Leiola Group Ltd v Aho [2015] TOSC 44; CV56.2015 (8 October 2015)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU'ALOFA REGISTRY

CV 56 of 2015

BETWEEN:

LEIOLA GROUP LIMITED
Plaintiff

AND:

CHERRIE 'AHO trading as Goshen Custom Broker
Defendant

BEFORE LORD CHIEF JUSTICE PAULSEN

Date of Hearing: 6 October 2015
Date of Ruling: 8 October 2015

Counsel: Mr. W. Edwards for the plaintiff
Ms. L. Tonga for the defendant

RULING

[1] On 23 September 2015 I granted the plaintiff ex parte interim orders which included an order restraining the defendant, her agents, servants and employees from taking custody of, printing, manufacturing, importing, distributing, advertising, selling or otherwise parting with possession or dealing with in any way whatsoever, any counterfeit or copied goods or apparel that uses or has printed on it the Tonga Rugby Football Union logo, the Kukri brand name and/or the IRB mark. I granted the defendant leave to apply to discharge the Orders on 48 hours notice. The defendant did so apply and the matter came before me for hearing on an urgent basis on 6 October 2015.

[2] With the benefit of further evidence from the plaintiff, evidence from the defendant and legal submissions of Counsel I have formed the clear view that the interim orders must be discharged. I now set out my reasons but given the urgency of the matter from the parties' perspective and their desire for an immediate decision this ruling is necessarily brief.

The facts

[3] The plaintiff is an importer, retailer and wholesaler in the duty free market but also with one major retail store in central Nuku'alofa. The plaintiff's case has developed since the interim orders were made but its single cause of action against defendant was then and remains the tort of passing off.

[4] The plaintiff alleges that pursuant to a written agreement dated 30 August 2011 it was granted an exclusive license by the Tonga Rugby Football Union Inc to be its agent in Tonga to sell its goods and apparel including the uniform worn by the Tongan National Rugby Team at the 2015 Rugby World Cup but also other items designed by its current and former contracted manufacturers. Whilst the term of the agreement was initially until 30 June 2014 the plaintiff says that it has been extended by agreement with the Tonga Rugby Football Union Inc as contemplated by clause 2.4 of the agreement.

[5] The plaintiff became aware from the Facebook page of one of the defendant's employees that the defendant was intending to sell Tonga Rugby Football Union apparel to mark the World Cup. Two employees of the plaintiff were sent to the defendant's premises to investigate on 9 September 2015 and although there was no Tonga Rugby Football Union apparel on display they were told that a large shipment was arriving later that week for sale. Based on photos that appeared on Facebook, the information obtained by its employees and enquiries that it made of the Tonga Rugby Football Union the plaintiff filed these proceedings seeking an ex parte injunction in the first instance, alleging that the defendant was passing off her goods as genuine Kukri and authorised Tonga Rugby Football Union apparel, when it was not. I understand that Kukri is presently the official manufacturer of the Tonga Rugby Football Union jerseys although in the recent past there have been other manufacturers and jerseys have been made under the Kooga and Aoniu brands.

[6] The plaintiff pleaded in its statement of claim that the defendant was not entitled to utilize the Tonga Rugby Football Union logo, the brand name Kukri, the IRB and associated World Cup marks nor was she entitled to pass off her goods and apparel as authentic Tonga Rugby Football Union apparel for a profit. It was further alleged that as a result of the defendant's actions the plaintiff had and would continue to suffer loss; such loss represented by a loss of sales of official Tonga Rugby Football Union rugby apparel from its stores. It was said that this would also impact upon royalty payments to the Tonga Rugby Football Union.

[7] In applying to set aside the injunctive orders of 23 September 2015 the defendant challenged the plaintiff's right to bring this action and also argued that the apparel in issue was manufactured and was being sold pursuant to a partnership agreement between the Tonga Rugby Football Union and one Angus Naupoto, trading as Ultimate Traders, pursuant to which Ultimate Traders had been appointed as the Tonga Rugby Football Union's merchandising provider for the remainder of 2015.

[8] In an affidavit of Hailame Minoneti, an employee of Ultimate Traders, it was stated that the design, pattern and logos shown on the jerseys sold by Ultimate Traders to the defendant were approved by the Tonga Rugby Football Union. He said "That ....the design, pattern and logos as shown on the jerseys imported by the [defendant] was approved by TRU." He annexed to his affidavit a letter of 28 August 2015 from the Tonga Rugby Football Union signed by the Interim CEO, Talanoa Fuka Kitekei'aho, which states, "It is advised that TRU has entered into partnership with Ultimate Traders as merchandising provider for our kit for rest of 2015".

[9] For completeness, I should add at this point that none of the apparel that the defendant has sold or wishes to sell bears the Kukri brand. However, the plaintiff alleges that the apparel is still counterfeit as copying the Kukri design. This now appears to be its main argument. In her second affidavit of 6 October 2015 Ms Lucy Tonga put the plaintiff's case this way, at paragraphs [16] and [24]:

[16] The point of these proceedings is that Ultimate Traders has admitted the import of jerseys, which are misleading and deceptive and effectively copies of the Kukri design worn by the Tongan National Team at the 2015 World Cup. They are passing off to the public that these are authentic Tonga Rugby Union apparel being worn at the Rugby World Cup when in fact they are not being worn at the 2015 World Cup.

[24] I say that the rights to the uniform is becoming a major issue in these proceedings. However, it is our case that the Defendant has no right to sell counterfeit apparel, which has been copied from the authentic Kukri jersey being worn by the Tonga National Team at the 2015 Rugby World Cup.

Passing off

[11] Most recently in Starbucks (HK) Limited and anor v British Sky Broadcasting Group PLC and ors [2015] UKSC 31 Lord Neuberger noted the three things that a plaintiff must establish to succeed in a passing off action as follows:

15. As Lord Oliver of Aylmerton explained in Reckitt & Colman Products Ltd v Borden Inc [1990] UKHL 12; [1990] 1 WLR 491, "[t]he law of passing off can be summarised in one short general proposition – no man may pass off his goods as those of another". As he immediately went on to say, a claimant, or a plaintiff as it was then, has to establish three elements in order to succeed in a passing off action:

"First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying 'get-up' (whether it consists simply of a brand name or a trade description, or the individual features of labeling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff's goods or services. Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff. Whether the public is aware of the plaintiff's identity as the manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff ... Thirdly, he must demonstrate that he suffers or ... that he is likely to suffer, damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or services is the same as the source of those offered by the plaintiff."

[12] For the purposes of this application I accept this as a correct statement of principle.

Interim injunctions

[13] The principles to be applied by the Court in deciding whether to issue or refuse an interim injunction were set out in American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 and applied in New Zealand in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA) and in Tonga most recently in Friendly Islands Satellite Communications Limited v Pohiva and ors (AC 14 of 2015, 16 September 2015 CA).

[14] In order to secure an injunction a plaintiff must show that there is a serious question to be tried (in the sense that the plaintiff has made out a prima facie case) and that the balance of convenience favours the granting of the injunction. The Court will look at the impact on the parties of the granting or the refusal of an order. Finally, an assessment of the overall justice of the case is required. If it can be shown that a plaintiff will be adequately compensated in damages and will suffer no irreparable injury if the injunction is not granted that is an important factor against the making of an order. However, the grant of an interim injunction involves the exercise of a discretion not a rigid or mechanical approach.

Is there a serious question to be tried.

[15] As the quotation from the Starbuck's case, to which I have referred above, makes clear the true basis of the tort of passing off is that the passing off injures the plaintiff's right of property being specifically the goodwill attaching to his business. For that reason the first thing a plaintiff must prove is ownership of relevant goodwill. In my view the plaintiff's claim falters at this very first hurdle.

[16] In Dominion Rent A Car v Budget Rent A Car [1987] NZCA 13; [1987] 2 NZLR 395, 420 Somers J said:

One important limitation on the right of a trader to restrain another is that he must show an invasion of that tangible right of property compendiously described as goodwill ... The existence of a trading reputation is not by itself sufficient – there can be no damage other than to a right of property...

[17] The main argument advanced by the plaintiff was that the apparel sold by the defendant is counterfeit because it is a copy of a Kukri design thereby infringing Kukri's copyright. If this is so it is Kukri and not the plaintiff that has a right of action. In his affidavit for the plaintiff at paragraph [12] Mr. John Chapman states that the design of the apparel that the defendant wishes to sell "infringes the copyright of Kukri". The plaintiff has no proprietary interest in Kukri's copyright and in fact no relationship with Kukri other than as a purchaser of its goods for resale. It has no goodwill derived from Kukri's copyright nor a right to sue on Kukri's behalf. Similarly, the plaintiff has no proprietary interest in the logos of the IRB or the Rugby World Cup.

[18] The plaintiff also says it is an exclusive licensee of the Tonga Rugby Football Union under the agreement of 30 August 2011 which agreement has been extended. Assuming for present purposes that the agreement has been extended (and the evidence before me was less than convincing on that point) the agreement creates no property rights enforceable by the plaintiff. Under the agreement all the Tonga Rugby Football Union granted the plaintiff was a license to use the Ikale Tahi logo for the purpose of "producing, importing, promoting and selling rugby associated clothing lines and accessories containing the logo which are approved by TRUA beforehand". I note that in this case there is no suggestion that the plaintiff exercised any such rights other to import and sell clothing.

[19] The question that arises is how do the terms of the agreement confer on the plaintiff a property right in the goodwill attached to the Ikale Tahi logo entitling it to restrain the defendant from selling its goods? I cannot see that it does. The purpose of the agreement is to license to the plaintiff the right to use the distinctive Ikale Tahi logo in relation to the sale of sports apparel. The use of the Ikale Tahi logo by the plaintiff without the Tonga Rugby Football Union's permission would otherwise be actionable at the suit of the Tonga Rugby Football Union as a passing off. In the absence of agreement to the contrary or other supervening factors (that are not applicable here) the goodwill of a business carried on by a licensee will accrue to the licensor rather than the licensee. The licensee will acquire no interest in the licensor's name or mark or brand and must cease using it on termination of the license. See Roberts v Davis (1935) 53 R.P.C 79, Manus v Fullwood & Bland (1949) 66 R.P.C 71 (CA) and Dawnay Day v Cantor Fitzgerald [2000] R.P.C. 669. It follows that the agreement between the Tonga Rugby Football Union and the plaintiff created no more than contractual rights and obligations between those parties. It did not transfer to the plaintiff any goodwill in the Ikale Tahi logo to the plaintiff. This is made clear by the terms of the agreement itself which provide at clause 3.3 "By entering this Agreement, Leiola does not attain any interest in the Logo". The goodwill associated with the Ikale Tahi logo clearly remains the property of the Tonga Rugby Football Union and not the plaintiff. See in this regard Thai World Import & Export Co Limited v Shuey Shing Pty Limited [1989] FCA 490; Richards v Butcher [1891] UKLawRpCh 82; [1891] 2 Ch 522, Dental Manufacturing Co v de Trey [1912] 2 K.B. 76 and J. H Coles Pty Limited v Need [1934] AC 82.

[20] I do note that clause 6.1 of the agreement contemplates that the plaintiff may bring claims based on "any unauthorized attempt by any person to use the Logo". One can contemplate a number of ways in which this power may be exercised but it does not create a right to bring an action for passing off, which is the only claim made, because to found such a claim the plaintiff must first establish ownership of goodwill attaching to the use of the Logo and the plaintiff has none. It may be that the Tonga Rugby Football Union, Kukri or the IRB do have rights of action against the defendant or Ultimate Traders. That is a matter upon which I offer no comment. But in the context of this suit where injunctive relief is sought this claim lacks the proper plaintiff.

[21] The plaintiff having failed to establish a relevant property right upon which to base its action in passing off it cannot establish the second and third requirements of the cause of action referred to in the Starbuck's case. Had I been required to decide the point I would hold that based on what is before me, in no sense can it be said that the defendant has misrepresented to the public that the apparel it is offering for sale are the goods of the plaintiff.

Balance of convenience

[22] In case I am wrong in my findings above I turn now to consider the balance of convenience. I find the balance of convenience favours the defendant.

[23] The only harm that the plaintiff has suggested that it will suffer should the defendant not be restrained from selling its apparel is from lost sales. It argues that it is unable to compete with the prices at which the defendant offers its apparel for sale because it has had to purchase its goods from Kukri whereas the defendant's product was manufactured in China at much less cost. I have been referred to the fact that the plaintiff has purchased many more rugby jerseys than the defendant (1,315 vs. 55) and has a far greater investment in its product (around $100,000) and accordingly greater risk. Whilst at first glance this argument has some attraction, on further consideration I do not find it compelling. The plaintiff's worst case scenario is that for every sale the defendant makes it will lose a sale. But the defendant has very few jerseys to sell (it has just 32 in its possession) and so the sale of those jerseys will have little impact on the plaintiff's ability to clear its stock. Furthermore, it appears to me that the plaintiff and the defendant are selling to different markets. Whilst I accept that the plaintiff has a retail outlet in Nuku'alofa its principal business is in the sale of duty free goods to travelers. By comparison the defendant is selling its less expensive goods from its premises at Ma'ufanga and is clearly targeting the local market.

[24] The plaintiff also argues that it had provided finance to the Tonga Rugby Football Union in excess of $30,000 "on the understanding that we would formalize key agreements relating to Leiola being an exclusive distributor of Tonga Rugby Union affiliated clothing..." and "in exchange for further formalizing agreements towards an extension of the exclusive agreements" (see paragraph 7 of Mr John Chapman's affidavit.) I do not consider this takes matters very far as it appears that if debt was forgiven it occurred in 2013 and well before the events that gave rise to this proceeding. This is not a loss the plaintiff will suffer should I refuse to restrain the defendant. Furthermore, Mr Chapman produced an email between himself and what I understand are members of the Tonga Rugby Football Union proposing that members of the PFIL Group of companies (and not just the plaintiff) would forgive debt owed by the Tonga Rugby Football Union in return for the plaintiff to be the exclusive supplier of Kukri gear. The apparel the defendant is selling was not manufactured by Kukri and does not carry that brand. The terms Mr Chapman was proposing required that Kukri approve the plaintiff's exclusive agency in Tonga, which clearly never happened.

[25] Another matter that influences me is that as what the plaintiff is concerned about is lost sales, damages will clearly be a sufficient remedy and given the relatively small number of jerseys that the defendant has to sell there should be no question that she will be unable to pay damages should the plaintiff pursue its action to a successful conclusion.

[26] A further factor is that both the plaintiff and the defendant seek to take advantage of the Rugby World Cup to sell their product. Unfortunately the window of opportunity to do so is very small given Tonga's failure to qualify for the next round of the World Cup and to restrain the defendant will effectively settle this action. I do not think it appropriate to restrain the defendant in those circumstances, rather if the plaintiff wishes it I would accommodate its interests by ordering a speedy trial.

[27] Both parties sought to persuade me that there are public interest concerns that I should take into account. For the plaintiff Mr. Edwards suggested that the Court should make it clear that trading in counterfeit goods will be treated harshly by the Courts. Ms Tonga argued that I should be concerned for free enterprise and the public's right to buy goods of its choosing at the lowest possible cost and to enjoy and support the national rugby team. I have not been moved by these arguments. These considerations are already reflected in the law of passing off which, as was noted by Somers J the Dominion Rent a Car case at page 116, provides a compromise between the conflicting objectives of the public interest in free competition and the rights of trader against unfair competition by others.

The overall justice of the case

[28] Standing back and looking at the matter as a whole I consider the overall justice favours me making an order discharging the interim injunction. The plaintiff's case is not strong. It appears that the defendant has acted throughout in good faith. Based on the information that is before me the harm the plaintiff will suffer is not significant (reflected in lost sales only) and it can be fully compensated in damages.

The result

[29] The interim injunctive orders made by this Court on 23 September 2015 are discharged

[30] The parties are to file memoranda as to costs on this application within 21 days.

[31] If the plaintiff wishes to have this case dealt with on an urgent basis it should apply to have the case called for urgent directions.

O.G. Paulsen
LORD CHIEF JUSTICE
8 October 2015

NUKU'ALOFA.