Mammy Pancake Company Ltd v. Carla Day Ltd and Others

HCA 1044/2021

[2025] HKCFI 2218

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1044 OF 2021

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J U D G M E N T

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1.The 1^st and 2^nd Defendants have filed two summonses:

(1)  to set aside the Judgment dated 6 May 2024 given in absentia;

(2)  If (1) were refused, for extension of time for filing a notice of appeal against the Judgment.  :

Background

2.The Plaintiff was suing, inter alia, the 1^st and 2^nd Defendants, under four causes of action:

(1)  breach of contract;

(2)  breach of confidentiality;

(3)  breach of good faith; and

(4)  causing loss by unlawful means and conspiracy.

3.The facts were set out in the Judgment dated 6 May 2024.  In summary, the 1^st Defendant is the franchisee of the Plaintiff’s franchise of “Mammy Pancake”, a pancake made from the ingredients supplied by the Plaintiff.  The 2^nd Defendant is the sole director of the 1^st Defendant.

4.During the operation of the franchise prior to the present dispute, the shop received a Michelin Award for “recommended street food”, and was successfully granted 6 years in a row.  It is noted that the award related specifically to the short premises in operation.

5.Towards the end of the shop’s lease in 2021, the 2^nd Defendant told the Plaintiff’s owner that she was not going to renew the franchise and the lease as she might be emigrating.

6.The Plaintiff’s owner told the 2^nd Defendant that in case she decided not to renew the franchise and the lease,  the Plaintiff would take up the lease of the shop and operate it itself.  The 2^nd Defendant then said that she might be renewing or her sister may be taking up the franchise. Anyway, negotiations with the landlord took place between the Plaintiff’s agent and as well as the 2^nd Defendant.

7.At some stage during the negotiations, the 2^nd Defendant told the landlord that the 5^th Defendant, a party related to the 1^st and 2^nd Defendants, was a representative of the Plaintiff and asked the landlord to lease to the 5^th Defendant.  On the other hand, the negotiation as to whether the 2^nd Defendant would renew the lease was still engaged with the Plaintiff.

8.Eventually, the Plaintiff learned that the landlord that the shop had already leased to the 5^th Defendant.  The Plaintiff’s owner confronted the 2^nd Defendant and the 2^nd Defendant said it was misunderstanding with the landlord and the matter would be clarified.

9.I had found that the 2^nd Defendant was obviously lying to the landlord that the 5^th Defendant was a representative of the Plaintiff, and that the engagement with the Plaintiff took up much time before the Plaintiff did eventually approach the landlord, by which time it was too late.

10.I found dishonesty on the part of the 2^nd Defendant, and in breach of the confidentiality clause of the franchise in telling the 5^th Defendant about the lease, and also breach of the good faith clause.

11.At the trial, I decided to proceed in absentia of the 1^st and 2^nd Defendants because: (1) the Notice of Trial sent by the Court to the 1^st and 2^nd Defendants was not returned; and (2) the 2^nd Defendant procured the 1^st Defendant cease to be acting by solicitor, and there was no application to the Registrar for leave that the 1^st Defendant act by a director.  As such, the 1^st Defendant was not a party at the trial, and it was very telling that the 2^nd Defendant had no intention to take part in the trial at all.

12.I found the Plaintiff had proved its case and judgment was given in its favour.

Setting aside summons

13.Mr Kong, for the 1^st and 2^nd Defendants, submitted that the Judgment was irregular as either there was no affidavit of service of the Notice of trial on the 2^nd Defendant, or that the Plaintiff could not rely on the Notice of Trial sent by the Court to the 2^nd Defendant.

14.Further, Mr Kong submitted that the Amended Writ and Statement of Claim which related to the prayer of exemplary damages was not served on the 2^nd Defendant.  Hence, the Judgment is liable to be set aside ex debito justitiae.  Also, there was no service and/or affidavit of service that the trial bundle and the Plaintiff’s opening were sent to the 2^nd Defendant pursuant a Court order.

15.It is noted that apart from the service of the Amended Writ and Statement of Claim which had been returned, all the other notices by the Court as well as correspondence by the Plaintiff which included the service of the trial bundle and Plaintiff’s opening had not been returned.

16.It transpired from the Affidavit filed by the 2^nd Defendant in support of the present application that the 2^nd Defendant had emigrated to Australia in August 2021, and when she left Hong Kong, she used the address of her sister as a correspondence address, which address was given to the Court for record as well as to the Plaintiff’s solicitors.

17.In the beginning, the 2^nd Defendant has no fixed address in Australia.  Hence, she would receive her mail sent to her sister’s place and forwarded by her sister.  But after she had her fixed address, she instructed her sister to return all mail sent there and to mark it “no such person”.

18.I say it is hardly convincing as there would have been mail by relevant parties probably of importance to the 2^nd Defendant as she had nominated that as a correspondence address.  In any case, it is an important matter that her sister’s address was given to the Court for service in the present proceedings.

19.With the 2^nd Defendant’s own words that she had given instruction to return the mail, it is confirmed the 2^nd Defendant was deliberately absenting herself from taking part in the trial.  In any case, the Court was satisfied of the sending of the Notice of Trial with no return of such mail on the Court’s own record.

20.If the 2^nd Defendant had attended the trial, all matters could have been sorted out.  Hence, it is not an irregular Judgment, and one has consider the merits of the case in deciding whether to set aside. Of course, the reasons for not being present is also an important factor, and that I have already stated above.

21.The draft Grounds of Appeal is a copious document, but with the assistance of Mr Kong, it could be summarized as follows:

(1)  The Court erred in finding under the Franchise Agreement that the 1^st and 2^nd Defendants owed a duty of confidentiality to the Plaintiff covering the offer of the lease and reduced rent of $28,800 by the landlord;

(2)  There was a finding of dishonesty while no dishonesty had been pleaded;

(3)  The court erred in finding that the 2^nd Defendant stalled for time to enable the 5^th Defendant to take up the offer of the lease from the landlord and also it was not expressly pleaded;

(4)  The misrepresentation by the 2^nd Defendant to the landlord that the 5^th Defendant was the representative of the Plaintiff was not pleaded and/or was also wrong;

(5)  By reason of Grounds (2) and (4), the Court erred in finding a breach of good faith; and

(6)  By reason of Grounds (1) to (5), the Court was wrong in ordering exemplary damages.

22.Mr Kong agreed that the grounds breach of confidentiality and breach of confidence were alternative in that if there were breach of confidence, the Plaintiff would still succeed.

23.I shall deal the good faith point first, and I shall deal with Grounds (2) and (3) together. 

24.Mr Kong submitted that Order 18 rule 12(1)(b) of the Rules of the High Court stipulated that the mental condition of a party including fraudulent intention, must be specifically pleaded.  He referred to two cases on the pleading of dishonesty.  In Peonic Industrial Development Ltd v Yu Ka Hong Paul [2006] 4 HKC 406 (CA), Woo VP ruled at [33] as follows:

“33. On the requirement of pleading dishonesty I would respectfully adopt the judgment of Lord Millett in Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 3) [2003] 2 AC 1 at 291 and 292:

‘…

185. It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means “dishonestly” or “fraudulently”, it may not be enough to say “willfully” or “recklessly”. Such language is equivocal…

186. The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient…’”

25.In Law Yiu Wai Ray and Anor v Cheung Ying Man [2022] HKCFI 2127, Recorder Manzoni SC ruled as follows:

“44. … I have no doubt that in order to justify them there needs to be some level of particularity as to the alleged dishonesty or bad faith and the deliberate intention to cause damage. The statement of claim is silent as to both.

45. I do not accept…that it is sufficient for court to look at all the facts pleaded, and from those facts draw a prima facie inference that the Defendant specifically intended to injure the Plaintiffs, or was recklessly indifferent as to whether her actions would cause injury. Something more is needed, both in relation to the alleged dishonesty or bad faith and the intention, but nothing more is pleaded.

…

47. … When dishonesty and bad faith are alleged it is incumbent on the Plaintiffs to make specific pleas as to all facts and matters from which the inference of dishonesty or bad faith is drawn, and to articulate with particularity all matters relied upon to support the proposition.  In my view the pleading in this case does not do that.  It simply uses the relevant words, but does not begin to articulate precisely how the existence of a false representation (even assuming that they are false) demonstrates the necessary mental element of bad faith or dishonesty.  A false representation is equally consistent with an error as it is with dishonesty, and in order to justify a plea of dishonesty or bad faith, the plea must articulate with clarity exactly what the pleader contends makes the false representation dishonest or in bad faith…”

26.Mr Kong said that the good faith clause under the Franchise Agreement was in Chinese as “誠信原則” (i.e. principle of good faith) and “誠實信用及最大善意”, (i.e. honesty, trustworthy and the utmost sincerity).

27.Mr Kong submitted that it was the Plaintiff’s interpretation that those words in Chinese amounted to the duty of good faith.  I have found that it did amount to the duty of good faith, and may I ask rhetorically what else could they relate to?

28.As to pleading, the facts leading to the finding of dishonesty were pleaded, and with the pleading of breach of the good faith clause in question.  Dishonesty would inevitably be included because dishonesty is an ingredient of breach of good faith under the law.

29.As to stalling for the time, it was obvious from the facts that the engagement of the Plaintiff by the 2^nd Defendant as the start of renewing the franchise and the lease did lead to the fact that the 5^th Defendant had already signed the lease when the Plaintiff woke up and contacted the landlord for signing the lease itself.

30.In any case, the main dishonesty was that the 2^nd Defendant did represent to the landlord that the 5^th Defendant was the representative of the Plaintiff.  I agree that the word of misrepresentation was not used.  Obviously, the fact was that the 2^nd Defendant was not a representative of the Plaintiff, and it was a misrepresentation to the landlord, and no one could have been mistaken about that. 

31.As to the Whatsapp messages, taken by themselves they might not be enough to prove the case, but the case relied on live evidence from the Plaintiff’s witnesses, and the messages did support their evidence.

32.Hence, I did not find there is any point in Ground (5) that Grounds (2) to (4) did not support the conclusion of breach of good faith.

33.As to the confidentiality clause, Mr Kong submitted that was a general clause and it did not cover the information relating to negotiating for the lease.  Whether something is confidential must be looked at in the context of the factual matrix.  In any case, by reason of my conclusion to Grounds (2) and (4) above, there is no need to deal with Ground (1). 

34.As to Ground (6), Mr Kong submitted that the original pleading did not include the prayer for exemplary damages, and the Amended Writ and Statement of Claim purportedly served by post to the 2^nd Defendant at the address on the record was returned.  And the Plaintiff has not informed the Court that the service has been returned. 

35.In answer, Mr Chong, counsel for the Plaintiff, submitted that the fault was of the 2^nd Defendant’s own making because she had instructed her sister to return the mail sent and to mark it “no such person”.

36.Mr Chong submitted that if the 2^nd Defendant were to disuse the sister’s address, she should have notified the change of address and given her new address. 

37.Mr Chong pointed out that the Plaintiff also used an Australian address at Berriedale, Tasmania, in her Witness Statement prepared for this trial in August 2022, which was not a proper address.

38.Mr Chong pointed out that from the 2^nd Defendant’s recent Affidavit and the reckoning of time, she had already moved out of that address by the time she filed her Witness Statement.  The 2^nd Defendant lived there when she landed in Australia and she had only stayed there for 10 months, and had already moved out by May or June 2022. 

39.Hence, Mr Chong was bold to say that notwithstanding the return of the service of the Amended Writ, it should be deemed to be good service because it was sent to the address for service given by the 2^nd Defendant, and it was returned on the instruction of 2^nd Defendant.  Mr Chong submitted that if one were to condone the giving of bogus address for service, it would be chaotic, which I take it as opening a floodgate. 

40.Alternatively, Mr Chong said that even if the Amended Writ for the plea of exemplary damages were not served, the court could set aside that part of the judgment relating to the exemplary damages only.

41.I find that there are special circumstances in this case, i.e. evasion of service on the part of the 2^nd Defendant by instructing the return of mail properly sent to address for service given by her.  I agree with Mr Chong that service should be deemed to be good.  Hence, the setting aside summons is refused. 

Summons for extension of time to file Notice of Appeal.

42.Mr Kong submitted that if the delay were short, the Court should allow the filing of Notice of Appeal out of time.  If it were a long delay, one would have to look at the merits or real prospect of success.

43.Mr Kong submitted that the delay was only short, because while the Judgment was delivered in May 2024, the 2^nd Defendant was only aware of it in November or December 2024 when she was approached by the Australian agent of the Plaintiff’s solicitors.  And the applications we are now dealing with were filed in January 2024. Hence, the delay should be categorized at short delay.

44.I did inquire into the finding of the 2^nd Defendant’s current address to see whether there was anything untoward about it.  Mr Chong submitted that it was a result of Facebook search for the purpose of enforcement of the Judgement.  Mr Chong also said that the Judgment sent by the Plaintiff to the 2^nd Defendant in May 2024 was not returned.

45.I agree that all these alleged lack of notice was also of the 2^nd Defendant’s own making.  I have already considered the merits or the purpose of the setting aside the Judgment. 

46.And on Ground (6), apart from the point that the pleading on   exemplary damages was not served in above, I also consider that whether the acts and conducts of the 2^nd Defendant should not give rise to such exemplary damages.  I have found the 2^nd Defendant acts reprehensible, and I have already much reduced the original claim by the Plaintiff.

47.In the event, I found there is no real prospect of success in the appeal, and hence, the summons for extension of time is also dismissed.

48.I order that costs of the two summonses should be paid by the 1^st and 2^nd Defendants, summarily assessed to be $250,000.

49.May I thank Mr Chong and Mr Kong for their submissions.