Mga Entertainment Inc. v. Toys & Trends (Hong Kong) Ltd and Others

CACV 104/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 104 OF 2011

(ON APPEAL FROM HCA NO. 2152 OF 2002)

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JUDGMENT

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Hon Tang VP:

Introduction

1.These proceedings concern fashion dolls.  The Plaintiff, MGA, is a large company.  Since about June 2001, MGA has had a highly successful product, "Bratz".  The Plaintiff claimed that it is and, at all material times, has been the owner of the copyright subsisting in original artistic work in respect of the Plaintiff's Bratz fashion doll. 

2.The 1^st and 2^nd Defendants are Hong Kong companies which carried on business in the manufacture and marketing of toys.  The 3^rd Defendant is the managing director and holds 50% of the issued share capital of the 1^st and 2^nd Defendants.  The Plaintiff's case was that the 3^rd Defendant directed and controlled and was personally involved in the business activities and operations of the 1^st and 2^nd Defendants.  The 3^rd Defendant has substantial experience in the toy trade.

3.In early 2002, the Defendants began to market a range of dolls known as "Funky Tweenz", and as Mr McCoy, SC (with Mr Shipp for MGA) put it, Funky Tweenz got off to a flying start.

4.However, MGA claimed that Funky Tweenz infringed their copyright and commenced this action by writ on 5 June 2002[1].  Prior to the commencement of proceedings, the Plaintiff caused "Cease and Desist" letters[2] to be written to actual and potential customers of the Defendants. 

5.On 18 June 2002, MGA applied by summons for an interim injunction against the 1^st, 2^nd and 3^rd Defendants.  On 5 July 2002, Deputy High Court Judge Woolley granted an injunction which restrained the 1^st and 2^nd Defendants until after the hearing and determination of the Plaintiff's summons filed on 18 June 2002 or further order, from the reproduction marketing or sale of Funky Tweenz.

6.That summons eventually culminated in a consent order dated 11 November 2002, which, apart from continuing the effect of the order made on 5 July 2002 against the 1^st and 2^nd Defendants, had included the 3^rd Defendant in the restraint.  Moreover, it required the 1^st and 2^nd Defendant, inter alia, to deliver up moulds for the manufacture of Funky Tweenz and discovery of the names and addresses of persons to whom they had sold or offered to sell or who had ordered any Funky Tweenz from the 1^st and/or 2^nd Defendants.  Although neither order contained an express undertaking as to damages, the Plaintiff has accepted that an undertaking had been given by implication. 

7.The next importance milestone in these proceedings was March 2007 when the Plaintiff applied for a trial date, which was fixed for 3 March 2008.  In late February 2008, the Plaintiff took out an application for the trial date to be vacated.  That was dismissed by Deputy High Court Judge Gill on 29 February 2008.  The trial commenced on 3 March 2008 before the same judge.  On the first day of the trial, Mr Shipp with Mr Jonathan Chu who appeared for the Plaintiff applied to discontinue the action and for the injunction to be discharged.  By an order made by Deputy High Court Judge Gill, on 3 March 2008 and amended and sealed on 26 May 2008, the Defendants was given liberty to apply for an enquiry as to damages within 90 days of the said order.  By summons dated 27 May 2008, the Defendants applied for directions

"… as to Form and Manner of the Enquiry as to Damages on the Undertaking of the Plaintiff for Damages on the grant of an Interlocutory Injunction".

8.Following that the Statement of Damages was filed on 24 July 2008, the Plaintiff's Answer to the Statement of Particulars of Damages was filed on 8 September 2008 and amended on 9 April 2010. 

9.The matter was heard before Deputy High Court Judge Seagroatt for 5 days commencing on 5 May 2011. 

Quantum

10.On 19 May 2011, the learned Deputy Judge handed down his judgment and awarded damages of US$7,250,000.  By an addendum dated 19 May 2011, the learned Deputy Judge ordered that the Plaintiff pay the costs of the Defendants, and that the Plaintiff should pay the Defendant costs on a common fund from and including 4 March 2008.  Earlier in his judgment of 19 May, he had indicated his costs should be on a Common Fund basis in favour of the Defendants.  The learned Deputy Judge also ordered interest on US$7,250,000 to be calculated at the prevailing rate i.e. half the investment rate for Court funds for the relevant period i.e. from the date of the imposition of the interlocutory injunction on 5 July 2002 until the date of the trial of the action, that is, 3 March 2008 and thereafter at judgment rate.

The Appeal

11.This is the Plaintiff's appeal.  The Plaintiff asked that the orders of 19 May 2011 be set aside, and a new trial ordered. Alternatively that the sum of US$171,788[3] be awarded to the Defendants upon the enquiry as to damages. 

12.Essentially, Mr McCoy's attack is two-pronged. First, on quantum, that the learned Deputy Judge erred in relying on the evidence of the Defendants, in particular, the Defendants' expert.  Secondly, that although the Defendants could only obtain damages causally flowing from the grant of the injunction, the learned Deputy Judge failed to distinguish between damages caused by the "Cease and Desist" letters and damages caused by the injunction. 

Quantum

13.The parties were limited to one expert each on quantum.  The Plaintiff's expert was a Mr Alan C W Tang of Grant Thornton who produced a report dated 18 December 2009.  In his report, he produced what he called a "Preliminary Assessment of Defendants' Claim", and at para 8.7 of his report he said:

"8.7  A rough calculation based on the above assumptions to assess preliminarily the Defendants claim would be:

Note (see. Para. 8.8)

2002

2003

2004

2005

2006

2007

Total

……

PRELIMINARY ASSESSMENT OF THE DEFENDANTS' CLAIM:
Preliminary assessment of total claims of the Defendants from 2002 to 2007 (US$)	34,704	130,368	5,337	1,467	-	(89)	171,788"

14.The Defendants' expert was Mr Neill Poole of Alvarez & Marsal, who arrived at a figure of US$7,251,000 after certain deductions, on the basis of a product life cycle of 10 years from 2002 to 2011 and an estimated annual sale of 450,000 units from 2002.

15.An important difference between the experts was over the length of the product cycle.  Mr Tang took the view that the product life cycle for fashion dolls was 15 months.  Mr Poole did not disagree, however, he said:

"96.  Cityworld's management consider this product life cycle could be extended beyond 10 years with successful innovation and re-creation of the brand.  The Barbie brand is a good example of a doll which has led the market for approximately 50 years.  Its success as a cash cow has been achieved through ensuring that the doll adapts to changes in the market. For example, when Hilary Clinton was elected to the US Senate, Mattel launched a 'Senator Barbie' and when the Barbie brand turned 40 in 1999, the doll was given a tattoo of a butterfly just above her navel.

97.  A more recent example in the fashion doll space is the Bratz brand.  Eight years after its launch in mid 2001, the brand is still strong.  It has been reported that 'in the first six years since its launch 125 million Bratz dolls have been sold worldwide and has become the top fashion doll in the United Kingdom.  Global sales of Bratz dolls are said to have reached 1 billion pounds sterling in 2005'.  According to one industry analyst, '… Bratz has captured 40% of the fashion doll market, compared with Barbie's 60%' …."

16.As the 3^rd Defendant explained in his evidence:

"The size of the head is the same. The lips is the same.  The only changes nowadays are lipsticks or colourings in the eye, hair styles and dresses … the fundamental face is still very much the same.  In 2008 it was still very much the same as it was in 2001 and 2002."

17.There was also evidence from Mrs Heather Polk, the Plaintiff's Research Director, summarised by the learned Deputy Judge that:

"62.  As far as the life-cycle of a doll or even a brand was concerned Mrs Polk made it clear that with 'refreshing', updating and keeping pace with fashions and trends, it could comfortably be extended.  Mattel’s 'Barbie' and MGA’s 'Bratz' were clear indicators of this."

18.On the basis of such evidence, the learned Deputy Judge concluded:

"56.  The plaintiff’s counsel sought to demonstrate that the commercial life of the original 'Funky Tweenz' doll would have been short and that sales and profit would not have been sustained over the period 2002 to 2008, let alone 2011.  However when I put to Mr Shipp the position achieved by the Bratz brand of MGA in the following terms :

'— over the years the same dolls were produced but with varying themes and co-ordinates and make up and hair styles to reflect fashions and tastes, demonstrating that to hold the appeal  in the market something new and updated was required.'

Mr Shipp agreed that that was a 'pretty fair summary'.  'Funky Tweenz' may never have rivalled 'Bratz' in terms of popularity and turnover, but the initial reactions of the market to the brand were strong indicators in my view of its potential as a player.  There is no reason to think that the defendants could not apply the same formula as MGA and Mattel in refreshing its brand."

19.It is said that the learned Deputy Judge had confused the dolls with the brand.  With respect, I do not agree.  Although the learned Deputy Judge used the expression "Funky Tweenz brand" it is obvious from the context he had in mind "the dolls"[4].

20.To understand what the so-called refreshing or updating involved, we asked for and were shown models of "refreshed" Bratz dolls.  Looking at them as a potential customer, I must say they look very much the same doll to me. 

21.With respect, I do not believe we can interfere with the learned Deputy Judge's conclusion that when periodically refreshed, the Funky Tweenz dolls could achieve a life cycle of 10 years. 

22.The learned judge dealt with the experts' evidence in some detail in his judgment.  He found that the evidence of Mr Tang was "seriously flawed and lacking in objectivity"[5].  He said:

"72.  … I regret to have to say that I regard Mr Tang’s evidence as a whole, and on material particulars, as lacking both logic in its approach and fairness in its evaluation. …"

23.On the other hand, the learned Deputy Judge said:

"73.  By contrast I found the evidence of Mr Poole both rational and objective in its approach. …"

24.Mr McCoy, however, complained that the learned Deputy Judge erred when he rejected Mr Tang's evidence that Funky Tweenz dolls could not have succeeded because the Defendants were technically insolvent.  The learned Deputy Judge described Mr Tang's evidence in these words:

"71.  … at best a superficial view. … Mr Tang’s approach smacks of pleading the plaintiff’s cause. …"

25.Mr McCoy then turned his attack on Mr Poole's computation.  He submitted that Mr Poole's computation was based on his adoption of a base figure of 450,000 units per annum from 2002 which he castigated as being based on management estimates which were in turn based on the expression of interest allegedly received by the Defendants, and hence completely unreliable. 

26.I note that Mr Poole had said in chief[6]:

"… in … cases where there is an interruption to a business … caused by, … a range of events.  It could be, … a fire … Put in all of the cases you have to make an estimate of what sales would have been had it not been for that event.  And, you know, it's just not reality, I don't think, to say that companies will have everything documented and be able to say to their customers, 'What would you have bought from me had I been able to supply you?'"

27.In cross-examination Mr Poole was asked by Mr Shipp[7]:

"Q.  Can you please tell us, general terms, what have you done to translate the information provided by the defendants to form the opinion contained in your report there?

A.  Well, in general terms I was performing a calculation of what losses the company, the defendants may have sustained, as a consequence of the injunction, and to that end, there are a number of assumptions that are fed into that calculation, and what I was endeavouring to do by discussing with Mr Kesselring, Mr Lam and also looking at relevant accounting information was to assess the reasonableness of those assumptions."

28.I also note that earlier in Mr Poole's report, he said:

"82.  Expressions of interest for up to 675,000 dolls were received by Cityworld.  Within the first four months customers placed orders for 170,964 units, 94,548 of which were shipped by 10 July 2002, 3,828 were returned and 48,708 were cancelled due.  Cityworld alleges, to the threats of litigation by MGA against its customers and 27,708 ordered units were replaced by new style dolls.  Cityworld and Toys & Trends continued shipment of the redesigned doll with its new face.  However, sales over the next several months failed to attract and maintain the same momentum because it was less appealing, according to Mr Kesselring and due to the effects of the Action by MGA.  Total sales in 2002 of the new style dolls totalled 73,776 units (Annexure 9).  The amounts have changed since my Preliminary Report."

29.The learned Deputy Judge concluded:

"73.  … Of course there is a paucity of documentary evidence relating to a product that was traded for such a short period.  To some extent there must be an element of guesswork in surmising on a reasonable and fair basis what the future picture would have been.  Mr Poole was well aware of these limitations and adopted a cautious approach, describing his basis as perhaps conservative.  That is however what one cannot reasonably expect of an expert, applying objectivity within known parameters.  Where comparisons can properly be made, the task is inevitably easier.  Where no direct comparisons can be made it is reasonable to look at other businesses within the same sort of trade, to see how they fared even if they are, in terms of size, reputation and history, in a league altogether superior to the business under review. 

74.  Expressions of interest may not necessarily be translated into actual orders, and, thereby profits.  They are however not to be dismissed as mere, unreliable, exaggerated encouragement to the manufacturer or supplier.  It would be wrong to treat them as having no commercial reality.  In some cases they were backed up by an effort to negotiate a lower price and obtain an exclusivity agreement.  Some were lent particular credence by actual orders e.g. ToyRUs of Canada, David Halsall Ltd of the U.K., Bizak of Spain, Concentria of Portugal, Intertoys of Holland.  It lies ill in the mouth of the plaintiff to be so dismissive of the status and reliability of expressions of interest when it was their own action which prevented a more accurate determination of the value of expressions of interest, and which for six years kept the original 'Funky Tweenz', which had instigated those expressions, out of the market.  In fact at least 27 distributors worldwide, ordered the original dolls and those who cancelled orders or returned dolls delivered, did solely as a result of the threats from MGA and its agents.  Not one complained about quality, style or finish.  In just over three months over 90,000 dolls were ordered and that was before the build-up to the peak season of Christmas.

75.  Mr Poole underlined the fact that he had only actual orders and expressions of interest to use as the basis of his approach and as an accountant he is being asked to project a situation from that, a difficult exercise.  Of necessity he has had to place reliance on limited material and as part of his projection he has had to look at how businesses in the same trade prospered or otherwise.  It was reasonable and natural enough to look at the market leaders one of whom was the very company which put a stop to the original 'Funky Tweenz' brand: MGA.  The defendants would probably not have reached the same scale of achievement as MGA and Mr Poole does not seek to say or show that it could.  Mr Kesselring thought that he could have been onto a winner but that will remain an unknown.  Mr Poole has taken a conservative approach as one would expect an expert to do and that precludes one from finding that the defendants could have reached or rubbed shoulders with the likes of Mattel and MGA.

76.  Looking at the various expressions of interest, including that from Antunes Enterprises, it may well be that Mr Poole took a very low base in expressing an annual figure for 2002 of 450,000 dolls bearing in mind that orders for the three months were over 170,000 (reduced to over 90,000 only by cancellations and returns)[8]. Expressions of interest, some subject to exclusivity agreement, were at least 500,000 units, even excluding ToyRUs.  Given uncertainties Mr Poole was right to be conservative and I accept his first figure of 450,000 for the three quarters of 2002."

30.With respect, I find the learned Deputy Judge's reasoning convincing and there is no basis upon which I could interfere with his decision

31.I should also mention that at para 92 of Mr Poole's report, he produced the following table.

	December 2001		May 2002
	Units (m)	USDm	Units (m)	USDm
Total sales	14,422	173,525	1,243	12,798
Mattel	12,561	153,649	1,041	10,824
MGA	589	8,494	86	1,296

32.The learned Deputy Judge took "Units (m)" as representing units in millions.  Thus, he said:

"77.  … MGA’s turnover of units for May 2002 was over 2,300 times that of the defendants'."

33.When we mentioned to counsel that "(m)" might have denoted a thousand rather than a million, counsel were unable to enlighten us.  We told the parties that if they could agree they should write and tell us.  Subsequent correspondence showed that they were unable to reach agreement, and we have told the parties that we would not entertain any further argument or receive any evidence on the matter.  Even if, as seems likely, "(m)" denoted a thousand and not a million, it does not matter.  The learned Deputy Judge said immediately after the quotation in para 32 above.

"77.  … Whilst in some respects that comparison or ratio is meaningless, the picture remains inevitably difficult since the plaintiff has not sought to set against it any figures from any comparable business for any period.  Nor have they produced any figures for their own business to challenge Mr Poole’s assumption as to growth or decline over the latter years.  His calculations of the life-cycle are similarly unchallenged by hard evidence and Mr Tang himself did not consider either aspect, as assessed by Mr Poole, to be unreasonable.  The same applied to the percentage adopted in relation to the accessories linked to the various doll themes.  Mr Tang in the text of his report at paragraph 4.5 opined that since the injunction related to the dolls specified in the order, 'any claims for losses on the sales of accessories or other related products… would appear to be irrelevant.' This statement is quite illogical.  If the dolls are out of the market the accessories and related products have nothing to be accessories to or to be related to.

78.  I do not regard it as necessary to enter into a detailed consideration of Mr Poole’s calculations since I accept his basic premise and that he has adopted a conservative approach. …"

34.As the learned Deputy Judge had noted, Norris J in Les Laboratoires Servier v Apotex Inc [2009] FSR 220 had said:

"[9]  Third, whilst it is for Apotex to establish its loss by adducing the relevant evidence, I do not think I should be over eager in my scrutiny of that evidence or too ready to subject Apotex' methodology to minute criticism.  That is so for two reasons, quite apart from an acceptance of the proposition that the very nature of the exercise renders precision impossible.  (a) Whilst, in order to obtain interlocutory relief, Servier will not have had to persuade Mann J. that it was easy to calculate Apotex' loss in the event of the injunction being wrongly granted, it will have had to persuade him that that task was easier than the calculation of its own loss in the event that the injunction was withheld.  The passages I have cited from its skeleton argument and evidence show that it did so.  Having obtained the injunction on that footing it does not now lie in Servier's mouth to say that the task is one of extreme complexity and that the court should adopt a cautious approach.  Having emphasised at the interlocutory stage the relative ease of the process, it should not at the final stage emphasise the difficulty.  (b) In the analogous context of the assessment of damages for patent infringement, in General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd (No.2) [1975] WLR 819; [1975] FSR 273; [1976] R.P.C. 197 HL at 212 Lord Wilberforce said:

'There are two essential principles in valuing the claim: first, that the plaintiffs have the burden of proving their loss; secondly, that the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the plaintiffs and not to punish the defendants.'

The principle of 'liberal assessment' seems to me equally applicable in the present context.  Although a party who is granted interim relief but fails to establish it at trial is not strictly a 'wrongdoer', but rather one who has obtained an advantage upon consideration of a necessarily incomplete picture, he is to be treated as if he had made a promise not to prevent that which the injunction in fact prevents.  There should as a matter of principle be a degree of symmetry between the process by which he obtained his relief (an approximate answer involving a limited consideration of the detailed merits) and that by which he compensates the subject of the injunction for having done so without legal right (especially where, as here, the paying party has declined to provide the fullest details of the sales and profits which it made during the period for which the injunction was in force)."

35.The learned Deputy Judge had said earlier in his judgment that:

"41.  … the plaintiff (MGA) has been peculiarly reticent about disclosing its sales and income from its Bratz range of dolls and accessories over the period in question."

36.In all the circumstance I see no reason to interfere with the learned Deputy Judge's conclusion that:

"80.  The proper figure for the net loss of profit on the original Funky Tweenz dolls is US$8,150 million to date. …"

which after deduction became the US$7,250,000 awarded.  As Norris J said "one can only do broad justice where there are so many significant variables". 

Causal Connection

37.Mr McCoy argued that the learned Deputy Judge had failed to bear in mind that only damages resulting from the grant of the injunction were recoverable under the undertaking and not damages from the Cease and Desist Letter.  He submitted that it is for the defendants under an undertaking to establish by evidence a prima facie case both that the grant of the injunction was a cause of his damage and that but for it he would not have suffered that damage.  If the loss was caused as much by the existence of the litigation as by the injunction, then the Defendant cannot satisfy the "but for" test.

38.The Cease and Desist Letters had been sent to customers or potential customers of the Defendants.  It is agreed that we could use the letter dated 24 May 2012 which has been exhibited to Mr Poole's report as an example.  It reads:

"Bratz dolls, the dolls appearance, name, packaging, copyright, and trademark are all the Intellectual Property of ABC International Company, Inc. dba MGA Entertainment.  It has come to our attention that TRU Canada has purchased a blatant knock-off of Bratz dolls under the name of Funky Tweens (see attached copy of TRU Canada's screen page of these dolls).  We demand that TRU Canada immediately cease and desist any further distribution of sales of this product.  We also demand that you let us know by May 30^th, 2002 the total quantity of the Funky Tweens product on hand, on order, sold, and information concerning the consumers to whom the products were sold.

If TRU Canada refuses to voluntarily cease and desist as demanded in this letter, we will have no choice but to take legal action against TRU Canada for trademark and copyright infringement and seek damages accordingly.

We are presently in process of taking legal action against City World Toys and Toy and Trend in Hong Kong and China."

39.Mr McCoy claimed that the writing of "Cease and Desist" letters in copyright cases is a well-known stratagem employed to stop a rival's product.  He said unless the "Cease and Desist" letters could be regarded as, for example, a trade libel, the writer of such letters could not be held liable for any loss.  Mr McCoy asserted that that is why it is common in copyright cases for such letters to be sent.  He submitted that any loss suffered by the Defendants was caused by these letters and not the injunctions. 

40.Mr McCoy relied on the well known decision of the  High Court of Australia in Air Express Limited v Ansett Transport Industries (Operations) Proprietary Limited (1981) 146 CLR 249.  Air Express was concerned with an assessment of loss and damage under an undertaking as to damages arising out of an interlocutory injunction to restrain the Commonwealth of Australia and the Secretary of the Department of Transport from issuing permission to the defendant applicant and another company under customs regulations to import freight aircraft into Australia.  There the issue was whether damages which had been assessed at $1,745,754 was caused by the litigation and not by the interlocutory injunction.  Aickin J held that it was probable that once the action was commenced the Secretary would not have issued the permission, hence the defendant had not established that the loss it had incurred from its inability to import the aircraft flowed from the grant of the injunction.  The headnotes summarised the decision of the High Court as follows:

"(1)  There is a distinction drawn between damage caused by the grant of an injunction and damage which flows from the fact of the litigation itself.  Only in the former instance are damages recoverable.

(2)  It is for the party who seeks to enforce the undertaking to show that the damage claimed would not have been sustained but for the injunction."

41.A similar submission[9] was made by Mr Shipp to the learned Deputy Judge whose judgment[10] contained a careful analysis of Air Express as well as 2 subsequent important decisions on the subject, namely, Lilly Icos LLC v 8PM Chemists Ltd [2009] EWHC 1905 (Ch.), a decision of Arnold J, and Les Laboratoires Servier. 

42.The learned Deputy Judge noted that Mr Shipp relied in particular on the judgment of Gibbs J in Air Express who has said:

"In a number of authorities the court has distinguished between loss which was caused by the injunction and loss which arose from the litigation."

43.The learned Deputy Judge continued:

"34.  I do not need to review those authorities.  As Gibbs, J. himself said :

'There is no reason to doubt that it is correct in principle to draw such a distinction if the facts warrant it'.  [My emphasis]

"35.  The caveat entered in effect by Gibbs, J. is an overriding one (at p. 313) :

'The court should no doubt scrutinise with care an assertion by a plaintiff that loss which has been suffered by a defendant has resulted from the litigation rather than from the making of the interlocutory order, since a plaintiff should not be allowed to evade payments of the price which he has agreed to pay for the grant of the injunction.'"

44.He then went on to note the principle of "liberal assessment"[11] and said:

"40.  (Norris J) went on to assert, and it is particularly appropriate to the case before me, that :

'… There should as a matter of principle be a degree of symmetry between the process by which he obtained his relief (an approximate answer involving a limited consideration of the detailed merits) and that by which he compensates the subject of the injunction for having done so without legal right (especially where, as here, the paying party has declined to provide the fullest details of the sales and profits which it made during the period for which the injunction was in force).'"

45.The learned Deputy Judge said, and I respectfully agree:

"42.  On the question of causation a consideration of the authorities such as Arnold, J. conducted, revealed, unsurprisingly that 'equity’s approach to causation, as distinct from reasonableness, is little different to that of the common law.'  Gibbs, J. in Air Express Ltd (p.313) had said :

'… in almost every case in which an injunction is granted the injunction will play some part in causing the party bound by it to act in accordance with its terms.'

In his judgment in the same case (at p. 332) Mason, J. (as he then was) said :

'… Unless the circumstances indicate otherwise, when it appears that damage flows from the non-performance of an act and the performance of that act has been restrained by an interim injunction, the inference will generally be drawn that the damage has been occasioned by the injunction.'

The defendants need not show that the injunction was the sole cause of the loss.  Saville J (as he then was) in Financiera Avenida S.A. v. Shiblaq (The Times, November 21, 1988) said :

'… Once a party has established a prima facie case that the damage was exclusively caused by the relevant Order, then in the absence of other material to displace that prima facie case, the Court can, and generally would, draw the inference that the damage would not have been sustained but for the order.  In other words, the Court seeks to approach and deal with this question of causation in a commonsense way.'

43.  Arnold J adopted Saville J’s approach and the test applied in the Air Express case and confirmed that they did not mean that the claimant had to go further and show that the injunction was the exclusive cause of the loss.  The judge finally, at least for the purposes of this action, confirmed the commonsense approach to damages :

'… The defendant will usually (…) sustain the loss claimed after the date … of the injunction.  Often, the loss will be a continuing one down to the date of discharge of the injunction. …'

44.  I add here that it may continue after the date of the discharge of the injunction if the defendant is able to show that, despite the lifting of the injunction, he has suffered irreparable damage which continues and that an application of the principle that he is to be compensated for being prevented from carrying on his business in the way in which it would normally have been done, may, depending on facts and circumstances, involve assessment of loss well beyond the date of the lifting of the injunction."

46.The learned Deputy Judge then turned to Mr Shipp's submission that the Defendants' customers had complied with the Cease and Desist Letters and that it was the threat of litigation against them, and the actual litigation against the Defendants which occasioned the Defendants' loss, rather than the injunction itself.  And concluded:

"48.  Then one must look at the defendants’ reaction to the actions of MGA.  It was not the litigation per se which caused them to cease marketing and production and hand over all the equipment to MGA (or its agents); it was the injunction.  The market outlets had been stopped up and MGA wanted the source equally inhibited.  It succeeded.  The defendants lost what they had achieved and what appeared to them to be promising.  It may be artificial in the circumstances of this case to draw a distinction between the effect of the litigation and threatened litigation, and that of the interlocutory injunction.  I have no doubt that the overwhelming factor was the injunction and that loss directly flowed from it."

47.There is ample support for the learned Deputy Judge's view that the injunction caused the Defendants' loss.

48.The 3^rd Defendant had said in his affidavit of 8 December 2008 that:

"11.  Due to the injunction we were forced to change the facial features of the original Funky Tweenz notably and some moulds for the legs were also changed to remove the resemblance to the Bratz that was the cause of MGA's attack and claim in these proceedings.  That resulted in heavy loss of business as the new style just was not that appealing to our customers.  Had we been allowed to carry on business with the original version of Funky Tweenz, in all likelihood there would have been repeat orders from our customers.  In the cases of customers who have yet to  make up their mind because of the threat of injunction and legal action by MGA, it could be expected that they would also have placed orders according to their previous indications if MGA had not succeeded in getting the injunction."

49.The affirmation was part of the 3^rd Defendant's evidence in chief at trial.  It does not appear that he was cross-examined on this issue.

50.Additional support for this conclusion is the fact that despite the injunctions the Defendants had tried to salvage something from the effect of the injunction by applying the "Funky Tweenz" brand name to an altered doll, with an altered face which the 3^rd Defendant described as "an unappealing face".

51.I believe Mr McCoy has overstated the effect of the Cease and Desist Letters.  I accept and it is common sense that the Cease and Desist Letters would have an immediate chilling effect.  However, Cease and Desist Letters are not self-sufficient or self-contained.  They carried the important statement that the Plaintiffs "are presently in process of taking legislation against (the 1^st and 2^nd Defendants) in Hong Kong and China". 

52.Looking at the matter with common sense, I believe the Cease and Desist Letters would have been perceived as empty threats but for the statement.  Indeed, had proceedings been commenced but an injunction refused, the Cease and Desist Letters would have been carried little weight.

53.It is true that the 3^rd Defendant had also blamed the "Cease and Desist" Letters for loss of custom.  But as the learned Deputy Judge has explained in paras 42 and 43 of the judgment, the Defendants did not have "to go further and show that the injunction was the exclusive cause of the loss".  Also, the learned Deputy Judge had the advantage of assessing the evidence of the 3^rd Defendant and he was entitled to conclude as he had done.

54.As Saville J said:

"… the Court seeks to approach and deal with this question of causation in a commonsense way.'"

55.Moreover, there should also be a degree of symmetry between the Plaintiff's application for injunction (no doubt on the basis that the Cease and Desist Letters were insufficient) and the assessment of damages when the injunction was discharged.  If Mr McCoy's submission on the effect of the Cease and Desist Letters is correct, an injunction would have had little practical effect. 

56.Although at one time Mr McCoy queried whether compensation would be payable for the period after the lifting of the injunction, he accepted that in principle that is permissible.  I have already quoted para 43 of the judgment above[12]. The learned Deputy Judge added:

"55.  When the injunction was eventually lifted the moulds were not returned and so even if the market originally open to the Funky Tweenz dolls had not passed the defendants by with the effluxion of time — and it is easy to see how six years later distributors were reluctant to revert to a 2002 concept however updated— new moulds would have to be created, production would have to be reinstituted and probably much advertising and exposure at Toy Fairs required.  Mr Kesselring discounted the chances of a revival and he was not seriously challenged on that."

Loss of a chance

57.In para 20 of the Plaintiff's skeleton submission, under "Massively Reduced Damages/Retrial", the following submission appeared:

"… As the Judge has ascribed no discount values or contingency values or indeed engaged anything in the way of discounting factors or findings of fact that impinge on the proper exercise, this Court is itself unable to rectify the exposed problem.  There is simply a paucity of satisfactory fact-finding that can survive appellate scrutiny. …"

58.Footnote 15 in the Plaintiff's skeleton submissions referred to Ku Chiu Chung Woody v Tang Tin Sung, CACV 429/2002 (unreported, dated 23 May 2003), where Ma JA (as he then was) dealt with the circumstances under which a re-trial might be ordered. 

59.Para 15 of the Plaintiff's skeleton stated that:

"In calculating damages for the future, as in other areas of law, the Court is engaged in deciding the loss of a chance.  This engages the evaluation of all risks and contingencies. …"

60.Mr McCoy in his oral submissions referred briefly to para 41 in the judgment of Arnold J in Lilly Icos where the learned Judge said:

"… even if compensation is to be assessed as at the date of judgment, it does not follow that all uncertainties or risks which existed as at the date of the injunction should be disregarded. …"

61.Footnote 9 to para 15 of the Plaintiff's skeleton referred us to Seventh Earl of Malmesbury and others v Strutt & Parker (A Partnership) and another [2008] Lloyd's Rep PN 14.  I note that there, the relevant issue was whether the claimant had lost a significant chance of obtaining rent calculated in a particular way, and if so, the value to be put on the chance.  Jack J said at para 149:

"If there was no significant chance … the claimants fail.  If there would have been a, say, 60% chance, the claimants are entitled to 60% of the value of the chance lost."

62.In both Lilly Icos and Les Laboratoires Servier, the court was required to decide on what discount should be made having regard to what Arnold J called "Risk factor for the future"[13]. Both courts had expert evidence on the subject.

63.Here, although the Amended Notice of Appeal is 19 pages long and contains over 20 grounds, they do not contain any specific complaint that the learned Deputy Judge had failed to discount the assessment by taking into account risks for the future.  Nor had the point been dealt with in either expert's report or their evidence.  Nor was the issue raised in Mr Shipp's oral submissions to the learned Deputy Judge.  Indeed, had the issue been raised, the learned Deputy Judge would have dealt with it in his judgment.

64.Mr McCoy spent little time on the point, he said we are "unable to rectify the exposed problem"[14] and we should order a retrial.

65.In Ku Chiu Chung Woody, Ma JA said:

"24.  … The Court of Appeal will not order a retrial (which inevitably involves further costs) unless some substantial wrong or miscarriage of justice has taken place. …"

66.But Mr McCoy is seeking a retrial so that the Plaintiff could take this point, and presumably adduce expert evidence.  Re‑trial is not ordered so that a party can have a second chance.

67.The learned Deputy Judge accepted the Defendants' expert's evidence and said that the figure was arrived at conservatively.  No point was taken before him that the figure should be discounted for "Risk factor for the future".  I do not believe it is right in the circumstances to permit a point to be taken for the first time on appeal, a point on which evidence could have been adduced[15].

Costs

68.The learned Deputy Judge awarded costs on a common fund basis from and including 4 March 2008.  Because of a sanctioned offer which was made on 2 February 2010, the Defendants should be given costs on an indemnity basis as from 2 February 2010.  Costs prior to that date, would normally be on a party and party basis.  Although one might think that the Plaintiff's case is unattractive, I do not believe there is any special or unusual feature justifying costs on a common fund basis. 

Interest

69.The judgment sum awarded was for loss of profits to date of the judgment (para 80), and interests was ordered at half rate from the date of the interlocutory injunction until the date of trial, 3 March 2008, and at the full rate from 4 March 2008 until payment.

70.It is common practice in personal injuries claims for interests for special damages to be awarded at half the appropriate rate.  Since such damages are comparatively small, that is a highly sensible practice.

71.Mr McCoy submitted that such an order is wrong in principle because the losses accrued at different times, and should not be made in a commercial case.  Moreover, since loss of profits was awarded up to 19 May 2011, it was wrong in principle to justify order at the full rate from March 2008. 

72.I have come to the conclusion, given that this is a commercial claim, interest should be payable in the usual way and at a commercial rate, which is 1% above the prime lending rate.  They should be calculated on the basis that the damages had accrued on a monthly basis.  In working out such interest, the parties to have liberty to apply.

73.It follows that for the above reasons I would dismiss the appeal, save as to costs and interests as indicated above.  I would also make a costs order nisi in favour of the Defendants on an indemnity basis.  This follows from the sanctioned offer, which if it had been accepted there would have been no appeal.

Hon Cheung JA:

Award not supported by evidence

74.In considering the amount of damages recoverable by the defendants pursuant to the undertaking as to damages, it is important to bear in mind that this is not the usual case of a supplier whose production or supply of products was only first disrupted when it was served with the injunction. 

75.This is a case where even before the injunction was served on the defendants on 5 July 2002, their customers were already cancelling orders because they themselves had received the cease and desist letters from the plaintiff.  There was evidence that cease and desist letters were also sent to at least one of the major customers after the imposition of the injunction on 5 July 2002. 

76.The claim of US$7,251,000.00 was based on the report of the defendants’ expert, Mr. Poole whose calculation was based on the defendants :

‘81. …… estimated annual sales for the Funky Tweenz brand since its launch on 31 January 2002 which, in turn, was based on the initial success of the old style Funky Tweenz doll supported by expressions of interest (refer Annexure 4). The initial interest began rapidly to translate into sales orders and completed sales with the first shipment in March 2002 (refer Annexure 5).

82.  Expressions of interest for up to 675,000 dolls were received by Cityworld.  Within the first four months customers placed orders for 170,964 units, 94,548 of which were shipped by 10 July 2002, 3,828 were returned and 48,708 were cancelled due, Cityworld alleges, to the threats of litigation by MGA against its customers and 27,708 ordered units were replaced by new style dolls…’

77.Of the expressions for interests by the defendants’ customers for 675,000 units, Mr. Poole provided a breakdown of this figure, namely,

			Units
1)	Toys ‘R’ Us (Canada) (‘TRU’)		30,000
2)	Kiddy Fun, Switzerland	up to maximum	50,000
3)	Kiddy Fun, Germany/Austria	up to maximum	300,000
4)	Bizak (Spain)		50,000
5)	Levy (UK)		80,000
6)	D. Halsall (UK)		150,000
7)	Concentra		15,000
			675,000

78.Of these 675,000 units, the plaintiff had adduced evidence which seriously challenged the defendants’ claim that they had expressions of interest of 675,000 units.  The defendants were not able to substantiate the bulk of this figure.  The plaintiff had also adduced both documentary and oral evidence, many coming from the defendants themselves, that substantial orders had been cancelled well before the imposition of the injunction on 5 July 2002.  The plaintiff’s challenge is identified in an analysis set out in the Amended Notice of Appeal which is reproduced below:

Toys ‘R' Us (Canada) (‘TRU’) Order for 30,000 pcs allegedly placed by written orders in March & May 2002	24.5.2002 – MGA sent cease and desist letter to TRU threatening legal action against TRU in Canada for trade mark and copyright infringement [1/47]. 11.6.2002 – TRU cancelled order for 40,212 pcs before Interim Injunction [1/63]. The Ds claim that these orders were cancelled because of the interlocutory injunction is obviously untrue [1/168/6].  See Indemnity Agreement prepared for Ds by TRU which was not signed [2G/161-164]. Annexure 6 of Poole’s Report [1/58] is also incorrect where he deals with listing of cancelled orders and sales returns of TRU [1/37/67]. Annexure 7 states that 4,500 pcs were actually sold to TRU.  There is no evidence from Ds to establish that there was any sales return from TRU.  Mr. Poole blindly accepted that there were sales returns without making any independent verification.  However, it is the Ds own evidence that those items listed as sales returns have been sold and the 672 pcs being the last item listed under Cancelled Sales Orders have been supplied and not cancelled [2G/1640].  The total number of alleged sales returns (3,828 pcs) if added to the last item under Cancelled Orders (672 pcs) in Annexure 6 total 4,500 (3,828 + 672) which is the number of pcs sold and supplied as stated in Annexure 7.  Mr. Poole has been double counting and inflating figures based on his instructions without any independent verification.
Kiddy Fun – Switzerland Alleged expressions of interest based on a written document dated 2.5.2002 for 25,000 to 50,000 pcs Kiddy Fun Germany / Austria Alleged expressions of interest based on a written document dated 2.5.2002 for 100,000 to 300,000 pcs	Ds did not even reply to this letter and this letter was not disclosed pursuant to the Norwich Pharmacal Order in Injunction by Consent [1/135-137] [Transcript 56R-59H].  The Ds claim at trial that these orders were cancelled because of the interlocutory injunction is obviously untrue [1/168/7].
Bizak (Spain) Oral Expression of Interest for 50,000 pcs	Bizak was sent a cease and desist letter from lawyers acting for Bandai (Spain), distributors of Bratz in Spain & Portugal on 29.5.2002.  Bizak immediately stopped selling Funky Tweenz [2G/1536, 1538 & 1564-1566]. Ds admitted that the loss of the Bizak order was not a result of the interim Injunction but the cease and desist letter sent before the Writ was even issued [1/178/30]. Bizak only ordered 5,520 pcs.  During cross-examination of D3, the oral expression of interest was suddenly elevated to a firm commitment to sell and supply, which was not disclosed pursuant to the Injunction by Consent [Transcript 59J-68H] [2K/2741-2756/3].  The alleged firm commitment was not even stated to have been cancelled in Annexure 7.
Levy (UK) (buying agent Trade Crown Holdings) Oral expression of interest for 80,000 pcs	Only 2,760 pcs were sold [2A/175].  It was only during cross-examination that D3 said there was no firm commitment to order 80,000 pcs [Transcript 73A-S].  There is no evidence at all that but for the Interim Injunction; Levy (UK) would have ordered 80,000 pcs. The Ds said on oath that there was no more offer to sell and supply nor were any more dolls sold and supplied to Levy (UK) [2K/2741-2756/3].  Further, it is the Ds own evidence that Levy Bros/Levy (UK) stopped buying because of cease and desist letters and not because of the injunction [1/178-179/30].
D. Halsall (UK) Alleged expression of interest for 150,000 pcs in 2002 relying on a letter written allegedly in April 2008	In a letter from Halsall Far East Ltd. to the Ds (undated) [1/55-56], Halsall had to cancel 5,640 pcs out of the 12,240 pcs placed because ‘legal representatives of MGA and Bandai UK, threatening us with legal action’ [2G/1576-1578]. The cancellation of orders clearly did not arise by reason of the Interim Injunction. It is very clear from the legal advice given by Marks & Clerk (very well established IP firm) to Halsall that the reason they gave up dealing with the old and new Funky Tweenz dolls was to avoid being sued in the UK and not because of the Interim Injunction [2G/1588-1591].  This very experienced toy company gave up dealing in the new and old Funky Tweenz on the advice of an experienced IP firm.  This shows very clearly that the loss alleged to have been suffered was not caused by the Interim Injunction. Further, the figure of 150,000 pcs was not an expression of interest as wrongly put forward by Neill Poole but just a figure plucked out of nowhere by Halsall supposedly in 2008 [Transcript 68R-72R].
Concentra Alleged oral expression of interest for 15,000 pcs	During cross-examination D3 elevated this oral expression of interest to a firm commitment to buy 15,000 pcs [Transcript 73A-L].  If it was really the case, it was not disclosed pursuant to the Norwich Pharmacal Order [2K/2741-2756/3]. No weight should be given to this category.

79.But more fundamentally, to rely on expressions of interest as a projection for future sales cannot be right.  After all if the buyers were really interested in buying the goods, they would have placed orders, even if initially for a small amount.  A more realistic approach is to look at the actual sales orders received by the defendants and performed by them.  The figure that was given was 170,964 units for the first four months of 2002 (for calculation purpose, this may be said to be about 500,000 units per year).  This is only about 25% of the 675,000 units that the customers had said to have expressed their interest.  But of the 170,964 units of actual orders, about 44% was cancelled and replaced (cancelled orders 28%, replaced orders 16%).  This is a very high figure.  In order to rely on the actual orders of 170,964 units as the base figure for quantification, the burden is clearly on the defendants to show that the cancellation and replacement were due to the imposition of the injunction.  They had not been able to discharge this burden because they themselves admitted (by the 3^rd defendant’s affidavit dated 9 December 2008) that the plaintiff’s action had a negative impact on these customers even before the imposition of the injunction.

‘ 30. The legal action started by MGA has had a negative impact on our customers in Europe and Canada right from the beginning (without even having been served yet with the injunction). The reason behind this negative impact lies in the fact that lawyers acting for MGA or their agents such as Bandai had sent out letters to customers of ours even before anybody knew that an injunction would be issued. They also must have published advertisements in some magazines, informing potential customers about the “risk” of buying or selling Funky Tweenz to them. I learnt during my discussions with these parties when they decided to back down from their intention to place orders with the First and Second Defendants that at least the following parties have been so threatened:-

-  Bizak

-  Levy Bros

-  D. Halsall

-  Toys & Trends UK

-  TRU Canada

-  Dansk Supermarket Danmark

-  FDB Danmark

-  Kesko Finland

-  Michael Antunes

-  E – bay

-  Toi toi (Holland) – informed about an ad (see emails dated 22^nd April, 2002 and exhibited hereto as part of exhibit “JWK-I”)

This all created a lot of confusion in the markets and many buyers and potential customers hesitated to buy Funky Tweenz or would not consider them whether in the old styles or even the new styles which were not caught under the Injunction, customers generally played safe and steered away from the Funky Tweenz.’  (emphasis added)

80.Faced with this evidence, it calls into serious doubt whether the projected sale of 450,000 units for 2002 (upon which the estimated loss of profits was based) and the projected growth rate of 30 – 35% for 2003 and 2004 and an estimated sale of 800,000 units in later years can be sustained.  With respect to the learned judge, the evidence called for a critical analysis which is lacking in the present case.  It is not sufficient to say that Mr. Poole analysis is already based on a conservative estimate when the very foundation of this estimate was based on some grossly inflated figures.

81.The learned judge held that ‘It may be artificial in the circumstances of this case to draw a distinction between the effects of the litigation and threatened litigation, and that of the interlocutory injunction.’  In my view this distinction is not artificial at all having considered the evidence in this case.

82.The distinction is important because as Mason J observed in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979-1981) 146 CLR 249 at 324–325 that:

‘…. We are better advised to look to the purpose which the undertaking as to damages is designed to serve and to identify that causal connexion or standard of causal connexion which is most appropriate to that purpose. The object of the undertaking is to protect a party, normally the defendant, in respect of such damage as he may sustain by reason of the grant of the interim injunction in the event that it emerges that the plaintiff is not entitled to relief. It is no part of the purpose of the undertaking to protect the defendant against loss or damage which he would have sustained otherwise, as for example, detriment which flows from the commencement of the litigation itself. That is loss or damage which the defendant must bear himself, as he does when no interim injunction is sought or granted. Consequently, it is for the party seeking to enforce the undertaking to show that the damage he has sustained would not have been sustained but for the injunction.’ (emphasis added)

83.In Lilly Icos LLC v 8PM Chemists Ltd [2010] FSR 4, Arnold J at 115, after reviewing the authorities, summarized the position as follows:

‘ It can be seen that their Honours were agreed that the correct test is the but for test: the defendant must show the damage claimed would not have been sustained but for the injunction. It also appears, however, that the defendant need only show that the injunction was a cause of the loss, not the sole cause. On the other hand, if the loss was caused as much by the existence of the litigation as by the injunction, then the defendant cannot satisfy the “but for” test.’

84.It is true that an injunction may cause loss before it is actually granted.  Arnold J observed in Lilly Icos at 153 that:

‘…… As counsel for Lilly rightly accepted, an injunction may cause loss before it is actually granted. In particular, steps may be taken by a defendant in anticipation of an injunction being granted which result in loss being suffered by the defendant after the injunction is granted. An obvious example is where an injunction is applied for, and between the date of the application and the date of the hearing the defendant concludes that it cannot resist the injunction and therefore will consent to it, and having taken that decision it takes steps to comply with the forthcoming injunction which later result in it suffering loss. Taking a common-sense approach to causation, the injunction causes that loss. Of course, if a defendant takes steps in anticipation of an injunction which in the event is not granted, then loss suffered by the defendant as a result is not caused by the non-existent injunction, but that does not disprove the proposition I have just stated.’ (emphasis added)

85.This is not such a case.  If the cancellation of orders by the defendants’ customers was not because of the injunction but the cease and desist letters issued to them by the plaintiff, then any loss arising from the cancellation did not flow from the injunction.  As Gibbs J observed in Air Express at 113:

‘The party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered.’

86.In stark terms, the learned judge’s award of US$7,250,000.00 means in effect this amount flowed directly from the imposition of the injunction.  This is plainly wrong.

Loss of chance

87.Another problem with the quantification is that one is concerned here with the loss of chance by the defendants to obtain orders from customers and earn profits which they said they were prevented from so doing because of the imposition of the injunction.  The chance is predicated on two conditions.  First, the act of third parties i.e. the customers to place orders and second, the ability of the plaintiff to fulfill the orders.

88.As Stuart-Smith LJ observed in Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1602 at 1614 that,

‘the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be.’

89.Lord Reid’s observation in Davies v. Taylor [1974] A.C. 207, 213 which was applied in Allied Maples Group at 1631 and 1621 is instructive:

‘You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All that you can do is evaluate the chance. Sometimes it is virtually 100 per cent.: sometimes virtually nil. But often it is somewhere in between.’

90.The learned judge, based on Mr. Poole’s report, awarded damage based on a ten year period.  This is an extremely long projection.  It is important to bear in mind that the product was introduced to the market only shortly before the injunction.  There was already another similar product in the market in the form of the ‘Bratz’ dolls produced by the plaintiff.  The defendants themselves were not financially sound and were under resource.  The evidence showed that they did not even respond to many of the trade inquires before the injunction.  In the circumstances it is inappropriate to rely on the duration and sales volume of products like ‘Barbie’ and ‘Bratz’ dolls in the estimate of the defendants’ damage.  These two products are no doubt a success in the market but there are equally many other doll products which had failed.  The success of ‘Barbie’ and ‘Bratz’ may be also due to the infrastructure, capital and capability of the suppliers of these products like Mattel and the plaintiff who were prepared to spend massive amounts in the promotion of these products.  The basic average life span of each individual product within any one brand in the fashion doll segment is only about 24 months. 

91.Mr. Poole’s report which was based on the figures provided by the defendants appeared more like a business plan with a rosy projection of future growth than an analytical examination of the damages sustained by the defendants.  To accept the report uncritically is to provide the defendants with a windfall which is not supported by the evidence.

Counterclaim for damage

92.The defendants had chosen not to pursue a counterclaim for damages based on common law remedies such as inducement of breach of contract, intimidation or malicious falsehood (see McGregor on Damages 18^th Ed, Chapter 40 and Clerk v. Lindsell on Torts 20^th Ed Chapter 23) against the plaintiff arising from its threats and proceedings for copyright infringement.  Had the defendants done so they might be able to recover more extensive damages based not only on the plaintiff’s undertaking as to damages but also the threats and proceedings.  As it is, the defendants had chosen to rely solely on the undertaking itself.  This necessarily requires the application of the ‘but for’ test which on the facts of this case will exclude damages that arose other than by reason of the injunction.

Conclusion

93.For my part, I would allow the appeal and order a re-trial because of the absence of finding on the critical issues in the quantification.

Hon Lunn JA:

94.I have had the advantage of reading in draft the judgments of Tang VP and Cheung JA.  For the reasons articulated in the judgment of Tang VP I too would dismiss the appeal and make the orders he proposes in respect of costs and interest.

Hon Tang VP:

95.By a majority the appeal is dismissed save as to costs and interests as indicated above with a costs order nisi in favour of the Defendants on an indemnity basis.

Mr. Gerard McCoy, SC and Mr. Colin Andrew Shipp instructed by William W. L. Fan & Co. for the Plaintiff

Mr. Paul Stephenson instructed by Danny K. H. Yu & Co. for the Defendants

Please refer to FACV6/2013 for the relevant appeal(s) to the Court of Final Appeal.