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Guangzhou Green-enhan Bio-engineering Co Ltd And Another v Green Power Health Products International Co Ltd And Others

Judgment Cited authorities 20 Cited in Precedent Map Related
Vincent
Judgment Date08 April 2005
CourtHigh Court (Hong Kong)
Judgement NumberHCA2802/2003
Subject MatterCivil Action
HCA004651F/2002 GUANGZHOU GREEN-ENHAN BIO-ENGINEERING CO LTD AND ANOTHER v. GREEN POWER HEALTH PRODUCTS INTERNATIONAL CO LTD AND OTHERS

HCA 4651/2002
HCA 2802/2003
HCMP 74/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4651 OF 2002, 2802 OF 2003 and

MISCELLANEIOUS PROCEEDINGS NO. 74 OF 2004

____________

BETWEEN

　 GUANGZHOU GREEN-ENHAN BIO-ENGINEERING CO. LTD
廣州綠色盈康生物工程有限公司
(formerly known as 廣州綠色食品工程有限公司
and 廣州綠色食品工程公司）		 1st Plaintiff
SUN YAT-SEN UNIVERSITY
中山大學		 2nd Plaintiff
and
GREEN POWER HEALTH PRODUCTS INTERNATIONAL CO. LIMITED
天維健康產品國際有限公司		 1st Defendant
CHUNG CHEE KEUNG 鍾志強
(also known as Chung Chee Keung, Peter 鍾志強)		 2nd Defendant
EHHAN TECHNOLOGY HOLDINGS INTERNATIONAL COMPANY LIMITED
盈康科技控股國際有限公司		 3rd Defendant

____________

(The Consolidated Action)

Before: Hon Lam J in Court

Dates of Hearing: 5, 6, 7, 8, 9, 12, 13, 14, 15, 16, 19, 20, 21, 22 & 23 July 2004; 21, 30 & 31 August 2004; 1, 2, 6, 7, 8, 9, 10, 13, 14, 15 & 16 September 2004; 8, 9, 10, 11, 12, 15, 16 & 17 November 2004 and 20 & 21 December 2004

Date of Last Written Submissions: 24 February 2005

Date of Judgment: 8 April 2005

______________

J U D G M E N T

______________

Background

1. The 2nd Plaintiff in this consolidated action is a university in Guangzhou and has been incorporated since 1924. In 1991, it set up a Food Engineering Research Centre [“FERC”]. In 1995, the State Ministry of Education of the People’s Republic of China issued a document 教技 [1995] 27 号 (at Trial Bundle C81) converting the centre into an institute called “國家教委食品工程研究中心” (Food Engineering Research Centre of State Education Ministry) and appointing Liu Xin [“Liu”] as the head of the centre. The effect of that document is a subject matter of dispute between the parties. The 2nd Plaintiff said the centre remained part of the 2nd Plaintiff. The Defendants said it became a new legal entity.

2. The works of FERC consisted mainly of advanced scientific and technological research in life science and food science. There is a booklet at Trial Bundle C89 introducing FERC and the fruits of its research and their practical applications. A landmark achievement of FERC was a technology called “germination activated ganoderma lucidum spore and fully sporoderm broken technology” (萌動激活赤灵芝孢子及孢壁全破壁碎裂技術). Since this judgment is not intended to be a paper on scientific research, I think it is not necessary for me to set out the theory and details in respect of this technology despite Liu had spent some time in his evidence explaining what this is about. Suffice to say in layman’s term, the technology would enhance the health and healing effect of lingzhi. “萌動激活” and “全破壁” were expressions subsequently used in the commercial products sold by the 1st Plaintiff.

3. In order to facilitate commercial exploitation of the fruits of the research of FERC, the University set up the 1st Plaintiff in 1993. Its shareholders were the 2nd Plaintiff (62.99%), Science and Technology Development Centre of the State Ministry of Education of the People’s Republic of China (21.92%) and Liu (15.09%). The 1st Plaintiff has an exclusive licence from the 2nd Plaintiff regarding the latter’s intellectual property rights and has the exclusive right to manufacture and market products incorporating the 2nd Plaintiff’s inventions.

4. One of the products of the 1st Plaintiff was lingzhi spore powder (靈芝孢子粉) capsule. Since it is a health supplement product, a permit was required before the capsule could be produced and marketed for public consumption. The permit for the capsule was issued by the health authority in Guangdong Province, 廣東省衞生廳 in 1997. The permit was produced as exhibit P-14, 粤衛食健字[1997] 209 号. At the beginning, the capsules were marketed under the brand names 故乡牌, Hometown and Hometown Food.

5. The spore powder was first sold in Hong Kong under the brand name Hometown Food through a trader called Lam Po Sing who procured the same to be sold at various China Resource Limited (華潤) retail outlets. There were also earlier sales in small quantities through a Japanese in Cheung Chau. The Plaintiffs were keen to develop other sales network. Liu had discussions with a number of potential traders who might be interested in the product. In particular, several tests on the products had been done at the request of a Mr Cheng. At one stage Liu was optimistic that Cheng would make a substantial investment into the product and the 1st Plaintiff had therefore done a lot works on the same. Unfortunately, the discussion with Mr Cheng fell through at the second half of 1998. Liu therefore needed to find another interested investor.

6. The 2nd Defendant is an orthodontist by profession. He came to know about Liu and FERC through the introduction of Wu Xiao-Lan, the wife of a vice mayor of Shenzhen. There are disputes between the parties as to the circumstances and timing under which they were introduced to each other. The Plaintiffs said that happened in the end of 1998 whilst the Defendants said it occurred in the Chinese New Year of 1998. It is not disputed that there were active negotiations between the parties in January and February 1999. By an agreement concluded in February 1999 the 1st Defendant agreed to act as distributor of the lingzhi spore powder produced by the 1st Plaintiff. The 1st Defendant was a company acquired by the 2nd Defendant and his associates in July 1998 (as shown by the annual return filed in July1999). Apart from the 2nd Defendant and his wife Tong Siu Kan [“Tong”], the other persons involved included the cousin of the 2nd Defendant, Cheung Kwok Keung, and his friend Cheung Yin Fung [“CYF”] and one Lam Ky Quang. Tong was only officially registered as director and shareholder in April 1999. According to the annual return of 2003, the shareholders of the 1st Defendant as at 8 June 2003 were the 2nd Defendant, Tong, CYF and a BVI company called River Silk Development Ltd.

7. The agreement was executed in writing between FERC and the 1st Defendant. The 1st Plaintiff also executed the agreement as the manufacturer. There is a dispute as to whether the 2nd Plaintiff could enforce the agreement. The product was referred to in the agreement as “天維牌包装銷售純灵芝孢子粉膠囊”. The agreement was for a duration of three years, from 1 February 1999 to 31 January 2002. Subsequently, two more agreements were executed with adjustments in the price structuring.

8. The 1st Defendant marketed the lingzhi spore powder in Hong Kong under the brand names ENHANVOL 盈康活. Later on, the parties extended their business to a lingzhi tea product sold under the brand names ENHANTEA 盈康茶. The terms of distributorship were set out in another Chinese agreement dated 10 May 1999. Like the case of ENHANVOL, two agreements were executed subsequently adjusting the price structuring.

9. There was also another agreement dated 13 February 1999 between FERC, the 1st Plaintiff and the 1st Defendant. I will adopt the nomenclature of the Plaintiffs in the pleadings and call this the Collaboration Agreement. It is common ground that this was not executed on 13 February 1999 but there is dispute as to the date of its actual execution. More precisely, the dispute is as to the sequence in which this agreement was executed as compared with the distributorship agreements mentioned above. The Plaintiffs said the Collaboration Agreement was executed before the ENHANTEA distributorship agreement, the Defendants said it was executed after the same.

10. In the second half of 2001, a new product of the 1st Plaintiff was launched in Hong Kong by the 1st Defendant. The product was lingzhi lipid in capsule. It was marketed by the name ENHANOID. As regards the Chinese name, it was initially called 盈康力. Subsequently, it was changed to 盈康孢子油. There is dispute as to whether the name 盈康力 had ever been used for marketing in Hong Kong.

11. In parallel with the sale of these products by the 1st Defendant in Hong Kong, the 1st Plaintiff marketed the same in mainland China under different packaging. Various brand names were used on lingzhi spore powder capsules by the 1st Plaintiff including Hometown, 故鄉牌, Guru, 學者. The English name ENHANVOL had also been used together with the Chinese name學者灵芝. However, the name盈康活 was not used for products sold in mainland China. As regards盈康茶 and ENHANTEA, the evidence before me is not clear as to whether the tea had been sold under these names in mainland China. As regards ENHANOID and盈康孢子油, in the manual (Bundle V, p.94) contained inside the mainland packing, the product was also referred to as 學者牌灵芝孢子脂質精華膠丸. That manual referred to the tea product as故鄉牌灵芝茶 (at V97).

12. After the expiration of the distributorship agreements, the parties could not reach agreement on the renewal. The relationship between the parties worsened and the Plaintiffs claimed that the 1st Defendant had been in substantial arrears in payment for goods supplied by the 1st Plaintiff. As shown in exhibit P4-A, the last batch of spore powder was delivered by the 1st Plaintiff to the 1st Defendant on 29 June 2002 whilst the last batch of lingzhi lipid was supplied by the 1st Plaintiff to the 1st Defendant on 18 September 2002.

13. By a letter dated 5 October 2002 [Bundle S, p.63], the 1st Plaintiff reminded the 1st Defendant that upon termination of the relationship between the parties, without the consent of the 1st Plaintiff, the 1st Defendant had no right to use the trade names and trade marks of the 1st Plaintiff including ENHANVOL, ENHANOID and 盈康活. The 1st Defendant continued to sell products under those names after that letter. Since there was outstanding stock previously supplied by the 1st Plaintiff, the 1st Defendant did not consider the clearance of such stock to be objectionable.

14. In about late...

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