Toto Toys Ltd v. King Fung Vacuum Ltd
Read the full judgment text of HCA 188/2004 on BabelCite. This High Court CFI judgment was delivered on 19 August 2005.
1. This is an application of the 1 st defendant to restrain the 1 st plaintiff by interlocutory injunction from publishing certain words defamatory of the 1 st defendant or disparaging of its products, to induce its customers actual and potential to take their business from the 1 st defendant to the 1 st plaintiff. The words in question are those contained in two letters and an email sent by the 1 st plaintiff to customers and a potential customer of the 1 st defendant, as I shall come to.
Cites 2 cases
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HCA 188/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 188 OF 2004 ____________ BETWEEN
____________ HCA 4715/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 4715 OF 2003 ____________ BETWEEN
____________ Coram: Deputy High Court Judge Gill in Chambers Dates of Hearing: 8-9 August 2005 Date of Judgment: 19 August 2005 ______________ J U D G M E N T ______________ Introduction 1.This is an application of the 1st defendant to restrain the 1st plaintiff by interlocutory injunction from publishing certain words defamatory of the 1st defendant or disparaging of its products, to induce its customers actual and potential to take their business from the 1st defendant to the 1st plaintiff. The words in question are those contained in two letters and an email sent by the 1st plaintiff to customers and a potential customer of the 1st defendant, as I shall come to. History 2.The 2nd plaintiff James Wong and the 2nd defendant Piu Wong used to make toys and toy components through a factory in China and various companies in Hong Kong which they both owned as shareholders. By this means they held intellectual property rights in certain lines of toys they were making and marketing, as well as all the usual trappings of an on-going business undertaking. 3.There came a time, perhaps it was late 2002, when they decided to subdivide into two their interests hitherto operated as one, and go their separate ways. This included dividing between them the copyrights and other property rights hitherto shared. There was intended a transition period of one year during which one was to be given agency rights to deal in the other’s property. For the purpose of the matter before me, the detail is not important. Suffice to say that both Wongs signed three agreements written in Chinese characters and not professionally drawn, which may be the reason for things going off the rails. 4.As is apparent from the pleadings in the proceedings that came to be filed, James Wong acquired one of the companies hitherto jointly owned being the 1st plaintiff (King Fung) whilst Piu Wong took the other, the 1st defendant (Toto Toys). Where the parties have fallen out is as to how the rights in four lines of toys called ‘Space Series’, ‘Screw Series’, ‘Marble Series’ and ‘Miscellaneous Products’ were divided. Apart from a certain vagueness in the written agreements there is said by one or other or perhaps both that there was an oral content in what was agreed and that cannot now be agreed. To compound the difficulty some of the lines, or series, of toys have shared component parts. 5.The parties purported to complete the split and go their separate ways by early January 2003. But it was not long before there was trouble. A term of the agreement was that a registered trademark of the component parts of the four series of toys under the brand name Toto, hitherto owned by King Fung, was to be assigned to Toto Toys; that did not happen. Piu Wong and Toto Toys issued a writ in specific performance. But James Wong himself was aggrieved when he had cause to believe and now alleges that Piu Wong was manufacturing and marketing toys that matched or closely copied those reserved to him. He also sued, in his own right and for King Fung. 6.In December 2004, a Master consolidated the two actions, and there are now consolidated pleadings. It is apparent from these, and the vigour with which this interlocutory matter has been argued, that there is a major falling out, and no agreement on the way forward. The Letters and Email 7.This application derives from letters that were sent out by King Fung to a toy retailer in Tsuen Wan called BabyBoom Shop and another in Singapore, called Twinkle Thinkers Pte Ltd. in December 2003 and January 2004 respectively. These are identical in content. I reproduce that sent to BabyBoom:
The enclosure is an excerpt from the Trade Marks Registry depicting the trade mark referred to. Annie Cheung, the signatory, is James Wong’s wife. 8.These are the only two letters which Piu Wong knows about, they having been brought to his attention. But what was and is of concern is that by virtue of their being identical in content, and because they were directed to customers (note ‘customers are hereby advised’) rather than to the addressee in each case, a great deal more than these may have been sent out. It is pertinent to note that nowhere in the evidence does James Wong or anyone else on King Fung’s part suggest otherwise. 9.The email complained of came to Piu Wong’s attention because it was cut and pasted and sent to him for comment by its recipient Peter Neville, the sales manager of an Australian company called Just Premiums International whom Piu Wong refers to as a potential customer. What in fact he sent was a compilation of 3 emails. The first was his, Neville’s email to Neu Kreation (a company set up and run by James Wong), the second was a reply from Annie Cheung (of which Piu Wong now complains) and the third his email enclosing those two sent to Toto Toys’ email address seeking an explanation. This is how it was set out, and of course one reads from bottom to top:
Christina is Christina Poon, Toto Toys’ marketing manager. 10.As it turns out the email which purportedly Neville had received had been redacted by him for reasons best known to him. In evidence adduced by James Wong the full email that was sent is the following:
11.What has emerged is a series of emails exchanged between Just Premiums and Neu Kreation; it is apparent that Neville was testing James Wong’s quotation against another which may have come from Piu Wong. 12.It is his, Piu Wong’s case that Neville thereafter suspended negotiations with Toto Toys, so that a prospective relationship never developed. The Interlocutory Application 13.Although the summons is so phrased as to be grounded in defamation, it is the defence’s case that the injunction is required to prevent King Fung’s unlawful interference with Toto Toys’ trade or business. As Mr Coleman for the defendants submitted:
14.It is the case of Toto Toys and Piu Wong that the letter sent out and circulated at least to two actual or potential customers was threatening and amounted to an unlawful inference with the business of Toto Toys. This was because it contained false and/or misleading information, which was portrayed as fact. And, as submitted, now that the former partners are in fact competitors in the same industry, it is apparent that there is a motive. 15.In considering the merits of the plaintiff’s case, I begin with the premise that a copyright owner who has a claim for breach of copyright is entitled to warn a customer of the offender, who thus himself may become a secondary offender, of his intention to bring proceedings. This is because the claim can only be enforced against someone who has knowledge of the copyright. But the information so given must be done so in good faith; see Granby Marketing Services Ltd v. Interlego A.G. [1984] RPC 209 at p.213. 16.So, there can be no act of wrongful interference if all that King Fung has done is to assert in good faith a legal right claimed by it and to threaten proceedings if that right is infringed. 17.Is the letter accurate in detail, not misleading, not an underhand way of denying Toto Toys’ legitimate business and attracting that to King Fung? 18.I come to consider that next. The Letters 19.I begin by noting that this is not the usual situation of a copyright owner or holder alleging what amounts to passing off, piracy or other form of illegal copying by the offender, but a dispute between two former joint owners now challenging the other’s rights. I think that behoves a more cautious approach and the need to ensure that in notifying actual or prospective customers the full picture is presented. 20.The letters that went out purport to paint a picture; but in my view it is not a full and complete one and there are areas which are misleading and which give rise to unfairness. 21.These include the following:
22.Read as a whole I am satisfied that the recipient of the letter would likely take from it that King Fung, always the dominant partner in the original format, had taken over the entire manufacturing operation leaving Toto Toys the marketing; that a short term marketing agency was about to expire; that King Fung held the trade mark of Toto; that Toto Toys was in obvious and serious breach of its agreement with King Fung and King Fung’s copyright; that as a result there were proceedings on foot against Toto Toys and those who had already purchased infringing products from it; that anybody who purchased goods from Toto Toys within a wide range were at risk; that King Fung’s toys could now be bought through Neu Kreation Limited. 23.In my view one only has to spell out the above to note that the letter was motivated to attract by improper means customers and trade from Toto Toys. 24.I come next to the email. 25.Reading the series of emails exchanged between Neu Kreation and Just Premiums, one notes that Neville is sounding out someone called Kimmy Chan for a competitive quote in respect of the game known as Marble Run. He receives a quote of US$4 per unit and responds that he has been offered US$3. The offending email follows. But there was nothing in Neville’s email to suggest he had been dealing with Toto Toys or that the quote was from that source. 26.In my view the response as framed was gratuitous and misleading, and designed to put a customer off from contracting with a rival by improper means. And it was probably unnecessary; the next email in sequence, sent above Miss Cheung’s name, was to match the quote the Neville had referred to, as I set out below:-
The Consequences 27.By sending out the letters and email, King Fung was threatening Toto Toys’ customers and potential customer by unlawful means. There is, as I find, a serious question to be tried. 28.Damages are not an adequate remedy. Toto Toys makes and sells toys; it has (or at least there was an agreement that it has) the registered mark of a line of those toys. Unrestrained misleading letters to its customers and potential customers if achieving the desired effect will turn away existing and new customers alike, resulting in a loss of business and goodwill beyond individual transactions. It would in my view be impossible to quantify the resultant loss. On the other hand, in the event that following trial it can be established that an interlocutory injunction was not after all justified, I am satisfied on what I have that Toto Toys is in a position to meet any order for damages occasioned by the injunction. 29.I find that the letters and email designed as they were to attract business from Toto Toys to King Fung by frightening off customers amounted to unlawful interference and should be stopped. I grant the application asked for, with costs (nisi at first instance) to the 1st defendant taxed and paid forthwith.
Mr G Kwan instructed by Messrs Liau, Ho & Chan, for the 1st and 2nd Plaintiffs (in HCA 188/2004) and Defendant (in HCA 4715/2003) Messrs R Coleman and L Cheung instructed by Messrs Michael Pang & Co., for the 1st and 2nd Defendants (in HCA 188/2004) and Plaintiff (in HCA 4715/2003) Appeal by the 1st Plaintiff in HCA188/2004 to the Court of Appeal. Apeal allowed. Please refer to the appeal judgment of CACV305/2005. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 188/2004