HCA1269/2008

HCA1269/2008

由此 A A HCA1269/2008 B B IN THE HIGH COURT OF THE C HONG KONG SPECIAL ADMINISTRATIVE REGION C COURT OF FIRST INSTANCE D D ACTION NO. 1269 OF 2008 E ---------------------------- E F BETWEEN F G FINE ELITE GROUP LIMITED Plaintiff G H and H I I CHENG WAI TAO Defendant J ------------------------------- J K Before : Hon Fok J in Chambers (Open to Public) K Date of Hearing : 12 April 2010 L L Date of Judgment : 27 April 2010 M M ----------------------- N JUDGMENT N ----------------------- O O Introduction P P 1. The plaintiff applies, by a summons dated 3 September 2009 Q under Order 86, rule 1 of the Rules of the High Court, for an order for Q specific performance of an agreement known as the Hero Elegant R R Agreement dated 16 September 2006 to which the plaintiff and defendant S were both parties. S T T U U V V 由此 - 2 - A A 2. As required by Order 86, rule 2(2), minutes of order setting B B out the judgment sought by the plaintiff are attached to the summons. C C 3. For his part, the defendant maintains that the Hero Elegant D D Agreement was induced by and/or tainted with misrepresentations and has E since been rescinded, alternatively that the agreement has been brought to E an end by the defendant’s acceptance of repudiatory breaches of it by the F F plaintiff. G G Background facts H H 4. The background to this action is that the defendant together I I with various individuals including Poon Ka Man Jason (“Jason Poon”), J Poon Wai Daisy (“Daisy Poon”) and a Mr Shigemitsu Katsuaki, were J shareholders together in the Ajisen Group which operated Japanese ramen K K restaurants in Hong Kong. L L 5. According to the plaintiff, in early 2004 the shareholders of M M the Ajisen Group agreed to develop Japanese-style chain restaurants using N corporate vehicles in which all of them would be interested as shareholders. N The defendant maintains, on the other hand, that it was his decision in O O early 2004 to establish and operate a sushi business. P P 6. On 14 April 2004, a company called Smart Wave Limited was Q Q incorporated in Hong Kong with the defendant holding one share and R being its sole director. R S S 7. On 5 May 2004 a provisional tenancy agreement was signed T by the defendant on behalf of Smart Wave for premises at G/F, T U U V V 由此 - 3 - A A 14 Granville Road, Tsim Sha Tsui. As recorded in the provisional B B tenancy agreement, Smart Wave was to operate “either an Ajisen Ramen C outlet or a Japanese sushi shop or a Japanese-style pub”. C D D 8. On 10 August 2004, Smart Wave commenced a sushi E restaurant at the Granville Road premises. The restaurant was known in E English as “Itamae Sushi”, and in Chinese as (板前壽司), these being F F service marks designed for the purposes of the business. G G 9. On 30 November 2004, there was an allotment of H H 9,999 shares in Smart Wave, of which 1,000 shares were allotted to I Jason Poon, 2,400 shares to Daisy Poon, 2,299 shares to the defendant and I 4,300 shares to six other persons. J J K 10. The plaintiff alleges that from February 2005 onwards, the K defendant caused Smart Wave to advance interest-free loans to companies L L solely owned by him for the purposes of opening further Itamae Sushi M restaurants. Whether that is true or not, it is a fact that on 30 March 2005 M a company called Joyful Gain Limited, which is solely owned by the N N defendant, commenced a second Itamae Sushi restaurant business at G/F, O Excelsior Plaza, Causeway Bay, and on 25 February 2006 a company O called Perfect Plan Limited, also solely owned by the defendant, P P commenced a third Itamae Sushi restaurant business at Soy Street, Q Q Mongkok. R R 11. The plaintiff was incorporated on 11 May 2006. S S T T U U V V 由此 - 4 - A A 12. In June 2006, a company called Well Keen Limited, also B B solely owned by the defendant, began operating a business of a food C processing workshop for the Itamae Sushi restaurants. C D D 13. According to the plaintiff, sometime in the mid-2006, E Jason Poon and Daisy Poon discovered the interest-free loans allegedly E caused by the defendant to be made by Smart Wave to Joyful Gain and F F Perfect Plan and the fact that the second and third Itamae Sushi restaurants G were being operated by companies in which they had no shares. For his G part, the defendant maintains that in July or August 2006 he raised with H H Mr Eugene Wong, as the representative of Jason Poon, the fact that the I service marks for Itamae Sushi were solely owned by and belonged to him I and should only be registered in his sole name. The defendant maintains J J that this was a condition precedent of the agreement known as the Hero K Elegant Agreement entered into between the parties the following month K (see below). L L M 14. On 9 August 2006, the plaintiff applied to register the service M marks of “Itamae Sushi (板前壽司)” with the Trade Mark Registry. N N O 15. Whatever the position in respect of the matters referred to in O paragraph 13 above, what is incontrovertible is that on 16 September 2006 P P a number of documents were executed : Q Q (1) the plaintiff, the defendant and a company said to be R incorporated in Hong Kong called Hero Elegant Limited R (“Hero Elegant”) entered into an agreement entitled S S “Shareholders’ Agreement relating to Hero Elegant Limited” T (“the Hero Elegant Agreement”); T U U V V 由此 - 5 - A A (2) Daisy Poon, the defendant, Mr Shigemitsu, a company B B incorporated in Hong Kong called Favor Will Limited and C others entered into an agreement entitled “Shareholders’ C Agreement relating to Favor Will Limited” (“the Favor Will D D Agreement”); and E (3) the defendant, Jason Poon, Daisy Poon and Mr Shigemitsu E signed a document entitled “Ajisen Group — Memorandum F F of Reorganisation”. G G The Hero Elegant Agreement H H 16. The Hero Elegant Agreement was signed by the defendant, on I I his own behalf and on behalf of Hero Elegant, and by Jason Poon on J behalf of the plaintiff. J K K 17. By this agreement it was agreed that the group of Hero L Elegant and its subsidiaries should be principally engaged in the business L of establishing, managing and operating Japanese-style chain restaurants M M and related businesses using the Service Marks (clause 2.1). The term N “Service Marks” was defined in the Hero Elegant Agreement as “the N service marks bearing the name of ‘ITAMAE SUSHI (板前壽司)’ used in O O the course of or associated with the Business and currently applied for P registration in the name of Party A, as more particularly set out in the P Schedule hereto”. Q Q R 18. It was also agreed that, as at 16 September 2006, the R defendant and the plaintiff were the respective beneficial owners of 69% S S and 31% of the shares in Hero Elegant and that the shareholdings should at T all times be in this proportion (clause 3.1). T U U V V 由此 - 6 - A A 19. The defendant undertook to the plaintiff and Hero Elegant that B B he would not use the name or trading style of any group company or any C trademarks or logos or device similar in appearance to the Itamae Sushi C service marks or any intellectual property of any group company in the D D PRC (including Hong Kong and Macau) or Asia or any other part of the E world save for the purpose of the Itamae Sushi business of the group E (clause 14.2). F F G 20. The defendant agreed to provide a summary of financial G statements of the group on a quarterly basis (clause 14.3). H H I 21. The defendant granted to Hero Elegant and each of the group I companies, whether existing at the date of the agreement or subsequently, J J an exclusive license to use the service marks worldwide during the K continuance of the agreement and so long as the plaintiff remained a K shareholder (clause 14.4). L L M 22. The plaintiff and defendant agreed and undertook to each M other that all chain-restaurants established or to be established to conduct N N the Itamae Sushi business should be owned and operated by a group O company and that Hero Elegant should be the holding company of all such O group companies owning and operating the Itamae Sushi business P P (clause 14.5). Q Q 23. It was provided that the agreement should continue in full R R force and effect until Hero Elegant should be wound up or otherwise cease S to exist as a separate corporate existence or unless terminated by reason of S all the shares being held beneficially by one shareholder or, in relation to T T U U V V 由此 - 7 - A A any one shareholder, by that shareholder ceasing to be a shareholder B B (clause 16.1). C C 24. The agreement contained an entire agreement clause D D (clause 24.1) in the following terms : E E “This Agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with herein and F supersedes any previous agreements, arrangements, statements F or transactions between the parties hereto in relation to the matters hereof.” G G H H The Favor Will Agreement I 25. Favor Will was the ultimate holding company of a group of I companies carrying on a business known in English as “Ajisen Ramen” J J and in Chinese as 味千拉麵. K K L 26. By the Favor Will Agreement, the parties agreed to set out L their respective rights and obligations with respect to the Ajisen Ramen M M business. N N 27. There is no dispute that the parties performed their obligations O O under this agreement. P P The Ajisen Group — Memorandum of Reorganisation Q Q 28. The purpose of the Memorandum of Reorganisation was to set R out the procedures for the restructuring of the Ajisen Group for the purpose R of listing the shares of its proposed holding company, Ajisen (China) S S Holdings Limited on the Hong Kong Stock Exchange. T T U U V V 由此 - 8 - A A 29. One of the requirements of the restructuring was that B B Daisy Poon and Jason Poon should dispose of their shares in Smart Wave C to independent third parties. Another was that Mr Shigemitsu should C dispose of his shares in Smart Wave to the defendant. D D E 30. Pursuant to this reorganisation, Daisy Poon and Jason Poon E executed transfers in respect of their 34% shareholding in Smart Wave to F F the plaintiff. However, Smart Wave, through its board of directors, G which consists solely of the defendant, has not registered the transfer and, G as a result, there is pending litigation in respect of this. H H I 31. At the time of the transfer to the plaintiff, the plaintiff was I beneficially owned by Jason Poon. However, Jason Poon sold his J J beneficial interest in the plaintiff on 7 March 2007 to a company called K Got’a Place Holdings Limited, a company owned by Mr Andrew Lee K Tak Lun. L L M 32. For Mr Shigemitsu’s part, he executed a transfer in respect of M his 15% shareholding in Smart Wave to the defendant. N N O Events subsequent to the Hero Well Agreement O P 33. On 18 September 2006, two days after the execution of the P Hero Elegant Agreement, the defendant wrote to Daisy Poon on behalf of Q Q Smart Wave informing her that the shareholders of the company were R requested to inject a total of HK$4 million and requesting that she R contribute HK$960,000 in respect of her 24% shareholding in the S S company. T T U U V V 由此 - 9 - A A 34. On 3 October 2006, a letter in Chinese was written by B B Jason Poon addressed to Smart Wave and marked for the attention of the C defendant. In that letter Jason Poon referred to his 34% shareholding in C Smart Wave and paid the balance of his contribution towards the D D HK$4 million capital required. He also confirmed that the plan for the E development of the Itamae Sushi business was to expand its business E operations by way of chain restaurants, that the chain of restaurants was to F F be placed under a holding company and that the percentage of his G shareholding in the holding company would be 31%. Finally, he G confirmed that when appropriate, Smart Wave would also be placed under H H the holding company. At the foot of the letter there is what appears to be I the signature of the defendant on behalf of Smart Wave acknowledging its I contents. The defendant disputes the authenticity of this document. J J K 35. On 16 October 2006, a company called Regal Well Limited, K which is solely owned by the defendant, commenced a fourth Itamae Sushi L L restaurant business at Metro City, Tseung Kwan O. M M 36. On 26 October 2006, the defendant applied register the N N service marks “Itamae Sushi (板前壽司)” with the Trade Mark Registry. O O 37. On 20 November 2006, a company called Charm Gold P P Limited, which is solely owned by the defendant, commenced a fifth Q Q Itamae Sushi restaurant business at Gala Place, 56 Dundas Street, R Mongkok. R S 38. According to the defendant, on 27 November 2006, he S discovered that the plaintiff had already filed a prior application for T T U U V V 由此 - 10 - A A registration, on 9 August 2006, of the service marks “Itamae Sushi (板前 B B 壽司)” with the Trade Mark Registry. It is his case that he confronted C C Jason Poon about this after his discovery. D D 39. The defendant asserts that in around December 2006 the E disputes concerning the plaintiff’s application to register the Itamae Sushi E F service marks culminated in a confrontation between him and Jason Poon, F at which Mr Gary Leung Sai Ming, Mr Eugene Wong and Mr Francis Chan G G were also present. The defendant says that, notwithstanding his demands H to Jason Poon that the plaintiff immediately withdraw the application for H registration of the service marks, Jason Poon refused to do so and I I maintained that the plaintiff would contest the defendant’s attempts to J register the service marks under his name. J K K 40. As the defendant puts it in paragraph 34 of his affirmation in L opposition to the plaintiff’s application : L “Therefore, at that occasion I called off the Hero Elegant M M Agreement and told Jason Poon on behalf of the Plaintiff that since he refuses to rectify the breaches I will treat myself as N relieved from the Hero Elegant Agreement. In addition to N Mr. Leung Sai Ming also known as Gary Leung, Mr. Eugene Wong, Mr. Francis Chan, Miss Daisy Poon and Mr. Shigemitsu O O Katsuaki also heard me say so. I am advised and verily believe that the Hero Elegant Agreement was thereby rescinded or P alternatively terminated.” P Q Q 41. In around late December 2006, a company called Wise Master R Limited, which is solely owned by the defendant, commenced a sixth R Itamae Sushi restaurant business at Festival Walk, 80 Tat Chee Avenue, S S Kowloon Tong. T T U U V V 由此 - 11 - A A 42. On 19 January 2007, the plaintiff assigned to Jason Poon the B B trademark applications it had made in respect of the Itamae Sushi service C marks. C D D 43. Since about May 2007, the defendant has caused companies E owned by him to open other Japanese-style sushi restaurants under the E English name of Itacho Sushi and the Chinese name of (板長壽司) : F F (1) In July 2007, a company called Ocean Profit Enterprises G G Limited, commenced the first Itacho Sushi restaurant business H at Amoy Plaza, Kowloon Bay. H (2) In November 2007, a company called Star Wave Trading I I Limited commenced a second Itacho Sushi restaurant business J at Ashley Nine, Tsim Sha Tsui. J (3) In about January 2008, a company called Bonway Limited K K commenced a third Itacho Sushi restaurant business at 318 L Hennessy Road, Wanchai. L (4) On or about 10 March 2008, a company called Sander M M Limited commenced a fourth Itacho Sushi restaurant business N at Excelsior Plaza, Causeway Bay. N (5) On or about 8 May 2008, a company called Wise Faith O O Investments Limited commenced the second Itacho Sushi P restaurant business at Millennium City 5, Kwun Tong. P Q Q 44. On 28 May 2007, Jason Poon executed a declaration of trust R in favour of the plaintiff in respect of the pending Itamae Sushi service R marks trademark applications. S S T T U U V V 由此 - 12 - A A 45. In September 2007, a company called Pacific Giant Limited, B B which is solely owned by the defendant, commenced a seventh Itamae C Sushi restaurant business at Luk Yeung Galleria, Tsuen Wan. C D D 46. In March 2008, a company called Faithful Gain Limited, E which is solely owned by the defendant, commenced an eighth Itamae E Sushi restaurant business at Maritime Square, Tsing Yi. F F G 47. In June 2008, the plaintiff’s then solicitors discovered that the G defendant had failed to incorporate Hero Elegant Limited either in the BVI H H or in Hong Kong. I I 48. On 9 July 2008, the writ in this action was issued. The J J Amended Statement of Claim was filed and served on 14 July 2009 and K the Amended Defence filed and served on 11 August 2009. K L L 49. On 26 August 2009, Jason Poon offered, in an open letter M from his solicitors to solicitors instructed by the defendant in respect of the M trademark applications, to withdraw his pending trademark applications in N N respect of the Itamae Sushi service marks on condition that the defendant O undertake to procure that the trademarks be assigned to and used solely for O the benefit of the holding company under the Hero Elegant Agreement and P P not for the defendant’s own benefit. Q Q 50. On 3 September 2009, the Amended Reply was filed and R R served. On the same date, the summons under Order 86, now before me, S was issued. S T T U U V V 由此 - 13 - A A The applicable principles B B 51. There was no dispute between the parties as to the applicable C C principles to be applied on an application under Order 86. These were D agreed to be those stated by Deputy Judge To (as he then was) in Super D Town Investments Ltd v. Ives Developments Ltd, unrep., HCA86/2006, E E 22 May 2007, at paras.5 and 6 : F F “5. While the scope of application of Order 86 and Order 14 of the RHC are different, the legal principles applicable to an G application for summary judgment under both Orders are the G same. These principles are well-established. The cardinal principle is that a defendant ought not to be driven from the H H judgment seat if he has an arguable defence. Thus, summary judgment should only be given where it is a clear and obvious I case and ought therefore not to be tried: see Hong Kong Civil I Procedure 2007 Note 86/4/1, Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 and Chow Yim Woon v Lam Yung Ming [2000] J J 3 HKLRD 373. K 6. A concise statement of the standard approach in an K application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd v L Ocean Joy Investments Ltd [2004] 1 HKC 438. The court has L to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is M M to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law. In determining the N first question, the court should not embark on a mini trial of the N action on affidavit evidence. The burden of proof is not a heavy one. It is not the function of the court at this stage to O assess if a defence will succeed at trial. The court should not O rule out a defence simply because it thinks the defence would not P be believed by the trial judge because of some inherent P weaknesses, save where what the defendant says is practical moonshine. Insofar as the second question is concerned, Q summary judgment will not be granted if there are arguable Q defences or serious disputes of law: see Man Earn Ltd v Wing R Ting Fong [1996] 1 HKC 225 and Ng Lung Sang Anita v Lam R Yuk Lan [1999] 4 HKC 106.” S S T T U U V V 由此 - 14 - A A 52. In short, the court has to determine two questions, namely B B whether what the defendant says is believable and, secondly, if it is, C whether what the defendant says amounts to an arguable defence in law. C D D 53. As to the first question, the test is whether the defendant’s E assertions are believable, not whether they are to be believed: Re Safe Rich E Industries Ltd, unreported, CACV81/1994, 3 November 1994, citing Ng F F Shou Chun v. Hung Chun San [1994] 1 HKC 155 at 158G-H. G G Summary of the Plaintiff’s claim H H 54. The plaintiff’s claim as pleaded in the Amended Statement of I I Claim is based on alleged breaches by the defendant of the Hero Elegant J Agreement and the agreement contained in or evidenced by the letter in J Chinese dated 3 October 2006. Since the defendant disputes the K K authenticity of the latter document, the plaintiff was content to rest its L claim on the Hero Elegant Agreement. This concession is of no L significance, in my view, as the content of the 3 October 2006 letter does M M not appear to add to the defendant’s contractual obligations under the Hero N Elegant Agreement. N O O 55. The plaintiff contends that the defendant has acted in breach P of the Hero Elegant Agreement in three respects, namely : P Q (1) in failing to incorporate Hero Elegant or to put in place any Q holding company in which the plaintiff has a 31% R R shareholding; S (2) in failing to transfer the shares of the various companies S operating the eight Itamae Sushi restaurants to a holding T T U U V V 由此 - 15 - A A company and to allot 31% of the issued shares in the holding B B company to the plaintiff; and C C (3) in establishing a chain of restaurants called the “Itacho Sushi” ( 板 長 壽 司 ) restaurants, which the plaintiff contends is D D deceptively similar to Itamae Sushi, in order to divert business E from or to compete with the Itamae Sushi restaurants. E F F Summary of the Defendant’s case G G 56. The defendant’s case is that : H H (1) the plaintiff and/or Jason Poon made representations to the I defendant as to the pre-contractual state of affairs, namely that, I to the knowledge of the plaintiff and Jason Poon, nobody J J other than the defendant was entitled to registration of the K Itamae Sushi service marks nor had anybody in fact purported K to make falsely competing registrations or claims (the L misrepresentation defence); and L M (2) there is an implied term of the Hero Elegant Agreement to the M effect that the plaintiff, whether by itself or through N Jason Poon, would assist and support the defendant’s N registration of the Itamae Sushi service marks or at least O O would not obstruct the same or put up competing registrations P or claims (the repudiatory breach defence). P Q Q 57. The misrepresentation defence is put on a number of bases. R It is primarily based on the combined effect of various provisions in the R Hero Elegant Agreement. It is also pleaded as being based on an alleged S S agreement or understanding made in around April 2004 between various T individuals including the defendant, Jason Poon and Daisy Poon that the T U U V V 由此 - 16 - A A defendant would own the Itamae Sushi service marks and be at liberty to B B open further sushi businesses using those service marks. Finally, the C misrepresentation defence is said to be based on the condition precedent C referred to in paragraph 13 above. D D E 58. By reason of the misrepresentation defence, the defendant E maintains that the Hero Elegant Agreement was liable to be rescinded F F ab initio. He also maintains that the plaintiff’s application to register the G Itamae Sushi service marks amounted to a repudiatory breach of the Hero G Elegant Agreement and that, following his discovery of this on H H 27 November 2006, he confronted the plaintiff in around December 2006 I and, in the face of Jason Poon’s refusal to withdraw the application, he I terminated the Hero Elegant Agreement. As contended in the defendant’s J J Skeleton Submissions : “Either way the Hero Elegant Agreement has come K to an end — by rescission for misrepresentation, or by acceptance of the K repudiatory breaches.” L L M 59. Subject to these defences, the defendant does not put forward M any positive case in opposition to the factual premises on which the N N plaintiff’s allegations of breach of the Hero Elegant Agreement are based. O Thus, in relation to breaches (1) and (2), it was not suggested by the O defendant that he had in fact established Hero Elegant or that he had P P transferred the shares in the companies operating the various Itamae Sushi Q restaurants to a holding company in which 31% of the shares were held by Q the plaintiff. As for breach (3), the defendant’s case is, in essence, a bare R R denial. S S T T U U V V 由此 - 17 - A A Has the Hero Elegant Agreement been rescinded for misrepresentation? B B Misrepresentation based on alleged 2004 agreement and/or condition C precedent C D 60. I am not persuaded that the alleged agreement reached in D 2004 or the condition precedent relied upon by the defendant gives rise to E E a triable issue. F F 61. Even if the alleged 2004 agreement and condition precedent G G are assumed to be true, both are rendered ineffective by the entire H agreement clause in the Hero Elegant Agreement : see per Lightman J in H Inntrepreneur Pub Co. (GL) v. East Crown Ltd [2000] 2 Lloyd’s LR 611 at I I para. 7. The clause (set out in paragraph 24 above) is, in my view, of J sufficient width to capture pre-contractual statements whether J characterised as misrepresentations or collateral agreements. K K L 62. An additional point relating to the alleged 2004 agreement is L that the plaintiff was only incorporated in May 2006 and so it is difficult to M M see how it could be bound by an agreement allegedly made in April 2004. N N Misrepresentation based on terms of Hero Elegant Agreement O O 63. In the interpretation clause of the Hero Elegant Agreement, P P the term “Service Marks” is defined to mean: “the service marks bearing Q the name of ‘ITAMAE SUSHI (板前壽司)’ used in the course of or Q associated with the Business and currently applied for registration in the R R name of Party A, as more particularly set out in the Schedule hereto”. S The defendant is identified as Party A under the Hero Elegant Agreement. S T T U U V V 由此 - 18 - A A 64. The defendant relies on the combined effect of the above B B definition of the term “Service Marks” and clauses 14.2 and 14.4 in the C Hero Elegant Agreement to support his contention that there was a C representation that nobody other than the defendant was entitled to D D registration of the service marks and that no one else had in fact purported E to make a competing claim to register those service marks. E F F 65. I am also not persuaded that the alleged misrepresentation G defence based on the terms of the Hero Elegant Agreement gives rise to a G triable issue. H H I 66. I agree with the submission of Mr Paul Shieh SC, leading I counsel for the plaintiff, that the provisions of the Hero Elegant Agreement J J relied upon are part of the contract itself and therefore can only take effect, K if at all, as contractual warranties and not as pre-contractual K representations. L L M 67. Furthermore, I am unable to see how the necessary element of M reliance can be established by the defendant. I agree with Mr Shieh SC N N that insofar as the alleged existing fact, of which a misrepresentation must O consist, consists of the fact that there was at the time of the execution of O the Hero Elegant Agreement a pending trademark application in respect of P P the Itamae Sushi service marks in the name of the defendant, this must Q have been known by the defendant not to be true since he had not, by that Q stage, submitted any such trademark application. R R S 68. Had the defence to the action been confined to the S misrepresentation defence, I would not have been persuaded that any T T triable issue had been raised by the defendant. U U V V 由此 - 19 - A A Has the Hero Elegant Agreement been terminated by acceptance of the B plaintiff’s repudiatory breach(es)? B C 69. The asserted defence, namely that the Hero Elegant C Agreement has been terminated by the defendant’s acceptance of the D D plaintiff’s repudiatory breach, if credible, plainly gives rise to a triable E issue. It is necessary to consider two aspects of the asserted defence; first, E whether it is arguable that there was any breach of the Hero Elegant F F Agreement on the part of the plaintiff and secondly, whether it is arguable G that the defendant brought the contract to an end by accepting the breach. G H H 70. It is the defendant’s case that the plaintiff has acted in breach I of an implied term of the Hero Elegant Agreement to the effect that the I plaintiff, whether by itself or through Jason Poon, would assist and support J J the defendant’s registration of the Itamae Sushi service marks or at least K would not obstruct the same or put up competing registrations or claims. K L L 71. The above implied term is not pleaded in the Amended M Defence. Instead, it was identified for the first time in the defendant’s M affirmation in opposition to the plaintiff’s summary judgment summons. N N O 72. The plaintiff maintains, for its part, that the implied term O relied upon by the defendant is neither obvious nor necessary. P P Mr Shieh SC submitted that the combined effect of the provisions of the Q Hero Elegant Agreement relied upon by the defendant as giving rise to the Q implied term, namely the definition of Service Marks and clauses 14.2 R R and 14.4, is not concerned with the identity of the party who is the S S registered owner of the trademarks but instead is focused on the question T T U U V V 由此 - 20 - A A of who is permitted to use the trademark during the lifetime of the Hero B B Elegant Agreement. C C 73. Thus, he submitted that the combined effect of clauses 14.2 D D and 14.4 of the Hero Elegant Agreement is such that it makes no difference, E for as long as the plaintiff remains a shareholder of Hero Elegant, whether E the trademarks are vested in the defendant’s name. He contended that, F F because of clause 14.5, whoever owns the trademarks, whether it be the G plaintiff or the defendant, the relevant trademarks are to be used for the G benefit of the business of Hero Elegant : the business of the group being H H defined as the business of establishing, managing and operating I Japanese-style chain restaurants and related business using the Service I Marks (see clause 2.1). The defendant could not, he submitted, utilise the J J trademarks in order to open new Itamae Sushi restaurants for his own K benefit. K L L 74. For these reasons, Mr Shieh SC submitted that the dispute M between the parties concerning the competing trademark applications was M nothing but a red herring and that it did not matter which other party N N prevailed in the trademark dispute. He maintained that the normal O incidents of trademark law would determine whether the defendant or the O plaintiff was entitled to registration. If the defendant were to prevail in P P those proceedings, then he would be obliged to use the trademarks only for Q the purpose of Hero Elegant’s business and to grant exclusive licenses Q pursuant to clause 14.5 in respect of new restaurants utilising the Service R R Marks for so long as the plaintiff remained a shareholder. If the plaintiff S S were to prevail in those proceedings, it would likewise be obliged to use T the trademarks for the purpose of the business of Hero Elegant. T U U V V 由此 - 21 - A A 75. It was Mr Shieh SC’s submission that it would only be when B B the plaintiff ceased to be a shareholder of Hero Elegant that any issue as to C the defendant’s entitlement to unqualified trademark rights would arise. C At that time, which has not been reached since the plaintiff wants to D D continue with its participation in Hero Elegant, he maintained that the E matter would be adequately dealt with by implying an obligation on the E plaintiff to procure the transfer of the trademarks to the defendant. F F G 76. In my judgment, the question of whether there is an implied G term of the nature contended for by the defendant does give rise to a triable H H issue. It is reasonably arguable, in my view, that the underlying premise I of the Hero Elegant Agreement was that the Itamae Sushi service marks I should be registered in the name of the defendant. The definition of J J Service Marks in clause 1.1 of the Hero Elegant Agreement is plainly K drafted on that basis. Similarly, the structure of the provisions relating to K the conduct of business in clause 14 are all consistently drafted on the L L basis that the defendant would be the owner of the trademarks and would M grant licences to the companies operating the restaurants to use those M trademarks. N N O 77. It is not necessary for the defendant to show that he will O prevail on this issue at trial: at this stage all that is necessary is that the P P defendant show that the issue is arguable (see paragraph 51 above). Q Q 78. On the footing that the term contended for by the defendant is R R to be implied in the Hero Elegant Agreement, there can be no real dispute S that it is at least arguable on the facts that the plaintiff was in breach of that S implied term. The plaintiff has at no time withdrawn or discontinued its T T U U V V 由此 - 22 - A A application made on 9 August 2006 to register the Itamae Sushi service B B marks. Instead, on 19 January 2007, the plaintiff assigned its trademark C applications to Jason Poon and in turn, on 28 May 2007, Jason Poon C executed a declaration of trust in favour of the plaintiff in respect of the D D pending trademark applications. E E 79. The fact that Jason Poon has made an open offer by letter F F dated 26 August 2009 to withdraw his pending trademark applications, on G certain conditions, does not detract from the fact that, as at the date when G the defendant asserts he accepted the plaintiff’s repudiatory breach, the H H plaintiff was maintaining an application for registration of the trademarks I inconsistent with the implied term. I J J 80. It is therefore necessary to consider if there is a triable issue K as to whether the defendant has duly accepted any repudiatory breach on K the part of the plaintiff. L L M 81. For its part, the plaintiff maintains that the Hero Elegant M Agreement has not been duly terminated by the defendant. It relies on N N two arguments for the purposes of this summary judgment application: the O first is that an acceptance of any repudiatory breach was required to be O given in writing pursuant to clause 20.1 of the Hero Elegant Agreement P P and that, since the acceptance of the repudiatory breach relied upon is Q purely oral, there can have been no proper termination of the agreement; Q the second argument is that, on the evidence before the court, the asserted R R defence that the defendant terminated the agreement by reason of the S alleged repudiatory breach is not capable of belief and therefore does not S T T U U V V 由此 - 23 - A A give rise to a triable issue. I shall deal with each of these two questions in B B turn. C C 82. Clause 20.1 of the Hero Elegant Agreement, under the D D heading “Notices”, provides as follows :- E E “Any notice claim, demand, court process, document or other communication to be given under this Agreement (collectively F ‘communication’ in this Clause) shall, subject to any F requirements under the applicable laws, be in writing in the English language and may be served or given personally or sent G G to the address or facsimile number (if any) of the relevant party and marked for the attention and/or copied to such other person H as specified in Clause 20.4.” H I I 83. Mr Shieh SC submitted that clause 20.1 was worded J sufficiently widely to be able to capture a communication of an acceptance J of a repudiatory breach. He contended that whatever the term “other K K communication” means, it must include notice of a party’s intention to L terminate the contract. He argued that the rationale of a clause like L clause 20.1 was precisely to obviate any argument that in an oral M M confrontation a party had called off the agreement. N N 84. Ms Audrey Eu SC, leading counsel for the defendant, O O submitted, on the other hand, that a clause of the nature of clause 20.1 was P a common term in written agreements, the function of which was merely to P inform the parties of the formalities for serving notice. She submitted Q Q that it could not override the general law relating to the termination of the R contract. She relied in this context on the proposition that an act of R acceptance of a repudiation requires no particular form : see Chitty on S S Contracts (30th Ed.) Vol. 1 at §24-013 and Vitol SA v. Norelf Ltd [1996] T AC 800 at 810-811. T U U V V 由此 - 24 - A A 85. Ms Eu SC also submitted that clause 20.1 plainly served the B B purpose of stipulating the manner in which notices required to be given C under various other clauses in the Hero Elegant Agreement (for example, C under clauses 5.3, 8.1, 13.2, 13.3(b), 13.5, 19.1 and 20.5) should be given. D D It was not, she submitted, the intention of clause 20.1 to override the E general law as regards the termination of a contract. E F F 86. I think Ms Eu is correct in her submission that clause 20.1 G does not have the effect contended for by the plaintiff. I do not regard the G phrase “under this Agreement” in clause 20.1 as obviously relating to the H H acceptance of a repudiatory breach. In any event, the issue is at least I arguable. For the purposes of this summary judgment application, that I J conclusion is sufficient to answer a point on which, if the plaintiff were to J have succeeded, would amount to a complete answer to the defendant’s K K contention that he had lawfully terminated the Hero Elegant Agreement by L accepting the plaintiff’s repudiatory breach of it.” L M M 87. This leaves the plaintiff’s argument that, in any event, the N evidence as to the termination of the agreement is simply not capable of N belief. The crux of the defendant’s evidence is contained in paragraph 34 O O of his affirmation. After having described his discovery that the plaintiff P had made an application for the registration of the trademarks and his P confrontation with Jason Poon in December 2006, the defendant there Q Q states : R R “Therefore, at that occasion I called off the Hero Elegant Agreement and told Jason Poon on behalf of the Plaintiff that S since he refuses to rectify the breaches I will treat myself as S relieved from the Hero Elegant Agreement. In addition to T Mr. Leung Sai Ming also known as Gary Leung, Mr. Eugene T Wong, Mr. Francis Chan, Miss Daisy Poon and Mr. Shigemitsu U U V V 由此 - 25 - A A Katsuaki also heard me say so. I am advised and verily believe B that the Hero Elegant Agreement was thereby rescinded or B alternatively terminated.” C C 88. Mr Shieh SC made a number of submissions in respect of the D D defendant’s evidence in advancing the submission that it was inherently E incredible. E F F 89. First, Mr Shieh SC submitted that none of the persons alleged G to have been present at the meeting, including the defendant’s solicitor, G Gary Leung, has come forward to corroborate the defendant’s story. In H H response to that submission the defendant issued a summons on 8 April I 2010 seeking leave to file and serve an affirmation of Mr Leung Sai Ming I in which he confirmed he was present at the confrontation between the J J defendant and Jason Poon and that he witnessed the defendant calling off K the Hero Elegant Agreement when Jason Poon refused to withdraw his K trademark applications. L L M 90. Mr Shieh SC was content for me to read the affirmation of M Mr Leung de bene esse but maintained that the defendant should not be N N given leave to file it. I do not regard the affirmation as adding materially O to the strength of the defendant’s case. The timing of the preparation of O this affirmation, in response to a submission in the skeleton argument for P P the plaintiff, robs the affirmation of much of its force. In the light of the Q plaintiff’s objection, the lateness of the application and the fact that I do Q R not regard the content of the affirmation as materially helpful to the R defendant, I decline to exercise my discretion to grant leave to the S S defendant to file and serve it. It follows that I dismiss the defendant’s T summons dated 8 April 2010 with costs to the plaintiff. T U U V V 由此 - 26 - A A 91. However, I do not regard the absence of evidence from any of B B the other persons said to have been present at the confrontation in C December 2006 as being fatal to the defendant’s assertion that he called off C the agreement at that time. The credibility of evidence does not depend D D upon the number of witnesses giving any particular account of events but E rather on the inherent probabilities of the evidence itself. The same point E Mr Shieh SC makes as to the absence of corroboration from Mr Leung F F could equally be made by Ms Eu SC in respect of the absence of contrary G corroborating evidence from Daisy Poon for the plaintiff. G H H 92. Secondly, it was submitted that, if the confrontation and I calling off took place in the circumstances alleged, it is inconceivable that I the defendant’s solicitor, Gary Leung, would not have followed this up in J J writing. K K 93. Thirdly, it was submitted that the defendant has not been able L L to produce any contemporaneous document consistent with his having M called off the agreement in December 2006. M N N 94. The absence of any written confirmation of the calling off of O the Hero Elegant Agreement is a factor which does call the defendant’s O assertion into serious question. There was justification in Mr Shieh SC’s P P observation that the evidence demonstrates that the defendant is not an Q unsophisticated person. On the contrary, he appears to be an experienced Q businessman. The defendant had the benefit of legal advice in relation to R R the Hero Elegant Agreement and there is some force in the submission that, S in those circumstances, the defendant would be likely to consult his S lawyers, who in turn would most likely advise him to record his T T U U V V 由此 - 27 - A A termination of the agreement on the grounds of the plaintiff’s repudiatory B B breach in writing. C C 95. However, it is important to bear in mind that, at the summary D D judgment stage, all that the defendant needs to show is that his case is E capable of being believed, not that it will be believed at trial. It is not for E me to rule out a defence simply because I think the defence would not be F F believed by a trial judge because of some inherent weaknesses. G G 96. What is incontrovertible is that it is plainly arguable that the H H Hero Elegant Agreement contemplated that the defendant would be the I registered owner of the trademarks. Instead, shortly before the agreement I was signed, the plaintiff made his own application to register those J J trademarks. Even if that application was made in ignorance of the terms K of the Hero Elegant Agreement (since it had yet to be executed), there is K no suggestion that the plaintiff disclosed the fact of his application to the L L defendant at the time the agreement was signed or that he took any steps to M withdraw his application to enable the defendant to proceed with his M registration for application of the trademarks. N N O 97. So far as the defendant’s own evidence is concerned, he has O deposed to the fact that he was completely and utterly surprised when he P P discovered that the plaintiff had already applied to register the trademarks. Q In those circumstances, I do not think it can be said that the defendant’s Q evidence that he had lost all trust in the defendant and wished to call off R R the agreement is not capable of belief. That reaction is one which is S eminently within the band of likely responses to the plaintiff’s actions by a S T T U U V V 由此 - 28 - A A person in the defendant’s position believing himself to be entitled to be the B B registered owner of the trademarks. C C 98. Fourthly, Mr Shieh SC submitted that it was instructive to D D note that, in his affirmation made on 26 February 2009 in the trademark E proceedings, the defendant alleged that his legal advisers had been E informed by the Trade Mark Registry about the plaintiff’s application but F F did not say anything about the alleged meeting in December 2006 at which G he allegedly called off the agreement. G H H 99. Whilst this point provides some support for the plaintiff’s I submission that the defendant’s evidence should not be believed, I do not I think the point is so strong as to deprive the defendant’s evidence of the J J capacity of being believable. The affirmation in question was prepared K for a particular purpose, not related to the dispute concerning the Hero K Elegant Agreement itself, and this may explain the omission of a statement L L that the defendant called off the agreement at this time. M M 100. It is certainly clear that the defendant no longer considered N N himself bound by the Hero Elegant Agreement from December 2006 O onwards. The plaintiff pointed to the fact that the defendant proceeded to O open the fourth and fifth Itamae Sushi restaurants even after the agreement P P had been signed but before his discovery of the alleged repudiatory breach Q of that agreement by the plaintiff. Again, whilst this will be a fertile Q matter for cross-examination at a trial, I do not think this fact on its own R R demonstrates that the defendant’s case is wholly unbelievable. The S chronology of events is such that it is possible the defendant was intending S to arrange the affairs of the fourth and fifth restaurants in accordance with T T U U V V 由此 - 29 - A A the terms of the Hero Elegant Agreement and that events simply overtook B B his intentions. Whether this is in fact the case can only properly be C decided after hearing cross-examination. C D D 101. Finally, Mr Shieh SC relied upon the fact that in a series of E e-mails in February and March 2007 there were communications in which E the defendant is recorded as having made proposals on the basis that the F F Hero Elegant Agreement was still on foot. G G 102. No explanation for these e-mails has been provided by the H H defendant. On the other hand, the evidence is not directly from the I defendant himself but is second-hand material reporting what the I defendant is alleged to have said. Having reflected on the contents of the J J e-mails, I am in agreement with Ms Eu SC that it will be necessary to hear K evidence on them in order to determine their true effect. K L L 103. At the end of the day, whilst the evidence concerning the M defendant’s alleged calling off of the Hero Elegant Agreement is certainly M not strong, I am persuaded that he has done enough to raise a triable issue N N in respect of the repudiatory breach defence. O O Other considerations P P 104. For the sake of completeness, I record that Ms Eu SC also Q Q argued that it would be inappropriate for the court to grant summary R judgment for the agreement to be specifically performed by reason of the R doctrine of laches and on the basis that the plaintiff did not have clean S S hands. T T U U V V 由此 - 30 - A A 105. On the issue of laches, I agree with Mr Shieh SC that this only B B arises as a triable issue in the event the defendant makes good its allegation C of having called off the agreement in December 2006. But on that basis, C as he observed, the defendant would be granted leave to defend in any D D event. It was the plaintiff’s case that it only discovered the defendant’s E failure to incorporate the holding company in about June 2008 shortly E before the issue of the writ. F F G 106. As for the issue of clean hands, I do not think that this G argument on its own would have been sufficient to entitle the defendant to H H leave to defend. However, as I have concluded that there is a triable issue I in respect of the repudiatory breach defence, I need say no more on this I argument. J J K 107. I would, however, observe that the claim being one for K specific performance, I would have been reluctant to enter summary L L judgment for that equitable remedy in the face of a factual background M which plainly showed the two principal parties behind the agreement to M have lost mutual trust. Specific performance is a discretionary remedy N N and whether or not the court should exercise its discretion to grant that O remedy rather than to leave the parties to their alternative remedy in O damages, is a question which, on the facts of this case, I consider ought P P properly to be left to trial. Q Q 108. I would also add that I have reflected on the question of R R whether this might be an appropriate case for conditional leave to defend S to be given in view of the persuasive submissions made by Mr Shieh SC to S the effect that the defendant’s evidence was not credible. However, I T T U U V V 由此 - 31 - A A have ultimately come to the conclusion that the defendant has shown B B enough to demonstrate a triable issue and, in those circumstances, the right C disposition of the application is to grant unconditional leave to defend. In C any event, in an application under Order 86, it is, as noted in Hong Kong D D Civil Procedure 2010 (Vol. 1) at Note 86/4/1 (on p. 1390), unusual for E conditional leave to defend to be given in claims for specific performance. E F F 109. A further point to record is that, in the minutes of order setting G out the judgment sought by the plaintiff, the plaintiff sought an account of G the profits made by the companies operating the respective Itamae Sushi H H and Itacho Sushi restaurants since April 2004. The defendant objected to I this period of account, since it related to a period of more than two years I before the date of the agreement for which specific performance was being J J sought. In the face of this objection, Mr Shieh SC accepted for the K purposes of this summary judgment application that the period of account K sought should be limited to the period since the date of the Hero Elegant L L Agreement (namely 16 September 2006) with the claim for an account of M profits for any earlier period being left to trial. M N N 110. Similarly, I do not think it appropriate that the plaintiff’s O claim that the shares in the companies operating the Itacho Sushi O restaurants be transferred to a holding company pursuant to the Hero P P Elegant Agreement should be determined on a summary basis. I would Q not, therefore, have granted paragraph 4(b) of the plaintiff’s minutes of Q order on a summary basis in any event. R R S S T T U U V V 由此 - 32 - A A Disposition and costs B B 111. It was contended in the defendant’s skeleton argument that the C C summons should be dismissed since it was clear from the Amended D Defence and the defendant’s affirmation evidence that there were triable D issues. However, as I have noted above (see paragraph 71), the implied E E term on which the repudiatory breach defence is based was only lately F disclosed in the defendant’s affirmation and does not appear in the F Amended Defence. I therefore do not think it right to dismiss the G G summons but instead, for the reasons set out above, I consider that the H appropriate order on the plaintiff’s summons under Order 86, rule 1 is that H the defendant should be granted unconditional leave to defend. I I J 112. I make an order nisi that the costs of the plaintiff’s summons J be costs in the cause with a certificate for two counsel. K K L 113. I grant liberty to both parties to apply in the event they wish L any further case management directions in relation to the further conduct M M of this matter. N N 114. As noted in paragraph 90 above, I dismiss the defendant’s O O summons to serve and file the affirmation of Mr Leung with costs to the P plaintiff. P Q Q R R S ( Joseph Fok ) S Judge of the Court of First Instance T High Court T U U V V 由此 - 33 - A A Mr Paul Shieh, SC and Ms Linda Chan, instructed by B Messrs T.H. Koo & Associates, for the Plaintiff B C Ms Audrey Eu, SC and Mr Jeremy S.K. Chan, instructed by C Messrs Tang, Lai & Leung, for the Defendant D D E E F F G G H H I I J J K K L L M M N N O O P P Q Q R R S S T T U U V V