Tin Tin Yat Pao (International) Ltd. v. Ho Sai Chu and Others

CACV000163/1999

CACV 163/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 163 OF 1999

(ON APPEAL FROM HCA 6856 OF 1990)

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Coram: Hon. Nazareth, V.-P., Mayo, J.A. and Yam, J. in Court

Date of hearing: 26 & 27 October 1999

Date of handing down judgment: 1 December 1999

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J U D G M E N T

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Mayo, J.A.:

1. This is an appeal from a decision of Deputy Judge To. He was seized of two applications. The first was D3's application to amend its defence and counterclaim, to withdraw its notices of payment into court and for payment out of the moneys which had been paid in. The second was the Plaintiff's application for interim payment. The Judge declined to grant leave to amend the defence and ordered payment to the Plaintiff HK$2.7 million.

2. The Judge very helpfully set out the material background facts on pages 2 - 5 of his Decision. It is evident that these facts have been correctly recorded and it is not necessary in the judgment to repeat them. Suffice it to say that the Plaintiff took over the business of the Tin Tin Daily News on 29th October 1982. Between 1st December 1984 and 6th May 1987 various agreements were entered into initially with Genvon Ltd. and subsequently D3. They were what was described as the Genvon Licence Agreement dated 1st December 1984, the Novation Agreement dated 2nd September 1985, the Settlement Agreement dated 16th January 1987, the Second Licence Agreement dated 28th January 1987 and the Supplemental Agreement dated 6th May 1987.

3. In the statement of claim the Plaintiff alleged in the alternative:

(a) That the various licence agreements starting with the Genvon Licencing Agreement and leading up to the Second Licence Agreement were invalid as having been granted without the Plaintiff's authorisation with the result that those responsible were liable as constructive trustees.

(b) That the various licences were valid and that the Plaintiff was entitled to payment of the licence fees in full.

4. In its defence D3 alleged that all the licences were validly granted and that the Plaintiff could not deny their validity. It was contended that D3 had tendered the requisite licence fees.

5. In its proposed amendments D3 sought to plead that all the licence agreements were void for mistake. The mistake referred to being that both parties had proceeded upon the basis that the Plaintiff owned the goodwill which was an essential ingredient of the licence agreements when this was not the case. D3 contended that they themselves had built up the goodwill of the business and that the Plaintiff as licensor had no reversionary rights.

6. As a convenient starting point Mr. Liao, S.C. for D3 conceded that when the Plaintiff entered into the Genvon Licence Agreement on 1st December 1984 they owned the goodwill in the newspaper. It is accordingly not necessary to consider the ownership of the goodwill prior to that date.

7. A further important matter upon which the parties are in agreement is that when the Genvon Licence Agreement was entered into the Plaintiff granted extensive rights to Genvon and did not reserve to itself supervisory powers in relation to the publication of the newspaper. The main operative parts of the licence agreement are in this form.

"GRANT OF LICENCE

1. (1) The Licensor as the absolute beneficial owner of the said newspaper and of the prospective copyright of future editions of the said newspaper hereby grants to the Licensee the sole and exclusive licence and to the exclusion of the Licensor the following rights:-

(a) the right to print and publish the said newspaper in any subsequent daily issue thereof in any language for sale or otherwise throughout the world;

(b) the right to use the name Tin Tin Daily News or the translation thereof in any language or any similar name to the exclusion of the Licensor;

(c) the right to have the goodwill of the said newspaper and the business relating thereto;

(d) the copyright of all future issues or publications of the said newspaper and the copyright of all publications of the said newspaper prior to the signing of this Agreement.

(2) Without in any way limiting the terms contained in the foregoing sub-clause (1) it is hereby mutually confirmed that the grant of licence by the Licensor shall include .the following ancillary right to the exclusion of the Licensor:-

(a) the right to make adaptation as to the style language format colouring photograph general design and outlay of the said newspaper;

(b) the political stance of the said newspaper;

(c) the right as to the goodwill of the said newspaper including the right to make similar publications newspapers journals or books under similar name or of similar nature;

(d) the right to reproduce publish re-edit or adapt all old works and copyright materials published by the said newspaper and/or by the Licensor;

(e) the right to broadcast (by means of cinematography films television and sound tracks associated therewith) and to reproduce by means of life performance of such works and copyright materials and/or to cause the same to be remitted in any form whatsoever;

(f) the right to register as a proprietor publisher printer and/or edition under the Control of Publications Consolidation Ordinance; and

(g) the right as an owner of the said newspaper.

DURATION

2. Subject to the payment of the licence fee hereinafter mentioned the licence hereby granted shall be irrevocable and for a period of two years commencing from the 1st day of December 1984."

8. There was also agreement that all the other licence agreements contained similar provisions to the Genvon Licence Agreement. It was accepted that D3 took over the publication of the newspaper on 18th December 1984 and that from this time on its name appeared on the masthead of the newspaper.

9. Mr. Liao contended that the failure of the Plaintiff to include in the licence agreements provisions whereby it could exercise supervision and control over the publication of the newspaper was fatal to the Plaintiff's case. It meant that the goodwill which had subsisted in the Plaintiff had transferred to D3.

10. It was a main plank of his submission that the licence which had been granted by the Plaintiff was a bare licence or licence in gross of the goodwill in question. He based this submission on the agreed fact that none of the licence agreements contained provisions whereby the Plaintiff could adequately exercise supervision over the publication of the paper. He went on to argue that the name "Tin Tin" was a common law mark and that similar requirements obtained to those relating to registered trade marks.

11. His authority for this proposition was G E Trade Mark [1969] R.P.C. 418. In particular he referred to a passage from the judgment of Graham, J. at p.447:

"Now, of course, it is quite common for the general public to be doubtful or even ignorant of the name of the proprietor of a trade mark. There are, for example, now many brands of soap powders being sold under word marks which are recognised by the public as trade marks and as the manufacturer's assertion that the product is of his manufacture. I strongly suspect, however, that any survey of the general public, however carefully framed and conducted, would result in a number of very different answers to a question in the form. 'If you saw this word mark on a packet of soap powder, whom would you say is the owner of the mark?' Is a mark in law invalid or confusing merely because the public do not know who is the proprietor? The answer is clearly 'No': see, for example, Powell v. Birmingham Vinegar Brewery Co. Ltd. (1987) 14 R.P.C. 720 per Lord Halsbury at 729, lines 1 - 11:

'I am satisfied that a person who puts forward this YORKSHIRE RELISH, made as it is by the present appellants, is representing it as being a particular manufacture. It may be true that the customer does not know or care who the manufacturer is, but it is a particular manufacture he desires. He wants YORKSHIRE RELISH to which he has been accustomed, and which, it is not denied, has been made exclusively by the plaintiff for a great number of years. This thing which is put into the hands of the intended customer is not YORKSHIRE RELISH in that sense. It is not the original manufacture. It is not made by the person who invented it. Under these circumstances it is a fraud upon the person who purchases to give him the one thing in place of the other';

and per Lord Herschell, page 750, lines 1 - 15:

'I think that the fallacy of the appellants' argument rests on this: that it is assumed that one trader cannot be passing off his goods as the manufacture of another unless it be shown that the persons purchasing the goods know of the manufacturer by name, and have in their mind when they purchase the goods that they are made by a particular individual. It seems to me that one man might well pass off his goods as the goods of another if he passes them off to people who will accept them as the manufacture of another, though they do not know that other by name at all. In the present case, it seems to me that YORKSHIRE RELISH means the manufacture of a particular person. I do not mean that in the minds of the public the name of the manufacturer was identified, but that it means a particular manufacture; and that when a person sold YORKSHIRE RELISH, as the appellants did, by selling it as YORKSHIRE RELISH and calling it YORKSHIRE RELISH they represented to the public that it was that manufacture which was known as and by the name of YORKSHIRE RELISH.'

This was a case of passing off, but the principle must be the same whether the mark is registered or not. The really important point is that the public should recognise that the symbol or word in question is being used as a trade mark by someone who is responsible for the product being what it is and having the quality which it in fact has. Provided such responsibility continues to exist and the mark continues to be recognised as indicating such existence, it remains a good mark. This is why it is important that proprietors of trade marks should retain adequate control over the quality of their product and should by careful advertising and use of their marks ensure that the public do not attribute to marks meanings which lead to confusion. It appears that G.E. are endeavouring to retain control and minimise danger of confusion by drawing attention to the fact that the GE rondel mark belongs to them and by not allowing their mark to be used except on goods which they manufacture or over which they exercise design and quality control."

12. And then at p.454:

"That the definition of a trade mark has been broadened by this Act is obvious, and the words 'whether with or without any indication of the identity of that person' give statutory recognition to what has already been recognised by the common law, as Lord Herschell made clear in the YORKSHIRE RELISH case, (1897) 14 R.P.C. 720 at 730, line l. The extent of such broadening, having regard, for example, to the Aristoc v. Rysta Ltd. case, in which the House of Lords decided that a repairers' 'service' mark was not within the definition, is not easy to determine. In my judgment, however, the statutory definition must now include at least any connection in the course of trade by which the proprietor retains the ability to specify or control the nature or quality of the goods sold under the mark, and the expression 'a trade mark denotes the origin of the goods' must now properly be used and understood as including such a connection. It is from such a connection that the proprietor derives his goodwill in the goods and it is this connection, so long as it exists in fact, which enables the public to rely upon the goods of the proprietor being of the nature and quality which he has determined. It should also be added that there is no reason why the proprietor should not from time to time vary or modify the nature or quality of his goods in order to adapt them to variations in trade conditions, in demand or in public taste. The essential requirement is that as a fact he should always be in a position to exercise the necessary control so that in use the mark does not become confusing, and the registered user provisions in section 28 strongly confirm that this is so.

In my judgment, the requirements of the common law in respect of an unregistered mark are the same. An examination in particular of the Bowden case, (1914) 31 R.P.C. 385 of Thorne & Sons Ltd. v. Pimms Ltd. (1909) 26 R.P.C. 221, and of other relevant cases shows that if the principles in relation to confusion and deception to be derived from those cases are applied to the changed circumstances of trade today, the same 'connection in the course of trade' which it is now recognised is proper by the registered user provisions of the Act in the case of a registered mark is also proper in the case of an unregistered mark. It is a matter of common knowledge and experience that the conditions of trade and the practices of the trading community have very greatly changed since the middle of the last century when our trade mark law began to assume its present form. The development of the sciences and the application of technology in industry, the growth of great manufacturing and holding companies with large numbers of subsidiaries, the exchange of technical know-how not only between companies in this country but on an international scale and, not the least important, the very great changes which have been and are still being made in the presentation, packaging and methods of marketing goods, have all had their effects on the use and significance of trade marks. These changes have been reflected in our statutory trade mark law in, for example, the broadening of the definition of a trade mark, in the recent provisions for assignment without goodwill and in the recognition in the registered user provisions that a trade mark can be licensed without causing deception or confusion provided the owner of the mark retains control over the character and quality of the goods sold under the mark.

In so far as unregistered common law marks are concerned, the principles to be derived from the cases are quite consistent with and can be applied in present day conditions and, in my judgment, result in the position at common law being parallel with the position under the statute."

13. Mr. Liao went on to submit that these observations were consistent with those expressed by Whitford, J. on p.52 of his judgment in McGregor Trademark [1979] R.P.C. 36:

"Registered trade marks, as is the case with trade marks at common law, serve to protect what may be a very valuable goodwill built up by some commercial enterprise. They also, however, serve as an indication to the public of the origin of the goods. If one buys a dressing gown bearing the trade mark 'McGregor', one may never know and may not even be concerned to enquire who in fact made the dressing gown in question; but if one buys a dressing gown and finds it satisfactory one would feel, if one were buying another dressing gown bearing the same brand name at a later stage, that one could reasonably expect it to be of a similar quality to the first dressing gown. In the same way, it is customary for people to make recommendations to their friends by reference to brand names for goods; and, upon a recommendation being made, the purchase is carried out in the confidence that the article purchased will be of a similar quality to that sold to the friend making the original recommendation.

It is for this reason that a bare licence under a trade mark has never been countenanced. A registered usership is accepted because in one way or another, by reason of financial control or express provisions in an agreement, a registered user is going to be subject to the control of the registered proprietor so far as the quality of the article made by the registered user is concerned. In this way, even if two persons are using a mark - the registered proprietor and the registered user - there is only one source controlling the question of quality; and if a member of the public were interested to find out who bore the ultimate responsibility for the quality of the goods, he or she would be able to do so by inspecting the relevant entries on the register."

14. I have no doubt that the law as expressed in these passages is correctly stated. The question however which has to be determined is whether they have any application to the facts in the present case.

15. Put another way the critical question which has to be answered is whether the licences conferred by these licence agreements were bare licences or as they otherwise have been referred to as licences in gross.

16. Mr. Liao submitted that the facts of the present case fell squarely within the principles enunciated.

17. The rationale for the requirement for quality control to be maintained was to prevent an inherent deception upon the public. Unless supervisory powers were retained by the licensor of goodwill or a trade mark there was always a risk that the public at large would assume that the Tin Tin newspaper they were subscribing to was the same publication as the original one.

18. Mr. Huggins, S.C. for the Plaintiff submitted that on the facts in this case the licence which had been conferred by the licence agreements had not been licences in gross.

19. The first and most important consideration was that the licences had not simply been licences of the goodwill or merely the right to use the name of the newspaper. What had been granted had been the right to operate the business and to control the quality of the newspaper's contents during the currency of the licences.

20. There had also been no question of any deception being practised upon the public. According to D3's case its name was on the masthead of the paper as soon as they exercised control over the publication. Readers of the paper assuming they had any interest in the matter would have seen who the publisher was.

21. It was however unlikely that readers would have concerned themselves with this. They would be much more concerned with the quality of the newspaper itself.

22. The fact of the matter is that whoever may be the owner of a newspaper it will from time to time be the subject of change. There can be no immutability. Editors come and go even though the ownership of the paper remains constant.

23. What was clear from the licence agreements was that all control over the newspaper would in future be exercised by the licencee.

24. It was also manifest from the licence agreements that the licences conferred were only granted for a limited period of time and that consequently on the expiration of the licences the Plaintiff would resume the exercise of their rights.

25. Mr. Huggins concluded that if Mr. Liao's contentions were well founded the Plaintiff by transferring the right to use the name "Tin Tin" to D3 together with right to operate the business had forfeited its rights to its goodwill in perpetuity notwithstanding the express contractual provisions which had been entered into.

26. The consequences of this were far reaching. It was highly significant that Mr. Liao who undoubtedly had been industrious in the preparation of this litigation had been unable to cite any case where goodwill had been extinguished where a licence had also been granted to operate the business in question. I have no doubt that the licences which were granted in this case were not bare licences of goodwill or licences in gross.

27. So far as this appeal is concerned Mr. Huggins made a number of concessions concerning mistakes which had been made by the Judge below. The Judge had focused on the question of consideration rather than the question of mutual mistake. Also the Judge had been mistaken in his references to estoppel. In addition to this the Judge had referred to registration under the Registration of Local Newspaper Ordinance, Cap. 268 when neither of the counsel appearing before him had considered this to be a relevant matter. In my view none of these matters was of central importance to the issues which had to be determined. I do not consider that the proposed amendment to the defence has any prospect of success.

28. However I appreciate that this is not the criteria upon which this appeal must be decided. The question which has to be determined is whether the amended defence is bound to fail on a question of law or put another way is D3's proposed amended defence unarguable. In my opinion it is unarguable. I consider that this appeal should be dismissed.

29. It would appear that if I am right this issue is likely to be determinative of this appeal.

Yam, J.:

Background

30. "天天日報" (Tin Tin Yat Pao) has been a well known Chinese newspaper since its inauguration on the 'Double Ten Day' in 1960 (10 October 1960). Its English name was "Daily Express".

31. On 29 January 1965, Tin Tin Yat Pao Limited became the registered proprietor, publisher and printer of Tin Tin Yat Pao. On 15 September 1977, the newspaper changed its English name to "Tin Tin Daily News".

32. The Plaintiff (Tin Tin Yat Pao (International) Limited) claimed that it acquired from Tin Tin Yat Pao Limited the business of printing and publishing the newspaper including the goodwill of that business over the period between 29 October 1982 and late May or early June 1983.

33. In this action the Plaintiff alleges that a number of agreements in relation to the licensing of the publication of the newspaper made by it in favour of one Genvon Limited and then the 3rd Defendant during the period between 1 December 1984 and 6 May 1987 were invalid, not binding or voidable in that the agreements were purportedly made on its behalf without authority and in breach of fiduciary duties. These agreements are as follows :

(i) Genvon Licence Agreement dated 1 December 1984;

(ii) Novation Agreement dated 2 September 1985;

(iii) Settlement Agreement dated 16 January 1987;

(iv) Second Licence Agreement dated 28 January 1987; and

(v) Supplemental Agreement dated 6 May 1987.

34. Alternatively the Plaintiff claims if (which is denied by the Plaintiff), those agreements are found to be valid and binding on the Plaintiff, the Plaintiff claims for licence fees from the 3rd Defendant as from 1 August 1990 under the Supplemental Agreement.

35. The 3rd Defendant denied that these agreements were invalid, not binding or void and alleged that the Plaintiff is estopped from alleging the same. The 3rd Defendant pleaded in its original Defence that there had been tender of money licence fees since August 1990 which continued by payment into Court up till the month of August 1998.

36. It should be noted that on 24 November 1995, a winding-up petition was presented by Kincheng Bank against the Plaintiff leading to the making of a winding-up order on 15 July 1996, i.e. the Plaintiff is now in liquidation.

37. On 19 June 1996, the 3rd Defendant sought to exercise an option to renew the Second Licence Agreement (as varied by the Supplemental Agreement) which would expire on 30 November 1996 for a further five years from 1 December 1996, i.e. until 30 November 2001.

The Appeal

38. In this appeal, we are concerned first of all with an application to amend the 3rd Defendant's Defence which has been refused in the Court below. In the proposed amendment, the 3rd Defendant contends that alternatively shortly before or at the aforesaid Novation Agreement, Settlement Agreement, Second Licence Agreement, Supplemental Agreement, and/or the aforesaid exercise of the option to renew the Second Licence Agreement (all of which are hereinafter referred to as "the Relevant Agreements"), the Plaintiff had no goodwill in the business of publishing, and hence no right to publish or to license the right to publish Tin Tin Daily News, and the goodwill was at those material times owned by the 3rd Defendant instead. Accordingly, it alleges that the Relevant Agreements are void for mutual mistake. Consequently, the 3rd Defendant seeks to recover the licence fees paid under these agreements and a number of declarations.

39. The 3rd Defendant's application for leave to amend was dismissed by Deputy Judge To on 3 June 1999 on the ground that the proposed amendment is defective, inconsistent and useless. It was decided that the proposed amendment, if allowed, would be bound to be struck out.

The 3rd Defendant's Proposed Amendment

40. In this appeal, the central theme of the proposed amendment of the 3rd Defendant is that the Plaintiff had no goodwill to license to the 3rd Defendant at the respective dates of the aforesaid Relevant Agreements which were accordingly entered into under mutual mistake. It contended that the goodwill in the business of Tin Tin Yat Pao is a proprietary right which might be lost by licensing in gross or uncontrolled licensing.

41. The factual background leading to this loss of goodwill as contended by the 3rd Defendant was, for the purpose of the proposed amendment of the 3rd Defendant, not in dispute and was found by the learned Judge below from those various affidavits filed before him.

42. The first Agreement before those Relevant Agreements was of course the Genvon Licence Agreement. The 3rd Defendant was not a party to it. It was thereafter appointed by Genvon on 17 December 1984 to be its exclusive agent in respect of all business of the newspaper and to print and publish the same. Consequently ever since 18 December 1984, the 3rd Defendant's name had appeared on the newspaper as publisher and printer on the masthead until 25 December 1996 and then has since 26 December 1996 appeared at the foot of the front page up till now. The Genvon Agreement contained no provisions whereby the Plaintiff was entitled to exercise any supervision or control of any sort over Genvon Limited, or its assignee or sub-licensee in relation to the newspaper, nor any right to be named as publisher or printer thereof.

43. In respect of licensing goodwill to a licensee without exercising any supervision or control by the licensor, the learned author of Halsbury's Law of England, 4th Ed. reissue Vol.48 at para.195 said :

"Licensing of goodwill and rights in marks, names etc. The use of names, marks and other indications of origin of goods or services may be licensed to others, but, as in relation to assignments, a person who licenses or purports to license the use of a name or mark in gross, namely without exercising quality control over, or otherwise retaining sufficient connection with, the goods or business concerned, may lose the right to sue third persons for passing off since the names or marks will have ceased in fact to denote the plaintiff's goods or business." (emphasis supplied)

44. The meaning of "goodwill" came from the House of Lords in IRA v. Muller [1901] AC 217, Lord Macnaghten said at pp.223 - 224 that :

"I now come to the second point. It was argued that if goodwill be property, it is property having no local situation. It is very difficult, as it seems to me, to say that goodwill is not property. Goodwill is bought and sold every day. It may be acquired, I think, in any of the different ways in which property is usually acquired. When a man has got it he may keep it as his own. He may vindicate his exclusive right to it if necessary by process of law. He may dispose of it if he will - of course under the conditions attaching to property of that nature.

...

... For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again."

45. Then Lord Lindley also said at p.235 that :

"Goodwill regarded as property has no meaning except in connection with some trade, business, or calling. In that connection I understand the word to include whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others which do not occur to me. In this wide sense, goodwill is inseparable from the business to which its adds value, and, in my opinion, exists where the business is carried on. Such business may be carried on in one place or country or in several, and if in several there may be several businesses, each having a goodwill of its own."

46. Further, Lord Diplock in Star Industrial Company Ltd. v. Yap Kwee Kor (trading as New Star Industrial Company) [1976] FSR 256 said at p.269 :

"A passing-off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing-off one person's goods as the goods of another. Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached."

47. Thus the disposal of and a fortiori other dealings with goodwill including licensing is subject to conditions attached to property of that nature. It is incomparable to other property like granting a lease in the relationship of landlord and tenant, or easement for a period of time where reversionary right on the landlord or grantor would be implied at the end of the tenancy or licence. The 3rd Defendant therefore submitted that the following legal principles would apply in respect of goodwill, namely :-

(i) Goodwill can be regarded as a special form of property.

(ii) The goodwill of a business is one whole. It has no independent existence. It must be attached to and is inseparable from a business and if the business stops, the goodwill will die.

(iii) The goodwill of a business must emanate from a particular source, having the power of attraction to bring customers home to the source.

(iv) The owner of a goodwill may protect it by a passing-off action which is a remedy for the invasion of a right of property not in a mark, name or get-up, but in the business or goodwill likely to be injured by a misrepresentation.

(v) The owner of a goodwill may dispose of it subject to conditions attaching to property of that nature.

48. One of the important conditions attached to it is that where a licensor grants or purports to grant a licence to a licensee to use a name or mark without exercising quality control or otherwise retaining sufficient connection with the goods or business concerned, it would lose the goodwill in the business.

49. The aforesaid contention is supported by the aforesaid passage in Halsbury's Law of England cited hereinbefore. Further the importance of quality control was explained by Graham J. in "GE" Trade Mark [1969] RPC at 449 :

"The really important point is that the public should recognise that the symbol or word in question is being used as a trade mark by someone who is responsible for the product being what it is and having the quality which it in fact has. Provided that such responsibility continues to exist and the marks continues to be recognised as indicating such existence, it remains a good mark. This is why it is important that proprietors of trade marks should retain adequate control over the quality of their product and should by careful advertising and use of their marks ensure that the public do not attribute to marks meanings which lead to confusion."

Further, a licensor may compromise his goodwill if, in addition to having no power to exercise quality control, the mark or name used has become no longer distinctive of its goods or business as explained by Lord Reid in Oertli v. Bowman [1959] RPC 1. Bowmans was an ex-licensee of the appellant. The Appellant lost the goodwill in the goods. Lord Reid said at p.7 :

"Bowmans made and marketed the Turmix machines without the appellants [plaintiffs] having controlled or having any power to control the manufacture, distribution or sale of the machines, and without there having been any notice of any kind to purchasers that the appellants had any connection with the machines."

Wadlow on the Law of Passing Off (2nd Ed.) at para.2.53 pointed out the difficulty in the rationale behind licensing goodwill and thereby losing it in the aforesaid passage of the speech of Lord Reid :-

"There are two distinct, and not necessarily consistent, standards in this passage. One is to ask who is in fact most responsible for the character or quality of the goods; the other is to ask who is perceived by the public as being responsible. The latter is the more important, but it does not provide a complete answer to the problem because in many cases the public is not concerned with identifying or distinguishing between the various parties who may be associated with the goods. If so, actual control provides a less conclusive test, but one which does yield a definite answer."

50. Accordingly, in respect of the proposed amendments, the 3rd Defendant submitted the following, namely that :

(i) The Genvon Licence Agreement contained no provisions whereby the Plaintiff was entitled to exercise any supervision or control of any sort over Genvon Limited or its assignee or sub-licensee in relation to the newspaper nor any right to be named as publisher or printer thereof.

(ii) The newspaper has in fact been published by the 3rd Defendant since 18 December 1984 and continues to be published and printed by the 3rd Defendant.

(iii) The 3rd Defendant has since 18 December 1984 been identified and continues to be identified to the public as the publisher and printer of the newspaper.

(iv) At no time since the 3rd Defendant started to publish and print the newspaper has the Plaintiff taken any or sufficient steps to make the names of the newspaper distinctive of it (the Plaintiff) or to maintain an association in fact or in the public mind between it and the newspaper.

(v) As a result, the goodwill subsisting in the business of publishing the newspaper under its names has belonged to the 3rd Defendant since 18 December 1984 or soon thereafter but in any event before 2 September 1985 when the Novation Agreement was entered into. Since 18 December 1984, the 3rd Defendant has published without supervision or control of any sort by the Plaintiff and had until 2 September 1985 (i.e. the date of the Novation Agreement by which the 3rd Defendant for the first time contracted directly with the Plaintiff) been identified on the newspaper's masthead as publisher and printer in over 270 daily issues of the newspaper.

(vi) The Plaintiff had no goodwill in respect of the business of publishing the newspaper under its names and hence no right to publish the newspaper or grant a licence in relation thereto as at the date of the Novation Agreement.

(vii) If the aforesaid contentions would not apply as a matter of fact to :-

(a) the Novation Agreement by 2 September 1985; the same contention would a fortiori apply to the other Relevant Agreements, namely :-

(b) the Settlement Agreement by 16 January 1987;

(c) the Second Licence Agreement by 28 January 1987;

(d) the Supplemental Agreement by 6 May 1987; and/or

(e) the aforesaid exercise of the option to renew by 19 June 1996, which was some 12 years since the 3rd Defendant had become the publisher and printer in complete control of the newspaper.

51. I accept the aforesaid submissions of Mr Liao for the 3rd Defendant in that the proposed amendments are arguable in law, i.e. they are not defective, useless, or otherwise bound to be struck out.

52. In fact that is all the 3rd Defendant is required to demonstrate in its application for leave to amend its Defence. The Plaintiff is not taking issue with other usual objections to an amendment like delay, credibility of witnesses of those material facts supporting the basis of the amendment.

The Plaintiff's Opposition

53. The Plaintiff instead submitted that the issue before the Court is not the right to sue for passing-off but whether the contract as between licensor and licensee was void for mistake. Mr Huggins, S.C., for the Plaintiff, submitted that the 3rd Defendant was confused between :

(i) the elements essential for constituting a cause of action for the tort of passing-off; and

(ii) the existence of goodwill as property forming the subject matter of the Licence Agreement entered into between licensor and licensee.

54. Whilst Mr Huggins accepted that the case of Oertli was a case about the element of the tort of passing-off, and that it was held in that case that a pre-condition of having the right to sue the world at large for the tort of passing-off was that the goods in question had become distinctive of the Plaintiff in the eyes of the public, he submitted that the present case is not concerned with the right of action in the context of the 3rd Defendant's application to amend. Further he submitted that whilst Viscount Simonds held in that case that there was no right to sue for passing-off on the facts of that case, he also acknowledged that the Plaintiff would continue to have the right to sue for breach of licensing contract at p.5 ll 30 - 40. Thus Mr Huggins submitted that therefore it did not follow that because the licensor might have lost the ability as against the world to sue in passing-off, as between licensor and licensee, the licensor's right had disappeared or had been eroded under the contract.

55. I consider the aforesaid distinction between the right of suit in passing-off and the right of suit between licensor and licensee is a distinction without a difference here. The crux of the matter is whether the licensor at the time of the various relevant agreements had the goodwill to licence. If they have lost the goodwill by reason of exercising no control and supervision over the goods or quality of the goods, i.e. the newspaper in question had ceased to be distinctive of their goods, they have nothing to license and the licence would be void by way of mutual mistake. The Plaintiff's alternative cause of action was based on those various licence agreements being valid in order that they would be entitled to payment of the licence fees and the fact that the option to renew was a valid option to renew the licence in the goodwill and the business. If the licensor had already lost the goodwill in the business as submitted by the 3rd Defendant in law, there would be nothing for the licensor to enforce.

56. To put the matter in another way : suppose before the licensee, i.e. the 3rd Defendant, exercised its option to renew in 1996, it was advised by Counsel that the licensor, i.e. the Plaintiff, had no further goodwill to licence since they have exercised no control and supervision on the newspaper for the past 12 years or so. It was further advised that in fact the goodwill now vested in the 3rd Defendant because the newspaper had by then become distinctive of itself. The 3rd Defendant there and then did not exercise the option and went ahead to publish and print the newspaper on its own and it was thereafter sued by the Plaintiff for passing-off. The Plaintiff then would have to establish that it still had the goodwill in the newspaper. If the Plaintiff has lost the right to sue for passing-off, which is the only remedy or recourse it has for infringement of its goodwill in the business, if any, it cannot be on any ground but on the ground that it has lost the goodwill. Thus the right of suit in passing-off and ownership of goodwill is just two sides of the same coin. For this reason, I cannot accept the submission of the Plaintiff.

"Licensing in gross"

57. There are two further matters which require consideration and there were some confusions during the course of the arguments.

58. The 3rd Defendant, in the course of argument, had submitted that the first Genvon Agreement is a "licensing in gross" for having no supervision and controlling power by the Plaintiff and it is therefore void for being deceptive of the public. The confusion involved :

(i) what is 'licensing in gross'; and

(ii) the rationale behind such a prohibition being deceptive of the public.

59. The Plaintiff accepted that the 3rd Defendant sought to explain licence in gross in two respects, namely :-

(i) as a doctrine applicable to cases where there is an attempt to grant a licence of goodwill (e.g., of the right to use the name of a business only) independent of the underlying business; and

(ii) as applying to cases where a licence is granted to the licensee to carry out a business without the licensor seeking to control how that business is carried out.

In respect of (i), the Plaintiff's answer is that the licences in question here are not licences to operate to use the goodwill, or the mark, or name without the business. In fact that is not the submission of the 3rd Defendant.

60. Assignment in gross had been explained by Wadlow in respect of situation (i) above as follows :-

"An assignment in gross can take two forms. The more common is for the owner of goodwill to purport to grant to a third party the bare right to use a mark which is distinctive of the assignor, there being no connection between the two which would justify its use by the assignee. The less common is for the assignor to purport to assign his goodwill in whole or in part without the assignee taking over the corresponding business to which the goodwill related. Both categories of transaction are regarded at common law as being inherently deceptive. They are consequently ineffective to confer any rights on the assignee as against the world at large, and are likely to result in the relevant goodwill becoming unprotectable. The same principle applies to transactions such as licences which are not assignments as such but which have similar effects.

Deceptiveness aside, some authorities have defined goodwill in terms which suggest it is inherently incapable of being separated from the business to which it relates. Likewise, it must be doubted whether a 'common law trade mark' is a right of property capable of assignment at all. However, this in itself is not conclusive, because if otherwise unobjectionable a purported assignment could be given effect in equity as an exclusive licence. The rule against assignments in gross is therefore better understood as one founded at least in part on policy."

In reply to situation (ii), the Plaintiff contended that the issue is not the right to sue for passing-off, but whether the contract as between licensor and licensee was void for mistake which submission I have already rejected as aforesaid.

61. The authorities supported that 'licence in gross' also covered situation (ii) as in Halsbury's Law cited hereinbefore. Further in Harrods v. Harrods (Buenos Aires) Ltd. [1997] FSR 420, Neuberger J. said at p.454 :-

"a licence in gross to use a mark or name will, if acted on for a significant time by the licensee, lead to the licensor losing any property in the name as part of his goodwill"

Deceptive of the Public

62. The other confusion concerned with the rationale behind objection to a 'licence in gross' and that is deceptive of the public. In the course of argument, it has been submitted by Mr Liao, for the 3rd Defendant, that the Genvon Agreement, being a licence in gross, i.e. without supervision and control over the business of the newspaper, would be deceptive of the public and therefore void. As far as I understand, this is not a submission in respect of the proposed amendments. This is a legal point which will be made at the trial as a further or alternative claim of the 3rd Defendant. For the purposes of the proposed amendment, the 3rd Defendant affirmed the Genvon Agreement as being valid.

63. Similarly this is the same alternative argument put forward by the 3rd Defendant in respect of the reversion of the right to the goodwill and the business after expiration of all the licence agreements in 1996 which the 3rd Defendant had submitted would also be deceptive of the public. Whether deception of the public could be overcome by the change of the publisher's and printer's name at the masthead and thereafter at the foot of the newspaper, registration of the publisher under the then Control of Publications Consolidation Ordinance and now the Registration of the Local Newspaper Ordinance, Cap.268, are all issues to be tried at the trial. But that is not the only basis for losing the goodwill.

64. The main thrust of the 3rd Defendant's submission is that the goodwill in the newspaper had since 1984 been established by the 3rd Defendant who was in complete control of the newspaper. For all these years the public would only perceive the newspaper as being published and printed by the 3rd Defendant or someone which turned out to be the 3rd Defendant and not the Plaintiff. Consequently the Plaintiff has lost any goodwill it had in the newspaper at all as the same is no longer distinctive of its goods. This would fit in with those tests as listed out by the learned author Wadlow at para.2.53 op. cit. This does not necessarily involve the concept of deceptive of the public.

Inconsistency

65. The last objection to the proposed amendment is that it is inconsistent. As far as I understand the attack of the consistency is not inconsistent with other parts of the Defence but inconsistent with the legal position which I have decided otherwise. If it is inconsistent with other parts of the amendment but put in the alternative, it would only be disallowed if the 3rd Defendant is blowing hot and cold or infringing the rule that you cannot approbate and reprobate. For example, a tenant being sued for unlawful subletting cannot enter a defence on one hand that there is no subletting, or alternatively, on the other hand, if there is any subletting, the landlord has consented to such subletting. This would not be allowed because the tenant cannot testify as to the first alternative, i.e. there is no subletting and at the same time, in the same breathe, said there is actually subletting but the landlord has consented to it.

66. Here the 3rd Defendant's proposed amendment is not blowing hot and cold and in fact, it is only blowing hot and hotter by putting forward the amendment in the alternative.

67. The other grounds put forward by the learned trial Judge below, namely :-

(i) the effect of registration of the newspaper under the aforesaid Ordinances;

(ii) that the agreements were not licences in gross because there was no total failure of consideration; and

(iii) the 3rd Defendant was estopped from pleading its proposed alternative case;

were never argued and put forward by the Plaintiff in the Court below. Its Counsel therefore conceded that these are not valid grounds for refusing the amendments.

Conclusion

68. In the end, I find the 3rd Defendant's proposed amendments are arguable in law and leave should be granted therefor. This appeal, in my view, should be allowed.

Nazareth, V.-P.:

69. I gratefully adopt the facts and background in the judgments of Mayo JA and Yam J.

70. The primary question ultimately raised in the appeal is whether the licence granted to the 3rd defendant ("the defendant") was a licence in gross. The immediate answer on one view would be in the negative, for it is asked how could it be a licence in gross or a bare licence in view of the licensor's reversionary interest which effectively required the goodwill to be returned to the plaintiff upon the expiration or determination of the licence. However, upon the other view, the matter is not as simple as that, for if the goodwill ceased to exist because control and supervision of the licensor had not been retained, there would be nothing to return. In the light of the authorities to which Mayo JA and Yam J have referred, in my view, it must at least be arguable that since no right of supervision or control was retained by the plaintiff, and that is not in dispute, the plaintiff's goodwill has ceased to exist.

71. It is that latter basis that the amendments for which leave was refused below are designed to present as a new defence.

72. Mr Andrew Liao SC who appears for the defendant submits that although the plaintiff had the goodwill at the time of the first agreement, he had lost it by the time of the Novation Agreement, for the plaintiff had exercised the licence without control for a sufficient time to acquire the goodwill. That such is possible is plain upon the authorities to which Mayo JA and Yam J have referred, including Halsbury's Laws of England 4th Ed, Reissue, Vol 48 para 195; the Star Industrial Company case, the GE Trademark case, Oertli v Bowman, Wadlow on the Law of Passing Off, 2nd Ed para 2.53; the McGregor Trademark case and Harrods v Harrods (Buenos Aires) Ltd. However, Mr Adrian Huggins SC, for the plaintiff, submits that the business was always operated under the licence granted by the plaintiff and was subject to the plaintiff's reversionary interest that was expressly agreed to by both parties. Given that reversionary interest, the licence could not be a licence in gross.

73. I have to say here that I find reliance upon the label "licence in gross" widely adopted in the authorities mentioned, unhelpful in the present appeal, and even likely to lead to the wrong conclusion. Although the expression "licence in gross" is used, it is plain, particularly in the present context, that the material consideration is the absence of control by the licensor that leads to the loss of the related goodwill. Therefore, in my view, it is arguable to say the least, that the provision for the reversion of the goodwill would not prevent the goodwill ceasing to exist, regardless of the reversionary interest and whether or not the label "licence in gross" is adopted.

74. I would also mention Mr Huggins's point that the new proposed defence was inconsistent with the defendant's original case pleaded. However, it seems to me that the defendant is entitled to plead his new defence in the alternative.

75. I do not find it necessary to address the other matters canvassed.

76. For the foregoing reasons, I would also allow the appeal and grant leave to amend.

77. By a majority, therefore, the appeal is allowed; the order below set aside and leave granted to amend. If the parties are unable to agree to the terms of the order to be made, the matter is to be listed before us at an early date. There will in addition be an order nisi that the 3rd defendant, as the successful party, is to have its costs of the appeal and below.

Representation:

Mr. Adrian Huggins, S.C. & Mr. Jeevan Hingorani instructed by M/S Barlow Lyde & Gilbert for the Plaintiff

Mr. Andrew Liao, .S.C. & Mr. John M.Y. Yan instructed by M/S John Ho & Tsui for the 3rd Defendant

Remarks:
On appeal by the Plaintiff to the Court of Final Appeal: Appeal allowed with costs. Please refer to FACV000018/2000.