Kickapoo (Malaysia) Sdn Bhd and Another v The Monarch Beverage Co (Europe) Ltd

JurisdictionSingapore
CourtCourt of Appeal (Singapore)
JudgeChao Hick Tin JA
Judgment Date11 December 2009
Neutral Citation[2009] SGCA 63
Citation[2009] SGCA 63
Defendant CounselPonnampalam Sivakumar (Joseph Lopez & Co)
Plaintiff CounselR Chandran (R Chandran & Co)
Published date21 December 2009
Docket NumberCivil Appeal No 40 of 2009
Date11 December 2009
Subject MatterPassing off,Equity,Infringement,Trade Marks and Trade Names

11 December 2009

Judgment reserved.

Andrew Phang Boon Leong JA (delivering the judgment of the court):

Introduction

1 This is an appeal against a part of the decision of the trial judge (“the Judge”) in The Monarch Beverage Company (Europe) Ltd v Kickapoo (Malaysia) Sdn Bhd [2009] SGHC 55 (“the Judgment”) which relates to a finding of trade mark infringement under the Trade Marks Act (Cap 332, 1999 Rev Ed) (“the Act”) as well as passing off under the common law. The respondent, The Monarch Beverage Company (Europe) Limited (“Monarch”), is an Irish company and the registered proprietor of two trade marks under “non alcoholic beverages and juices” in class 32 of the Nice Classification. The trade marks are, respectively, (a) “Kickapoo Joy Juice” (TM No T86/05341I) and (b) “Kickapoo” (TM No T86/05246G) (“the Kickapoo Marks”). The first appellant, Kickapoo (Malaysia) Sdn Bhd (“KM”), is a Malaysian company that was granted an exclusive licence (“the Licence Agreement”) by Monarch’s predecessor – The Monarch Company Inc (“TMCI”) in 1996 to produce and sell “Kickapoo Joy Juice” in cans and polyethylene teraphthalate (“PET”) bottles. The second appellant, Kickapoo Beverage Pte Ltd (“KB”), is KM’s Singapore subsidiary which assisted KM in the sale of Kickapoo beverages in Singapore. KM also subsequently appointed Heng Sheng Company (“HSC”) as its sole distributor in Singapore, and HSC was later taken over by Heng Sheng Corporation Pte Ltd (“HSCPL”). The sale of Kickapoo beverages is extremely important to KM because it accounts for close to 95% of its total business.

2 The Kickapoo Marks were first registered in the name of TMCI which later assigned all its business and rights in the trade marks to Monarch. Consequently, Monarch also took over the Licence Agreement between TMCI and KM. Although TMCI originally intended its business relationship with KM to be a long lasting one, the relationship between Monarch and KM soured after Monarch took over the Kickapoo Marks from TMCI. Determined to end their business relationship, Monarch served six termination notices on KM between December 2001 and June 2005. KM rejected the notices and affirmed the Licence Agreement.

3 On 20 September 2002, Monarch gave HSC a licence to produce and sell Kickapoo beverages in Shanghai. There was little effort to penetrate the Shanghai market with these beverages; these beverages were, instead, imported into Singapore for sale. Just three days after the Shanghai licence was granted to HSC, Monarch informed KM on 23 September 2002 that from 1 October 2002, the price of beverage bases supplied by Monarch to KM would be raised from the current price of USD$66.25 per gallon to USD$602 per gallon. The 1,000% price increase made it impossible for KM to produce Kickapoo beverages economically. Monarch was, nevertheless, obliged to supply beverages bases to KM under the Licence Agreement and KM responded by ordering a year’s supply from Monarch, amounting to approximately 1,000 gallons at the old price of USD$66.25 per gallon. Despite this order of 1,000 gallons, Monarch supplied KM with only 200 gallons. Under the Licence Agreement, KM was only permitted to use beverage bases supplied by Monarch or from other approved sources. Facing a shortage of beverages bases, KM turned elsewhere, and ordered beverage bases from BevTech International, which was not an authorised source under the Licence Agreement. These unauthorised purchases were arranged by one Mr Joseph Norman Stutz (“Stutz”) who was familiar with the original Kickapoo recipe and who was part of the TMCI team in the 1990s. Stutz subsequently also arranged for KM to purchase beverages bases from other unauthorised sources, including Tropical International (Bahamas) Limited (which owned Kickapoo trade marks registered in Bahamas and Barbados). Stutz gave evidence that the beverage bases from these unauthorised sources were, in point of fact, the same as that produced and supplied to KM by Monarch.

4 Monarch soon suspected that KM was purchasing beverage bases from unauthorised sources as it had stopped supplying KM with beverage bases and the beverage bases that they had previously supplied to KM were near the end of their expiry dates. On 24 November 2004, officers from the Malaysian Ministry of Health raided KM’s bottling plant in Seremban, Malaysia. The officers found unauthorised beverage bases on the premises. Subsequently, on 15 June 2005, Monarch terminated the Licence Agreement under cl 18A(4), which conferred on Monarch the broad discretion to terminate the Licence Agreement immediately by written notice if KM substituted the beverages bases in any way. After Monarch terminated the Licence Agreement with KM, it appointed HSPCL (which had taken over the business of HSC (see also above at [1])) on 15 June 2005 as its bottler and distributor in the Singapore market. Interestingly, HSCPL also concurrently ceased to produce Kickapoo beverages in China under the Shanghai licence.

5 On 14 February 2005, in a trap purchase, Monarch’s representative bought a PET bottle and a can from a supermarket, which items bore the Kickapoo Marks as well as the names of KM and KB. It was stated on the beverage containers with respect to these particular items that the beverage was produced under the authorisation of “The Monarch Company”.

6 Based on the above facts, Monarch initiated an action against the appellants for trade mark infringement and passing off, on the ground that they had already terminated the Licence Agreement. KM, however, maintained that it was still Monarch’s licensee and counterclaimed against Monarch for breach of contract in not supplying beverage bases which KM had ordered (see above at [3]). KM also counterclaimed against Monarch and four other defendants under the tort of unlawful conspiracy, alleging that the latter had collectively conspired to run KM out of business and cause it damage.

The decision below

7 On the claim for trade mark infringement by Monarch, KM and KB did not plead any established defences to such infringement under the Act (see the Judgment at [29]) and the Judge rejected their defence to the effect that they were forced to use unauthorised beverage bases so as to mitigate their loss (see the Judgment at [31]). On the claim for passing off, the Judge agreed with Monarch that, by selling beverages with the Kickapoo Marks, KM and KB had represented that their goods were licensed by Monarch and thus deceived the public by not “convey[ing] the true picture” (the Judgment at [36]). The elements of goodwill and damage under passing off had also been proved.

8 In so far as the counterclaims by KM and KB were concerned, the Judge held that the claim for breach of contract was made out because Monarch had unreasonably refused to supply 800 gallons of beverage base to KM, when the latter had ordered 1,000 gallons (see the Judgment at [70]). As for the counterclaim based on the tort of conspiracy, the Judge held that the unprecedented price increase of 1,000% was evidence that Monarch and the co-defendants had conspired to run the appellants out of business. The Judge was persuaded that the Shanghai licence “was a sham that was intended to cater for the Singapore market while KM was deprived of beverage bases [by Monarch]” (the Judgment at [88]).

The present appeal

9 The questions raised in the present appeal can be crystallised into two main issues:

(a) First, whether the appellants are entitled to be excused from trade mark infringement under s 27(1) of the Act on the ground of Monarch’s breach of contract (in not supplying the beverage bases) as well as on the ground that Monarch was a party to the tort of conspiracy vis-à-vis the appellants (“the First Issue”).

(b) Second, whether there was passing off on the basis of misrepresentation as to the quality of the beverages, authority and/or trade source (“the Second Issue”).

Termination of the Licence Agreement

10 Before we address the issues just mentioned, it is necessary to determine whether and, if so, when the Licence Agreement was validly terminated as this would have implications for some of the arguments raised by the appellants. The Licence Agreement, in fact, provided for termination in a number of ways: First, by mutual agreement; second, at any time by KM on 60 days’ written notice to Monarch; third, on 30 days’ notice by Monarch for a breach of the agreement by KM, provided that the notice will be null and void if the latter can remedy the breach within 15 days; and, fourth, by written notice immediately if KM substituted the beverage bases. Although Monarch issued a total of six termination notices, for the same reasons as enunciated by the Judge in the court below (see the Judgment at [43]–[62]), we are of the view that the first five notices were ineffective in terminating the agreement. The only question, in our view, is whether using unauthorised beverage bases of the same quality can constitute substitution under the fourth ground of termination. The fourth ground of termination is to be found in cl 18A(4) of the Licence Agreement and it reads as follows:[note: 1]

18 A. This Agreement may be terminated only in the following manner:

(4) Immediately on written notice by [Monarch] in the event of [KM’s] intentional substitution in whole or in part of the base of any of the Licensed Trademark Beverages in any way or manner by [KM]. Upon the receipt of such written notice, or in the event of [Monarch’s] notice that [KM’s] Licensed Trademark Beverages are not prepared in strict conformity with [Monarch’s] formulae, or are adulterated, [KM] agrees to discontinue immediately the sale and/or distribution of all Licensed Trademark Beverages not in conformity with [Monarch’s] formulae or which are in any way substituted or adulterated. [KM] acknowledges that its failure to so discontinue immediately will cause [Monarch] irreparable harm.

[emphasis added]

11 Even if the beverage...

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