Ding Yong v. Song Lihua and Others
Read the full judgment text of HCA 1543/2014 on BabelCite. This High Court CFI judgment was delivered on 26 June 2018.
1. In this action, the Plaintiff (“ Ding ”) claims against the 1 st to 4 th Defendants a sum of RMB5 million under a Settlement Agreement dated 2 September 2011 (“ SA ”) entered into between the Defendants on the one side (“ Jasmin Parties ”) and Ding, his two corporate vehicles viz Golden Chain Properties Inc (“ Golden Chain ”) and Aromanice Personal Care Co Ltd (“ Aromanice ”) and Yu Xiao Qing on the other (“ Ding Parties ”). Under Clause 1(1) of the SA, the Defendants agreed to pay Ding a se
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HCA 1543/2014 [2018] HKCFI 1285 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1543 OF 2014 ________________________
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__________________ J U D G M E N T __________________ I. Introduction 1.In this action, the Plaintiff (“Ding”) claims against the 1st to 4th Defendants a sum of RMB5 million under a Settlement Agreement dated 2 September 2011 (“SA”) entered into between the Defendants on the one side (“Jasmin Parties”) and Ding, his two corporate vehicles viz Golden Chain Properties Inc (“Golden Chain”) and Aromanice Personal Care Co Ltd (“Aromanice”) and Yu Xiao Qing on the other (“Ding Parties”). Under Clause 1(1) of the SA, the Defendants agreed to pay Ding a settlement sum of RMB8.5 million in two stages. The first sum of RMB3.5 million (less certain legal costs) was duly paid on 1 December 2011. The second sum of RMB5 million was due and payable within 2 years of the payment of the first sum. The Defendants fail to pay it despite various demands made and hence the present action. II. Background facts 2.Ding, via his corporate vehicles, was at all material times engaged in the business of manufacture and sale of non‑organic bath and body personal care products in inter alia the PRC. 3.The 1st Defendant (“Song”) is the founder, principal director and, directly or indirectly, majority shareholder of the 3rd Defendant (“Jasmin Holdings”), 4th Defendant (“Jasmin International”) and 5th Defendant (“Jasmin Shenzhen”). Song, via her own corporate vehicles, was at all material times engaged in the manufacture and sale of organic skin care products, principally in Australia and to some extent the PRC. The 2nd Defendant (“Chalmers”) was Song’s assistant and a director of Jasmin Holdings at the material time. 4.In 2010, Ding and Song agreed to cooperate in the distribution and sale of certified organic skincare and cosmetic products under the brand “JASMIN” in the PRC. In furtherance of their business cooperation:
5.In early 2011, disputes arose and developed between Song and Ding to such extent that they could no longer continue their business cooperation. Recital (C) of the SA recorded their disputes as follows:
6.Clause 1 of the SA was entitled “Settlement”. The material parts of Clause 1 provided:
7.The relevant parts of Schedule 4, Clause 1 provided:
8.Subsequently, Ding resigned as a director of Jasmin Holdings and Golden Chain transferred its 10 million Jasmin Holdings shares to Song. III. The Parties’ pleaded cases and witnesses 9.Only Ding and Song attended and participated at the trial. Each side called 1 witness viz Ding and Song who adopted their witness statements as evidence in chief. 10.Ding’s pleaded case is straightforward. He relies on the express term of the SA that the RMB5 million is due and payable, jointly and severally, by the Defendants within 2 years after payment of the first sum on 1 December 2011. 11.In their Defence, all the Defendants admitted having entered into the SA, paid the first sum but failed to pay the RMB5 million. Their pleaded case is that Ding was in breach of Clauses 3, 5(1) and 6(3) of the SA as a result of which, by virtue of Clause 9(3), they are all absolved from the obligation to pay the second sum of RMB5 million. 12.Clauses 3, 5(1), 6(3) and 9(3) of the SA provided:
13.Ding denies any breaches of the SA. IV. Deliberation 14.At the risk of stating the obvious, the party making an allegation of fact bears the burden of proving it on balance of probabilities: Wong Hon Sun v HKSAR (2009) 12 HKCFAR 877 at [23]. It is therefore for the 1st to 4th Defendants to establish the alleged breaches of the SA in order to resist Ding’s claim in the present action. Since the 2nd to 4th Defendants did not attend this trial to make good their pleaded Defence, their Defence to Ding’s claim should fail in the normal course of event, but for the fact that their Defence and Song’s Defence are in substance the same. 15.This court will therefore go on to consider Song’s pleaded Defence first before coming to a decision on Ding’s claim against the Defendants. Alleged breach of Clause 3 16.Mr Kwok submits correctly that in order to establish a breach of Clause 3, the Defendants have to prove (1) the Ding Parties, whether acting by themselves or through inter alia their “associates” (“Ding Group”); (2) engaged in the distribution, manufacturing, marketing, sale etc of “certified organic skincare and cosmetic products” in competition with the Defendants or their associates and subsidiaries; (3) from the signing of SA on 2 September 2011 to 2 years after payment of the first sum (“Relevant Period”). 17.In her Defence, Song alleged a breach of Clause 3 on the basis that:
18.Ding’s case, as pleaded in his Reply, is that:
19.Ding’s evidence is that he started a joint venture business with Mr Unger in early 2009 by the name BTW. In or about April 2011, the business relationship ended as Mr Unger owed him lots of money in relation to the joint venture. Hence, by the beginning of the Relevant Period ie 2 September 2011, his relationship with Mr Unger had long ceased. 20.On the undisputed evidence, this court has no doubt that the relationship between Ding and Mr Unger had ceased in or about April/May 2011 when Mr Unger was unlawfully detained by Ding and his staff for 3 days from 29 April to 2 May 2011. 21.In a document entitled “Paper of Sentence” issued by the People’s Court of Jimei District, Xiamen City, Fujian Province, exhibited to Song’s supplemental witness statement, the following was recorded:
22.Ding was found guilty of illegal detention and sentenced to “fixed‑term imprisonment of one year and two years’ probation. (the term of probation begins from the date the sentence is made)”. Ding was cross‑examined on this by Song at the trial and he frankly admitted to it. But he explained to this court the term of imprisonment imposed by the PRC Court was in effect “suspended” for 2 years so he never had to go to jail. 23.Subsequent to the unlawful detention incident, the two were engaged in arbitral and legal proceedings, as evidenced by a US Judgment obtained by Mr Unger against Ding in August 2014. Mr Ding was examined on this and, according to him, the two are still engaged in legal proceedings in the PRC where Mr Unger is taking enforcement proceedings. 24.The term “associates” is not defined in the SA and this court can only resort to its ordinary and natural meaning. According to the Shorter Oxford English Dictionary, “associate” means “a partner, a comrade, a companion, an ally, a confederate, a colleague”. 25.In this court’s view, in light of the incident of unlawful detention and the subsequent litigation which is still on‑going, whatever business or personal relationship Mr Unger and Ding once had must have ended by April/ May 2011 and has never resumed. In these circumstances, Mr Unger and Ding could hardly be regarded as “associates” in any meaning sense of that term and this court will so find. 26.If Mr Unger was not an associate of Ding in the Relevant Period, whatever Mr Unger might have done in terms of selling or providing London Organics Products cannot be attributed to and regarded as a breach by Ding. In other words, Song fails to establish even the first element of the alleged breach of Clause 3. 27.What is more, Mr Kwok submits and this court agrees that Song has failed to establish the other two elements of the alleged breach of Clause 3 — there is no evidence on the London Organics Products generally or Mr Unger’s involvement in selling or providing them in the Relevant Period. 28.There is no physical sample or even a photograph of the London Organics Products and there is no explanation as to why they are considered to be organic (apart from the name). In this regard, Clause 3 of SA defined certified skincare and cosmetic products as “organic skincare and cosmetic products certified by agreed certifiers namely the OFC, USDA, Ecocert, Soil Association, BDIH and IFOAM or similar International recognized organic certification bodies”. There is before this court no certificate from Ecocert, or any other internationally recognised organic certification bodies, to establish that London Organics Products have been certified as such. 29.For these reasons, this court finds Song has failed to establish the alleged breach of Clause 3. Alleged Breach of Clause 5(1) 30.Clause 5(1) of the SA prohibits the Ding Parties from inter alia making any untrue or misleading statement concerning the business and affairs of the Jasmin Corporate Group or engaging in any action, activity, conduct that is harmful or contrary to the interest of any member of the Jasmin Group. 31.In her Defence, Song alleged that she believed Ding has been directly or indirectly engaged in the manufacture and sale of 4 products with the names “Cane Sugar Orange Blossom Shower Gel”, “White Knight Cracked Repair Cream”, “KSM Extra Strength Anti‑Acne Gel Fresh” and “SHEVBO Extra Repair Cream” (collectively “Products”), in breach of Clause 5(1). 32.Song alleged that the Products:
33.Further, Song alleged that she believed Ding has been directly or indirectly engaged in the manufacture of the “Olive Organics” range of skincare owned by AS Watsons. No further particulars were pleaded. Unlike her case on the Products, Song did not allege that the Olive Organics skincare products were misleading or of poor quality. Nor was there any explanation as to how the mere manufacture of the Olive Organics skincare products would constitute disparagement or action, activity or conduct that is harmful or contrary to the interest of the Jasmin Group. 34.Ding denies any knowledge of or connection with the Products or the Olive Organics skincare products. 35.Song’s evidence in this regard consists of the following. 36.First, in her first witness statement at paragraph 20, Song stated that:
37.Second, Song testified on Day 2 of trial that, after she had relocated from Hong Kong to Australia in mid‑late 2013, subsequently corrected to January 2013, she was alerted by a customer to one of these copy products being sold in pharmacies in Hong Kong. She then came back to Hong Kong to investigate and bought samples of the copy products from a pharmacy. In cross‑examination, Song said she reported the matter to Invest HK the staff of which referred her to Hong Kong Customs and Excise Department but she never did. 38.Third, the samples themselves are not in evidence. All that is before the court are photos of the 4 Products. 39.It is obvious to this court that Song has no proof, other than her subjective belief, that Ding or his companies, associates etc are responsible for the manufacture or the sale of the Products. Nor is there proof that the Products are of poor quality. The alleged breach of Clause 5(1) in relation to the Products is a complete non‑starter. 40.The same can be said of the alleged breach of Clause 5(1) by manufacturing the Olive Organics skincare products owned by AS Watsons. 41.Apart from Chalmers’ witness statement which is not allowed in evidence by reason of his absence at the trial, there were before this court only a few emails exchanged among Ding’s staff viz Linda Gao and Amber, Kendra Chan of AS Watsons and Chalmers in early 2011. The long and short of the emails was that Chalmers had introduced AS Watsons to Ding’s business “Landy” in relation to a proposed project with AS Watsons and Chalmers accused Amber of bypassing him and directly dealt with AS Watsons by offering them a “Landy produced formulation”. 42.Ding’s evidence is that AS Watsons never placed any orders with his companies in relation to this particular project. He also categorically denied that Landy, or the Ding Group/Ding Parties as defined in the SA, have manufactured or sold any Olive Organic Range skincare products to AS Watsons. 43.In short, apart from a bare assertion, there is no proof that Ding has been directly or indirectly engaged in the manufacture of the “Olive Organics” range of skincare products owned by AS Watsons. 44.For these reasons, this court finds Song has failed to establish the alleged breach of Clause 5(1). Alleged breach of Clause 6(3) 45.Simply put, Clause 6(3) of the SA prohibits the Ding Parties from using, disclosing or divulging, directly or indirectly, any information, ideas, methods, processes, formulae, product formulations, product ingredients etc of the Jasmin Group deriving from and/or arising out of the Jasmin Agreements. 46.In this regard, Song alleged that
47.All these allegations are denied by Ding. 48.To establish a breach of Clause 6(3), Mr Kwok submits and this court agrees that Song has to prove:
49.For reasons already explained in paragraphs 20‑25 above, this court finds the relationship between Ding and Mr Unger had ceased in or about April/May 2011 and that Mr Unger was not an associate of Ding thereafter. Hence, Song is unable to establish even the first element of the alleged breach of Clause 6(3). 50.Further, it is wholly unclear what Jasmin Group’s “formulations and technology” Song is referring to and there is no evidence from her that Ding and Mr Unger were privy to such “formulations and technology” in relation to their organic skincare products, whatever that may be. In fact, in Song’s supplemental witness statement, she actually admitted she had withheld Jasmin Group’s product formulations from Ding albeit that all other trademarks and packaging designs were freely available. A similar admission that Song had withheld Jasmin Group’s product formulations from Ding was made in her written opening. In these circumstances, Song is unable to establish the second element of the alleged breach of Clause 6(3) either. 51.Lastly, there is no evidence on what formulations and technology were actually used to develop the London Organics Products or the basis on which Song claimed that those formulations and technology belonged to the Jasmin Group. Song is simply making a bare assertion which this court cannot accept at its face value. 52.For all these reasons, this court must hold that Song has failed to establish the alleged breach of Clause 6(3). Unpleaded Defence of Duress and Fear 53.At the trial, the principal focus of Song’s submission and testimony was that she was forced to enter into the SA under duress and out of fear, by reason of certain threats by and intimidating behavior of Ding. This line of defence is not pleaded, despite ample opportunity had been afforded to her to do so, and this court simply cannot entertain an unpleaded defence. 54.Furthermore, a contract tainted by duress is only voidable, not void: Chitty on Contracts 32nd Ed Vol 1 paragraph 8‑054. The evidence before this court is that Song, as well as the other Defendants, have clearly affirmed the SA by performing and accepting the Ding Parties’ performance of their obligations under the SA, by admitting to the SA in their Defence and by pleading in their Defence that Ding was in breach of it. 55.In the circumstances, quite apart from the fact that this line of defence is not pleaded, it is not open to Song to rely on it. V. Disposition and costs order nisi 56.To conclude, this court finds in favour of the Plaintiff and shall enter judgment against the 1st to 4th Defendants in the sum of RMB5 million together with interest thereon at the commercial rate of prime plus 1% from 2 December 2013 to judgment and thereafter at the judgment rate until full payment. 57.There shall be an order that the 1st to 4th Defendants do, jointly and severally, pay the judgment sum and interest to the Plaintiff. 58.There shall also be an order nisi that costs of the action be to the Plaintiff, to be taxed if not agreed, and paid by the 1st to 4th Defendants forthwith.
Mr Eugene Kwok, instructed by Stevenson, Wong & Co, for the Plaintiff The 1st Defendant, Song Lihua appeared in person The 2nd to 4th Defendants, were not represented and did not appear |
Cases cited in this judgment
Further hearings and rulings under HCA 1543/2014