HCA853/2005 LEADWELL CNC MACHINES MFG CORP. v. GLOBAL CROWN INTERNATIONAL LTD - LawHero
HCA853/2005
高等法院（民事訴訟）Yam J22/11/2005
HCA853/2005
由此
A A
HCA853/2005
B B
IN THE HIGH COURT OF THE
C HONG KONG SPECIAL ADMINISTRATIVE REGION C
COURT OF FIRST INSTANCE
D D
ACTION NO.853 OF 2005
E --------------------- E
BETWEEN
F F
LEADWELL CNC MACHINES MFG CORP. Plaintiff
G G
and
H H
GLOBAL CROWN INTERNATIONAL LTD Defendant
I ---------------------- I
J Before : Hon Yam J in Chambers J
Date of Hearing : 23 November 2005
K K
Date of Judgment : 23 November 2005
L ----------------------- L
JUDGMENT
M
----------------------- M
N The Plaintiff Company — Leadwell N
O 1. Dr Paul Chang (張堅浚1博士) obtained his PhD degree in O
Advanced Manufacturing Engineering Management from Southern
P P
Methodist University in Dallas, Texas. That, of course, was some time
Q ago already. He was in fact a founder of the plaintiff company, one Q
Leadwell CNC Machines Manufacturing Corporation, in Taiwan. He had
R R
served the plaintiff company as its Chairman and CEO from the time the
S company was incorporated. S
T T
1
浚者，疏通之意：浚河，疏浚，繁體乃濬。
U U
V V
由此
- 2 -
A A
2. After 20 years, the plaintiff company became an
B B
internationally known company in the trade of manufacturing
C computerised numerical control (“CNC”) machines. As far as C
I understand, CNC machines consist primarily of a computerised
D D
numerical control system. Both the plaintiff and the defendant herein
E have been described as a manufacturing company which produces vertical E
machining centres, turning centres, and metal-cutting systems with
F F
high-speed spindles. This description is in one of the brochures produced
G by the plaintiff. They are applicable to both parties. It comprises a G
broad range of machines which require the most rigorous, critical and
H H
demanding manufacturing technology sectors, including automobile,
I aerospace, medical, military aircraft and missiles segment. I
J J
3. Dr Chang resigned from and left the plaintiff company
K K
(“Leadwell”) altogether on 20 September 2000. Shortly afterwards in
L
December 2000, he founded his own company, one Leaderway Machinery L
Company Limited. It was subsequently discovered by the plaintiff
M M
company that before Dr Chang left them, he, as the president thereof, had
N assigned the trade mark of the plaintiff’s company in the name of N
“Leadwell” to he himself in June 2000. This trade mark of the plaintiff
O O
company has been registered worldwide by the plaintiff in Taiwan and
P other places all over the world, including Hong Kong, Korea, certain parts P
in Australia, Italy and the Mainland.
Q Q
R 4. Thereafter, Dr Chang completed the registration of all these R
assignments to himself in various places outside Taiwan and they included
S S
Hong Kong and elsewhere, except four countries, and they are Korea,
T certain parts in Australia, Italy and the Mainland. T
U U
V V
由此
- 3 -
A A
5. Sadly enough, his conduct was discovered by the authority in
B B
Taiwan and he was prosecuted and convicted by the Taichung District
C Court in Taiwan (臺灣臺中地方法院). He was sentenced on 12 August C
2004 to imprisonment for 2 years. His conviction was upheld by the
D D
Taiwan Court of Appeal on 31 December 2004 but the sentence was
E E
reduced to 18 months. In other words, Dr Chang is now at this moment
F
serving his sentence in Taiwan. F
G G
6. The Brief Facts and the charge could be found in the
H judgment of the Taichung District Court in Taiwan (at page 580) as H
follows :
I I
“主文 ：
J J
張堅浚連續為他人處理事務，意圖為自己不法之利益，而為
違背其任務之行為，致生損害於本人之財產，處有期徒刑貳
K K
年。
L 事實 L
一、張堅浚於民國六十九年至八十九年九月二十日間，長期
M M
擔任「臺灣麗偉電腦機械股份有限公司」(下稱麗偉公
司)…… —— [即本高院 853/05 一案之原告人] ……之董事
N 長，為受麗偉公司委任處理事務之人，詎其竟基於為自己不 N
法利益之意圖及為違背其任務行為之概括犯意，於即將卸任
O 董事長職務之際，未經公司章程或股東會之決議或授權，亦 O
未召開董事會提案討論，即民國八十九年六月十二日，以麗
偉公司代表人之名義，致臺北市長安東路二段八十一號， 「亞
P P
泰(太)國際專利商標事務所」總所處，委任不知情之商標代理
人徐建興(另經臺灣臺中地方法院檢察署檢察官以九十年度
Q 偵字第一六三三六號為不起訴處分確定)，將麗偉公司於美 Q
國、挪威、日本、新加坡、香港、澳大利亞、英國、法國、
R 德國、荷比盧聯盟、意大利、CTM 歐體組織、南非聯邦、加 R
拿大等十三個(起訴書誤載為十四個)國家或地區登記註冊之
S 主要商標「LEADWELL」，辦理轉讓至其個人名下。”2 S
T 2 T
臺灣省之判詞，承民國以來之優良傳統，全用古文文體，準確細緻寫成，令人
佩服之至。
U U
V V
由此
- 4 -
A A
7. In this case, I said “sadly enough” in the sense that a person of
B B
such a high reputation and respect in the CNC machinery industry, has in
C the end fallen so low, ending in imprisonment. But, in this case, of C
course, we are not dealing with Dr Chang himself. What happened in this
D D
case is, thereafter — i.e. after Dr Chang had resigned from the plaintiff
E E
company — he founded another company in Taiwan and that is
F Leaderway and he became the CEO of this new CNC machines F
manufacturing company.
G G
H Leaderway H
I 8. In February 2001, another person called Mr Terrence Chang I
resigned from the plaintiff company and immediately he became the
J J
president and chief operation officer of Leaderway. 3 There is a dispute
K by the defendant herein that Terrence Chang only joined Leaderway in K
May 2001 but from the brochure of Leaderway, which is produced by the
L L
plaintiff, it is clearly stated by Leaderway, themselves that Terrence Chang
M joined in February 2001 and served as the president thereof. M
N N
9. Terrence Chang obtained his Bachelor of Science Degree in
O Mechanical Engineering and specialised in CNC machinery centres and O
turning centres from National Cheng Kung University, Taiwan (臺灣成功
P P
大學). His main sphere of work in Leaderway was in international sales
Q Q
and marketing and he supervised and co-ordinated, (as he has said in
R Leaderway’s brochure), many international machine tools trade shows. R
S S
3
Terrence Chang’s Chinese name is “張耀雄(譯音)”. It is not apparent whether
T T
Terrence Chang was related to Dr Paul Chang as brothers, first cousins or otherwise
but that is not taken into consideration in the judgment herein.
U U
V V
由此
- 5 -
A A
He has a broad range of experience in international sales technology and
B B
executive management, etc.
C C
10. In mid-2000, Dr Chang tried to assign the Australian
D D
registration of the trade mark “Leadwell” to Leaderway. On or about
E 8 June 2001, Dr Chang, as assignor, assigned other registration of the trade E
mark in his hands to Leaderway and it was Terrence Chang acting as the
F F
president of Leaderway signing for the assignee. By October 2002, the
G registration of all assignments in all other countries in respect of trade G
mark in the hands of Dr Chang was completed.
H H
I The Taiwan Prohibition Order and the Defendant Company I
J 11. The plaintiff had successfully obtained a prohibition order on J
or about 20 November 2001 from Taichung District Court in Taiwan as an
K K
interim order restraining Leaderway from using its trade mark. (This
L order was successfully served on Leaderway later on 14 March 2002.) L
Shortly after the prohibition order, on or about 7 December 2001 the
M M
defendant company herein (Global Crown) was incorporated in Hong
N N
Kong. There was an agreement thereafter in January 2002 to assign the
O
plaintiff’s trade mark from Leaderway to the defendant company. O
However, on 14 March 2002 the Taiwan prohibition order was served on
P P
Leaderway and it was only thereafter, Leaderway on or about 16 April
Q 2002 assigned the trade mark to the defendant company. Q
R R
12. The defendant company was a company incorporated only in
S December 2001 with Terrence Chang as the majority shareholder of S
51 per cent and one Mr Li Tat Cheung as the other shareholder of
T T
49 per cent. Both of them are directors of the defendant company. In
U U
V V
由此
- 6 -
A A
the assignment from Leaderway to the defendant company,
B B
Terrence Chang signed as president of Leaderway and Mr Li signed for
C and on behalf of the defendant company as an assignee. C
D D
The Action herein
E E
13. The present action of the plaintiff is based on two causes of
F action : F
G (1) wrongful assignment of the trade mark from Leaderway to the G
defendant; and
H H
(2) passing-off of the plaintiff’s trade mark by the defendant.
I I
By way of relief, they ask for an injunction restraining the defendant from
J using the plaintiff’s trade mark and an order of assignment or reassignment J
K
of this trade mark back to the plaintiff. K
L L
14. The plaintiff alleged that the defendant had the necessary
M
knowledge of the wrongful acts of Dr Chang in relation to those original M
assignments to him. Terrence Chang, being a close colleague of
N N
Dr Chang from 1980 up to the date Dr Chang resigned from the plaintiff
O company and thereafter working together with Dr Paul Chang, being the O
founder and CEO of Leaderway, and he himself being the President and
P P
the Chief Operation Officer, must have the necessary knowledge of the
Q first wrongful assignment from the defendant company to Dr Chang. Q
Further, Terrence Chang, as the majority shareholder and the director of
R R
the defendant company, had the duty to receive this piece of information
S from Leaderway and, on the other hand, he has the duty as a director of S
Leaderway to communicate the same to the defendant.
T T
U U
V V
由此
- 7 -
A A
15. This is, in fact, an application by the plaintiff for summary
B B
judgment under Order 14 against the defendant. The plaintiff says the
C defendant has no defence in this action and the defendant cannot raise any C
triable issues at all.
D D
E 16. The question before the court now is whether the defendant, E
being a limited company, had the actual and if not imputed knowledge of
F F
this unlawful act. Mr Li Tak-cheung for the defendant company filed a
G total of four affidavits and Mr Patrick Szeto, his counsel, submitted before G
this court that there were triable issues requiring a trial of the action. The
H H
court, he submitted, should not give summary judgment at this stage and
I try the case on affidavits. Obviously, the court could not and would not I
J
try the case on affidavits. J
K K
The “Defences”
L 17. Now I shall turn to the various defences raised by the L
defendant. I will start with how Terrence Chang and Mr Li had started
M M
the defendant company.
N N
O
18. Mr Li said he first met Terrence Chang as early as 1984 in O
Hong Kong when they were studying their A-Level examination which, in
P P
those days, was called matriculation. Thereafter, they went to National
Q Cheng Kung University in Taiwan. Apparently, they entered the Q
university at different times and they became colleagues. Thereafter, they
R R
were in contact with each other after graduation.
S S
19. In February 2001, Terrence Chang left his employment with
T T
the plaintiff and joined Leaderway, as aforesaid. Mr Li said it was only
U U
V V
由此
- 8 -
A A
in May the same year that Terrence Chang joined Leaderway as the
B B
overseas marketing manager. That probably is a mistake on the part of
C Mr Li. Thereafter, Terrence Chang used to accompany Dr Chang on C
business trips to the Mainland and, in so doing, they would be passing
D D
through Hong Kong. (In fact, they have to pass through Hong Kong
E since there is no direct flight between Taiwan and the Mainland at the E
moment.) It was on one of those occasions Terrence Chang introduced
F F
Mr Li to Dr Chang.
G G
20. In July 2001, Mr Li discussed with Dr Chang the topics of
H H
machinery industry. Dr Chang then mentioned to him that Leadwell trade
I mark had already been assigned from the plaintiff to him. Mr Li then I
J
said : J
“Dr Chang did not tell me details thereof. Given [Dr Chang’s]
K K
standing and position in the Plaintiff, there was simply no basis
for me to raise an eyebrow at that time. In particular, I have to
L emphasis that I was never told of the Plaintiff’s present L
allegation that the transfer of the subject trade mark to Dr Chang
was illegal. Further, I, of course, knew not that the subject
M trade marks were allegedly assigned without monetary M
consideration.”
N N
O 21. Terrence Chang then discussed with Mr Li the possibility of O
setting up a production line in Mainland China. Mr Li then, on the advice
P P
of Terrence Chang, established the defendant company in December 2001
Q for the purpose of CNC machines business. He produced a business plan Q
(which Mr Stewart K.M. Wong, counsel for the plaintiff, described as a
R R
laughable document. I shall deal with it at a later stage). Be that as it
S may, Mr Li then went on to say that at first they intended to have equal S
shareholdings but then :
T T
U U
V V
由此
- 9 -
A A
“Terrence Chang said that if he was one of the shareholders, he
B could use his reputation in the trade to help me in Taiwan. B
Terrence Chang told me that if he became a partner with me, he
may be able to use his standing and relationship to assist me in
C C
seeking permission to use the ‘Leadwell’ marks in my business.
He said to me that as I was a complete newcomer to the trade, it
D was important that there is a solid figure in the Defendant. That D
was important both to attract customers and secure supplies and
finances. Terrence Chang further told me that he would not be
E making any financial contribution to the Defendant and would E
not be involved with any operation of the Defendant. He would
F just offer his name to be a shareholder and director on the F
papers and would be a silent partner as a PR gesture.”
(Emphasis supplied)
G G
Mr Li went on to say in the same paragraph :
H H
“As for myself, I was interested in participating in the ‘CNC’
I machinery industry because of Terrence Chang’s success in his I
career in promoting and marketing ‘CNC’ machines.
I considered that merely trading as agent or providing
J J
value-added services would limit the scope of development.
I was aiming at manufacturing my own brand to become leader
K of the market. However, I lacked the expertise, know-how, K
technology support, as well as the market information regarding
‘CNC’ machines and had to rely on such expertise of
L Terrence Chang.” (Emphasis supplied) L
M M
22. Stopping here for a moment, Mr Li was trying to convince the
N N
court that Terrence Chang’s position in the company is what we call a
O dormant partner or shareholder. However, he is the only one who has the O
expertise and know-how, technology support as well as the market
P P
information regarding CNC machines. Previously Mr Li also said that
Q Terrence Chang was only a silent partner and he was only, on paper, a Q
shareholder and director, albeit he was the majority shareholder and he
R R
would not be involved with any operation of the defendant. This is what
S counsel for the plaintiff described as inconsistent and therefore incredible S
evidence.
T T
U U
V V
由此
- 10 -
A A
23. It really baffled me as to how Terrence Chang would not be
B B
involved in the operation of the defendant but, at the same time, could
C assist Mr Li, a newcomer, to this CNC manufacturing to the extent that the C
defendant company could become a manufacturing factory somewhere in
D D
Dongguan or wherever in the Mainland and start to manufacture CNC
E machines? We are not concerned with factories manufacturing soft toys E
or that kind of things. We are concerned with high-precision machinery
F F
with computerised and digitally-controlled machines. How could Mr Li
G develop such a factory without the direct involvement of Terrence Chang, G
an expert in this field and he was there and then the majority shareholder
H H
of the company? How could Mr Terrence Chang divorce himself from
I the operation of the defendant company and the defendant company could I
J
still get on its feet? That is really puzzling. That apparently is the J
moonshine of the defendant, which Mr Wong, counsel for the plaintiff was
K K
submitting before this court.
L L
24. The question before this court in this Order 14 summons is
M M
whether there is any credible defence or just a so-called moonshine
N defence. N
O O
25. In respect of the assignment of the trade mark from
P Leaderway to the defendant, Mr Li, in paragraph 23 of his affirmation said P
this :
Q Q
“In or about November 2001, I was informed by Terrence Chang
R that the Chairman of Leaderway, Mr Wu Chao-yeh, was offering R
to assign the “LEADWELL” trade marks outside Taiwan,
Mainland China, Korea and Italy due to a change in the business
S nature of Leaderway.” S
T T
U U
V V
由此
- 11 -
A A
26. Stopping here for a moment, Mr Li did not condescend onto
B B
particulars and explain what he meant by “change in the business nature of
C Leaderway.” Did he mean that Leaderway would not, from then onwards, C
produce CNC machines? If not, what did he mean? We do not know.
D D
E 27. Back to the affidavit of Mr Li in respect of Terrence Chang’s E
involvement with the trade mark, he further said :
F F
“Terrence Chang told me that given he was on papers my partner,
G he would be, as originally intended, able to assist me in getting G
the ownership of the subject marks. He said it would be much
H easier to negotiate with Leaderway through his connections. At H
that time, I considered that to be a golden opportunity since with
a well-established brand name in Taiwan, the ‘LEADWELL’
I trade marks could assist me in promoting my machines in the I
overseas market. Terrence Chang then introduced me to Mr Wu.
Mr Wu and I negotiated on the terms of the agreement to acquire
J J
the subject trade mark directly. I was at that time genuinely
thinking that Terrence Chang was providing me with valuable
K connections by being a silent partner in my company.” K
(Emphasis supplied)
L L
28. It is not comprehensive as to why Mr Li said that in the last
M M
sentence as quoted above. Why he genuinely thought Terrence Chang
N was providing him with valuable connections and, at the same time, that N
his role was only a silent partner in the defendant company. In the first
O O
place, it was not only Mr Li’s company; it was their company. It was a
P P
company where Terrence Chang had the majority shareholding. But
Q
more importantly, the contention in his paragraph 23 clearly shows that Q
Terrence Chang must be actively involved in pushing through the
R R
assignment of Leaderway (of which company he was the president and
S
chief operation officer), to the defendant company of which he was still the S
majority shareholder and director. He was wearing two hats, save and
T T
U U
V V
由此
- 12 -
A A
except that the negotiation was conducted, as Mr Li has conveniently said,
B B
with the Chairman of Leaderway, Mr Wu, instead of Terrence Chang.
C C
29. In any event, Mr Li frankly said in the same paragraph that
D D
that was because of Terrence Chang’s connection with Leaderway and it
E would make the negotiation easier. It baffled me to accept the contention E
by Mr Li that Terrence Chang was not actively involved in the negotiation,
F F
if that is what he wanted this court to believe, or this was a so-called arm’s
G length deal between two limited companies. The difficulty of Mr Li is G
that he wanted to establish a case that the defendant was a bona fide
H H
purchaser without notice of Dr Chang’s unlawful assignment and therefore
I he must, on one hand, explain how he became involved with I
J
Terrence Chang and how he could use all his so-called life savings to set J
up this limited company in terms of HK$2 million. At the same time, he
K K
would have to distance himself from Terrence Chang otherwise it would
L
give the impression that Terrence Chang was the one, the alter ego, behind L
the assignment. However, he could not have it both ways.
M M
N 30. Eventually the trade mark was purchased in the sum of N
US$100,000. That represented already about 40 per cent of what Mr Li
O O
himself called his whole life savings. No evidence has ever been
P produced as to how the sum was paid. Was it paid by cheque, banker’s P
order, telegraphic transfer or cash? If cash, where did the cash come
Q Q
from? Was it underneath his pillow or a withdrawal from the bank, and if
R so, when and where is the Bank monthly statement in support? Not a R
single piece of paper was produced before this court to evidence such a
S S
payment.
T T
U U
V V
由此
- 13 -
A A
31. There is one further inconsistency in Mr Li’s version. Mr Li
B B
said the factory of the defendant company was established. The monthly
C outgoing was about $40,000. That included the salary of 10 staff and C
rental. Mr Wong for the plaintiff submitted that it really baffled him as to
D D
how 10 staff employed by the defendant company including Mr Li could
E establish a factory producing those kind of high-precision machines which E
are very expensive. It is definitely also to my mind, contrary to the two
F F
brochures of Leadwell and Leaderway which advertised their
G establishment as an international machinery production corporation. G
H H
32. Further, it is contrary to the document produced before this
I court, and that is the lease of a factory in the Mainland, showing that the I
J
monthly rental was about RMB85,000 already. Further, Mr Wong J
submitted that in the fourth affirmation of Mr Li, he said that in
K K
establishing the CNC production line, machinery and other investment
L
items totalling $7 million are said to be intended to be purchased together L
with a team of qualified and skilled quality controllers as well as
M M
high-quality raw materials with huge expenses to be spent on establishing
N a sales network. Mr Wong doubted where the money would come from N
since Terrence Chang had sold all his 51 shareholdings to Mr Li on
O O
11 December 2004 for the consideration of HK$1 and Mr Li himself had
P already exhausted all his savings. P
Q Q
33. This led Mr Wong to submit further that the only inference to
R be drawn would be that the defendant company could only produce CNC R
machines of inferior quality, “inferior” meaning inferior to the plaintiff’s
S S
products. Eventually Mr Wong submitted that it is not only a moonshine
T T
U U
V V
由此
- 14 -
A A
defence, it is a dark moonshine defence in the new moon, bordering on
B B
being a fairytale.
C C
34. There is one further point of incredibility of the defendant’s
D D
version. Mr Li said the factory in the Mainland was at the verge of
E testing the machines and he therefore produced a record sheet of three E
pages to evidence that they were ready to test the machines to be produced.
F F
They turned out to be a direct Photostat copy of the test sheets used by the
G plaintiff except that the test result column was left blank as there was no G
test at all, otherwise — as we say in Chinese — the tail of the fox would
H H
be revealed.
I I
J Bona Fide Purchaser Without Notice? J
K 35. In respect of “lack of knowledge” of Dr Chang’s unlawful act K
of assignment, Mr Szeto for the defendant in his submissions tried to
L L
brighten up the defence by submitting that Mr Li and therefore the
M defendant company did not have the following pieces of information at all M
and therefore the plaintiff could not submit that :
N N
(a) Dr Chang got the trade mark unlawfully;
O O
(b) Leaderway, being Dr Chang’s company, knew it and
P Terrence Chang being the president and chief operation P
officer must have known the same;
Q Q
(c) Terrence Chang being the majority shareholder and the
R director of the defendant company, also knew of the wrongful R
acts of Dr Chang; and
S S
(d) eventually, the defendant got the necessary or actual or
T imputed knowledge of Dr Chang’s unlawful conduct. T
U U
V V
由此
- 15 -
A A
36. In my judgment from the papers before me, I consider that the
B B
defendant knew before the assignment, at least of the Taiwan prohibition
C order when it was served on them and therefore knew of Dr Chang’s C
unlawful act before the assignment. Terrence Chang must have known
D D
all these and, to my mind, this is entirely unarguable.
E E
37. The next question now before the court is twofold :
F F
(a) Did Terrence Chang for Leaderway have a duty to
G G
communicate the same to the defendant company? The
H answer to my mind must be “yes”. H
(b) Did Terrence Chang for the defendant company have a duty to
I I
receive this information from Leaderway? To my mind, the
J answer must also be “yes” even though Mr Li was trying in J
his affidavit to urge upon me to believe that Terrence Chang
K K
was just a silent partner, a silent shareholder, a silent director.
L
As aforesaid from the setting up of the defendant company, it L
is just moonshine to contend that Terrence Chang was not an
M active member of the company. M
N N
38. One would even say from all the evidence before this court,
O O
that Terrence Chang had “conveniently” sold his shareholdings in
P December 2004 to the Mr Li for $1 after all these things were done by P
Terrence Chang. “Conveniently” meaning that Terrence Chang would
Q Q
have no explanation if he is still a shareholder and a director of the
R defendant company. That is exactly why Terrence Chang did not make R
any affidavit in support of the defence, leaving Mr Li to hold the fortress
S S
or to face the plaintiff action and manoeuvred between facts presented by
T T
U U
V V
由此
- 16 -
A A
the plaintiff to set up a case that the defendant had no actual knowledge —
B B
not even imputed knowledge — of Dr Chang’s unlawful act.
C C
D 39. However, for reasons as aforesaid, to my mind, on the D
contrary, Terrence Chang was not a silent director and he was not a silent
E E
shareholder. He was the majority shareholder and he must be the one in
F charge of the defendant company. Otherwise the defendant could not get F
on its feet by, to quote a Chinese saying, the bare two fists or hands of
G G
Mr Li.
H H
40. From the evidence before this court, it is quite clear that the
I I
defendant company was used as a vehicle to receive the trade mark from
J Leaderway in Taiwan and, by so doing, the modus operandi was in such a J
way that Terrence Chang was trying to put the trade mark as far as possible
K K
out of the reach of the plaintiff company in Taiwan.
L L
41. Thus, in the end, I cannot say the defendant is a bona fide
M M
purchaser without notice of Dr Chang’s unlawful assignments. They are
N not without notice; they are not bona fide; and, to my mind, they are not N
even a purchaser since there is no evidence of payment of this US$100,000
O O
at all.
P P
42. In the end, I accept the plaintiff’s submission that the
Q Q
defendant entered into the assignment in April 2002 with the necessary
R knowledge of the wrongful acts of Dr Chang in relation to the original R
unlawful assignment and so it was under an obligation to return the same
S S
to the plaintiff. The defendant falls squarely into the description of
T
“constructive trustee on the basis of knowing receipt” in the case of El T
U U
V V
由此
- 17 -
A A
Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685, wherein
B B
Hoffmann LJ, as he then was, said at page 700 :
C C
“This is a claim to enforce a constructive trust on the basis of
knowing receipt. For this purpose the Plaintiff must show, first,
D the disposal of his assets in breach of fiduciary duty; secondly, D
the beneficial receipt by the Defendant of assets which are
E traceable as representing the assets of the Plaintiff; and, thirdly, E
knowledge on the part of the Defendant that the assets he
received are traceable to a breach of fiduciary duty.”
F F
G Passing-off G
H 43. The setup of the defendant was a setup trying to use the trade H
mark and the goodwill of Leadwell as goodwill in Leadwell was also
I I
assigned in the assignment from the plaintiff to Leaderway and in turn to
J the defendant. J
K K
44. The plaintiff also sues on the second cause of action and that
L is passing-off the trade mark which is supposed to be used in the L
defendant’s machines to be produced. Mr Wong submitted that this trade
M M
mark would be used as an instrument of fraud since it is not disputed by
N the defendant that the plaintiff has a reputation and goodwill in Hong Kong. N
There is evidence before this court that there was an enormous sales
O O
volume of machinery in Hong Kong through its sole agent, one Protechnic
P Company Limited before the aforesaid assignment of Leaderway to the P
defendant.
Q Q
R
45. The plaintiff submitted that the defendant’s product would R
S
cause deception and confusion in the markets of Hong Kong. In the S
words of its counsel Mr Wong, the plaintiff submitted that :
T T
U U
V V
由此
- 18 -
A A
“Because of the exclusive goodwill and reputation of the
B Plaintiff has in the Trade Mark (not effectively denied by Li), B
any use by the Defendant thereof in Hong Kong, in particular in
relation to machine tools, more particularly CNC machines, is
C C
most likely to cause deception and confusion. The Plaintiff
clearly has a good cause of action in passing off against any use
D by the Defendant of the trade mark in relation to machine tools. D
The ‘classical trinity’ that make up a cause of action in passing
off of, [1], reputation or goodwill, [2], misrepresentation, and [3]
E damage, are all unarguably present.” E
F These 3 ingredients or so-called classical trinity was defined in Consorzio F
del Prosciutto di Parma v. Marks and Spencer plc and others [1991]
G G
RPC 351 (C) 368-369.
H H
I
46. As I have said, the plaintiff’s goodwill, together with the trade I
mark was assigned in the assignments from Leaderway to the defendant.
J J
Thus, eventually, if the plaintiff or anyone used the trade mark in Hong
K Kong, say, a purchaser purchased goods from the plaintiff company in K
Taiwan or elsewhere and shipped it into Hong Kong, or the plaintiff sold
L L
machines with this trade mark to a purchaser in Hong Kong, they would be
M sued by the defendants, i.e., both the vendor and the purchaser would be M
sued by the defendants in breach of trade mark and passing-off instead.
N N
O 47. In other words, the matter could be looked at from the tail-end. O
Should the defendant be allowed to do so? Should the defendant be
P P
allowed to sue this vendor and purchaser when, in the first place, Dr Chang
Q got the trade mark unlawfully, attracting a conviction for which he is now Q
serving a sentence of 18 months? The answer must be “no”.
R R
S 48. Of course, the defendant at this stage would say it is not the S
time to decide and that the matter should go to trial. But what is there to
T T
try in this obvious case. I do not, in this case, for a moment consider that
U U
V V
由此
- 19 -
A A
the defendant has any merit in its defence and it is clear to me that there is
B B
no triable issue at all from the papers before me. I will therefore give
C judgment for the plaintiff. C
D D
[Submissions re terms of order]
E E
F 49. Thus, this court ordered that : F
(1) A permanent injunction is hereby granted to restrain the
G defendant whether acting by itself, its directors, officers, G
servants, agents, nominees, representatives, subsidiaries or
H H
other related companies or any of them or otherwise
I howsoever from doing the following acts or any of them: I
(a) passing-off, attempting to pass off, causing, enabling or
J J
assisting others to pass off any business or products, in
K particular computerised numerical control machines, K
lathes, planers and drilling machines, not those of or
L L
connected or associated with the plaintiff, as and for the
M
business or products of or connected or associated with M
the plaintiff:
N N
(i) by using in connection therewith the name or
O
mark “LEADWELL” or any name or mark O
containing the name or mark “LEADWELL” or
P any name or mark confusingly similar thereto or P
any colourable imitation thereof;
Q Q
(ii) by using the name or mark “LEADWELL” or
R any name or mark containing the name or mark R
“LEADWELL” or any name or mark confusingly
S S
similar thereto or any colourable imitation
T thereof in relation to or in connection with any of T
U U
V V
由此
- 20 -
A A
its activities or the activities of its directors,
B B
officers, servants, agents, nominees,
C representatives, subsidiaries or other related C
companies or any of them or otherwise
D D
howsoever;
E (iii) by misrepresenting orally or in writing that any E
of its products, business or activities or the
F F
products, business or activities of its directors,
G officers, servants, agents, nominees, G
representatives, subsidiaries or other related
H H
companies or any of them or otherwise
howsoever is or are related or otherwise
I I
connected or associated with the plaintiff;
J J
(iv) or by any other means whatsoever;
K (b) except to comply with the order referred to in K
paragraph 2(a) below, and whether in Hong Kong or
L L
elsewhere, using, exploiting, selling, leasing, charging,
M
pledging, transferring, disposing of or otherwise M
howsoever dealing in or with or attempting or offering
N to do the aforesaid, any of the trade marks referred to in N
the Schedule to the Writ of Summons herein (“the
O O
Registered Marks”) or the registrations thereof or any
P right to use or exploit any such trade marks or P
registrations.
Q Q
(2) (a) The defendant do on or before on or before 7 December
R R
2005 assign to the plaintiff its registrations of the
S
registered marks and to execute all necessary S
documents; and on or before 23 December 2005 to take
T all necessary steps to effect and complete all such T
U U
V V
由此
- 21 -
A A
assignments and the due registrations of all such
B B
assignments in favour of the plaintiff as the registered
C proprietor thereof in each of the relevant trade marks C
office or registry at which each of the Registered Marks
D D
is registered; and
E (b) All reasonable expenses, fees and disbursements E
incurred by the plaintiff in relation to any of the acts
F F
done or to be done under paragraph 2(a) above be paid
G by the defendant to the plaintiff within 14 days of the G
service of a bill or bills for such expenses, fees and
H H
disbursements by the solicitors for the plaintiff on the
defendant at its registered office pursuant to Order 65,
I I
rule 5 of the Rules of the High Court, Cap. 4.
J J
(3) The defendant do deliver up upon oath of all products in
K particular computerised numerical control machines, lathes, K
planes and drilling machines, all copies of brochures, articles,
L L
papers, materials and things in the possession, power, custody
M and/or control of the defendant the continued retention, use or M
disposal of which by the defendant will offend against the
N N
foregoing injunctions or any of them, wherever the same is
situated.
O O
P
(4) The plaintiff be entitled to elect between an enquiry as to P
damages and an account of profits within 21 days hereof, and
Q upon such election there be an inquiry by a Master of High Q
Court as to what damages the plaintiff has suffered by reason
R R
of the defendant’s acts of passing-off or an account of profits
S made by the defendant through such acts. S
T T
U U
V V
由此
- 22 -
A A
(5) The plaintiff be entitled to elect between an enquiry as to
B B
damages and/or equitable compensation and an account of
C profits within 21 days after the defendant’s full compliance C
with paragraph 2 hereinabove, and upon such election there
D D
be an inquiry as to what damages the plaintiff has suffered by
E reason of the defendant’s receipt and holding of the E
registrations of the Registered Marks or an account of profits
F made by the defendant through such acts. F
G G
(6) There be an order for discovery upon oath of all matters
H
relating to the above. H
I (7) The defendant do pay to the plaintiff all such sums which are I
found due to the plaintiff upon taking of the enquiry or
J account provided for in paragraphs 4 and 5 hereinabove J
together with such interest thereon as the Court shall deem
K K
just pursuant to section 48 of the High Court Ordinance,
L Cap. 4 or under its equitable jurisdiction. L
M (8) Costs of this action including the costs of and incidental to M
this application be paid by the defendant to the plaintiff, to be
N N
taxed if not agreed.
O O
P P
(D. Yam)
Q Judge of the Court of First Instance Q
High Court
R R
S
Mr Stewart K. M. Wong, instructed by Messrs Deacons, for the Plaintiff S
Mr Patrick Szeto, instructed by Messrs Michael Li & Co.,
T T
for the Defendant
U U
V V
LEADWELL CNC MACHINES MFG CORP. v. GLOBAL CROWN INTERNATIONAL LTD
由此
A A
HCA853/2005
B B
IN THE HIGH COURT OF THE
C HONG KONG SPECIAL ADMINISTRATIVE REGION C
COURT OF FIRST INSTANCE
D D
ACTION NO.853 OF 2005
E --------------------- E
BETWEEN
F F
LEADWELL CNC MACHINES MFG CORP. Plaintiff
G G
and
H H
GLOBAL CROWN INTERNATIONAL LTD Defendant
I ---------------------- I
J Before : Hon Yam J in Chambers J
Date of Hearing : 23 November 2005
K K
Date of Judgment : 23 November 2005
L ----------------------- L
JUDGMENT
M
----------------------- M
N The Plaintiff Company — Leadwell N
O 1. Dr Paul Chang (張堅浚1博士) obtained his PhD degree in O
Advanced Manufacturing Engineering Management from Southern
P P
Methodist University in Dallas, Texas. That, of course, was some time
Q ago already. He was in fact a founder of the plaintiff company, one Q
Leadwell CNC Machines Manufacturing Corporation, in Taiwan. He had
R R
served the plaintiff company as its Chairman and CEO from the time the
S company was incorporated. S
T T
1
浚者，疏通之意：浚河，疏浚，繁體乃濬。
U U
V V
由此
- 2 -
A A
2. After 20 years, the plaintiff company became an
B B
internationally known company in the trade of manufacturing
C computerised numerical control (“CNC”) machines. As far as C
I understand, CNC machines consist primarily of a computerised
D D
numerical control system. Both the plaintiff and the defendant herein
E have been described as a manufacturing company which produces vertical E
machining centres, turning centres, and metal-cutting systems with
F F
high-speed spindles. This description is in one of the brochures produced
G by the plaintiff. They are applicable to both parties. It comprises a G
broad range of machines which require the most rigorous, critical and
H H
demanding manufacturing technology sectors, including automobile,
I aerospace, medical, military aircraft and missiles segment. I
J J
3. Dr Chang resigned from and left the plaintiff company
K K
(“Leadwell”) altogether on 20 September 2000. Shortly afterwards in
L
December 2000, he founded his own company, one Leaderway Machinery L
Company Limited. It was subsequently discovered by the plaintiff
M M
company that before Dr Chang left them, he, as the president thereof, had
N assigned the trade mark of the plaintiff’s company in the name of N
“Leadwell” to he himself in June 2000. This trade mark of the plaintiff
O O
company has been registered worldwide by the plaintiff in Taiwan and
P other places all over the world, including Hong Kong, Korea, certain parts P
in Australia, Italy and the Mainland.
Q Q
R 4. Thereafter, Dr Chang completed the registration of all these R
assignments to himself in various places outside Taiwan and they included
S S
Hong Kong and elsewhere, except four countries, and they are Korea,
T certain parts in Australia, Italy and the Mainland. T
U U
V V
由此
- 3 -
A A
5. Sadly enough, his conduct was discovered by the authority in
B B
Taiwan and he was prosecuted and convicted by the Taichung District
C Court in Taiwan (臺灣臺中地方法院). He was sentenced on 12 August C
2004 to imprisonment for 2 years. His conviction was upheld by the
D D
Taiwan Court of Appeal on 31 December 2004 but the sentence was
E E
reduced to 18 months. In other words, Dr Chang is now at this moment
F
serving his sentence in Taiwan. F
G G
6. The Brief Facts and the charge could be found in the
H judgment of the Taichung District Court in Taiwan (at page 580) as H
follows :
I I
“主文 ：
J J
張堅浚連續為他人處理事務，意圖為自己不法之利益，而為
違背其任務之行為，致生損害於本人之財產，處有期徒刑貳
K K
年。
L 事實 L
一、張堅浚於民國六十九年至八十九年九月二十日間，長期
M M
擔任「臺灣麗偉電腦機械股份有限公司」(下稱麗偉公
司)…… —— [即本高院 853/05 一案之原告人] ……之董事
N 長，為受麗偉公司委任處理事務之人，詎其竟基於為自己不 N
法利益之意圖及為違背其任務行為之概括犯意，於即將卸任
O 董事長職務之際，未經公司章程或股東會之決議或授權，亦 O
未召開董事會提案討論，即民國八十九年六月十二日，以麗
偉公司代表人之名義，致臺北市長安東路二段八十一號， 「亞
P P
泰(太)國際專利商標事務所」總所處，委任不知情之商標代理
人徐建興(另經臺灣臺中地方法院檢察署檢察官以九十年度
Q 偵字第一六三三六號為不起訴處分確定)，將麗偉公司於美 Q
國、挪威、日本、新加坡、香港、澳大利亞、英國、法國、
R 德國、荷比盧聯盟、意大利、CTM 歐體組織、南非聯邦、加 R
拿大等十三個(起訴書誤載為十四個)國家或地區登記註冊之
S 主要商標「LEADWELL」，辦理轉讓至其個人名下。”2 S
T 2 T
臺灣省之判詞，承民國以來之優良傳統，全用古文文體，準確細緻寫成，令人
佩服之至。
U U
V V
由此
- 4 -
A A
7. In this case, I said “sadly enough” in the sense that a person of
B B
such a high reputation and respect in the CNC machinery industry, has in
C the end fallen so low, ending in imprisonment. But, in this case, of C
course, we are not dealing with Dr Chang himself. What happened in this
D D
case is, thereafter — i.e. after Dr Chang had resigned from the plaintiff
E E
company — he founded another company in Taiwan and that is
F Leaderway and he became the CEO of this new CNC machines F
manufacturing company.
G G
H Leaderway H
I 8. In February 2001, another person called Mr Terrence Chang I
resigned from the plaintiff company and immediately he became the
J J
president and chief operation officer of Leaderway. 3 There is a dispute
K by the defendant herein that Terrence Chang only joined Leaderway in K
May 2001 but from the brochure of Leaderway, which is produced by the
L L
plaintiff, it is clearly stated by Leaderway, themselves that Terrence Chang
M joined in February 2001 and served as the president thereof. M
N N
9. Terrence Chang obtained his Bachelor of Science Degree in
O Mechanical Engineering and specialised in CNC machinery centres and O
turning centres from National Cheng Kung University, Taiwan (臺灣成功
P P
大學). His main sphere of work in Leaderway was in international sales
Q Q
and marketing and he supervised and co-ordinated, (as he has said in
R Leaderway’s brochure), many international machine tools trade shows. R
S S
3
Terrence Chang’s Chinese name is “張耀雄(譯音)”. It is not apparent whether
T T
Terrence Chang was related to Dr Paul Chang as brothers, first cousins or otherwise
but that is not taken into consideration in the judgment herein.
U U
V V
由此
- 5 -
A A
He has a broad range of experience in international sales technology and
B B
executive management, etc.
C C
10. In mid-2000, Dr Chang tried to assign the Australian
D D
registration of the trade mark “Leadwell” to Leaderway. On or about
E 8 June 2001, Dr Chang, as assignor, assigned other registration of the trade E
mark in his hands to Leaderway and it was Terrence Chang acting as the
F F
president of Leaderway signing for the assignee. By October 2002, the
G registration of all assignments in all other countries in respect of trade G
mark in the hands of Dr Chang was completed.
H H
I The Taiwan Prohibition Order and the Defendant Company I
J 11. The plaintiff had successfully obtained a prohibition order on J
or about 20 November 2001 from Taichung District Court in Taiwan as an
K K
interim order restraining Leaderway from using its trade mark. (This
L order was successfully served on Leaderway later on 14 March 2002.) L
Shortly after the prohibition order, on or about 7 December 2001 the
M M
defendant company herein (Global Crown) was incorporated in Hong
N N
Kong. There was an agreement thereafter in January 2002 to assign the
O
plaintiff’s trade mark from Leaderway to the defendant company. O
However, on 14 March 2002 the Taiwan prohibition order was served on
P P
Leaderway and it was only thereafter, Leaderway on or about 16 April
Q 2002 assigned the trade mark to the defendant company. Q
R R
12. The defendant company was a company incorporated only in
S December 2001 with Terrence Chang as the majority shareholder of S
51 per cent and one Mr Li Tat Cheung as the other shareholder of
T T
49 per cent. Both of them are directors of the defendant company. In
U U
V V
由此
- 6 -
A A
the assignment from Leaderway to the defendant company,
B B
Terrence Chang signed as president of Leaderway and Mr Li signed for
C and on behalf of the defendant company as an assignee. C
D D
The Action herein
E E
13. The present action of the plaintiff is based on two causes of
F action : F
G (1) wrongful assignment of the trade mark from Leaderway to the G
defendant; and
H H
(2) passing-off of the plaintiff’s trade mark by the defendant.
I I
By way of relief, they ask for an injunction restraining the defendant from
J using the plaintiff’s trade mark and an order of assignment or reassignment J
K
of this trade mark back to the plaintiff. K
L L
14. The plaintiff alleged that the defendant had the necessary
M
knowledge of the wrongful acts of Dr Chang in relation to those original M
assignments to him. Terrence Chang, being a close colleague of
N N
Dr Chang from 1980 up to the date Dr Chang resigned from the plaintiff
O company and thereafter working together with Dr Paul Chang, being the O
founder and CEO of Leaderway, and he himself being the President and
P P
the Chief Operation Officer, must have the necessary knowledge of the
Q first wrongful assignment from the defendant company to Dr Chang. Q
Further, Terrence Chang, as the majority shareholder and the director of
R R
the defendant company, had the duty to receive this piece of information
S from Leaderway and, on the other hand, he has the duty as a director of S
Leaderway to communicate the same to the defendant.
T T
U U
V V
由此
- 7 -
A A
15. This is, in fact, an application by the plaintiff for summary
B B
judgment under Order 14 against the defendant. The plaintiff says the
C defendant has no defence in this action and the defendant cannot raise any C
triable issues at all.
D D
E 16. The question before the court now is whether the defendant, E
being a limited company, had the actual and if not imputed knowledge of
F F
this unlawful act. Mr Li Tak-cheung for the defendant company filed a
G total of four affidavits and Mr Patrick Szeto, his counsel, submitted before G
this court that there were triable issues requiring a trial of the action. The
H H
court, he submitted, should not give summary judgment at this stage and
I try the case on affidavits. Obviously, the court could not and would not I
J
try the case on affidavits. J
K K
The “Defences”
L 17. Now I shall turn to the various defences raised by the L
defendant. I will start with how Terrence Chang and Mr Li had started
M M
the defendant company.
N N
O
18. Mr Li said he first met Terrence Chang as early as 1984 in O
Hong Kong when they were studying their A-Level examination which, in
P P
those days, was called matriculation. Thereafter, they went to National
Q Cheng Kung University in Taiwan. Apparently, they entered the Q
university at different times and they became colleagues. Thereafter, they
R R
were in contact with each other after graduation.
S S
19. In February 2001, Terrence Chang left his employment with
T T
the plaintiff and joined Leaderway, as aforesaid. Mr Li said it was only
U U
V V
由此
- 8 -
A A
in May the same year that Terrence Chang joined Leaderway as the
B B
overseas marketing manager. That probably is a mistake on the part of
C Mr Li. Thereafter, Terrence Chang used to accompany Dr Chang on C
business trips to the Mainland and, in so doing, they would be passing
D D
through Hong Kong. (In fact, they have to pass through Hong Kong
E since there is no direct flight between Taiwan and the Mainland at the E
moment.) It was on one of those occasions Terrence Chang introduced
F F
Mr Li to Dr Chang.
G G
20. In July 2001, Mr Li discussed with Dr Chang the topics of
H H
machinery industry. Dr Chang then mentioned to him that Leadwell trade
I mark had already been assigned from the plaintiff to him. Mr Li then I
J
said : J
“Dr Chang did not tell me details thereof. Given [Dr Chang’s]
K K
standing and position in the Plaintiff, there was simply no basis
for me to raise an eyebrow at that time. In particular, I have to
L emphasis that I was never told of the Plaintiff’s present L
allegation that the transfer of the subject trade mark to Dr Chang
was illegal. Further, I, of course, knew not that the subject
M trade marks were allegedly assigned without monetary M
consideration.”
N N
O 21. Terrence Chang then discussed with Mr Li the possibility of O
setting up a production line in Mainland China. Mr Li then, on the advice
P P
of Terrence Chang, established the defendant company in December 2001
Q for the purpose of CNC machines business. He produced a business plan Q
(which Mr Stewart K.M. Wong, counsel for the plaintiff, described as a
R R
laughable document. I shall deal with it at a later stage). Be that as it
S may, Mr Li then went on to say that at first they intended to have equal S
shareholdings but then :
T T
U U
V V
由此
- 9 -
A A
“Terrence Chang said that if he was one of the shareholders, he
B could use his reputation in the trade to help me in Taiwan. B
Terrence Chang told me that if he became a partner with me, he
may be able to use his standing and relationship to assist me in
C C
seeking permission to use the ‘Leadwell’ marks in my business.
He said to me that as I was a complete newcomer to the trade, it
D was important that there is a solid figure in the Defendant. That D
was important both to attract customers and secure supplies and
finances. Terrence Chang further told me that he would not be
E making any financial contribution to the Defendant and would E
not be involved with any operation of the Defendant. He would
F just offer his name to be a shareholder and director on the F
papers and would be a silent partner as a PR gesture.”
(Emphasis supplied)
G G
Mr Li went on to say in the same paragraph :
H H
“As for myself, I was interested in participating in the ‘CNC’
I machinery industry because of Terrence Chang’s success in his I
career in promoting and marketing ‘CNC’ machines.
I considered that merely trading as agent or providing
J J
value-added services would limit the scope of development.
I was aiming at manufacturing my own brand to become leader
K of the market. However, I lacked the expertise, know-how, K
technology support, as well as the market information regarding
‘CNC’ machines and had to rely on such expertise of
L Terrence Chang.” (Emphasis supplied) L
M M
22. Stopping here for a moment, Mr Li was trying to convince the
N N
court that Terrence Chang’s position in the company is what we call a
O dormant partner or shareholder. However, he is the only one who has the O
expertise and know-how, technology support as well as the market
P P
information regarding CNC machines. Previously Mr Li also said that
Q Terrence Chang was only a silent partner and he was only, on paper, a Q
shareholder and director, albeit he was the majority shareholder and he
R R
would not be involved with any operation of the defendant. This is what
S counsel for the plaintiff described as inconsistent and therefore incredible S
evidence.
T T
U U
V V
由此
- 10 -
A A
23. It really baffled me as to how Terrence Chang would not be
B B
involved in the operation of the defendant but, at the same time, could
C assist Mr Li, a newcomer, to this CNC manufacturing to the extent that the C
defendant company could become a manufacturing factory somewhere in
D D
Dongguan or wherever in the Mainland and start to manufacture CNC
E machines? We are not concerned with factories manufacturing soft toys E
or that kind of things. We are concerned with high-precision machinery
F F
with computerised and digitally-controlled machines. How could Mr Li
G develop such a factory without the direct involvement of Terrence Chang, G
an expert in this field and he was there and then the majority shareholder
H H
of the company? How could Mr Terrence Chang divorce himself from
I the operation of the defendant company and the defendant company could I
J
still get on its feet? That is really puzzling. That apparently is the J
moonshine of the defendant, which Mr Wong, counsel for the plaintiff was
K K
submitting before this court.
L L
24. The question before this court in this Order 14 summons is
M M
whether there is any credible defence or just a so-called moonshine
N defence. N
O O
25. In respect of the assignment of the trade mark from
P Leaderway to the defendant, Mr Li, in paragraph 23 of his affirmation said P
this :
Q Q
“In or about November 2001, I was informed by Terrence Chang
R that the Chairman of Leaderway, Mr Wu Chao-yeh, was offering R
to assign the “LEADWELL” trade marks outside Taiwan,
Mainland China, Korea and Italy due to a change in the business
S nature of Leaderway.” S
T T
U U
V V
由此
- 11 -
A A
26. Stopping here for a moment, Mr Li did not condescend onto
B B
particulars and explain what he meant by “change in the business nature of
C Leaderway.” Did he mean that Leaderway would not, from then onwards, C
produce CNC machines? If not, what did he mean? We do not know.
D D
E 27. Back to the affidavit of Mr Li in respect of Terrence Chang’s E
involvement with the trade mark, he further said :
F F
“Terrence Chang told me that given he was on papers my partner,
G he would be, as originally intended, able to assist me in getting G
the ownership of the subject marks. He said it would be much
H easier to negotiate with Leaderway through his connections. At H
that time, I considered that to be a golden opportunity since with
a well-established brand name in Taiwan, the ‘LEADWELL’
I trade marks could assist me in promoting my machines in the I
overseas market. Terrence Chang then introduced me to Mr Wu.
Mr Wu and I negotiated on the terms of the agreement to acquire
J J
the subject trade mark directly. I was at that time genuinely
thinking that Terrence Chang was providing me with valuable
K connections by being a silent partner in my company.” K
(Emphasis supplied)
L L
28. It is not comprehensive as to why Mr Li said that in the last
M M
sentence as quoted above. Why he genuinely thought Terrence Chang
N was providing him with valuable connections and, at the same time, that N
his role was only a silent partner in the defendant company. In the first
O O
place, it was not only Mr Li’s company; it was their company. It was a
P P
company where Terrence Chang had the majority shareholding. But
Q
more importantly, the contention in his paragraph 23 clearly shows that Q
Terrence Chang must be actively involved in pushing through the
R R
assignment of Leaderway (of which company he was the president and
S
chief operation officer), to the defendant company of which he was still the S
majority shareholder and director. He was wearing two hats, save and
T T
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A A
except that the negotiation was conducted, as Mr Li has conveniently said,
B B
with the Chairman of Leaderway, Mr Wu, instead of Terrence Chang.
C C
29. In any event, Mr Li frankly said in the same paragraph that
D D
that was because of Terrence Chang’s connection with Leaderway and it
E would make the negotiation easier. It baffled me to accept the contention E
by Mr Li that Terrence Chang was not actively involved in the negotiation,
F F
if that is what he wanted this court to believe, or this was a so-called arm’s
G length deal between two limited companies. The difficulty of Mr Li is G
that he wanted to establish a case that the defendant was a bona fide
H H
purchaser without notice of Dr Chang’s unlawful assignment and therefore
I he must, on one hand, explain how he became involved with I
J
Terrence Chang and how he could use all his so-called life savings to set J
up this limited company in terms of HK$2 million. At the same time, he
K K
would have to distance himself from Terrence Chang otherwise it would
L
give the impression that Terrence Chang was the one, the alter ego, behind L
the assignment. However, he could not have it both ways.
M M
N 30. Eventually the trade mark was purchased in the sum of N
US$100,000. That represented already about 40 per cent of what Mr Li
O O
himself called his whole life savings. No evidence has ever been
P produced as to how the sum was paid. Was it paid by cheque, banker’s P
order, telegraphic transfer or cash? If cash, where did the cash come
Q Q
from? Was it underneath his pillow or a withdrawal from the bank, and if
R so, when and where is the Bank monthly statement in support? Not a R
single piece of paper was produced before this court to evidence such a
S S
payment.
T T
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由此
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A A
31. There is one further inconsistency in Mr Li’s version. Mr Li
B B
said the factory of the defendant company was established. The monthly
C outgoing was about $40,000. That included the salary of 10 staff and C
rental. Mr Wong for the plaintiff submitted that it really baffled him as to
D D
how 10 staff employed by the defendant company including Mr Li could
E establish a factory producing those kind of high-precision machines which E
are very expensive. It is definitely also to my mind, contrary to the two
F F
brochures of Leadwell and Leaderway which advertised their
G establishment as an international machinery production corporation. G
H H
32. Further, it is contrary to the document produced before this
I court, and that is the lease of a factory in the Mainland, showing that the I
J
monthly rental was about RMB85,000 already. Further, Mr Wong J
submitted that in the fourth affirmation of Mr Li, he said that in
K K
establishing the CNC production line, machinery and other investment
L
items totalling $7 million are said to be intended to be purchased together L
with a team of qualified and skilled quality controllers as well as
M M
high-quality raw materials with huge expenses to be spent on establishing
N a sales network. Mr Wong doubted where the money would come from N
since Terrence Chang had sold all his 51 shareholdings to Mr Li on
O O
11 December 2004 for the consideration of HK$1 and Mr Li himself had
P already exhausted all his savings. P
Q Q
33. This led Mr Wong to submit further that the only inference to
R be drawn would be that the defendant company could only produce CNC R
machines of inferior quality, “inferior” meaning inferior to the plaintiff’s
S S
products. Eventually Mr Wong submitted that it is not only a moonshine
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A A
defence, it is a dark moonshine defence in the new moon, bordering on
B B
being a fairytale.
C C
34. There is one further point of incredibility of the defendant’s
D D
version. Mr Li said the factory in the Mainland was at the verge of
E testing the machines and he therefore produced a record sheet of three E
pages to evidence that they were ready to test the machines to be produced.
F F
They turned out to be a direct Photostat copy of the test sheets used by the
G plaintiff except that the test result column was left blank as there was no G
test at all, otherwise — as we say in Chinese — the tail of the fox would
H H
be revealed.
I I
J Bona Fide Purchaser Without Notice? J
K 35. In respect of “lack of knowledge” of Dr Chang’s unlawful act K
of assignment, Mr Szeto for the defendant in his submissions tried to
L L
brighten up the defence by submitting that Mr Li and therefore the
M defendant company did not have the following pieces of information at all M
and therefore the plaintiff could not submit that :
N N
(a) Dr Chang got the trade mark unlawfully;
O O
(b) Leaderway, being Dr Chang’s company, knew it and
P Terrence Chang being the president and chief operation P
officer must have known the same;
Q Q
(c) Terrence Chang being the majority shareholder and the
R director of the defendant company, also knew of the wrongful R
acts of Dr Chang; and
S S
(d) eventually, the defendant got the necessary or actual or
T imputed knowledge of Dr Chang’s unlawful conduct. T
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由此
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A A
36. In my judgment from the papers before me, I consider that the
B B
defendant knew before the assignment, at least of the Taiwan prohibition
C order when it was served on them and therefore knew of Dr Chang’s C
unlawful act before the assignment. Terrence Chang must have known
D D
all these and, to my mind, this is entirely unarguable.
E E
37. The next question now before the court is twofold :
F F
(a) Did Terrence Chang for Leaderway have a duty to
G G
communicate the same to the defendant company? The
H answer to my mind must be “yes”. H
(b) Did Terrence Chang for the defendant company have a duty to
I I
receive this information from Leaderway? To my mind, the
J answer must also be “yes” even though Mr Li was trying in J
his affidavit to urge upon me to believe that Terrence Chang
K K
was just a silent partner, a silent shareholder, a silent director.
L
As aforesaid from the setting up of the defendant company, it L
is just moonshine to contend that Terrence Chang was not an
M active member of the company. M
N N
38. One would even say from all the evidence before this court,
O O
that Terrence Chang had “conveniently” sold his shareholdings in
P December 2004 to the Mr Li for $1 after all these things were done by P
Terrence Chang. “Conveniently” meaning that Terrence Chang would
Q Q
have no explanation if he is still a shareholder and a director of the
R defendant company. That is exactly why Terrence Chang did not make R
any affidavit in support of the defence, leaving Mr Li to hold the fortress
S S
or to face the plaintiff action and manoeuvred between facts presented by
T T
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A A
the plaintiff to set up a case that the defendant had no actual knowledge —
B B
not even imputed knowledge — of Dr Chang’s unlawful act.
C C
D 39. However, for reasons as aforesaid, to my mind, on the D
contrary, Terrence Chang was not a silent director and he was not a silent
E E
shareholder. He was the majority shareholder and he must be the one in
F charge of the defendant company. Otherwise the defendant could not get F
on its feet by, to quote a Chinese saying, the bare two fists or hands of
G G
Mr Li.
H H
40. From the evidence before this court, it is quite clear that the
I I
defendant company was used as a vehicle to receive the trade mark from
J Leaderway in Taiwan and, by so doing, the modus operandi was in such a J
way that Terrence Chang was trying to put the trade mark as far as possible
K K
out of the reach of the plaintiff company in Taiwan.
L L
41. Thus, in the end, I cannot say the defendant is a bona fide
M M
purchaser without notice of Dr Chang’s unlawful assignments. They are
N not without notice; they are not bona fide; and, to my mind, they are not N
even a purchaser since there is no evidence of payment of this US$100,000
O O
at all.
P P
42. In the end, I accept the plaintiff’s submission that the
Q Q
defendant entered into the assignment in April 2002 with the necessary
R knowledge of the wrongful acts of Dr Chang in relation to the original R
unlawful assignment and so it was under an obligation to return the same
S S
to the plaintiff. The defendant falls squarely into the description of
T
“constructive trustee on the basis of knowing receipt” in the case of El T
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由此
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A A
Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685, wherein
B B
Hoffmann LJ, as he then was, said at page 700 :
C C
“This is a claim to enforce a constructive trust on the basis of
knowing receipt. For this purpose the Plaintiff must show, first,
D the disposal of his assets in breach of fiduciary duty; secondly, D
the beneficial receipt by the Defendant of assets which are
E traceable as representing the assets of the Plaintiff; and, thirdly, E
knowledge on the part of the Defendant that the assets he
received are traceable to a breach of fiduciary duty.”
F F
G Passing-off G
H 43. The setup of the defendant was a setup trying to use the trade H
mark and the goodwill of Leadwell as goodwill in Leadwell was also
I I
assigned in the assignment from the plaintiff to Leaderway and in turn to
J the defendant. J
K K
44. The plaintiff also sues on the second cause of action and that
L is passing-off the trade mark which is supposed to be used in the L
defendant’s machines to be produced. Mr Wong submitted that this trade
M M
mark would be used as an instrument of fraud since it is not disputed by
N the defendant that the plaintiff has a reputation and goodwill in Hong Kong. N
There is evidence before this court that there was an enormous sales
O O
volume of machinery in Hong Kong through its sole agent, one Protechnic
P Company Limited before the aforesaid assignment of Leaderway to the P
defendant.
Q Q
R
45. The plaintiff submitted that the defendant’s product would R
S
cause deception and confusion in the markets of Hong Kong. In the S
words of its counsel Mr Wong, the plaintiff submitted that :
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A A
“Because of the exclusive goodwill and reputation of the
B Plaintiff has in the Trade Mark (not effectively denied by Li), B
any use by the Defendant thereof in Hong Kong, in particular in
relation to machine tools, more particularly CNC machines, is
C C
most likely to cause deception and confusion. The Plaintiff
clearly has a good cause of action in passing off against any use
D by the Defendant of the trade mark in relation to machine tools. D
The ‘classical trinity’ that make up a cause of action in passing
off of, [1], reputation or goodwill, [2], misrepresentation, and [3]
E damage, are all unarguably present.” E
F These 3 ingredients or so-called classical trinity was defined in Consorzio F
del Prosciutto di Parma v. Marks and Spencer plc and others [1991]
G G
RPC 351 (C) 368-369.
H H
I
46. As I have said, the plaintiff’s goodwill, together with the trade I
mark was assigned in the assignments from Leaderway to the defendant.
J J
Thus, eventually, if the plaintiff or anyone used the trade mark in Hong
K Kong, say, a purchaser purchased goods from the plaintiff company in K
Taiwan or elsewhere and shipped it into Hong Kong, or the plaintiff sold
L L
machines with this trade mark to a purchaser in Hong Kong, they would be
M sued by the defendants, i.e., both the vendor and the purchaser would be M
sued by the defendants in breach of trade mark and passing-off instead.
N N
O 47. In other words, the matter could be looked at from the tail-end. O
Should the defendant be allowed to do so? Should the defendant be
P P
allowed to sue this vendor and purchaser when, in the first place, Dr Chang
Q got the trade mark unlawfully, attracting a conviction for which he is now Q
serving a sentence of 18 months? The answer must be “no”.
R R
S 48. Of course, the defendant at this stage would say it is not the S
time to decide and that the matter should go to trial. But what is there to
T T
try in this obvious case. I do not, in this case, for a moment consider that
U U
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由此
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A A
the defendant has any merit in its defence and it is clear to me that there is
B B
no triable issue at all from the papers before me. I will therefore give
C judgment for the plaintiff. C
D D
[Submissions re terms of order]
E E
F 49. Thus, this court ordered that : F
(1) A permanent injunction is hereby granted to restrain the
G defendant whether acting by itself, its directors, officers, G
servants, agents, nominees, representatives, subsidiaries or
H H
other related companies or any of them or otherwise
I howsoever from doing the following acts or any of them: I
(a) passing-off, attempting to pass off, causing, enabling or
J J
assisting others to pass off any business or products, in
K particular computerised numerical control machines, K
lathes, planers and drilling machines, not those of or
L L
connected or associated with the plaintiff, as and for the
M
business or products of or connected or associated with M
the plaintiff:
N N
(i) by using in connection therewith the name or
O
mark “LEADWELL” or any name or mark O
containing the name or mark “LEADWELL” or
P any name or mark confusingly similar thereto or P
any colourable imitation thereof;
Q Q
(ii) by using the name or mark “LEADWELL” or
R any name or mark containing the name or mark R
“LEADWELL” or any name or mark confusingly
S S
similar thereto or any colourable imitation
T thereof in relation to or in connection with any of T
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由此
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A A
its activities or the activities of its directors,
B B
officers, servants, agents, nominees,
C representatives, subsidiaries or other related C
companies or any of them or otherwise
D D
howsoever;
E (iii) by misrepresenting orally or in writing that any E
of its products, business or activities or the
F F
products, business or activities of its directors,
G officers, servants, agents, nominees, G
representatives, subsidiaries or other related
H H
companies or any of them or otherwise
howsoever is or are related or otherwise
I I
connected or associated with the plaintiff;
J J
(iv) or by any other means whatsoever;
K (b) except to comply with the order referred to in K
paragraph 2(a) below, and whether in Hong Kong or
L L
elsewhere, using, exploiting, selling, leasing, charging,
M
pledging, transferring, disposing of or otherwise M
howsoever dealing in or with or attempting or offering
N to do the aforesaid, any of the trade marks referred to in N
the Schedule to the Writ of Summons herein (“the
O O
Registered Marks”) or the registrations thereof or any
P right to use or exploit any such trade marks or P
registrations.
Q Q
(2) (a) The defendant do on or before on or before 7 December
R R
2005 assign to the plaintiff its registrations of the
S
registered marks and to execute all necessary S
documents; and on or before 23 December 2005 to take
T all necessary steps to effect and complete all such T
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由此
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A A
assignments and the due registrations of all such
B B
assignments in favour of the plaintiff as the registered
C proprietor thereof in each of the relevant trade marks C
office or registry at which each of the Registered Marks
D D
is registered; and
E (b) All reasonable expenses, fees and disbursements E
incurred by the plaintiff in relation to any of the acts
F F
done or to be done under paragraph 2(a) above be paid
G by the defendant to the plaintiff within 14 days of the G
service of a bill or bills for such expenses, fees and
H H
disbursements by the solicitors for the plaintiff on the
defendant at its registered office pursuant to Order 65,
I I
rule 5 of the Rules of the High Court, Cap. 4.
J J
(3) The defendant do deliver up upon oath of all products in
K particular computerised numerical control machines, lathes, K
planes and drilling machines, all copies of brochures, articles,
L L
papers, materials and things in the possession, power, custody
M and/or control of the defendant the continued retention, use or M
disposal of which by the defendant will offend against the
N N
foregoing injunctions or any of them, wherever the same is
situated.
O O
P
(4) The plaintiff be entitled to elect between an enquiry as to P
damages and an account of profits within 21 days hereof, and
Q upon such election there be an inquiry by a Master of High Q
Court as to what damages the plaintiff has suffered by reason
R R
of the defendant’s acts of passing-off or an account of profits
S made by the defendant through such acts. S
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由此
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A A
(5) The plaintiff be entitled to elect between an enquiry as to
B B
damages and/or equitable compensation and an account of
C profits within 21 days after the defendant’s full compliance C
with paragraph 2 hereinabove, and upon such election there
D D
be an inquiry as to what damages the plaintiff has suffered by
E reason of the defendant’s receipt and holding of the E
registrations of the Registered Marks or an account of profits
F made by the defendant through such acts. F
G G
(6) There be an order for discovery upon oath of all matters
H
relating to the above. H
I (7) The defendant do pay to the plaintiff all such sums which are I
found due to the plaintiff upon taking of the enquiry or
J account provided for in paragraphs 4 and 5 hereinabove J
together with such interest thereon as the Court shall deem
K K
just pursuant to section 48 of the High Court Ordinance,
L Cap. 4 or under its equitable jurisdiction. L
M (8) Costs of this action including the costs of and incidental to M
this application be paid by the defendant to the plaintiff, to be
N N
taxed if not agreed.
O O
P P
(D. Yam)
Q Judge of the Court of First Instance Q
High Court
R R
S
Mr Stewart K. M. Wong, instructed by Messrs Deacons, for the Plaintiff S
Mr Patrick Szeto, instructed by Messrs Michael Li & Co.,
T T
for the Defendant
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