distinctive character. Hence, Section 11(2) could not be relied upon to resist the challenge from the Defendants. 277.The 1st Plaintiff’s claim based on infringement of trade mark therefore fails and the Defendants succeeds in their counterclaim for a declaration under Section 53(1) of TMO. Malicious falsehood 278.Broadly speaking, a plaintiff has to prove three elements before liability for malicious falsehood is established,
See Kaye v Robertson [1991] FSR 62; Hong Kong Wing On Travel Service v Hong Thai Citizens Travel Services [2001] 2 HKLRD 481. 279.On the element of falsehood, the sting of the GMP advertisements as pleaded in Paragraph 43 of the Consolidated Re-amended Statement of Claim was the statements to the effect that,
280.It is not disputed that statements to such effect were made in the GMP advertisements. Having read those advertisements, I think the alleged sting is a fair summary of certain parts of the advertisements by reference to the following features therein,
281.The background to that advertisement was that when the 1st Defendant procured supply of lingzhi spore powder from another source, it slightly modified the package in terms of the capsules and hologram. When it ordered the same from the Plaintiffs, the capsules and the hologram bore the marks “GP”, “天維”, “天維健康產品”. When it shifted to new supplier(s), the mark on the capsules and hologram changed to ENHANVOL. To put it neutrally, such a change on the part of the 1st Defendant, in my judgment, must have aimed at distinguishing the goods supplied by the 1st Plaintiff from those supplied by the new supplier(s). 282.Further, the 1st Plaintiff had been selling ENHANVOL in mainland China although the Chinese brand name used was “學者灵芝” instead of “盈康活” (see “LX-20”). Tong admitted that the Defendants were aware of that before the GMP advertisements were placed. 283.The combined effect of the statements was that the Plaintiffs’ products could be viewed as counterfeit by virtue of having different capsules or holograms and having been sold in Mainland China. 284.When she gave evidence, Tong tried to explain that the GMP advertisement were not targeted against the Plaintiffs. In her examination in chief, she testified that the 1st Defendant was taking the opportunity of changing certain aspects of the packaging to place the advertisements to remind customers to watch out for counterfeit products as they had learnt about such products in mid 2002. Upon cross-examination, she accepted that they had taken into account of the Plaintiffs but she still maintained that the 1st Defendant was also dealing with counterfeits. She denied that they targeted against the Plaintiffs. She said the advertisements were placed to address the concern of the retailers about the change in packaging. 285.She further testified that at that time, she worried that some people might purchase the old version of ENHANVOL at a lower price in Hong Kong and sell the same in mainland China for resale back to Hong Kong. Tong was trying to account for the statement that the genuine products had not been sold in mainland China. But that seems to me to be a contrived and tenuous explanation. I had difficulties in seeing why someone intending to sell the old products had to be so convoluted. On being questioned further, Tong accepted that the 1st Defendant should not have any worry about such sale, if any. 286.I find Tong’s explanation about the purpose of GMP advertisement disingenuous and I do not believe her. I am driven by the objective circumstances surrounding the advertisements to conclude that they were specifically designed to guard against competition from the Plaintiffs using the name ENHANVOL. First of all, the timing of the advertisements is telling. It was shortly after the break-up between the Plaintiffs and the Defendants and more importantly after the Plaintiffs had taken serious steps to object the Defendants’ use of the names ENHANVOL in Hong Kong, including the letter dated 5 October 2002 and the declarations published in newspaper on 4 December 2002. The Plaintiffs had also recently appointed Care & Health Limited as sole distributor in Hong Kong on 1 December 2002. I do not think it coincidence that the 1st Defendant published the GMP advertisements around the same time. Judging from what happened during that part of December 2002, the parties were in substance undertaking media campaign against each other. 287.Secondly, the GMP advertisement themselves made it abundantly clear that the 1st Defendant wished to convey a clear message to the public that FERC ceased to have any role in relation to ENHANVOL. Bearing in mind the two changes in packaging highlighted by the advertisements were the distinctions between the old version supplied by the 1st Plaintiff and the new version sold by the 1st Defendant, I cannot help inferring that the imputation as to counterfeit was intended by the 1st Defendant to be cast against any future sale of ENHANVOL by the 1st Plaintiff or its distributor. It is noteworthy that even on Tong’s evidence, the 1st Defendant did not obtain actual proof of any other counterfeit products at that time and she therefore had no way to tell whether the capsule and hologram were distinguishing features from such other counterfeit. 288.Thirdly, if the 1st Defendant merely sought to inform the consumers about its change of packaging, the objective could be achieved by stating that the capsule and hologram had been changed as from a particular date instead of urging the consumers to watch out for counterfeit. This also answers the submission of Mr Chan that the advertisements were only about the 1st Defendant’s own goods as opposed to casting imputation on the goods of the 1st Plaintiff. 289.Fourthly, there is no satisfactory explanation about the statement to the effect that genuine ENHANVOL products had not been sold in mainland China. I mentioned about Tong’s attempt in that regard and I have rejected her evidence. In my view, that was clearly intended to be a reference to the goods of the Plaintiffs’. 290.I therefore find that the GMP advertisements implicated that if the Plaintiffs were to sell ENHANVOL, they would be counterfeit. 291.In the light of the Plaintiffs’ connection with ENHANVOL in the past and my conclusion as to ownership of the Hong Kong goodwill pertaining to ENHANVOL, the implications were false. 292.I now move on to deal with malice. As summarized by Chu J in Hong Kong Wing On Travel Service v Hong Thai Citizens Travel Services [2001] 2 HKLRD 481 at p.491, there are two alternative limbs by which malice can be proved. A defendant would be taken as acting maliciously if,
It is important to note that dominant motive to injure is required for the second limb but not for the first limb (see Wilts United Diaries v Thomas Robinson & Sons [1957] RPC 220 at 237; Hong Kong Wing On Travel Service v Hong Thai Citizens Travel Services [2001] 2 HKLRD 481 at p.407D and Oriental Machinery v Choi Kin On [2003] 3 HKC 398 at p.416 Para.48). 293.In the present context, Tong testified that at the time when the GMP advertisements were placed, she believed the 1st Defendant to be the owner of the goodwill pertaining to the names ENHANVOL and 盈康活. In other words, she believed the 1st Defendant was the only person who was entitled to use these names in Hong Kong and the use of the names on other products would tantamount to counterfeit. This clearly has a bearing on the question of malice under the first limb. 294.The burden of proof is on the Plaintiffs to establish malice. If they are relying on the first limb, they bear the burden of proving knowledge or recklessness on the part of the 1st Defendant. Have they succeeded in the light of the evidence of Tong? In my judgment, on the totality of the evidence before me, the 1st Defendant had the requisite knowledge of falsity in publishing the statements. Firstly, under the Distributorship Agreements, the 1st Defendant was prohibited from using these names within three years after the end of the agreements. Although the 1st Defendant disputed the scope of the agreements, I do not think it is a bona fide dispute in view of what I said above in the discussion on breach of those agreements, particularly my inference that the parties had been acting on the basis that ENHANVOL and盈康活 were part of the 《天維牌》包裝. The 2nd Defendant did not give evidence and therefore there is no explanation as to how he could honestly reckon in December 2002 that the 1st Defendant had the right to use those names in Hong Kong and to call the Plaintiffs’ goods counterfeit despite the terms of the agreements. 295.Secondly, the 1st Defendant had been warned by the letter dated 5 October 2002 that there would be objections from the Plaintiffs as to the 1st Defendant continued use of the names ENHANVOL and 盈康活. At the very least, the 1st Defendant knew the Plaintiffs claimed to have the right to use the names. 296.Thirdly, there was simply no justification for stating that ENHANVOL had never been sold in mainland China. Even on Tong’s own evidence, she knew that the 1st Plaintiff sold ENHANVOL in mainland China. The implications that those goods sold by the 1st Plaintiff were counterfeit had no basis whatsoever. 297.Fourthly, in view of my misgivings about Tong’s evidence mentioned in other parts of this judgment, I cannot accept her testimony about her belief as to ownership of goodwill in December 2002. In any event, she was not the only director of the 1st Defendant. The 2nd Defendant was also a director and he did not give evidence as to his belief in this regard. I shall discuss later his role in the 1st Defendant in dealing with his personal liability. 298.It is therefore not necessary to consider malice under the second limb. I note that in Guangdong Foodstuffs Import & Export (Group) Corp v. Tung Fook Wine (1982) Co. Ltd. [1999] 3 HKLRD 545 at p.644I, Cheung J (as he then was) found dominant purpose established in a situation similar to the present one. His Lordship said,
The same can easily be said with regard to the GMP advertisements given my conclusion that they were targeted against the Plaintiffs. 299.I therefore hold that the element of malice was established. 300.Turning to damages, the Plaintiffs relied on section 24(1)(a) of the Defamation Ordinance. The GMP advertisements were in writing and the question is whether they were calculated to cause pecuniary damages in the sense that it would be a likely result. If the answer is yes, there is no need to prove special damages. 301.Given the nature of the sting in the GMP advertisements, I can readily see that they were likely to cause pecuniary damages to the Plaintiffs in the normal course of trade if the Plaintiffs planned to sell its products under the names ENHANVOL or 盈康活 in Hong Kong. 302.However, the situation is complicated by the fact that for practical reasons outlined in Paragraph 118 of first affirmation of Liu filed in HCA 4651 of 2002 (affirmed on 23 August 2003), the Plaintiffs had changed the packaging of products sold in Hong Kong to LX-70. The new packaging used the names Lingzhimaster and 學者灵芝. It was said by Liu,
303.I do not think this complication could change the result. To start with, the change of packaging on the part of the Plaintiffs did not take place until sometime close to August 2003. Moreover, even with the change of packaging, the Plaintiffs suffered pecuniary damages in terms of being deprived from tapping the goodwill associated with the names ENHANVOL or 盈康活 whereas the 1st Defendant continued to do so. It has to be remembered that the 1st Defendant and the Plaintiffs (through its new distributor) are now competitors in the market. The 1st Defendant had thereby gained an unjustifiable head start in the competition. 304.I therefore hold that damage is established. The Plaintiffs therefore succeed in the claim for malicious falsehood. Although Mr Chan submitted that there is no evidence that the wrong would be repeated once a determination is made by this court on the rights of the parties, no undertaking has been offered. I agree with Mr Liao that an injunction should be granted in such circumstances. There shall also be inquiry as to damages. First Defendant’s registration of ENHANVOL as a trademark 305.Given my conclusion on ownership of the goodwill, the registration should be rectified to reflect the fact that the Plaintiffs are the owner of the mark. I will make an order accordingly. Double actionability 306.In his final submissions, Mr Liao indicated in Para. 11.3 that if the Plaintiffs are successful in the passing off claims, it would not be necessary for them to rely on this cause of action. 307.There are conflicting authorities in England as to whether the rule of double actionability is applicable in respect of intellectual property rights, see Tyburn Productions Ltd v Conan Doyle [1991] Ch 75 and Pearce v Ove Arup Partnership Ltd [2000] Ch 403. Counsel have not addressed me on these cases. 308.In the circumstances, I prefer not to express a view on this cause of action since it does not add much to the Plaintiffs’ claims. I would however say that in view of my reservations on her credibility, I am not prepared to accept Tong’s evidence that all the packaging boxes of the 1st Defendant were printed in Hong Kong and there was repackaging after the goods wee transported to Hong Kong in the absence of corroborating evidence. Liabilities of the 2nd and 3rd Defendants 309.Notwithstanding the case pleaded, by the time of closing submissions, the case against the 3rd Defendant is confined to the website. There is no evidence as to the involvement of the 3rd Defendant in the other tortious activities of the 1st Defendant. I have dealt with the claim in respect of the website. I shall therefore dismiss the claim against the 3rd Defendant. 310.As regards the 2nd Defendant, I have examined the law on the personal liability of a director in respect of the torts committed by his company in Kabushiki Kaisha Yakult Honsha v Yakudo Group Holdings Ltd [2004] 2 HKLRD 587. Counsel are content with my statement of law therein. In essence, my conclusion is that the law in Hong Kong is the same as those stated by Chadwick LJ in MCA Records Inc v Charly Records Ltd (No 5) [2003] 1 BCLC 93. Those principles have been applied in England and a recent illustration in the context of intellectual properties claims is Koninklijke Philips Electronics NV v Princo Digital Disc GmbH [2004] 2 BCLC 50. 311.For ease of reference, I respectfully set out the summary of law by Chadwick LJ below,
312.The liability of the 2nd Defendant has to be determined by reference to his role in each of the tortious acts of the 1st Defendant. Although the 2nd Defendant chose not to give evidence, there is evidence before me as to his role in the operation of the 1st Defendant generally and also specifically in relation to the media campaign in December 2002. Further, the 2nd Defendant had filed substantial witness statements and affirmations and he was present at least during the initial part of the trial. His decision not to give evidence was only made known on 17 November 2004 and obviously took Mr Liao by surprise. I note that in the cross-examination of Tong, Mr Liao had proceeded on the basis he could have the chance to question the 2nd Defendant at a later stage about the organization and the affairs of the 1st Defendant. Given these circumstances, the court can legitimately draw inference against the 2nd Defendant that even if he were to give evidence, he could not displace certain conclusions that the court can derive from evidence already placed before it (see Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2) [2003] 1 HKC 256 at Paras.155-6; upheld on appeal in CACV 183 of 2003, 4 Feb 2005 at Para.30). 313.As regards the passing off claims, the relevant acts were the sale and promotion of lingzhi products not manufactured by the Plaintiffs under the names ENHANVOL, 盈康活, ENHANOID and 盈康孢子油. Even on Tong’s evidence, the 2nd Defendant played a key part in engaging the factories in mainland China. He also took part in deciding to continue to use these names after breaking up with the Plaintiffs. Further, the 2nd Defendant’s personal involvement in the promotion of the products supplied by the new factories is evidenced by his participation in the press conference of 12 December 2002. Not only did the 2nd Defendant personally took part in that conference as chairman of the 1st Defendant, it is also a reasonable inference that as the only person in 1st Defendant who had some medical background, the 2nd Defendant marshalled support from a number of medical experts from the mainland and procured their attendance at the press conference. On the evidence available, I have no difficulty in concluding that the 2nd Defendant is personally liable as a joint tortfeasor in respect of the promotion of lingzhi products supplied by other suppliers under the names ENHANVOL, 盈康活, ENHANOID and 盈康孢子油 at that press conference. 314.The Plaintiffs’ passing off claims of course go beyond what happened at the press conference of 12 December 2002. There were other promotion activities of the 1st Defendant which the 2nd Defendant might or might not participate personally. Also there is no evidence to show that the 2nd Defendant directly involved himself in the sales activities of the 1st Defendant although he was definitely involved in procuring supply from factories in the mainland. On promotion of the products, it is the defence’s own evidence that some consumers identified the products sold by the 1st Defendant as products of “新城鍾醫生”. In the absence of any explanation from the 2nd Defendant, I infer that he must have been quite involved in the advertisement and promotion of the 1st Defendant’s products to generate such a response from the consumers. The 2nd Defendant also took part in deciding the change from “萌動激活” to “Germination activation” in the packaging of the 1st Defendant’s products. 315.I agree with Mr Liao that Tong obviously tried to downplay the involvement of the 2nd Defendant in her evidence. Tong was cross-examined by Mr Liao about the applications for registration of certain marks associated with ENHANVOL in September 2002 by a person called Sun Kin trading as Yue Kok Company. Sun Kin is a sister of the sister-in-law of the 2nd Defendant. Tong said Sun did so without any prior consultation or consent from the 1st and 2nd Defendant or herself. I find this incredible. Those applications were clearly conceived as some sort of pre-emptive strikes on the part of the Defendants in their anticipated battle with the Plaintiffs. One of the applications was in respect of ENHANOID and 盈康孢子油. Neither Sun Kin nor the sister-in-law had any interest in the 1st Defendant and it is reasonable to infer that the 2nd Defendant must have been involved in procuring such applications. 316.Another instance where relatives of the 2nd Defendant was involved regarding the activities of the 1st Defendant was the registration of certain trademarks used by the 1st Defendant under the name of a company called ENHANVOL International Limited. A brother of the 2nd Defendant was the director of that company whilst the 2nd Defendant and his wife were not. When Mr Liao cross-examined Tong about these affairs, she said she was not clear as they were handled by the 2nd Defendant. 317.At all material times, the 2nd Defendant was aware of the objection from the Plaintiffs in respect of the use of the names ENHANVOL, 盈康活, ENHANOID and 盈康孢子油 by the Defendants after the termination of the distributorship. The letter of 5 October 2002 from the 1st Plaintiff to the 2nd Defendant could not have escaped his attention. Up to December 2002, the 2nd Defendant directly dealt with Liu in finalizing the accounts between the parties as evidenced by P-4(A) to (D). The Plaintiffs issued the writ in HCA No.4651 of 2002 on 12 December 2002 and the 2nd Defendant was party to the action. He pursued litigation with the Plaintiffs in mainland China and one of the actions was an application to expunge the 1st Plaintiff’s registration of 盈康活 in the mainland (see P-6). He lobbied the staff of the 1st Plaintiff in early January 2003 as evidenced by the telephone record produced by Yuen Kin Ping. It is plain to me that the 2nd Defendant was much more than a mere inactive player in the affairs of the 1st Defendant who only interested in research as Tong would want this court to believe. 318.The right to use the names is one of the major disputes between the parties after the breaking down of their relationship. The media campaign in early December 2002 is clearly one of the early skirmishes in the battle. As illustrated by his part in the press conference, the 2nd Defendant was very much engaged in the manoeuvre of the 1st Defendant. Although he might not be the actual person who instructed the salesperson or the staff in the warehouse, he certainly played an important part in the crucial decision that the 1st Defendant would continue to use these names on products not supplied by the Plaintiffs. 319.In my judgment, on the available evidence, the 2nd Defendant was acting more than exercising his constitutional function as a director of the 1st Defendant. It was a conscious decision on his part to procure supply from other factories and apply the names ENHANVOL, 盈康活, ENHANOID and 盈康孢子油to these products with his eyes open as to the objections from the Plaintiffs. He can properly be regarded as having procured the 1st Defendant to promote and sell products not supplied by the Plaintiffs under the names ENHANVOL, 盈康活, ENHANOID and 盈康孢子油 and therefore liable for those acts as a joint tortfeasor. 320.In respect of malicious falsehood, the relevant acts are the publication of the GMP advertisements. Those advertisements were part of the media campaign. For reasons given above, I find on the balance of probabilities that the 2nd Defendant was very much involved in the battle against the Plaintiffs in December 2002. The change of the marks printed on the capsules must have been a strategy approved by him as he dealt with the factories on behalf of the 1st Defendant. The GMP advertisements highlighted this and the improved standard of the factories involved in production and their GMP certification. It also referred to co-operation with Shanghai No.2 Medical University. These were again matters most likely to be handled by the 2nd Defendant. I do not believe that the 2nd Defendant played no part in commissioning the GMP advertisements. It was again one of the skirmishes and I infer that the 2nd Defendant had personally endorsed the same to be published. He is also liable as a joint tortfeasor by procuring the same. 321.In respect of the infringement of the copyright of P-11, on the evidence available, it was a relatively minor matter which could be part of the day-to-day operation of the 1st Defendant. I would not infer any direct involvement or procurement by the 2nd Defendant in this instance. Hence, he is not liable for copyright infringement. Results 322.To sum up, the Plaintiffs succeed against the 1st and 2nd Defendants in the passing off claim regarding the names ENHANVOL, 盈康活, ENHANOID and 盈康孢子油 and the claim for malicious falsehood. The Plaintiffs succeed against the 1st Defendant in respect of the breach of Agreement A but the remedy is confined to damages. The 2nd Plaintiff also succeeds against the 1st Defendant in respect of the copyright claim for infringement of the copyright of P-11. There would also be an order for the rectification of the trademark registration in respect of ENHANVOL in favour of the Plaintiffs as indicated. 323.For reasons given, this court makes no order regarding the double actionability claim. 324.Save as above, the Plaintiffs’ claims are dismissed. 325.The Defendants’ counterclaim regarding the trademark registration for 萌動激活 also succeed and there shall be a declaration of invalidity. 326.Counsel should be able to settle a draft order in the light of this judgment. I direct an agreed draft order be submitted to this court for approval within 14 days. If parties cannot reach agreement, parties should submit their respective draft within 14 days together with written submissions. Unless parties ask for a hearing on the matter, I will make the order within 7 days thereafter after considering the parties’ written submissions and drafts. 327.As regards costs, the Plaintiffs succeed in some causes of action but fail in others. The Defendants succeed in the counterclaim. There are unusual features in the case. It is fair to say a lot of evidence led in the trial was about the copyright claims. The late disclosure of the defence case and late production of evidence on the part of the Defendants must have an impact on costs. Likewise I should take into account that on my findings, the Plaintiffs have tried to mislead this court not only in the testimony of their witnesses but also in the documents produced. If the case were confined to the passing off, registered trademarks and malicious falsehood claims, it might have been completed in last summer within the time originally allocated. But that is of course said with the benefit of hindsight. Another unusual features in the present case is the number of interlocutory applications that I have to deal with at the trial. I have made cost orders in respect of some applications but not all. Taking all the circumstances into account, I will make a costs order nisi that the 1st and 2nd Defendants shall pay ¼ of the Plaintiffs’ costs with certificate for three counsel. 328.As between the 3rd Defendant and the Plaintiffs, I will make an order nisi that there be no order as to costs. The 3rd Defendant has been represented by the same team of lawyers as the 1st and 2nd Defendants and not much additional costs should have been incurred as a result of the claim against the 3rd Defendant. 329.Last but not the least, I wish to thank counsel for their assistance in this complicated piece of litigation.
Mr Andrew Liao, SC, Mr John Yan, SC and Mr Philips Wong, instructed by Messrs Sit, Fung, Kwong & Shum, for the Plaintiff Mr Warren Chan, SC, Miss Winnie Tam and Mr C W Ling, instructed by Messrs S K Lam, Alfred Chan & Co., for the 1st and 2nd Defendants | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 4651/2002