Mammy Pancake Company Ltd v. Carla Day Ltd and Others
Read the full judgment text of HCA 1044/2021 on BabelCite. This High Court CFI judgment was delivered on 6 May 2024.
1. The Plaintiff's is claiming against the 1 st and 2 nd Defendants for breach of contract, breach of confidence and good faith, and the economic tort of causing loss by unlawful means and conspiracy.
Cited by 4 cases · Cites 12 cases
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HCA 1044/2021 [2024] HKCFI 1168 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1044 OF 2021 ________________________ BETWEEN
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________________________ J U D G M E N T ________________________ 1.The Plaintiff's is claiming against the 1st and 2nd Defendants for breach of contract, breach of confidence and good faith, and the economic tort of causing loss by unlawful means and conspiracy. 2.The 1st and 2nd Defendants were absent at the trial, and the Plaintiff proceeded to prove its case against them. The claim against the 3rd to 6th Defendants has been settled. The Plaintiff’s Case 3.The Plaintiff owned the franchise of the sale of egg waffles under the brand “Mammy Pancake” (媽咪雞蛋仔). The franchise was set up in 2009. At the material time, there were 13 shops in Hong Kong, 11 being run by the franchisees and two run by Plaintiff itself. 4.On 31 March 2015, the 1st Defendant signed a franchise agreement with the Plaintiff to operate a shop in Carnarvon Road, Tsim Sha Tsui (“Shop”). The 2nd Defendant was the sole shareholder and director of the 1st Defendant. 5.The Plaintiff looked for suitable premises for the intended franchise shop and negotiated with the landlord. Miss Irene Wong of the Plaintiff told the 2nd Defendant at the outset the information relating to the lease was confidential, and it would remain confidential even if the 1st Defendant did not take up the franchise, as the Plaintiff would look for another franchisee in the event. 6.The 2nd Defendant was happy with the location found. Eventually the lease of the Shop was signed by the 1st Defendant and the landlord on 31 March 2015. 7.The 2nd Defendant also signed the franchise agreement as a guarantor for the due performance of the 1st Defendant’s duties and obligations under the franchise agreement. 8.In 2016, the 1st Defendant’s shop received a Michelin Award for “Recommended Street Food”. Such Michelin Award related specifically to the Shop in question. The Michelin Award was successively granted for 6 years until 2021. 9.On 8 May 2018, another franchise agreement (“Franchise Agreement”) was signed between the parties extending the franchise at the Shop to 12 April 2021. The following are the relevant terms of the Franchise Agreement:
10.The Shop was the only franchisee of the Plaintiff being granted the Michelin Award. The Award was granted when the Shop was in operation for just a few months. The waffle was made from the Plaintiff’s recipe at the Plaintiff’s workshop centrally and delivered to the Shop. It must have been granted because of the Plaintiff’s past operation since 2009. If the Shop were no longer operated, the brand would lose the Michelin Award. The Shop was obviously of strategic importance to the Plaintiff’s franchise as a whole. 11.In October 2020, the 2nd Defendant intimated to the Plaintiff that the 1st Defendant might not renew the Franchise Agreement, which was due to end in April 2021. 12.On 28 October 2020, Irene Wong and Covis Ng of the Plaintiff had dinner with the 2nd Defendant and her sister Noelle. During the dinner, the 2nd Defendant said she was considering emigrating to Australia. If the rent for the Shop could be lowered, she would not emigrate and continue with the franchise. But even if the 2nd Defendant were to emigrate, she would continue with the franchise with her sister Noelle running the Shop. 13.Covis Ng told the 2nd Defendant and her sister that the Shop was important to the Plaintiff given that the Michelin Award was attached to the Shop. If the 1st Defendant would not renew the lease of the Shop, the Plaintiff would take over the lease and operate Mammy Pancake at the Shop by itself. In any event, the Plaintiff would go ahead negotiate with the landlord on the basis that either the 1st Defendant would continue with the franchise or the Plaintiff would operate the Shop by itself. 14.Shortly after the dinner, the 2nd Defendant confirmed via WhatsApp that she wanted Covis Ng to help negotiate a new lease with the Landlord. She hoped the rent could be negotiated down to $20,000 a month. 15.On 4 December 2020, the 2nd Defendant sent another WhatsApp message to Covis Ng to help negotiate the rent with the landlord. She again asked whether it was possible to renew the lease at $20,000. Covis Ng replied that if the landlord agreed to $30,000 plus, the 2nd Defendant should jump at the offer. The 2nd Defendant replied that $30,000 should be the maximum. 16.On 15 December 2020, Covis Ng started negotiating a new lease with the landlord. Covis Ng told Kinder Lee of the landlord that the 1st Defendant would like to renew the lease after its expiry on 12 April 2021. He also told her that if the 1st Defendant would not renew the Lease, the Plaintiff would rent the Shop instead. 17.Eventually, the landlord was willing to reduce the rent to $28,800 per month (“1st Offer”), which was 30% lower than the then market rent of the Shop of $45,000. 18.On 22 January 2021, Covis Ng informed the 2nd Defendant of the offer via WhatsApp. The 2nd Defendant said it was a good deal. The 2nd Defendant wrote “[So]cheap … should serve u both a big meal when we renew our contract too”. 19.On 26 January 2021, the 1st Offer to rent at $28,800 was sent to the 2nd Defendant via Whatsapp for her consideration. 20.On 31 January 2021, the 2nd Defendant asked Irene Wong for a meeting to discuss a new franchise agreement. Irene Wong asked the 2nd Defendant to reply to the agent Alex Lee before 14 February 2021. 21.Hence, all along up to 31 January 2021, the 2nd Defendant had indicated and led the Plaintiff to believe that the 1st Defendant would renew both the Franchise Agreement and the lease. 22.Unbeknown to the Plaintiff, before 14 February 2021, the landlord had issued another Offer to Rent dated 11 February 2021 to the 5th Defendant, an employee of the 1st Defendant, (“2nd Offer”). The rent offered to the 5th Defendant was identical to 1st Offer. 23.On 18 February 2021, the agent Alex Lee told Irene Wong via Whatsapp that the 2nd Defendant would not renew the Franchise Agreement. Irene Wong therefore asked the 2nd Defendant via WhatsApp whether she had decided not to renew the Franchise Agreement. The 2nd Defendant said as she was granted a visa and planned to leave Hong Kong soon. She also said her staff the 4th Defendant would take up the Shop to sell snacks and drinks. 24.On 10 March 2021, Covis Ng told Kinder Lee of the landlord via WhatsApp that the Plaintiff would like to take up the new lease as it had always desired to operate the Shop to keep the Michelin Award. To Covis Ng’s surprise, Kinder Lee replied on 11 March 2021 that that the 2nd Defendant’s side had already signed the lease. Kinder Lee said it was the 2nd Defendant who initiated the meeting to change the tenant to the 5th Defendant, who was said to be a representative of the Plaintiff. 25.Covis Ng then complained to the 2nd Defendant via WhatsApp. Initially, the 2nd Defendant said it was only her staff who approached the landlord and she was not involved. Upon confronted with Kinder Lee’s version, the 2nd Defendant changed her story and said her sister and her were still thinking of continuing with the Shop. She guessed there was misunderstanding and asked Covis Ng to clarify with landlord, which is obviously a lie. 26.The Plaintiff alleged that 1st and 2nd Defendants are liable to the Plaintiff for:
27.Mr Chong, counsel for the Plaintiff, submitted that the Plaintiff would not be seeking the relief of declaration of constructive trust and/or assignment of the lease of the Shop under paragraphs (c) and (d) in the Prayer in the Statement of Claim. 28.Irene Wong and Covis Ng gave evidence under oath to prove the Plaintiff’s case. Defence of the 1st and 2nd Defendants 29.The 1st and 2nd Defendants were absent at the trial. Reference to their Defence is only to set the context for the verification of the Plaintiff’s claims. 30.The Defence denied that the Plaintiff had ever informed the 2nd Defendant that it would take up the lease of the Shop. 31.The Defence also denied that the 1st Offer was confidential information objectively, nor was it treated as confidential information by the landlord, and neither was it mentioned nor intended to be covered by the confidentiality clause in the Franchise Agreement. 32.On 18 February, the 1st and 2nd Defendants have informed the Plaintiff that either they or the 4th Defendant were interested in taking up the 1st Offer. They did not introduce any of their employees to the landlord. 33.The Defence also alleged that the Plaintiff said the Michelin Award had diminished in value, and it intended to strength its own brand name of Mammy Pancake and diminish the link with the Michelin Award. Legal Principles 34.A duty of confidence arises when confidential information comes to the knowledge of a person, in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others. Traditionally there has been no limit in principle to the kind of information which might be the subject of a claim for breach of confidence, the four main classes of information which the courts have traditionally protected by this action being personal confidences, trade secrets, artistic and literary confidences and state secrets (see Clerk & Lindsell on Tort, 24th Ed., [25-01]). 35.There are three requirements for the cause of action for breach of confidence as outlined in Coco v AN Clark (Engineers) Ltd[1968] FSR 415 per Megarry J. First, the information in respect of which relief is sought must have the “necessary quality of confidence about it”. Secondly, the information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use or disclosure of that information (see Clerk & Lindsell [25-06]). 36.In Lamb v Evans [1893] 1 Ch 218, the plaintiff engaged the defendants on a commission basis to obtain advertisements for publication in a trade directory. The advertisers provided that defendants with blocks for printing their advertisements. The defendants subsequently went to work for a rival publication and used the same blocks for identical advertisements. The plaintiff obtained an injunction to prevent them from doing so (see Toulson & Phipps on Confidentiality 4th Ed., [1-038]). 37.In Lamb v Evans, Lindley LJ held at [266]:
38.The action on breach of confidentiality is still developing to reflect changes in society, technology and business practice (Clerk & Lindsell, [25-02]). 39.Common law damages can now be awarded for breach of confidence in addition to the equitable remedies, whatever the historical, legal or conceptual difficulties for awarding damages by reason of the equitable nature of the wrong (see A-G v Guardian Newspapers Ltd (No.2) [1990] 1 AC 109, per Lord Goff of Chieveley; China Light & Power Company Ltd & Another v Michael Edward Ashton Ford[1996] 1 HKLRD 57 at [61D-E]). 40.On breach of good faith, following the general approach to construction, the scope of application and the meaning given to a requirement that one or more of the contracting parties act in good faith or in the utmost good faith, or refrain from acting in bad faith, depends on the intention of the parties as construed objectively from the wording used by the contract, the context of the contract as a whole (including its overall purpose where relevant), and the matrix of fact in which it was concluded (see Chitty on Contract 35th Ed., [2-060]). 41.Chitty on Contract stated that the courts have accepted that the “core meaning” of a duty of good faith is to act honestly, and bad faith may also include “conduct which would be regarded as commercially unacceptable to reasonable and honest people, albeit that they would not necessarily regard it as dishonest” (see Re Compound Photonics Group Ltd, Faulkner v Vollin Holdings Ltd [2022] EWCA Civ 1371 per Snowden LJ at [241]. 42.Also, “it is clear from the authorities that the content of a duty of good faith is heavily conditioned by its context” (see Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200 per Jackson LJ at [109]). 43.And in Goldbay Fortis Ltd v Rich Resource Development Ltd [2021] HKCFI 1684, K Yeung J referred to the judgment of the Court of Appeal of Victoria in Knights Quest Pty Ltd & Anor v Daiwa Can Company & Anor [2019] 366 ALR 557 at [83] and [84]:
44.On the tort of causing loss by unlawful means, the key conditions of liability, in situations where three parties are involved, are:(i) an intention to cause loss to the claimant; (ii) use of “unlawful means” against a third party; and (iii) interference with that third party’s freedom to deal with the claimant (see Clerk & Lindsell, [23-81]). 45.In the unlawful means tort, there must be an intention to cause loss. It has been held by the House of Lords in OBG Ltd v Allan[2007] UKHL 21; [2008] 1 AC 1 per Lord Nicholls at [167] and Lord Hoffmann at [134] where a defendant seeks to advance his own business by pursuing a course of conduct which he knows will, in the very nature of things, necessarily be injurious to the claimant. If the defendant goes ahead in such a case in order to obtain the gain he seeks, his state of mind will satisfy the mental ingredient of the unlawful interference tort (Clerk & Lindsell, [23-83]). 46.Unlawful means have been given a “wider interpretation” of “all acts a defendant is not permitted to do, whether by the civil law or criminal law” by Lord Reid and Lord Devlin in Rookes v Barnard [1964] UKHL 1; [1964] AC 1129 at [162] and [159] respectively, and endorsed by Lord Nicholls in the majority view in OBG Ltd v Allan (see Clerk & Lindsell, [23-85]). 47.Finally, the tort of conspiracy to injure the plaintiff (whether by lawful of unlawful means) has been summarized in Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, per Ma CJHC (as he then was) at [17]:
48.Pido v Compass Technology Co Ltd has been applied in Chan Wai Keung Lawrence v Au Chi Man Albert [2021] HKCFI 2096 per Au-Yeung J, and Mason Group Holdings Ltd v Tam Joseph Wing On [2024] 1 HKLRD 601, [2023] HKCFI 3305 per DHCJ KC Chan. 49.As to inducing the breach of contract, Mr Chong indicated that he is not relying on this head. Analysis 50.Irene Wong and Covis Ng have given evidence under oath and been subject to questioning by the Court. The 2nd Defendant’s misrepresentations have been well documented by the WhatsApp messages. I accept their evidence on liability (as opposed to quantum). 51.The duty of confidentiality and duty of good faith have been expressly stated in the Franchise Agreement. Of course there is no specific mention of any non-disclosure of information relating to the lease of the franchised shop premises. However, the scope of those duties must be ascertained in the factual matrix and all the circumstances of the case. And it is apt to look at both the confidentiality and good faith clauses together in this case. 52.The Plaintiff and the 1st and 2nd Defendants were in the relationship of franchise owner and franchisee. It is a special relationship as they have the common goal of furthering the interest of the franchise. There is the added circumstance that the Shop had the Michelin Award, and the Plaintiff had specifically informed the 2nd Defendant that the Plaintiff would take up the 1st Offer of renewal of the lease in case the 1st Defendant were not to renew the lease. Hence, the duty of confidentiality in the context of the duty of good faith must cover the information of the lease of the Shop. 53.The 2nd Defendant stalled for time to enable the 5th Defendant to take up the 2nd Offer of the lease of the Shop by lying to Plaintiff’s representatives that she might still be interested in renewing the franchise at a time when the 5th Defendant had already signed the new lease of the Shop. She had also misrepresented to the landlord one of her stooges was purportedly the Plaintiff’s representative, and the Plaintiff was “trumped” as submitted by Mr Chong. This must definitely be the wrong the clauses on duty of confidentiality and good faith in the Franchise Agreement intended to forestall. 54.Hence, I find that the 1st and 2nd Defendants have been acting dishonestly in breach of the duty of confidentiality and good faith under the Franchise Agreement. 55.As the torts of causing loss and conspiracy to injure by unlawful means are pleaded in the alternative. Since they are based on the same facts of breach of duty of confidentiality and good faith, it is not necessary to separately deal with them for the present purpose. Loss and Damage I. Loss of Profits 56.Mr Chong submitted that if the 2nd Defendant were acting in good faith upon the 1st Defendant not taking up the 1st Offer of the lease from the landlord, and in not arranging the 5th Defendant to take up the 2nd Offer, the Plaintiff could have taken up the lease itself and continue with the Shop selling Mammy Pancake. Hence, the Plaintiff is claiming the loss of profits from the Shop. 57.The 1st Offer was for the lease of four years, with two years at the rent of $28,800 per month from April 2021 to April 2023, then two more years at open market rent (not fixed but determinable objectively). Hence, the Plaintiff is claiming loss of profits for four years. 58.Under the Franchise Agreement, the 1st Defendant paid a fixed franchise fee, and the Plaintiff had no access to the 1st Defendant’s accounts. And the 1st and 2nd Defendants have not disclosed any accounts in their List of Documents. 59.Hence, the Plaintiff used the management accounts for its own two shops (at Hung Hom and Causeway Bay) to simulate the profit and loss account of the Shop of the 1st Defendant, assessing that the annual profits of $950,945.58. 60.Mr Chong pointed out that the loss of profits figure had been stated in Irene Wong’s witness statement (Annex A) and not traversed by the 1st and 2nd Defendants. There are no materials to query the calculations of the Plaintiff. 61.Hence, I assess the damages for loss of profits of $950,945.58 x four years, totaling $3,803,782.32. II. Loss of Franchise Fees 62.The Plaintiff alleged that since Mammy Pancake was no longer held any Michelin Awards, the Plaintiff had lost 33 potential franchisees. The joining fee is $420,000 each. Hence, the Plaintiff is claiming $420,000 x 33, totaling $13,860,000. 63.Apart from the assertion of Irene Wong, there is no evidence on the loss of 33 potential franchisees. There is evidence of one franchisee in Tseung Kwan O have decided to leave, but there is no direct link to the loss of the Michelin Award. 64.Mr Chong submitted that if the Court has difficulties with the proof of loss of franchisee fees, exemplary damages could be awarded instead. III. Exemplary Damages 65.The Plaintiff has pleaded exemplary damages in the amended Statement of Claim. Mr Chong is asking for $1 million under this head. 66.Exemplary damages has been considered by the Court of Appeal in William Allan v Ng & Co (a firm) [2012] 2 HKLRD 160. The Court of Appeal held that exemplary damages could be awards for equitable wrongs including the breach of duty of confidentiality. Kwan JA (as her Ladyship then was) held that the rationale for exemplary damages is not to compensate but to punish [52]. The conduct of the defendant was reprehensible and the award of exemplary damages was appropriate [69]. Under the principle of moderation and restraint, the award should not exceed the minimum sum necessary to meet the public purpose underlying such damages [70]. The highest amount awarded for exemplary damages in cases cited was $200,000 [71]. That award was more than ten years ago, and it was appropriate to take into account inflation since then [72]. In the event, $400,000 was the appropriate amount awarded as exemplary damages [73]. 67.Fok JA (as his Lordship then was) agreed with the approach of Kwan JA, and added that exemplary damages are anomalous in the civil sphere since they confuse the civil and criminal functions of the law. In particular, it is anomalous that money extracted from a defendant by way of punishment should be paid to a claimant, in whose hands they are a windfall, rather than the State. However, they remain a part of the common law of England and also of Hong Kong [85]. 68.Fok JA held that an important consequence of exemplary damages not being compensatory is that their assessment does not in principle relate to the loss suffered by the plaintiff. Instead, the general objectives of exemplary damages may be stated as being punishment, deterrence and denunciation: see Wilkes v Wood (1763) Lofft 1, 98 ER 489, per Pratt LCJ [86]. 69.Another important factor to bear in mind is that awards of exemplary damages should, in principle, be moderate: see Rookes v Barnard (No 1) [1964] UKHL 1, [1964] AC 1129 per Lord Devlin at [1127-1128]. 70.I am of the view that exemplary damages should be paid by the 1st and 2nd Defendants, not as an adjunct or alternative to the damages for loss of profits, or loss of goodwill of the Michelin Award, but as punishment of the 1st and 2nd Defendants’ conduct. The conduct of the 1st and 2nd Defendants was reprehensible and lack in good faith in intending and actually causing loss to the Plaintiff. They manipulated the subrogation of the 5th Defendant in taking up the lease of the Shop by false pretences, thereby depriving the opportunity by the Plaintiff to continue operating the Shop. 71.It really begs the question of why the 1st and 2nd Defendants were doing it as they would not have reaped any real benefit in keeping the Michelin Award without signing another Franchise Agreement with the Plaintiff. 72.As to quantum, in Yuen Wai Han v South Elderly Affairs Ltd [2005] HKLRD 277, the plaintiff was employed as a supervisor in the defendant’s elderly home. She was dismissed during pregnancy. Punitive damages were assessed at $10,000. 73.In Yuen Sha Sha v Tse Chi Pan [1999] 2 HKLRD 28, the defendant secretly installed a camcorder in the plaintiff’s dormitory in university and videotaped the plaintiff changing clothes. The plaintiff sued for sexual harassment under the Sex Discrimination Ordinance (Cap. 480). General damages were assessed at $50,000 and exemplary damages at $10,000. 74.In Chan Kwok Wai v SJ HCPI 134/1999 (30 June 2000, unreported), the plaintiff sued for damages as a result of being assaulted by a number of police officers inside the police station. General damages were assessed at $80,000 and exemplary damages at $100,000. 75.In Wong Kwai Fun v Li Fung [1994] 1 HKC 549, the plaintiff made a loan to the defendant and charged interest in excess of 400% p.a. The plaintiff had also assaulted and uttered threats to the defendant. Aggravated damages (ie additional damages to reflect injury to the plaintiff’s pride, dignity and humiliation) were assessed at $200,000 and exemplary damages at $200,000. 76.In William Allan v Ng & Co (a firm), the Plaintiff filed for divorce with his wife. He enquired with the defendant firm on the prospect of the defendant firm representing him. He disclosed confidential information to the defendant firm, including merits of the wife’s case. Thereafter, the wife instructed the defendant firm in the divorce. The Court of Appeal assessed exemplary damages at $400,000 in 2012, after taking into account past awards and inflation since then. 77.Having reviewed the past awards, the gravity for reprehension in this case should be less than in Wong Kwai Fun v Li Fung and William Allan v Ng & Co (a firm). After taking into inflation, the award for exemplary damages in this case is $300,000. Conclusion 78.In the event, damages for loss of profits are $3,803,782.32 and exemplary damages are $300,000, totaling $4,103,782.32. Costs 79.The 1st and 2nd Defendants shall pay the Plaintiff’s costs, to be taxed if not agreed. 80.Lastly, I wish to thank Mr Chong of counsel for his helpful submissions.
Mr Patrick Chong, instructed by Au & Vrijmoed, for the Plaintiff The 1st Defendant was not represented and did not appear The 2nd Defendant was not represented and did not appear |
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