TOTO TOYS LTD v. KING FUNG VACUUM LTD

HCA188/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.188 OF 2004

------------------------------

BETWEEN

	KING FUNG VACUUM LIMITED	1st Plaintiff
	WONG KWONG CHUNG JAMES	2nd Plaintiff
	and
	TOTO TOYS LIMITED	1st Defendant
	WONG CHONG PIU	2nd Defendant

-----------------------------

 

HCA4715/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4715 OF 2003

------------------------------

BETWEEN

	TOTO TOYS LIMITED	Plaintiff
	and
	KING FUNG VACUUM LIMITED	Defendant

-----------------------------

 

Before : Deputy High Court Judge Fung in Chambers (Open to the public)

Dates of Hearing : 29 August 2005

Date of Delivery of Judgment : 29 August 2005

 

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JUDGMENT

----------------------

 

1.  The 1st and 2nd defendants are appealing against the decision of the Master in striking out part of the Amended Defence and Counterclaim.  The relevant parts struck out related to sums counterclaimed: (i) $639,735.37 and (ii) $170,633.31.

2.  The appeal did not seek to resurrect the counterclaim of $170,633.31 as the striking-out was conceded by counsel before the Master.  As to the counterclaim of $639,735.37, Mr Ng for the 1st and 2nd defendants filed an Amended Notice of Appeal, seeking re-amendment of the Amended Defence and Counterclaim.  Mr Kwan for the 1st and 2nd plaintiffs did not argue against the amendment.  Hence, the appeal was effectively on costs of the hearing before the Master.

Background

3.  2nd plaintiff and the 2nd defendant are relatives and they were in business together until early 2003, manufacturing toys built with components. 

4.  In 1998, the 1st plaintiff was incorporated.  2nd plaintiff was the 60% shareholder and the 2nd defendant and his wife as nominee were the 40% shareholders.  The 1st plaintiff manufactured four series of toys: the Marble Series, Miscellaneous Product Series, Screw Series and Space Series. 

5.  In 1997, the 2nd defendant was founded for the marketing and distribution of the toys.  Likewise, the 2nd plaintiff was the 60% shareholder and the 2nd defendant and his wife as nominee were the 40% shareholders. 

6.  The manufacturing arm of the 1st plaintiff is a joint venture factory in Shenzhen called the King Fung Factory. 

7.  Between late 2002 and March 2003, the 2nd plaintiff and the 2nd defendant reached an agreement, partially orally, partially in writing and partially by conduct, for the separation of the business and the division of the assets of the 1st plaintiff between them.  The terms of the agreement are in dispute.  For the present purpose, suffice it to mention the following terms of the Asset Agreement:

(1)	The 2nd plaintiff was to own the 1st plaintiff, and the 2nd defendant was to own the 1st defendant.
(2)	The 1st plaintiff was to transfer the office premises at Kowloon Bay (“the Premises”) to the 1st defendant or a nominee of the 2nd defendant, and the 2nd defendant was to pay the price of $1.2 million.
(3)	The 1st plaintiff is to “own” the Marble Series and the Miscellaneous Product Series, and the 1st defendant was to “own” the Screw Series and the Space Series.
(4)	For a period of one year from 1 January to 31 December 2003, the 1st defendant was to purchase component parts for the Screw Series and Space Series from the 1st plaintiff at 50% discount.

8.  There is in dispute as to whether “ownership” means ownership of the moulds or the copyright of the design parts.  The 1st and 2nd defendants alleged that they were free to produce the moulds for production of the series owned by them.  The 1st and 2nd plaintiffs alleged infringement of the copyright therein. 

9.  The 1st plaintiff claimed, inter alia, $353,270 as the component parts sold by it to the 1st defendant.  The 1st and 2nd defendants pleaded set off, by way of counterclaim, sums due to them in the amount of (i) $639,735.37 and (ii) 170,633.31.  The particulars relating to the sum of 639,735.37 are set out in Schedule B to the amended defence and counterclaim.  $639,735.37 are broken down into (i) $2,224, (ii) $260,152.88, and (iii) $377,358.49. 

10.  The sum of 2,224 was originally pleaded as “60% of legal cost of mortgage and change of name in title deeds undertaken by the 1st plaintiff.”  The sum of $260,152.88 was originally pleaded as “DN03/019 - salaries, severance payments and MPF, etc. paid by the 1st defendant on behalf of King Fung Vacuum Limited.”  The sum of $377,358.49 was pleaded as DN02/KF01 - amount temporarily paid by the 1st defendant on behalf of 1st plaintiff in early 2003.

11.  In draft Re-amended Defence and Counterclaim, the $2,224 is now sought to be pleaded as pursuant to an oral agreement between the 2nd defendant and the 2nd plaintiff that the 1st plaintiff would pay 60% of the legal cost of the mortgage and change of name of title deeds for the transfer of the Premises.  The sum of $260,158.80 is now sought to be pleaded as the sum payable to the staff of the 1st plaintiff pursuant to the request and oral agreement of the 2nd plaintiff on 15 January 2003 that the 1st plaintiff would reimburse the 1st defendant.  The sum of $377,358.49 is now sought to be pleaded as pursuant to an oral agreement between the 2nd plaintiff and the 2nd defendant in early January 2003 whereby it was agreed that the 2nd defendant would manage the King Fung Factory until the handover of the factory to the 1st plaintiff and that the 1st plaintiff would reimburse the 1st defendant for the expenses incurred by it before the handover.

12.  Mr Ng submitted that striking-out is a draconian power in that the claim of the 1st and 2nd defendants must be fundamentally flawed in the sense that no further particulars could assist their cause, or where there has been an express refusal to file further and better particulars or contumelious disregard of court orders, see British Airways Pension Trustees Ltd v Sir Robert McAlpine & SonsLtd & Ors [1994] 72 BLR 31.  Mr Ng referred to the judgment of Saville LJ at page 33I that:

“The basis purpose of pleadings is to enable the opposing party to know what case is being made in sufficient details to enable that party properly to prepare to answer it.”

And further, at page 34C that:

“Each case must of course be looked at in the light of its own subject matter and circumstances.”

13.  Mr Ng submitted that in relation to the sum of $2,224 incurred in the transfer of the Premises, the only property transfer between the parties, the original pleading disclosed an undertaking of the 1st plaintiff to pay 60% of the legal costs. 

14.  In relation to the sum $260,152.88, it was stated to be payment of severance pay for the staff of the 1st plaintiff.  The 1st and 2nd plaintiffs should have knowledge that it was in relation to the “clean-break” arrangement in respect of the existing employees of the 1st plaintiff.  The payment was for the benefit of the 1st plaintiff.  An agreement to reimburse should be implied.

15.  In relation to the sum $377,358.49, reference to payment to King Fung Factory in early 2003 should have brought notice to the 1st and 2nd plaintiffs that it was expenditure for King Fung Factory pending the handover, hence, another benefit for the 1st plaintiff.

16.  Mr Kwan submitted that all the material facts should have been pleaded and the opposite side should not be expected to speculate on what the claims really were.  Mr Kwan submitted that notwithstanding that the pleadings could have been saved by an amendment, there was no such relief sought before the Master. 

17.  Mr Kwan referred to the original pleadings for legal costs.  He pointed out that it was not clear what property was referred to, nor whether “undertaking” was referring to 60% of the legal cost or the change of name undertaken.  And if “undertaking” was referring to the act of the re-mortgage and the change of name being done, it might not refer to any undertaking by the plaintiffs as to the legal costs at all.  Hence, an agreement to reimburse must be clearly pleaded.

18.  As to the two other items where it was said that they were payments for the 1st plaintiff’s benefit, Mr Kwan pointed out that before the separation, the 1st plaintiff and the 1st defendant were members of the same group, sharing the same staff and structure.  Hence, nothing could be taken to infer an implied request of payment by the 1st and 2nd plaintiffs or reimbursement by them.

19.  It is now clear from the proposed re-amendment that all the items of expenses, which the 1st and 2nd defendants are counterclaiming, are in reliance on an express agreement to reimburse.  I do not agree that any express or implied agreement cried out from the factual matrix without pleading it.  After all, the parties were to embark upon a course of separation.  It is a matter of agreement as to who was to get or give what.  I do not see that the mere identification of the payer and the payee would give rise to any express or implied agreement of reimbursement, let alone without pleading it. 

20.  On this point, I agree with the Master that the three items in Schedule B1 were liable to be struck out for disclosing no reasonable cause of action.  All but two sub-paragraphs of the pleadings struck out rise and fall with Schedule B1 except for paragraph 26(d)(i) and (ii) of the Amended Defence and Counterclaim.  In paragraph 26(d)(i), it is pleaded that the 2nd defendant is not liable to the 1st plaintiff for $353,270.  That was because the alleged purchase was made by the 1st defendant from the 1st plaintiff.  In paragraph 26(d)(ii), it was pleaded that the 1st and 2nd defendants are not liable to the 2nd plaintiff for $353,270.  That was because it was the 1st plaintiff and not the 2nd plaintiff who supplied the component parts to the 1st defendant.

21.  Mr Kwan pointed out that in paragraph 22 of the statement of claim, the 1st plaintiff claimed $353,270 from only the 1st defendant.  The 2nd plaintiff never made the claim at all, nor the 1st plaintiff claimed against the 2nd defendant.  Hence, paragraphs 26(d)(i) and (ii) were not necessary. 

22.  Mr Ng replied that paragraphs 26(d)(i) and (ii) were an overcautious reaction to the pleadings in paragraph 22 in the Statement of Claim that there was failure to pay “despite the plaintiffs’ repeated request.”  Mr Ng agreed that those paragraphs are not really necessary now and he does not insist on them.

23.  I hold that the appeal should be allowed on the basis of the proposed Re-amended Defence and Counterclaim. 

24.  Mr Ng agreed that the cost of and occasioned by the amendment should be to the 1st and 2nd plaintiffs, but submitted that the 1st and 2nd plaintiffs should not have the cost of today and the hearing below.  Mr Ng pointed out that the 1st and 2nd plaintiffs did not comply with Practice Direction 19.1 in setting out in writing the broad grounds of striking out the pleadings as disclosing no reasonable cause of action at least four clear working days before the day fixed for the hearing.  Further, as the pleadings were curable by amendment, they were not fundamentally flawed and the 1st and 2nd plaintiffs should have asked for further and better particulars in the first place.

25.  Mr Kwan pointed out that the solicitors for the plaintiffs did write to the solicitors for the defendants on 2 February 2005 albeit only in threatening to strike out the impugned parts of the Amended Defence and Counterclaim on the ground of amendment without leave.  Mr Kwan also pointed out that the summons identified the precise paragraphs to be struck out and, hence, they satisfied the spirit of PD19.1.

26.  Mr Ng submitted that the identification of the paragraph was not the same as setting out the broad grounds of striking-out.  The allegation that the pleadings lack material facts as constituting cause of action should have been stated.  If so apprised, the 1st and 2nd defendants might have asked for amendment before the Master and a hearing before the Master might have been saved. 

27.  Be that as it may, the argument today was that the original pleadings should not have been struck out even without amendment.  The 1st and 2nd defendants fail on that as it is clear that the pleadings lack the requisite particulars.

28.  As for the hearing before the Master, notwithstanding PD19.1 was not complied with, I find that the 1st and 2nd defendants did not suffer any prejudice as the summons set out the parts of the Amended Defence and Counterclaim sought to be struck out, and an application for amendment before the Master could reasonably have come from the 1st and 2nd defendants. 

29.  Hence, I rule that the 1st and 2nd defendants should be entitled to the costs herein and below.

 

 

(B. Fung) Deputy High Court Judge

 

Mr Gary Kwan, instructed by Messrs Liau, Ho & Chan, for the 1st and 2nd plaintiffs

Mr Ng Man-sang, Alan, instructed by Michael Pang & Co., for the 1st and 2nd defendants

 

HCA 188/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 188 OF 2004

____________

BETWEEN

	KING FUNG VACUUM LIMITED	1st Plaintiff
	WONG KWONG CHUNG JAMES	2nd Plaintiff
	and
	TOTO TOYS LIMITED	1st Defendant
	WONG CHONG PIU	2nd Defendant

____________

 

HCA 4715/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4715 OF 2003

____________

BETWEEN

	TOTO TOYS LIMITED	Plaintiff
	and
	KING FUNG VACUUM LIMITED	Defendant

____________

 

Coram: Deputy High Court Judge Gill in Chambers

Dates of Hearing: 8-9 August 2005

Date of Judgment: 19 August 2005

 

______________

J U D G M E N T

______________

 

Introduction

1.  This is an application of the 1^st defendant to restrain the 1^st plaintiff by interlocutory injunction from publishing certain words defamatory of the 1^st defendant or disparaging of its products, to induce its customers actual and potential to take their business from the 1^st defendant to the 1^st plaintiff.  The words in question are those contained in two letters and an email sent by the 1^st plaintiff to customers and a potential customer of the 1^st defendant, as I shall come to.

History

2.  The 2^nd plaintiff James Wong and the 2^nd defendant Piu Wong used to make toys and toy components through a factory in China and various companies in Hong Kong which they both owned as shareholders.  By this means they held intellectual property rights in certain lines of toys they were making and marketing, as well as all the usual trappings of an on-going business undertaking.

3.  There came a time, perhaps it was late 2002, when they decided to subdivide into two their interests hitherto operated as one, and go their separate ways.  This included dividing between them the copyrights and other property rights hitherto shared.  There was intended a transition period of one year during which one was to be given agency rights to deal in the other’s property.  For the purpose of the matter before me, the detail is not important.  Suffice to say that both Wongs signed three agreements written in Chinese characters and not professionally drawn, which may be the reason for things going off the rails.

4.  As is apparent from the pleadings in the proceedings that came to be filed, James Wong acquired one of the companies hitherto jointly owned being the 1^st plaintiff (King Fung) whilst Piu Wong took the other, the 1^st defendant (Toto Toys).  Where the parties have fallen out is as to how the rights in four lines of toys called ‘Space Series’, ‘Screw Series’, ‘Marble Series’ and ‘Miscellaneous Products’ were divided.  Apart from a certain vagueness in the written agreements there is said by one or other or perhaps both that there was an oral content in what was agreed and that cannot now be agreed.  To compound the difficulty some of the lines, or series, of toys have shared component parts.

5.  The parties purported to complete the split and go their separate ways by early January 2003.  But it was not long before there was trouble.  A term of the agreement was that a registered trademark of the component parts of the four series of toys under the brand name Toto, hitherto owned by King Fung, was to be assigned to Toto Toys; that did not happen.  Piu Wong and Toto Toys issued a writ in specific performance.  But James Wong himself was aggrieved when he had cause to believe and now alleges that Piu Wong was manufacturing and marketing toys that matched or closely copied those reserved to him.  He also sued, in his own right and for King Fung.

6.  In December 2004, a Master consolidated the two actions, and there are now consolidated pleadings.  It is apparent from these, and the vigour with which this interlocutory matter has been argued, that there is a major falling out, and no agreement on the way forward.

The Letters and Email

7.  This application derives from letters that were sent out by King Fung to a toy retailer in Tsuen Wan called BabyBoom Shop and another in Singapore, called Twinkle Thinkers Pte Ltd. in December 2003 and January 2004 respectively.  These are identical in content.  I reproduce that sent to BabyBoom:

“	KING FUNG VACUUM LTD.
	19th December 2003
	BabyBoom Shop
	Unit 1512, Nan Fung Centre
	264-298 Castle Peak Road, Tsuen Wan
	N.T., Hong Kong
	Dear Sir,
	Re : Toto Toys Ltd.
	King Fung Vacuum Ltd., established in 1988, was the parent company of Toto Toys Ltd. until January 2003.  Enclosed is copy of registration indicating King Fung registered the trademark of Toto Toys in 1989.
	In January 2003, there was a restructure of the companies King Fung Vacuum Ltd. and Toto Toys Ltd. whereby the major shareholder of both companies has acquired all the stakes of the parent company King Fung Vacuum Ltd. and taken over the entire manufacturing operation.  The marketing arm of Toto Toys Ltd. was sold to the other partner.  Along with this company change is also the product split whereby each company respectively hold the ownership, intellectual property rights and all aspects of the product lines that are allocated and agreed by both parties on the separation.
	As a marketing arrangement, King Fung has granted Toto to act as their agent in selling their line of products for the year 2003.  As of 1st January 2004, all customers can buy direct from King Fung.
	Nonetheless, it is discovered in recent episodes that Toto Toys Ltd. has copied molds of King Fung, withheld orders on and manufactured these products for themselves thereby breaching agreements on both intellectual property rights and principal-agent relationship.  Legal proceeding has already been instigated against Toto Toys Ltd. and the companies involved for buying infringing products.
	Customers are hereby advised to ascertain that no infringement of intellectual property rights will involve when placing orders with Toto Toys Ltd., especially with items like marble run games, roller construction sets, puzzles and premiums.
	Kindly be informed that King Fung Vacuum Ltd. now markets its products through neu kreation limited, website: www.neukreation.com
	Please feel free to contact us for any clarifications that you may need.
	Sincerely,
	Annie Cheung
	Marketing Director”

The enclosure is an excerpt from the Trade Marks Registry depicting the trade mark referred to.  Annie Cheung, the signatory, is James Wong’s wife.

8.  These are the only two letters which Piu Wong knows about, they having been brought to his attention.  But what was and is of concern is that by virtue of their being identical in content, and because they were directed to customers (note ‘customers are hereby advised’) rather than to the addressee in each case, a great deal more than these may have been sent out.  It is pertinent to note that nowhere in the evidence does James Wong or anyone else on King Fung’s part suggest otherwise.

9.  The email complained of came to Piu Wong’s attention because it was cut and pasted and sent to him for comment by its recipient Peter Neville, the sales manager of an Australian company called Just Premiums International whom Piu Wong refers to as a potential customer.  What in fact he sent was a compilation of 3 emails.  The first was his, Neville’s email to Neu Kreation (a company set up and run by James Wong), the second was a reply from Annie Cheung (of which Piu Wong now complains) and the third his email enclosing those two sent to Toto Toys’ email address seeking an explanation.  This is how it was set out, and of course one reads from bottom to top:

“	From:	“Peter Neville”<[email protected]>
	To:	<[email protected]>
	Sent:	Monday, 20 December, 2004 11:25
	Subject:	Fwd: Re: Marble Run game, nk-6122
	Hello Christina,
	Can you please explain what the position is with this email I received from Neu Kreation.
	regards
	Peter Neville
	Just Premiums.
	Dear Peter,
	If you are getting the product from a company called, Toto Toys Ltd. Then, may we advise you that we are currently suing them for product infringement and breach of contract. Parties knowingly purchase from them constitute secondary infringement too.
	We will gladly furnish you with more details of the lawsuit.
	Looking forward to hearing from you.
	Best regards,
	Annie Cheung
	Marketing Director

----- Original Message -----

	From:	“Peter Neville”<[email protected]>
	To:	“Neu Kreation” <[email protected]>
	Subject:	Re: Marble Run game, nk-6122
	Date:	Mon, 20 Dec 2004 09:01:06 +1100
	Thank Kimmy,
	To let you know, I have been able to find a 52 piece set, with 10 marbles, for $3.00 USD.
	Thank you for your quotes.”

Christina is Christina Poon, Toto Toys’ marketing manager.

10.  As it turns out the email which purportedly Neville had received had been redacted by him for reasons best known to him.  In evidence adduced by James Wong the full email that was sent is the following:

“	From:		“Neu Kreation” <[email protected]>
	To:		“Peter Neville”
	CC:
	Subject:		Re: Marble Run game, nk-6122
	Date:		Mon, 20 Dec 2004 10:57:47 +0800
	Dear Peter,
	Your last mail is well received.
	The price you get for the product have 2 possibilities:
	1.	A source where quality is not the priority of their production.
	2.	If you are getting the product from a company called, Toto Toys Ltd. Then, may we advise you that we are currently suing them for product infringement and breach of contract. Parties knowingly purchase from them constitute secondary infringement too.
	We hope it’s not the #2 scenario that you are in.  If you are, we gladly furnish you with more details of the law suit.
	Meanwhile, it is our desire to co-operate with you.  As we have advised you in the meeting, we are probably the best in what we do in terms of varieties and quality.  Hence, if it is a must that you look for US$3.00 for 52 pieces, we can try to come up with a configuration especially for you.  You then can have both price and quality.
	Looking forward to hearing from you.
	Best regards,
	Annie Cheung
	Marketing Director”

11.  What has emerged is a series of emails exchanged between Just Premiums and Neu Kreation; it is apparent that Neville was testing James Wong’s quotation against another which may have come from Piu Wong.

12.  It is his, Piu Wong’s case that Neville thereafter suspended negotiations with Toto Toys, so that a prospective relationship never developed.

The Interlocutory Application

13.  Although the summons is so phrased as to be grounded in defamation, it is the defence’s case that the injunction is required to prevent King Fung’s unlawful interference with Toto Toys’ trade or business.  As Mr Coleman for the defendants submitted:

“	the scope of the interlocutory injunction sought is only confined to King Fung’s unlawful interference directed at Toto’s customers or potential customers. It is a genuine claim by Toto to protect its business and for the present purpose to hold the ring pending trial….
	The plaintiffs seek to portray this application as one seeking an injunction to restrain a libel. It is not.”

14.  It is the case of Toto Toys and Piu Wong that the letter sent out and circulated at least to two actual or potential customers was threatening and amounted to an unlawful inference with the business of Toto Toys.  This was because it contained false and/or misleading information, which was portrayed as fact.  And, as submitted, now that the former partners are in fact competitors in the same industry, it is apparent that there is a motive.

15.  In considering the merits of the plaintiff’s case, I begin with the premise that a copyright owner who has a claim for breach of copyright is entitled to warn a customer of the offender, who thus himself may become a secondary offender, of his intention to bring proceedings.  This is because the claim can only be enforced against someone who has knowledge of the copyright.  But the information so given must be done so in good faith; see Granby Marketing Services Ltd v. Interlego A.G. [1984] RPC 209 at p.213.

16.  So, there can be no act of wrongful interference if all that King Fung has done is to assert in good faith a legal right claimed by it and to threaten proceedings if that right is infringed.

17.  Is the letter accurate in detail, not misleading, not an underhand way of denying Toto Toys’ legitimate business and attracting that to King Fung?

18.  I come to consider that next.

The Letters

19.  I begin by noting that this is not the usual situation of a copyright owner or holder alleging what amounts to passing off, piracy or other form of illegal copying by the offender, but a dispute between two former joint owners now challenging the other’s rights.  I think that behoves a more cautious approach and the need to ensure that in notifying actual or prospective customers the full picture is presented.

20.  The letters that went out purport to paint a picture; but in my view it is not a full and complete one and there are areas which are misleading and which give rise to unfairness.

21.  These include the following:

(a)	that King Fung was Toto Toys’ parent. This is simply not true. It was incorporated by the Wongs and owned by them, not by King Fung. The use of the word parent is not only wrong but materially misleading, for it connotes seniority, perhaps superiority, especially in the context of ‘has taken over the entire manufacturing operation.” That is untrue also which I shall come to;
(b)	that King Fung registered the trade mark.  This is true and is verified by the enclosure.  It is also totally misleading, for it ignores the explicit provision in one of the agreements that as part of the split King Fung was to assign the mark to Toto Toys.  There can be no adequate reason excluding mala fides, why this should be left out;
(c)	that King Fung is now the sole manufacturer.  This is plainly not correct, given that a significant feature of the split up is that each would be responsible for its own lines.  This taken together with the third paragraph which deals with a short finite agency that was about to expire, would or at least might lead to the impression that Toto Toys had given up any manufacturing rights and was about to lose marketing as well;
(d)	the inclusion of “Along with this company change is also the product split whereby each company respectively hold the ownership intellectual property rights and all aspects of the product lines that are allocated and agreed by both parties on the separation”. This is fine as far as it goes, but without spelling out what the lines are it is meaningless and confusing, especially in the light of the next paragraph. Fairness demanded that the lines should have been identified;
(e)	that “legal proceeding has already been instigated against Toto Toys and the companies involved for buying infringing products.”  This was false on two grounds, and materially misleading.  As at the date of the letter (and of the later letter sent to Twinkle Thinkers) there were not in existence any proceedings against Toto Toys.  And to this day there have never been any against so-called companies involved for buying infringing products;
(f)	that customers were being warned about the risk of buying from Toto Toys.  Whilst in proper form a warning of legal consequences of buying infringing copyright works may be given, it behoves the perpetrator to define accurately those works whose copyright is allegedly being infringed.

22.  Read as a whole I am satisfied that the recipient of the letter would likely take from it that King Fung, always the dominant partner in the original format, had taken over the entire manufacturing operation leaving Toto Toys the marketing; that a short term marketing agency was about to expire; that King Fung held the trade mark of Toto; that Toto Toys was in obvious and serious breach of its agreement with King Fung and King Fung’s copyright; that as a result there were proceedings on foot against Toto Toys and those who had already purchased infringing products from it; that anybody who purchased goods from Toto Toys within a wide range were at risk; that King Fung’s toys could now be bought through Neu Kreation Limited.

23.  In my view one only has to spell out the above to note that the letter was motivated to attract by improper means customers and trade from Toto Toys.

24.  I come next to the email.

Email

25.  Reading the series of emails exchanged between Neu Kreation and Just Premiums, one notes that Neville is sounding out someone called Kimmy Chan for a competitive quote in respect of the game known as Marble Run.  He receives a quote of US$4 per unit and responds that he has been offered US$3.  The offending email follows.  But there was nothing in Neville’s email to suggest he had been dealing with Toto Toys or that the quote was from that source.

26.  In my view the response as framed was gratuitous and misleading, and designed to put a customer off from contracting with a rival by improper means.  And it was probably unnecessary; the next email in sequence, sent above Miss Cheung’s name, was to match the quote the Neville had referred to, as I set out below:-

“	From:	“Neu Kreation” <[email protected]>
	To:	“Peter Neville”<[email protected]>
	CC:
	Subject:	Re: New configuration for just premiums
	Date:	Mon, 20 Dec 2004 18:16:07 +0800
	Dear Peter,
	Attached please find the new configuration we have especially for you.  It’s of total 62 pieces (50 pieces + 12 marbles) and priced at US$3.00/set FOB HK.
	Please note that we do not just include basic and simple pieces for you, but there are bigger pieces and more sophiscated ones.
	Let us know.
	Best regards.
	Annie Cheung”

The Consequences

27.  By sending out the letters and email, King Fung was threatening Toto Toys’ customers and potential customer by unlawful means.  There is, as I find, a serious question to be tried.

28.  Damages are not an adequate remedy.  Toto Toys makes and sells toys; it has (or at least there was an agreement that it has) the registered mark of a line of those toys.  Unrestrained misleading letters to its customers and potential customers if achieving the desired effect will turn away existing and new customers alike, resulting in a loss of business and goodwill beyond individual transactions.  It would in my view be impossible to quantify the resultant loss.  On the other hand, in the event that following trial it can be established that an interlocutory injunction was not after all justified, I am satisfied on what I have that Toto Toys is in a position to meet any order for damages occasioned by the injunction.

29.  I find that the letters and email designed as they were to attract business from Toto Toys to King Fung by frightening off customers amounted to unlawful interference and should be stopped.  I grant the application asked for, with costs (nisi at first instance) to the 1^st defendant taxed and paid forthwith.

 

 

(D M B Gill) Deputy High Court Judge

 

Mr G Kwan instructed by Messrs Liau, Ho & Chan, for the 1^st and 2^nd Plaintiffs (in HCA 188/2004) and Defendant (in HCA 4715/2003)

Messrs R Coleman and L Cheung instructed by Messrs Michael Pang & Co., for the 1^st and 2^nd Defendants (in HCA 188/2004) and Plaintiff (in HCA 4715/2003)

 

Appeal by the 1st Plaintiff in HCA188/2004 to the Court of Appeal. Apeal allowed. Please refer to the appeal judgment of CACV305/2005.