Menfond Electronic Art & Computer Design Co Ltd v. Wong Wang Tat Victor and Another

HCA 293/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.293 OF 2011

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Before : Deputy High Court Judge Lisa Wong, SC in Chambers

Date of Hearing : 1 February 2012

Dates of Further Written Submissions : 9 & 16 February 2012

Date of Handing Down Judgment : 3 January 2013

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J U D G M E N T

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1.Before the Court is an application by Summons dated 16 September 2011 by the Plaintiff, Menfond Electronic Art & Computer Design Co Ltd (萬寬電腦藝術設計有限公司), for the following relief by summary procedure:

(1)  against the 1^st Defendant, Mr Wong Wang Tat Victor (“Victor”), for a declaration of beneficial ownership, and an order for the transfer, of the registration of the domain name “menfond.com” (“Domain Name”) and the website “www.menfond.com” (“Website”) which the Plaintiff claims have been registered in Victor’s name since their creation on 18 February 2001 on trust for the Plaintiff; and

(2)  against Victor and the 2^nd Defendant, Menfond Digital Pictures Ltd (萬寬數碼影畫(國際)有限公司), for passing-off:

(A) an order for the transfer of the registration of the Domain Name and Website to the Plaintiff (as an alternative to the Plaintiff’s claim as beneficial owner);

(B) an order for the 2^nd Defendant to change its name so that it does not include the words “Menfond” or “萬寬” or words colourably similar thereto;

(C) an injunction against Victor (whether acting by himself, his servants, agents or otherwise howsoever) from passing off and/or causing, enabling and/or assisting others to pass off their business as the Plaintiff’s business;

(D) an order against each of he Defendants for the delivery-up or destruction upon oath of all documents, goods and articles in the possession, custody, power or control of the Defendants, the continued retention, distribution and/or use of which by the Defendants would offend against the foregoing injunction; and

(E) an order against each of the Defendants for an inquiry as to damages or, at the Plaintiff’s option, an account of profits.

Facts and circumstances prompting this action

2.The Plaintiff, a company incorporated in Hong Kong on 27 June 1989, has since early 1990 been providing digital animation and computer generated image (CGI) services in Hong Kong to:

(1)  clients from the film and television industry on films and television projects;

(2)  clients from the advertising industry (i.e. advertising agencies) on advertising projects; and

(3)  corporate clients on video clips for their internal use or for use as marketing and promotional material.[1]

3.The Plaintiff’s business was founded and developed by Victor and his brother, Mr Wong Wang Hin Eddy (“Eddy”), with the financial and other assistance from their parents, Mr Wong Man (“Wong Senior”) and Madam Au Yuk Lin (“Madam Au”).  Eddy and Victor were appointed directors of the Plaintiff on 19 October 1989.  Prior to 2003, the shares in the Plaintiff were held entirely by members of the Wong family and their company namely, Eddy, Victor, Wong Senior, Madam Au and Menfond Company Limited (“MCL”), a company incorporated in Hong Kong in 1987 and whose shareholders are Wong Senior (32.5%), Madam Au (32.5%), Victor (17.5%) and Eddy (17.5%) and directors Wong Senior and Madam Au.

4.The Plaintiff subsequently invited investment by third parties by issuing them with convertible loan notes, which were eventually converted into shares in the Plaintiff so that the Plaintiff has since 28 February 2003 become held as follows:

Shareholder	Number of Shares Held
Eddy	2,120,000
Victor	2,120,000
3-D Inc	1,666,666
Wong Senior	770,000
Madam Au	770,000
Cheung Kam Tong Antonio	166,667
VC Consulting Limited	120,000
MCL	100,000

It can be seen that the shareholders outside the Wong family account for just under 25% of the shares in the Plaintiff.  Mr Cheung Leung Hong Cliff also joined the board of the directors of the Plaintiff, representing the interests of the minority shareholders from outside the Wong family.

5.In the meantime, on 18 February 2001, when Victor was a director of the Plaintiff, he had the Domain Name and the Website created and registered in his own name.  Though registered in Victor’s personal name, the evidence incontrovertibly shows[2] that it was the Plaintiff who paid the initial registration fees for the acquisition of the Domain Name and the Website, all the subsequent renewal fees and hosting fees.  Between February 2001 and October 2010, the only use to which the Website was put was to promote and market the Plaintiff’s business and only members of the Plaintiff’s staff were assigned and used email addresses ending in “@menfond.com”.

6.In April 2001, a company called 佛山市南海區里水萬寬電腦藝術設計有限公司 (“Li Shui Menfond”) was established in the PRC in the names of 2 PRC citizens, 曾永雄and侯筠each holding 6% of the shares in Li Shui Menfond for themselves and the remaining shares as nominees for Eddy (24%), Victor (24%), Mr Li Kai Chiu (28%), another PRC citizen, and Mr Lau Wai Keung (12%), a well known director in Hong Kong.  It is the Plaintiff’s case that:

(1) Li Shui Menfond was intended to act as a production house for the Plaintiff to take advantage of the lower labour costs in mainland China and to develop the PRC market and channel business back to the Plaintiff.  It was expected to be sustainable on jobs from the Plaintiff and other shareholders.

(2) However, Li Shui Menfond turned out to be a failure and had to rely solely on the financial support of, and jobs from, the Plaintiff.  In return for such support, Li Shui Menfond agreed to charge the Plaintiff for production works at cost and was obligated to disclose its accounts to the Plaintiff for verification of the rates charged by it to the Plaintiff.

(3) On the other hand, as some of the Plaintiff’s PRC customers preferred contracting out production works to a PRC company rather than a Hong Kong company, these orders would be transferred to and taken up by Li Shui Menfond as the contracting party and Li Shui Menfond would in turn sub-contract the complex technical portion of the work to the Plaintiff.

(4) In view of the apparent conflict of interests between the Plaintiff and Li Shui Menfond and the long term development of the Plaintiff’s business, on 15 January 2007, the Plaintiff established a wholly owned subsidiary called萬寬數碼動漫(蘇州)有限公司 (“Suzhou Menfond”) in Suzhou, the PRC.  It was intended that orders from the Plaintiff’s customers who wished to contract with a PRC company would be transferred to Suzhou Menfond, instead of Li Shui Menfond.

7.However, notwithstanding the incorporation of Suzhou Menfond, orders from the Plaintiff’s customers continued to be transferred to Li Shui Menfond.  Between 2007 and October 2010, only 1 contract worth RMB720,000 was entered into by the Suzhou Subsidiary with a customer of the Plaintiff.  In the meantime, in about 2007, the other shareholders of Li Shui Menfond who are not members of the Wong family were bought out, according to the Defendants, by Wong Senior and Madam Au making Li Shui Menfond wholly owned by members of the Wong family.  There is a dispute as to whether the Plaintiff or its other shareholders (including Eddy) were informed of this change in the shareholding of Li Shui Menfond.

8.For reasons which have not been fully canvassed in the evidence filed in support of and in opposition to the present application, a rift developed between the Plaintiff’s shareholders dividing them into 2 camps: Victor, Wong Senior, Madam Au and MCL on the one side and Eddy and the 3 shareholders from outside the Wong family on the other.  In 2010, negotiation for either camp to buy out the other was conducted but to no avail.  

9.On 25 October 2010, at a board meeting at which Victor was also present, he was dismissed from his position as executive director of the Plaintiff forthwith.  Such dismissal was said to be pursuant to Clause 11.1 of a Service Agreement dated 1 June 2005 (“Service Agreement”) which, on its face, appointed Victor as an Executive Director of the Plaintiff with effect from 1 June 2005.  On 15 April 2011, Victor was further removed as a director of the Plaintiff.

10.In the meantime:

(1)  The 2^nd Defendant was incorporated on 7 October 2010 with its registered office at G/F, 838 Canton Road, Kowloon, Hong Kong until 16 January 2011 and then at Room 1901, 248 Queen’s Road East, Wanchai, Hong Kong since 17 January 2011.  The sole shareholder of the 2^nd Defendant is a Mr Tang King Fai and its directors are Mr Tang and Madam Au.  It is the Plaintiff’s case that the 2^nd Defendant provides digital animation and CGI services directly in competition with the Plaintiff.   

(2)  Alchemist Agency Limited (“Alchemist”) was incorporated on 15 October 2010 with the same registered office addresses as the 2^nd Defendant.  Victor is a founding member, one-third shareholder and director of Alchemist.  It is the Plaintiff’s case that Alchemist acts as an agent providing digital animation and CGI services directly in competition with the Plaintiff.

11.Between 25 October 2010 and 3 January 2011, while still holding the registration of and control over the Domain Name and the Website, Victor caused the Website to display the 2^nd Defendant’s name followed by the word “updating” and providing the Hong Kong and mainland China telephone numbers and email address ([email protected]) of a Cons Li, with the title “senior producer”, as the person to contact for inquiry.  Cons Li is Ms Li Fung Kuen Constance.  She was employed by the Plaintiff as a Senior Producer in the Project Management Department.  She resigned and last reported duty to the Plaintiff on 8 November 2010.

12.From 4 January 2011 onwards, Victor has caused the Website to display what purports to be a statement of Wong Senior that the names “Menfond” and “萬寬” were created by Wong Senior in 1987 and that he reserves rights to the same.

The Plaintiff’s claims

13.First, the Plaintiff claims to be the beneficial owner of the Domain Name and the Website which are held by Victor on its behalf as resulting and/or constructive trustee.

14.Second, the Plaintiff contends that the following acts amount to passing-off:

(1) the listing of the 2^nd Defendant’s name and contact details on the Website.  It is the Plaintiff’s case that, unless owned and controlled by the Plaintiff, the Domain Name and the Website constitute instruments of deception in that customers and potential customers of the Plaintiff as well as members of the public in Hong Kong would believe that they were the domain name and the website of the Plaintiff and any use of the same by others would amount to passing-off;

(2) the use of “Menfond” and “萬寬” by the 2^nd Defendant in its name.  It is the Plaintiff’s case that, unless owned and controlled by the Plaintiff, a company with the name of Menfond Digital Pictures Limited (萬寬數碼影畫(國際)有限公司) constitutes an instrument of deception in that customers and potential customers of the Plaintiff as well as members of the public in Hong Kong would believe that a company with such name is the Plaintiff and/or associated with the Plaintiff by way of trade and any act of trading by the 2^nd Defendant would amount to passing-off.

15.Third, although the Plaintiff confines the present application to the aforesaid 2 claims, for the purposes of the discussion under the next heading, I should mention that the Plaintiff is also suing Victor in respect of various alleged breaches of his fiduciary duties as a director of the Plaintiff and of his contractual duties under the Service Agreement.  It is however only necessary to set out only the alleged breaches said to have been committed by Victor in relation to Li Shui Menfond prior to his dismissal by the Plaintiff.  They are pleaded in in §20 of the Statement of Claim.  In particular, Ms Chan relies on the following matters raised by the Plaintiff:

(1)  continuing to cause orders from the Plaintiff’s customers to be transferred to Li Shui Menfond even after the establishment of Suzhou Menfond (sub-§(vi));

(2)  not disclosing to the Plaintiff the acquisition of the shares in Li Shui Menfond held by shareholders who are not members of the Wong family (sub-§(vii));

(3)  not providing any accounts or records of Li Shui Menfond to the Plaintiff since December 2009 (sub-§(viii)); and

(4) misrepresenting on various occasions to the Plaintiff’s customers that Li Shui Menfond was a wholly owned subsidiary of the Plaintiff in an attempt to take unfair advantage of the Plaintiff’s goodwill and reputation for the benefit of Li Shui Menfond (sub-§(ix)).

To put these complaints in context, I refer to the summary of the Plaintiff’s case regarding how Li Shui Menfond should operate in relation to the Plaintiff in §6 above.

Jurisdiction to entertain this application: applicability of Order 14, rule 1(1)(b)

16.Order 14, rule 1(2)(b)prevents summary judgment from being entered in “an action which includes a claim by the plaintiff based on an allegation of fraud …”.

17.Counsel for the Plaintiff, Ms Winnie Tam SC and with her Mr Christopher Chain, accept on behalf of the Plaintiff that if any cause of action within the statement of claim is “based on an allegation of fraud”, then the Court has no jurisdiction to entertain an application for summary judgment even on the claims that are not based on fraud: Kays Impex Corp (HK) Ltd v Arbuthnot Export Services Ltd [1973-1976] HKC 109 at 111G-H per Briggs CJ and Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 at §§ 19 and 23 per Rogers VP.

18.Ms Chan, for the Defendants, initially contended in §49 of her written submissions dated 30 January 2012 that the following parts of Ms Tam SC’s written submissions dated 27 January 2012 on the claim for passing-off were allegations of fraud: the references to the Domain Name and Website being “instruments of fraud” and to the principles that where it is appropriate to find an intention to deceive on the evidence, the Court will not hesitate to infer that deception is likely and that where the parties are in direct competition, the defendant’s fraudulent intent to benefit himself can hardly fail to damage the plaintiff. 

19.Ms Chan did not persist in such argument in her supplemental written submissions dated 7 February 2012, presumably in view of Sony Corporation v Anand (No 2) [1982] FSR 200, followed by the Hong Kong Court of Appeal in Borri SpA v Tralco Technology Limited, CACV 207/2009, unreported, 29 January 2010 (dealt with in §§46-51 below).  Rather, she now focuses her jurisdictional challenge on §20 of the Statement of Claim which pleads Victor’s alleged misconduct in relation to Li Shui Menfond prior to his dismissal from the Plaintiff in breach of his fiduciary and contractual duties.

20.The question arising is therefore whether such allegations of misconduct are allegations of fraud which would invoke the operation of Order 14, rule 1(2)(b).

Meaning of “a claim based on an allegation of fraud”

21.Prior to its abrogation by rule 5 of the Rules of the Supreme Court (Amendment) 1992 on 1 June 1992, the exclusion provided for in the corresponding English rule had been construed by the English courts narrowly in 2 senses:

(1)  First, it was applicable only to actions where there was a claim for damages or other relief for fraud, pleaded as such.

(2)  Second, only fraud as strictly defined in Derry v Peek (1889) 14 App Cas 337 (i.e. the making of a false representation knowingly, or without belief in its truth, or recklessly, careless whether it be true or false)[3] would come within the rule.

22.First, in Sony Corporation v Anand (No 2) (supra), the plaintiffs sued for infringement of registered trade mark, passing off, infringement of copyright in the artwork for the plaintiffs' labels, and conversion of infringing copies.  In support of their copyright claim, the plaintiffs alleged that the defendants had imported and sold the counterfeit cassette tapes bearing the Sony trade mark knowing that the labels were infringing copies.  In support of their claim for exemplary and statutory additional damages, the plaintiffs alleged that the defendants had acted with a cynical disregard of the plaintiffs' rights in the belief that the money to be made was worth the risk involved and were in flagrant breach of copyright.  The plaintiffs applied for summary judgment for trade mark infringement and passing-off.  Walton J rejected, at pp 204-205, the defendants’ contention that the inclusion of the allegations of knowledge and of cynical disregard in the statement of claim meant that the plaintiffs' action included “a claim based on an allegation of fraud” within rule 1(2)(b), so that the action was excluded from the scope of Order 14.  His reasons were:

(1) Applying Barclays Bank Limited v Cole [1967] 2 QB 738, an “allegation of fraud” in Order 14, rule 1(2)(b) meant strictly and only an allegation of the tort of deceit.  The allegations of knowledge and of cynical disregard were allegations that the defendants knew that what they were doing was wrong, and not in any way questions of fraud at all.

(2) To come within the rule, the claim itself must be based on an allegation of fraud and fraud against the plaintiffs.  The allegation of knowledge indicated that the defendants were intending to defraud the public, not the plaintiffs. 

23.In Barclays Bank Limited v Cole, the plaintiff bank claimed against the defendant who had robbed one of its branches for money had and received.  The issue was whether the defendant was entitled to a trial by jury pursuant to s 6(1) of the Administration of Justice (Miscellaneous Provisions) Act 1933, which depended on whether a charge of robbery was a charge of fraud.  It was held that fraud involved deceit and not violence, the charge of robbery did not make the action one in which a charge of fraud was in issue.  Lord Denning said at 745:

“in law “fraud” is proved when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false: see Derry v Peek (1889) 14 App. Cas. 337, 374, per Lord Herschell.”

24.Lord Diplock also similarly said at 745:

“‘fraud’ in civil actions at common law, whether as a cause of action or as a defence, has meant an intentional misrepresentation (or, in some cases, concealment) of fact made by one party with the intention of inducing another party to act upon it, which does induce the other party to act upon it to his detriment. A charge of robbery is clearly not embraced in ‘a charge of fraud’ in this sense.”

25.The English Court of Appeal first decided that “fraud” in Order 14, rule 1(2)(b) had the same meaning as that stated in Barclays Bank Limited v Cole in E Hannibal & Co Ltd v Frost (unreported), 13 May 1987, referred to Newton Chemical Limited v Arsenis [1989] 1 WLR 1297 at 1300G-H, per Nicholls LJ.

26.By the time of the English Court of Appeal’s decision in Newton Chemical, it was considered to be well established in England that “an allegation of fraud” in Order 14, rule 1(2)(b) had the narrow meaning of a false representation in the technical sense of Derry v Peek and did not embrace cases where other forms of dishonesty was alleged against a defendant.  See Nicholls LJ at 1300C.

27.Newton Chemical further decided that rule 1(2)(b) could be invoked only where the plaintiff had chosen to put forward a claim founded on Derry v Peek fraud.  That case involved claims by the plaintiff manufacturers against their former commissioned sales representative (who had pleaded to false accounting) for, inter alia, repayment of commission on the ground that he had fabricated the orders on which he claimed and was paid commission.  The statement of claim pleaded all the essential factual ingredients of fraud.  Further, in proving that the defendant claimed commission on non-existent sales, the plaintiffs would prove that he was aware of the true position because he had fabricated the orders, that is, he submitted false claims.    Nevertheless, the Court of Appeal, questioning whether rule 1(2)(b) ought to be preserved, held that the plaintiffs were not precluded by the rule from obtaining summary judgment against the defendant because they had expressly chosen to found their action on breach of contract and fiduciary duty and negligence and not on fraud or deceit.  Moreover, to succeed with the claims as pleaded, the plaintiffs did not have to prove that the defendant had acted dishonestly.  On the pleaded causes of action, it would be sufficient if the plaintiffs proved that, however the claims for commission came to be made, they were not supported by actual orders.  See Nicholls LJ at 1300H-1303E; Stocker LJ at 1307B-D and O’Connor LJ at 1307G-H.

28.The narrow construction of rule 1(2)(b) adopted in the English authorities had, however, not been followed in Hong Kong.

29.In Peninsula Fur Trading Ltd v George Chen Dah-shing, HCA 3550/1987, unreported, 14 March 1988, the plaintiffs alleged that the defendants had made secret profits and had in at least one instance caused a loss to the plaintiffs and claimed for the return of that profit as being made by the defendants in breach of fiduciary duty owed to them as constructive trustees.  While holding that a claim for breach of trust does not necessarily involve fraud or dishonesty, Barnett J distinguished the Sony case and said:

"In the present case however, the essence of the Plaintiff's claim is not an "innocent", if I may call it that, breach of trust, but a long term thoroughly dishonest course of conduct.  Even if fraud is not expressly pleaded, it is certainly alleged.  Additionally, for the purpose of establishing liability against (some of the Defendants) the Plaintiff must show a fraudulent and dishonest design.  Fraud is therefore an inherent allegation against those parties.  In my judgment, therefore, this action is beyond question based upon an allegation of fraud and is not amenable to O.14 proceedings.  In the circumstances, I allow the Defendants' appeal and dismiss the Plaintiff's appeal."

30.In Skink Limited (in liquidation) v Comtowell Limited [1994] 2 HKLR 26, before Kaplan J was an application under Order 14 brought by the plaintiff, through the Official Receiver, for a declaration that two assignments made by it to its director, the 1^st defendant, should be set aside under s 60 of the Conveyancing and Property Ordinance (Cap 219) on the ground that, at the time of the assignments, the plaintiff intended to defraud its creditors within the terms of the section.  A preliminary issue arose as to whether a claim based on s 60 was caught by rule 1(2)(b).  The cause of action relied upon by the plaintiff was not Derry v Peek deceit but required a different form of dishonesty, i.e. an intention to defraud creditors, to be proved.  Kaplan J put the question facing him as being a stark choice between the limited interpretation of fraud favoured in England and the wider interpretation favoured by Barnett J in Hong Kong (at 36(43)-(42)).  His Lordship preferred the latter insofar as he was not prepared to hold that only Derry v Peek fraud came within the exclusionary provision in rule 1(2)(b).  He was satisfied that a claim based on s 60 was also covered.  See 37(28)-(30).

31.As noted by Godfrey JA in Tan Eng Guan v Southland Company Limited [1996] 2 HKLR 117 at 122A-B, the effect of the first instance decisions in Peninsula Fur and Skink is that, for the purposes of our rule 1(2)(b), “allegations of dishonesty were to be equated with allegations of fraud”.

32.The plaintiff’s appeal in Skink was dismissed by the Court of Appeal (CACV 74/1994, unreported, 21 October 1994) on the basis that it could not be concluded that the defendants’ explanation of the transactions, including an explanation of the undervalue, was incredible and that there was plainly no defence to the action.  Despite Kaplan J’s invitation (at 37(30)-(33)) for guidance from the Court of Appeal, the Court of Appeal expressly assumed, without deciding, that the judge was wrong in holding that he had no jurisdiction to entertain the plaintiff’s application.  See p 7, per Godfrey JA.

33.The guidance which Kaplan J invited was not forthcoming until Tan Eng Guan (supra) in which the Court of Appeal allowed an appeal against an order for summary judgment in respect of a number of claims in a derivative action arising from the making of interest-free loans (since repaid with interest at prime rate) by the 1^st defendant company to the individual defendants who controlled the company to themselves or other corporate defendants in which they, but not the plaintiffs, were interested.  One of the grounds of appeal was that the plaintiffs’ case was based on an allegation of fraud and so fell outside Order 14, to which Godfrey JA, after noting the equation of allegations of dishonesty with allegations of fraud in Peninsula Fur and Skink, said at 122C-F:

“I think we should take this opportunity to give the guidance which Kaplan, J. invites. For my part, I would hold that the approach of Barnett, and Kaplan, JJ. was notcorrect. We are here concerned with the construction of words in our local rules identical with those (originally) contained in the rules in force in England and Wales, and authoritatively construed by the Court of Appeal there. I think it unwarranted, and undesirable, for such identical procedural rules to be construed in different ways in, on the one hand, England and Wales, and on the other hand, Hong Kong. There is no difference in the subject matter, or local conditions, which would warrant any such distinction. What ought to be considered here is whether we should go down the path taken in England and Wales, and remove the (narrowly construed) exclusion altogether, or whether we should enlarge the scope of the exclusion, so as to preclude the use of O.14 in all cases of dishonesty as well as fraud strictly so-called. Upon this question, which is one of policy, I express no opinion. While the exclusion in question remains in force in Hong Kong, I would construe it narrowly, in accordance with the English authorities. It follows that, since the present case is not one in which the claim of the plaintiffs is a claim for damages for fraud, it is not caught by the exclusion. The fact that the expression "fraud on a minority" is the expression commonly used to describe the circumstances in which the court will entertain a derivative action does not make such an action an action founded on fraud strictly so-called. Accordingly, I would reject this ground of objection to the judge's order.”

(Original emphasis)

Liu JA agreed with Godfrey JA.  However, what was said by Godfrey JA, and agreed to by Liu JA, on the scope of rule 1(2)(b) was clearly obiter as the Court of Appeal allowed the appeal on the primary ground that there was a triable issue as to whether the derivative action could be maintained on the facts of the case.  Nazareth VP expressly refrained from expressing any view upon, and reserved for future argument, the “fraud” point which he thought was not sufficiently addressed before them.

34.The construction of rule 1(2)(b) next came before the Court of Appeal in Pacific Electric Wire & Cable Co Ltd (supra) in which the plaintiff company sought to recover from three former senior officers and the companies used by them properties purchased with the plaintiff’s funds.  In short, what was alleged was that those officers had channelled, by means of false accounting, a large amount of the plaintiffs’ funds into hidden investments, concealed through a maze of companies managed from Hong Kong.  Three causes of action namely, resulting trust, constructive trust and money had and received, were pleaded.  A finding of fraud, in the Derry v Peek sense, was not required in establishing liability. 

35.At first instance[4], Saunders J found that it was open to the plaintiff to seek summary judgment. Citing Tan Eng Guan, the Judge held (at §16) that the exclusion was to be construed narrowly, and be confined to an action based on fraud as strictly defined in Derry v Peek, which was agreed to by defence counsel (§18).  The Judge further accepted the plaintiff’s argument that in order to ground liability upon the causes of action pleaded, a finding of fraud, in the classic (i.e. Derry v Peek) sense, would not be required.  None of the pleaded causes of action were based on an allegation of fraud.  While fraud was the means by which the funds were transferred out of, and concealed from the plaintiff, it was not necessary for the plaintiff to establish the fraud in order to establish those causes of action.  It was sufficient to demonstrate that the plaintiff’s funds were used for the acquisition of the properties, not the particular means by which the funds came to be so used.  See §§17-21.

36.That decision was overturned on appeal.  Rogers VP (with whom Le Pichon JA agreed) said at §19 that Order 14, rule 1(2)(b):

“… is not confined to excluding actions in which one of the claims is a claim for damages for fraud, what is excluded is any action where there is a claim in respect of which the underlying allegations on which the claim is based constitute an allegation of fraud.”

In other words, in a case where alternative causes of action are available, rule 1(1)(2) cannot be circumvented by the plaintiff deliberately refraining from framing his case on fraud.  One looks at the substance of the allegations made in support of the claim pleaded.

37.As to what constitutes “an allegation of fraud” for the purposes of Order 14, rule 1(2)(b), Ms Tam SC submits that it was held by Rogers VP that:

“(i) The meaning of fraud in RHC O.14 r.2(b) is restricted to cases which are based upon an allegation of fraud in the Derry v Peek (1889) 14 LR App Cas 337 sense, i.e. the deliberate making of a false representation (at 101-105, §§18-29);

(ii) Allegations which use the words “fraud” outside of the Derry v Peek sense are not within the ambit of RHC O.14 r.2(b), such as an allegation of “fraud on the minority” (at 107, §§33-34); and

(iii)  Nothing short of making a false statement with deliberate dishonesty would suffice for Derry v Peek fraud.  For example, a false statement made negligently would not amount to Derry v Peek fraud (at 105, §§28-29).”

38.Leaving aside Rogers VP’s subsequent explanation in Borri SpA (supra) of what the Court of Appeal had decided in Pacific Electric Wire & Cable Co Ltd (which will be dealt with in §§46-51 below), on a proper reading of Rogers VP’s judgment in Pacific Electric Wire & Cable Co Ltd, I have difficulty with the submission that his Lordship continued to restrict rule 1(2)(b) to allegations of fraud in the Derry v Peek sense.

39.In this regard, Rogers VP:

(1)  approved Peninsula Fur and Skink (§§23, 24 & 27).  It will be recalled that neither of those cases involved a claim for, or were underpinned by allegations of, classic Derry v Peek fraud.  What was alleged were other forms of dishonesty.  In particular, in the later decision, Kaplan J was expressly not prepared to hold that only Derry v Peek fraud came within the exclusionary provision in rule 1(2)(b) as it had been done in England and favoured the wider approach adopted by Barnett J in Peninsula Fur;

(2)  indicated that he had no difficulty with Newton Chemical if it proceeded on the basis that “deliberate dishonesty” was required to constitute “fraud” in rule 1(2)(b), but disagreed with it if, and insofar as, it was authority for the proposition that although the plaintiff’s case included a claim which was based on an “allegation of deceit involving deliberate dishonesty”, he could still apply for summary judgment on some other claim (§§25-29);

(3)  considered Godfrey JA’s dicta in Tan Eng Guan to be “clearly wrong” if he was saying that despite the fact that claims in an action were based on “allegations of fraud which encompassed deliberate dishonesty”, rule 1(1)(2) did not apply to other claims in the action (§34).  It will be recalled that Godfrey JA disapproved of Peninsula Fur and Skink for departing from the narrow construction of “fraud” in rule 1(2)(b) in the English cases by equating allegations of dishonesty with allegations of fraud; and

(4)  held that the plaintiff’s action was excluded from the summary judgment procedure by rule 1(2)(b).  Although the plaintiff might have framed its claims in resulting trust, constructive trust and money had and received, they were based on “allegations of fraud that include deliberate dishonesty”.  The allegations of concealment of facts from the plaintiff when there was a duty to disclose and the connivance at the preparation of false financial statements and accounts would be clear allegations of fraud (§31).   

40.It appears to me that by the repeated references to “deliberate dishonesty”, Rogers VP was not just highlighting or emphasising an essential facet of fraud as defined in Derry v Peek.  Rather, I understand from his Lordship’s approval of Peninsula Fur and Skink and disapproval of Newton Chemical and Godfrey JA’s dicta in Tan Eng Guan that he was saying that “allegation of fraud” in Order 14 rule 1(2)(b) also encompassed an allegation of “deliberate dishonesty”, whether or not of the Derry v Peek genre.

35.41.   It further appears to me that Pacific Electric Wire & Cable Co Ltd was understood in the same way in A-1 Business Limited v Chau Cham Wong Patrick.  In that case, the plaintiff company sued its directors for breach of their fiduciary duties by misappropriating the plaintiff’s assets, including a sum of almost CHF 20 million which was transferred from the plaintiff’s account to the 1^st defendant’s own account to reduce the amount owed by him under a personal loan.  The defence was that the transfer was a dividend payment from the plaintiff to the 1^st defendant.  In reply, the plaintiff accused the 1^st defendant of fabricating documents after the event to cloak a fictitious declaration of dividends with legitimacy.  The plaintiff’s application for summary judgment was dismissed as being excluded by rule 1(2)(b).

42.At first instance[5], following Pacific Electric Wire & Cable Co Ltd (§25), Deputy High Court Judge Bharwaney SC (as he then was) said:

“30. No matter how hard the plaintiff tries to divorce a consideration of the defence relied upon from a consideration of the plaintiff’s claim, I conclude that it is not right or proper to do so and that the plaintiff’s claim based on misappropriation can only succeed if the Court rejects the defence put forward. It is therefore implicit in the plaintiff’s case that the defendants acted fraudulently, or, to put it another way, that the plaintiff’s case contained underlying allegations which constituted allegations of fraud on the part of the defendants, namely, the after the event falsification of documents to create a fictitious declaration of dividend from the plaintiff to A-One Investments which was used by A-One Investments to repay a loan obtained from the 1^st defendant.

31. Even if I were able to view the plaintiff’s pleaded case of misappropriation in isolation, I would conclude that it was implicit in the plaintiff’s pleaded case that the 1^st defendant dishonestly misappropriated the proceeds of sale from the account of the plaintiff. Absent a justification for the appropriation, the act of the 1^st defendant in doing so must be regarded as a dishonest act. If “fraud” within the meaning of Order 14 rule 1(2)(b) includes the use of fraudulent means, it must include dishonest misappropriation, and I so conclude.”

(Emphasis added)

43.His Lordship was upheld by the Court of Appeal ([2009] 5 HKLRD 579). In particular, at §4, Cheung JA (with whom Yuen JA agreed) made the following observation about Rogers VP’s judgment in Pacific Electric Wire & Cable Co Ltd:

“Rogers VP disagreed with the earlier approach of this Court (Nazareth VP, Godfrey and Liu JJA) in Tan Eng Guan and Another and Southland Company Limited and others [1996] 2 HKLR 117 in which Godfrey JA expressed the view that he should follow the then English approach which imposed a narrow construction on the rule which was confined to actions based on a claim founded on fraud as strictly defined in Derry v. Peek (1889) 14 App. Cas 337.  Godfrey JA disagreed with some earlier first instance decisions that for the purpose of the rule, allegations of dishonesty were to be equated with allegations of fraud.”

44.Cheung JA’s views on the case before him can be found in:

“15. I agree with the Judge that the plaintiff’s claim based on misappropriation cannot be viewed in isolation and divorced from the plaintiff’s response to the defence that the transfer was for a legitimate purpose. In order to establish that the transfer was a misappropriation of the plaintiff’s assets, the plaintiff clearly has to address the defence and this clearly will involve allegation of dishonesty on the part of the defendants. In substance, allegations of fraudulent conducts are involved in the plaintiff’s claim and this is caught by the exclusion rule.

16. The reliance by Ms Chan of Bishopsgate Investment Management Ltd v. Maxwell [1993] BCC 120 does not assist the plaintiff. In that case summary judgment was obtained by a company against a former director alleging that he was in breach of fiduciary duty in misapplying the company’s assets.

17. The first matter to be observed in that case is that no jurisdictional challenge was raised, apparently because the application for summary judgment was issued after the English exclusion rule was abrogated on 1 June 1992 (for the date of abrogation see Tan Eng Guan v. Southland Company Limited and Others [1996] 2 HKLR 117 at 121).

18. Second, I accept that a claim based on breach of fiduciary duty resulting in a duty to account may not necessarily involve dishonesty, but each case is based on its own facts. Although Ralph Gibson LJ at 143 had stated that if the directors had indeed misapplied the company’s assets then they have to ‘replace the property or make good the loss and it matters not that in so acting they acted honestly’, in that case the issue of dishonesty did not arise. As Hoffmann LJ (as he then was) observed at 139 that

‘ The transfers by the company were not authorised by the board. Furthermore, no grounds have been put forward upon which it could honestly have been thought that the transactions were for the benefit of the company as trustee of the pension funds.’

19.  The present case is different.

20.  Even if one is to view the case strictly from the plaintiff’s claim, the plaintiff’s pleaded case also clearly involves allegation of dishonesty and hence fraudulent acts. This is apparent from the plea that the transfer was made for an improper purpose, namely to benefit the 1^st defendant personally; the security granted by the 1^st defendant for his personal loan from DBS was also made for an improper purpose, namely, to benefit the 1^st defendant and the concealment by the defendants of the documents relating to the security.

21. Accordingly the case is within the exclusion rule and the Judge was correct to rule against the plaintiff.”

45.It seems clear to me that, in applying rule 1(2)(b) to the case before him, Cheung JA was not confining the exclusion to allegations of Derry v Peek fraud but allegations of other forms of dishonesty, which in A-1 Business Limited was the misappropriation of company funds by a director for his personal benefit.

46.However, complication to the above analysis of the Court of Appeal’s decision in Pacific Electric Wire & Cable Co Ltd on what constitutes “fraud” for the purposes of Order 14, rule 1(2)(b) arose because Rogers VP subsequently sought to explain that decision in Borri SpA (supra).  Borri SpA, upon which the Plaintiff relies, was a passing off case.  The defendant appealed against summary judgment on, inter alia, the ground that the Order 14 application should not have been heard in the first place because the allegation that the defendants, individually and collectively, had been using “instruments of fraud” triggered the application of rule 1(2)(b). The plaintiff so argued by relying on Pacific Electric Wire & Cable Co Ltd.

47.In response, at §6, Rogers VP explained Pacific Electric Wire & Cable Co Ltd as follows:

“What was said by this court in that case was that those provisions of Order 14 preclude both actions for fraud in the Derry v Peek sense and claims which are based upon allegations of fraud in the Derry v Peek sense.”

48.Likewise, Stone J said at §14:

“As to the issue of fraud, this plainly is not Derry v Peek fraud. This is a ‘passing-off’ claim and in this connection I agree with and adopt the Vice-President’s reservation about the element of fraud necessary to invoke Order 14, Rule 1(2)(b).”

49.I readily admit to having great difficulty with this explanation of Pacific Electric Wire & Cable Co Ltd.  The reason for such difficulty should be apparent from §§37-45 above.

50.Insofar as I am unable to reconcile between Pacific Electric Wire & Cable Co Ltd and A-1 Business Limited on the one hand and the above quoted passages in Borri SpA on the other, I will proceed on the bases that:

(1)  In Borri SpA, the Court of Appeal did not propose to lay down any new principles, or to add to or detract from the principles already expounded in Pacific Electric Wire & Cable Co Ltd, on the construction of Order 14, rule 1(2)(b) but only to explain that earlier decision.

(2)  Pacific Electric Wire & Cable Co Ltd, which has been applied by the Court of Appeal in A-1 Business Limited, remains the definitive authority on what constitutes an allegation of fraud for the purposes of Order 14, rule 1(2)(b), i.e. deliberate dishonesty other than of the Derry v Peek type is also encompassed.

51.This approach would not, in my view, disturb the substantive decision in Borri SpA that rule 1(2)(b) would not preclude an application for summary judgment on a passing-off claim.  In this regard, the ratio of the Court of Appeal can be found in §§4 and 5 of the judgment:

“4. … What is said is that what the plaintiff is alleging is that the defendants, individually and collectively, have been using instruments of fraud.  The simple answer to that is that those are “instruments of fraud” which are being used on the public, not against the plaintiff.

5. … In that respect, I would refer to the decision of Walton J in Sony Corporation & Another v Anand & Anor [1982] FSR 200, in which the judge makes that perfectly clear.  I do not propose to go into that any further. …”

I understand the reference to Walton J’s decision in Sony to be to the proposition summarised in §22(2) above.  Hence, Borri SpA affirms the requirement that only fraud against the plaintiff, as opposed to fraud on others, would be caught by rule 1(2)(b).

52.In summary:

(1)  An allegation of deliberate dishonesty, not of the Derry v Peek type, also constitutes an allegation of fraud under Order 14, rule 1(2)(b) (Pacific Electric Wire & Cable Co Ltd and A-1 Business Limited).

(2)  The fraud alleged must be fraud against the plaintiff (Sony and Borri SpA).

(3)  In considering whether an action includes a claim in respect of which an underlying allegation constitutes an allegation of fraud, the Court should have regard not only to the statement of claim, but also to the pleadings as a whole (A-1 Business Limited).

53.Lastly, before I turn to Ms Chan’s characterisation of the matters pleaded by the Plaintiff in §20 of the Statement of Claim, I caution myself against inferring the making of an allegation of deliberate dishonesty too liberally.  The attribution of any form of deliberate dishonesty is a serious charge.  It should not be alleged, nor inferred to have been alleged, lightly. In particular, one should not put a spin of dishonesty on an allegation of an act or omission simply because the plaintiff says that, on his version of events, it is wrongful.  A breach of obligation can equally be the result of a dispute as to the rights and liabilities arising from the relationship between the parties without any element of dishonesty.  In my opinion, in the absence of an express attribution of dishonesty, a party should not be held to have made an allegation of deliberate dishonesty against the other party unless the act or omission complained of is by its very nature inherently or implicitly dishonest, thereby necessarily putting in issue the other party’s honesty or otherwise.

Statement of Claim §20 does not contain allegation of fraud against Victor

54.I can deal with the matters pleaded in §20(vi), (vii) and (viii) of the Statement of Claim (i.e. transfer of customers to Li Shui Menfond even after the establishment of Suzhou Menfond, non-disclosure of the buying out of the other shareholders of Li Shui Menfond and non-production of Li Shui Menfond’s accounts and records) together. 

55.I have carefully considered the Plaintiff’s pleadings (and also the affirmations filed in this application) that are relevant to those 2 complaints.  While saying that they are wrongful, the Plaintiff has not used any language that can be construed as asserting deliberate dishonesty on Victor’s part.  And following from what I have said in §53, neither of these acts/omissions are by their nature inherently or implicitly dishonest.

56.This is particularly so when one pays regard to the nature and scope of the dispute over Li Shui Menfond:

(1)  On one hand, as stated above, it is the Plaintiff’s case that it was agreed that Li Shui Menfond was to be a production house which was only meant to receive jobs on a sub-contracting basis from the Plaintiff and liable to provide accounts to the Plaintiff.  Whereas for a while the Plaintiff allowed Li Shui Menfond to contract directly with some of the Plaintiff’s PRC customers, this practice was agreed to be discontinued as the Plaintiff set up the Suzhou Subsidiary to contract with the Plaintiff’s PRC customers.

(2)  On the other hand, according to Victor, it was all along agreed that Li Shui Menfond could also trade with customers directly and that Li Shui Menfond had no duty to account to the Plaintiff.

57.I accept Ms Tam SC’s analysis that the dispute between the parties over Li Shui Menfond is about the agreement and understanding as to how Li Shui Menfond was to be operated in relation to the Plaintiff and that the establishment of these 2 complaints would depend simply on whose account as to the role to be played by Li Shui Menfond is eventually accepted by the Court.

58.This is also true of the matter of the alleged non-disclosure of the buying out of the other shareholders of Li Shui Menfond (to which Victor pleads that he was not involved in the acquisition and that the Plaintiff knew in any event).  As I understand it, underlying the Plaintiff’s implicit averment that Victor should have disclosed to the Plaintiff the change in shareholding of Li Shui Menford is the notion that there existed a conflict of interest between the Plaintiff and Li Shui Menfond because the latter is not owned by the Plaintiff but it entered into contracts with the Plaintiff’s customers directly.  And, as in the case of the other 2 matters, whether there was any such real conflict would likewise depend on whether it had been agreed that Li Shui Menfond could also trade with the Plaintiff’s customers directly even after the formation of Suzhou Menfond.  Viewed in this light, the non-disclosure, even if established, would not be inherently or implicitly dishonest but could have been a honest omission arising from a misunderstanding of Li Shui Menfond’s role.  

59.Lastly, there is the allegation of misrepresentations by Victor that Li Shui Menfond was a wholly-owned subsidiary of the Plaintiff so that Li Shui Menfond could benefit from the Plaintiff’s goodwill (Statement of Claim §20(ix)).  The short answer is that, whatever the nature of such alleged misrepresentations (fraudulent, negligent or innocent), they were not made to the Plaintiff.  See Sony (supra) and Borri SpA (supra).  

60.For the above reasons, I hold that this action is not, by reason of §20 of the Statement of Claim, one including a claim in respect of which the underlying allegations constitute an allegation of fraud within the meaning of Order 14, rule 1(2)(b).  The Plaintiff is therefore not precluded from seeking summary judgment on its claim to the beneficial ownership of the Domain Name and the Website and for passing-off.

Principles governing the grant or refusal of summary judgment

61.The principles governing the grant or refusal of summary judgment under Order 14 are well established. It is for the defendant to show that there is an arguable defence or triable issue.  In doing so, the defendant must condescend to particulars.  The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend.  The defendant must satisfy the court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.  In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible.  Rather, the court must look at the whole situation.  In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit evidence, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.  If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so.  If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.  See eg National Westminster Bank plc v Daniel [1993] 1 WLR 1453, per Glidewell J at 1457; Manciple Ltd v Char On Man [1995] 3 HKC 459 (CA), per Mortimer JA at 466E-G; Re Safe Rich Industries Ltd, CACV 81/94, unreported, per Bokhary JA at page 5; Microsoft Corporation v Electro-Wide Ltd [1997] FSR 580, per Laddie J at 593; DMT Finance Ltd v Ming Kee Investments Ltd, HCCL 11/1998, unreported, per Stone J at page 4 and Paul Y Management Ltd v Eternal Unity Development Ltd, CACV 16/2008, unreported, per Cheung JA at §19.

Wong Senior’s claim of property in the “Menfond” and “萬寬” name

62.I need to deal with this because underpinning the defences to both the Plaintiff’s claims to the beneficial ownership of the Domain Name and the Website and for passing-off is the notion that Wong Senior coined and owns the name “Menfond” and “萬寬” which he has permitted companies and businesses that he regards as parts of his family business to use at his pleasure.

63.In this connection:

(1) In support of the assertion of a prior claim to the property in these names, the Defendants suggest that before the incorporation of the Plaintiff:

(A)  Wong Senior had produced incense in a PRC factory sold under the trade name of “萬寛香”.

(B)  MCL had been incorporated with Wong Senior, Madam Au, Victor and Wong as shareholders and Wong Senior and Madam Au as the directors.

(2)  The Plaintiff was incorporated in 1989 under the name of Y.S. Electronics Limited (威時電子有限公司).  After Victor and Eddy acquired the Plaintiff, they caused it to change its name to Menfond Electronic Art & Computer Design Co Ltd (萬寬電腦藝術設計有限公司) on 31 January 1990.  It is alleged that Victor and Eddy had sought Wong Senior’s permission to so use the “Menfond” and “萬寬” name and that Wong Senior granted such permission to symbolise the Plaintiff being part of Wong Senior’s family business.

(3)  Ms Chan also points to the fact that after the commencement of business of the Plaintiff, more companies bearing the “Menfond” and “萬寬” name have come into being:

(A)  Li Shui Menfond, a company associated and working closely with the Plaintiff was set up in April 2001.

(B)  The Plaintiff itself also incorporated 3 wholly owned subsidiaries:

(a)  Menfond TV CGI Production Company Limited (萬寬電視特效制作有限公司) in Hong Kong on 26 February 2004;

(b)  Menfond Digital Entertainment (China) Company Limited (萬寬數碼娛樂(中國)有限公司) on 28 November 2006; and

(c)  Suzhou Menfond in January 2007.

64.The law does not recognise property in a name per se. Exclusive rights to names can only arise by trade mark registration, or names can be protected against misrepresentation which may lead to deception and damage but only if goodwill has been acquired by a course of trading in the name.  See e.g. Burberrys v JC Cording & Co Ltd (1909) 26 RPC 693 at 701 per Parker J (as he then was).

65.Neither “Menfond” nor “萬寬” has been registered as a trademark by Wong Senior. 

66.Nor can I see any credible evidence of acquisition of goodwill by Wong Senior through trading in the “Menfond” and “萬寬” name before the commencement of business by the Plaintiff.

(1)  The alleged sale of “萬寛香”, of which Eddy says he was unaware, is wholly unparticularised and unsupported by any evidence other than the assertions of Wong Senior, Madam Au and Victor.  In any event, it appears that the trading in incense had ceased prior to the establishment of the Plaintiff so that any goodwill built up by Wong Senior under that name through such business, if any, would have been abandoned and lost: Norman Kark Publications Ltd v Odhams Press Limited [1962] RPC 163 at 169 per Wilberforce J (as he then was).

(2)  As for MCL, the only turnover/income recorded in its audited accounts from 1996 to 2006 was rental income from the properties it held.  It is thus clear from the evidence that it is a property holding company which has never engaged in any trade or business. 

67.Wong Senior cannot claim any right to the goodwill associated with the “Menfond” and “萬寬” name subsequently developed through the use of such name by the Plaintiff, its subsidiaries and/or affiliated/associated company (i.e. Li Shui Menfond) in the course of their business as any such goodwill belongs to these companies and not Wong Senior. 

68.In face of the principle that there is no property in a name but only in the goodwill associated with the name, Ms Chan contends at §14 of her written submissions dated 30 January 2011 that there can nevertheless be a valid and binding agreement between the 4 members of the Wong family that, regardless of whether Wong Senior legally owns the “Menfond” and “萬寬” name and of the generation of goodwill to the Plaintiff through trading under that name, Wong Senior can dictate whether the Plaintiff can use or continue to use the name.  In support, Counsel cites Lamaya Ltd v Supreme Honour Development Ltd [1991] 1 HKC 198 and Pak Fah Yeow Investment (Hong Kong) Co Ltd v Proper Invest Group Ltd [2009] 3 HKC 285. 

69.I am afraid I do not follow this line of argument.  If Wong Senior does not have any right to the “Menfond” and “萬寬” name or to the goodwill associated therewith that is recognised by the law, I just fail to see on what basis he can bind anybody to the use or disuse of the name.  The citation of the 2 cases is, with respect, misguided as they addressed a completely different issue namely, the enforceability against subsequent purchasers of a covenant in a deed of mutual covenant allowing one of the owners of a multi-storey building to name or rename the building.   

Beneficial ownership of the Domain Name and the Website

70.Victor does not dispute that he is holding the registration of the Domain Name and the Website as trustee but contends that he does so for Wong Senior, not the Plaintiff.  Premised upon the notion that Wong Senior owns the “Menfond” and “萬寬” name, it is Victor’s case that it was Wong Senior’s idea to register a domain name and website by incorporating “Menfond” and Victor did so on Wong Senior’s instruction. 

71.I have already explained why the suggestion that Wong Senior owns the “Menfond” and “萬寬” name is bad in law.

72.Further, I find Victor’s assertion of Wong Senior’s beneficial ownership of the Domain Name and the Website factually incredible for the following reasons:

(1)  By 18 February 2001, the Plaintiff had already carried on business for more than 10 years under the “Menfond” name and would have acquired some goodwill in the name through such use.

(2)  Victor was at the time a director and employee of the Plaintiff.  In acquiring the registration of the Domain Name and the Website incorporating “Menfond”, it could be said that he was obligated to do so for the benefit of the Plaintiff in protection of the Plaintiff’s right to the goodwill associated with the “Menfond” name.

(3)  The Plaintiff paid for the initial registration fee for the Domain Name and the Website not directly but through reimbursing Victor, after Victor had submitted his claim for reimbursement to the Plaintiff’s accounts department, which clearly suggests that this was an official expense of the Plaintiff.  The Plaintiff has also discharged all the subsequent renewal fees and hosting fees of the Domain Name and the Website.

(4)  The Domain Name and the Website have since their registration been actively and continuously (until 25 October 2010) used only by and for the Plaintiff’s business.

(5)  These circumstances, to my mind, support the conclusion that, in acquiring the Domain Name and the Website, Victor should be, and was, acting in the course of his office and employment with the Plaintiff.

(6)   Against the aforesaid, save that “Menfond” is the name of Wong Senior’s “legacy of family businesses”, no credible reason has been advanced to explain why it was considered by Wong Senior to be useful to him for the Domain Name and the Website to be registered, and what it was intended to be used for.  In this regard, as at 18 February 2001, the only current business interest associated with “Menfond” that Wong Senior could be said to have was his shareholdings in MCL and the Plaintiff.  The former is non-trading and will have no use of a domain name or a website.

(7)   No particulars have been given as to why Wong Senior himself did not pay for the Domain Name and the Website, if they be his, and why the Plaintiff had to pay. 

73.For these reasons, I conclude that there is no credible defence or triable issue in respect of the Plaintiff’s claim of beneficial ownership of the Domain Name and the Website.

Passing off

74.The “trinity” of elements of passing-off (i.e. goodwill/ reputation, misrepresentation and damage), as authoritatively set out in Reckitt & Coleman Products Ltd v Borden Inc [1991] 1 WLR 491 at 499 D-H per Lord Oliver, is well established:

“More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed. These are three in number. First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying ‘get-up’ (whether it consists simply of a brand name or a trade description, or the individual features of labeling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognized by the public as distinctive specifically of the plaintiff’s goods or services. Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff… Thirdly, he must demonstrate that he suffers or, in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendant’s misrepresentation that the source of the defendant’s goods or services is the same as the source of those offered by the plaintiff.”

75.I now turn to consider the issues sought to be raised by the Defendants in opposition to the Plaintiff’s case on each of the 3 elements.

Goodwill/Reputation

76.Goodwill is broadly defined as “the benefit and advantage of the good name, reputation, and connection of a business.  It is the attractive force which brings in custom.  It is the one thing which distinguishes an old established business from a new business at its first start”: see The Commissioners of Inland Revenue v Muller & Co’s Margarine Ltd [1901] AC 217 at 223 per Lord Macnaghten.

77.On this first element, I understand the defence, as pursued in evidence and in submissions, to be two-fold:

(1)  First, the Plaintiff cannot possess any goodwill in the “Menfond” and “萬寬” name, as such name is “owned” by Wong Senior.

(2)  Second, the success of a business in the digital animation and CGI industry depends on the creative minds of individuals of the production team and goodwill attaches to these individuals and not the companies.  As the key creative persons of the Plaintiff, it was Victor and Eddy who attracted business for the Plaintiff.  Goodwill follows Victor and Eddy, not the Plaintiff.

78.I have already dismissed the first-mentioned contention.

79.Turning to the second point, even accepting that goodwill is generated by Eddy and Victor in their own names, it does not follow that the Plaintiff itself does not also generate goodwill in its corporate name at the same time.  The two are not mutually exclusive.  I share Ms Tam SC’s observation that, on the evidence before the Court, this is clearly not a case of an individual effectively trading in his own name but making use of an unnamed corporate vehicle.  The Plaintiff is actively utilising the “Menfond” and “萬寬” name in the course of its business.  It enters into contracts in its own name.  It promotes and markets its services through a domain name and website bearing its name.  It produces and distributes to clients and potential clients promotional items exhibiting its name.  The examples that the Court has seen are brochures, letterheads, folders, calendars and promotional DVDs.  It has incorporated a number of subsidiaries bearing the “Menfond” and “萬寬” name.   

80.I am satisfied, on the following evidence, that the Plaintiff has established a goodwill or reputation as a digital animation and CGI studio under the “Menfond” and “萬寬” name since 1990:

(1)  that the Plaintiff has participated in the production of 83 films;

(2)  in particular, that the Plaintiff was specifically recognised in the screen credits of the 19 notable and commercially successful films listed in Schedule I to the Statement of Claim.  In this connection, I am not impressed by the Defendants’ attempt to discredit the Plaintiff’s film credits by drawing a distinction between front credit and end credit, the former being supposedly more important than the latter.  An action for passing-off protects goodwill regardless of the size of the goodwill: Wadlow on the Law of Passing-off (4^th ed) at §3-012.  The mere fact that the Plaintiff has been credited in its own name should be sufficient;

(3)  that the Plaintiff has received multiple industry awards for excellence.  As in the case of the screen credits, the Defendants take the point that 5 of the awards mentioned by the Plaintiff were not received by the Plaintiff, but by its creative crew, because the Plaintiff’s name was not inscribed on the awards.  Even disregarding these 5 awards, the plaintiff has still received 9 other industry awards which is sufficient evidence that it has been recognised for the quality of its work;

(4)  that a brochure of Li Shui Menfond shows that the PRC company was promoted on the bases of, inter alia, its close association with, and strong backing from, the Plaintiff;

(5)  that in April 2010, in the course of the negotiation for either one of the 2 camps of shareholders to buy out the other, the Plaintiff’s goodwill was valued by chartered accountants jointly appointed by Victor and Eddy at over HK$3.3 million, a valuation which Victor himself adopted in making a buy-out offer towards the other shareholders;

(6)  that in September 2010, Victor proposed the liquidation of the Plaintiff, after which he and Eddy could start their own companies which could use a name containing the word “Menfond”, e.g. “Eddy Menfond” and “Victor Menfond”;

(7)  that by a letter dated 2 September 2011 to the Plaintiff’s board of directors, Messrs Or & Lau, solicitors for Wong Senior, Madam Au, Victor and MCL, questioned why Eddy had applied to have the Plaintiff’s logo (which comprises predominantly the words “Menfond Electronic Arts”) registered in the PRC as a trademark in various classes in his personal name.  In such correspondence, Victor’s own solicitors referred to the name of the Plaintiff as “a valuable intangible asset” and expressed the view that the trade mark registrations ought to be effected in the Plaintiff’s name; and

(8)  that the former Chief Secretary, Mr Henry Tang, visited the Plaintiff’s premises in October 2011, which was reported in major newspapers in Hong Kong.

81.In view of such evidence, I conclude that the Plaintiff’s goodwill in connection with its business of providing digital animation and CGI services under the “Menfond” and “萬寬” name is indisputible.

Misrepresentation

82.The Plaintiff’s case in respect of this element of passing-off is:

(1)  that the “Menfond” and “萬寬” name is a distinctive name;

(2)  that by the use of “Menfond” and “萬寬” in its name and by the display of its name and contact details on the Website from 25 October 2010 to 3 January 2011, the 2^nd Defendant is making a representation that it is the Plaintiff or is associated/affiliated with the Plaintiff, which is of course false.

83.On the other hand, the Defendants point to the lack of evidence of actual confusion and question whether there is any risk of confusion having regard to the following:

(1)  Apart from sharing the words “Menfond” and “萬寬”, the Plaintiff and the 2^nd Defendants’ names are different and are further presented differently.

(2)  The Plaintiff and the 2^nd Defendant use different hosting service providers.  The Plaintiff used “.com” in the past and uses “.hk” at present whereas the 2^nd Defendant uses “.cn”.

(3)  The market for the Plaintiff’s services is the small community of the production circle within the film and advertising industries, to which Eddy and Victor are well known. As stated in footnote 1 above, Ms Chan questions whether the Plaintiff has any direct corporate clients not brought to it by advertising agents.

(4)  On 17 November 2010, the Plaintiff published in some local newspapers a notice of Victor’s departure from the Plaintiff with effect from 25 October 2010.  The split between Eddy and Victor has subsequently become publicised in some local media (e.g. the 23 February 2011 edition of Apple Daily).  Further, on 12 April 2011, Victor emailed some of the Plaintiff’s clients, informing them of the fact that he had ceased to work for the Plaintiff with effect from 25 October 2010.  These would have cleared any confusion regarding who is carrying on the Plaintiff’s business.

84.The distinctiveness or otherwise of a word or name is a question of fact, to be determined taking into account factors such as whether the word or name is prima facie in the nature of a fancy word or name and “its history, the nature of its use”.  Overall, the Court considers whether there is “a reasonable probability of deception” from the perspective of persons who are ordinary sensible members of the public representative of consumers of the goods or services in question: Burberrys v JC Cording & Co Ltd (1909) 26 RPC 693 per Parker J (as he then was). 

85.I accept the submissions for the Plaintiff that in this case:

(1)  “Menfond” and “萬寬” are prima facie of a unique and distinct character, there being no dispute that they are “made-up word[s] with no meaning of its own”.

(2)  The Plaintiff has used the “Menfond” and “萬寬” name for over 20 years, with such name appearing on film credits, awards, the Website, the email addresses of its staff and various miscellaneous promotional items;

(3)   There is not in evidence any company besides the Plaintiff and its subsidiaries (and Li Shui Menfond which is associated with the Plaintiff) that is engaged or has been engaged in trade using the “Menfond” and “萬寬” name;

(4)   Given the high degree of distinctiveness of the “Menfond” and “萬寬” name, there is a reasonable probability of deception arising from its said use by the 2^nd Defendant, particularly having regard to:

(A)  the addition, after “Menfond” and “萬寬” in the 2^nd Defendant’s name, of the words “Digital Pictures” and “數碼影畫”, which are descriptive of one type of service provided by the Plaintiff.  Rather than differentiating between the Plaintiff and the 2^nd Defendant as suggested by Ms Chan, in my opinion, these words would add to the risk of confusion;

(B)   the listing of the 2^nd Defendant’s name with a former production staff of the Plaintiff as the person to contact for inquiry about the 2^nd Defendant on the Website, which was exclusively used by the Plaintiff to promote and market its business from February 2001 to 25 October 2010.  The circumstances in which the representation is made is also relevant to assessing the probability of deception: see generally Wadlow on the Law of Passing-Off (4^th ed) at §§8-048 to 8-050, 8-059.

86.I am not persuaded by the Defendants’ attempt to downplay the size of the market for the Plaintiff’s services or its portrayal of the closeness of the circle having use of the Plaintiff’s services, particularly in light of the evidence on the existence of direct corporate customers.  In any event, the fact that there are some who are not confused does not negate the fact that a substantial number of other members are likely to be confused: Dawney Day & Co Ltd v Cantor Fitzgerald Int [2000] RPC 669 at 700-701 per Sir Richard Scott. 

87.Nor is the publication of the separation between the Plaintiff and Victor of direct relevance.  None of the notices or reports mentioned in §83(4) above actually referred to the 2^nd Defendant, not to mention disassociating or purporting to dissociate the 2^nd Defendant from the Plaintiff.

88.For these reasons, I find that there is no triable issue as to whether the 2^nd Defendant has made a misrepresentation.

89.As for the position of Victor, he has admitted that he caused the 2^nd Defendant’s name and contact details to be placed on the Website.  Victor and the 2^nd Defendant can therefore be said to have been acting “in furtherance of a common design” and should therefore be held jointly responsible for the making of the above representation: CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013 at 1056 per Lord Templeman.

Damage

90.The Defendants stress that the Plaintiff has put forward no evidence of actual damage.  However, as held in Bulmer (HP) Ltd v J Bollinger SA [1978] RPC 79 per Buckley LJ:-

“It is well settled that the plaintiff in a passing-off action does not have to prove that he has actually suffered damage by loss of business or in any other way. A probability of damage is enough, but actual or probable damage must be damage to him in his trade or business, that is to say, damage to the goodwill in respect of that trade or business.”

91.As for what is meant by probability of damage, “if the claimant stands to lose sales to the defendant then damage will normally be inferred.  If not, the major head of damage to consider is general damage to goodwill … In practice, damage still tends to be assumed unless the case is on the borderline of what would traditionally have been regarded as passing-off; or the defendant’s conduct has persisted openly for such a length of time that actual damage, had any occurred, would be easy to prove”: Wadlow on the Law of Passing Off (4^th ed) at §4-024.

92.The 2^nd Defendant claims that it is a mere payment collection agent set up by Madam Au on behalf of Li Shui Menfond to collect payment from customers who prefer to settle with Li Shui Menfond in Hong Kong dollar.  It has only 2 administrative staff and no production staff, and it is not competing with the Plaintiff. 

93.It is not a requirement to establish a claim of passing-off that the Defendant must be in competition with the plaintiff: Harrods Limited v Harrodian School Limited [1996] RPC 697.  I agree with Ms Tam SC that even if the 2^nd Defendant was truly only a payment collection agent which does not compete with the Plaintiff, this is still a probability of loss to the Plaintiff.  For example, if customers approach the 2^nd Defendant thinking that it is the Plaintiff and the 2^nd Defendant turns them away saying that it does not provide digital animation and CGI services, their business could be lost to the Plaintiff. 

94.Alternatively and in any event, the claim that the 2^nd Defendant merely acts as a payment collection agent for Li Shui Menfond is, to my mind, inherently implausible:

(1)  It has been adopted for the 2^nd Defendant a name which suggests that it is involved in the production of digital pictures.

(2)  If the 2^nd Defendant was only a mere payment collection agent and only for Li Shui Menfond, there would be no need for it to advertise itself at all.  One can therefore legitimately question why it was necessary for the 2^nd Defendant to put its contract details on the Website in the first place.

(3)  And the message of the 2^nd Defendant displayed on the Website from 25 October 2010 to 3 January 2011 lists the title of the 2^nd Defendant’s contact person as “Senior Producer”.  As stated in §11 above,that person was in fact until 8 November 2010 employed by the Plaintiff in the same capacity.  This is directly contradictory to Madam Au’s assertion that the 2^nd Defendant does not have production staff. The only reasonable inference is that the 2^nd Defendant must have some production capacity and therefore competes with the Plaintiff directly.

95.In the circumstances, I also hold that there is no triable issue as to the probability of damage to the Plaintiff’s goodwill arising from the Defendants’ misrepresentation.

Remedies

96.It is well-established that an inquiry for damages or account of profits, permanent injunctive reliefs, and orders for delivery up are remedies that can be imposed in a passing-off action: see Wadlow on the Law of Passing Off (4^th ed) at §§10-036 to 10-055.

97.In the present case, the Plaintiff also presses for delivery-up of Domain Name and the Website (as an alternative to the claim of beneficial ownership) and a change of name by the 2^nd Defendant to remove the words “Menfond” and “萬寬” on basis that they are instruments of fraud.

98.That in a passing-off claim, the Court may grant a mandatory injunction requiring a defendant company to change its name and/or requiring the defendant to transfer the registration of domain names to the plaintiff is established.  See Glaxo plc v Glaxowellcome Ltd [1996] FSR 388 at 391-392 per Lightman J and British Telecommunications Plc v One in a Million Ltd [1999] 1 WLR 903 at 905 and 920 per Aldous LJ respectively.  In these cases, the Court is concerned with the fact that the company name or the domain name essentially amount to instruments of fraud.  As held in British Telecommunications Plc v One in a Million Ltd at 920 per Aldous LJ:

“In my view there can be discerned from the cases a jurisdiction to grant injunctive relief where a defendant is equipped with or is intending to equip another with an instrument of fraud. Whether any name is an instrument of fraud will depend upon all the circumstances. A name which will, by reason of its similarity to the name of another, inherently lead to passing off is such an instrument. If it would not inherently lead to passing off, it does not follow that it is not an instrument of fraud. The court should consider the similarity of the names, the intention of the defendant, the type of trade and all the surrounding circumstances. If it be the intention of the defendant to appropriate the goodwill of another or enable others to do so, I can see no reason why the court should not infer that it will happen, even if there is a possibility that such an appropriate would not take place.”

(emphasis added)

99.Having found the distinctiveness of the “Menfond” and “萬寬” name, the established goodwill of the Plaintiff in that name and the existence of deceptive similarity between the Plaintiff’s and the 2^nd Defendant’s names, I have no problem in further ruling that the inclusion of the word “Menfond” and “萬寬” in the Domain Name and Website and in the 2^nd Defendant’s name would be inherently likely to lead to deception, so as to justify injunctive orders for delivery up of the Domain Name and Website (if necessary) and for change of company name against the Defendants. 

100.In view of my above conclusion that the Plaintiff is primarily entitled to the registration of the Domain Name and the Website as beneficial owner, it is unnecessary for me to make any order for the transfer of such registration on the alternative basis.  For the avoidance of doubt, I would have been prepared to so order but for my early ruling regarding the beneficial ownership of the Domain Name and the Website.

Orders

101.For the foregoing reasons, I enter summary judgment in favour of the Plaintiff in terms of §1(1), (2)(B) to (E) above.

102.I also make an order nisi that the Defendants pay the Plaintiff’s costs of its claims to the beneficial ownership of the Domain Name and the Website and for passing-off including the costs of the summary judgment application, to be taxed if not agreed, with Certificate for Counsel for the substantive hearing of the summary judgement application.

Ms Winnie Tam SC and Mr Christopher Chain, instructed by Messrs S.Y. Wong & Co., for the Plaintiff

Ms Winnie Chan, instructed by Messrs Or & Lau, for the 1^st and 2^nd Defendants

Please refer to CACV18/2013 for the relevant appeal(s) to the Court of Appeal.