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Can a Payee’s Money be Frozen if Payor Uses Underground Banking without Payee’s Knowledge?

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Prior to 2020, transfers of money into Hong Kong through the underground banking system were not “questioned”. Contracts involving such transfers, whilst illegal under PRC law, were enforceable. All that changed due to a trilogy of cases decided by HK’s High Court, with the jury still out on the question of whether the defence of bona fide purchaser for value without notice remains available to passive recipients who played no part in the fraud or underground banking and who could not have suspected that the money originated from such acts. 

The Law Prior to 12 October 2017

As late as 2017, our Court of First Instance in BR CAT International Co Ltd v Hong Kong Proof Import and Export Trading Co Ltd (HCA 1023 of 2014, 22 September 2017) found money originating from a fraudulent act and subsequently transferred through underground banking “legal” in HK as long as the recipient had no actual or constructive knowledge/notice of the fraud or the underground banking.  

The factual circumstances of the case are similar to those of most underground banking cases:

  • A foreign plaintiff (Saudi Arabian company) was duped by an online fraudster into transferring USD1.4 million to bank accounts located in HK belonging to the first layer of recipients.  
  • One of the first layer recipients then transferred a part of that sum, USD323,000, to the account of D8 located in HK.  
  • Separately, D7 needed to convert RMB sitting in its Shenzhen account into USD and transfer it to HK.  D7 sought D8’s help. D8 asked D7 to transfer the money to D8’s accounts in Shenzhen and Fujian. 
  • Rather than actually converting D7’s RMB and wiring it to HK, D8 simply used the USD received from the defrauded plaintiff and sitting in D8’s account in HK, and transferred it onwards to D7.
  • In other words, D8 collected RMB in the PRC but instead of using the same money to do the conversion and transfer to HK, D8 used the sum already sitting in its account which would have remained with the plaintiff but for the fraud.

In deciding that D7 was entitled to keep the converted money which came from proceeds of crime, Madam Justice Bebe Chu decided that the conversion and transfer out of money from the PRC via the underground banking system, though possibly illegal in the PRC, did not render the transaction between D7 and D8 void because D7 had no constructive or actual knowledge about the fraud, i.e. D7 got to keep her money. She stated:

Although the transactions through the “underground banking system” may be considered illegal under the Mainland law, in the present case, there was no reason for Yau to believe that the USD323,000 transfer arranged by D8 to be deposited into D7’s HSBC Account designated by him, would come from a fraudster, or any illicit or improper source, nor was there any evidence to indicate that there was anything obvious or untoward in D8 in transferring the amount to him. There was no sufficient evidence to show that a reasonable person in Yau’s position would have appreciated that the transfer arranged by D8 with whom he had had money exchange transactions in the past was probably fraudulent or improper, or a person in Yau’s position would have made inquiries or sought advice which would have revealed the probability of impropriety.

In other words, Madam Justice Chu did not consider the underground banking feature as a poison pill for D7’s claim and simply considered the question of whether the recipient had knowledge of the fraud in actual terms (she knew) or constructively (as a reasonable person, she should have known, or at least there were sufficient suspicious circumstances that should have caused her to make further inquiries as to the origin of the money).  

The New Approach 

Case No.1 – The High Court first deviated from Madam Justice Chu’s approach in DBS Bank (Hong Kong) Limited v Tian Wen Quan (HCA 3228 of 2016, 12 October 2017). In that case, Mr Justice Anthony Chan had to decide whether to discharge the plaintiff’s injunction to restrain the recipient defendant from dealing with the money in question. The cause of action was in monies had and received. Mr Justice Anthony Chan discharged the injunction because he found that the merits of the case at the interlocutory stage were tilted in favour of the recipient defendant. That said, Mr Justice Chan made a comment in obiter that if the money was received as part of an underground money exchange transaction to circumvent the foreign currency exchange control of the PRC, the recipient defendant’s bona fide purchaser for value without notice defence would fail. Again, Mr Justice Chan did not have to decide this point within the injunction context.

Case No.2 – In Grupo Arbulu S.L. v City Apex Holdings Ltd [2018] HKCFI 1351 (15 June 2018), the cause of action was in knowing receipt. Deputy High Court Judge Keith Yeung, SC ruled that since the underground banking transaction was illegal under PRC law, the defence of bona fide purchaser for value without notice would not be available. A key fact considered by the Court was the defendant’s active participation in the underground banking, namely, it personally engaged a PRC currency exchange agent to convert the money in its HK bank account (which originated from proceeds of fraud) into RMB, then transferred it to the PRC bank account of an aircraft leasing company to settle rental payments owing by itself.  

What would be the result if the defendant had just been a passive recipient?  

Case No.3 – Deputy High Court Judge Blair went even further in DBS Bank (Hong Kong) Limited v Pan Jing [2020] 4 HKC 395 (24 January 2020). He explicitly stated that HK Courts will not enforce a currency exchange contract that is contrary to PRC exchange controls, and that the defendant cannot be considered to have provided any value for the property if it was transferred pursuant to a transaction considered to be illegal under PRC law. In other words, Justice Blair appears to be saying that the defence of bona fide purchaser for value without notice is not at all available in enforcing contracts/transactions where underground banking has been used. Justice Blair further held that the defence of change of position would also not be available in such circumstances due to public policy reasons:

It is correct that the facts are different, in that the defendants in those cases were the parties that received and distributed the stolen funds in the course of a business, whereas the defendant in this case received the funds as the final leg of the exchange transaction. But otherwise, the cases are indistinguishable, because the courts refused to allow a change of position defence where the relevant acts were illegal, as they are in this case. The defendant’s submissions fail for the same reasons that ruled out the bona fide purchaser defence, namely that it is not necessary for the bank to show that the defendant knew of the fraud because the money was transferred pursuant to a transaction that was itself illegal, and the evidence does not support the proposition that the defendant did not know how the exchange would be effected. I conclude that the court should follow the decisions in Barros Mattos and Arrow ECS Norway v Yang Trading. 

I would have followed the result of these decisions even if (as some commentators consider) the judge in Barros Mattos put the test too high in suggesting that if the recipient’s actions in changing position are treated as illegal, the court will more or less automatically refuse to contemplate a change position defence. Whether or not this is correct, in my view, the result is justified on the basis of public policy considerations regarding breach of exchange control regulations (see Virgo, cited above, at p 693), which apply equally, if not more so, in the present case.

Again, the defendant in the above case was an active participant in the foreign currency exchange. Would the Court have decided differently had the defendant been a mere passive recipient?  

Case No.4 – Tti Global Resources v Hongkong Myphone Technology Co Ltd [2021] HKCFI 306 (10 February 2021) involved an appeal of a decision to dismiss the plaintiff’s summary judgment application against D2 and D4, both of whom actively engaged in underground foreign currency exchange and received proceeds of fraud in the course of those exchange transactions. In the same vein as Deputy High Court Judge Blair in the Pan Jing case, Justice To allowed the appeal and entered judgment against D2 and D4 on the basis that the transactions were illegal as a matter of PRC law and in any event, D2 and D4, being active participants, could not be considered to be acting with bona fides.  

The position of a passive recipient of funds – relevant point in time for requisite knowledge

The above cases beg the question: where funds came through underground banking in contravention of PRC law, if the recipient merely played a passive role with no evidence that he knew of the source of funds or the manner in which the funds arrived, or ought to have so known based on suspicious circumstances, is the defence of bona fide purchaser for value without notice available? 

It was this exact question that was faced by the High Court in Lesnina H. D.O.O. v Wave Shipping et all (HCA 154/2020). On 25 March 2021, Deputy High Court Judge Dawes, SC heard the plaintiff’s application for summary judgment. Judgment has been reserved. The facts were as follows: The plaintiff was defrauded into transferring EUR1,879,726 from its Croatian bank account to D1’s HSBC account in HK. Upon receipt, D1 converted EUR1,875,461.68 into USD2,077,399.16 and transferred part of that sum, USD320,000, to D8’s HSBC account in HK. At around the same time, D8 received a similar amount of money in its HSBC account from an unrelated 3rd party to whom D8 supplied healthcare products. Simply put, D8 was a proper business that had zero knowledge of the fraud and no connections with the fraudster or D1. It appeared that the 3rd party might have instructed D1 to pay D8, although it was quite clear that money owed to D8 by the third party did not originate from money defrauded from the plaintiff.  

Plaintiff’s Counsel argued that in a case of knowing receipt, the relevant point in time in assessing whether a recipient had the requisite knowledge was at the time of transfer and subsequent to that, for example, when D8 received the Writ of Summons. D8’s Counsel disagreed and relied on Lewin on Trusts, 20th edition (para 42-083) for the principle that a defendant’s knowledge must be assessed at the time of receipt of money (para 42-083, Lewin on Trusts), rather than afterwards which is strictly speaking “after-acquired knowledge”. Alternatively, the relevant point in time for knowledge should be at the time consideration is given by the recipient of money.

It remains a live question whether all transactions involving underground banking are categorically unenforceable, regardless of bona fides. Underground banking appears to be a fact of life in business in the current economic environment. If you are a victim or know a victim of fraud or underground banking, or wish to avoid being deprived of funds duly owed in the normal course of business, please feel free to speak to our disputes partner, Eunice Chiu.

Eunice Chiu
+852 2186 1885
Partner, Dispute Resolution
Oldham, Li & Nie (OLN)

20 April 2021

Justice Delayed is Justice Denied

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This ‘Letter to the Hong Kong Lawyer’ by Gordon Oldham was originally published in April 2021. Please click here for the original article. 

According to the recent Financial Times article ominously titled “Companies consider writing Hong Kong out of legal contracts”, multinationals are reviewing whether or not to exclude Hong Kong from their legal contracts over anxieties around Beijing’s expanding influence on the territory’s rule of law. International media commentary like this is fuelling increasingly negative perceptions of Hong Kong’s legal system.

In response, I suggest that now more than ever is the time for us, the local legal community, to come together and focus on fixing our actual, real-world problem. That is our broken court system.

Our courts resemble an inspiring but vintage Rolls Royce which still very much leads with ‘the Flying Lady’- the Rule of Law, but unfortunately, the seats are threadbare, the paintwork faded, the engine requires replacing and the electronics are non-existent.

This current state of affairs has nothing to do with our excellent Judges. Our Judiciary continues to deliver above and beyond and they have the full support of Hong Kong’s legal practitioners. The problems with our court systems are operational. The system exudes a delegation of responsibility mindset, a blanket resistance to all matters digital, an all-the-time-in-the-world attitude coupled with inefficiencies which viewed from a modern corporate setting are laughable – having someone sit and wait three hours for a piece of paper to be chopped is lamentable in this day and age. On top of this, there is insufficient numbers of support staff members, as well as Judges, and limited focus on how to help the Hong Kong public.

We legal practitioners know how embarrassing it is to say to a client that they have a great case but it will probably be 18 months before it is heard. A recent survey of 69 jurisdictions around the world, carried out by OLN, showed that overall, Hong Kong not only ranks in the top five for the most expensive court proceedings but also in the top 20% for the length of time it takes to actually get to court. We are expensive and slow.

On top of all this, those of us in the Hong Kong legal community know our local courts have been chronically ill-equipped to cope with Covid-19, especially compared to Singapore and other jurisdictions. The very jurisdictions that are looking to profit from the negative perceptions pronounced by the Financial Times.

However, we cannot simply blame the backlogs on Covid-19 or the judiciaries’ techno-phobia. These operational problems run deeper and point to a more ingrained malaise. It is, in fact, our collective acceptance that enables this antiquated and dysfunctional system to exist and persist. We have to actively be part of the change instead of tolerating it as some endearing, antiquated throwback together with horsehair wigs. As practitioners, we all laugh at the story of Jarndyce and Jarndyce, described so perceptively by Dickens, but in Hong Kong, those days still exist.

However, given the Hong Kong legal community lives in the increasingly competitive and globalised twenty first century, not in Charles Dickens’ times, we urgently need to take on a solution-minded commitment to revamp our courts and double down on our efforts to undertake the repairs necessary to renovate the infrastructure of our legal system, from top to bottom. Consider the following:

  • Compulsory annual legal technology CPD: this has been introduced years ago in certain US states. Solicitors do not need to learn to code, but let’s stopped being frightened by terms such as legal design, robotic process automation and natural language processing.
  • Ask our Law Society to establish collaboration with third parties/digital designers and lawyers: We should focus on how we want the courts to look with processes that lead to a user-friendly and above all faster and more efficient system.
  • Online/video trials: Permit trials to be conducted online and in person, as we have seen in other jurisdictions.
  • Digitalization of transcripts: Judges – please put down your pens – and allow the parties to have a written transcript produced at the end of every day. There are voice recognition programs and transcription technologies that can help.
  • More Funding: There should be more financial resources available for the courts to shorten the waiting time for court hearings. These could fund for example:
    • more judges on the panel
    • transcribers to take notes and other clerks to handle note taking instead of the judge doing his/her own during trials
    • non-practicing lawyers to help write judgements to free up time for the Judges to review the draft instead of writing his/her own judgement
    • a restructuring of the legal department with more people, more KPIs, more commitment to service, and the delivery of a fast, reliable, efficient court service

In response to the Financial Times article, Teresa Cheng wrote “We continuously strive to meet market demands to ensure Hong Kong remains one of the world’s leading international legal hubs [….] for dispute resolution services”. However, the reality of cases taking 18 months to get to court does not make Hong Kong a leading global hub for dispute resolution services.

Now is the time for our legal community to come together and take action. We need to refocus and rebuild the Hong Kong court system, installing a modern, forward-thinking approach that serves the local community. That is if we want to continue to be proud of a Hong Kong legal system that stands head and shoulders above its international rivals.

ALB Asia Employer of Choice 2021 – For the Third Consecutive Year

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In the April 2021 edition of Asian Legal Business, OLN has once again been awarded ‘ALB Employer of Choice,’ one of the best law firms to work for in Asia. This is the third consecutive year that OLN has succeeded in achieving this accomplishment, winning the award for a total of four years. The firm would like to thank our staff for the tremendous effort over the last year, disrupted by COVID-19, as well as in previous years, ensuring the firm is consistently ranked as an ALB Employer of Choice. 

The ALB Employer of Choice 2021 survey was open to all employees, from managing partners to paralegals to non-legal staff. There were over 1800 respondents from eight Asian jurisdictions, and the winners were selected based on the number and quality of respondents. For more details, please read the Asian Legal Business report by clicking here.

Holding an AGM in Hong Kong During the COVID-19 Era

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During this age of COVID-19, some standard business practices that used to be easily dealt with have become difficult to execute including the holding of an Annual General Meeting (the “AGM”). In Hong Kong, companies have to make sure the AGM is in compliance not only with the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) (“CO”) but also the public health regulations.

In light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G of the Laws of Hong Kong) (the “Prevention Regulation”), which became effective on 29 March 2020, group gatherings in any “public place” in Hong Kong are prohibited. However, an exemption applies for “any group gatherings at a meeting of a body that must be held within a specified period in order to comply with any ordinance or other regulatory instrument that governs the operation of the body or its business”. This exemption covers company AGMs. In this article, we discuss how the AGM will be held in both listed companies and private companies in light of the Prevention Regulation and also the CO. 

Private companies

Physical meeting 

For the sake of public health, companies are encouraged to limit the physical attendance of shareholders at their AGMs as much as possible and to implement precautionary measures in order to achieve social distancing.

As stated in paragraph 11 of Schedule 1 of the Prevention Regulation, if there are more than 20 persons attending the AGM, companies must ensure that there are measures in place to separate the shareholders in different rooms or partitioned areas and each accommodating not more than 20 persons.

In order to better manage the number of shareholders who can attend the meeting, companies may consider requesting shareholders to pre-register if they wish to attend in person. Companies may also encourage shareholders to submit their questions to the management in writing before the meeting.

Virtual meeting/Hybrid meeting

With the advancement of technology, the CO has introduced a provision that allows the use of technology in shareholders’ meetings. Section 584(1) of the CO stipulates that “A company may hold a general meeting at two or more places using any technology that enables the shareholders of the company who are not together at the same place to listen, speak and vote at the meeting.” This can enable shareholders who are not at the same place to listen, speak and vote. 

Pursuant to section 576 of the CO, if a meeting is to be held at two or more places, the principal place of the AGM and the other place or places of the meeting must be specified in the notice of the meeting.

Still, a quorum and other such requirements must be followed for the meeting to be properly convened and for the decisions arising out of the meeting to be valid.

In addition, the shareholders must be able to cast their vote in the virtual AGM. The company should set up a mechanism to allow shareholders to cast a vote. It could be something as simple as a show of hands via video conferencing or an oral response via a phone call. These will be sufficient to count as a vote. 

Alternatively, some companies hold the AGM by way of a hybrid meeting i.e. the meeting is held both at a physical location and electronically. Shareholders have the option to attend the meeting either in person or virtually.

Please be aware that if the company intends to hold virtual meeting/hybrid meeting, the company should check with the company’s articles of association or any shareholders’ agreement to see if there are any provisions which require the physical presence of shareholders in the AGM. 

Written resolution 

Furthermore, instead of holding physical meetings, one could consider the use of written resolutions. Subject to the exceptions for removal of auditor or director(s) before the end of their term of office, section 548 of the CO provides that the company can circulate written resolutions for the shareholders. According to section 556 of the CO, the resolution is passed when all shareholders eligible to vote on the resolution have signed to it. The strategy of adopting written resolutions instead of physical meetings would only be possible if there are a limited number of shareholders or directors and it is foreseeable that there are no dissenting views.

Listed companies

Physical Meeting

On 1 April 2020, the Securities and Futures Commission (“SFC”) and The Stock Exchange of Hong Kong Limited (“HKEX”) issued the “Joint statement in relation to general meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation” (“Joint Statement”) to clarify listed companies’ obligations to hold general meetings in light of the Prevention Regulation. 

Under the Joint Statement, all shareholders’ meetings, including (i) the AGMs as required under the Companies Ordinance and/or the Main Board Listing Rules or the GEM Listing Rules; and (ii) extraordinary general meetings and special general meetings of Hong Kong-listed companies generally fall under the exception of the Prevention Regulation.

Practical tips in holding AGM online 

(1)    Communication with shareholders: The company should remind shareholders to check the arrangement of the AGM on the company’s website. 

(2)    Sufficient time for shareholders to return their proxy forms: If shareholders do not attend in person, the shareholders can vote by proxy forms prior to the meeting.

(3)    Questions from shareholders: The company should provide channels for shareholders to raise questions to the management prior to the meeting, either in writing or electronically, so that shareholders who are not attending still have the opportunity to raise questions. 

(4)    Arrangements for physical meetings: If a company decides to hold a physical AGM, the company should shorten the presentations or publish them on the company website. In the event that an adjournment is required, a company should prepare a script for their meetings and plan in advance the period of their adjournment, as well serving a shareholders notice of adjournment or postponement if needed. In addition, refreshments should not be available. The company should ensure that sanitization and other arrangements are in place at the AGM venues.  

(5)    Prepare guidelines on virtual meetings: In order to facilitate a smooth virtual meeting, the company should prepare guidelines for the shareholders in relation to some practical problems they might face in a virtual meetings such as how shareholders can rejoin the meeting if they have lost connection or how votes can be cast e.g. by clicking a button or a physical show of hand etc. and prepare any contingency plans in case there are any technical difficulties. 

Virtual meetings are predicted to remain in the post-COVID-19 era. It is recommended that companies should plan carefully as to what measures to be undertaken in relation to holding an AGM in order to comply with the Companies Ordinance and the Prevention Regulation.

Enforcing a French Court Judgment in Hong Kong

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If you have obtained a decision in your favour in an overseas jurisdiction against a Hong Kong company or individual, the key question for you would be whether or not this judgment can be enforced in Hong Kong.

A court decision cannot be enforced overseas without first being recognised by the relevant countries concerned, and Hong Kong is no exception to this principle.

French courts are issuing an increasing number of decisions against non-French companies, including many registered in Hong Kong. According to French law, to enforce a judgment by a French court in an overseas jurisdiction, there is an obligation to comply with the ‘Exequatur procedure,’ and this procedure may vary depending on the overseas jurisdictions involved.

Enforcement in Hong Kong 

The enforcement of French or other foreign judgments can be obtained in two ways: either registering the decision with the Court of First Instance or bringing a new legal action.

As far as France is concerned, the exequatur procedure that must be followed is the former – registering the decision with the Court of First Instance. There is no need to bring new legal action and start the whole process from the beginning again.

When you have obtained a conviction against a Hong Kong company, the core considerations before moving forward are the following:

1.    Is the defendant solvent in Hong Kong?
2.    Is the judgment final?
3.    Does the decision order payment of monetary damages?

If the answers to these three questions are affirmative, you can then consider the next steps to take.

Once the defendant’s solvency in Hong Kong is established, it is possible to proceed with the registration procedure, which is provided for in the Foreign Judgments (Reciprocal Enforcement) Act Cap 319. This text enables the enforcement of foreign judgments by registering decisions from superior courts in designated countries with reciprocal arrangements with Hong Kong. These designated countries include Australia, Bermuda, Brunei, India, Malaysia, New Zealand, Singapore, Sri Lanka, Belgium, France, Germany, Italy, Austria, the Netherlands, and Israel. 

Under these provisions, the beneficiary of a French court’s decision may apply to the Court of First Instance in Hong Kong for registration.

Here are some of the conditions to be met (this list is not exhaustive):

•    the decision must relate to the payment of a sum of money;
•    the decision must be final and not subject to appeal;
•    the decision must be issued by a civil or commercial court; and
•    the application must be filed within six years of the final decision from the foreign jurisdiction.

Once the decision is registered in Hong Kong, a notification will be served to the defendant, and the decision can be enforced in the same way as the decisions by local courts.

Security for Costs

A critical specificity in Hong Kong, is that the local court can ask the plaintiff seeking enforcement for security in the form of a deposit. It is well-established in Hong Kong that a foreign plaintiff may be ordered to deposit a sum in court, known as the ‘Security for costs’ when starting legal proceedings.

The security for costs aims to cover part of the defendant’s estimated litigation costs in defending an action brought by a foreign plaintiff. When the defendant successfully defends the action, the amount of its legal costs that normally would be payable by the foreign plaintiff, would be secured by the security for costs. 

Therefore, depending on the amounts involved, this can act as a deterrent for overseas plaintiffs as they may not want to have a significant financial sum locked up in Hong Kong.

As mentioned above, this procedure of registration at the Court of First Instance is only available for a specific list of countries (including France). Therefore, for other jurisdictions you should always check if the jurisdiction issuing the decision to be enforced in Hong Kong is also on this list. If not, the possibility of bringing a new legal action based on the foreign judgment remains open. 

No Requirement for Reciprocity

This procedure is possible even if the decision does not emanate from a common-law jurisdiction as there is no requirement for reciprocity. A decision rendered by a court in a jurisdiction that does not recognize a judgment made by a Hong Kong court may still be enforced in Hong Kong if all the conditions are met.

Should you wish to enforce a foreign decision in Hong Kong, and more specifically a decision issued by a French judge, it is highly recommended to contact a Hong Kong lawyer to discuss the best way forward.

Trade Mark Reviews in China – Some Encouraging Successes

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The general principles in determining whether a trade mark can be registered in China are to a large extent the same as in most other countries, considering China is also one of many jurisdictions in the WIPO Madrid International Registration system. Indistinctive or descriptive marks which fail to achieve registration in the European Union will probably have no chance of registration in China. Yet it does not mean that trade marks which are clearly distinctive and registered in most places around the world will naturally be accepted for registration in China because certain technical or special grounds can withhold registration, putting aside the relative ground due to existence of prior similar marks.

For example, a mark will likely have its registration declined in China if it comprises a country name or any foreign geographical name widely known to the public. During the course of substantive examination, the Examiner may not look at every aspect to find out if the relevant name has any other meanings or references in the whole context of the mark. Upon refusal, the Applicant will have to resort to the review process to explain and justify that the mark in its entirety can satisfy the requirements for registration.  

There are 3 scenarios where a mark comprising a geographical name may be registered: –

  1. the name has another meaning
  2. the name forms part of a collective or certification trade mark
  3. the name is not a dominant element of the mark and it only serves to indicate the corresponding place of origin of the applicant    

Marie France Van Damme

Fashion designer Marie France Van Damme uses her own personal name for branding purposes and has been trading under the mark  . However, this was initially declined for registration in Class 25 for “clothing” in China because of the word “FRANCE” within the trade mark. Ms Van Damme succeeded in the review by convincing the review adjudicator that the word “France” is generally perceived by consumers, in the context of her brand, as the name of a living person instead of referring to the country of France.  

URAL

The mark  was initially declined for registration in Class 9 for “loudspeakers” in China because of the word “URAL” in the mark being associated with the Ural Mountains located along the East European and West Siberian plains. The applicant succeeded in the review by convincing the review adjudicator that the word “URAL” can also be a surname and a specie of owl. The evidence of pre-application use of the mark by the extensive sales of the goods in China might have supported this case. However, as it is not expressly entered as a condition of registration in China whether or not a mark has been granted based on acquired distinctiveness through use, such unreported precedent gives us a useful hint or guidance that this approach can work in some cases.    

Car And Driver

Suggestive marks are often just categorically seen as descriptive marks in China. The application for   was initially declined registration in Class 4 for ‘fuels’ as the words ‘CAR’ and “DRIVER” seem closely associated with the products of “fuels” for automobiles but if we look at these words more carefully, they are not directly connected to the essential characteristics and functions of the goods. The Applicant succeeded in the review by convincing the review adjudicator that the mark as a whole is not directly descriptive of the goods sought to be registered and it is capable of functioning as a trade mark to indicate the source of origin of the goods.  

China has a tremendously high number of trade mark applications filed on a daily basis. We just need to bear with a reasonable degree of discrepancy, fluctuation and inconsistency between different examiners in assessing the inherent registrability of a trade mark. The good news is we can always rely on the review mechanism to share our views and analysis with the more senior examiners to reassess whether a mark, which is usually unique on its own, can satisfy the requirements for registration as laid down in the Trade Mark Law. We are seeing good progress as China becomes more aligned with rest of the world in the administration of the trade mark regime.