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Paul’s Model Art Gmbh v U.t. Ltd And Others

Judgment Cited authorities 19 Cited in Precedent Map Related
Vincent
Judgment Date30 August 2013
Year2013
Judgement NumberHCA1501/2000
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA1501D/2000 PAUL’S MODEL ART GMBH v. U.T. LTD AND OTHERS HCA1501D/2000 PAUL’S MODEL ART GMBH v. U.T. LTD AND OTHERS HCA1501D/2000 PAUL’S MODEL ART GMBH v. U.T. LTD AND OTHERS HCA1501D/2000 PAUL’S MODEL ART GMBH v. U.T. LIMITED AND OTHERS

HCA 1501/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1501 OF 2000

____________

BETWEEN
PAUL’S MODEL ART GMBH(formerly known as PAUL’S MODEL ART GMBH & CO KG) Plaintiff

and
U.T. LIMITED 1st Defendant
KWAN YUET MING 2nd Defendant
LAM WAI TONG 3rd Defendant
GATEWAY GLOBAL LIMITED 4th Defendant
GATEWAY GLOBAL (H.K.) LIMITED 5th Defendant
____________
(by Original Action)
AND BETWEEN
U.T. LIMITED Plaintiff

and
PAUL’S MODEL ART GMBH(formerly known as PAUL’S MODEL ART GMBH & CO KG) 1st Defendant
PAUL GUNTER LANG 2nd Defendant
____________
(by Counterclaim)
Before: Hon Chung J in Court
Dates of Hearing: 10 to 11, 14 to 18, 21 to 25 and 28 January and 27 February 2013
Dates of Further Submissions: 18 and 20 June 2013
Date of Handing Down Judgment: 30 August 2013

_______________

J U D G M E N T

_______________

INTRODUCTION

1. The plaintiff commenced this action in February 2000 for (i) breach of agreement by some of the defendants, and (ii) inducement of its breach by the other defendants (summarized in para 25 to 26 below). The defendants deny the claim and allege instead that the plaintiff (and another) breached the agreement. The dispute in this action arose out of the sale of collectible die-cast models (mainly cars and motorcycles) and related products.

THE PARTIES AND THEIR RELATIONSHIP

2. Before dealing with the dispute, to facilitate the comprehension of this judgment, the relevant parties are:

(a) the plaintiff (also the 1st defendant by counterclaim) (“Paul’s Model Art”) was a company incorporated in Germany and operated primarily by a German national, Paul G Lang (the 2nd defendant by counterclaim) (“Lang”);

(b) the 1st defendant (also the plaintiff by counterclaim) (“UT Ltd”) was a company in Hong Kong and operated by the 2nd defendant (“Kwan”). UT Ltd owns (or controls) a Mainland company, Dongguan Unique Toys Co Ltd (“Dongguan UT”);

(c) besides operating UT Ltd, Kwan also owned and controlled Trendy Holdings Ltd (“Trendy”) which owned and controlled the Davidson group of companies (in particular, Davidson Ltd in Hong Kong, and Dongguan Davidson in the Mainland), Trendy also owns 40% of the shares of the 4th defendant (“Gateway Global”), a BVI company. Gateway Global has several subsidiaries (for convenience, they will be called: Gateway Europe (a German company), Gateway Florida and Gateway California (both US companies), Gateway UK (a UK company) and Gateway Canada (a Canadian company));

(d) the 3rd defendant (“Lam”) was the other shareholder of UT Ltd (until 21 August 1998 (see also para 25(b)(1) below));

(e) the 5th defendant (“Gateway HK”) is also a Hong Kong company effectively owned by Gateway Global.

In the paragraphs below, UT Ltd, Kwan and Lam will collectively be called “the JV defendants” while Gateway Global and Gateway HK will collectively be called “the Gateway defendants”.

3. It is common ground:

(1) Lang and Kwan began their business relationship in 1992 when Lang started to engage Kwan’s company to make moulds for die-cast models;

(2) their business cooperation became closer in 1994 when Lang and Kwan started two Hong Kong joint-venture businesses, UT Models Ltd (“UT Models”) and Minichamps Hong Kong (marketing and distribution);

(3) the parties also signed what for convenience can be called “the 1994 agreement”. Details concerning the 1994 agreement will be discussed below;

(4) since then, Kwan also became involved in the sale and distribution of the said models through UT Models (besides being involved in the production of die-cast models);

(5) the product brand names were (i) various brands sold by Paul’s Model Art, and (ii) “UT Models” sold by UT Models.

(UT Models and Minichamps Hong Kong ceased business in December 1996)

4. Under the 1994 agreement:

(a) UT Ltd was to develop and manufacture models for only 5 companies (3 of which were Lang’s companies (including Paul’s Model Art), the other two being UT Models (the joint-venture company) and a yet-to-be set up US company);

(b) in return, the said 5 companies were to engage UT Ltd as their exclusive supplier of the models.

The products to be marketed under the 1994 agreement were set out in a schedule attached to it. This schedule has been relied on by the parties (see especially para 78 and 79 below) in the construction of the agreement entered into on 28 December 1996, the subject matter of this action (“the 1996 agreement”).

5. The parties differ as to what brought about the termination of the 1994 agreement and the beginning of a new business relationship pursuant to the 1996 agreement. This will be mentioned again below, but very briefly, the change was probably prompted by:

(1) their different perception as to who has benefited more from the business dealings under the 1994 agreement. From Paul’s Model Art’s perspective, Kwan and Lam has acquired from it better manufacturing knowledge and skill and better overseas sales and/or distribution connections. From Kwan’s/Lam’s perspective, their quality manufacturing process has enabled Paul’s Model Art’s business to prosper;

(2) the payment problem encountered by Paul’s Model Art in Europe which led to a substantial trading debt which it owed to Kwan/Lam in the period before the 1996 agreement.

SUMMARY OF PARTIES’ CASE

6. Paul’s Model Art’s case is in gist that:

“… the Defendants were involved in a scheme to establish, construct and operate a new corporate and distribution structure (with [Gateway Global] at the apex) to manufacture, market and distribute die-cast model cars in breach of [the 1996 Agreement] … and to conceal that from [Paul’s Model Art]” (para 2, plaintiff’s closing submissions).

7. On the other hand, the defendants contend in effect that Paul’s Model Art has construed the 1996 Agreement in an unduly wide manner. They contend that, upon a proper construction of the same, they were entitled to do what they did because any prohibition:

(1) was only brand-based (except in relation to the “non-competition” provision) so that there was no breach if Paul’s Model Art’s brands have not been used (para 12(1), D1-3’s opening submissions);

(2) only bound UT Ltd, so that Kwan and/or Lam were not prohibited to (and not prohibited from procuring or causing other companies to) manufacture, produce, distribute or sell the goods concerned as long as the same did not involve UT Ltd (para 7, D1-3’s closing submissions).

THE 1996 AGREEMENT

8. As stated above, the dispute in this action revolves around the 1996 agreement, in particular the parties’ respective production, sale and distribution rights therein (para 9(5) and (7) below). It was entered into between:

(i) Paul’s Model Art;

(ii) Lang;

(iii) UT Ltd;

(iv) Kwan;

(v) Lam.

Besides, the two joint-venture companies under the 1994 agreement (UT Models and Minichamps Hong Kong) were also contracting parties.

9. It is undisputed the 1996 agreement can be viewed as containing the following operative parts:

(1) cancellation of all previous agreements (this is directed primarily at the 1994 agreement) (clauses 2.1 and 2.2);

(2) dissolution of UT Models (clauses 3.1.1 and 3.3) and related consequential arrangements regarding the production moulds (clauses 3.1.2 and 3.1.3), licence agreements (clause 3.2) and payment obligations (clause 3.4 to 3.6) and right to use the “UT Models” brand (clause 3.7);

(3) dissolution of Minichamps Hong Kong (clause 4.1.1) and related consequential arrangements regarding the stock-in-trade (clause 4.1.2) and payment obligations (clauses 4.1.3 and 4.2);

(4) grant of licences/sub-licences between Paul’s Model Art and UT Ltd and related payment obligations (clause 5);

(5) provisions concerning the parties’ respective territorial:

(i) production and sale rights (clauses 6.8 to 6.11 and 6.14)); and

(ii) distribution rights (clauses 6.11 to 6.14),

for 10 years since the date of agreement (clause 6.1) and related provisions for moulds (clauses 6.2 to 6.6);

(6) personal obligations to ensure compliance (clauses 3.5, 3.6, 4.1.3 and 6.15);

(7) schedules specifying the products mentioned in the above clauses.

(As stated in para 3(2) above, UT Models (sub-para (2)) above and Minichamps Hong Kong (sub-para (3) above) were the joint-venture businesses under the 1994 agreement.)

10. The terms of the 1996 agreement which are important to the issues in this action are set out below.

11. Clause 6.1:

“The duration of the provisions of this Clause [6] shall be 10 years commencing from [28 December 1996] … ” (emphasis supplied).

Clause 6.8:

“UT Ltd. agrees that it will not manufacture, directly or indirectly, products which are in competition with the Products and products developed and produced by PMA during the continuance of Clause [6].

Until now PMA produced modelcars and modelbikes in various scales in high collector quality standard. Under the brandname -Minichamps- PMA is producing items listed in schedule [2] (the PMA-products).

UT Ltd./UT is producing and planning to produce items listed in schedule [2] (the UT Ltd. products).

PMA will not produce directly or indirectly, products which are in competition with the products and products developed and produced by UT LTD. referring to the UT-Program during the continuance of Clause [6].” (emphasis supplied).

12. Terms of the 1996 agreement concerning re-sales can be found in...

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