IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 595 AND 2833 OF 2006
|GRACE SILVER MARKETING LIMITED
|GRACE SILVER COMPANY LIMITED
(previously known as Grace Silver Design Limited)
|HAIXIN YU GAR (H.K.) LIMITED
(formerly known as Yu Gar Development Limited)
|OR YI TUNG
|(Consolidated by Order of Master Lung dated 19th April 2007)
Before : Hon Sakhrani J in Court
Date of Hearing : 22-25 and 28 February, 1-4 March, 7-9 March and 29 March 2011
Date of Judgment : 4 May 2011
1. The 1st plaintiff Grace Silver Marketing Limited (“GSM”) is a limited company incorporated in Hong Kong. GSM was incorporated on 23 January 2002.
2. At all material times Shunsuke Urashima (“Urashima”) was and is a director and the major shareholder of GSM.
3. Dennis Li Yat Tung (“Li”) was a director of GSM at all material times until 15 December 2005. At all material times Li was and is a minor shareholder of GSM.
4. Elvira Osti (“Osti”) is and was at all material times a minor shareholder of GSM holding 10% of the shares of GSM.
5. The 2nd plaintiff Grace Silver Company Limited (“GSC”) is a limited company incorporated in Hong Kong on 29 January 1991 under its former name Grace Silver Design Limited and changed its name to GSC on 4 April 1995.
6. At all material times Urashima was and is a director and the major shareholder of GSC with the other shareholders being members of his family.
7. The 1st defendant Haixin Yu Gar (H.K.) Limited (“Haixin Yu Gar”) is a limited company incorporated in Hong Kong, under its former name Yu Gar Development Limited and changed its name to Haixin Yu Gar on 5 November 2004. At all material times it carried on business in the retail, distribution and manufacture of brand name products.
8. The 2nd defendant Or Yi Tung (“Or”) is and at all material times was the managing director of Haixin Yu Gar. She was also a shareholder of Haixin Yu Gar at all material times until 30 August 2006 when she transferred all her shares to a BVI company which is substantially owned by her.
9. Edward Chow (“Chow”) was also a shareholder and director of Haixin Yu Gar at all material times until 9 November 2004.
10. At all material times Krizia S.p.A (“Krizia”) was and is the owner of, inter alia, the trademark “BASIC by KRIZIA” later known as “B. by KRIZIA” (“the trademark”). Krizia at all material times was and is a corporation existing under the laws of the Republic of Italy with its registered office in Milan.
11. Osti at all material times was and is the founder and majority shareholder of Fashion’s Group S.R.L. (“Fashion’s Group”). The other shareholders are her sisters. Fashion’s Group is and was the agent of a number of well-known fashion companies including Missoni, Trussardi and Krizia.
12. At all material times, Fashion’s Group was the agent of Krizia in, inter alia, Hong Kong and the PRC. Fashion’s Group was also the agent of GSC in its dealings with Krizia.
13. Krizia is a well known fashion house in Milan, Italy with different fashion lines. The line of products marketed and sold under the trademark is one of many lines of products sold under different marks and labels of Krizia. Krizia has been using its well known main line KRIZIA trademark or brand name on products prior to using the trademark.
14. Under a licence agreement entered into between Krizia and GSC dated 18 April 1994 (“the master licence”) GSC obtained from Krizia the exclusive right and licence to use the trademark in South East Asia and the Far East on all products designed or approved by Krizia and manufactured and sold by or for the account of GSC.
15. By an agreement in writing dated 27 January 2004 made between GSM and Haixin Yu Gar (“the sub-licence”) GSM granted to Haixin Yu Gar a sub-licence to use the trademark in connection with the manufacturing, distribution, marketing, advertising and sale of the products set out therein within Macau and the People’s Republic of China (“the PRC”). Haixin Yu Gar agreed to pay to GSM the royalties as set out therein.
16. By a deed of joint and several guarantee also dated 27 January 2004 (“the deed”) Or and Chow jointly and severally agreed to guarantee the punctual performance of all the obligations of Haixin Yu Gar under the sub-licence and to indemnify GSM against any cost, loss, damage, expense, claim and liability of whatever kind resulting from or in connection with the non-payment of royalties or other moneys payable under the sub-licence or the non-performance of the obligations of Haixin Yu Gar under the sub-licence.
17. Under the sub-licence Haixin Yu Gar was obliged to pay the total guaranteed minimum royalties of US$750,000 for the first, second and third contract years payable as follows :
(1) US$60,000 within 1 month of signing of the sub-licence but not later;
(2) US$140,000 on or before 1 September 2004;
(3) US$125,000 on or before 30 September 2005;
(4) US$125,000 on or before 30 March 2006;
(5) US$150,000 on or before 30 September 2006;
(6) US$150,000 on or before 30 March 2007.
18. Up to September 2004 Haixin Yu Gar had made the first two payments of guaranteed minimum royalties under the sub-licence. However, the third payment of US$125,000 which was due and payable on 30 September 2005 was not paid by Haixin Yu Gar.
19. By letter dated 3 March 2006 (“the letter of termination”) from GSM’s solicitors to Haixin Yu Gar’s solicitors, GSM exercised its right of termination of the sub-licence by accepting Haxin Yu Gar’s repudiation of the sub-licence.
20. GSC and GSM jointly claim against Haixin Yu Gar and Or the loss and damage as particularized in the voluntary particulars of the amended statement of claim dated 20 January 2010 with interest and costs.
21. Haixin Yu Gar and Or deny that they are liable as alleged.
22. Haixin Yu Gar also counterclaims against GSC and GSM for rescission of the sub-licence, the return of the royalties paid and damages with interest and costs.
23. By order of Master Lung dated 19 April 2007 it was ordered, inter alia, that High Court Action No. 595 of 2006 and High Court Action No. 2833 be consolidated and carried on as one action.
24. At the pre-trial review on 9 December 2010 it was ordered, inter alia, that if Haixin Yu Gar succeeds on its counterclaim at trial, the issue of damages on the counterclaim should be separately assessed by a master.
25. The agreed list of issues are :
(1) Whether GSC had at all material times the right, power and/or authority to sub-license the trademark to third parties pursuant to the master licence including to sub-license to Haixin Yu Gar through GSM as its authorized agent;
(2) Whether by agreement between Krizia and GSC on or around 3 October 2001, GSC was granted an irrevocable option (“the option”) to renew the master licence for a period of 5 additional years from 31 December 2006, to be noticed within 6 months from the date of termination of the sub-licence and that such option has been duly exercised by GSC by letter dated 20 June 2006;
(3) Whether by the undated letter of appointment (“the letter of appointment”):-
(i) GSM was granted by GSC the sole and exclusive right as master licensee to distribute, market, advertise, promote, sell, franchise, wholesale and retail the products bearing the trademark in the PRC, Taiwan and other countries in the Far East except Japan and Korea (“the territory”); and
(ii) GSM was granted by GSC the right to sub-license to any third party, including Haixin Yu Gar, within the territory, subject to the consent of GSC;
(iii) GSM was appointed by GSC as the authorized agent of GSC in its sub-licensing business in Hong Kong and the PRC;
(iv) Whether the letter of appointment came into existence in or about November 2003 or some time later in or about February 2005;
(4) Whether by the sub-licence GSM had validly granted Haixin Yu Gar a sub-licence in accordance with the terms of the sub-licence, in particular, clauses 3, 4 and 17 thereof;
(5) Whether the sub-licence contains an oral express term that GSM had the right from Krizia to, and would, sub-license the trademark to Haixin Yu Gar for a period of at least 3 years and an additional 3 years option starting from mid-October 2004 (“the oral express term”);
(6) Whether the sub-licence further contains an oral conditional term that upon signing the sub-licence GSM would immediately produce the master licence to Haixin Yu Gar and Or (“the oral conditional term”). Alternatively, whether GSM has expressly indicated to Haixin Yu Gar and Or that the master licence could not be shown to Haixin Yu Gar and Or, as it is confidential between GSC and Krizia;
(7) Whether Haixin Yu Gar was induced by and/or had relied on the oral express term and/or the oral conditional term in entering into the sub-licence;
(8) Whether the deed is subject to an oral condition (“the condition”) that the deed was to be of a limited duration until Haixin Yu Gar completed its pending corporate restructuring and had increased assets, and that after such corporate restructuring, Or would be released from the deed;
(9) Whether the deed is a contract of indemnity under which Or is primarily liable as indemnifier unconditionally and irrevocably to GSM. Alternatively, whether it is a contract of guarantee subject to the terms of the sub-licence and the condition;
(10) Whether prior to GSM and Haixin Yu Gar entering into the sub-licence GSM was made aware that:-